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, 1998
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)
8001 DeSoto Woods Drive; Sarasota, Florida, 34243 (Address of
principal executive offices including zip code)
(561) 998-3435 (Registrant's telephone number)
Securities registered under Section 12(b) of the Act: None
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 [x] No[_]
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: [ ]
State Registrant's revenues for its most recent fiscal year: $162,395. As a
material subsequent event the Registrant has divested itself of the revenue
producing assets. See Item 1, Business, pages 4-5 of this 10-KSB and also
footnote 9 of the financials.
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: $ 325,671, based on the average bid and asked price of $0.375 as of April
30, 1999, there being 868,457 shares of common stock held by persons other than
officers, directors or control persons of the Registrant on such date.
State the number of shares outstanding of each of the Registrant's classes
of equity, as of the latest practicable date: 5,991,148 shares of common stock,
as of April 30, 1999.
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TABLE OF CONTENTS
Item Page
Number Number Item Caption
Part I
Item 1. 4 Description of Business
Item 2. 14 Description of Property
Item 3. 15 Legal Proceedings.
Item 4. 15 Submission of Matters to a Vote of Security Holders
Part II
Item 5. 16 Market for Common Equity and Related Stockholder
Matters.
Item 6 19 Management's Discussion and Analysis of Financial
Condition and Results of Operations or Plan of
Operation
Item 7. 22 Financial Statements
Item 8. 54 Changes in and Disagreements with Accountants
Part III
Item 9. 56 Directors, Executive Officers, Promoters and control
Persons; Compliance with Section 16(a) of the
Securities Exchange Act of 1934, as amended.
Item 10. 64 Executive Compensation
Item 11. 69 Security Ownership of Certain Beneficial Owners and
Management
Item 12. 73 Certain Relationships and Related Transactions
Item 13. 80 Exhibits, Financial Statements & Reports on Form 8-K
(index)
84 Signatures
86-184 Exhibits and Additional Information
This report includes materials incorporated by reference to the following
previously filed reports or registration statements, as permitted by Exchange
Act Rule 12b-23:
1. Items 1, 2, 3, 8 and 12, from the report on Form 10-KSB for period ended
December 31, 1997.
2. Part II of the Registrant's quarterly report on Form 10-QSB for the calendar
quarter ended September 30, 1998.
3. Items 2, and 4, from the report on Form 8-KSB, dated March 5, 1999.
4. Item 4, from the report on Form 8-KSB/A, dated April 2, 1999.
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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.
FORWARD LOOKING STATEMENTS
This Annual Report and Form 10-KSB contains certain "forward-looking
statements" relating to the Registrant which represent the Registrant's current
expectations or beliefs, including, but not limited to, statements concerning
the Registrant's operations, performance, financial condition and growth. For
this purpose, any statements contained in this Annual Report and Form 10-KSB
that are not statements of historical fact are forward-looking statements.
Without limiting the generality of the foregoing, words such as "may", "will",
"expect", "believe", "anticipate", "intend", "could", "estimate", or "continue",
or the negative or other variation thereof or comparable terminology are
intended to identify forward-looking statements. These statements by their
nature involve substantial risks and uncertainties, such as credit losses,
dependence on management and key personnel and variability of quarterly results,
ability of the Registrant to continue its growth strategy and competition,
certain of which are beyond the Registrant's control. Should one or more of
these risks or uncertainties materialize or should the underlying assumptions
prove incorrect, actual outcomes and results could differ materially from those
indicated in the forward looking statements.
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PART I
ITEM 1. BUSINESS
GENERAL
The response to this item is incorporated by reference to the comparable
item in the Registrant's report on Form 10-KSB for the year ended December 31,
1997, supplemented by the Response to Part II of the Registrant's quarterly
report on Form 10-QSB for the calendar quarter ended September 30, 1998, as
permitted by Rule 12b-23 promulgated under authority of the Securities Exchange
Act of 1934, as amended (the "Exchange Act" and "Rule 12b-23," respectively).
DISCONTINUED OPERATIONS
As a material subsequent event, on March 22, 1999, the Registrant's former
president, Edward Granville-Smith, Jr., on his behalf and on behalf of the
Granville-Smith Trust dated August 13, 1976, First Ken Co Properties, Inc., a
dissolved Delaware corporation, K. Walker International, LTD., (a/k/a K. Walker,
LTD), a Bahamian corporation, Milpitas Investors, Inc., a Delaware corporation,
the Milpitas Investors, Inc. Trust, and for Equity Growth Systems, Inc., a
dissolved Maryland Corporation, (not to be confused with the Registrant),
rescinded by agreement all agreements between them and the Registrant including
those pursuant to which the Registrant acquired real estate related operations
that have, for the past three years, constituted the bulk of its operations; all
employment, consulting and creditor agreements involving such persons, all as
described in the Registrant's reports on Forms 10-KSB, 10-QSB and 8-KSB filed
during 1996, 1997 and 1998. A copy of the Settlement Agreement is filed as an
exhibit to this report (see "Item 13 Exhibit Index").
In conjunction with the Granville-Smith, Jr. Settlement Agreement, Mr.
Jerry C. Spellman, on his own behalf and on behalf of Bolina Trading Company,
S.A., a Panamanian corporation, also known as Bolina Trading Company, a
Panamanian Corporation, and Bolena Trading Corporation, S.A., a Panamanian
Corporation, and the WEFT Trust signed and executed for the protection of the
Registrant a general release, releasing the Registrant from, "all causes of
action, suits, debts, accounts, liabilities, contracts, controversies,
agreements, promises, damages, judgments, executions, claims and demands
whatsoever, known or unknown, in law or in equity, which any of the Spellman
Parties, individually or collectively have ever had, now has, or which any
personal representative, successor, heir, affiliates, directors, officers,
advisors, agents, successors or assign of the Spellman Parties individually or
collectively hereafter can, shall or may have, against the Registrant, for upon
or by reason of any matter, cause or thing whatsoever, from the beginning of
time to present." A copy of the Spellman General Release is filed as an exhibit
to this report (see "Item 13 - Exhibit Index").
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As a result of such recission, Messrs. Granville-Smith and Spellman now own
virtually all of the Registrant's assets held as of December 31, 1998, but are
responsible for all liabilities associated with those assets. The Registrant's
current management hoped that Messrs. Granville-Smith and Spellman would arrive
at a more favorable solution to the Registrant's problems occasioned by Mr.
Granville-Smith's illness which precluded his continued leadership of the
Registrant, however, in light of the mental, physical and financial strains
occasioned to Mr. Granville-Smith by his current medical problems, he felt
compelled to place his personal interests ahead of those of the Registrant and
the newly elected members of the Registrant's Board of Directors decided that,
having no better options, it would be in the best interests of the Registrant
and its stockholders to eliminate liabilities in order to make the Registrant a
more attractive acquisition candidate or otherwise associated business
participant. Consequently, the Registrant is no longer involved in the business
described in the incorporated reports and has returned all assets associated
therewith to the foregoing persons and entities (see Item 7 Financial
Statements).
NEW STRATEGIC PLANS & CHANGE OF CONTROL
When Mr. Granville-Smith realized that his health would not permit him to
implement the business plans and decisions which constituted materially all of
the Registrant's business, he arranged for the Registrant to retain the Yankee
Companies, Inc., a Florida corporation ("Yankees") to recruit a new group of
directors and to assist them in development and implementation of new strategic
plans. A copy of the agreement with Yankees was filed with the Commission as an
exhibit and is discussed in Part II of the Registrant's quarterly report on Form
10-QSB for the calendar quarter ended September 30, 1998, the details of which
are incorporated by reference herein as permitted by SEC Rule 12b-23.
Yankees has suggested that the Registrant's activities be divided into
three different areas. The first recommendation dealt with the former real
estate operations and consequently, is no longer relevant. The second
recommendation was that the Registrant's new management and directors provide
consulting services to third parties that desire to attain public trading status
by assisting them in preparation of 33 Act Registration Statements and
registrations on Securities and Exchange Commission Forms 10 and 10-SB in
exchange for securities to be distributed directly by the client issuer to the
Registrant's stockholders. The third recommendation was that the Registrant
acquire operating companies that could benefit from the Registrant's public
trading status and from the experience of the Registrant's Directors even if
such transactions resulted in a change of control.
PRINCIPAL PRODUCTS OR SERVICES AND THEIR MARKETS
Current Consulting Activities
In response to Yankees' suggestions, the Registrant's Board of Directors
has authorized its officers to negotiate consulting agreements with private
companies that desire to avail themselves of the experience of the Registrant's
officers and directors to attain reporting company status under the Exchange
Act. Such assistance is expected to involve recruitment and supervision of
professional advisors (e.g., attorneys, auditors, investment bankers, transfer
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agents, officers and directors, etc.) required by the client corporation to
properly register their securities with the Securities and Exchange Commission
(the "Commission") under both the Securities Act of 1933, as amended (the
"Securities Act") and the Exchange Act, and thereafter, to initiate trading in
their securities in the over the counter market, all in consideration for the
registration and issuance of a set percentage of the client corporations' common
stock directly to the Registrant's stockholders, at the expense of the client
corporation. The percentage of securities to be issued to the Registrant's
stockholders after registration with the Commission is expected to vary from
case to case based on the Registrant's bargaining power but is expected to
range between 10% and 15% of the client corporation's common stock.
The Registrant previously filed copies of draft consulting agreements with
a number of potential clients as exhibits to a report of current event on Form
8-KSB filed on March 5, 1999. As of the date of this report, only one consulting
agreement has been signed (May 7, 1999), that being with FundsAmerica Finance
Corporation, a recently organized Florida corporation that intends to operate as
a retail finance company concentrating on refinancing mobile homes
("FundsAmerica") and believes that reporting company status will be of material
assistance to permit it to package and resell portfolios of loans originated by
it. The Registrant will have no involvement in any operations of such
corporation, other than in providing the assistance described above and
consequently makes no predictions as to the ultimate value of the securities to
be distributed to the Registrant's stockholders after they are registered with
the Commission. Based on the terms of the consulting agreement with Funds
America, the Registrant's stockholders of record as of June 5, 1999, will, after
registration of the subject shares with the Commission, receive 10% of
FundsAmerica outstanding common stock, measured as of the conclusion of such
distribution, on a pro rata basis based on their holdings of the Registrant's
common stock on such date. The Registrant and FundsAmerica have agreed that the
reasonable value of such common stock, in the aggregate, is the lesser of
$50,000 or 10% of stockholders' equity of FundsAmerica, determined in accordance
with generally accepted accounting principals, consistently applied ("GAAP"). As
of the date of this report, the Registrant has not determined the tax
consequences of the anticipated distribution of FundsAmerica securities to its
stockholders; except that, in the aggregate, it should not exceed the agreed
upon valuation. A copy of the FundsAmerica Consulting Agreement is filed as an
exhibit to this report (see "Item 13- Exhibit Index").
Of the four corporations originally reported by the Registrant as being
involved in negotiations for consulting arrangements, two appear to have lost
interest: Golden Jersey Products, Inc. and Cental Communications Group, Inc.;
one has put the project on hold until it can obtain better terms from potential
professional advisors (the Gaff Group, Inc.); and the last one, Sports
Collectible Exchange, Inc., a recently organized Florida corporation controlled
by the Registrant's general counsel, has indicated a firm intention to proceed
subject to development of its web site and valuation of its inventory.
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The Gaff Group, Inc., is headquartered at 2698 Juniper Avenue, Suite 110;
Long Beach, California 90806-2145. Its telephone number is (562) 989-3820, its
fax number is (562) 492-6533 and its e-mail address is [email protected]. The
Gaff Group is a general contractor servicing Fortune 500 Companies and is
engaged in a variety of real estate development, consulting and marketing
projects, principally in the States of Florida and California.
Sports Collectible Exchange, Inc., was recently organized as a Florida
corporation ("SCE") by G. Richard Chamberlin, Esquire, the Registrant's
secretary, general counsel and a member of its Board of Directors, and maintains
temporary offices at 14950 Southeast United States Highway 441; Summerfield,
Florida 34491. Its telephone number is (352) 694-6714; its fax number is (352)
694-9178; and, its current e-mail address is [email protected]. SCE has been
organized to engage in a number of collectible areas including an inventory of
minor league collectibles that is expected to be appraised prior to June
20,1999, by either Gulf Coast Minors, of Sarasota, Florida, or Steve Weitlauf,
former owner of Bleacher Bums a baseball card shop, Belleview, Florida. The
appraisal will be based on both wholesale and probable retail value. SCE's
management has advised the Registrant's management that it believes that the
wholesale appraisal will be in the range of $40,000 to $100,000, based on it's
experience with minor league baseball collectibles. SCE intends to develop an
Internet web site to market minor league baseball collectibles, including its
current inventory, to operate such site with an initial emphasis on minor league
baseball collectibles in a manner similar to that currently used to trade
securities over the Internet, permitting transactions in its own inventory,
purchase of inventory from third parties and facilitation of transactions
between third parties for a small fee (expected to be a percentage of the
transaction). SCE also intends to develop a minor league collectibles appraisal
certification program and to establish a minor league hall of fame.
Current Acquisition Activities
Atlanta Lending Services, Inc.
The Registrant previously elected to disclose that it was discussing a
potential reorganization with Atlanta Lending Services, Inc., a Georgia
corporation doing business as Global Acceptance Corp. and its affiliates
("Global"). Global is an eight year old diversified finance company and
automobile dealership with more than $44,000,000 in sales during calendar year
1998. Global's current address is 1686 Roswell Road; Marietta, Georgia 30062,
its current telephone number is 800-499-9112, its current fax number is
800-863-7927 and for its current e-mail please see the website address listed
below. Mr. Jack Smith is the current president of Global, and Mr. Rob Smith owns
the majority of Global's common stock.
The reorganization, if effected as initially contemplated by the
Registrant, would result in Global (including affiliated automobile dealerships)
becoming subsidiaries of the Registrant with Global's current stockholders being
issued a majority of the Registrant's outstanding securities and their designees
being elected to a majority of the seats on the Registrant's Board of Directors,
which would probably be increased to eleven members. Information concerning
Global is maintained on its web site at www.GlobalAcceptance.com. The Registrant
has not verified any of Global's information as negotiations have not progressed
since they were initially reported because, as a privately held group of
companies, Global had not organized its records in a manner appropriate to a
publicly held entity and requires substantial legal and auditing work to bring
its records up to acceptable securities laws standards. No assurances can be
provided that any reorganization with Global will take place and the Registrant
has no commitment with Global that restricts either parties' right to seek
reorganization partners elsewhere. In the event that the acquisition of American
Internet Technical Center, Inc. described below is effected, the proposed terms
for an acquisition of Global would have to materially change.
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American Internet Technical Center, Inc.
On May 21, 1999, the Registrant signed a letter of intent to acquire at
least 90% of the capital stock of American Internet Technical Center, Inc., a
Nevada corporation ("American Internet") with approximately 60 stockholders,
which, during 1999, acquired through American Internet Technical Center, Inc., a
Florida corporation. American Internet's address is 440 East Sample Road;
Pompano, Florida 33056, its telephone and fax numbers are (954) 943-4748 and
(954) 943-4046, respectively. Its web site address is www.aitc.net.
The acquisition, if effected as contemplated by the letter of intent, would
require the Registrant, to exchange at least 2,250,000 shares of its common
stock with the current holders of 90% of American Internet's capital stock for
all of their shares of capital stock in American Internet, and further:
1. Would require the Registrant to acquire the remaining 10% of American
Internet's capital stock, if the holders desired to exchange their stock
for an aggregate of an additional 250,000 shares of the Registrant's common
stock, subject to the availability of exemptions from registration under
applicable state and federal securities laws; and
2. Would require the Registrant to raise up to $250,000 in funds for expansion
of American Internet's operations, within 90 days following its
acquisition;
3. Would require the Registrant to issue up to 4,500,000 additional shares of
its common stock to the former stockholders of American Internet predicated
on American Internet's attaining the following annual net, pre-tax profit
thresholds determined as of December 31 of each year in accordance with
generally accepted accounting principals, consistently applied ("GAAP"), as
follows:
A. Goal Time Frame Stock Bonus
$200,000 1999 500,000 Shares
$500,000 2000 800,000 Shares
$1,000,000 2001 800,000 Shares
$1,5000,000 2002 800,000 Shares
$2,000,000 2003 800,000 Shares
$2,500,000 2004 800,000 Shares
B. In the event that the thresholds were not attained and the Registrant
had provided American Internet with $250,000 in funding for its
operations within 90 days following closing on the acquisition thereof
then:
1. If the net, pre tax earnings were less than 33% of the required
threshold during the subject 12 month period, the stock bonus for
such period would be forfeited;
2. If the net, pre tax earnings were between 33% and 80% of the
required threshold during the subject 12 month period, the stock
bonus for such period and the required threshold would be carried
over to the next year, increasing both the aggregate threshold
and the aggregate bonus attainable for such year; and
3. If the net, pre tax earnings were between 80% and 100% of the
required threshold during the subject 12 month period, the stock
bonus for such period would be prorated.
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C. In the event that the thresholds were not attained but the Registrant
had not provided American Internet with funding for its operations
within 90 days following closing on the Reorganization Agreement,
then, the stock bonus for such period would be prorated.
Information concerning American Internet is maintained on its web site and
some information has been provided to the Registrant in the form of a private
placement memorandum (the "Memorandum") dated January 15, 1999, prepared for use
in a limited offering to less than five subscribers. The Registrant has not yet
verified information concerning American Internet, but, in the event that a
formal reorganization agreement is successfully negotiated, the Registrant will
be conducting substantial due diligence investigations prior to closing thereon
and will use such information to prepare a report of current event on Form 8-KSB
which must be filed within ten days following such closing, except for related
certified financial statements, which must be filed by amendment within 60 days
after the initial filing of the Form 8-KSB. Subject to the foregoing
qualification, the following summary data extracted from the Memorandum provides
a description of American Internet's history and business. A copy of the
Memorandum is filed as an exhibit to this Report (see Item 13, Exhibit Index).
Background
During April of 1999, American Internet was acquired by a Nevada
corporation, as its sale asset. For purposes of the following discussion,
"American Internet" refers to the Florida subsidiary.
American Internet was organized as a Florida corporation on April 15, 1998,
for the purposes of providing Internet services, including but not limited to,
web design, hosting, marketing and training. American Internet began by offering
free web sites for small and medium sized businesses. Web sites are designed
with the assistance of senior webmaster students as part of their graduation
requirements, with other students performing routine functions as part of their
educational requirements. In return, clients are required to use American
Internet hosting services for their new web sites. In the first nine months of
operations, American Internet acquired approximately 1,175 clients, averaging
130 new clients per month.
Online Instruction
American Internet offers a total of 62 different on-line courses, all of
which feature web-based delivery and administration. Students can take courses
from their own home or business. Requirements for most courses are a computer,
Internet access, e-mail and Netscape or Internet Explorer browser. Lessons for
each course/ syllabus are usually delivered twice weekly either by e-mail or on
the web itself. An instructor conducts each course. Interaction with instructors
and other students is conducted in special chat room environments. The courses
currently offered include:
1. A total of fourteen different computer courses of study, averaging 12
lessons per course over a six week period, at a cost of $95.00 per course.
2. A total of eight different courses on how to navigate the Internet, create
a web page or master the art of Web programming, averaging 12 lessons per
course over a six week period, at a cost of $95.00 per course.
3. A total of eleven business courses involving how best to plan, start,
finance and market small to medium sized businesses, with varying numbers
of lessons per course, at an average course price of $135.00.
4. A total of 23 management courses dealing with how to improve job skills by
mastering the fundamentals of supervision, communication, motivation,
conflict resolution, and inventory and project management, with varying
numbers of lessons per course, at an average course price of $195.00.
5. Six other courses deal with how to prepare for an upcoming test, enhance
your medical skills, or chart a new career path, with varying numbers of
lessons per course, at an average course price of $275.00.
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Market Analysis
American Internet's primary markets are small and new businesses throughout
the United States and Canada. American Internet designs web sites, hosts web
sites, and provides e-commerce programs, marketing and other Internet services.
American Internet also offers on line instructional programs in computer
technology, web design, management and other fields. All courses are conducted
on the Web where students can acquire new skills from the comfort of their own
home.
American Internet's marketing strategy has been focused around advertising
in local newspapers, direct mail (including postcards and card decks),
telemarketing and the Internet. American Internet maintains its own informative
web site and encourages prospective clients to visit the site where they can
obtain information about American Internet and its services, and can preview
approximately fifteen actual sites of American Internet's clients. Sales
activities involve responding to inquiries generated by the advertising efforts
of staffers with substantial knowledge of the services and sales skills offered.
A sales representative explains the program and then faxes a six page
informational package, including a contract, to the prospective client. Sales
normally occur within one to five days after initial contact.
Based upon market research and studies, management believes that the demand
for American Internet's Internet services will remain strong. Network Solutions,
which has the government contract to register domain names in the United States,
reports that new registrations are increasing at a significant rate. Each month,
Internic registers more than 100,000 new commercial domain names. In January
1998 there were 30 million computers on the Internet and approximately 70
million users. Internet co-designer, Vinton Cert, estimates that by the year
2000 there will be 200 million computers on the Internet and over 400 million
users. During 1998, it was estimated that sales on the Internet would exceed $4
billion by the year 2000. AOL recently announced that its sales for the ten-day
Christmas period of 1998 alone exceeded $1 billion dollars. Throughout the
United States there are over 100,000 new businesses formed each month. While
many of these businesses commence operations on a limited budget, many are now
aware of the importance of having a web site.
The growth in demand for Internet products and services in the United
States as well as in most other countries outstrips the population growth.
Demand is being fueled by factors such as more awareness of their general
availability, increased advertising and competition by service providers, more
businesses in the target group, the robust economy, the advancements in the
technology sector and public acceptance of resulting changes. While the growth
in the domestic market is expected to continue, overseas markets are showing
much more promise. Demographic information such as rising income levels, higher
education levels and more familiarity with technology are suggesting that
overseas markets may be capable of materially higher growth rates. Although
sales in overseas markets are currently dwarfed by domestic sales, the firms who
sell overseas are experiencing very fast growth rates and management believes
that such growth rates will continue for years to come, possibly resulting in
overseas markets overtaking domestic markets in size.
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American Internet currently receives over 100 inquires per month from
foreign countries, even though it currently conducts business principally in the
United States and Canada. American Internet has conducted test-marketing in
Brazil, one of the larger countries in the world, and the initial findings have
been viewed by management as favorable. Consequently, management is preparing to
intensify marketing strategies and communication links to position American
Internet in the international market as well.
Gross sales during American Internet's first nine months of operation were
approximately $850,000.00 to 1,175 clients. American Internet's marketing
objective is to increase sales to $4,200,000 and increase the number of clients
to 5,000 by the fiscal year ending March 31, 2000. American Internet intends to
experiment with cable television advertising on business networks, such as MSNBC
and other networks, press releases, and outbound telemarketing campaign to new
businesses, opt-in e-mailing and other advertising techniques and methods.
Cautionary Note
A letter of intent, by its terms, is not a binding commitment.
Consequently, no assurances can be provided that the Registrant will acquire
American Internet on the terms currently contemplated, if at all; that even if
it is acquired, its operations will be successful; and, that even if it is
acquired and operates successfully, such success will be reflected in the value
of the Registrant's securities.
A copy of the American Internet letter of intent is included as an exhibit
to this report (see Item 13, Exhibit Index).
OTHER CURRENT ACTIVITIES
The Registrant's management is seeking additional clients and is
negotiating with several prospects. Management has also had discussions with
several currently operating and profitable businesses introduced by Yankees or
by members of the Registrant's management with a view to a future association,
however, no definitive arrangements have been entered into nor can there be any
assurances that definitive arrangements will ever take place.
DISTRIBUTION METHODS OF THE PRODUCTS OR SERVICES
See Part I, Item I: Principal Products or Services and their Markets, of
this report, incorporated by reference herein.
COMPETITION
The Registrant's activities are divided into two different areas. The first
activity is providing consulting services to third parties that desire to attain
public trading status by assisting them in preparation of Securities Act
Registration Statements and registrations on Securities and Exchange Commission
Forms 10 and 10-SB in exchange for securities to be distributed directly by the
client issuer to the Registrant's stockholders. The second is to acquire
operating companies that could benefit from the Registrant's public trading
status and from the experience of the Registrant's Directors even if such
transactions result in a change of control.
Consulting Services
The Registrant competes against a wide variety of consultants and
consulting entities offering services to public companies as well as numerous
individuals and varied entities desiring to provide consulting services to third
parties that desire to attain public trading status by assisting them in
preparation of Forms 10 and 10-SB. However, the Registrant is willing to provide
such services in exchange for securities to be distributed directly by the
client issuer to the Registrant's stockholders rather than in exchange for cash
and this should prove to be a competitive advantage for the Registrant.
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Acquisition of Operating Companies
The second activity involves attempts to acquire operating companies that
could benefit from the Registrant's public trading status and from the
experience of the Registrant's management. There are numerous individuals,
entities and public companies interested in acquisitions most of which are
better capitalized than the Registrant and are able to make acquisitions for
cash or a combination of cash and securities, while the Registrant's sole means
of effecting acquisitions involves exchanges of it's securities and thereafter,
arranging introductions to potential funding sources, which may or may not
provide required capital based on their own analysis of the opportunities
presented. Consequently, no assurances can be provided that the Registrant will
be successful in effecting any acquisitions, or that the terms of any
acquisition will be as favorable as could have been obtained had the Registrant
been better capitalized.
STATUS OF ANY PUBLICLY ANNOUNCED NEW PRODUCT OR SERVICE
The Registrant has no new products or services other than discussed in
this report.
SOURCES AND AVAILABILITY OF RAW MATERIALS AND THE NAMES OF PRINCIPAL
SUPPLIERS
This section is not applicable to this report.
DEPENDENCE ON ONE OR A FEW MAJOR CUSTOMERS.
This section is not applicable to this report.
PATENTS, TRADEMARKS, LICENSES, FRANCHISES, CONCESSIONS, ROYALTY
AGREEMENTS OR LABOR CONTRACTS, INCLUDING DURATION
The Registrant has no patents, trademarks, licenses, franchises,
concessions, royalty agreements or labor contracts.
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NEED FOR ANY GOVERNMENT APPROVAL OF PRINCIPAL PRODUCTS OR SERVICES.
IF GOVERNMENT APPROVAL IS NECESSARY AND THE SMALL BUSINESS ISSUER HAS
NOT YET RECEIVED THAT APPROVAL, DISCUSS THE STATUS OF THE APPROVAL
WITHIN THE GOVERNMENT APPROVAL PROCESS.
This section is not applicable to this report.
EFFECT OF EXISTING OR PROBABLE GOVERNMENTAL REGULATIONS ON THE
BUSINESS
The Registrant does not anticipate unusual consequences to its business as
a result of governmental regulations, other than the fact that, like all other
businesses, it is forced to incur expenses and delays in complying with the many
laws and regulations applicable to all businesses in the United States, and,
that the Registrant may be precluded from making favorable acquisitions because
the acquisition target is unable to provide financial statements meeting
standards imposed by the Securities and Exchange Commission.
ESTIMATE OF THE AMOUNT SPENT DURING EACH OF THE LAST TWO FISCAL YEARS ON
RESEARCH AND DEVELOPMENT ACTIVITIES, AND IF APPLICABLE THE EXTENT TO WHICH THE
COST OF SUCH ACTIVITIES ARE BORNE DIRECTLY BY CUSTOMERS.
This section is not applicable to this report.
COSTS AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS (FEDERAL,
STATE AND LOCAL)
Federal: To the best of management's knowledge, the Registrant will not be
required to directly incur material expenses in conjunction with
environmental regulations. However, like all other companies, there
are many but incalculable indirect expenses associated with compliance
by other entities that affect the prices paid by the Registrant for
goods and services.
State: To the best of management's knowledge, the Registrant will not be
required to directly incur material expenses in conjunction with
environmental regulations at the state level.
Local: To the best of management's knowledge, the Registrant will not be
required to directly incur material expenses in conjunction with
environmental regulations at the local level.
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EMPLOYEES
The Registrant currently has no employees other than its officers and
employs no independent contractors, other than the Yankee Companies, Inc.
Management is of the opinion that should full or part time employees or
independent contractors be needed for any reason they are readily available at
competitive prices.
The Registrant currently operates exclusively through it's presently
constituted officers and directors as well as through it's strategic consultant,
the Yankee Companies, Inc.
ITEM 2. PROPERTIES.
The response to this item is incorporated by reference to the comparable
item in the Registrant's report on Form 10-KSB for the year ended December, 31,
1997, supplemented by the Response to Part II of the Registrant's quarterly
report on Form 10-QSB for the calendar quarter ended September 30, 1998, as
permitted by Rule 12b-23.
As a material subsequent event, the Registrant has divested itself of all
of its investment properties (see response to Item 1 above). It currently uses
executive facilities provided on a shared, rent free basis, by the Registrant's
current president, in Sarasota, Florida, and by the Yankee Companies, Inc., in
Ocala and Boca Raton, Florida.
The addresses, telephone and facsimile numbers available to the Registrant
as described above are as follows:
Sarasota, Florida: 8001 DeSoto Woods Drive; Sarasota, Florida 34243;
telephone number (941) 358-8182 and facsimile number
(941)358-8423; Attention: Charles Scimeca
Ocala, Florida: 1941 Southeast 51st Terrace, Suite 800; Ocala,
Florida 34471; telephone number (352) 694-6714 and
facsimile number (352) 694-9178; Attention: G. Richard
Chamberlin
Boca Raton, Florida: 902 Clint Moore Road, Suite 136; Boca Raton, Florida
33487; telephone number (561) 998-3435 and facsimile
number (561) 998-4635; Attention: Leonard Miles Tucker
The Registrant anticipates that these facilities will be adequate for its
needs unless it effects a material acquisition, in which case it is anticipated
that adequate facilities would be included as a component of such acquisitions.
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ITEM 3. LEGAL PROCEEDINGS.
The response to this item is incorporated by reference to the comparable
item in the Registrant's report on Form 10-KSB for the year ended December 31,
1997, supplemented by the Response to Part II of the Registrant's quarterly
report on Form 10-QSB for the calendar quarter ended September 30, 1998, as
permitted by Rule 12b-23.
As a material subsequent event, in light of the divestitures described in
response to Item 1, no material litigation is currently pending and the only
potential litigation involves possible actions by the Registrant against former
officers and directors who have failed to return securities issued by the
Registrant for services that were not performed or in exchange for assets that
were not delivered, except as follows.
The only litigation to which the Registrant is a party, (which the
Registrant's general counsel does not believe is material) involves a single
small claims matter that is now pending, Couture & Co., Inc. v Equity Growth
Systems, inc. in Pinellas County, Florida, Small Claims Court Division, case
no.99-2206-SC-NPC, filed on April 22,1999. The Plaintiff claims that the
Registrant owes $1,100 for services' rendered in transmitting documents to the
Commssion. The Registrant intends to contest such claim.
POTENTIAL LITIGATION BY THE REGISTRANT
MESSRS. WEISS, MOFFETT AND HOMAN
The series of transactions involving Messrs. Weiss and Moffett were
discussed in the Registrant's report on Form 10-KSB for the calendar year ended
December 31, 1997 and the discussion is incorporated by reference. Further
information is contained in Item 12, Certain Relationships and Related
Transactions, Footnote 1, of this report.
IMPROPER ISSUANCES OF STOCK PURSUANT TO RULE 504
The series of transactions involving the improper issuance of stock
pursuant to Rule 504 is discussed in Item 12, Certain Relationships and Related
Transactions, Footnote 6, of this report.
CERTAIN STOCK TRANSFERS FOR INADEQUATE OR NON-CONSIDERATION
The series of transactions involving certain stock transfers for inadequate
or no consideration is discussed in Item 12, Certain Relationships and Related
Transactions, Footnote 6 of this report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Registrant's security holders
through the solicitation of proxies or otherwise during the fiscal year ended
December 31, 1998.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
(a) Market Information
The Registrant's common stock has been traded in the past in the
over-the-counter market; however, until November 18, 1998, there had been no
established public trading market for the common stock for many years.
Consequently, information regarding quotations of bid and asked prices for the
common stock was not available to the Registrant during 1993, 1994, 1995, 1996
or 1997.
The Registrant's common stock is presently traded in the over-the-counter
market on the Electronic Bulletin Board System operated by the NASD, (the "OTC
Bulletin Board") under the symbol "EGSY". The following table indicates the
average high and low bid prices as quoted for the Registrant's common stock at
the end of each month since quotation was resumed. The following
over-the-counter quotations reflect inter-dealer prices, without retail mark-up,
mark-down, or commission, and may not necessarily represent actual transactions.
The range of the reported high and low bid quotations have been derived
primarily from information quoted on the OTC Bulletin Board System.
The relevant information concerning the price range for the Registrant's
common stock is as follows:
Date Closing Bid Price Closing Offering Price
November 30, 1998 $0.0625 $0.1875
December 31, 1998 $0.0625 $0.1875
January 28, 1999 $0.0625 $0.1875
February 26, 1999 $0.1875 $1.4400
March 31, 1999 $0.2500 $0.5000
April 30, 1999 $0.1875 $0.5625
PENNY STOCK RULES
Exchange Act Section 15(g) requires brokers and dealers to make risk
disclosures to customers before effecting any transactions in "penny stocks". It
also directs the Securities and Exchange Commission to adopt rules setting forth
additional standards for disclosure of information concerning transactions in
penny stocks.
Penny stocks are low-priced, over-the-counter securities that are prone to
manipulation because of their price and a lack of reliable market information
regarding them. Under Section 3(a)(51)(A) of the Exchange Act, any equity
security is considered to be a "penny stock," unless that security is:
16
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(i) registered and traded on a national securities exchange meeting specified
Securities and Exchange Commission criteria; (ii) authorized for quotation on
the National Association of Securities Dealers, Inc.'s ("NASD") automated
inter-dealer quotation system ("NASDAQ"); (iii) issued by a registered
investment company; (iv) excluded, on the basis of price or the issuer's net
tangible assets, from the definition of the term by Securities and Exchange
Commission rule; or (v) excluded from the definition by the Securities and
Exchange Commission.
Pursuant to Section 3(a)(51)(B), securities that normally would not be
considered penny stocks because they are registered on an exchange or authorized
for quotation on NASDAQ may be designated as penny stocks by the Securities and
Exchange Commission if the securities are traded off the exchange or if
transactions in the securities are effected by market makers that are not
entering quotations in NASDAQ.
Rule 3a51-1 was adopted by the Securities and Exchange Commission for the
purpose of implementing the provisions of Section 3(a)(51). Like Section
3(a)(51), it defines penny stocks by what they are not. Thus, the rule excludes
from the definition of penny stock any equity security that is: (1) a "reported"
security; (2) issued by an investment company registered under the 1940 Act; (3)
a put or call option issued by the Options Clearing Corporation; (4) priced at
five dollars or more; (5) subject to last sale reporting; or (6) whose issuer
has assets above a specified amount. (Release No. 30608, Part III.A).
Rule 3a51-1(a) excludes from the definition of penny stock any equity
security that is a "reported security" as defined in Rule 11Aa3-1(a). A reported
security is any exchange-listed or NASDAQ security for which transaction reports
are required to be made on a real-time basis pursuant to an effective
transaction reporting plan. Securities listed on the New York Stock Exchange
(the "NYSE"), certain regional exchange-listed securities that meet NYSE or Amex
criteria, and NASDAQ National Market System ("NMS") securities are not
considered penny stocks. (Release No. 30608, Part III.A.1). Generally,
securities listed on the American Stock Exchange (the "Amex") pursuant to the
Amex's original and junior tier or its "Emerging Company Marketplace" listing
criteria, are not considered penny stocks. Securities listed on the Amex
pursuant to its Emerging Companies Market ("ECM") criteria, however, are
considered to be "penny stock" solely for purposes of Exchange Act 15(b)(6).
(Release No. 30608, Part III.A.1).
Rule 3a51-1(d) excludes securities that are priced at five dollars or more.
Price, in most cases, will be the price at which a security is purchased or sold
in a particular transaction, excluding any broker commission, commission
equivalent, mark-up, or mark-down. In the absence of a particular transaction,
the five dollar price may be based on the inside bid quotation for the security
as displayed on a Qualifying Electronic Quotation System (i.e., an automated
inter-dealer quotation system as set forth in Exchange Act Section 17B(b)(2)).
"Inside bid quotation" is the highest bid quotation for the security displayed
by a market maker in the security on such a system. If there is no inside bid
quotation, the average of at least three inter-dealer bid quotations displayed
by three or more market makers in the security must meet the five dollar
17
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requirement. Broker-dealers may not rely on quotations if they know that the
quotations have been entered for the purpose of circumventing the rule. (Release
No. 30608, Part III.A.3.b). An inter-dealer quotation system is defined in Rule
15c2-7(c)(1) as any system of general circulation to brokers and dealers that
regularly disseminates quotations of identified brokers or dealers.
In the case of a unit composed of one or more securities, the price divided
by the number of shares of the unit that are not warrants, options, or rights
must be five dollars or more. Furthermore, the exercise price of any warrant,
option, or right, or of the conversion price of any convertible security,
included in the unit must meet the five dollar requirement. For example: a unit
composed of five shares of common stock and five warrants would satisfy the
requirements of the rule only if the unit price was twenty-five dollars or more,
and the warrant exercise price was five dollars or more. Once the components of
the unit begin trading separately on the secondary market, they must each be
separately priced at five dollars or more. (Release No. 30608, footnote 66).
Securities that are registered, or approved for registration upon notice of
issuance, on a national securities exchange are also excluded from the
definition of penny stock (Rule 3a51-1(e)). The exchange must make transaction
reports available pursuant to Rule 11Aa3-1 for the exclusion to work. The
exclusion is further conditioned on the current price and volume information
with respect to transactions in that security being reported on a current and
continuing basis and made available to vendors of market information. In
addition, the exclusion is limited to exchange-listed securities that actually
are purchased or sold through the facilities of the exchange, or as part of a
distribution. Exchange-listed securities satisfying Rule 3a51-1(e), but which
are not otherwise excluded under Rule 3a51-1(a)-(d), continue to be deemed penny
stocks for purposes of Exchange Act Section 15(b)(6).
Exchanges that qualified for this exclusion as of April 1992 were the NYSE,
Amex, Boston Stock Exchange, Cincinnati Stock Exchange, Midwest Stock Exchange,
Pacific Stock exchange, Philadelphia Stock Exchange, and the Chicago Board of
Options. (Release No. 30608, footnote 37).
Securities that are registered, or approved for registration upon notice of
issuance, on NASDAQ are excluded from the definition of penny stock (Rule
3a51-1(f)). Similar to the exchange-registered exclusion of Rule 3a51-1(e), the
NASDAQ exclusion is conditioned on the current price and volume information with
respect to transactions in that security being reported on a current and
continuing basis and made available to vendors of market information pursuant to
the rules of NASD. NASDAQ securities satisfying Rule 3a51-1(e), but which are
not otherwise excluded under Rule 3a51-1(a)-(d), continue to be deemed penny
stocks for purposes of Exchange Act Section 15(b)(6).
An exclusion is available for the securities of issuers that meet certain
financial standards. This exclusion pertains to: (i) issuers that have been in
continuous operation for at least three years having net tangible assets in
excess of $2 million (Rule 3a51-1(g)(1)); (ii) issuers that have been in
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continuous operation for less than three years having net tangible assets in
excess of $5 million (Rule 3a51-1(g)(1)); (iii) issuers that have an average
revenue of at least $6 million for the last three years (Rule 3a51-1(g)(2)). To
satisfy this requirement, an issuer must have had total revenues of $18 million
by the end of a three-year period. (Release No. 30608, Part III.A.4).
For domestic issuers, net tangible assets or revenues must be demonstrated
by financial statements that are dated no less than fifteen months prior to the
date of the related transaction. The statements must have been audited and
reported on by an independent accountant in accordance with Regulation S-X. For
foreign private issuers, net tangible assets or revenues must be demonstrated by
financial statements that are dated no less than fifteen months prior to the
date of the related transaction. The statements must be filed with the
Securities and Exchange Commission pursuant to Rule 12g3-2(b). If the issuer has
not been required to furnish financial statements during the previous fifteen
months, the statements may be prepared and audited in compliance with generally
accepted accounting principles of the country of incorporation.
Whether the issuer is domestic or foreign, in all cases a broker or dealer
must review the financial statements and have a reasonable basis for believing
that they were accurate as of the date they were made (Rule 3a51-1[g][3]). In
most cases a broker-dealer need not inquire about or independently verify
information contained in the statements. (Release No. 30608, Part III.A.4).
Brokers and dealers must keep copies of the domestic or foreign issuer's
financial statements for at least three years following the date of the related
transaction (Rule 3a51-1[g][4]).
The Registrant's securities are, as of the date of this report, subject to
the foregoing regulations as "Penny Stocks".
(b) Holders.
The number of holders of record of Common Stock, $0.01 par value, of the
Registrant (its sole class of common equity) as of the close of business on
April 30, 1999 was approximately 2,233.
(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.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OR PLAN OF OPERATION
Overview
The following discussion should be read in conjunction with the
Registrant's audited financial statements. Since 1995, the Registrant engaged in
the business of acquiring and operating interests in income producing commercial
real estate. During March of 1999, the Board of Directors concluded negotiations
to divest the Registrant of past agreements, assets and liabilities related to
real estate activity, thus positioning the Registrant to undertake new business
endeavors or become a more attractive acquisition candidate.
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Plan of Operation
In November 1998 the Board of Directors retained the Yankee Companies,
Inc., a Florida corporation, ("Yankees") to assist in the development and
implementation of new strategic plans. Yankees recommended that the Registrant
develop activities in two areas. The first recommendation was that the
Registrant provide consulting services to third parties that desire to attain
public trading status. The second recommended activity was that the Registrant
acquire operating companies that could benefit from the Registrant's public
trading status and from the experience of the Registrant's directors. [See
further discussion in Item 1. Description of Business - New Strategic Plans &
Change of Control.]
Consulting Services
The Registrant, through current officers and directors, will assist client
corporations with securities registration and with initiating trading in their
securities in the over-the-counter market. The Registrant will benefit by
receiving consideration through the issuance of a set percentage of the Client
corporations' common stock directly to the Registrant's shareholders. All
expenses related to these transactions will be born by the Client corporations
and the percentage of Client corporation stock issued is expected to vary
between 10 - 15%. The Registrant's Board of Directors have authorized its
officers to negotiate consulting agreements with five corporations that are
interested in attaining public status. Only one definitive arrangement has been
entered into, and there can be no assurances that any other definitive
arrangements will ever take place. (See Part 1, Item 1 for a discussion of the
FundsAmerica agreement)
Acquisitions
Yankees and the Registrant's Management have engaged in discussions with
several currently operating profitable businesses with a view toward a future
association. However, only one letter of intent has been entered into. No
definitive arrangements have been entered into, nor can there be any assurances
that definitive arrangements will ever take place. Expenses related to potential
acquisitions cannot be estimated at this time. The Registrant would be prepared
to seek additional equity investment or a strategic funding relationship to
effect acquisitions at such time if it is prudent to do so.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Full Fiscal Years
Discontinued Operations
Prior to the discontinuance of past operations , all financial activity
during 1997 and 1998 was the result of business conducted in commercial real
estate. The Registrant reported losses for the fiscal years ended December 31,
1997 and 1998 of $72,943 and $163,739, respectively.
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This translates to a per share loss of $.019 for 1997 and $.039 for 1998. These
losses were based on corresponding revenues of $214,001 and $162,395. General
and administrative expenses more than doubled in 1998 while revenues fell by
almost 25%. (Refer to Note 9 of "Notes to Financial Statements" for a summary of
financial performance of discontinued operations)
Total mortgage receivables decreased as scheduled per mortgage agreements,
leading to the expected decrease in total assets. Total mortgage payable also
decreased as expected but was partially offset by increase in accounts payable,
yielding a slight increase in total liabilities over the previous year. The
Registrant's working capital position weakened over the last fiscal year
resulting in a drop in the liquidity ratio from .5 in 1997 to .35 in 1998.
On a cash basis, operations were slightly less than break even with the
deficit made up by the issuance of common stock. This resulted in a positive
total cash flow position for the year as opposed to a break even cash flow for
all activities for the prior year.
The decline in the Registrant's operations was materially impacted by the
health problems of Edward Granville-Smith, its president and sole director at
the time (see Part 1, Item 1).
Interim Periods
Management has taken steps to redirect the business focus to more
profitable activities. [See Item 1 and previous discussion in Item 6 regarding
new strategic plans.] At this time it is not possible to project what
arrangements will result from the consulting or acquisition activities that are
currently underway or the financial benefits to be gained from these activities.
The effect of the Board's decision to discontinue past operations had the
effect of allowing the Registrant to be reclassified as a development stage
company prepared to conduct profitable business activities. Current revenues
have been reduced to zero in preparation of new business opportunities being
sought out by the Registrant.
Year 2000 Compliance
The inability of business processes to continue to function correctly after
the beginning of the Year 2000 could have serious adverse effects on companies
and entities throughout the world. The Registrant does not currently own any
computer equipment and thus would not be subject directly to any problems
associated with such problem. It currently uses computer equipment and programs
provided by its management and consultants, none of which would be materially
affected by Year 2000 software or hardware problems. However, in the event it
makes a material acquisition (such as the currently contemplated acquisition of
American Internet) such problems could affect the acquired entity's operations
and, to the extent that the problem affects national communications, financial
or utility businesses in general, the Registrant, like all other businesses
could be adversely affected. In the event that the Registrant experienced Year
2000 related problems, it would be forced to expend such amounts of its working
capital as might be necessary to correct the affected software and hardware
systems and implement contingency plans.
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ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
(a) Index to financial statements and financial statement schedules.
The audited balance sheet of the Registrant for its years ended
December 31, 1998, and 1997 and related statements of operations,
stockholder's equity and cash flows for such years follow in sequentially
numbered pages numbered 24 through 27. The page numbers for the financial
statement categories are as follows:
22 Table of Contents, 1998
23 Report of Independent Accountants - December 31, 1998
24 Balance Sheet - December 31, 1998 and 1997;
25 Statements of Operations- December 31, 1998 and 1997;
26 Statements of Shareholders' Equity (Deficit)- December 31, 1998 and 1997;
27 Statement of Cash Flows - December 31, 1998 and 1997; and
28-33 Notes to Financial Statements - December 31, 1998 and 1997.
* Cover Page, 1997;
* Independent auditor's report, 1997;
* Balance sheets -December 31, 1997 and 1996;
* Statements of operations- December 31, 1997 and 1996;
* Statements of shareholders' equity -December 31, 1997 and 1996;
* Statements of cash flows- December 31, 1997 and 1996;
* Notes to financial statements, 1997
Financial Statements follow
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(b) Financial Statements
BOWMAN& BOWMAN, P.A.
Certified Public Accountants
1705 Colonial Blvd., Suite D-l
Fort Myers, Florida 33907
(941) 939-2301
(941) 939-1297 (Fax)
To the Board of Directors
Equity Growth Systems, inc.
(A Development Stage Company)
3821-B Tamiami Trail, Suite 201
Port Charlotte, Florida 33952
We have audited the accompanying balance sheet of Equity Growth Systems, inc.
(A Development Stage Company) as of December 31, 1998, and the related
statements of operations, stockholders' equity, and cash flows for the year
ended December 31, 1998. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Equity Growth Systems, inc.
(A Development Stage Company) as of December 31, 1998, and the results of its
operations and its cash flows for the year ended December 31, 1998 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 8 to the
financial statements, the Company has suffered recurring losses from
operations and has a net working capital deficiency that together raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 8. The financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
/s/ Bowman & Bowman /s/
Bowman & Bowman, P.A.
Ft. Myers, Florida
April 23, 1999
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EQUITY GROWTH SYSTEMS, inc.
(A Development Stage Company)
BALANCE SHEET
DECEMBER 31, 1998
1998
A S S E T S
CURRENT ASSETS
Cash and cash equivalents ........... $ 13,182
TOTAL CURRENT ASSETS ..................... 13,182
OTHER ASSETS
TOTAL ASSETS .............................. $ 13,182
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and other current
liabilities ...................... $ 4,661
TOTAL CURRENT LIABILITIES ................ 4,661
LONG-TERM LIABILITIES ..................... -0-
TOTAL LIABILITIES ......................... 4,661
SHAREHOLDERS' EQUITY (DEFICIT) (Note 13) Preferred stock-no par value authorized
5,000,000 shares; zero issued and
outstanding ......................... -0-
Common stock - $.01 par value authorized
20,000,000 shares; issued and
outstanding - 5,991,148 shares 59,911
Capital in excess of par value ........... 2,914,395
Accumulated deficit prior to December
31, 1998 .............................. (2,965,785)
Accumulated deficit from inception of
development stage on December 31, 1998 .. -0-
TOTAL SHAREHOLDERS'
EQUITY (DEFICIT) ....................... (8,521)
TOTAL LIABILITIES &
SHAREHOLDERS'EQUITY (DEFICIT) ............ $ 13,182
The accompanying notes are an integral part of these financial statements
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<PAGE>
EQUITY GROWTH SYSTEMS, inc.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
Income from Operations $ -0- $ -0-
Provisions for Income
Taxes (Note 4) .... -0- -0-
Loss from Discontinued
Operations (Footnote 9) 399,415 74,043
Net Loss .......... $ (399,415) $ (74,043)
Basic Loss per Share $ (0.096) $ (0.019)
Weighted Average of 4,174,778 3,807,814
Shares Outstanding
Fully Diluted Loss per Share $ (0.095) $ (0.019)
Fully Diluted Average
Shares Outstanding 4,222,191 3,807,814
The accompanying notes are an integral part of these financial statements
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EQUITY GROWTH SYSTEMS, inc.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
Capital in
No. of Common Excess of Accumulated
Shares Stock Par Value Deficit
Balances, December
31, 1996 3,771,148 $37,711 $2,892,195 $(2,492,327)
Common Stock Issued
(Services) 55,000 550 550 -0-
Net (loss) for the
year ended December
31, 1997 -0- -0- -0- (74,043)
Balances, December
31, 1997 3,826,148 38,261 2,892,745 (2,566,370)
Common Stock Issued
(Services) 415,000 4,150 4,150 -0-
Common Stock Issued
(Cash) 1,750,000 17,500 17,500 -0-
Net loss for the
year ended December
31, 1998 -0- -0- -0- (399,415)
Balances, December
31, 1998 5,991,148 $59,911 $2,914,395 $(2,965,785)
The accompanying notes are an integral part of these financial statements
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EQUITY GROWTH SYSTEMS, inc.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
Cash Flows From Operating Activities
Net Loss ........... $ (399,415) $ (74,043)
Adjustments to Reconcile Net (Loss)
to Net Cash Used by Operating
Activities
Loss on non-collectible
financial instruments -0- 144,440
Common stock issued for services 8,300 1,100
Changes in operating assets and Liabilities
Decrease (Increase) in other receivables 98,590 (98,580)
Increase (Decrease) in accounts
payable and current liabilities ( 349) (7,990)
Increase (Decrease) in cash overdraft .. ( 4) 4
Net Cash Provided (Used) by Operations (292,878) (35,069)
Cash Flows From Financial Activities
Common stock issued for cash 35,000 -0-
Decrease (Increase) in mortgage
and notes receivable 1,570,888 339,544
Increase (Decrease) in mortgage
and notes payable .. (1,299,828) (305,437)
Net Cash Provided by Financial
Activities ......... 306,060 34,107
Net Increase (Decrease) in Cash 13,182 ( 962)
Cash-Beginning of Year -0- 962
Cash-End of Year ... $ 13,182 $ -0-
Supplemental Cash Flows Information
Cash paid for interest $ 127,257 $ 99,602
The accompanying notes are an integral part of these financial statements
27
<PAGE>
EQUITY GROWTH SYSTEMS, inc
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
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.
Effective December 31, 1998 the company discontinued the mortgage business and
was reclassified as a development stage company.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash in banks, and any
highly liquid investments with a maturity of three months or less at the time of
purchase.
The Company maintains cash and cash equivalent balances at a financial
institution which is insured by the Federal Deposit Insurance Corporation up to
$100,000. At December 31, 1998, 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. Expenditures for major renewals and
betterments that extend the useful lives of fixed assets are capitalized.
Expenditures for maintenance and repairs are charged to expenses as incurred.
Income Taxes
In February 1992, the Financial Accounting Standards Board issued a
Statement on Financial Accounting Standards 109 of "Accounting for Income
Taxes". Under Statement 109, deferred tax assets and liabilities are recognized
for the estimated future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective bases.
28
<PAGE>
EQUITY GROWTH SYSTEMS, inc
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Deferred tax assets and liabilities are measured using enacted tax rates in
effect for the year in which those temporary differences are expected to be
recovered or settled. Under Statement 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. The Company has net operation loss carryovers of
approximately $2,900,000 which expire by the year 2013.
Basic Loss Per Shares
Primary basic loss per common share is computed by dividing the net loss by
the weighted average number of shares of common stock outstanding during the
year.
Fully Diluted Loss Per Shares
Fully diluted loss per common share is computed by dividing the net loss by
the weighted average number of shares of common stock outstanding plus the
shares that would be outstanding if all stock options were exercised.
NOTE 2 SETTLEMENT WITH CREDITORS - SUBSEQUENT EVENT
On November 28, 1998, the Company offered 150,000 shares of its common
stock in consideration for the cancellation of $3,000 of legal and advisory
services currently shown as a liability on the Company's books. This offer was
accepted in February of 1999.
NOTE 3 CONSULTING AGREEMENTS
In 1997, a 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.
In 1998 a consulting agreement with Yankee Companies, Inc., (Yankee) a
Florida corporation was executed to develop investment banking relationships,
develop access to debt and equity capital markets and to develop growth through
acquisition of complementary business operations. In consideration for Yankee's
assistance, Yankee is to receive options for common stock equal to 10% of the
outstanding shares the company.
29
<PAGE>
EQUITY GROWTH SYSTEMS, inc
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 4 INCOME TAXES
As discussed in Note 1, the Company has applied the provisions of Financial
Accounting Standards Statement 109.
The significant components of deferred income tax expense benefit for the
year ended December 31, 1998 arising from net operating losses as follows:
1998
Deferred tax benefit $ 188,920
Valuation allowance (188,920)
$ -
======
The Company has operating loss carryforwards in excess of $2,000,000. There
is no reasonable expectation that any tax benefits can be utilized in the
future.
NOTE 5 STOCKHOLDERS' EQUITY
During the year ended December 31, 1998 the Company issued its common stock
for cash and in exchange for services as follows:
(a) On March 26th 290,000 shares of common stock were issued at $ .02 per share
for services.
(b) On September 9th 50,000 shares of common stock were issued at $ .02 per
share for services.
(c) On December 9th 75,000 shares of common stock were issued at $ .02 per
share for services and 1,750,000 shares were issued at $ .02 per share for
cash. During the year the Company also issued stock options for 200,000
shares to the president of the corporation and signed a consulting
agreement which resulted in an additional stock option of 586,615 shares.
The options are exercisable at $.02 per share and accordingly no
compensation expense has been recorded or will be incurred with the
issuance.
30
<PAGE>
EQUITY GROWTH SYSTEMS, inc
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 6 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 had 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 the substantial portion of these escrowed
funds should be earmarked for the reduction of the wrap around mortgage and
promissory note receivable. Therefore the Company has set up an escrow
receivable for $98,000 ($150,000 52,000). The escrow receivable was
determined to be uncollectable and was expensed in the loss from
discontinued operations.
B. The Company was also in default of the mortgage on this 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) has 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 could not
accept any amortization payments on their matured loan from Sun West
N.O.P., the Company was using such proceeds to reduce the related wrap
mortgage receivable. In August of 1997, the mortgage holder foreclosed on
the mortgage payable, which resulted in a foreclosure sale of the Memphis,
Tennessee property. As a result of these events of foreclosure, the Company
wrote off the balance on the mortgage payable and the related wrap mortgage
receivable ($251,772) and promissory note receivable ($93,686) at December
31, 1996.
31
<PAGE>
EQUITY GROWTH SYSTEMS, inc
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 7 MATERIAL SUBSEQUENT EVENT
Granville-Smith Jr. Recission Settlement Agreement
On March 22, 1999, the Registrant's former president, Edward
Granville-Smith, rescinded by agreement of all employment, consulting and
creditor agreements and the following transactions described in previous reports
on 10-KSB by the Registrant and on previous filings with the Securities and
Exchange Commission as follows:
"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 of 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 $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 Granville-Smith Trust, which thereafter
transferred to K. Walker, Ltd., a Bahamian corporation (affiliated with Mr.
Granville-Smith) and Bolina Trading Registrant, a Panamanian corporation and/or
the WEFT Trust, (affiliated with Jerry C. Spellman)." Spellman General Release
On March 22, 1999, Mr. Jerry C. Spellman, on his own behalf and on behalf
of, Bolina Trading Registrant, S.A., a Panamanian Corporation, also known as
Bolina Trading Registrant, A Panamanian Corporation, and Bolena Trading
Corporation, S.A., Panamanian Corporation, and the WEFT Trust signed and
executed for the protection of the Company a general release.
32
<PAGE>
EQUITY GROWTH SYSTEMS, inc
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 8 GOING CONCERN
The accompanying financial statements have been prepared assuming that the
organization will continue as a going concern. As discussed below, the
organization has a working capital deficit and an accumulated deficit that
raises substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Management has entered into agreements (Note 15) that reduce current
revenues to zero. This is in preparation for new business opportunities
currently being sought out by the Company.
The Company's continued existence as a going concern will require the
infusion of new businesses. It is anticipated that the Company will effect this
transition through the acquisition of companies that will operate as
subsidiaries. The Company's continuation is dependent upon its ability to
acquire profitable businesses, control costs, and attain a satisfactory level of
profitability with sufficient financing capabilities or equity investment.
NOTE 9 - LOSS FROM DISCONTINUED OPERATIONS
On March 22, 1999, the Company entered into an agreement (Note 15) that
results in the discontinued operations of the mortgage finance business. The
following is a summary of income (loss) from operations of the discontinued
mortgage finance business.
1998 1997
Revenues of Discontinued Operations $ 162,395 $ 214,001
Expenses of Discontinued Operations 184,535 288,044
Loss from Operations of
Discontinued Operations 22,140 $ 74,043
Loss on Disposal of
Discontinued Operation 377,275 -0-
Loss From
Discontinued Operations $ 399,415 $ 74,043
33
<PAGE>
EQUITY GROWTH SYSTEMS, INC.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
34
<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
35
<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
36
<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
=========== ===========
37
<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.
38
<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.
39
<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 (249,559)
Net Loss For the
Year Ended
December 31, 1996
---------- --------- ------------- -----------
Balances
December 31, 1996 3,771,148 37,711 2,892,195 (2,492,327)
Common Stock Issued 55,000 500 (550) (72,943)
Net Loss For the
Year Ended
December 31, 1997
---------- --------- -------------- -----------
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.
40
<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.
41
<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
42
<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 -.
43
<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. Gene 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
44
<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.
45
<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
========== ==========
46
<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.
47
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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
======== ========
48
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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
49
<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
50
<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).
51
<PAGE>
(c) Selected Financial Data
The selected historical financial information of the Registrant set forth
below should be read in conjunction with the audited financial statements of the
Registrant and notes thereto contained elsewhere in this report.
The statement of operations data for the year ended December 31, 1998 and
1997, and the balance sheet data as of December 31, 1998 and 1997, are derived
from, and are qualified by reference to, the audited financial statements of the
Registrant which are included elsewhere in this report. No cash dividends have
ever been declared or paid on shares of the Registrant's Common Stock.
The required financial statements of the Registrant are included as part of
this report beginning on page 22.
STATEMENT OF OPERATIONS DATA :
YEAR ENDED DECEMBER 31
-------------------------
1998 1997
---------- ----------
Total Revenues............................ $ 0 $ 0
Total Costs and Expenses.................. 399,415 74,043
Loss from Operations...................... (399,415) (74,043)
Total Other Expenses ..................... 0 0
Net Loss ................................. (399,415) (74,043)
Net Loss Applicable
to Common Shareholders................... (399,415) (74,043)
Net Loss Per
Common Share............................ (0.096) (0.095)
BALANCE SHEET DATA:
YEAR ENDED DECEMBER 31,
-------------------------
1998 1997
---------- ----------
Working Capital .......................... $ 8,521 $(149,309)
Total Assets.............................. 13,182 1,669,168
Total Liabilities......................... 4,661 1,304,832
Stockholders' Equity ................... 8,521 364,636
52
<PAGE>
(d) Pro Forma Financial Data
The following information attempts to demonstrate in summary fashion what
the Registrant's operations would have reflected, had it owned American Internet
(See Item 1, Business) throughout 1998 but not owned the operations subsequently
directed. Because no assuarnces can be provided that the American Internet
acquisition will ever be effected, these materials should be viewed as
speculative, forward looking statements. The data is based on the unaudited
financial information contained in the American Internet Memorandum (see Item
13, Exhibit Index).
STATEMENT OF OPERATIONS DATA :
YEAR ENDED DECEMBER 31, 1998
Total Revenues............................ $ 857,418
Total Costs and Expenses.................. 1,187,627
Loss from Operations...................... (330,209)
Net Loss ................................. (330,209)
Net Loss Applicable
to Common Shareholders................... (330,209)
Net Loss Per
Common Share *.......................... (0.055)
BALANCE SHEET DATA:
YEAR ENDED DECEMBER 31, 1998
Working Capital .......................... $ 12,215
Accounts Receivable....................... 85,614
Prepaid Expenses ......................... 4,461
Fixed Assets ............................. 22,266
Long Term Assets ......................... 13,300
Total Assets.............................. 142,517
Total Liabilities......................... 60,029
Stockholders' Equity ................... 77,827
Stockholder's Equity per share * ......... 0.013
* Per share data is based on the assumption that 2,500,000 shares had been
issued at the inception of American Internet's financial data period
(starting April 1, 1998) and that consequently, the weighted average number
of shares outstanding for the period, had been increased by 1,1875,000
(2,500,000 x 3/4) to 6,035,573.
53
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
The response to this item is incorporated by reference to the comparable
item in the Registrant's report on Form 10-KSB for the year ended December 31,
1997, supplemented by the Response to Part II of the Registrant's quarterly
report on Form 10-QSB for the calendar quarter ended September 30, 1998, as
permitted by Rule 12b-23, Item 4 of the Registrant's Form 8-KSB filed on March
5, 1999 and a copy of the Change in Auditors letter is filed as an exhibit to
the Form 8-KSB/A filed on April 2, 1999.
In conjunction with the audit of the Registrant's financial statements for
the Year ended December 31, 1998, the Registrant's legal counsel and its
management disagree with the auditor's disclosure in footnotes 3 and 5
concerning options granted to the Yankee Companies, Inc., a Florida corporation
("Yankees") by the Registrant, and the nature of the services being provided by
Yankees under the terms of the consulting agreement included as an exhibit to
the Registrant's report on Form 10-QSB for the calendar quarter ended September
30, 1998 (the "Yankee Agreement").
The contract language which leads to the disagreement is as follows: "...
Client [the Registrant] will pay to Yankees:
(1) Options (the "Class A Options") to purchase shares of Client's
outstanding or reserved common stock (all reserved common stock being treated as
outstanding for purposes of such calculation), on the following terms (the
"Stock Signing Fee."):
(a) The quantity of Client common stock subject to the Class A Options shall be
equal to 10% of Client's outstanding or reserved common stock, immediately
following complete exercise of all the Class A Options;
(b) The Class A Option term will commence on the 60th day after execution of
this Agreement and will terminate at the close of business on the 45th
business day after the Class A Options and the shares of common stock into
which they can be exercised are registered for sale to the public under
applicable federal and state securities laws, however, Yankees shall have
the option of exercising the Class A Options prior to such registration at
a 50% discount from the otherwise applicable exercise price, subject to the
resale restrictions imposed by SEC Rule 144, but subject to the piggy back
and registration provisions, as reflected in the form of warrant agreement
annexed hereto and made a part hereof as composite exhibit 1.4(B), which
form shall constitute the basis for and terms of the Class A Options, other
than as specifically modified hereby.
(c) The exercise price of the Class A Options will be based on the number of
shares outstanding at the time of exercise, pro rated in accordance with
the following formula: in the event that an aggregate of 6,000,000 shares
of capital stock are outstanding or reserved for future issuance under
reasonably definable terms (e.g. options, warrants, pending acquisitions,
obligations under employment agreements, etc.), then the number of shares
purchasable would be 600,000 and the exercise price would be $0.10 per
share, any increase or decrease in the outstanding and reserved shares
resulting in a corresponding adjustment to the Class A Option exercise
quantity and price;
54
<PAGE>
....
(3) The foregoing compensation is in lieu of document license fees and of
required cash payments for up to an aggregate of 200 hours of Yankees's hourly
fees during the initial six month term of this Agreement (but not those of its
associated entities), and, for tax purposes, shall be valued at an aggregate of
$20,000."
The Registrant's auditor has taken the position that based on the fact that
there were 5,991,148 shares issued and outstanding as of December 31, 1998, the
option should be interpreted as granting Yankees the right to purchase 599,115
shares of common stock, at $0.02 per share ($11,982.30 in the aggregate). The
auditor also believes that the term "reserved" as used in the Yankees Agreement
refers to all of the authorized but unissued securities of the Registrant,
whether or not allocated for a specific instance of issuance, despite the
examples listed in the Yankee Agreement..
The Registrant and Yankees, the parties to the Yankee Agreement, interpret
it to mean that:
1. Assuming the options had been exercised at December 31, 1998, the exercise
price per share would have been slightly more than $0.10 per share ($60,000 in
the aggregate), because the formula and illustration provide that $60,000 will
be the aggregate compensation, regardless of the total number of shares subject
to the option (i.e., if the number of shares issuable increase, the exercise
price will correspondingly decrease and conversely, if the number of shares
issuable decrease, the exercise price will correspondingly increase).
2. The Yankees Agreement calls for determination of the number of shares and
price per share at a future date when the Registrant's outstanding and reserved
common stock may be different (i.e., the date on which the final options are
exercised or expire). Consequently, the note may mislead readers into believing
that the option covers a fixed number of shares.
3. The term "reserved" in the Yankees Agreement means allocated to cover an
existing obligation to issue common stock, as in the examples cited.
The Registrant also notes that the description of the services to be
provided by Yankees described in Note (3) (i.e., "to develop investment banking
relationships, develop access to debt and equity capital markets and to develop
growth through acquisition of complementary business operations") does not
correspond to that provided in the agreement, which states as follows:
55
<PAGE>
"1.1 Description of Services
(A) Yankees's areas of expertise include corporate structure, organization and
reorganization; mergers, acquisitions and divestitures; strategic corporate
development; corporate financial and equity analysis; market strategy
planning and implementation; corporate communication, financial public
relations and stockholder relations consulting; business plan development
and implementation; marketing sales and analysis; executive and
professional recruitment; coordination and supervision of professional
services; development and implementation of regulatory compliance
procedures (the "Services").
(B) During the Initial Term of this Agreement (as hereinafter defined), Yankees
shall provide Client with the Services, on a reasonable, as required basis,
consistent with Yankees's other business activities.
(C) Because of Client's status under federal securities laws, in any
circumstances where Yankees is describing the securities of Client to a
third Party, Yankees shall disclose to such person the compensation
received from Client to the extent required under any applicable laws,
including, without limitation, Section 17(b) of the Securities Act of 1933,
as amended; however, the Parties acknowledge they do not contemplate that
Yankees shall be involved in any activities on behalf of Client requiring
such descriptions or disclosures, or that the Services involve any
activities subject to regulation under federal or state securities laws
other than the prohibitions of the Foreign Corrupt Practices Act, except
for the introduction of Client and its principals to licensed broker
dealers in securities, securities analysts and appropriate corporate
information and stockholder relations specialists."
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.
The Registrant's Board of Directors sets corporate policies which are
implemented by the Registrant's Management and when applicable, the management
of the Registrant's subsidiaries. In the event that the Registrant's Board of
Directors determines that a member faces a conflict of interest, for any reason,
it is expected that the subject director will abstain from voting on the matter
which raised the issue. The Board of Directors held 4 meetings during 1998
(after election of the new members), and 4 meetings in 1999, principally by tele
conference. In addition the Board passed two series of resolutions by written
consent in lieu of meetings in 1999.
56
<PAGE>
As of November 5, 1998, the following persons served as the Registrant's
directors and executive officers:
Name Age Term Positions
Edward Granville-Smith, Jr 65 (1) Chairman of the Board of Directors,
Director, Chief Executive Officer,
Chief Operating Officer and President;
Charles J. Scimeca 53 (2) Secretary & Treasurer
- - ------
(1) Elected on March 23, 1995, by the Board of Directors to serve until the
next annual meeting of the Registrant's stockholders, and until his
successors were elected, and assumed their office except that service as an
officer was at the pleasure of the Board of Directors. In November of 1997,
he was elected as President and Chief Operating Officer.
(2) Elected on March 31, 1996, to serve at the pleasure of the Registrant's
Board of Directors.
During October of 1998, Edward Granville-Smith, then the Registrant's sole
director and chief executive officer started negotiations with principals of the
Yankee Companies, Inc., to obtain its assistance in recruiting additional
officers and directors, arranging for funding and helping to develop an expanded
strategic business plan, based on Mr. Granville-Smith's concern that his
personal health problems were impeding his ability to adequately manage the
Registrant's operations. Based on Mr. Granville-Smith's oral assurances, the
Yankee Companies, Inc., contacted a number of persons willing to become
materially involved in the Registrant's operations, and, on November 6, 1998,
Mr. Granville-Smith, as the Registrant's sole director, elected the following
persons as members of the Registrant's Board of Directors: Charles J. Scimeca
(the Registrant's secretary), Penny L. Adams Field, Anthony Q. Joffe and G.
Richard Chamberlin (formerly the Registrant's securities counsel). On November
11, 1998, after learning that Mr. Granville-Smith, had been incapacitated, Mr.
Scimeca, at the suggestion of Mr. Chamberlin, called a special meeting of the
Board of Directors, in order to replace Mr. Granville-Smith as the Registrant's
president and chief executive officer, principally in order to assure that the
Registrant could file its quarterly report with the Securities and Exchange
Commission within a reasonable time after its due date. At such meeting, Mr.
Scimeca was elected as the acting president and Mr. Chamberlin was elected as
the acting secretary and general counsel. In addition, the Board voted to
reorganize the Registrant by reorganizing as a holding company, to ratify a
series of subscription agreements disclosed in Part II of the Registrant's
quarterly report on Form 10-QSB for the quarter ended September 30, 1998, to
enter into a formal consulting agreement with The Yankee Companies, Inc., and to
enter into a settlement agreement with Mr. Granville-Smith, as a result of which
all his current agreements with the Registrant would be terminated. The Board
Resolution dated November 6, 1998 was included as an exhibit to the Form 10- QSB
for period ended September 30, 1998, an is incorporated by reference in this
report. The Board Resolution dated November 11, 1998 is included as an exhibit
to this report (see "Item 13 - Exhibit Index").
57
<PAGE>
Since November 6, 1998, the following persons have served as the
Registrant's Directors and Executive Officers, in the capacities indicated:
Name Age Term Positions
Charles J. Scimeca 53 (1) Acting President, Chief Executive Officer &
Director
G. Richard Chamberlin 52 (1) Acting Secretary, General Counsel & Director
Penny Adams Field 43 (1) Director, Audit Committee Chair (3)
Anthony Q. Joffe 56 (1) Director, Audit Committee (3)
Edward Granville-Smith,Jr65 (2) Director(2)
- -------
(1) Elected November 6, 1998, to serve, in the case of directors, until the
next annual meeting of the Registrant's stockholders and until their
successors are elected and assume their office, unless their earlier
resignations are accepted by the Board of Directors; and, in the case of
officers, to serve at the pleasure of the Board of Directors.
(2) On November 11, 1998, he resigned as an officer due to health problems and
has been represented on the Board of Directors by his son, Mark
Granville-Smith, on a non-voting basis. As a material subsequent event, on
March 22, 1999, he resigned as a member of the Board of Directors.
(3) The Registrant's Board has an Audit Committee. The Audit Committee
meets with management to consider the adequacy of the internal
controls of the Registrant and the objectivity of the Registrant's
financial reporting. The Audit Committee selected and meets with the
Registrant's independent accountants and with appropriate financial
personnel about these matters. The Audit Committee is comprised of Ms.
Field, (Audit Committee Chairman) and Mr. Joffe. As of the date this
report was filed, May 24, 1999, the Registrant has not been able to
obtain verifyable records of the audit committees meetings, although,
it is aware that meetings were held.
The directors hold office until the next annual meeting of the stockholders
and until there successors have been duly elected or qualified. Audit committee
members serve at the pleasure of the Board.
In addition to the Directors and Executive Officers, as of December 31,
1998, the following persons may be deemed control or potential control persons:
Jerry C. Spellman, Cyndi N. Calvo, the Yankee Companies, Inc. (and its
principals William A. Calvo, III and Leonard Miles Tucker), and Edward
Granville-Smith.
58
<PAGE>
BIOGRAPHIES OF DIRECTORS AND EXECUTIVE OFFICERS
Charles J. Scimeca, Acting President
Charges J. Scimeca, age 54, serves as the acting president and as a
director of the Registrant. Since 1982 he has been a licensed real estate
broker. He is managing director of Coast to Coast Realty Group, Inc., located in
Sarasota, Florida. The company is involved in residential and commercial real
estate development as well as general real estate brokerage and business
acquisition. He has been involved in real estate transactions totaling over one
billion dollars, representing Fortune 500 clients, such as , Equitable Life
Insurance Company, Walt Disney Corporation, Paramount Studios and TRW Real
Estate Group. 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 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, Sarasota and Manatee County Association of Realtors,
the International Council of Shopping Centers and other local, regional and
national real estate and mortgage related organizations. He holds a degree in
Business Administration from Wright College in Chicago, Illinois (1964).
G. Richard Chamberlin, Acting Secretary, Director & General Counsel
G. Richard Chamberlin. age 52, has since November 1998, served as the
Registrant's acting secretary, as a member of it's Board of Directors (in which
he serves as Chairman) and also as it's general counsel. From 1973 to 1974 he
served as Trust Officer with Suntel Bank & Trust Company, Jonesboro, Georgia.
Mr. Chamberlin is a practicing attorney and is a member of the Georgia Bar,
(since 1974), and the Florida Bar, (since 1990). He is also a member of the Bars
for the Federal District Court for the Northern District of Georgia, (since
1974) and the Federal District Court for the Northern District of Florida (since
1995), the Court of Appeals for the State of Georgia, (since 1974) and the
Supreme Court for the State of Georgia (since 1974). Mr. Chamberlin is also a
member of the Bar for the Eleventh District Court of Appeals, (since 1982). He
is a graduate of Eastern Military Academy, Huntington, New York (College Prep
Diploma, 1964); The Citadel, The Military College of South Carolina, (B.A.,
political science, 1968); and the University of Georgia School of Law, (J.D.,
1971). Mr. Chamberlin earned a Certificate from the American Bankers
Association, National Trust School, (1974). Mr. Chamberlin is a two term former
member of the Georgia House of Representatives, (1979-1983). In the State House,
Mr. Chamberlin served on the Following committees: House Journal Committee,
Natural Resources Committee, Special Judiciary Committee and Labor Committee. He
is a former member of the Counsel for National Policy. He is the founder of the
Georgia Roundtable, Inc., and served as President from 1981 to 1986.; He is the
founder of the Georgia Heritage Foundation, and served as President from 1982 to
1986. He is the former Principal of Soul's Harbor Christian Academy, Belleview,
59
<PAGE>
Florida, (1990-1992). Mr. Chamberlin served as National Music Chairman for the
Religious Roundtable, Inc. at the premier event known as the 1992 National
Affairs Briefing in Dallas, Texas wherein President George Bush was the keynote
speaker. Mr. Chamberlin has received Resolutions of Commendation from the House
of Representatives for the Commonwealth of Kentucky, (1985) and from the House
of Representatives for the State of Georgia, (1982). He presently serves as
President of the Citadel Club of Central Florida, Inc.. Mr. Chamberlin is former
president and director for Atrieties Development Company, Inc., a publicly held
corporation involved in the real estate industry, (1986-87), and has held
licenses as a real estate agent, (Georgia and Florida).
Penny L. Adams Field, Director & Audit Committee Chairman
Penny Adams Field, age 43, since November, 1998. Serves as a member of
Registrant's Board of Directors and chair of its audit committee. Penny Adams
Field is a principal and co-founder of Executive Concepts, a management
consulting and investment banking advisory firm. Ms. Adams Field has technical
expertise in designing and implementing financial management systems,
acquisition and divestiture models, cash flow management, information systems
assessment and implementations, and operational and cost system audits. Her
background in strategic planning, performance measurement, comprehensive
business planning, and cost structure analysis add to the breadth and depth of
the Executive Concepts team skills. Ms. Adams Field is an experienced and
accredited business valuation specialist and is a member of the Institute of
Business Appraisers. She serves on numerous not-for- profit and corporate
boards. As a management consultant, Ms. Adams Field has consulted with firms
such as Monsanto, Mallinckrodt, McDonnell-Douglas, MEMC Electronic Materials
Company, Maytag, Mark Andy, CyberTel, and numerous other small firms in the
healthcare, manufacturing, construction, and service industries. Prior to
founding Executive Concepts, Ms. Adams Field was an administrator for the John
M. Olin School of Business at Washington University in St. Louis, where she
helped to establish the Executive Programs division. Her responsibilities
included program development in the Far East. Prior to her administrative role
she served as a full-time member of the accounting faculty instructing in
financial accounting and cost management for undergraduate and graduate programs
at the Olin School. Prior to graduate study at Washington University, Ms. Adams
Field worked in healthcare administration and banking, including positions at
Children's Hospital National Medical Center in Washington, D.C. and Harris Bank
in Chicago. After earning a B.B.A. in Accounting and Finance, Ms. Adams Field
earned her M.B.A. from the Olin School of Business at Washington University in
St. Louis. Ms. Adams Field also posted several hours of Ph.D. level course work
in accounting and finance prior to making a full-time commitment to consulting.
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Anthony Q. Joffe, Director
Anthony Q. Joffe, age 56, since November, 1998, serves as a member of
Registrant's Board of Directors. Mr. Joffe holds a degree in Aeronautical
Engineering Management from Boston University, Boston, Massachusetts. Subsequent
to his graduation, Mr. Joffe was employed as the Quality Control Manager for
Cognitronics Corporation, a computer manufacturer, where he was responsible for
overseeing the U.S. Air Force compliance testing program as well as normal
day-to-day management. In 1967, Mr. Joffe was employed by General Electric as a
production engineer in the insulating materials field. In 1970, Mr. Joffe was
employed by King's Electronics, a RF coaxial connector manufacturer, where he
was responsible for major accounts and guided the field sales force. In 1973,
Mr. Joffe was one of the founders and Vice-President of J.S. Love Associates,
Inc., a commodity brokerage house no longer in operation (then headquartered in
New York City). In 1976, Mr. Joffe formed and served as President and Chief
Operating Officer of London Futures, Ltd., a commodity broker with 275 employees
in nine offices. London Futures, Ltd. was closed in 1979 and Mr. Joffe moved to
Florida. From 1979 until 1986, Mr. Joffe was Vice President of Gramco Holdings,
Inc. (and its predecessor companies), a firm which owned and operated a variety
of companies. These companies included five cemeteries and funeral homes in
Broward County, Florida, a 33 acre marina, a general contracting company, a boat
title insurance underwriting firm, three restaurants, a real estate brokerage
company, a mortgage brokerage company and a leasing company. His
responsibilities involved supervision of the day-to-day operations and new
business development. From 1986 to 1991, Mr. Joffe served as consultant and/or
principal to a variety of small businesses in the South Florida area. In 1989
Mr. Joffe became President of Windy City Capital Corp., a small publicly traded,
reported company that was originally formed as a "blind pool" for the express
purpose of finding an acquisition candidate. Eventually, a reverse merger was
consummated with a computer software company from Pennsylvania. Mr. Joffe then
took the position of President of Rare Earth Metals, Inc. (and its predecessor
companies), a small publicly traded company which has purchased Spinecare, Inc.
a medical clinic in New York. Spinecare changed its name to Americare Health
Group and relocated its state domicile to Delaware. Since March of 1993, Mr.
Joffe has performed consulting services for First Commodities, Inc., an Atlanta
based commodities firm, and has been involved in fund raising for the Multiple
Sclerosis Foundation. He also assisted Digital Interactive Associates and IVDS
Partnership with financial affairs in conjunction with their successful bid to
the Federal Communications Commission for licenses in the cities of Atlanta,
Georgia, Minneapolis/St. Paul, Minnesota, and Kansas City, Missouri. Mr. Joffe
served as the interim president of Madison Sports & Entertainment Group, Inc., a
publicly held Utah corporation then headquartered in Fort Lauderdale, Florida,
from September 1, 1994, until February 16, 1994, at which time he became its
vice president and vice chairman, chief operating officer, treasurer and chief
financial officer until he resigned in 1996. Since 1996, he has founded a boat
financing company and joined NorthStar Capital ("NorthStar") as Managing
Director. NorthStar is an investment banking firm with offices in Stamford,
Connecticut and Boca Raton, Florida which specializes in assisting small to mid
size private and publicly traded companies with business and financial planning;
acquisition and divestiture; financial public relations and market position
advice; and, treasury services. In January 1999, Mr. Joffe was elected to serve
as a Director of Colmena Corp, a publicly held Delaware corporation, involved in
the telecommunications industry. In March of 1999, Mr. Joffe was elected as
Chairman of the Board of Directors and in May of 1999 he was elected as the
President of Colmena Corp.
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Edward Granville-Smith, Jr., Director
Edward Granville-Smith, Jr., age 66, served in the following capacities for
the Registrant until November, 1998: president, chief executive officer and sole
director. From November, 1998, until March, 1999, he continued as a member of
the Registrant's Board of Directors, although he informed the board through his
son and attorney in fact, that he was unable to attend board meeting due to
present impairment and disability. Mr. Granville-Smith, Jr., was President of
Equity Growth Systems, Inc., a corporation (not to be confused with the
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 corporation 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.
FAMILY RELATIONSHIPS
There are no family relationships among the current officers and directors
of the Registrant. However, during Mr. Edward Granville-Smith's recent health
problems, his son and attorney-in-fact, Mr. Mark Granville-Smith has acted as
Mr. Granville-Smith's non-voting representative on the Board of Directors.
Pursuant to the terms of the Granville-Smith Settlement Agreement filed as an
exhibit to this report, the Board expects to elect Mark Granville-Smith as a
Director replacing Edward "Ted" Granville-Smith, Jr., who resigned as a director
pursuant to the terms of the Granville-Smith Settlement Agreement.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
Based on information provided to the Registrant's legal counsel, except as
otherwise disclosed in this report, during the five year period ending on
December 31, 1998, 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:
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(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.
OTHER MATERIAL PERSONNEL
The following persons are not executive officers or directors; however,
they play a material role in the operations of the Registrant.
THE YANKEE COMPANIES, INC.
In November, 1998, the Registrant retained the Yankee Companies, Inc., a
Florida corporation ("Yankees") to recruit a new group of directors and to
assist them in development and implementation of new strategic plans. A copy of
the agreement with Yankees was filed with the Commission as an exhibit and is
discussed in Part II of the Registrant's quarterly report on Form 10-QSB for the
calendar quarter ended September 30, 1998, the details of which are incorporated
by reference herein as permitted by Rule 12b-23. Yankees has remained integrally
involved with the implementation of the new strategic plans of the Registrant as
discussed in Part I, Item I. Business, New Strategic Plans & Change In Control,
of this report and incorporated by reference herein. The president of Yankees is
Leonard M. Tucker and the Vice President is William A. Calvo, III.
MARK - GRANVILLE SMITH
Mark Granville-Smith is the son of Edward, "Ted" Granville-Smith, Jr. and
serves as attorney-in-fact for his father. Since December, 1998, primarily due
to the illness of his father, Mark Granville- Smith has been asked to attend all
Board meetings as a non voting member. On March 22, 1999, pursuant to the terms
of a Settlement Agreement, Edward, "Ted" Granville-Smith, Jr., resigned from the
Board of Directors. Pursuant to the terms of that same Settlement Agreement,
Mark Granville-Smith is to be elected to the Registrant's Board of Directors. It
is anticipated that he will be elected at the next Board of Directors meeting. A
copy of the Settlement Agreement is filed as an exhibit to this report (see
"Item 13 - Exhibit Index").
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COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED
Except with reference to the transactions by Mr. Scimeca discussed in Item
10 and 12 of this report, To the best of the Registrant's knowledge, no covered
person engaged in any transactions in the Registrant's securities during 1998,
except with reference to receipt of securities from the Registrant or in
compliance with the requirements of Section 16 of the Exchange Act as described
in this report. To the best of the Registrant's knowledge based on a review of
filings disclosed on the Commission's EDGAR Internet web site, all stockholders,
officers and directors materially complied with their obligations under Section
16(a) of the Exchange Act, except for Mr. Scimeca.
ITEM 10. EXECUTIVE COMPENSATION.
No current officers or directors of the Registrant have ever received any
compensation from the Registrant, except, as follows:
Summary Compensation Tables (1996 - 1998)
The Summary Compensation Tables below sets forth all compensation paid to
the Officers and Directors of the Registrant during the Registrant's year ended
December 31, 1996, 1997 and 1998.
1996 Summary Compensation Table *
Name Annual Compensation Long Term Compensation
and Awards Awards LTIP* All
Principal Restricted Restricted Pay- Other
Position Salary Bonus Other Stock Options outs Compen-
sation
E.Granville-Smith (1) ** ** ** ** ** ** **
Charles J. Scimeca ** ** ** (2) ** ** **
Gene R. Moffitt ** ** ** (3) ** ** **
Rafi Weiss ** ** ** (4) ** ** **
Donald E. Homan ** ** ** (5) ** ** **
1997 Summary Compensation Table *
Name Annual Compensation Long Term Compensation
and Awards Awards LTIP* All
Principal Restricted Restricted Pay- Other
Position Salary Bonus Other Stock Options outs Compen-
sation
E.Granville-Smith (1) ** ** ** ** ** ** **
Charles J. Scimeca (2) ** ** ** ** ** ** **
Gene R. Moffitt (3) ** ** ** ** ** ** **
Rafi Weiss (4) ** ** ** ** ** ** **
Donald E. Homan (5) ** ** ** ** ** ** **
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1998 Summary Compensation Table
Name Annual Compensation Long Term Compensation
and Awards Awards LTIP* All
Principal Restricted Restricted Pay- Other
Position Salary Bonus Other Stock Options outs Compen-
sation
E. Granville-Smith ** ** ** ** ** ** **
Charles J. Scimeca ** (2) ** (2) (2) ** **
G.Richard Chamberlin ** ** (11) (6) ** ** **
Penny Adams Field ** ** (11) (7) ** ** **
Anthony Q. Joffe ** ** (11) (8) ** ** **
Other Material Compensation for 1998
Name Annual Compensation Long Term Compensation
and Awards Awards LTIP* All
Principal Restricted Restricted Pay- Other
Position Salary Bonus Other Stock Options outs Compen-
sation
Yankee Companies, Inc. ** ** ** (9) (9) ** **
Actual and Anticipated 1999 Summary Compensation Table
Name Annual Compensation Long Term Compensation
and Awards Awards LTIP* All
Principal Restricted Restricted Pay- Other
Position Salary Bonus Other Stock Options outs Compen-
sation
Charles J. Scimeca ** ** ** ** ** ** **
G.Richard Chamberlin ** ** ** (6) ** **
Penny Adams Field ** ** ** ** ** ** **
Anthony Q. Joffe ** ** ** ** ** ** **
E.Granville-Smith ** ** ** ** ** (1) (1)
Other Material Compensation for 1999
Name Annual Compensation Long Term Compensation
and Awards Awards LTIP* All
Principal Restricted Restricted Pay- Other
Position Salary Bonus Other Stock Options outs Compen-
sation
Jerry C. Spellman(10) ** ** ** ** ** (10) (10)
Yankee Companies, Inc. ** ** ** ** (9) ** **
Long term incentive plans.
** None
* The information provided is based solely on informaytion provided by Mr.
Edward Granville-Smith, verified to the extent possible by the Registrant's
general counsel.
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(1) Edward "Ted" Granville-Smith, Jr.: served as President and Chief
Executive Officer until November 6, 1998 and served as Sole Director until
November, 1998, and then as Director until March 22, 1999. On May 22, 1995, the
Registrant entered into a five year employment agreement with Edward
Granville-Smith, its sole director, president and chief executive officer,(until
his resignation due to health problems in November, 1998.) The agreement was
discussed (and a copy thereof was filed as an exhibit) in the Registrant's
report on Form 10-KSB for the calendar year ended December 31, 1997 and the
discussion thereof is incorporated by reference hereto. Mr. Granville-Smith has
entered into an overall settlement agreement with the Registrant which covered
all rights under the subject employment agreement, which has now been canceled.
A copy of the Settlement Agreement is filed as an exhibit to this report (see
"Item 13 - Exhibit Index"). See Item 1, Business, Granville-Smith, Jr.,
Recission Settlement Agreement and Item 12, Certain Relationships and Related
Transactions, paragraph (c), of this report. See Security Ownership of Certain
Beneficial Owners and Management, footnote 1. On March 22, 1999, pursuant to a
recission Settlement Agreement, he resigned as a director.
(2) Charles J. Scimeca served as Registrant's Secretary until November 6,
1998, and has served as a Director and Acting President since November 6, 1998.
See Item 11, Security Ownership of Certain Beneficial Owners and Management,
footnote 3; Item 12, Certain Relationships and Related Transactions, Recent
Sales of Unregistered Securities, footnotes 1, 7, and 14 of this report.
(3) Gene R. Moffitt served as Vice President, Chief Operating Officer,
Treasurer and Chief Financial Officer until, October, 1997. See Item 12,
Certain Relationships and Related Transactions, Recent Sales of Unregistered
Securities, footnote 1 of this report.
(4) Rafi Weiss, served as Vice President, until October, 1997. See Item 12,
Certain Relationships and Related Transactions, Recent Sales of Unregistered
Securities, footnote 1 of this report.
(5) Donald E, Homan served as Vice President, until November, 1998. See
Item 12, Certain Relationships and Related Transactions, Recent Sales of
Unregistered Securities, footnote 1 of this report.
(6) G. Richard Chamberlin has served as a Director, Acting Secretary and
General Counsel, since November 6, 1998. See Item 11, Security Ownership of
Certain Beneficial Owners and Management, footnote 10; Item 12, Certain
Relationships and Related Transactions, Recent Sales of Unregistered Securities,
footnote 13 of this report.
(7) Penny Adams Field: has served as a Director since November 6, 1998. See
Item 11, Security Ownership of Certain Beneficial Owners and Management,
footnote 9; Item 12, Certain Relationships and Related Transactions; Recent
Sales of Unregistered Securities, footnote 13 of this report.
(8) Anthony Q. Joffe has served as a Director since November 6, 1998. See
Item 11, Security Ownership of Certain Beneficial Owners and Management,
footnote 9 and Item 12, Certain Relationships and Related Transactions, Recent
Sales of Unregistered Securities, footnote 13 of this report.
(9) The Yankee Companies, Inc. See Item 11, Security Ownership of Certain
Beneficial Owners and Management, footnotes 4, 5, and 6 and Item 12, Certain
Relationships and Related Transactions, paragraph (d) and footnote 12, Recent
Sales of Unregistered Securities, footnotes 11, 12, and 14 of this report.
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(10) Jerry C. Spellman was a consultant who could be deemed to be providing
services that were executive in nature. In May, 1995, the Registrant entered
into a consulting agreement with Bolina Trading Company, S.A., a Panamanian
Corporation pursuant to which the consultant received 84,000 shares of the
Registrant's common stock in exchange for 520 hours of consulting service per
year with additional compensation of $100.00 per hour for each hour in excess of
520 hours, a copy of the consulting agreement was filed as an exhibit to the
Registrant's report on Form 10-KSB/A for the calendar year ended December 31,
1995. Mr. Jerry C. Spellman as Managing Director for Bolina Trading Company,
S.A., himself and other affiliated entities, signed a general release which
covered all rights under the subject consultant agreement, which has now been
canceled.
(11) Messers. Chamberlin, Joffe and Ms. Field, were permitted to subscribe
for an aggregate of 250,000 shares of the Registrant's common stock, at a price
of $0.02 per share, on or about December 9, 1998, at a time when the quoted bid
price for the Registrant's common stock was $0.0625 per share. The resale of the
stock involved is subject to Rule 144 and the stock is therefore not marketable
until December 9, 1999. The Registrant's auditor, Bowman & Bowman, P.A., by and
through it's president, Larry Bowman, orally advised the Registrant's legal
counsel, that after considering the bid price, the proximity of the private
placement to a long period of non-trading in the stock, the book value of the
Registrant's stock as of the dates in question, and the consideration paid for
the stock, no compensation is likely to be attributable to the subscribers. The
Registrant's general counsel is of the opinion that should this stock be
attributed value in excess of $0.02 per share, some compensation will inure to
each of the recipients. See Part II, Item 5, Market for Registrant's Common
Equity and Related Stockholders Matters, for information concerning public
prices in the registrant's common stock during the relevant periods.
STOCK ISSUED IN EXCHANGE FOR ASSETS
Stock was issued to affiliates of Messrs. Granville-Smith and Spellman in
exchange for assets, as discussed in the Registrant's report on Form 10-KSB for
the calendar year ended December 31, 1997 and the discussion thereof is
incorporated by reference hereto. Messrs. Granville-Smith and Spellman, together
with their affiliates, have entered into an overall settlement agreement with
the Registrant which rescinded all rights and obligations under the subject
agreement. (See Item 1, Business)
Messrs. Weiss, Moffett and Homan
The series of transactions involving Messrs. Weiss and Moffett were
discussed in the Registrant's report on Form 10-KSB for the calendar year ended
December 31, 1997 and in Item 3, Legal Proceedings, on this report, the
discussions are incorporated by reference hereto. The transactions concerning
Messrs. Weiss, Moffett and Homan are also discussed in Item 12, Certain
Relationships and Related Transactions, Footnote 2, in this report.
LONG-TERM INCENTIVE PLAN ("LTIP") AWARDS TABLE
The Registrant has no long term incentive plans.
COMPENSATION OF DIRECTORS
There are no current arrangements for compensation of Directors, other than
the opportunity granted during November of 1998 to purchase shares of the
Registrant's common stock at $0.02 per share, pursuant to a recommendation to
the effect by Yankees, and, the compensation paid to Mr. Scimeca as discussed in
Item 10, Executive Compensation, and Item 12, Certain Relationships and Related
Transactions.
The Registrant, with the assistance of the Yankees, is developing plans for
future compensation of directors as well as officers, Based on recruitment and
incentive factors, but such plans are still in the discussion stage.
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COMPENSATION UNDER PLANS
Except as disclosed in Item 10, Executive Compensation and Item 12, Certain
Relationships and Related Transactions above or below, none of the Registrant's
executive officers have received or become entitled to any cash or non-cash
compensation under any Company plans (as the term "plan" is defined in
Instruction 3 to Item 402 of Regulation S-B, promulgated by the Securities and
Exchange Commission) during the last calendar year, nor have they been awarded
any stock options or other forms of indirect compensation by the Registrant.
In each of the foregoing cases, the securities issued were restricted
securities (i.e., not registered under applicable securities laws and thus not
eligible for public resale), thus, they were issued at an arbitrary valuation
prior to development of a market for the Registrant's securities, and
thereafter, at a discount from the closing bid price for the Registrant's
securities on the date of issuance, reflecting their legally imposed lack of
liquidity.
MANNER OF DETERMINING EXECUTIVE COMPENSATION
See response to COMPENSATION OF DIRECTORS, in this Item.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT &
CHANGE-IN-CONTROL ARRANGEMENTS.
On May 22, 1995, the Registrant entered into a five year employment
agreement with Edward Granville-Smith, its sole director, president and chief
executive officer, (until his resignation due to health problems in November,
1998.) The agreement was discussed (and a copy thereof was filed as an exhibit)
in the Registrant's report on Form 10-KSB for the calendar year ended December
31, 1997 and the discussion thereof is incorporated by reference hereto.
Mr. Granville-Smith has entered into an overall settlement agreement with
the Registrant which covered all rights under the subject employment agreement,
which has now been canceled. A copy of the Settlement Agreement is filed as an
exhibit to this report (see "Item 13 - Exhibit Index").
In May, 1995, the Registrant entered into a consulting agreement with
Bolina Trading Company, S.A., a Panamanian Corporation wherein the consultant
was to receive 84,000 shares of the Registrant's common stock in exchange for
520 hours of consulting service per year with additional compensation of $100.00
per hour for each hour in excess of 520 hours, a copy of the consulting
agreement is filed as an exhibit to the Registrant's report on Form 10-KSB/A for
the calendar year ended December 31, 1995.
Mr. Jerry C. Spellman as Managing Director for Bolina Trading Company,
S.A., on behalf of himself and other affiliated entities, signed a general
release which covered all rights under the subject consultant agreement, which
has now been canceled.
Except as disclosed below, 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.
Exercise by the Yankee Companies, Inc., of its stock options could result
in a material change in control, as could any material acquisition.
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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
As of April 30, 1999, the Registrant had 5,991,148 shares of common stock
outstanding. The following information pertains to the ownership of such
securities by the Registrant's principal stockholders, officers and directors.
Footnotes to tables (a), (b) and (c) follow subsection (d) below.
(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).
Name and Address of Amount of Nature of Percent of
Beneficial Owner Shares Ownership Class (%)
Edward Granville-Smith 1,055,000 (1), (8) 17.61%
3821-B Tamiami Trail,
Suite 201 Port Charlotte
Florida, 33952
Jerry C. Spellman 867,691 (2), (8) 14.49%
2510 Virginia Avenue, NW
Washington, D.C. 20037
Charles J. Scimeca 650,000 (3) 10.85%
23698 US Highway 19 North
Clearwater, 34265 (3)
The Tucker Family 847,500 (4)(5) 14.15%
7359 Ballantree Court
Boca Raton, Florida 33487
The Calvo Family 582,500 (5)(6) 09.72%
1941 Southeast 51st Terrace
Ocala, Florida 34471
Yankee Companies, Inc. 485,000 (5) 08.10%
902 Clint Moore Road, Suite 136
Boca Raton, Florida 33487
Joseph D. Radcliffe 365,000 (7) 06.19%
84 Clum Hill Road
Elka Park, New York 12427
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(b) Security Ownership of Management
The following table sets forth, as of the date of this report, the number
and percentage of the equity securities of the Registrant 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 Name Amount Nature Percent
of of of of of
Class Beneficial Owner Shares * Ownership Class
Common Edward Granville-Smith, Jr. 1,055,000 (1) 17.61%
Common Charles J. Scimeca 650,000 (2) 10.85%
Common Penny Adams Field 62,500 (3) 1.04%
Common Anthony Q. Joffe 62,500 (3) 1.04%
Common G. Richard Chamberlin, Esquire 125,000 (4) 2.09%
Common Mark Granville-Smith 20,000 (5) .03%
Common All officers and directors as a group 1,975,000 (12) 32.66%
(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.
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Basis for Percentage of Voting
Name Control Securities Owned
Edward Granville-Smith, Jr. (1) 17.61%
Jerry C. Spellman (2) 14.49%
Charles J. Scimeca (3) 10.85%
- ------
(d) Changes in Control.
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 may at a subsequent date result
in a change in control of the Registrant, except that pursuant to the terms of
the consulting agreement between the Registrant and Yankees, Yankees obtained
warrants to purchase 10% of the Registrant's outstanding common stock, subject
to antidilutive rights, measured as of the time the warrants were exercised, for
an aggregate of $60,000. When aggregated with other stock holdings in the
Registrant by persons related to the principals of Yankees, exercise of such
warrants would materially affect control of the Registrant. The Consulting
Agreement with Yankees was filed as an exhibit to the Registrant's report on
Form 10-QSB for the calendar quarter ended September 30, 1998, the details of
which are incorporated by reference hereto as permitted by Rule 12b-23.
___________________________________
(1) Beneficial ownership, record ownership is held by K. Walker, Ltd., a
Bahamian corporation except for 110,000 shares of stock in the record
name of Warren McFadden. Mr. Granville- Smith, Jr., served as a
director until March 22, 1999 although his affairs are being managed
by his attorney-in-fact, Mark Granville-Smith. The transactions
concerning the March 22, 1999, Settlement Agreement with Mr.
Granville-Smith, Jr., are discussed in Item 11(a) footnote 8, and Item
12 Certain Relationships and Related Transactions, in this report. Mr.
Granville-Smith served as the Registrant's sole director, president
and chief executive officer from 1995 until November 6, 1998, when he
asked to be replaced (except as a director) because of health
problems. On March 22, 1999, he resigned as director. Mr.
Granville-Smith is currently the Registrant's single largest
stockholder.
(2) Beneficial ownership, record ownership is held by Bolina Trading
Company, S.A., a Panamanian corporation, except with reference to
2,701 shares,(2400 shares of record held by Mr.Spellman personally and
301 shares held of record by First Investment Planning Company). Mr.
Spellman is the Managing Director of Bolina Trading Co., S.A., a
Panamanian corporation, which owns the subject shares. Such shares
comprise the second largest block of the Registrant's common stock
held by any single person. The transactions concerning the March 22,
1999, General Release signed by Mr. Spellman, are discussed in Item
11(a) footnote 8, and Item 12 Certain Relationships and Related
Transactions, in this report.
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(3) The transactions concerning the stock transfer of 450,000 shares to
Palmair, Inc., and the December, 1998, warrant agreement with Mr.
Scimeca are discussed in Item 12(a) Certain Relationships and Related
Transactions, in this report. Should Mr. Scimeca be deemed not to
control the 450,000 shares transferred to Palmair, Inc., then Mr.
Scimeca's percentage of common stock would be .0333% and Palmair, Inc,
would be .0751%. Mr. Scimeca currently serves as a director and as the
Registrant's acting president
(4) The Tucker family is comprised of the wife Michelle Tucker, the
husband Leonard Miles Tucker and Shayna and Montana, their minor
daughters. Mrs. Tucker holds 108,750 shares in trust for each of her
minor daughters and, in addition, 630,000 shares are held by Blue Lake
Capital Corp., a Florida corporation owned by Mrs. Tucker.
(5) The Yankee Companies, Inc., a Florida corporation, owned in equal
shares by members of the Calvo and Tucker families. Consequently, half
of its securities could be attributed beneficially to the Calvo family
and half to the Tucker family. See Note (4) for additional shares
attributable to the Tucker Family. On November 28, 1998, The
Registrant offered 150,000 shares of its common stock in consideration
for cancellation of debt for legal and advisory services. In February,
1999, William A. Calvo, III and Diversified Corporate Consulting
Group, L.L.C., entered into a settlement agreement with the Registrant
wherein Mr. Calvo, on his behalf and on behalf of Diversified, settled
the issue of outstanding consulting fees in the amount of $150,000 for
150,000 shares of the Registrant's common stock. Mr. Calvo, on his
behalf, and on behalf of Diversified, then assigned the same 150,000
shares to the Yankee Companies, Inc. A copy of the original settlement
agreement was included as an exhibit to the Form 8-KSB filed on March
5, 1999 and the discussion thereof is incorporated by reference, as
permitted by Rule 12b-23. Because the Registrant's common stock never
attained it's expected value, principally due to Mr. Granville-Smith's
medical problems, on April 16, 1999, the settlement agreement was
amended, writing off the consulting fees and resulting in payment of
only $3,000.00 (the cost associated therewith) for the same 150,000
shares of the Registrant's common stock. A copy of the amended
settlement agreement dated April 16, 1999, is attached as an exhibit
to this report (see "Item 13 - Exhibit Index"). As of the date of this
filing these shares are in the process of being issued. When these
shares are issued to the Yankee Companies, Inc. they will have a total
of 635,000 shares.
(6) The Calvo Family is comprised of Cyndi N. Calvo, William A. Calvo,
III, her husband, and their three minor children, William, Alexander
and Edward. Each member of the family holds 40,0000 shares (the
children's shares are held by their parents, in trust) and Mr. and
Mrs. Calvo hold 100,000 shares as tenants by the entireties. In
addition, 55,000 shares are held by the Calvo Family Spendthrift
Trust, a Florida trust for the benefit of the Calvo family, for which
Mrs. Calvo serves as trustee. See Note (5) for additional shares
attributable to the Calvo Family.
(7) Record ownership of 200,000 shares. In addition, Mr. Radcliffe's sons
Michael and Dennis Radcliffe each own 50,000 shares and his daughter
Vanessa Radcliffe owns 65,000 shares.
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(8) Pursuant to the Settlement Agreement with Edward "Ted" Granville-Smith
dated March 22, 1999, the Registrant is to issue 47,000 shares of its
common stock to any entities designated by Mr. Granville-Smith, Jr.,
and in such portions as Mr. Granville-Smith, Jr., so designates: it
being understood that 30,000 of these shares will be immediately
transferred to designees of Mr. Spellman, as consideration for their
release of Registrant, referred to herein. As of the date of this
filing these shares are in the process of being issued. When these
shares are issued, Edward "Ted" Granville-Smith, Jr., will have
control of 1,062,000 shares, and Jerry C. "J.C." Spellman will have
control of 897,691 shares.
(9) Beneficial and record. Ms. Field and Mr. Joffe serve as directors.
(10) Mr. Chamberlin serves as a director and as the Registrant's secretary
and general counsel. The Registrant has engaged G. Richard Chamberlin
to prepare and file this report. Mr. Chamberlin agreed to waive his
regular hourly rate for this project and the Registrant agreed to
issue Mr. Chamberlin 50,000 shares of its common stock. As of the date
of this filing these shares are in the process of being issued. When
these shares are issued Mr. Chamberlin will have a total of 175,000
shares.
(11) Mark Granville-Smith is the attorney-in-fact for his father Edward
"Ted" Granville Smith, Jr. Pursuant to the terms of the
Granville-Smith Settlement Agreement, filed as an exhibit to this
report, it is anticipated that he will be elected to the Board of
Directors to replace Edward "Ted" Granville-Smith, Jr., who resigned
as a director pursuant to the terms of the Settlement Agreement.
(12) Does not include shares issued to Messrs. Weiss, Moffett and Homan as
to which the Registrant has advised its transfer agent to decline to
honor any transactions based on failure of consideration. See Items 3
and 10 of this report.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The response to this Item as contained in the Registrant's report on Form
10-KSB for the year ended December 31, 1997, is hereby incorporated by
reference, as permitted by Rule 12b-23, except as modified by the disclosure
contained in Part II of the Registrant's quarterly report on Form 10-QSB for the
quarter ended September 30, 1998, also incorporated by reference hereto, and for
matters discussed in this report in response to Items 1, 2, 3, 10, and 11 in
this report. In addition:
(a) Charles Scimeca
Mr. Scimeca has represented the following to the Registrant's general
counsel: On July 7, 1998, Mr. Scimeca transferred 450,000 shares of the
Registrant's common stock to Palmair, Inc., a Bahamian Corporation, located at
55 Frederick Street, Nassau, Bahamas, with a contact person by the name of
Christian Gentis, who was the record shareholder and director thereof. Mr.
Gentis, at the time, acknowledged that Mr. Scimeca was retaining a 100%
beneficial ownership interest in Palmair, Inc. On December 18, 1998, Mr. Scimeca
relinquished his interest in Palmair, Inc., for $4,500.00. He specifically
disclaimed any interest in Palmair, Inc., and he has informed the Registrant's
Board of Directors that he is not a stockholder, officer or director in Palmair,
Inc. nor does he have any beneficial interest therein. A copy of the memorandum
from Mr. Scimeca dated March 26, 1999, is filed as an exhibit to this report
(see "Item 13 - Exhibit Index").
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Mr. Scimeca holds a warrant to purchase 200,000 shares of the Registrant's
common stock at a price of $.02 per share. The warrant agreement was filed as an
exhibit in the Registrant's report on Form 10-QSB for the calendar quarter ended
September 30, 1998 and the discussion thereof is incorporated by reference
hereto. In December, 1998, Mr. Scimeca represented to the new Board, that based
on certain promises made by the former sole director, he was entitled to an
additional 200,000 shares of stock. In reliance on Mr. Scimeca's representations
the Board authorized the execution of an option to purchase 200,000 shares. The
identification of two different Board Resolutions authorizing the issuance of
the same number of shares for the same reason to Mr. Scimeca, confuses the
issue. A copy of the Board Resolution dated January 30, 1998 was included as an
exhibit to Form 10-KSB for the period ended December 31, 1997 and a copy of a
Board Resolution, dated March 9, 1998, is included as an exhibit to this report
(see "Item 13 - Exhibit Index"). Further Board action is necessary to reconcile
the apparent inconsistencies concerning the issuance of stock, outstanding Board
Resolutions, and the terms of the warrant agreement.
(b) G. Richard Chamberlin
The Registrant has engaged G. Richard Chamberlin to prepare and file this
report. Mr. Chamberlin agreed to waive his regular hourly rate for this single
project in exchange for 50,000 shares of the Registrant's common stock. When
these shares are issued Mr. Chamberlin will have a total of 175,000 shares.
(c) Edward "Ted" Granville-Smith, Jr, and Jerry C. Spellman
A discussion of the acquisition of materially all of the Registrant's
operations and assets by Messers. Granville-Smith, Spellman and their affiliates
is contained in Item 1, Business- Discontinued Operations, and is incorporated
herein by reference.
Pursuant to the Settlement Agreement with Edward "Ted" Granville-Smith,
dated March 22, 1999, the Registrant is to issue 47,000 shares of its common
stock to any entities designated by Mr. Granville-Smith, Jr., and in such
portions as Mr. Granville-Smith, Jr., designates: it being understood that
30,000 of these shares will be immediately transferred to designees of Mr.
Spellman, as consideration in their release of the Registrant, referred to
herein. As of the date of this filing these shares are in the process of being
issued. When these shares are issued, Edward "Ted" Granville-Smith, Jr., will
have control of 1,062,000 shares, and Jerry C. "J.C". Spellman will have control
of 897,691 shares.
(d) The Yankee Companies, Inc.
The discussion of the Yankee Companies, Inc., association with the
Registrant is, as permitted by Rule 12b-23, incorporated by reference to the
discussion thereof in Part II of the Registrant's report on Form 10-QSB for the
quarter ended September 30, 1998. A copy of the settlement agreement with Mr.
Calvo was filed as an exhibit on Form 8-KSB filed on March 5, 1999 and the
discussion thereof is incorporated by reference hereto. A copy of the amended
settlement agreement dated April 16, 1999 is filed as an exhibit to this report,
and the discussion in Item 11, Security Ownership of Certain Beneficial Owners
of Management, footnote 5, is incorporated by reference hereto. As of the date
of this filing the shares have not yet been issued. When the shares are issued
the Yankee Companies, Inc. will have a total of 635,000 shares.
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RECENT SALES OF UNREGISTERED SECURITIES
The response to this item is incorporated by reference to the comparable
item in the Registrant's report on Form 10-KSB for the year ended December 31,
1997, supplemented by the Response to Part II of the Registrant's quarterly
report on Form 10-QSB for the calendar quarter ended September 30, 1998, as
permitted by Rule 12b-23.
The following table summarizes issuances of unregistered securities by the
Registrant during the preceding three years.
Date
Securities Common Offering Consideration Claimed
Issued Stockholder Shares Price Paid Exemption
06-14-96 G. William Hollar 10,000 (1)(a,e) (1)(a,e) Sec 4(2)
06-14-96 Thomas & Carol Horne 10,000 (1)(a,e (1)(a,e) Sec 4(2)
06-14-96 Carlton P. Moffatt, Jr. 10,000 (1)(a,e) (1)(a,e) Sec 4(2)
06-14-96 Gene R. Moffitt 100,000 (1)(c,e) (1)(c,e) Sec 4(2)
06-14-96 Donald Homan 100,000 (1)(c,d,e)(1)(c,d,e) Sec 4(2)
06-14-96 Macon & Associates 50,000 (1)(b,d,e)(1)(b,d,e) Sec 4(2)
06-14-96 Charles Scimeca 100,000 (1)(c) (1)(c) Sec 4(2)
10-14-96 Marilyn Karpoff 50,000 (2)(a,b) (2)(a,b) Sec 4(2)
10-14-96 Edward Kerper 25,000 (2)(b,d) (2)(b,d) Sec 4(2)
10-14-96 Liberty Transfer Co. 5,000 (2)(c,d) (2)(c,d) Sec 4(2)
04-28-97 Gary & Jean Vulgamore 5,000 (3) (3) Sec 4(2)
04-28-97 Jay C. Salyer 50,000 (4) (4) Sec 4(2)
03-26-98 Jean Wilson (6) 3,750 (5) (5) Sec 4(2)
03-26-98 Lisa Conger (6) 3,750 (5) (5) Sec 4(2)
03-26-98 Sara Sander (6) 67,500 (5) (5) Sec 4(2)
03-26-98 Jean Wilson (6) 1,250 (5) (5) Sec 4(2)
03-26-98 Lisa Conger (6) 1,250 (5) (5) Sec 4(2)
03-26-98 Sara Sander (6) 22,500 (5) (5) Sec 4(2)
03-26-98 Charles J. Scimeca 150,000 (7) (7) Sec 4(2)
03-26-98 Gary/Jean Vulgamore 20,000 (3) (3) Sec 4(2)
03-26-98 Mark Granville-SmithTrust 20,000 (8) (8) Sec 4(2)
09-04-98 William J. Reilly,(6) 25,000 (9) (9) Sec 4(2)
09-10-98 Carrington Capital(6) 25,000 (10) (10) Sec 4(2)
11-24-98 Yankee Companies (11) (11) (11) Sec 4(2)
12-09-98 Blue Lake Capital 630,000 $12,600 (12) Sec 4(6)
12-09-98 M. Tucker
C/F Shayna Tucker 108,750 $2,750 (12) Sec 4(6)
12-09-98 M. Tucker
C/F Montana Tucker 108,750 $2,750 (12) Sec 4(6)
12-09-98 Yankee Companies 435,000 $8,700 (12) Sec 4(6)
12-09-98 Calvo Family
Spendthrift Trust 217,500 $4,350 (12) Sec 4(6)
12-09-98 G. Richard Chamberlin 125,000 $2,500 (13) Sec 4(6)
12-09-98 Anthony Q. Joffe 62,500 $1,250 (13) Sec 4(6)
12-09-98 Penny L. Adams Fields 62,500 $1,250 (13) Sec 4(6)
12-09-98 Yankee Companies 50,000 (13) (14) Sec 4(2)
12-09-98 Carrington Capital Corp 25,000 (10) (10) Sec 4(2)
12-09-98 Charles Scimeca 200,000 (14) (15) Sec 4(2)
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(1) A Board Resolution dated June 7, 1996 authorizes the issuance of
shares to members of the Registrant's Board of Advisors, Officers,
Donald E. Homan, Gene R. Moffitt and Charles J. Scimeca, as follows:
(a) Board of Advisors: Consideration for services on the Board of
Advisors for not less than 36 months. The value of the shares is
shown at $1.00 per share. Neither Carlton P. Moffatt, Jr., G.
William Hollar nor Thomas & Carol Horne appear to have remained
on the Board of Advisors for the required 36 months and therefore
the consideration remains unpaid.
(b) Officers: Consideration for services as an officer of Registrant
for not less than 36 months. The value of the shares is shown at
$1.00 per share. Rafi Weiss (whose designee was Macon Associates
Corp.) did not serve as an officer for 36 months and therefore
the consideration remains unpaid.
(c) Donald E. Homan, Gene R. Moffitt and Charles Scimeca:
consideration includes the transfer of stock of certain corporate
entities. The value of the shares is shown as $1.00 per share.
The corporate entities were never transferred as intended. The
consideration has not been paid. (See Footnote 2). Charles
Scimeca, the President of the Registrant, is presently
negotiating with the Registrant for the purposes of modifying the
consideration. Neither Donald E. Homan or Gene R. Moffitt have
made any effort to negotiate with the Registrant with the
purposes of modifying the consideration or complying with their
obligations.
(d) The series of transactions involving Messrs. Weiss and Moffett
were discussed in the Registrant's report on Form 10-KSB for the
calendar year ended December 31, 1997 and the discussion is
incorporated by reference hereto. In November, 1998, Mr. Homan
was removed from his position as an officer of the Registrant.
(e) For all the above persons, except for Mr. Scimeca, listed in
(a,b,c above): The transfer agent and the stockholders have been
notified that because consideration has not been paid, the Rule
144 holding period has not started, and the transfer agent's
records should reflect that position. These persons have been
requested to pay the consideration of $1.00 per share or return
the stock. See Part II, Item 5, Market for Registrant's Common
Equity and Related Stockholders Matters, concerning the absence
of an established public trading market for the common stock at
the time period referred to in this paragraph.
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(2) A Board Resolution dated October 2, 1996 authorizes the issuance of
shares as follows:
(a) Marilyn Karpoff: Pursuant to agreement to serve as vice president
of the Registrant for at least 24 months. The value of the
shares is shown as $.40 per share. Ms. Karpoff did not serve as
vice president for 24 months and therefore the consideration
remains unpaid. The transfer agent and the stockholder have been
notified that because consideration has not been paid, the Rule
144 holding period has not started, and the transfer agent's
records should reflect that position. These persons have been
requested to pay the consideration of $0.40 per share or return
the stock.
(b) Edward Kerper: In consideration for services rendered to the
corporation for recruitment of officers.
(c) Liberty Transfer Company: In lieu of interest and late payment
charges.
(d) The value of the shares authorized on October 2, 1996, is shown
as $.40 per share. See Part II, Item 5, Market for Registrant's
Common Equity and Related Stockholders Matters, concerning the
absence of an established public trading market for the common
stock for the time period referred to in this paragraph. A copy
of the letter to the transfer agent along with a Board
Resolution, dated October 2, 1996, is attached as an exhibit to
this report (see "Item 13 - Exhibit Index")
(3) Issued at the direction of prior management as compensation for
services rendered including payment for packaging, printing, copying
and typing; however, neither the offering price, consideration or
exemption relied on is clearly identifiable. See Part II, Item 5,
Market for Registrant's Common Equity and Related Stockholders
Matters, concerning the absence of an established public trading
market for the common stock for the time period referred to in this
paragraph.
(4) Jay C. Salyer, Esq.: Issued as retainer and consideration for
attorney's preparation of 10-KSB for year ended December 31, 1997. The
attorney did not perform the required services, and therefore full
consideration for the shares has not been paid. Consequently, the
holding period under Rule 144 has not commenced. The Board Resolution
authorizing the issuance of shares to Mr. Salyer does not indicate the
number of shares to be issued. The Board must address this issue with
the stock transfer agent. The Registrant has instructed it's general
counsel to negotiate appropriate fees for actual services rendered. In
the interim, it has instructed its transfer agent to dishonor
transactions in any such securities. A copy of the Board Resolution
issuing shares to Mr. Salyer is included as an exhibit to this report
(see "Item 13-Exhibit Index"). These shares were issued by the
Registrant at the direction of prior management and neither the
offering price, consideration or exemption relied on is clearly
identifiable
(5) Issued by Registrant at the direction of prior management as
compensation for unspecified services for the benefit of the
Registrant and neither the offering price, consideration or exemption
relied on is clearly identifiable. The securities were issued to Al
Sanders and Liberty Transfer Company, in the name of the following
designees: Sara Sanders, Al Sanders' wife; Lisa Conger and Jean
Wilson, Al Sanders' daughters. See Part II, Item 5, Market for
Registrant's Common Equity and Related Stockholders Matters,
concerning the absence of an established public trading market for the
common stock for the time period referred to in this paragraph.
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(6) The sole member of the Registrant's Board, Edward "Ted"
Granville-Smith, Jr., authorized the issuance of 100,000 shares to the
Registrant's transfer agent for services rendered and 25,000 of the
shares were to be free trading per the filing of a form S-8. A copy of
the Board Resolution dated January 30, 1998 was included as an exhibit
to the report on Form 10-KSB for the calender year ended December 31,
1997, A form S-8 was never filed and the stock was improperly issued
to affiliates of the transfer agent, Jean Wilson (1,250 shares), Lisa
Conger (1,250 shares), Sara Sanders (22,500 shares), by the transfer
agent allegedly under Rule 504, (Although no notice on Form D
pertaining thereto was ever filed by the Registrant with the SEC.) Mr.
Granville-Smith also authorized the issuance of 25,000 shares each to
William J. Reilly, Esq., and Carrington Capital Corporation. William
J. Reilly, Esq., is a securities attorney whom Mr. Granville-Smith,
Jr., was considering hiring. Shares were issued at the direction of
Edward "Ted" Granville-Smith, Jr., prior to the election of current
management, apparently on the advise of Mr. Reilly. A copy of a Board
Resolution dated September 1, 1998 is attached as an exhibit to this
report (see "Item 13 - Exhibit Index"). See Part II, Item 5, Market
for Registrant's Common Equity and Related Stockholders Matters,
concerning the absence of an established public trading market for the
common stock for the time period referred to in this paragraph. After
examination of certain records in the possession of the transfer
agent, the Registrant's general counsel noted that certain securities
were issued pursuant to Rule 504. The Registrant's general counsel is
of the opinion that the Rule 504 exemption is only available to
issuers that are not subject to the reporting requirements of Sections
13 or 15(d) and therefore was not appropriate in these instances. The
Registrant has requested the parties and the transfer agent to stop
any attempted transfer of the these shares and has requested recall of
the stock for proper legending. A copy of the letter to the transfer
agent is attached as an exhibit to this report (see "Item 13 - Exhibit
Index"). At the time of this filing, Carrington has responded
affirmatively and has represented that Carrington will return 25,000
free trading shares for appropriate legending. As to the other persons
and entities, litigation is possible if the other persons or entities
do not cooperate in correcting the improper reliance on Rule 504.
(7) Charles J. Scimeca: Bonus for efforts in finding acquisition
candidates and for good office representation to the public. Issued at
the direction of prior management; however, neither the offering
price, consideration or exemption relied on is clearly identifiable.
See Part II, Item 5, Market for Registrant's Common Equity and Related
Stockholders Matters, concerning the absence of an established public
trading market for the common stock for the time period referred to in
this paragraph.
(8) R. Mark Granville-Smith Trust: Compensation for consulting services
and bookkeeping services for the benefit of Registrant. Issued at the
direction of prior management; however, the offering price,
consideration, and exemption relied on, is not clearly identifiable.
See Part II, Item 5, Market for Registrant's Common Equity and Related
Stockholders Matters, concerning the absence of an established public
trading market for the common stock for the time period referred to in
this paragraph.
(9) William J. Rielly, Esq.: Issued as retainer and consideration for
attorney's preparation of Form 10-KSB for the calendar year ended
December 31, 1997, at the direction of prior management. However, the
offering price , consideration, and exemption relied on, is not
clearly identifiable. The Attorney did not perform services, and
therefore full consideration for the shares has not been paid. The
Registrant has instructed it's general counsel to negotiate
appropriate fees for actual services rendered. In the interim, the
Registrant has instructed its transfer agent to dishonor transactions
in any such securities. See footnote 5 above, incorporated and made
apart of this footnote.
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(10) Carrington Capital Corp: Consulting services for assisting the
Registrant to prepare disclosure information required by SEC and to
monitor the 15c2-11 compliance process and to assist the market maker
in filing Form 15c2-11 with the NASD. Issued at the direction of prior
management however, the offering price, consideration, and exemption
relied on, is not clearly identifiable. See footnote 5 above,
incorporated and made apart of this footnote.
(11) Yankees Warrants: Under the terms of its consulting agreement with the
Registrant, Yankees has the right to purchase 10% of the Registrant's
common stock, as determined immediately following exercise of the
option in consideration for $60,000.00. A copy of the consulting
agreement with Yankees was filed as an exhibit to the Form 10-QSB for
the calendar quarter ended September 30, 1998, the details of which
are incorporated by reference hereto as permitted by Rule 12b-23.
Exercise of Yankee's option would materially affect control of the
Registrant.
(12) A private placement of 1,500,000 shares of the Registrant's common
stock at $0.02 per share, to the Yankees, and it's affiliates, in
reliance on the exemption from registration provided by Section 4(6)
of the Securities Act. See Part II, Item 5, Market for Registrant's
Common Equity and Related Stockholders Matters, for information
concerning the market price of the Registrant's common stock during
the relevant periods.
(13) Part of a private placement to the Registrant's newly elected
directors, on or about December 9, 1998, at which time the bid price
for the Registrant's common stock was $0.0625 per share. The resale of
the stock involved is subject to Rule 144 and the stock is therefore
not marketable until December 9, 1999. The Registrant's auditor,
Bowman & Bowman, P.A., by and through it's president, Larry Bowman,
orally advised the Registrant's legal counsel, that after considering
the bid price, the proximity of the private placement to a long period
of non-trading in the stock, the book value of the Registrant's stock
as of the dates in question, and the consideration paid for the stock,
no compensation is likely to be attributable to the subscribers. The
Registrant's general counsel is of the opinion that should this stock
be attributed value in excess of $0.02 per share, some compensation
will inure to each of the recipients. See Part II, Item 5, Market for
Registrant's Common Equity and Related Stockholders Matters, for
information concerning public prices in the registrant's common stock
during the relevant periods.
(14) Yankees: Reimbursement for 50,000 shares paid by the Calvo Family
Spendthrift Trust to Carrington Capital Corporation for the benefit of
the Registrant.
(15) Charles J. Scimeca: Warrants; A copy of the warrant agreement with Mr.
Scimeca was filed as an exhibit to the Registrant's report on Form
10-QSB for the calendar quarter ended September 30, 1998, the details
of which are incorporated by reference hereto as permitted by Rule
12b-23. The comments concerning Mr. Scimeca in Item 11, Certain
Relationships and Related Transactions, in this report are
incorporated by reference hereto. Consideration to be paid on full
exercise is $4,000.00.
COMPARABILITY OF TERMS
It is the opinion of the Registrant's current management that in each
transaction described above since current management assumed control of the
Registrant, the terms of transactions involving the Registrant's officers and
directors were materially more favorable to the Registrant than it could have
obtained from unrelated sources, except for the transactions with Messrs. Edward
"Ted" Granville-Smith, Jr. and Jerry Spellman, which were neither arms length
nor on terms deemed fair to the Registrant.
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ITEM 13. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit Page Description
2.1 (3) Stock Exchange Agreement re Homan Equities, Inc.,
2.2 (4) Stock Exchange Agreement re Moffett Properties, Ltd..
2.3 (3) Stock Exchange Agreement re Equity Growth Realty, inc.
2.4 86 Settlement Agreement with Edward Granville-Smith, Jr.
2.5 97 General Release with Jerry C. Spellman
2.6 99 American Internet Letter of Intent
3.1 (7) Amended and Restated Bylaws as of December, 1998.
10.1 (1) Agreement for settlement of outstanding claims with the
Registrant's attorneys.
10.2 (1) Agreement for settlement of outstanding claims with the
Registrant's accountants.
10.3 (1) Employment Agreement with Edward Granville-Smith, Jr.
10.4 (1) Consultant Agreement with Bolina Trading Co., S.A.
10.5 (2) Settlement Agreement between Registrant and Equity Growth
Systems, inc., a Maryland corporation.
10.6 (3) Assignment of Indenture of Trust by Milpitas, Inc., including
Indenture of Trust.
10.7 (3) Engagement Agreement with Diversified Corporate Consulting
Group, LLC.
10.8 (3) Corrective Bill of Sale.
10.9 (3) (a) Employment Agreement with Gene R. Moffett.
(b) Resignation of Gene R. Moffett
10.10 (3) Employment Agreement with Donald E. Homan.
10.11 (3) Employment Agreement with Charles J. Scimeca.
10.12 (3) Repayment Agreement with WEFT Trust.
10.13 (5) Settlement between Registrant, Diversified, and Trustee.
10.14 (4) Assignment of Deed of Trust: L29160.
10.15 (4) Assignment of Leases and/or Rents L29161.
10.16 (4) Assignment of Tripartite Agreement L29162.
10.17 (4) Agreement: First Ken-Co with San Safe dated Oct 20, 1997.
10.18 (4) Statement of Unanimous Consent by Ken-Co Properties.
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10.19 (4) General Warranty Deed dated October 20, 1997, Kansas property.
10.20 (4) Termination of Memorandum of Lease, Kansas property (7)
10.21 (4) Mutual Release dated October 20, 1997.
10.22 (7) Subscription agreements with new subscribers and new officers
and directors.
10.23 (7) Consulting agreement with Yankee Companies, Inc.
10.24 (7) Recent Settlements and Releases with creditors.
10.25 (7) Proposed Settlement Agreement with Mr. Granville-Smith, Jr.
10.26 (7) Stock Purchase Option Agreement with Mr. Scimeca.
10.27 (8) Calvo Settlement Agreement
10.28 (8) Proposed Consulting Agreements with the Gaff Group, Inc.,
Sports Collectibles Exchange, Cental Communications Group, Inc.
and Golden Jersey Products, Inc.
10.29 (8) Engagement agreement for 1998 audit with Bowman & Bowman, P.A.,
certified public accountants.
10.30 105 Calvo amended settlement agreement, dated February 18, 1999.
10.31 107 Consulting Agreement with Funds America Finance Corporation,
dated May 7, 1999.
16.01 (3)(8)Letters re: Change in Certifying Accountant.
23.3 (3-6) Auditor's Consent (Baum)
23.4 124 Auditor's Consent (Bowman & Bowman).
99.1 (4) Substitute Trustee's Deed, Memphis Property.
99.2 (4) Proof of Publication, Memphis Property.
99.3 (4) Order of Dismissal with Prejudice: Case No 97-2072.
99.4 (4) Letter to David Albright, Esq. dated December 18, 1997.
99.5 (4) Complaint for Declaratory Judgement: First Ken Co. V. JJ Martin
et. al.
99.6 (6) Letter to David Albright, Esq. dated April 22, 1998.
99.7 (6) Letter to David Albright, Esq. dated May 28, 1998.
99.8 (6) Real Estate Title Reports for Nevada, California, Tennessee,
Kansas and Oregon properties subject to Wrap Mortgages and Leases
99.9 (6) Director's Resolution as to shares of the Registrant's common
stock to officer and transfer agent.
99.10 (6) Director's Resolution Dismissing Vice President for
Acquisitions.
99.11 (7) Written Consent in Lieu of Special Meeting of Board of
Directors for November 6, 1998.
99.12 (7) Minutes of Special Meeting of Board of Directors for November
27, 1998.
99.13 (7) Minutes of Special Meeting of Board of Directors for December
8, 1998.
99.14 (7) Amended Notice for Special Meeting of Board of Directors for
November 27, 1998.
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99.15 (7) Minutes of Special Meeting of Board of Directors for December
11, 1998, part 1.
99.16 (7) Minutes of Special Meeting of Board of Directors for December
11, 1998, part 2.
99.17 (7) Notice for Special Meeting of Board of Directors for November
27, 1998.
99.18 (4) Director's resolution accepting Moffit Resignation.
99.19 (4) Director's resolution electing Edward "Ted" Granville-Smith,
President & CEO.
99.20 (6) Director's resolution issuing 100,000 shares to Transfer
Agent and 150,000 shares to Charles Scimeca dated January 30,
1998.
99.21 125 Director's resolution issuing 150,000 shares to Charles
Scimeca, 20,000 shares to Gary and Jean Vulgamore and 20,000
shares to R. Mark Granville-Smith Trust, dated March 9, 1998.
99.22 126 Director's resolution issuing 25,000 shares to Leonard Tucker,
dated May 28, 1998.
99.23 (8) Minutes of Special Meeting of Board of Directors for March 3,
1999.
99.24 127 Written Consent in Lieu of Special Meeting of Board of
Directors for June 7, 1996.
99.25 130 Written Consent in Lieu of Special Meeting of Board of
Directors for October 2, 1996
99.26 132 Board Resolution issuing shares to Mr. Slayer
99.27 133 Meeting of the Board of Directors for September 1, 1998.
99.28 134 Meeting of the Board of Directors for November 11, 1998.
99.29 138 Letter to transfer agent concerning appropriate consideration
not paid, dated May 3, 1999.
99.30 140 Letter to transfer agent concerning Rule 504 stock,
dated May 3, 1999.
99.31 142 Memorandum from Mr. Scimeca, dated March 26, 1999.
99.32 143 American Internet Private Placemenr Memorandum
- --------
(1) 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 permitted by SEC Rule
12b-23.
(2) Filed as an exhibit to the Registrant's report on Form 8-KSB dated July 14,
1995, bearing the exhibit designation number shown above; incorporated by
reference herein as permitted by SEC Rule 12b-23.
(3) 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 permitted by SEC Rule
12b-23.
(4) 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 permitted by SEC Rule
12b-23.
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<PAGE>
(5) Filed as an exhibit to the Form 8-KSB for period dated September 8, 1997,
bearing the exhibit designation number shown above; incorporated by
reference herein as permitted by SEC Rule 12b-23.
(6) 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 permitted by SEC Rule
12b-23.
(7) Filed as an exhibit to the Registrant's report on Form 10-QSB for the
fiscal quarter ended September 30,1998, bearing the exhibit designation
number shown above; incorporated by reference herein as permitted by SEC
Rule 12b-23.
(8) Filed as an exhibit to the Registrant's report on Form 8-KSB filed on March
5, 1999, bearing the exhibit designation number shown above; incorporated
by reference herein as permitted by SEC Rule 12b-23.
(b) 8-KSB Reports
No reports on Form 8-K were filed during the last quarter of the calendar
year ended December 31, 1998. A report on Form 8-KSB dealing with certain
material consulting agreements and the change in auditors(letter from auditors
filed as an exhibit to the 8-KSB/a filed on April 2, 1999) was filed during the
first quarter of 1999.
83
<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: May 25, 1999
Equity Growth Systems, inc.
By: /s/ Charles J. Scimeca /s/
-----------------------------------------
Charles J. Scimeca, President & Chief Executive Officer
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 Date Title
/s/Charles J. Scimeca/s/ May 25, 1999 President, Chief Executive
Officer, Director
/s/G. Richard Chamberlin/s/ May 25, 1999 Secretary, General Counsel,
Director
/s/ Penny L. Adams Field May 25, 1999 Director, Audit Committee
Chair
/s/Anthony Q. Joffe /s/ May 25, 1999 Director
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ADDITIONAL INFORMATION
Corporate Headquarters:
Equity Growth Systems, inc.
President: Charles Scimeca
8001 DeSoto Woods Drive; Sarasota, Florida, 34243
Telephone Number: (941) 358-8182 Facsimile Transmission (941) 358-8423
General Counsel
The Chamberlin Law Office, Inc.
G. Richard Chamberlin, Esq,
1941 Southeast 51st Terrace, Suite 800, Ocala, Florida 34471
Telephone (352) 694-6714: Facsimile Transmission (352) 694-9178
Subsidiaries:
None currently active.
Independent Public Accountants:
Bowman & Bowman, P.A.
Attn: Larry Bowman
1705 Colonial Boulevard, Suite D-1, Fort Meyers, Florida 33907
Telephone (941) 939-2301: Facsimile Transmission (941) 939-1297
Transfer Agent:
Liberty Transfer Company
191 New York Avenue, Huntington, New York 11743
Telephone (516)-385-1616: Facsimile Transmission (516) 385-1619
Exhibits to the Form 10-KSB will be provided to shareholders of the
Registrant upon written request addressed to: The Chamberlin Law Office, Inc.,
G. Richard Chamberlin, Esq., 1941 Southeast 51st Terrace, Suite 800, Ocala,
Florida 34471, Any exhibits furnished are subject to a reasonable photocopying
charge.
The Securities and Exchange Commission has not approved or disapproved of
this Form 10-KSB and Annual Report to Shareholders nor has it passed upon its
accuracy or adequacy.
85
Settlement Agreement
This Settlement Agreement (the "Agreement") is made and entered into by and
among Equity Growth Systems, inc., a publicly held Delaware corporation with a
class of securities registered under Section 12(g) of the Securities and
Exchange Act of 1934, as amended ("Equity Growth Systems" and the "Exchange
Act," respectively); Edward "Ted" Granville-Smith, Jr., a Florida resident who
for longer than three years served as the sole director, president and the chief
executive officer of Equity Growth Systems (Mr. Granville-Smith, Jr."); as
Trustee for The Granville-Smith Trust Dated August 13, 1976 (the "GS Trust"); as
Statutory Trustee for First Ken Co Properties, Inc., a dissolved Delaware
Corporation ("First Ken Co"); as a managing partner and U.S. registered agent of
K. Walker International, LTD., (a/k/a K. Walker, LTD), a Bahamian Corporation
("KWL"); as a principal and director of Milpitas Investors, Inc., a Delaware
Corporation ("Milpitas"); and as Trustee of the Milpitas Investors, Inc. Trust,
('Milpitas Trust"); Edward Granville-Smith, Jr., as Statutory Trustee for Equity
Growth Systems, Inc., a dissolved Maryland Corporation ("EGSM"); Equity Growth
Systems, Mr. Granville-Smith, Jr., the GS Trust, First Ken Co., KWL, Milpitas,
Milpitas Trust, EGSM, being hereinafter collectively referred to as the
"Parties" and each being sometimes hereinafter generically referred to as a
"Party").
Preamble:
WHEREAS, Mr. Granville-Smith, Jr. has heretofore resigned and retired from
his official roles as an officer and director of Equity Growth Systems and in
order to induce new individuals to assume successor roles, offered to settle all
claims he may have had under employment, consulting and creditor relationships
with Equity Growth Systems, as hereinafter described and
WHEREAS, this agreement is conditioned on the Board of Directors of Equity
Growth Systems electing Mark Granville-Smith as a new Board member for the
purposes of replacing Edward "Ted" Granville-Smith, Jr.; and
WHEREAS, Mr. Granville-Smith, Jr. understands that he is acting for his
owns interest, and the interests of entities affiliated and/or controlled,
other than Equity Growth Systems; and
WHEREAS, Mr. Granville-Smith, Jr. has represented to the newly elected
directors and management of Equity Growth Systems that he, and/or entities
affiliated and/or controlled by him and/or his designee(s), has provided at
least $147,000 in capital to or for the direct benefit of Equity Growth Systems
under arrangements calling for Equity Growth Systems to assure repayment thereof
(the "TGS Loans"); and
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<PAGE>
WHEREAS, Mr. Granville-Smith, Jr. agrees to discharge through rescission
the series of agreements between Mr. Granville-Smith, Jr., in a number of
capacities and Equity Growth Systems (as disclosed in Equity Growth Systems
reports on SEC Form 10-KSB for the years ended December 31, 1996 and 1997, the
"Milpitas Agreements"), pursuant to which Equity Growth Systems acquired rights
to a number of real estate assets and/or interests in Limited Partnership Notes
backed by real estate, (the "LP Assets"), as a result of which he and his
designees would assume all ownership rights theretofore are vested in Equity
Growth Systems, inc.; and
WHEREAS, in light of the complexities involved in the LP Assets, which only
Mr. Granville-Smith, Jr. and/or his designees understand, the newly elected
management is of the opinion that disassociation therefrom in exchange for
cancellation of all obligations to the other Parties, from whatever source,
including, without limitation, employment and consulting agreements, the TGS
loans, promissory notes, loans, etc., is in the long term interest of Equity
Growth Systems:
NOW, THEREFORE, in consideration of the premises, as well as the mutual
covenants hereinafter set forth, the Parties, intending to be legally bound,
hereby agree as follows:
Witnesseth:
First: Terms of Settlement
The Parties hereby agree to settle all of their outstanding claims against
each other and their members, partners, officers, directors, agents and
affiliates, on the following terms:
A. In full payment of all obligations to all other Parties and their affiliates
owed by Equity Growth Systems, and its affiliates, from the beginning of time
until the date of this Agreement, as well as in consideration for the
extinguishment of all agreements between them:
1. The Milpitas Agreements are hereby rescinded and all rights arising
thereunder are hereby vested in Mr. Granville-Smith, Jr., or such entities or
entity as he may designate in his sole and absolute discretion.
2. (a) Equity Growth Systems will, within 72 hours after receipt of a
fully executed, notarized copy of this Agreement and a General Release
from Spellman, individually and on behalf of Spellman and all related
and affiliated entities, instruct its transfer agent to issue 47,000
shares of its common stock to any entities designated by Mr
Granville-Smith, Jr., and in such portions as Mr. Granville-Smith,
Jr., so designates: it being understood that 30,000 of these shares
will be immediately transferred to third parties, as consideration in
their release of Equity Growth Systems, referred to herein.
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<PAGE>
(b) Furthermore with 72 hours of presentment of the fully executed
documents described in this paragraph, Equity Growth Systems shall pay
to Mr. Granville-Smith, Jr. or to any entities designated by Mr
Granville-Smith, Jr., the sum of $5,000.00.
(c) Equity Growth Systems will cooperate in replacing lost, destroyed
or mutilated stock certificates previously, properly and legitimately
issued and that were disclosed in previous filings with the Security
and Exchange Commission
3. (a) As a condition of closing this agreement, Mr. Granville-Smith,
Jr., by and through his attorney in fact, Mark Granville-Smith, shall
provide Equity Growth Systems an original signed, (by Jerry C.
Spellman, individually and on behalf of all related and affiliated
entities), General Release.
(b) The General Release shall be duly and properly witnessed and
notarized. Each page will be initialed by Mr. Jerry C. Spellman. The
release shall be signed in the same form as found and attached and
marked as Exhibit "A" to this Agreement.
B. The Parties other than Equity Growth Systems hereby rescind and relinquish
all rights under any agreements between them or their affiliates and Equity
Growth Systems and its affiliates, other than those created by this Agreement,
relinquishing rights to anything involving Equity, including, but not limited
to, any loans, bills of sale, corrected bills of sale, contracts or agreements.
C. Mr. Granville-Smith, Jr. will, subject to physical capabilities and
limitations based on his health:
1. Cooperate with successor management to terminate all agreements with
former officers, directors and consultants not specifically ratified
by new management and in recovery of securities issued pursuant
thereto, including, without limitation, Messrs. Homan, Moffitt and
Salyer;
88
<PAGE>
2. Assist new management to prepare all reports to governmental and
regulatory authorities required under applicable laws, regulations and
rules, including, without limitation, tax returns and filings to the
Securities and Exchange Commission.
3. (a) Confirm to G. Richard Chamberlin, Esq., within 48 hours of signing
this agreement, that no Equity Growth Systems Board of Directors
Resolution(s) were signed by Edward "Ted" Granville-Smith, Jr., as
Sole Director other than as previously represented to G. Richard
Chamberlin in preparation for filing the 1997 10-KSB.
(b) Edward "Ted" Granville-Smith, Jr., also agrees to confirm the
foregoing as to Board resolution(s) executed between January 1, 1998
and December 31, 1998, and any Board resolution for 1995, 1996, 1997,
that does not appear as an exhibit to the 10-KSB's for 1995, 1996, or
1997.
D. Mr. Granville-Smith, Jr. hereby represents and warrants that, to the
best of his knowledge under his current physical and mental circumstances,
Equity Growth Systems has no liabilities not reflected in the financial
statements heretofore filed by it with the Securities and Exchange Commission,
while Mr. Granville-Smith, Jr., was acting as Sole Director and/or CEO of Equity
Growth Systems.
Second: Mutual Releases
(a)In consideration for the exchange of covenants reflected above but
excepting only the obligations created by this Agreement, the Parties hereby
each release, discharge and forgive the other, and each of the others' members,
officers, directors, partners, agents and employees from any and all
liabilities, whether current or inchoate, from the beginning of time until the
date of this Agreement.
(b)It is expressly understood and agreed that the terms of settlement are
an accord and satisfaction and are in compromise of all claims in connection
with or relating to anything involving Equity, including, but not limited to,
any loans, bills of sale, corrected bills of sale, contracts or agreements,
thereby relinquishing any claims by Mr. Ted Granville-Smith, Jr., and/or
Milpitas, Milpitas Trust, KWL, First Ken Co, GS Trust, or other companies,
trusts or entities which Mr. Ted Granville-Smith, Jr., or any related entities,
may claim now or in the future.
89
<PAGE>
Third: Miscellaneous
3.1 Amendment.
No modification, waiver, amendment, discharge or change of this Agreement
shall be valid unless the same is evinced by a written instrument, subscribed by
the Party against which such modification, waiver, amendment, discharge or
change is sought. If any conflict arises between the provisions of this
Agreement and any amendments hereto, the latest provisions shall in the absence
of manifest error prevail.
3.2 Notice.
All notices, demands or other communications given hereunder shall be in
writing and shall be deemed to have been duly given on the fifth business day
after mailing by United States registered or unaudited mail, return receipt
requested, postage prepaid, addressed as follows:
To Equity Growth Systems:
902 Clint Moore Road, Suite 136; Boca Raton, Florida 33487
Attention: Charles J. Scimeca, Acting President.
To Mr. Granville-Smith, Jr.:
Edward Granville-Smith, Jr., c/o Mark Granville-Smith
10460 Dumfries Road, Suite 121; Manassas, Virginia 20110
To the trustee for The Granville-Smith Trust dated August 13, 1976:
Edward Granville- Smith c/o Mark Granville-Smith
10460 Dumfries Road, Suite 121; Manassas, Virginia 20110
To K. Walker, L.T.D. a/k/a K. Walker International, LTD:
Edward Granville-Smith, Jr. c/o Mark Granville-Smith
10460 Dumfries Road, Suite 121; Manassas, Virginia 20110
with a copy to:
K. Walker, L.T.D. a/k/a K. Walker International, Ltd.
55 Frederick Street; Nassau, N.P., Bahamas, P.O. Box CP 13039
90
<PAGE>
To The Trustee of the Milpitas Investors, Inc. Trust:
Edward Granville-Smith, Jr., c/o Mark Granville-Smith
10460 Dumfries Road, Suite 121; Manassas, Virginia 20110
To Milpitas Investors, Inc.:
Edward Granville-Smith, Jr., c/o Mark Granville-Smith
10460 Dumfries Road, Suite 121; Manassas, Virginia 20110
with a copy to:
Box 789, Charles Town, West Virginia 25414
with a copy to:
US Corp Company
1013 Center Road; Wilmington, Delaware 19805, Registered Agent
To Robert A Klein, Trustee:
Indenture of Trust with Milpitas Investors Inc., dated October 31, 1992
Seventh Floor, 8100 Boone Boulevard; Vienna, Virginia 22182-2642
To Statutory Trustee for Equity Growth Systems, inc:
Edward Granville-Smith, Jr., c/o Mark Granville-Smith
10460 Dumfries Road, Suite 121; Manassas, Virginia 20110
To Statutory Trustee for First Ken Co Properties, Inc.:
Edward Granville-Smith, Jr., c/o Mark Granville-Smith
10460 Dumfries Road, Suite 121; Manassas, Virginia 20110
with a copy to:
The Corporation Trust Company; Corporation Trust Center
1209 Orange St.; Wilmington, Delaware 19801, Registered Agent
or such other address or to such other person as any Party shall designate to
the other for such purpose in the manner hereinafter set forth. All notices and
communications shall be deemed to have been received by the party to whom it was
addressed at the time of transmission in the case of a fax or other means of
written telecommunication ( and if the time of transmission is not during the
hours of 0900 to 1700 (9:00 A.M. to 5:00 P.M.) At the place of receipt, then at
0900 hours (9:00 A.M.) At the place of receipt the next day when business is
usually conducted at the place of receipt). Any party may require at any time
one (1) copy of all notices, communications or legal process be sent to such
address (not exceeding two (2) in number) as such party may specify in writing.
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3.3 Merger.
This instrument, together with the instruments referred to herein, contains
all of the understandings and agreements of the Parties with respect to the
subject matter discussed herein. All prior agreements whether written or oral
are merged herein and shall be of no force or effect.
3.4 Survival.
The several representations, warranties and covenants of the Parties
contained herein shall survive the execution hereof and shall be effective
regardless of any investigation that may have been made or may be made by or on
behalf of any Party.
3.5 Severability.
If any provision or any portion of any provision of this Agreement, other
than one of the conditions precedent or subsequent, or the application of such
provision or any portion thereof to any person or circumstance shall be held
invalid or unenforceable, the remaining portions of such provision and the
remaining provisions of this Agreement or the application of such provision or
portion of such provision as is held invalid or unenforceable to persons or
circumstances other than those to which it is held invalid or unenforceable,
shall not be affected thereby. Unless a party demonstrates by a preponderance of
the evidence that the invalid or unenforceable provision is an essential term of
the Agreement.
3.6 Governing Law.
This Agreement shall be construed in accordance with the laws of the State
of Florida and any proceedings pertaining directly or indirectly to the rights
or obligations of the Parties hereunder shall, to the extent legally permitted,
be held in Marion County, Florida.
3.7 Indemnification.
Each Party hereby irrevocably agrees to indemnify and hold the other
Parties harmless from any and all liabilities and damages (including legal or
other expenses incidental thereto), contingent, current, or inchoate to which
they or any one of them may become subject as a direct, indirect or incidental
consequence of any action by the indemnifying Party or as a consequence of the
failure of the indemnifying Party to act, whether pursuant to requirements of
this Agreement or otherwise; provided that, such claims are asserted by third
Parties unrelated to the Parties. In the event it becomes necessary to enforce
this indemnity through an attorney, with or without litigation, the successful
Party shall be entitled to recover from the indemnifying Party, all costs
incurred including reasonable attorneys' fees throughout any negotiations,
trials or appeals, whether or not any suit is instituted.
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<PAGE>
3.8 Litigation.
In any action between the Parties to enforce any of the terms of this
Agreement or any other matter arising from this Agreement, the prevailing Party
shall be entitled to recover its costs and expenses, including reasonable
attorneys' fees up to and including all negotiations, trials and appeals,
whether or not litigation is initiated.
3.9 Benefit of Agreement.
The terms and provisions of this Agreement shall be binding upon and inure
to the benefit of the Parties, their successors, assigns, personal
representatives, estate, heirs and legatees.
3.10 Captions.
The captions in this Agreement are for convenience and reference only and
in no way define, describe, extend or limit the scope of this Agreement or the
intent of any provisions hereof.
3.11 Number and Gender.
All pronouns and any variations thereof shall be deemed to refer to the
masculine, feminine, neuter, singular or plural, as the identity of the Party or
Parties, or their personal representatives, successors and assigns may require.
3.12 Further Assurances.
The Parties agree to do, execute, acknowledge and deliver or cause to be
done, executed, acknowledged or delivered and to perform all such acts and
deliver all such deeds, assignments, transfers, conveyances, powers of attorney,
assurances, stock certificates and other documents, as may, from time to time,
be required herein to effect the intent and purpose of this Agreement.
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<PAGE>
3.13 Status.
(a) Nothing in this Agreement shall be construed or shall constitute a
partnership, joint venture, employer-employee relationship, lessor-lessee
relationship, or principal-agent relationship, rather, the relationships
established hereby are those of settling debtor and creditor.
(b) Each party hereto represents and warrants that to the best of his, her
or it's knowledge that the execution and performance of this Agreement will not
constitute a breach of any agreement or restriction, if any, to which, he, she,
or it, is a party or by which she, he or it, is bound.
(c) Any individual signing this Agreement for or on behalf of, partnership
or corporation or trustee, or as statutory trustee or as managing director,
warrants that he or she has been duly authorized to execute this Agreement on
behalf of that entity, partnership, corporation or as that trustee or managing
director.
3.14 Counterparts.
(a) This Agreement may be executed in any number of counterparts.
(b) All executed counterparts shall constitute one Agreement
notwithstanding that all signatories are not signatories to the original or the
same counterpart.
(c) Execution by exchange of facsimile transmission shall be deemed legally
sufficient to bind the signatory; however, the Parties shall, for aesthetic
purposes, prepare a fully executed original version of this Agreement, which
shall be the document filed with the Securities and Exchange Commission.
3.15 License.
(a) This Agreement is the property of the Yankee Companies, Inc., a Florida
corporation ("Yankees").
(b) The use hereof by the Parties is authorized hereby solely for purposes
of this transaction and, the use of this form of agreement or of any derivation
thereof without Yankees' prior written permission is prohibited.
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<PAGE>
(c) The Parties hereby acknowledge that Yankees is not a law firm or
regulated entity and has not provided any Party with any advice concerning this
Agreement, rather, it has informed each Party, as a condition to their use of
this form that they must obtain independent legal advice.
3.16 Waiver
No failure to exercise, nor any delay in exercising, on the part of any
Party hereto of any right or remedy hereunder shall operate as a waiver thereof;
nor shall any single or partial exercise of any right or remedy prevent any
further, or other exercise thereof, or the exercise of any right or remedy; or
be construed as a waiver of any continuing or succeeding breach of any provision
of this Agreement; or a waiver of the provision itself. The failure or delay of
any party hereto to require performance by any other party hereto of any
provision of this Agreement, shall not affect the right of such failing or
delaying party to require the performance of such provision unless and until
such performance has been waived by all of the Parties hereto in writing.
EXECUTION PAGES
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
effective as of the date set forth below and Signed, sealed and delivered, In
Our Presence:
Equity Growth Systems,inc.
By: /s/ Charles J. Scimeca /s/
------------------------------
Witness #1 Charles J. Scimeca, Acting President
- ---------------------------------
Witness #2
- -----------------------------------
Dated: March 22, 1999
Corporate Seal
State of }
County of} ss.:
Before me, an individual duly authorized to administer oaths, did
personally appear Charles J. Scimeca, a Florida resident, personally known to me
or produced identification _________________, who being duly sworn, did confirm
that he executed the foregoing Agreement on the date first hereinbefore set
forth, in the capacities indicated. My commission expires on:
(Seal)
/s/ Patricia M. Garrison /s/
--------------------------
Notary Public
95
<PAGE>
Witness #1
- ----------------------------
Witness #2
- ----------------------------
Mr. Edward "Ted" Granville-Smith, Jr.:
/s/ Mark Granville-Smith as attorney-in-fact /s/
Edward Granville-Smith, Jr.,
individually and as Trustee
for The Granville Smith Trust
Dated August 13, 1976, and as
managing partner and Registered
Agent for K. Walker International,
LTD., (a/k/a K. Walker, LTD, a
Bahamian Corporation, and as
Principal and Director of Milpitas
Investors, Inc., as Trustee
of the Milpitas Investors, Inc.
Trust, and, as Statutory Trustee
for Equity Growth Systems, Inc.,
a dissolved Maryland Corporation
and as Statutory Trustee for First
Ken Co Properties, Inc., a dissolved
Delaware Corporation: by Mark
Granville-Smith, his son and
attorney-in-fact acting by virtue of
his power of attorney, a copy of which is
annexed hereto and made a part hereof,
immediately following this signature page.
Dated: March 22, 1999
State of }
County of} ss.:
Before me, an individual duly authorized to administer oaths, did
personally appear Mark Granville-Smith as attorney in fact for Edward "Ted"
Granville-Smith, Jr, individually and for entities listed above, a
_________resident personally known to me or produced identification
__________________, who being duly sworn, did confirm that he executed the
foregoing Agreement on the date first hereinbefore set forth, in the capacities
indicated. My commission expires on:
(Seal)
/s/ Melinda Kaye Viscaiella /s/
--------------------------
Notary Public
96
General Release
Be it known that Jerry C. (J. C.) Spellman individually and as managing
director for Bolina Trading Company, S.A., A Panamanian Corporation, also known
as Bolina Trading Company, A Panamanian Corporation, and Jerry C. (J. C.)
Spellman, as managing director of Bolena Trading Corporation, S.A., a Panamanian
Corporation, and Jerry C. (J. C.) Spellman as Trustee for the WEFT Trust dated,
the __ day of __, 19,__, ("Spellman and "Bolina and Bolena and WEFT,"
respectively); Spellman, Bolina, Bolena, and WEFT, being hereinafter
collectively referred to as the "Spellman Parties" and also generically referred
to as "Releasors"),
In consideration of the entry by Equity Growth Systems, inc., a publicly
held Delaware corporation , into a certain recission agreements with Edward "Ted
Granville-Smith, Jr, a Florida Resident, hereinafter referred to as "Mr.
Granville-Smith", (or entities affiliated and/or controlled by Mr.
Granville-Smith), a copy of which is amended hereto and made a part hereof. And
marked Exhibit "A", and other valuable consideration, the adequacy of which is
hereby acknowledged: the Spellman Parties, otherwise known as the Releasors,
agrees as follows;
1. The Releasors hereby, jointly and severally, release and forever discharges
Equity Growth Systems, inc., a publicly held Delaware corporation, (hereinafter
referred to as the Releasee), from all causes of action, suits, debts, accounts,
liabilities, contracts, controversies, agreements, promises, damages, judgments,
executions, claims and demands whatsoever, known or unknown, in law or in
equity, which any of the Spellman Parties, individually or collectively have
ever had, now has, or which any personal representative, successor, heir
affiliates, directors, officers, advisors, agents, successors or assign of the
Spellman Parties individually or collectively hereafter can, shall or may have,
against the Releasee, for upon or by reason of any matter, cause or thing
whatsoever, from the beginning of time to present.
2. The Release shall be binding upon and inure to the benefit of the Releasor
and Releasee, their, heirs, successors, personal representatives, affiliates,
directors, officers, advisors, agents, successors and assigns.
3. Jerry C. Spellman: is authorized to execute bind and obligate each of the
Spellman Parties, separately or collectively, and on behalf of, and for the
benefit of, each of the Spellman Parties, separately or collectively; has read
this release and understands all the terms, provisions contained herein, and the
consequences thereof.
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4. The terms "Releasor" and "Releasee" include the plural and all genders, as
the text requires.
IN WITNESS WHEREOF, the Spellman Parties, separately or collectively, have
caused this Release to be executed effective as of the date set forth below.
Signed, sealed and delivered In Our Presence:
- --------------------
Witness #1
- ---------------------
Witness #2
Jerry C. (J.C.) Spellman
/s/ Jerry C. Spellman /s/
-----------------------------
Jerry C. (J. C.) Spellman
individually and as
Managing Director for
Bolina Trading Company,
S.A., A Panamanian
Corporation, as managing
director of Bolena Trading
Corporation, S.A.,
a Panamanian Corporation,
and as Trustee for the WEFT
Trust dated, the __ day of __,
19__
Dated: March 22, 1999
State of }
County of} ss.:
Before me, an individual duly authorized to administer oaths, did
personally appear Jerry C. (J. C.) Spellman, on behalf of himself individually
and each entity listed above, personally known to me or produced identification
___________________________, who being duly sworn, did confirm that he executed
the foregoing Agreement on the date first hereinbefore set forth, in the
capacities indicated. My commission expires on:
(Seal)
/s/ Melinda Kaye Viscariella /s/
--------------------------
Notary Public
98
Administrative Offices
The Yankee Companies, Inc.
A Florida corporation
Leonard Miles Tucker William A. Calvo, III, L.L.M.
President & Chief Executive Officer Vice President & Treasurer
May 17, 1999
Bruce Gleason, President
American Internet Technical Center, Inc.
440 East Sample Road
Pompano Beach, Florida 33056
Re: Potential Reorganization with Equity Growth Systems, Inc.
Gentlemen:
This letter confirms the status of negotiations concerning a proposed
transaction between our client, Equity Growth Systems, inc., a Delaware
corporation with a class of securities registered under Section 12 of the
Securities Exchange Act of 1934, as amended ( " Equity Growth " and the
"Exchange Act," respectively), and American Internet Technical Center, Inc., a
Florida corporation (hereinafter referred to as "American Internet"). If the
following comports with your understanding of the proposed transaction, please
sign a copy of this letter and return it to us by facsimile transmission
followed by hard copy, whereupon this letter will constitute an agreement by
each of the undersigned to use our best efforts to effect the contemplated
transaction at the earliest practicable time, subject to due diligence review
and good faith negotiations by our respective representatives. It will also
constitute a direction by the undersigned, on behalf of their organizations, to
legal counsel to the Yankee Companies, Inc., a Florida corporation (hereinafter
referred to as "Yankees"), to immediately commence to draft the required
documentation (the "Reorganization Agreement"). Upon presentation of Yankees'
draft of the Reorganization Agreement, you will each present it to your legal
counsel and other advisors for review and comments whereupon we will all use our
best efforts to reach a definitive agreement.
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<PAGE>
OUTLINE OF PROPOSED TRANSACTIONS
1. American Internet and its affiliates will consolidate all current
operations of its affiliates and related business enterprises in order to
create an entity more capable in the future of meeting the standards
imposed by the National Association of Securities Dealers, Inc. (the
"NASD") for listing on the NASDAQ Stock Market determined pursuant to
generally accepted auditing procedures ("GAAP"). Atlantic Internet has
confirmed to Yankees that during the past 12 fiscal months, its gross
income has exceeded $1,100,000 and its net, pre tax profits have exceeded
$138,000, despite having expensed many items that could have been reflected
as capital expenses.
2. A. Equity Growth will exchange 2,500,000 shares of its common stock,
$0.001 par value per share with the stockholders of the combined
entity resulting from the consolidation described above (the combined
entity being hereinafter referred to as "American Internet+"), for all
of the capital stock in American Internet+, such transaction to be
structured as a stock free reorganization pursuant to Section
368(a)(1)(B) of the Internal Revenue Code of 1986, as amended (the
"Code");
B. Yankees, in recommending this valuation, believes that the Equity
Growth stock will, after conclusion of the proposed transaction,
retain a market valuation of at least $0.50 per share on the short
term and that based on the performance of the American Internet
subsidiary, such value may become materially higher in the
intermediate term; however, recognizing that neither Yankees nor the
Parties can provide any assurances that Yankees' predictions will
prove accurate, Equity Growth will either agree to an adjustment in
the amount of Equity Growth stock exchanged if such minimum projection
is not met within a reasonable time following closing on the
Reorganization Agreement and such failure is not due to unusual market
conditions or improprieties in the trading of Equity Growth's
securities, or, permit the American Internet stockholders to rescind
the Reorganization Agreement, such decision to be made not later than
the 90th day following closing on the Reorganization Agreement;
C. Equity Growth will, immediately following such acquisition, invest the
sum of $100,000 in American Internet+, to be used in accordance with a
use of proceeds schedule included as an exhibit to the Reorganization
Agreement to be entered into by Equity Growth and the stockholders of
American Internet +;
D. Prior to closing on the Reorganization Agreement, Messrs. Bruce
Gleason ("Mr. Gleason") and Michael Umile ("Mr. Umile"), American
Internet+'s current principal executive officers and directors, will
enter into binding five year employment agreements with American
Internet + in form and substance acceptable to Equity Growth,
providing for base annual salaries of $75,000 per year:
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E. Equity Growth will issue additional shares of its common stock with
the former stockholders of American Internet + predicated on American
Internet + 's attaining the following annual net, pre-tax profit
thresholds determined as of December 31 of each year in accordance
with generally accepted accounting principals, consistently applied
("GAAP"), as follows:
1. Goal Time Frame Stock Bonus
$200,000 1999 500,000 Shares
$500,000 2000 800,000 Shares
$1,000,000 2001 800,000 Shares
$1,5000,000 2002 800,000 Shares
$2,000,000 2003 800,000 Shares
$2,500,000 2004 800,000 Shares
2. In the event that the thresholds are not attained and Equity Growth
has provided American Internet+ with $250,000 in funding for its operations
within 90 following closing on the Reorganization Agreement, then:
(A) If the net, pre tax earnings are less than 33% of the
required threshold during the subject 12 month period, the
stock bonus for such period will be forfeited;
(B) If the net, pre tax earnings are between 33% and 80% of the
required threshold during the subject 12 month period, the
stock bonus for such period and the required threshold will
be carried over to the next year, increasing both the
aggregate threshold and the aggregate bonus attainable for
such year; and
(C) Ifthe net, pre tax earnings are between 80% and 100% of the
required threshold during the subject 12 month period, the
stock bonus for such period shall be prorated.
3. In the event that the thresholds are not attained but Equity Growth
has not provided American Internet + with funding for its operations within
90 days following closing on the Reorganization Agreement, then, the stock
bonus for such period shall be prorated.
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F. The Reorganization Agreement will commit Equity Growth, during the
five years following closing on the Reorganization Agreement, to:
(1) Nominate at least one designee of the American Internet+ capital
stockholders who were parties thereto for membership on Equity
Growth's Board of Directors at each meeting of the Equity Growth
stockholders at which the membership of its Board of Directors is
up for election, and to use its best efforts consistent with
applicable law to secure such nominee's election;
(2) Elect designees of the American Internet + capital stockholders
who were parties thereto to at least two thirds of the seats on
American Internet+'a Board of Directors; and
(3) Provide, on one occasion only, "piggy back" registration rights
covering the Equity Growth common stock obtained pursuant to the
Reorganization Agreement by Mr. Gary Walk.
3. As a result of the foregoing:
A. The stockholders of American Internet+ would, at closing, own
approximately 29% of Equity Growth's then outstanding common stock;
B. American Internet+ would become a wholly owned subsidiary of Equity
Growth;
C. The former stockholders of American Internet+would collectively, in
the aggregate, be able to receive up to an additional 4,500,000 shares
of Equity Growth's common stock based on American Internet+'s post
closing financial performance, which, when aggregated with the stock
issuable to American Internet+ stockholders at closing of the
Reorganization Agreement, equal up to 7,000,000 shares.
4. Immediately following the closing on the Reorganization Agreement, Equity
Growth will effect a private placement of two year debentures, yielding
annual interest at the rate of 10% and convertible into shares of Equity
Growth common stock at a conversion rate of $0.50 per share, at least
$100,000 in net proceeds of which it will invest as equity in American
Internet+.
5. A. The Yankee Companies, Inc., a Florida corporation which serves as
Equity Growth's strategic development consultant ("Yankees") will, in
contemplation of a successful closing on the Reorganization Agreement,
immediately commence efforts on behalf of American Internet designed
to develop new sources of funding and business and American Internet
hereby irrevocably covenants and agrees, on its own behalf and on
behalf of its principals and affiliates, that:
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<PAGE>
(1) In the event that any such funding or business is hereinafter
availed of by it or its affiliates with any persons or entities
(or their affiliates) introduced by Yankees, then, Yankees will
be entitled to continuing compensation equal to 5 % of the gross
proceeds obtained from such funding or 5% of the value of such
business and further, that
(2) Neither American Internet nor its affiliates will directly or
indirectly conduct any business with any person or entity
(including affiliates thereof) introduced by Yankees, whether or
not the proposed transactions with Equity Growth take place,
except in accordance with the preceding
paragraph.
B. Yankees currently has options to purchase up to 10% of Equity Growth's
common stock (the "Yankee Warrants"), which rights the Parties
acknowledge will be beneficially affected by the increase in
outstanding securities that would result from the proposed
transaction;
C. In compliance with the requirements of Section 17(b) of the Securities
Act of 1933, as amended (the "Securities Act"), Yankees hereby advises
American Internet that Yankees has been and will continue to be
compensated by Equity Growth for its services, as specifically set
forth in the documents pertaining to Yankees filed by Equity Growth
pursuant to its obligations under the Exchange Act, copies of which
can be obtained through the Securities and Exchange Commission's
Internet web site at www.sec.gov.
6. The terms of the proposed transaction will be kept confidential during the
pendency of the negotiations called for hereby. Notwithstanding the
foregoing, Equity Growth will comply with its obligation's to publicly
disseminate information concerning this Agreement in press releases and
filings with the SEC, in form and substance reasonably approved by the
Parties.
7. A. In conjunction with the foregoing, Mr. Bruce Gleason and other
people associated with American Internet and American Internet+ have
been and will he provided with information concerning Equity Growth
which constitutes material inside information, as defined for purposes
of Sections 20A and 21A of the Exchange Act.
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<PAGE>
B. Such information was or will be provided in conjunction with
pending negotiations and pursuant to Equity Growth's obligations under
the Securities Act of 1933, as amended, and the Exchange Act, to
provide full and complete disclosure.
C. Such information may not be disclosed to anyone other than pursuant
to compulsory legal process or with the prior written consent of
Equity Growth, after such information has been publicly disseminated.
D. Improper disclosure of such information constitutes a violation of
the civil and criminal provisions of Sections 20A and 21A of the
Exchange Act.
E. During the pendency of negotiations, no one who is made privy to
the foregoing information should engage in any transactions involving
publicly traded Equity Growth securities.
Please indicate your concurrence with the foregoing by signing a copy of
this letter or transmission, in the space indicated, and thereafter transmitting
such executed copy in the manner heretofore described.
Very truly yours,
The Yankee Companies, Inc.
/s/ Leonard Miles Tucker /s/
Leonard Miles Tucker
President
The foregoing is hereby accepted, as of the date first above written.
American Internet Technical Center, Inc. Equity Growth Systems, inc.
By: /s/ Bruce Gleason /s/ By: /s/ Charles J. Scimeca /s/
Bruce Gleason, President Charles J. Scimeca, President
104
First Amendment
to Settlement Agreement
Dated February 18, 1999
The Settlement Agreement Dated the 18th day of February, 1999, made and
entered into by and among Equity Growth Systems, inc., a publicly held Delaware
corporation with a class of securities registered under Section 12(g) of the
Securities and Exchange Act of 1934, as amended ("Equity Growth Systems" and the
"Exchange Act," respectively) William A. Calvo III, (Calvo), individually and
Diversified Corporate Consulting Group, L.L.C., a Delaware Limited Liability
Company, to the extent indicated, is hereby amended , altered and modified as
follows:
On Page one: Paragraph First: Terms of Settlement, is amended to read as
follows:
First: Terms of Settlement
Calvo, Diversified and Equity Growth Systems hereby agree to settle all of
their outstanding claims against each other:
A. In full payment of all obligations to Calvo, as an individual, and
Diversified, owed by Equity Growth Systems, Inc., from the beginning of time
until the date of this Agreement, as well as in consideration for the
extinguishment of all agreements between Equity Growth Systems, Calvo and
Diversified, Equity Growth Systems will, after receipt of a fully executed,
notarized copy of this Agreement, instruct its transfer agent to issue 150,000
shares of its common stock to the Yankees Companies, Inc., a Florida Corporation
(Yankees) to which Calvo and Diversified have assigned their rights to
compensation from Equity Growth Systems, and thereafter deliver the stock
certificate evidencing such shares to Yankees, or whomever Yankees, so chooses,
at it's address as set herein or at an address as the managing director may
direct. This consideration is payment for Calvo and Diversified's fees and
liability in favor of Calvo and Diversified in the final compromised billing of
consulting and/or attorneys' fees. Said outstanding bill is compromised to
$3,000.00. The common stock is herein conveyed for the consideration of two
cents ($.02) per share.
B. Diversified and Equity Growth Systems hereby rescinds and relinquishes
all rights under any agreements between Diversified and Equity Growth Systems,
other than those created by this Agreement, relinquishing rights to anything
involving Equity, including, but not limited to, any loans, bills of sale,
corrected bills of sale, contracts or agreements.
C. Notwithstanding the foregoing, nothing in this Agreement shall be deemed
to affect Calvo's or Diversified's rights to Equity Growth Systems, inc.,
securities held by Calvo or Diversified, or any rights of the Yankee Companies,
Inc., or of any affiliates of Calvo or Diversified.
105
<PAGE>
The remainder of the settlement agreement entered between the parties on
February 18, 1999, shall remain in full force and effect.
- -----------------------------
- ----------------------------
Equity Growth Systems, inc.
By: /s/ Charles J. Scimeca /s/
----------------------------------
Charles J. Scimeca, Acting President
(CORPORATE SEAL)
State of }
County of } ss.:
Before me, an individual duly authorized to administer oaths, did
personally appear: Charles J. Scimeca, Acting President for Equity Growth
Systems, inc., a _________resident personally known to me or produced
identification ____________________________________, who being duly sworn, did
confirm that he executed the foregoing Agreement on the date first hereinbefore
set forth, in the capacities indicated. My commission expires on:
(Seal)
/s/ Patricia M. Garrison /s/
--------------------------
Notary Public
Diversified:
- ---------------------------------
_________________________________ By: /s/ William A. Calvo, III /s/
--------------------------------
William A. Calvo III, Managing Member
- ---------------------------------
/s/ William A. Calvo, III /s/
- --------------------------------- ---------------------------------
William A. Calvo III, Individually
State of }
County of } ss.:
Before me, an individual duly authorized to administer oaths, did
personally appears: William A Calvo III, individually, and as Managing Member of
Diversified Corporate Consulting Group, L.L.C., who is a Florida resident
personally known to me or produced identification
____________________________________, who being duly sworn, did confirm that he
executed the foregoing Agreement on the date first hereinbefore set forth, in
the capacities indicated. My commission expires on:
(Seal)
/s/ Vanessa H. Mitchem /s/
-----------------------
Notary Public
106
Consulting Agreement
This Consulting Agreement (the "Agreement") is made and entered into by and
between Funds America Finance Corporation, a Florida corporation (the "Client")
and Equity Growth Systems, inc., a publicly held Delaware corporation with a
class of equity securities registered under Section 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act" and "Equity," respectively;
the Client and Equity being hereinafter collectively referred to as the
"Parties" and generically as a "Party").
Preamble :
WHEREAS, Client is engaged in the consumer finance industry, as more
particularly described in the materials annexed hereto and made a part hereof as
composite exhibit 0.1; and
WHEREAS, the Client desires to become a reporting company under federal
securities laws with a publicly traded class of securities; and
WHEREAS, Equity personnel have substantial experience with law, accounting
and the regulatory obligations imposed under federal securities laws and
regulations, and provide assistance to companies that desire to attain reporting
status under Section 12(g) of the Exchange Act; and
WHEREAS, Equity is agreeable to making its services available to the
Client, on the terms and subject to the conditions hereinafter set forth:
NOW, THEREFORE, in consideration for Equity's agreement to render the
hereinafter described services as well as of the premises, the sum of $10 and
other good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged, the Parties, intending to be legally bound, hereby agree as
follows:
Witnesseth:
ARTICLE ONE
OBLIGATIONS OF THE PARTIES
1.1 Description of Services
(A) Equity will assist the Client's legal counsel, or, as set forth below,
provide its own legal counsel, to register its securities with the Securities
and Exchange Commission (the "SEC"), and thereafter, will assist the Client to
make arrangements required to permit trading of the Client's securities on the
OTC Bulletin Board operated by the National Association of Securities Dealers,
Inc., including introductions to one or more potential market makers and
assistance in the preparation, filing and management of the SEC and NASD Rule
15c2-11 compliance filings which will be required by any broker dealers
publishing quotes in the Client's securities.
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(B) Equity will assist the Client to obtain a CUSIP number for its
securities, to obtain a stock trading symbol and to list the Client in a
Standard & Poors or comparable securities manual complying with the manual
exemption from Blue Sky registration in 15 or more states.
(C) Because of the Client's anticipated status under federal securities
laws, in any circumstances where Equity is describing the securities of to a
third Party, Equity shall disclose to such person the compensation received from
the Client to the extent required under any applicable laws, including, without
limitation, Section 17(b) of the Securities Act of 1933, as amended (the
"Securities Act"); however, the Parties acknowledge they do not contemplate that
Equity shall be involved in any activities on behalf of the Client requiring
such descriptions or disclosures, or that the Services involve any activities
subject to regulation under federal or state securities laws, except for the
introduction of the Client and its principals to licensed broker dealers in
securities, securities analysts and appropriate corporate information and
stockholder relations specialists.
1.2 Fiduciary Obligation to Client
In rendering its services, Equity shall not disclose to any third party any
confidential non-public information furnished by the Client or otherwise
obtained by it with respect to the Client.
1.3 Limitations on Services
(A) The Parties recognize that certain responsibilities and obligations are
imposed by federal and state securities laws and by the applicable rules and
regulations of stock exchanges, the National Association of Securities Dealers,
Inc. (collectively with its subsidiaries being hereinafter referred to as the
"NASD"), in-house "due diligence" or "compliance" departments of licensed
securities firms, etc.; accordingly, Equity agrees that it will not release any
information or data about the Client to any selected or limited person(s),
entity, or group if Equity is aware that such information or data has not been
generally released or promulgated.
(B) Equity shall restrict or cease, as directed by the Client, all efforts
on behalf of the Client, including all dissemination of information regarding
the Client, immediately upon receipt of instructions (in writing by fax or
letter) to that effect from the Client.
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<PAGE>
1.4 Equity's Compensation
(A) (1) The Client shall issue directly to Equity's stockholders of record on
the 30th day following the date of this agreement, pro rata based on their
ownership of common stock in Equity, a quantity of the Client's common stock
equal to 10% of the Client's total capital stock outstanding immediately
following such issuance, subject to anti- dilutive rights for a period of 12
months following the original date of issuance (the "Public Shares").
(2) The Public Shares shall be issued pursuant to a registration statement
on SEC Form SB-1 or SB-2, or a notification statement pursuant to SEC Regulation
A and Equity will assist the Client to prepare and file required documentation
associated therewith, at the Client's expense.
(3) Prior to the issuance of the Public Shares Equity will assist the
Client to comply with any obligations under SEC Rule 10b-17 pertaining to
dividends.
(4) The Parties hereby agree that for auditing, tax or SEC filing fee
purposes the reasonable market value of the Public Shares is the lesser of
$50,000 or 10% of the Client's stockholders equity.
(B) (1) A. In the event that the Client desires to avail itself of
the legal services of Equity's general counsel to prepare and
file the required SEC registration statements, it will pay such
legal counsel directly the sum of $15,000, plus out of pocket
costs and expenses, provided that not more than four amendments
thereto are required, and that the Client provides timely and
complete assistance in responding to SEC comment letters
(additional costs resulting from failure of such assumptions
being billed at such counsel's normal hourly fees for securities
related filings, such fees currently being $200 per hour).
B. Notwithstanding the foregoing, the Parties currently anticipate
that the Client will retain and use its own securities counsel
for such purposes.
(2) A. Equity believes that the Client will have to pay the following
additional costs in conjunction with the projects contemplated by
this Agreement:
B. Auditing costs, the amount of which the Client is not competent
to determine;
C. The costs of obtaining a CUSIP number and listing with Standard &
Poors or another comparable manual, which is estimated to be
$4,000;
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D. (i) Transfer agent set up and certificate distribution costs
which will vary, based on the agency selected and the initial
services required, but should not exceed $10,000 for physical
delivery of certificates to each stockholder, assuming that such
delivery can be structured over several months.
(ii) In the event that book entry recording in lieu of physical
delivery is a legally available alternative and the costs of
certificates are born by stockholders requesting them, then the
costs can be cut dramatically (in the $5,000 range);
E. Filing fees to the SEC and State regulatory authorities, not
expected to exceed $5,000;
F. Travel, long distance telephone, overnight postage and mailing
expenses, not expected to exceed $2,500.
(C) In addition to the compensation described above with reference to services
during the Initial Term of this Agreement and whether or not the following
services are rendered during such Initial Term (it being the understanding of
the Parties that the Client is not obliged to use Equity for such purposes or
that Equity is required to make such services available):
(1) In the event that Equity arranges or provides funding for the Client on
terms more beneficial than those reflected in Client's current principal
financing agreements, Equity shall be entitled, at its election, to either:
A. A fee equal to 25% of such savings, on a continuing basis; or
B. If equity funding is provided though Equity or any affiliates
thereof, a discount of 10% from the bid price for the subject
equity securities, if they are issuable as free trading
securities, or, a discount of 50% from the bid price for the
subject equity securities, if they are issuable as restricted
securities (as the term restricted is used for purposes of SEC
Rule 144); or
C. If funding is provided by any person or group of persons
introduced to the Client by Equity or persons associated with
Equity, directly or indirectly, but is not provided by Equity or
its principals as described in the preceding sub section, then
Equity shall be entitled to an introduction fee equal to 5% of
the aggregate proceeds so obtained; and
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(2) In the event that Equity generates business for the Client, then, on
any sales resulting therefrom, Equity shall be entitled to a commission equal to
10% of the gross income derived by the Client therefrom, on a continuing basis.
(3) In the event that Equity or any affiliate thereof arranges for an
acquisition of or by the Client, then Equity shall be entitled to compensation
equal to 10% of the compensation paid for such acquisition payable, at the
Client's option, in cash or common stock of the surviving or parent publicly
held entity, in addition to any compensation negotiated and received from the
acquired entity or its affiliates.
(D) The Client will assure that its legal counsel promptly prepares all reports
which then existing holders of the Client's securities (including Equity, its
affiliates and successors in interest) are required to file with the Securities
and Exchange Commission as a result of the Client's reporting status, including
Securities and Exchange Commission Forms 3, 4 and 5, Schedules 13(d) and
Schedules 13(g), and shall submit all such reports to the subject stockholders
for prompt execution and timely filing with the Securities and Exchange
Commission.
(E) (1) In addition to payment of fees, the Client will, provided that it has
requested Equity to provide services for which costs are incurred, be
responsible for payment of all costs and disbursements associated with Equity's
services either:
(a) Involving less than $50 per item and $200 in the aggregate during
the preceding 30 day period; or
(b) Reflected in an operating budget approved by the Client; or
(c) Approved in writing by the Client; provided, however, that the
refusal by the Client to approve expenditures required for the
proper performance of Equity's services will excuse performance
of such services.
(2) All of Equity's statements will be paid within 10 days after receipt.
(3) In the event additional time for payment is required, Equity will have
the option of selling the account receivable and the Client agrees to pay
interest thereon at the monthly rate of 1%.
(4) In the event collection activities are required, the Client agrees to
pay all of Equity's reasonable out of pocket costs associated therewith.
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(5) There will be no change or waiver of the provisions contained herein,
unless such charge is in writing and signed by the Client and Equity.
1.5 Client's Commitments
(A). (1) All work requiring legal review will be submitted for approval by
the Client to the Client's legal counsel prior to its use.
(2) Final drafts of any matters prepared for use by Equity in conjunction
with the provision of the Services will be reviewed by the Client and, if
legally required, by the Client's legal counsel, to assure that:
A. All required information has been provided;
B. All materials are presented accurately; and,
C. That no materials required to render information provided "not
misleading" are omitted.
(3) Only after such review and approval by the Client and, if required, the
Client's legal counsel, will any documents be filed with regulatory agencies or
provided to Equity or third parties.
(4) A. Financial data will be reviewed by competent, independent, certified
public accountants experienced and qualified in securities related accounting
and who are members in good standing of the AICPA's Securities Practice Section,
to be separately retained by the Client.
B. Such accountants will be required to review and approve all financially
related filings, prior to release to Equity, other third parties or submission
to the appropriate regulatory authorities.
(B) (1) The Client shall supply Equity on a regular and timely basis with all
approved data and information about the Client, its management, its products,
and its operations and the Client shall be responsible for advising Equity of
any fact which would affect the accuracy of any prior data and information
supplied to Equity.
(2) The Client shall use its best efforts to promptly supply Equity with
full and complete copies of all filings with all federal and state securities
agencies; with full and complete copies of all shareholder reports and
communications whether or not prepared with Equity's assistance, with all data
and information supplied to any analyst, broker-dealer, market maker, or other
member of the financial community; and with all product/services brochures,
sales materials, etc.
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(3) The Client shall promptly notify Equity of the filing of any
registration statement for the sale of securities and/or of any other event
which triggers any restrictions on disclosure.
(4) The Client shall be deemed to make a continuing representation of the
accuracy of any and all material facts, material, information, and data which it
supplies to Equity and the Client acknowledges its awareness that Equity will
rely on such continuing representation in performing its functions under this
Agreement.
(5) Equity, in the absence of notice in writing from the Client, may rely
on the continuing accuracy of material, information and data supplied by the
Client.
ARTICLE TWO
TERM, RENEWALS & EARLIER TERMINATION
2.1 Term.
This Agreement shall be for an initial term of 180 days, commencing on the
date of its complete execution by all Parties, as evinced in the execution page
hereof, but shall be extended, as required to permit completion of the projects
contemplated hereby (attaining trading status for the Client's securities as an
issuer filing reports with the SEC pursuant to Section 12[g] of the Exchange Act
(the "Initial Term").
2.2 Renewals.
Subject to prior agreement as to additional compensation payable to Equity,
this Agreement shall be renewed automatically, after expiration of the original
term, on a continuing annual basis, unless the Party wishing not to renew this
Agreement provides the other Party with written notice of its election not to
renew ("Termination Election Notice") on or before the 30th day prior to
termination of the then current term.
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2.3 Final Settlement.
(A) Upon termination of this Agreement and payment to Equity of all amounts
due it hereunder, Equity or its representative shall execute and deliver to the
Client a receipt for such sums and a release of all claims, except such claims
as may have been submitted pursuant to the terms of this Agreement and which
remain unpaid, and, shall forthwith tender to the Client all records, manuals
and written procedures, as may be desired by the Client for the continued
conduct of its business; and
(B) The Client or its representative shall execute and deliver to Equity a
receipt for all materials returned and a release of all claims, except such
claims as may have been submitted pursuant to the terms of this Agreement and
which remain unpaid, and, shall forthwith tender to Equity all records, manuals
and written procedures, as may be desired by Equity for the continued conduct of
its business.
ARTICLE THREE
EQUITY'S CONFIDENTIALITY & COMPETITION COVENANTS
3.1 General Provisions.
(A) Equity acknowledges that, in and as a result of its entry into this
Agreement, it will be making use of confidential information of special and
unique nature and value relating to such matters as the Client's trade secrets,
systems, procedures, manuals, confidential reports; consequently, as material
inducement to the entry into this Agreement by the Client, Equity hereby
covenants and agrees that it shall not, at anytime during the term of this
Agreement, any renewals thereof and for two years following the terms of this
Agreement, directly or indirectly, use, divulge or disclose, for any purpose
whatsoever, any of such confidential information which has been obtained by or
disclosed to it as a result of its entry into this Agreement or provision of
services hereunder.
(B) In the event of a breach or threatened breach by Equity of any of the
provisions of this Article Three, the Client, in addition to and not in
limitation of any other rights, remedies or damages available to the Client,
whether at law or in equity, shall be entitled to a permanent injunction in
order to prevent or to restrain any such breach by Equity, or by its partners,
directors, officers, stockholders, agents, representatives, servants, employers,
employees, affiliates and/or any and all persons directly or indirectly acting
for or with it.
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3.2 Special Remedies.
In view of the irreparable harm and damage which would undoubtedly occur to
the Client and its clients as a result of a breach by Equity of the covenants or
agreements contained in this Article Three, and in view of the lack of an
adequate remedy at law to protect the Client's interests, Equity hereby
covenants and agrees that the Client shall have the following additional rights
and remedies in the event of a breach hereof:
(A) Equity hereby consents to the issuance of a permanent injunction
enjoining it from any viola- tions of the covenants set forth in this Article
Three; and
(B) Because it is impossible to ascertain or estimate the entire or exact
cost, damage or injury which the Client or its clients may sustain prior to the
effective enforcement of such injunction, Equity hereby covenants and agrees to
pay over to the Client, in the event it violates the covenants and agreements
contained in this Article Three, the greater of:
(1) Any payment or compensation of any kind received by it because of
such violation before the issuance of such injunction, or
(2) The sum of One Thousand Dollars per violation, which sum shall be
liquidated damages, and not a penalty, for the injuries suffered
by the Client or its clients as a result of such violation, the
Parties hereto agreeing that such liquidated damages are not
intended as the exclusive remedy available to the Client for any
breach of the covenants and agreements contained in this Article
Three, prior to the issuance of such injunction, the Parties
recognizing that the only adequate remedy to protect the Client
and its clients from the injury caused by such breaches would be
injunctive relief.
3.3 Cumulative Remedies.
Equity hereby irrevocably agrees that the remedies described in this
Article Three shall be in addition to, and not in limitation of, any of the
rights or remedies to which the Client and its clients are or may be entitled
to, whether at law or in equity, under or pursuant to this Agreement.
3.4 Acknowledgment of Reasonableness.
(A) Equity hereby represents, warrants and acknowledges that its members or
officers and directors have carefully read and considered the provisions of this
Article Three and, having done so, agrees that the restrictions set forth herein
are fair and reasonable and are reasonably required for the protection of the
interests of the Client, its members, officers, directors, consultants, agents
and employees; consequently, in the event that any of the above-described
restrictions shall be held unenforceable by any court of competent jurisdiction,
Equity hereby covenants, agrees and directs such court to substitute a
reasonable judicially enforceable limitation in place of any limitation deemed
unenforceable and, Equity hereby covenants and agrees that if so modified, the
covenants contained in this Article Three shall be as fully enforceable as if
they had been set forth herein directly by the Parties.
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(B) In determining the nature of this limitation, Equity hereby
acknowledges, covenants and agrees that it is the intent of the Parties that a
court adjudicating a dispute arising hereunder recognize that the Parties desire
that these covenants not to compete or circumvent be imposed and maintained to
the greatest extent possible.
3.5 Exclusivity.
Equity shall not be required to devote all of its business time to the
affairs of the Client, rather it shall devote such time as it is reasonably
necessary in light of its other business commitments.
ARTICLE FOUR
CLIENT'S CONFIDENTIALITY & COMPETITION COVENANTS
4.1 General Prohibitions
(A) The Client acknowledges that, in and as a result of its engagement of
Equity, the Client will be making use of confidential information of special and
unique nature and value relating to such matters as Equity's business contacts,
professional advisors, trade secrets, systems, procedures, manuals, confidential
reports, lists of clients, potential customers and funders; consequently, as
material inducement to the entry into this Agreement by Equity, the Client
hereby covenants and agrees that it shall not, at anytime during the term of
this Agreement, any renewals thereof an for two years following the terms of
this Agreement, directly or indirectly, use, divulge or disclose, for any
purpose whatsoever, any of such confidential information which has been obtained
by or disclosed to it as a result of its employment of Equity, or Equity's
affiliates.
(B) In the event of a breach or threatened breach by the Client of any of
the provisions of this Article Four, Equity, in addition to and not in
limitation of any other rights, remedies or damages available to Equity, whether
at law or in equity, shall be entitled to a permanent injunction in order to
prevent or to restrain any such breach by the Client, or by the Client's
partners, directors, officers, stockholders, agents, representatives, servants,
employers, employees, affiliates and/or any and all persons directly or
indirectly acting for or with it.
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4.2 Special Remedies.
In view of the irreparable harm and damage which would undoubtedly occur to
Equity as a result of a breach by the Client of the covenants or agreements
contained in this Article Four, and in view of the lack of an adequate remedy at
law to protect Equity's interests, the Client hereby covenants and agrees that
Equity shall have the following additional rights and remedies in the event of a
breach hereof:
(A) The Client hereby consents to the issuance of a permanent injunction
enjoining it from any violations of the covenants set forth in this Article Four
is and
(B) Because it is impossible to ascertain or estimate the entire or exact
cost, damage or injury which Equity may sustain prior to the effective
enforcement of such injunction, the Client hereby covenants and agrees to pay
over to Equity, in the event it violates the covenants and agreements contained
in this Article Four, the greater of:
(1) Any payment or compensation of any kind received by it because of
such violation before the issuance of such injunction, or
(2) The sum of One Thousand Dollars per violation, which sum shall be
liquidated damages, and not a penalty, for the injuries suffered
by Equity as a result of such violation, the Parties hereto
agreeing that such liquidated damages are not intended as the
exclusive remedy available to Equity for any breach of the
covenants and agreements contained in this Article Four, prior to
the issuance of such injunction, the Parties recognizing that the
only adequate remedy to protect Equity from the injury caused by
such breaches would be injunctive relief.
4.3 Cumulative Remedies.
The Client hereby irrevocably agrees that the remedies described in this
Article Four shall be in addition to, and not in limitation of, any of the
rights or remedies to which Equity is or may be entitled to, whether at law or
in equity, under or pursuant to this Agreement.
4.4 Acknowledgment of Reasonableness.
(A) The Client hereby represents, warrants and acknowledges that its
officers and directors have carefully read and considered the provisions of this
Article Four and, having done so, agree that the restrictions set forth herein
are fair and reasonable and are reasonably required for the protection of the
interests of Equity, its members, officers, directors, consultants, agents and
employees; consequently, in the event that any of the above-described
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restrictions shall be held unenforceable by any court of competent jurisdiction,
the Client hereby covenants, agrees and directs such court to substitute a
reasonable judicially enforceable limitation in place of any limitation deemed
unenforceable and, the Client hereby covenants and agrees that if so modified,
the covenants contained in this Article Four shall be as fully enforceable as if
they had been set forth herein directly by the Parties.
(B) In determining the nature of this limitation, the Client hereby
acknowledges, covenants and agrees that it is the intent of the Parties that a
court adjudicating a dispute hereunder recognize that the Parties desire that
these covenants not to compete or circumvent be imposed and maintained to the
greatest extent possible.
ARTICLE FIVE
MISCELLANEOUS
5.1 Notices.
All notices, demands or other written communications hereunder shall be in
writing, and unless otherwise provided, shall be deemed to have been duly given
on the first business day after mailing by United States registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
To Equity:
Equity Growth Systems, inc.
8001 DeSoto Woods Drive; Sarasota, Florida 34243
Telephone (941) 358-8182; Fax (941) 358-8423
Attention: Charles J. Scimeca, President
with copies to
The Yankee Companies, Inc.
902 Clint Moore Road, Suite 136; Boca Raton, Florida 33487
Telephone (561) 998-2025; Fax (561) 998-3425
Attention: Leonard Miles Tucker, President, and
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and
The Yankee Companies, Inc.
1941 Southeast 51st Terrace; Ocala, Florida 34471
Telephone (352) 694-9179; Fax (352) 694-9178
Attention: Vanessa H. Lindsey, Chief Administrative Officer
To the Client:
Funds America Finance Corporation
201 East Commercial Boulevard, Suite 210; Fort Lauderdale, Florida 33308
Telephone (954) 733-7777; Fax (954) 489-0500; and, e-mail
[email protected] or at such address, telephone and fax numbers
as are reflected on the SEC's EDGAR Internet site;
Attention: Charles Scheuerman, President & Chief Executive Officer
in each case, with copies to such other address or to such other persons as any
Party shall designate to the others for such purposes in the manner hereinabove
set forth.
5.2 Amendment.
No modification, waiver, amendment, discharge or change of this Agreement
shall be valid unless the same is in writing and signed by Parties.
5.3 Merger.
(A) This instrument, together with the instruments referred to herein,
contains all of the understandings and agreements of the Parties with respect to
the subject matter discussed herein.
(B) All prior agreements whether written or oral are merged herein and
shall be of no force or effect.
5.4 Survival.
The several representations, warranties and covenants of the Parties
contained herein shall survive the execution hereof and shall be effective
regardless of any investigation that may have been made or may be made by or on
behalf of any Party.
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5.5 Severability.
If any provision or any portion of any provision of this Agreement, other
than a conditions precedent, if any, or the application of such provision or any
portion thereof to any person or circumstance shall be held invalid or
unenforceable, the remaining portions of such provision and the remaining
provisions of this Agreement or the application of such provision or portion of
such provision as is held invalid or unenforceable to persons or circumstances
other than those to which it is held invalid or unenforceable, shall not be
affected thereby.
5.6 Governing Law and Venue.
This Agreement shall be construed in accordance with the laws of the State
of Florida and any proceeding arising between the Parties in any matter
pertaining or related to this Agreement shall, to the extent permitted by law,
be held in Marion County, Florida.
5.7 Dispute Resolution in lieu of Litigation.
(A) In the event of any dispute arising under this Agreement, or the
negotiation thereof or inducements to enter into the Agreement, the dispute
shall, at the request of any Party, be ex- clusively resolved through the
following procedures:
(1)(a) First, the issue shall be submitted to mediation before a
mediation service in Palm Beach County, Florida to be selected by
lot from six alternatives to be provided, three by Equity and
three by the Client.
(b) The mediation efforts shall be concluded within ten business days
after their initiation unless the Parties unanimously agree to an
extended mediation period;
(2) In the event that mediation does not lead to a resolution of the
dispute then at the request of any Party, the Parties shall
submit the dispute to binding arbitration before an arbitration
service located in Palm Beach County, Florida, to be selected by
lot, from six alternatives to be provided, in the manner set
forth above for selection of a mediator;
(3) (A) Expenses of mediation shall be borne by the Parties equally
if successful but if unsuccessful, expenses of mediation and of
arbitration shall be borne by the Party or Parties against whom
the arbitration decision is rendered.
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(B) If the terms of the arbitral award do not establish a prevailing
Party, then the expenses of unsuccessful mediation and
arbitration shall be borne ½ by the Client and ½ by
Equity.
(B) Judgment upon the award rendered by the arbitrator(s) may be entered in
any court having jurisdiction thereof.
(C) In any action between the Parties to enforce any of the terms of this
Agreement or any other matter arising from this Agreement, the prevailing Party
shall be entitled to recover its costs and expenses, including reasonable
attorneys' fees up to and including all negotiations, trials and appeals,
whether or not litigation is initiated. 5.8 Benefit of Agreement.
The terms and provisions of this Agreement shall be binding upon and inure
to the benefit of the Parties, jointly and severally, their successors, assigns,
personal representatives, estate, heirs and legatees.
5.9 Captions.
The captions in this Agreement are for convenience and reference only and
in no way define, describe, extend or limit the scope of this Agreement or the
intent of any provisions hereof.
5.10 Number and Gender.
All pronouns and any variations thereof shall be deemed to refer to the
masculine, feminine, neuter, singular or plural, as the identity of the Party or
Parties, or their personal representatives, successors and assigns may require.
5.11 Further Assurances.
The Parties hereby agree to do, execute, acknowledge and deliver or cause
to be done, executed, acknowledged or delivered and to perform all such acts and
deliver all such deeds, assignments, transfers, conveyances, powers of attorney,
assurances, stock certificates and other documents, as may, from time to time,
be required herein to effect the intent and purpose of this Agreement.
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5.12 Status.
(A) Nothing in this Agreement shall be construed or shall constitute a
partnership, joint venture, employer-employee relationship, lessor-lessee
relationship, or principal-agent relationship.
(B) Throughout the term of this Agreement, Equity shall serve an
independent contractor, as that term is defined by the United States Internal
Revenue Service, and in conjunction therewith, shall be responsible for all of
his own tax reporting and payment obligations.
(C) In amplification of the foregoing, Equity shall, subject to reasonable
reimbursement on a pre-approved budgetary basis, be responsible for providing
its own office facilities and supporting personnel.
5.13 Counterparts.
(A) This Agreement may be executed in any number of counterparts delivered
through facsimile transmission.
(B) All executed counterparts shall constitute one Agreement
notwithstanding that all signatories are not signatories to the original or the
same counterpart.
5.14 License.
(A) (1) This Agreement is the property of The Yankee Companies, Inc.,
a Florida corporation which serves as a strategic consultant to
Equity ("Yankees").
(2) The use hereof by the Parties is authorized hereby solely for
purposes of this transaction and, the use of this form of
agreement or of any derivation thereof without Yankees' prior
written permission is prohibited.
(3) This Agreement shall not be construed more stringently or
interpreted less favorably against Equity based on authorship.
(B) The Client hereby acknowledge that neither Yankees nor Equity is a law
firm and that neither provided it with any advice, legal or otherwise, in
conjunction with this Agreement, but rather, has suggested that it rely solely
on its own experience and advisors in evaluating or interpreting this Agreement
and that the Client has confirmed that this Agreement and any forms of
agreements or legal instruments provided to the Client by Yankees or Equity
shall be reviewed by the Client's legal counsel prior to use thereof.
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In Witness Whereof, the Parties have executed this Agreement, effective as
of the last date set forth below.
Signed, Sealed & Delivered
In Our Presence
Funds America Finance Corporation
- ----------------------------
____________________________ By: /s/ Charles Scheuerman /s/
Charles Scheuerman, President
Dated: May 7, 1999
Attest: /s/ Jane Levya /s/
Jane Levya, Secretary
{Seal}
Equity Growth Systems, inc.
- ----------------------------
____________________________ By: /s/ Charles J, Scimeca /s/
Charles J. Scimeca, President
Dated: May 18, 1999
Attest: /s/ G. Richard Chamberlin /s/
G. Richard Chamberlin, Secretary
{Seal}
123
Bowman & Bowman, P.A.
Certified Public Accountants
1705 Colonial Blvd., Suite D-1
Fort Meyers, Florida 33907
To the Board of Directors
Equity Growth Systems, inc.
(A Development Stage Company)
3821 B-Tamiami Trail, Suite 201
Port Charlotte, Florida 33952
I consent to the use of our audit report dated April 23, 1999 accompanying
the financial statements of Equity Growth Systems, inc., in this Form 10-KSB for
the year ending December 31, 1998.
/s/ Larry Bowman /s/
- -------------------------------
Larry Bowman
Bowman & Bowman, P.A.
Certified Public Accountants
Fort Meyers, Florida
May 6, 1999
124
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 March 9, 1998, at which meeting a quorum was present.
The Board of Directors of Corporation:
RESOLVED, that the Charles Scimeca shall be issued 150,000 shares of Common
Stock which will bear a restriction per Rule 144(d), as a reward for his
tireless effort in finding acquisition targets for the corporation as well as
continuing good office representation to the public during these days of delay
in the issuance of the 10ksb96 and the further delay in submission of the
15c-211 now in the process of being rewritten and submitted to the NASD.
FURTHER RESOLVED, that Gary and Jean Vulgamoro shall be issued 20,000
shares of Common Stock which will bear a restriction per Rule 144(d) for
services rendered.
FURTHER RESOLVED, that R. Mark Granville-Smith Trust shall be issued 20,000
shares Common Stock which will bear a restriction per Rule 144(d), for services
rendered.
BE IT FURTHER RESOLVED, to advise Liberty Transfer Co., the transfer agent
for Equity Growth Systems, inc. to issue the above shares as requested.
There being no further business requiring action or consideration, and upon
motion duly made, the meeting was adjourned.
/s/ E. Granville-Smith /s/
-----------------------------
E. Granville-Smith
CEO and President
125
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
May 28, 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 Leonard Miles Tucker be issued 25,000 shares as compensation for
acting on administrative committee to Equity Growth Systems, inc. These shares
are to be issued with a 144 Restrictive Legend as per Rule 144.
There being no further business requiring action or consideration and upon duly
made, the meeting was adjourned.
/s/ E. Granville-Smith /s/
- -----------------------------
E. Granville-Smith
CEO and Chairman
126
Written Consent in Lieu
Of Special Meeting of Board of Directors
The Undersigned, being the sole member of the Board of Directors of Equity
Growth Systems, Inc., a Delaware corporation (the "Corporation"), pursuant to
authority granted under Sections 141(f) or 228 of the Delaware General
Corporation Law, and as permitted by the Corporation's constituent instruments,
hereby takes the following action and adopts the following resolution:
WITNESSETH:
1. RESOLVED, that, as an inducement to service as members of the
Corporation's advisory board or as officers of the Corporation, the following
persons be issued shares of the Corporation's common stock, as follows:
Name Shares Consideration
Carlton P. Moffatt, Jr. 10,000 Shares (1)
G. William Hollar 10,000 Shares (1)
Thomas and Carol A. Horne10,000 Shares (1) (2)
Macon Associates Corp. 50,000 Shares (3)
--------
(1) Service on Board of Advisors for not less than 36 months.
(2) As services in common.
(3) Raft Weiss' designee. Mr. Weiss' shares are issued in
consideration for his agreement to serve as an officer of the
Corporation for not less than 36 months.
2. RESOLVED, that the Corporation enter into reorganization agreements
pursuant to Section 368(a)(1)(B) of Internal Revenue Code of 1986, as amended
with the current stockholders of Homan Equities, Inc.; Moffitt Properties, Ltd,;
and Equity Growth Systems Realty, Inc. in the form heretofore reviewed and
approved by the undersigned, copies of which shall be filed immediately
following and as an exhibit to this written consent in lieu of directors
meeting, pursuant to which the Corporation acquires such corporations (the
"Subsidiaries") in exchange for an aggregate of 300,000 shares, issued as
follows:
Donald E. Homan, 100,000 shares;
Gene R. Moffitt, 100,000 shares; and
Charles J. Scimeca, 100,000 shares; and
be it FURTHER
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RESOLVED, that the Corporation ratify the entry by the Subsidiaries into
employment agreements with Messrs. Donald E. Homan, Gene R. Moffitt, and Charles
J. Scimeca, in the form heretofore reviewed and approved by the undersigned,
copies of which shall be filed immediately following and as an exhibit to this
written consent in lieu of directors meeting.
3. WHEREAS, the Corporation's sole director is hereby authorizing the
issuance of securities of the Company in reliance on the exemption from
registration requirements imposed by the Securities Act of 1933, as amended,
provided by Section 4(2) thereof and pursuant to comparable exemptions from
registration requirements provided by the subscribers respective states of
domicile:
NOW THEREFORE, be it
RESOLVED, that the corporation issue the above described 380,000 shares of
its common stock, $0.001 par value, which the Corporation shall, for accounting
purposes (unless otherwise documented) value at $1.00 per share, to the persons
listed above, each certificate to be dated June 7, 1996, and to bear the
following legend;
"THESE SHARES HAVE NEITHER BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO THE SECURITIES ACT OF 1933, AS
AMENDED, NOR WITH ANY STATE SECURITIES AGENCY OR COMMISSION.
CONSEQUENTLY, THESE SHARES MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS THEY ARE FIRST REGISTERED UNDER APPLICABLE STATE
AND FEDERAL SECURITIES LAWS OR THE TRANSACTION'S EXEMPTION THEREFROM
IS DEMONSTRATED TO THE FULL SATISFACTION OF THE CORPORATION'S BOARD OF
DIRECTORS BASED ON AN OPINION FROM LEGAL COUNSEL TO THE HOLDER
APPROVED BY THE CORPORATIONS LEGAL COUNSEL, AT THE HOLDER'S EXPENSE."
and be it FURTHER
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RESOLVED, that the Corporation's transfer agent place stop transfer
notations among its stop transfer records prohibiting any transactions in the
subject certificates except in full compliance with the terms of the subject
legend evinced by written instructions from the President of the Corporation or
a court order provided by the holder; and be it FURTHER
RESOLVED, that the Corporation's officers and transfer agent be, and they
are hereby, authorized, empowered and directed to take all actions either
necessary or expedient to accomplish all of the foregoing directives.
IN WITNESS WHEREOF, the undersigned has caused this instrument to be
executed, effective as of the 7th day of June, 1996.
Equity Growth Systems, inc.
A Delaware Corporation
/s/ Edward Granville-Smith /s/
------------------------------------
Edward Granville-Smith
Sole Director
129
Written Consent in Lieu
Of Special Meeting of Board of Directors
The Undersigned, being the sole member of the Board of Directors of Equity
Growth Systems, Inc., a Delaware corporation (the "Corporation"), pursuant to
authority granted under Sections 141(f) or 228 of the Delaware General
Corporation Law, and as permitted by the Corporation's constituent instruments,
hereby takes the following action and adopts the following resolution:
WITNESSETH:
1. RESOLVED, that, the following persons be issued shares of the
Corporation's authorized but heretofore unissued common stock, for the
consideration set forth below:
Name Shares Consideration
Marilyn Karpoff
144 East 44th Street
New York, NY 10010 50,000 Shares (1)
Edward Kerper
2430 Estancia Boulevard
Clearwater, FL 34621 25,000 Shares (2)
Liberty Transfer Co.
191 New York Avenue
Huntington, NY 1174 25,000 Shares (3)
--------
(1) Agreement to serve as a vice president of the Corporation for a
period of at least 24 months.
(2 Services rendered to the Corporation for recruitment of officers.
(3) In lieu of interest and late payment charges.
2. RESOLVED, the Corporation's sole director is hereby authorizing the
issuance of securities of the Company in reliance on the exemption from
registration requirements imposed by the Securities Act of 1933, as amended,
provided by Section 4(2) thereof and pursuant to comparable exemptions from
registration requirements provided by the subscribers respective states of
domicile:
NOW THEREFORE, be it
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RESOLVED, that the corporation issue the above described 80,000 shares of
its common stock, $0.001 par value, which the Corporation shall, for accounting
purposes (unless otherwise documented) value at $0.40 per share, to the persons
listed above, each certificate to be dated October 2, 1996, and to bear the
following legend;
"THESE SHARES HAVE NEITHER BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, NOR WITH ANY
STATE SECURITIES AGENCY OR COMMISSION. CONSEQUENTLY, THESE SHARES MAY NOT
BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS THEY ARE FIRST
REGISTERED UNDER APPLICABLE STATE AND FEDERAL SECURITIES LAWS OR THE
TRANSACTION'S EXEMPTION THEREFROM IS DEMONSTRATED TO THE FULL SATISFACTION
OF THE CORPORATION'S BOARD OF DIRECTORS BASED ON AN OPINION FROM LEGAL
COUNSEL TO THE HOLDER APPROVED BY THE CORPORATIONS LEGAL COUNSEL, AT THE
HOLDER'S EXPENSE."
and be it FURTHER
RESOLVED, that the Corporation's transfer agent place stop transfer
notations among its stop transfer records prohibiting any transactions in the
subject certificates except in full compliance with the terms of the subject
legend evinced by written instructions from the President of the Corporation or
a court order provided by the holder; and be it FURTHER
RESOLVED, that the Corporation's officers and transfer agent be, and they
are hereby, authorized, empowered and directed to take all actions either
necessary or expedient to accomplish all of the foregoing directives.
IN WITNESS WHEREOF, the undersigned has caused this instrument to be
executed, effective as of the 2nd day of October, 1996.
Equity Growth Systems, Inc.
A Delaware Corporation
/s/ Edward Granville-Smith /s/
------------------------------------
Edward Granville-Smith
Sole Director
131
Written Consent in Lieu of Special Meeting of Board of Directors
The Undersigned, being the sole member of the Board of Directors of Equity
Growth Systems, inc., a Delaware corporation (the "Corporation"), herewith
authorizes the transfer agent, Liberty Transfer Co., to issue the following
share of the common stock of the corporation:
Gary and Jean Vulgamor 5,000 shrs
3821 B. Tamiami Trail
Port Charlotte, Florida 33952
for services
Jay C. Salyer
1699 S. Federal HW., Suite 3B
Boca Raton, Florida 22432
for services
/s/ Ted /s/
EGS
132
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
September 1, 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 Leonard Miles Tucker be issued 25,000 shares as compensation for
acting on administrative committee to Equity Growth Systems, inc. These shares
are to be issued 504 Regulation D, without the restrictive legend. Also, be it
resolved that William J. Reilly be issued 25,000 shares Rule 504 for acting as
attorney for Equity Growth Systems, inc. The shares will be issued in lieu of
payment.
There being no further business requiring action or consideration and upon duly
made, the meeting was adjourned.
/s/ E. Granville-Smith /s/
- ---------------------------------
E. Granville-Smith
CEO and Chairman
133
Equity Growth Systems, inc.
A publicly held Delaware corporation
Minutes of Organizational Meeting of Newly Elected Board of Directors
A special organizational meeting of the directors elected by Edward
Granville-Smith ("Mr. Granville-Smith"), as the new Board of Directors for
Equity Growth Systems, inc. (The "Board" and the "Corporation," respectively),
was held by telephone conference on November 11, 1998, at 1:00 p.m., after
provision of notice to all members by telephone and facsimile transmission. A
copy of such notice is appended hereto as exhibit A. All exhibits were provided
to the participants by e-mail.
The meeting was called as a result of a medical emergency involving Mr.
Granville-Smith, necessitating his replacement as the Corporation's sole officer
and requiring a change in the Corporation's strategic plans, which were
critically dependent on Mr. Granville-Smith's active leadership.
Anticipating such potential emergency, Mr. Granville-Smith recently
negotiated an agreement with the Yankee Companies, Inc., a privately held
Florida corporation ("Yankee"), a copy of which is annexed hereto as exhibit B
[the "Yankee Agreement"]. Such agreement contemplated provision of material
assistance in the restructuring of the Corporation, including recruitment of new
officers and directors and development and implementation of a new strategic
plan.
Anticipating the execution of the Yankee Agreement, Yankee presented a
number of people to the Corporation, and recommended that Mr. Granville-Smith,
as the Corporation's sole director, elect four of them to the Corporation's
Board of Directors, to wit, Charles J, Scimeca ("Mr. Scimeca"), Ms. Penny Field,
G. Richard Chamberlin, Esquire ("Mr. Chamberlin") and Anthony Q. Joffe. Mr.
Granville-Smith wisely took such action by written consent in lieu of special
meeting on November 6, 1998.
At Mr. Granville-Smith's request, Yankee also formed a small investment
group (comprised of Yankee and persons associated therewith) which entered into
a series of subscription agreements with the Corporation designed to provide
emergency capital required to discharge current obligations (copies of such
agreement being annexed hereto as composite exhibit C [the "Subscription
Agreements"]), two of which remain unexecuted.
134
<PAGE>
Mr. Chamberlin was elected by the members participating to act as the
Chairman of the meeting and also acted as secretary. In light of Mr.
Granville-Smith's medical emergency, after discussions and due procedures, the
Board (except for Mr. Granville Smith, who was medically unable to attend)
unanimously adopted the following resolutions:
1. Resolved, that Mr. Scimeca, currently the Corporation's secretary be
appointed as the Corporation's acting president, and that Mr. Chamberlin, who
has previously served as the Corporation's legal counsel, be elected as the
Corporation's general counsel and acting secretary.
Please Initial:
Mr. Chamberlin: ___ Mr. Scimeca: ___ Mr. Joffe: ___ Ms. Field:___
2. Resolved, that all other current officers of the Corporation be and they are
hereby discharged.
Please Initial:
Mr. Chamberlin: ___ Mr. Scimeca: ___ Mr. Joffe: ___ Ms. Field:___
3. Resolved, that the Corporation's entry into the Subscription Agreements be
ratified and that the newly elected acting officers execute the two Subscription
Agreements remaining unexecuted, on behalf of the Corporation.
Please Initial: Mr. Chamberlin: ___ Mr. Scimeca: ___ Mr. Joffe: ___ Ms. Field:
- ---
4. Resolved, that the newly elected acting officers execute the Yankee Agreement
on behalf of the Corporation.
Please Initial: Mr. Chamberlin: ___ Mr. Scimeca: ___ Mr. Joffe: ___ Ms. Field:
- ---
135
<PAGE>
5. Resolved, that the Corporation enter into a settlement agreement with Mr.
Granville-Smith, in the form annexed hereto and made a part hereof as exhibit D.
Please Initial: Mr. Chamberlin: ___ Mr. Scimeca: ___ Mr. Joffe: ___ Ms. Field:
- ---
6. Resolved, that the Corporation be restructured as a holding company, with its
current assets and operations transferred to a new subsidiary to be organized as
a Florida corporation under a name to be selected by Mr. Scimeca and approved by
Yankee, and that at such time as he is again medically competent, Mr.
Granville-Smith be elected, together with Mr. Scimeca, as a director thereof.
Please Initial: Mr. Chamberlin: ___ Mr. Scimeca: ___ Mr. Joffe: ___ Ms. Field:
- ---
7. Resolved, that the Corporation, under the guidance and advise of Yankee,
develop and implement a new strategic business plan and undertake a program of
acquisitions designed to increase the value and profitability of the
Corporation.
Please Initial: Mr. Chamberlin: ___ Mr. Scimeca: ___ Mr. Joffe: ___ Ms. Field:
- ---
8. Resolved, that Yankee, using the proceeds derived from the recent private
placement of the Corporation's securities and any proceeds it can generate
through refinancing of the Corporation's assets, open and supervise financial
accounts for the Corporation, and develop and implement a plan to discharge the
Corporation's current liabilities.
Please Initial: Mr. Chamberlin: ___ Mr. Scimeca: ___ Mr. Joffe: ___ Ms. Field:
- ---
9. Resolved, that Messrs. Scimeca and Chamberlin, as the Corporation's acting
officers, under the guidance and advice of Yankee, take all actions reasonably
necessary to effect the foregoing.
Please Initial: Mr. Chamberlin: ___ Mr. Scimeca: ___ Mr. Joffe: ___ Ms. Field:
- ---
Having adopted the foregoing resolutions, upon motion duly made, seconded
and unanimously adopted, the Board meeting was terminated.
136
<PAGE>
The foregoing, based on our best recollection and notes, constitute the
actions taken at such special organizational meeting of the Board, and by our
execution of these minutes and initials on each page and under each resolution
adopted, we do so confirm, effective as of this 11th day of November, 1998.
/s/ G. Richard Chamberlin /s/
-----------------------------------
G. Richard Chamberlin
Chairman and Secretary of the Meeting
Director
/s/ Charles J. Scimeca /s/
------------------------------------
Charles J. Scimeca
Director
/s/ Anthony Q. Joffe /s/
--------------------------------------
Anthony Q. Joffe
Director
/s/ Penny Field /s/
--------------------------------------
Penny Field
Director
137
Chamberlin Law Office, P.A.
G. Richard Chamberlin, attorney
Florida & Georgia Bars only
1941 Southeast 51st Terrace, Suite 800
Ocala, Florida 34471
May 3, 1999
Al Sanders
Liberty Transfer Co.
191 New York Avenue
Huntington, New York 11743
Facsimile: 516-385-1619
Re: Equity Growth Systems, inc. ("Equity")
Dear Mr. Sanders:
Please be advised, that after a thorough examination of the company records
it has been determined that the following persons or entities have not paid the
appropriate consideration for stock issued and therefore the Rule 144 ("144")
holding period has not yet started. A list of addresses for stockholders who
have failed to pay the appropriate consideration is attached as exhibit "A".
The company hereby directs you to take the following action:
1. Have your records reflect that the 144 holding period has not commenced and
will not commence until appropriate consideration is paid by the stockholders
listed below.
2. Make a written request that each listed stockholder surrendered his/her stock
for cancellation, if payment is not being made.
3. Do not transfer any of the securities held by the persons noted unless you
receive further instructions from Equity that consideration has been
appropriately paid.
138
<PAGE>
If you have any questions please give me a call at 352-694-6714.
Sincerely,
/s/ G. Richard Chamberlin /s/
--------------------------------------
G. Richard Chamberlin, Esq
Attorney for Equity Growth Systems, inc.
cc: Charles J. Scimeca
Leonard Miles Tucker, President of Yankee Companies, Inc.
William A. Calvo, III, Vice-President of Yankee Companies, Inc.
Larry Bowman, CPA for Equity Growth Systems, inc.
Directors of Equity
139
Chamberlin Law Office, P.A.
G. Richard Chamberlin, attorney
Florida & Georgia Bars only
1941 Southeast 51st Terrace, Suite 800
Ocala, Florida 34471
May 3, 1999
Al Sanders
Liberty Transfer Co.
191 New York Avenue
Huntington, New York 11743
Facsimile: 516-385-1619
Re: Equity Growth Systems, inc. ("Equity")
Dear Mr. Sanders:
Please be advised that certain stock certificates have been issued
improperly pursuant to Rule 504 as free trading stock. A list of addresses of
the stockholders who have been improperly issued Rule 504 stock are attached as
exhibit "A".
The Rule 504 exemption is not available because Equity has been subject to
reporting requirements pursuant to Section 13 or 15(d) since 1964.
All stock issued pursuant to Rule 504 should be returned for a proper
legend or be canceled.
You are directed by Equity to take the following actions:
1. Have your records reflect that the subject stock should be reclassified as
having been issued in reliance on Sections 4(2) of the Securities Act, and thus
subject to Rule 144, with the Rule 144 period being applied retroactively to the
time of issuance.
2. Request from each shareholder that the stock be surrendered for proper
legending.
3. Do not permit trading in the securities unless Rule 144 is fully complied
with.
140
<PAGE>
Please note, that Carrington Capital has agreed to return 25,000 shares of
free trading stock to you for Rule 144 legending. Please call my office when
these shares are received.
Thank you for cooperation in this matter. If you have any questions please
give me a call at 352-694-6714.
Sincerely,
/s/ G. Richard Chamberlin /s/
----------------------------------
G. Richard Chamberlin, Esq
Attorney for Equity Growth Systems, inc.
cc: Charles J. Scimeca, President of Equity Growth Systems, inc.
Leonard Miles Tucker, President of Yankee Companies, Inc. & Carrington
Capital Corp.
William A. Calvo, III, Vice-President of Yankee Companies, Inc.
Larry Bowman, CPA for Equity Growth Systems, inc.
Directors Of Equity Growth Systems, inc.
United States Securities and Exchange Commission
141
Coast To Coast
Realty Group, Inc.
1290 N. Palm Avenue
Sarasota, Florida 34236
Tel. (941) 366-4679, Fax (941) 558-8423
24 Hours (941) 374-0891
e-mail [email protected]
MEMORANDUM
TO: RICHARD CHAMBERLIN
DATE MARCH 26, 1999
FROM: CHARLES SCIMECA
SUBJECT; ANSWERS TO DUE DILIGENCE EQUITY GROWTH SYSTEMS
(l) ON JULY 7,1998 I FILED A LOST STOCK CERTIFICATE AFFIDAVIT WITH LIBERTY
TRANSFER FOR THREE STOCK CERTIFICATES TOTALLY 450,000 SHARES. #027 ISSUED
11/10/95 (#153) 200,000 SHARES, #063 ISSUED 6/14/96 (#154) 100,000 SHARES, #130
ISSUED 03/26/98 (#155)150,000 SHARES. I ALSO STATED I WAS TRANSFERRING THE
SHARES TO PALMAIR, INC. BUT I WAS RETAINING 100% INTEREST IN THE SHARES ,WHICH I
DID UNTIL DECEMBER 18, 1998, THE 450,000 SHARES WERE THEN SOLD TO PALMAIR, INC.
FOR $4,500.00. PALMAIR, INC. IS A BAHAMAS CORPORATION LOCATED AT 55 FREDERICK
STREET NASSAU, BAHAMAS. CHRISTIAN GENTIS IS MY CONTACT, SHE IS A SHAREHOLDER AND
DIRECTOR, I HAVE HAD BUSINESS DEALINGS WITH HER FOR THE PAST 10 YEARS, MAINLY
INVOLVING CUSTOMERS SHE REFERS TO ME INVOLVING REAL ESTATE AND BUSINESS
OPPORTUNITIES IN THE UNITED STATES, I HAVE NO INTEREST IN PALMAIR OR THE SHARES
THAT WERE SOLD NOR AM I A STOCKHOLDER, OFFICER OR DIRECTOR IN PALMAIR.
I WAS NOT AWARE AN ATTORNEY'S OPINION WAS NEEDED FOR THE TRANSACTION BECAUSE I
RETAINED FULL INTEREST IN THE SHARES UNTIL DECEMBER 18, 1998 AND THE TRANSFER
AGENT DIDN'T MENTION ANY TYPE OF OPINION WAS NEEDED, AS FAR AS THE SALE IN
DECEMBER IS CONCERNED BECAUSE IT WAS LESS THAN $10,000.00, I THOUGHT IT WAS TO
BE DISCLOSED THE 1998 10K THAT IS BEING FILED NOW, WHICH WAS MY INTENT. I WAS
NOT AWARE OF FORMS 3,4,5 IF THEY NEEDED TO BE FILED.
(2) I WAS AGREEING TO THE 2000 DATE WHEN I SIGNED THE OPTION AGREEMENT.
(8) I HAVE NOT AND KNOW ONLY WHAT HAS BEEN FILED BEFORE . ALTHOUGH I BELIEVE
HOMAN AND MOFFITT SHOULD KEEP THEIR STOCK.
s/s Charles J. Scimeca s/s DATE 3-26-99
142
CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM
Offering Memorandum____________ Name of Offering_____________
AMERICAN INTERNET TECHNICAL CENTER, INC.
800,000 Shares at $1.25 per Share
Total Offering: $1,000,000
Minimum Subscription 8,000 Shares ($10,000.00)
Offering Expiration: July 31,1999
American Internet Technical Center, Inc. a Florida corporation (the "Company"),
hereby offers (the "Offering") up to 800,000 Shares of the Company's Common
Stock (the "Stock"), to Accredited and Non-Accredited Investors only. See
"Investor Suitability Standards" and "Description of Securities".
THESE SECURITIES HAVE NOT BEEN APPROVED OR did not DISAPPROVE BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS OFFERING MEMORANDUM, ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
Offering Selling Net Proceeds to the
Price (1) Commission (2) Company (2) (3)
- -------------------------------------------------------------------------------
Per 4,000 Shares $10,000 $1,000 $9,000
- -------------------------------------------------------------------------------
800,000 Shares $1,000,000 $100,000 $900,000
- -------------------------------------------------------------------------------
The offering Price of the Stock has been unilaterally determined by the Company
and is not based on the assets, book value or earnings. The minimum subscription
is eight thousand shares ($10,000).
The company may pay a selling commission of 10% to broker-dealers who are
members of the National Association Securities Dealers, Inc. and who have agreed
to sell the stock on behalf of the Company on a "best efforts" minimum-maximum
basis.
Before deducting expenses of approximately $25,000 for legal, accounting,
printing, consulting, and other costs.
Assumes that the Offering is fully subscribed. The Company makes the Offering on
a "best efforts" basis.
143
<PAGE>
AMERICAN INTERNET TECHNICAL CENTER
1500 EAST ATLANTIC BLVD.
POMPANO BEACH, FL 33060
The date of this Confidential Private Placement Memorandum is January 15, 1999
AVAILABLE INFORMATION
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT") OR REGISTERED OR QUALIFIED UNDER APPLICABLE
STATE SECURITIES LAWS.
THE SECURITIES OFFERED HEREBY MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED,
ASSIGNED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF ANY EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND/OR REGISTRATION OR QUALIFICATION UNDER APPLICABLE
STATE SECURITIES LAWS OR OAN OPINION OF LEGAL COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION AND/OR QUALIFICATION IS NOT REQUIRED. THE
SECURITIES MAY BE SUBJECT TO ADDITIONAL RESTRICTIONS IN THE VARIOUS STATES IN,
WHICH THEY MAY, BAE SOLD. THERE ARE NO ASSURANCES THAT A PUBLIC MARKET WILL
DEVELOP IN THE FUTURE. SEE "RISK FACTORS-NO ASSURANCES OF A PUBLIC MARKET" AND
"LIMITED TRANSFERABILITY OF SECURITIES".
THE SECURITIES REGULATORY AUTHORITY OF ANY STATE (A "REGULATORY AUTHORITY") HAS
NEITHER APPROVED OR DISAPPROVED THE SECURITIES OFFERED HEREBY. NOR HAS ANY
REGULATORY AUTHORITY PASSED UPON THE FAIRNESS OR THE MERITS OF THIS OFFERING OR
UPON THE ACCURACY OR THE ADEQUACY OF THE INFORMATION CONTAINED IN THIS PROVATE
PLACEMENT MEMORANDUM ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS OFFERING IS BEING MADE PURSUANT TO AN OFFERING EXEMPTION PROVIDED BY
REGULATION D UNDER ACT AND SIMILAR OFFERING EXEMPTIONS PROVIDED BY APPRICABLE
STATE SECURITIES LAWS TO A LIMITED NUMBER OF INVESTORS WITH SUITABILITY
STANDARDS DESCRIBED IN THIS OFFERING. THIS PRIVATE PLACEMENT MEMORANDUM IS
CONFIDENTIAL AND CONTAINS INFORMATION THAT IS PROPRIETARY TO THE COMPANY. NO
PERSON MAY COPY THIS PRIVATE PLACEMENT MEMORANDUM OR DISSEMINATE IT OR ANY OF
THE INFORMATION CONTAINED HEREIN TO ANY OTHER PERSON WITHOUT THE PRIOR WRITTEN
CONSENT OF THE COMPANY,
THIS PRIVATE PLACEMENT MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THESECURITIES OFFERED
HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISIDICTION IN
WHICH IT IS UNLAWFUL TOMAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON.
NEITHER THE DELIVERY OF THIS PRIVATE PLACEMENT MEMORANDUM NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
144
<PAGE>
THE COMPANY PREPARED THE INFORMATION PRESENTED HEREIN AND IS BEING FURNISHED BY
THE COMPANY SOLELY FOR THE USE BY PROSPECTIVE INVESTORS IN CONNECTION WITH THIS
OFFERING. NOTHING CONTAINED HEREIN IS, OR SHALL BE RELIED ON AS A PROMISE OR
REPRESENTATION AS TO THE FUTURE PERFORMANCE OF THE COMPANY.
THIS PRIVATE PLACEMENT MEMORANDUM DOES NOT PUPORT TO BE ALL INCLUSIVE OR TO
CONTAIN ALL THE INFORMATION THAT A PROSEPECTIVE INVESTOR MAY DESIRE IN ORDER TO
MAKE AN INVESTMENT DECISION REGARDING THE SECURITIES OFFERED HEREBY. EACH
INVESTOR MUST CONDUCT AND RELY ON HIS OR HER OWN EVALUATION OF THE COMPANY AND
THE TERMS OF THIS OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED IN MAKING AN
INVESTMENT DECISION WITH RESPECT TO THE SECURITIES OFFERED HEREBY. SEE "RISK
FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN
CONNECTION WITH THE PURCHSE OF THE SECURITIES OFFERED HEREBY.
PRIOR TO THIS OFFEREING THERE HAS BEEN NO PUBLIC MARKET FOR THE SECURITIES
OFFERED HEREBY OR FOR ANY OTHER SECURITIES OF THE COMPANY AND NO PUBLIC MARKET
FOR THE SECURITIES OF THE COMPANY AND NO PUBLIC MARKET WILL EXIST FOLLOWING THIS
OFFERING. THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND
IMMEDIATE AND SUBSTANTIAL DILUTION AND SHOULD NOT BE PURCHASED BY INVESTORS WHO
CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS"
THE SECURITIES ARE OFFERED BY THE COMPANY SUBJECT TO PRIOR SALE, ACCEPTANCE OR
AN OFFER TO PURCHASE, WITHDRAWAL, CANCELLATION OR MODIFICATION OF THE OFFER,
WITHOUT NOTICE. THE COMPANY RESERVES THE RIGHT TO REJECT ANY ORDER, IN WHOLE OR
INPART, FOR THE PURCHASE OF ANY OF THE SECURITIES OFFERED HEREBY.
145
<PAGE>
This offering involves special risks concerning the Company (see "Risk
Factors"). Investors should carefully review the entire Memorandum and should
not invest any funds in this Offering unless they can afford to lose their
entire investment. In making an investment decision, investors must rely on
their own examination of the issuer and the terms of the Offering, including the
merit and risks involved.
REGULATION D OFFERING
THIS OFFERING IS BEING MADE PURSUANT TO THE EXEMPTIONS AFFORDED BY SECTIONS 4(2)
OR 3(b) OF SECURITIES ACT OF 1933 AND RULE 504 OF REGULATION D PROMULGATED
THEREUNDER AND THE STATE SMALL CORPORATE OFFERING REGISTRATION PROVISION.
PURSUANT TO RULE 504, THE SHARES SOLD HEREBY WILL NOT BE SUBJECT TO ANY
LIMITATIONS ON RESALE THEREOF UNDER FEDERAL LAW. THE SHARES MAY, HOWEVER, BE
SUBJECT TO LIMITATIONS ON THE OFFER AND SALE AND THE RESALE OF THE SHARES
IMPOSED BY THE BLUE SKY LAWS OF INDIVIDUAL STATES. IN ADDITION, THE COMPANY
INTENDS TO FILE THE REQUIRED DOCUMENTS IN CERTAIN OTHER STATES IDENTIFIED BY
MANAGEMENT AS HAVING POSSIBLE INVESTOR INTEREST AND USE ITS BEST EFFORTS TO
QUALIFY THE SHARES FOR SECONDARY TRADING IN SUCH STATES, THOUGH NO ASSURANCE CAN
BE GIVEN THAT IT WILL BE ABLE TO QUALIFY THE SHARES RSECONDARY TRADING IN ANY
SUCH STATES IN WHICH IT SUBMITS SUCH APPLICATIONS AND DOCUMENTS. AN INABILITY TO
QUALIFY THE SHARES FOR SECONDARY TRADING WILL CREATE SUBSTANTIAL RESTRICTIONS ON
THE TRANSFERABILITY OF SUCH SHARES WHICH MAY NEGATE THE BENEFIT OF THE EXEMPTION
PROVIDED BY RULE 504 OF REGULATION D. THE COMPANY WILL USE ITS BEST EFFORTS TO
CAUSE THE SHARES TO BE LISTED ON THE ELECTROMC BULLETIN BOARD OPERATED BY THE
NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. AS A MARKET IN WHICH THEY MAY
BE TRADED. THERE IS NO ASSURANCE THAT SUCH LISTING WILL BE OBTAINED OR THAT IF A
LISTING IS OBTAINED THAT ANY MARKET FOR THE SHARES WILL DEVELOP, OR IF
DEVELOPED, THAT IT WILL BE SUSTAINED.
146
<PAGE>
TABLE OF CONTENTS Page No.
DESCRIPTION OF OFFERING.............. 6-7
SUMMARY....................................... 7-10
PROJECTED SCHEDULE OF OPERATIONS.......... 10-16
RISK FACTORS............................... 16-20
USE OF PROCEEDS................................. 20-21
DILUTION.......................................... 21
APITALIZATION...................................... 22
BUSINESS OF COMPANY............................... 22-27
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.................................... 27
MANAGEMENT....................................... 28-30
PRINCIPAL SHAREHOLDERS............................ 30
SUITABILITY STANDARDS............................ 31-33
DESCRIPTION OF SECURITIES........................ 34
LIMITED TRANSFERABILITY OF SECURITIES......... 35-36
PLAN OF DISTRIBUTION............................... 36
ADDITIONAL INFORMATION............................ 36
EXHIBITS:
INDEX TO FINANCIAL STATEMENTS..................... A
SUBSCRIBER QUESTIONAIRE............................. B
SUBSCRIPTION AGREEMENT............................. C
AND INVESTMENT REPRESENTATION
147
<PAGE>
THE OFFERING DESCRIPTION OF OFFERING
Securities Offered Up to 8,000,000 Shares of the Company's Common
Stock par value $0.001 per share (the "stock")
Offering Price $1.25 per Share, minimum is 8,000 shares.
Expiration Date July 31, 1999
Amount of Offering $1,000,000
Common Stock Outstanding
Prior to the Offering 10,000,000 Shares
Common Stock Purchase The Company has authorized the issuance
of 800,000 Shares Warrant of Common Stock
Purchase Warrants to the investors participating
in this Private Placement. Each investor will be
given one (1) Common Stock Purchase Warrant for
each Share of Common Stock purchased at an
exercise price at $.50. The Common Stock Purchased
Warrant will be exercisable up to one (1) year
after a public market exists.
Additional Information Each prospective investor will have
the opportunity to ask questions or request
additional information from the
company prior to subscribing. See
"Additional Information".
Subscription Agreement An investor may purchase the stock only pursuant
to a subscription Agreement that contains, among
other matters, certain representations and
warranties by the Company and certain
representations and warranties by the investor.
Subscription All Subscription checks should be payable to
American Internet Technical Center, Inc..
Suitability The Stock is being offered to Accredited Investors
who are capable of evaluating the merits and the
risks of an investment in the Stock and who meet
certain suitability requirements. See Investor
Suitability Standards.
148
<PAGE>
Plan of Distribution The Stock is being offered on a best efforts
basis by the Company and by Broker Dealers who are
members of the National Association of
Securities Dealers, Inc. who may be considered,
See Plan of Distribution.
Private Placement Offering The Common stock has not been registered
under the Securities Act of 1933, as
amended, or registered or qualified
under applicable state securities
laws, and is being offered in
reliance upon certain exemptions
from registration and/or
qualification provided in federal
and state securities laws.
Therefore, the Common Stock may not
be resold or transferred in the
absence of an effective registration
statement under the Securities Act
and registration and/or
qualification under the state, such
registration and/or qualification is
not required.
SUMMARY
The following is a summary of the Company, the principal terms of the Offering,
and certain other matters and is qualified on its' entirety by the Company's
financial statements and the more detailed information included elsewhere in
this Confidential Placement Memorandum (this "memorandum").j
The Company
American Internet Technical Center, Inc. (the "Company"), 1500 East Atlantic
Blvd., Pompano Beach, FL 33060; telephone (954) 943-4748, is a Florida based
internet Company. The Company's primary market is new business throughout the
United States and Canada. The Company designs web sites, hosts web sites, and
provides e-commerce programs, marketing and other Internet services. The Company
also offers on line instructional programs in computer technology, web design,
management and other fields. All courses are conducted on the Web where students
can acquire new skills from the comfort of their own home. The Company differs
from its' competitors in that it is not restricted by geographical boundaries,
it solicits the smaller accounts and utilizes students to perform many of the
routine tasks.
The Company was incorporated on April 15, 1998, in the State of Florida solely
to provide Internet services, including but not limited to, web design, hosting,
marketing and training. The Company began by offering free web sits for small
and medium sized businesses. Web sites were to be designed by senior webmaster
students as part of their graduation requirements. In return, clients are
required to use the Company's hosting services for their new web sits. In the
first nine months of operations, the Company has acquired approximately 1175
clients, averaging 130 new clients per month. Hosting services, including search
engine registration are $578.00 for a six-month contract and $932.00 for a
one-year contract.
149
<PAGE>
The Company's marketing strategy has been focused around advertising in local
newspapers, direct mail, including postcards and card decks, telemarketing and
the Internet. The Company maintains its own informative web site and encourages
prospective clients to visit the site where they can obtain information about
the Company and its services, and to preview approximately fifteen actual sites
of the Company's clients. Selling efforts consist of responding to inquiries
that are generated by the advertising efforts. A sales representative explains
the program to the prospect and then faxes a six page informational package,
including a contract, to the prospect. Closing the prospect normally occurs
within one to five days and requires knowledge of the services and sales skills.
Gross sales for the first nine months were approximately $850,000.00 to 1,175
clients. The Company's marketing objective is to increase sales to $4,200,000
and increase the number of clients to 5,000 by the fiscal year ending March 31,
2000. The Company will experiment with cable television advertising on business
networks, such as MSNBC and other networks, press releases, and outbound
telemarketing campaign to new businesses, opt-in e-mailing and other advertising
techniques and methods.
Based upon market research and studies, Management believes that the demand for
the Company's Internet services will remain strong. Network Solutions, which has
the government contract to register domain names in the United States, reports
that new registrations are increasing at a significant rate. Each month,
Internic registers more than 100,000 new commercial domain names. In January
1998 there were 30 million computers on the Internet and approximately 70
million users. Internet co-designer, Vinton Cert, estimates that by the Year
2000 there will be 200 million computers on the Internet and over 400 million
users. In 1998, sales on the Internet were estimated to exceed $4 billion by the
year 2000. AOL recently announced that its sales for the ten-day Christmas
period of 1998 exceeded $1 billion dollars. Throughout the United States there
are over 100,000 new businesses formed each month. Many of these businesses
commerce operations on a limited budget but are fully aware of the importance of
having a web site. This is our market niche and the area where we will focus
future marketing efforts to achieve projected goals.
Business conducted on the Web knows no boundaries. There are no geographical
restrictions and language barriers will be eliminated through translation
programs. The Company receives over 100 inquires per month from foreign
countries, even though it directs its marketing efforts in the USA. At the
present time, the Company conducts business in the United States and Canada,
however, the Company is preparing itself to intensify marketing strategies and
communication links to capture the universal market. The Company conducted a
test-marketing program in Brazil, one of the larger countries in the world, and
the initial findings were favorable.
150
<PAGE>
Market Analysis
The growth in demand for these products and services in the United States as
well as in most other countries outstrips the population growth. Demand for the
services is being fueled by factors such as more awareness of the general
availability of the service, increased advertising and competition by service
providers, more businesses in the target group, the robust economy, the
advancements in the technology sector and public acceptance of these changes.
While the growth in the domestic market for the service is expected to continue,
overseas markets are showing much more promise. The demographic information such
as rising income levels, higher education levels and more familiarity with
technology are suggesting that overseas markets are ripe for dramatically higher
growth rates. Although the sales in overseas markets are currently dwarfed by
domestic sales, the firms who do sell overseas are experiencing very fast growth
rates and there is every reason to believe that these fast growth rates will
continue for years to come and that eventually the overseas markets may even be
larger than then domestic market.
We intend to be the best managed and most professionally operated firm operated
in the United States and eventually in other countries throughout the world. In
a field that will be filled with many competitors we intend to distinguish
ourselves by having specific policies and standards for serving customers and
carefully monitoring the quality of our service. As this market continues to
mature, buyers will become increasingly discerning and increasingly aware of and
interesting in the key features/benefits/differences from one competitor's
offering to the next.
Part of the proceeds that we will raise will be used to purchase equipment that
will maintain our competitive position. Each sales representative will have the
most advanced computerized sales equipment available in the marketplace. These
tools will allow our staff to service their clients quickly and more
efficiently, to provide answers to questions, to track customer progress and
call backs, to provide the means for upgrade sales, renewals and other services.
In addition, the equipment will allow us to make overseas calls on the Internet,
versus the telephone companies, at lower rates, and to be able to communicate,
if necessary, with prospects in foreign languages, using translation features.
Management is considering other advanced equipment that will create web sites in
foreign languages and/or bilingual web sites; equipment that will create "in
house" leads of its prospect base from county courthouses, public documents and
other records; equipment and programs to generate leads "hits" for its
customers, using the search engines and other marketing techniques. The Company
also intends to purchase additional equipment that will ensure its competitive
advantage with respect to hosting. Such equipment will provide the Company with
the fastest and most reliable access to the Internet.
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Online Instruction
The Company offers the following classification of on line courses. There are a
total of 62 different courses, all of which feature web-based delivery and
administration. Students can take courses from their own home or business.
Requirements for most courses are a computer, Internet access, e-mail and
Netscape or Internet Explorer browser. Lessons for each course/ syllabus are
usually delivered twice weekly either by e-mail or on the web itself. An
Instructor conducts each course. Interaction with Instructors and other students
is conducted in special chat room environments.
1. Computer Courses. Unlock the powerful secrets behind all your favorite
applications, a total of 14 different courses of study. Average course is
12 lessons, 6 weeks of study. Course prices $95.00.
2. Internet Courses. Learn how to navigate the Internet, create a web page or
master the art of Web programming. A total of 8 courses, 12 lessons per
course. Each course price $95.00.
3. Business Courses. Discover how best to plan, start, finance and market your
small to medium sized business. A total of 11 courses, varying numbers of
lessons per course. Average course price $135.00.
4. Management Courses. Improve your job skills by mastering the fundaments of
supervision, communication, motivation, conflict resolution, and inventory
and project management. A total of 23 different coursed, varying numbers of
lessons per course. Average course price $195.00.
5. Other Courses. Prepare for an upcoming test, enhance your medical skills,
or chart a new career path with these courses. A total of six different
courses, varying numbers of lessons per course. Average course price
$275.00.
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American Internet Technical Center, Inc.
Projected Schedules
Balance Sheet
Fiscal Year
Ending March 31st 1999 2000 2001 2002 2003
ASSETS
Current Assets
Cash $ 91,000 $ 150,000 $ 200,000 $ 250,000 $ 300,000
Short-term investments 2,910,000 4,232,000 6,079,000 8,436,000
Accounts receivable, net 145,000 320,000 360,000 400,000 440,000
Prepaid expenses 6,100 10,000 10,000 10,000 10,000
Total current assets 242,100 3,390,000 4,802,000 6,739,000 9,186,000
Fixed Assets 30,000 2,030,000 2,030,000 2,030,000 2,030,000
Less accumulated
depreciation 5,000 225,000 445,000 665,000 885,000
Net Fixed Assets 25,000 11,805,000 1,585,000 1,365,000 1,145,000
Long Term Assets 26,000 30,000 30,000 30,000 30,000
293,100 5,225,000 6,417,000 8,134,000 10,361,000
LIABILITIES & EQUITY
Current Liabilities
Accounts payable $ 30,000 $ 110,000 $ 130,000 $ 150,000 $ 170,000
Accrued liabilities 40,000 65,000 85,000 105,000 125,000
Payroll taxes payable 2,000 5,000 7,000 9,000 11,000
Income taxes payable 16,000 60,000 120,000 175,000 250,000
Total current liabilities 88 000 240,000 342,000 439,000 556,000
Long Term Liabilities
Notes payable -0
Shareholder's Equity
Paid up capital 100 4,250,000 4,250,000 4,250,000 4,250,000
Retained earnings 165,000 735,000 1,825,000 3,445,000 5,555,000
Total shareholder's equity 165,100 4,985,000 6,075,000 7,695,000 9,805,000
293,100 5,225,000 6,417,000 8,134,000 10,361,000
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American Internet Technical Center, Inc.
Projected Statements of Operations
Fiscal Year
Ending March 31st 1999 2000 2001 2002 2003
Sales
Web sites $ 1,200,000 $ 3,200,00 $ 3,600,00 $ 4,000,00 $4,400,000
O O O
Marketing programs 40,000 375,000 750,000 1,125,000 1,500,000
On-line educational programs 20,000 200,000 300,000 400,000 500,000
Hosting, renewals and other 40,000 425,000 1,300,000 2,175,000 3,000,000
Direct Costs
Sales commissions 230,000 750,000 900,000 1,050,000 1,200,000
Production department
costs 177,000 595,000 665,000 735,000 805,000
Marketing department
expenses 20,000 190,000 375,000 565,000 750,000
Advertising and promotion 236,000 545,000 635,000 720,000 810,000
Educational programs 5,000 50,000 75,000 100,000 125,000
Hosting costs and other 32 000 170,000 350 000 530 000 710 000
Total direct costs 700,000 2,300,000 3,000,000 3,700,000 4,400,000
Gross Profit 600,000 1,900,000 2,950,000 4,000,000 4,000,000
Operating Expenses
Administrative Wages 67,000 167,000 200,000 230,000 270,000
Bank charges & interest 3,000 5,000 6,000 7,000 8,000
Depreciation and
amortization 5,000 220,000 220,000 220,000 220,000
Employee benefits expense 15,000 60,000 70,000 80,000 90,000
Insurance expense 3 000 6,000 9.000 12,000 15,000
Legal and accounting fees 7,000 25 000 30 000 35 000 40 000
Maintenance and repairs 7,000 14,000 20,000 25,000 30,000
Miscellaneous expenses 8,000 13 000 17 000 21,000 25,000
Occupancy costs 24,000 15,000 15,000 15,000 15,000
Office supplies 13,000 25 000 30,000 35 000 40,000
Telenhone and utilities 68 000 130 000 163,000 200,000 237,000
Total operating expenses 220,000 680,000 780,000 880,000 990,000
Net Before Management
Salaries and Income Taxes 380,000 1,220,000 2,170,000 3,120,000 4,010,000
Management Salaries 150,000 400,000 600,000 800,000 1,000,000
Provision for Income Taxes 65 000 250 000 480 000 700 000 900 000
215,000 650,000 1,080,000 1,500,000 1,900,000
Net Profit 165,000 570,000 1,090,000 1,620.000 2,110,000
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American Internet Technical Center, Inc.
Projected Statements of Cash Flow
Fiscal Year
Ending March 31st 1999 2000 2001 2002 2003
Cash flows from operating activities
Net Profit for the year 165,000 570,000 1,090,000 1,620,000 2,110,000
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation 5,000 220,000 220.000 220,000 220,000
Increase (decrease)in
accounts payable 30,000 80,000 20,000 20,000 20,000
Increase (decrease) in
accrued liabilities 40,000 25,000 20,000 20,000 20,000
Increase (decrease) in
payroll taxes payable 2,000 3,000 2,000 2,000 2,000
Increase (decrease) in
income taxes payable 16,000 44,000 60,000 55,000 75,000
Decrease (increase) in
prepaid expenses ( 6,100) ( 3,900)
Decrease (increase) in
long term assets ( 26,000) ( 4,000)
Net cash provided by
operating activities 80,900 759,100 1,372,000 1,897,000 2,407,000
Cash flows from investing
activities:
Additions to property
and equipment ( 30,000)( 2,000,000)
Cash flows from financing
activities:
Increase (decrease) in
notes payable 40,000 ( 40,000)
Proceeds from sale
of common stock 100 4,250,000
Net cash provided by
financing activities 40,100 4,210,000
Net increase in cash
and cash equivalents 91,000 2,969,000 1,372,000 1,897,000 2,407,000
Cash & cash equivalents
beginning of year 91,000 3,060,000 4,432,000 6,329,000
Cash and cash equivalents
at end of year 91,000 3,060,000 4,432,000 6,329,000 8,736,000
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Assumptions
In preparing the Pro Forma Statement of Operations, Balance Sheet and Cash Flow
Forecast, the Company has made the following assumption with respect to future
sales and operating expenses. The estimated figures used in the descriptive text
are for the year ending March 31, 2000. Similar assumptions were used to
estimate the figures for the years 2001, 2002 and 2003, however, those
calculations are not provided herein.
Revenues from Web Site Sales - $2,800,000. (This figure obtained by multiplying
80 X $700 x 50 weeks). The Company estimates that web sales will average 80
sales per week during the second year of business. Average price per sale is
$700, which assumes that 2/3 of all sales will be at $578 and 1/3 of all sales
at $932. In 1999 the actual sales breakdown was 60%/40%. The Company projects
sales of 90, 100 and 110 sales per week for the years 2001, 2002 and 2003,
respectively. The Company feels that its sales objectives are conservative and
can be attained with its proposed marketing plans. The Company commenced
business in April 1998. In its first full week of operations, the Company made 5
sales. In its tenth week, the Company attained 78 sales.
2. Upgrades - $400,000. The Company estimates sales from extras and
upgrades to existing clients will average $100 per client. The projected number
of new clients for the year ending March 31, 2000, are 4,000. Items 1 and 2 are
combined in the Financial Statements.
3. Marketing Programs - $375,000. The Company estimates that it will sell a
minimum of 15 marketing and/or maintenance programs per week for the year 2000.
These programs average $500 per sale (for an annual contract) and are beneficial
to those individuals who require frequent changes to their web sites and/or who
desire to obtain high search engine rankings and "hits" to their web site. This
figure is expected to increase substantially in the following years as more
advertising is focused in this strategic area and more existing clients are
added to the Company's database.
4. Online Educational Programs - $200,000. The Company estimates that it
will enroll a minimum of 20 new students per week in its second year. The
Company expects that the majority of courses sold will be part of the Web Design
Course Syllabus. There are 8 separate courses available at $95 per course. If
each student takes but 2 courses each, the estimated sales for next year will be
$200,000. As more advertising efforts are focused in this area, the interest and
sales are expected to increase each year.
5. Hosting/Re-hosting Fees - $425,000. The Company estimates that it will
have approximately 1,500 clients by the end of its first fiscal year, March 31,
1999. The Company expects to add an additional 4,000 clients in its second year.
The Company estimates it will have approximately 3,000 customers ready for
renewals during the course of its second year of operations. The Company will
offer an attractive hosting renewal price along with an incentive package to
encourage maximum renewals, however, if 50% of the clients renew, the above
projection will be attained (1,~}0 x $300 year renewal). The estimates for
succeeding years will be accelerated as the number of clients increases
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proportionately. Other sales are anticipated from other sources. The Company
receivs referral fees and commissions from merchant card providers, fulfillment
houses and other sources. the Company intends to experiment with e-commerce web
sites of its own and sell and distribute other related and non related
products/services on the Interent.
6. Sales Commissions - $750,000. Sales representatives receive 18% of web
site sales, upgrades and marketing revenues ($3,775,000 x 18% = $680,000). An
allowance is provided for a sales manager and bonuses. This expenditure will
increase in succeeding years in relation to sales.
7. Production Costs - $595,000. During the first year the Company was
successful in reducing its production costs by approximately 50%. Production
costs are estimated as follows: (a) Web Sites; 15% of $2,800,000 = $420,000; (b)
Upgrades: 25% of $400,000 = $100,000; (c) Provision for Manager $75,000.
8. Marketing Expenses - $190,000. This is a labor-intensive source of
revenue and is estimated to be 50% of sales.
9. Advertising & Promotion - $545,000. During the first year of operations
the Company was successful in reducing its advertising cost per sale by
approximately 40%. The advertising cost per web site is currently less than $100
per sale. This expenditure is estimated as follows: (a) 15% of web site sales,
marketing and educational revenues = $500,000; (b) allowance for advertising
manager $45,000.
10. Educational Programs - $50,000. The Company obtains all programs
through a California Institute. Costs are approximately 25% of revenues.
11. Hosting Costs & Other - $170,000. During the first year, the Company
purchased three servers, which it owns, and co-hosts at an outside location. The
Company was successful in reducing this expense item by over 50%. Re-hosting
costs are estimated at approximately 20% of the sales. An allowance of $60,000
annually for a Systems Administrator is provided.
THE FOREGOING STATEMENTS OF OPERATIONS ARE A PROJECTION ONLY AND ARE BASED ON
MANAGEMENT'S ESTIMATION OF MARKETING AND FINANCIAL RESULTS. THERE ARE NO
ASSURANCES THAT THE ASSUMPTIONS UPON WHICH PROJECTED STATEMENTS ARE BASED WILL
BE ACCURATE OR THAT THE PROJECTED LEVELS OF FINANCIAL PERFORMANCE WLL BE
ACHIEVED. THE PROJECTED STATEMENTS ARE FOR ILLUSTRATIVE PURPOSES ONLY AND NOT A
GUARANTEE OF PERFORMANCE AND SHOULD BE CONSIDERED IN LIGHT OF THE STATED
ASSUMPTIONS, RISK FACTORS AND OTHER INFORMATION SET FORTH IN THIS MEMORANDUM.
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RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND PROSPECTIVE INVESTORS SHOULD
BE AWARE THAT THEY WILL BE SUBJECT TO A NUMBER OF MATERIAL RISKS, INCLUDING THE
RISK FACTORS DESCRIBED BELOW. ACCORDINGLY, PERSONS WHO CAN AFFORD TO LOSE THEIR
ENTIRE INVESTMENT SHOULD ONLY PURCHASE THE STOCK. PROSPECTIVE INVESTORS SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS RELATING TO THE COMPANY AND THE
OFFERING TOGETHER WITH THE OTHER INFORMATION AND FINANCIAL DATA SET FORTH
ELSEWHERE IN THIS MEMORANDUM ~ LIGHT OF THEIR PARTICULAR FINANCIAL CIRCUMSTANCES
AND INVESTMENT OBJECTIVES.
DEVELOPMENT STAGE COMPANY
The Company is nearing completion of its first year of business with an
operating profit, however, it is subject to all risks inherent in the
establishment of a new business enterprise, including the likelihood of
continued operating losses. The likelihood of the Company's success must be
considered in light of the problems, expenses, difficulties, complications and
delays frequently encountered in connection with the commencement and growth of
operations, the implementation of the Company's business plan, and the
competitive and regulatory environment in which the Company operates "Business
of the Company".
LIMITED ADVERTISING/MARKETING CAPABILITY
The Company currently has only a limited advertising/marketing capability for
its services. The Company plans to increase their in-house advertising/marketing
strategies, however, future capital will be needed to implement new aggressive
advertising/marketing strategies.
DEPENDENCE ON THE OFFERING
The Company requires that the Offering be fully subscribed in order for the
Company to make certain key acquisitions that will increase margins. If the
Offering is less than fully subscribed, the Company may have to reduce certain
acquisitions and reduce advertising/marketing strategies. This may have an
effect on the Company's schedule of growth. See "Use of Proceeds".
DEPENDENCE ON FUTURE FINANCING
Even if the Offering is fully subscribed, management believes that the company
will require additional financing to continue to make key acquisitions, continue
the direct response marketing campaigns and for working capital. If the Company
is not able to secure future financing, the Company may have to reduce overall
operations, cut back its direct response marketing campaigns
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and the acquisitions key to the Company's growth. This also could have
diminishing effects on the potential profitability of the Company.
Management anticipates that the Company will raise all or a substantial portion
of the financing required through an initial public offering, which the Company
expects to file during 1999. Management may use a portion of the net proceeds of
the Offering allotted to general working capital to pay for a portion of the
expense of a public offering. However, there are not assurances that the Company
will be able to undertake such initial public offering or that the Company will
be able to raise sufficient capital from such undertaking. Even if the Company
successfully concludes an initial public offering, there are no assurances that
the Company will be able to sustain profitability, increase margins and continue
aggressive growth. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources".
NO ASSURANCES OF A PUBLIC MARKET
There is no public market for the Common Stock and there are no assurances that
a public market will develop, or if developed, will continue. If no market
develops, it may be difficult or impossible for the holders of the Common Stock
to sell their Shares if they should desire to do so. In addition, there are
substantial restrictions on the sale or transfer of the Common Stock imposed by
the federal and state securities laws. There are no assurances that holders will
be able to sell their Common Stock at a price equal to the offering price, or at
all. Even if the Company undertakes the initial public offering of the Common
Stock, there are no assurances that sufficient shares will be sold to create a
public market for the Common Stock. In addition, the Subscription Agreement for
the purchase of Common Stock may provide that, upon request by the Company's
investment banker or underwriter, the holders of Common Stock will not be able
to sell any of their shares of Common Stock for 180 days after the public
offering by the Company, except for shares included as part of the public
offering. While investors will have certain registration rights, such
registration rights have restrictions that may result in the investors never
being able to sell their shares of Common Stock. See "Description of Securities
- - Registration Rights" and "Limited Transferability of Securities".
DIVIDEND AND REDEMPTION RESTRICTIONS
A holder of stock will only be entitled to receive dividends when as, if
declared by the Board of Directors out of funds legally available therefore. The
Company's Board of Directors will determine future dividend policy based upon
the Company's results of operations, financial condition, capital requirements,
and other circumstances. The Company currently does not contemplate paying
dividends on the Common Stock in the foreseeable future since it intends to use
all its earnings, if any, to finance expansion, acquisition, and marketing
campaigns.
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CONTINUED CONTROL OF MANAGEMENT
Currently, the Company's Officers and Directors beneficially own approximately
99.39% of the Outstanding Shares of Common Stock, and will continue to
beneficially own approximately 92.1% of the Outstanding Shares of Common Stock
upon full subscription of the Offering. However, when added to Outstanding
Shares beneficially owned by the Company's control group, the Company's
management beneficially owns 99.39% of the Outstanding Shares Common Stock and
will continue to beneficially own approximately 92. 1% of the Outstanding Shares
of Common Stock after the foregoing events.
DEPENDENCE ON MANAGEMENT
The Company believes that its success will largely be dependent upon
management's implementation of the Company's business plan. Although management
has extensive experience in other business ventures, the principals have not had
previous business experience in Internet services. However, the Company's
principals have been successful to date, but that does not assure future
success.
DILUTION
Following the purchase of the shares, investors will experience immediate and
substantial dilution of their investment. Accordingly, prospective investors may
bear a substantial portion of the risk of loss while control of the Company
remains in the hands of the present shareholders. See "Dilution"
"Principal Shareholders" and "Capitalization".
FINANCIAL PROJECTIONS
The Projected Statements of Operations included in the Summary of this
Memorandum are management's estimates as to the future performance of the
Company based upon certain assumptions and courses of action that the Company
plans to undertake. One of the material assumptions is that the Company's
Internet services will be received favorably in the market, which is based in
part upon certain indications of interest from qualified buyers. However, there
will usually be differences between the financial projections and actual results
experienced because events and circumstances frequently do not occur as expected
and those differences may be material. There are no assurances that such
indications of interest will result in actual sales that the Company will
perform as set forth in such financial projections, or that assumptions upon
which the projections are based will occur at the times indicated. See
"Description of Business".
[GRAPHIC OMITTED]
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ARBITRARY OFFERING PRICE
The Company's management determined the number of shares to be offered based
upon managementts estimates of the amount of proceeds necessary for planned
uses. The offering price is not based on the Company's assets, book value, or
earnings. Accordingly, the offering price should not be considered an indication
of the actual fair market value of the Common Stock as if appraised by a
disinterested party.
USE OF PROCEEDS
Selling commissions dealer-manager fees, expense allowance, consulting fees, and
the costs of the Offering may aggregate approximately 10% of the sales price of
the stock if the Offering is fully subscribed. The Company intends to use the
net proceeds of the Offering for acquisition, expansion, marketing/advertising
and working capita. If the Offering is less than fully subscribed, the Company
retains the discretion to apply the net proceeds in such amounts and for such
purposes as the Company deems necessary (See "Use of Proceeds").
RELIANCE UPON PRODUCT ACCEPTANCE
Management believes that the demand for the Company's Internet services will
depend, in part, upon consumers continued and increasing acceptance of doing
business over the Internet, including advertising, marketing, distribution of
products, and the dissemination of information over the Internet. However, there
are no assurances that the Company's Internet services will find acceptance with
consumers even if such trends continue andfor if acceptance will continue with
its consumers. While the conclusions of the Company's market research have been
favorable, there are no assurances that actual operating results will reach the
levels indicated by such research.
COMPETITION
The industry in which the Company operates is highly competitive. Other
companies that provide similar services may have substantially greater
technical, financial and/or marketing resources than the Company. Further, there
are no assurances that the Company's services will be competitive with
innovative technology developed by the Company's competitors. See "Business of
the Company - The Industry and Competition".
THE INDUSTRY
The Company will be competing in a fast-paced Internet services market, where
new technologies and markets constantly replace older services, research
designs, and web designing methodology. ConSumerts tastes and desires fluctuate
and are difficult to predict. There are no assurances that the Company will be
able to accurately predict these trends or keep pace with the changes that may
occur within the industry. See "Business of the Company - The Industry and
Competition".
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GENERAL ECONOMIC CONDITIONS
The financial success of the Company may be sensitive to adverse changes in
general economic conditions in the United States and Canada, such as recession,
inflation, unemployment and interest rates. These changes could cause the cost
of supplies, labor and other expenses to rise faster than the Company could
raise prices. Such changing conditions also could reduce demands in the
marketplace for the Company's services. The Company has no control over any of
these changes.
NO COMMITMENT TO PURCHASE THE STOCK
The Company is offering the Stock on a "Best Efforts" basis. No commitment
exists by anyone to purchase all or any portion of the Stock being offered, and
there are no assurances that any or all the Stock will be sold. See "Plan of
Distribution".
In addition to the above risks, businesses are often subject to risks not
foreseen nor fully appreciated by management. In reviewing this Memorandum,
potential investors should keep in mind other possible risks that may be
material.
USE OF PROCEEDS
From the gross proceeds of this Offering, the Company may pay a Selling
Commission and 10% of the purchase price of all stock sold. The Company may use
some or all of $25,000 of net proceeds to pay for accounting, legal, printing
and consulting expenses. Management estimates that the net proceeds to the
Company from the Offering after the foregoing deductions, will be approximately
$875,000 if all stock is sold. The Company intends to use the net proceeds of
the fully subscribed Offering as set forth in the following table. If the
Offering is less than fully subscribed, the Company may cut back acquisitions
and aggressive marketing strategies. The Company has determined that a minimum
of $500,000 will be required to roll out the limited acquisitions and TV
commercials. The Company retains the discretion to apply the net proceeds
towards such purposes and in such amounts, as it deems necessary to further the
operation of the Company in completing the preparation for marketing in lesser
quantities. There are no assurances that the Company will use the proceeds as
described below. See "Risk Factors - Use of Proceeds".
MAXIMUM SUBSCRIPTION
Purpose Amount Percent of Net Proceeds
------- ------ -----------------------
Selling Costs (maximum) $100,000 10%
Acquisitions 500,000 50%
Marketing/Advertising 300,000 30%
General Working Capital 100,000 10%
----
$1,000.000 100%
---------- ----
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[GRAPHIC OMITTED]
DILUTION
On January 15, 1999, there were 10,160,000 Shares of Common Stock outstanding,
excluding any warrants issued to any investors or consultants awarded by the
Company.
As of such date, the Company had a net tangible book value of $69,306.00 or
$.0068 per share. Net tangible book value is determined by dividing the tangible
net worth of the Company (tangible assets less total liabilities) by the total
number of outstanding Shares of Common Stock.
If the Offering is fully subscribed, the total number of outstanding shares of
Common Stock in the Company would be 10,960,000.
The following table illustrates the per share dilution to new investors
purchasing Shares in the Offering:
Maximum Subscription
800.000 Shares
Offering price per share; $ 1.25
Net tangible book value (deficit) before Offering; $ 69,306.00
Adjusted net tangible book value per share after Offering; .086
Dilution in net tangible book value per share to new investors; .0063
CAPITALIZATION
The following table sets forth the Capitalization of the Company as of December
31, 1999, and as adjusted to reflect the sale of all Shares offered hereunder.
Presently After Maximum
Class Outstanding Outstanding Offering
Short Term Debt $ -0- $ -0
Long Term Debt -0- -0
Shareholders, Equity (deficiency)
Common Stock, $.001 par value
20,000,000 Shares Outstanding 10,160,000 10,960,000
Stock Purchase Warrants(l) -0- 800,000
Total Stockholders' Equity(deficiency) 12,700,000 $ 13,700,000
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FOOTNOTE:
(1) There are no Common Stock Purchase Warrants presently outstanding. Upon the
sale of all the Shares offered hereunder, there will a total of 800,000 warrants
then outstanding, exercisable for a period of one (1) year after a public market
exists at an exercise price of $.50.
BUSINESS OF THE COMPANY
American Internet Technical Center (the Company) is a Florida based Internet
Company that offers Internet services such as e-commerce accounts, on-line
educational/instructional courses, hosting services, web site design and
Internet consultation. Management believes that they will be competitive in
their Internet services. The Company's corporate operations include a web site
production and design division, an Internet service provider division; an
on-line education division; various sales related services, customer relations,
administrative, accounting and management functions. The Company employs a
computerized management information system to record and manage the various
operations of the business.
The Company began by offering free web sites primarily for new, small and medium
business. Web sites were to be designed by senior webmaster students as part of
their graduation requirements. In return, customers are required to use the
Company's hosting services for their web sites. In the first nine months of
operations the Company has acquired 1,175 clients; trained several students to
become web masters and established an in house production department. The
Company has averaged 132 new clients per month. The Company has consistently
shown double digit growth per month. The Company is in the process of selling
additional Internet services including maintenance and marketing programs to its
current clients (see "Upgrades Price List - Business of Company").
The Company was incorporated in Florida on April 15, 1998, as American Internet
Technical Center, Inc. to provide various Internet services. The Company's
principal executive offices are located at 1500 East Atlantic Blvd., Suite C,
Pompano Beach, FL 33060; Telephone (954) 9434748.
AMERICAN INTERNET SERVICES
Description of the Contracts
New customers are given a choice of either a 6 or 12-month free web site
program. Clients who sign up for a longer period get a free month and one free
upgrade to their site. The percentage of one-year contracts has gradually
increased to the 40% mark and is expected to maintain that ratio.
Clients are encouraged to purchase the Search Engine Registration option for a
charge of $149. The Search Engines act as yellow pages of the Internet and are
an important part of the system. Less than 1% of clients decline the offer. The
Service Agreement gives the prospective client the following options:
1. Domain Name Registration No Charge
2. Two (2) e-mail addresses No Charge
3. Six Month Contract ($75 set-up fee plus $59 monthly) $429
4. One Year Contract ($75 set-up fee plus 59 monthly) $783
5. Search Engine Registration
(over 550 search engines & directories) $149
6. 4 Page Web Site No Charge
(with one of the
above plans)
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Upgrade Price List
In addition to the flat fee rates, some clients request and/or are encouraged to
purchase extras or upgrades during the initial sales and also in the production
stage. These extras were not a significant source of income in the first three
months of operation, however, as more sample web sites with extras and upgrades
are displayed on our preview pages, the demand for these extras are increasing.
The Company estimates that the income from extras and upgrades should average at
least $100 per client (see "Projected Schedule").
Below is a list of some of the more commonly requested upgrades that are
available for web sites along with the pricing for any upgrade:
Extra Pages $65 a page
Extra Scans (Picture graphics) $10; 5 or more - $7 each
Insert Standard Animations $100-4 animations
Custom Created Animations $50 an hour
Additional e-mail addresses $10 month (per each 4 addressees)
Autoresponders $50 set-up fee, $10 month per 2
Additional Domain Registration $150 (does not include internic Fee:$35/year)
Java Scrolling Text $125
Glow Buttons/Mouse Over $50 (includes all pages)
Framed Web Site $150
Insert Audio Clip $150
Secured Server (for credit cards) $150
Shopping Cart $129
Other Call for quote
Re-Hosting Revenues
The 6-month contracts will expire in the first year and those clients will be
invited to re-subscribe to the hosting services. Fees will be reduced from $59
per month to $29 per month. The Company estimates a 25% attrition rate. At the
end of the first 9 months of operation the Company had approximately 1,175
clients on line.
On-line Educational/Instructional Courses
The Company started on-line educational courses on August 19, 1998. The program
is called Professional Web Design and includes the following courses:
Introduction to the Internet; Creating Web Pages; Advanced Web Pages; Creating
Web Graphics; Java Programming for the Web; Microsoft Front Page and CGI
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Programming for the Web. Each course typically runs for six weeks, with 2
lessons per week, for a total of 12 lessons. Assignments are given each week
with a final exam provided to those seeking course certificates. The Company
will offer other on-line educational courses commencing the first quarter of
1999 (see "Summary").
The Company has over 50 applications on file for the first semester. The Company
has not officially commenced its advertising Campaign for the promotion of
on-line education, however, based upon statistics provided by the Education
Department, the Company should enroll a minimum of 20 new students per week or
500 for one year (see "Projected Schedule of Operations").
Marketing
The Company markets its web sites and other services through various media
throughout the United States and Canada. The Company maintains its own
informative web site and encourages prospective clients to visit the site where
they can preview approximately 15 actual web sites of the Company's clients.
The Company advertises in national and local newspapers, magazines, trade
journals; utilizes direct mail advertising methods including postcards and card
decks and other methods to generate leads and sales.
Advertising/marketing is one of the Company's largest expenses. Although the
Company has been very successful to date in handling matters internally, the
Company has decided to engage the services of an advertising agency to handle
future marketing responsibilities. The Company will introduce through the use of
direct response marketing specifically "TV Commercials". To support such
marketing efforts, the Company intends to produce 60-second television
commercials on Internet services to small and medium sized business owners.
Management believes that the TV Commercials, media and print advertising will
help spur sales of the Internet services that the Company provides.
Competition
The Company will be part of the growing United States, Canada and the World
Internet services industry, with over 200 million computer users by the year
2000. This is a dynamic industry, subject to frequent and rapid changes in
consumer tastes as well as technological advances. The industry also encompasses
a tremendous range of Internet services and marketing applications. The nature
of the rapid change in consumer Internet industry means that services, even
successful Internet services, that do not keep pace with advancing technology or
consumer tastes will lose favor with the public and be replaced with other
Internet services more technologically advanced or have correctly predicted the
latest consumer desires.
The Company has designed web sites with the state of the art software, and the
best trained web designers that keep up with current innovative trends in
designs and graphics. Management believes that the Internet services will have
substantial consumer demand. However, there are no assurances that the Company
has correctly anticipated consumer tastes or will continue to keep pace with
changes in technology and consumer demand (see "Risk Factors Industry").
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The Company is aware of many other consumer Internet service companies competing
with them in this market; however, the Company competes in a variety of market
segments in the Internet services industry. Because the market is so large,
dynamic and diverse, the Company seldom finds itself opposing its competitors.
Furthermore, the Company has found a special niche in the marketplace and a way
to service the market. Many of the Company's clients are either new to the
Internet, computer illiterate and/or on a limited budget.
As a greater number of companies seek to enter the market, the Company may
experience increased competition in the marketing of its services. However, the
Company believes its competitive position will be enhanced by its reputation and
credibility; its ability to tailor and market new products and services to meet
the ever changing demands in the technology sector; its ability to profit from
budget/discount services and its ability to expand its services worldwide. The
Company has an efficient production department, a knowledgeable sales force of
web designers, who receive on going training.
The consumer Internet service industry includes some of the largest and best
financed companies in the world. Any such competitor may have greater technical,
financial, and/or marketing resources than the Company, and such competition may
have a material adverse effect on the Company's operations and profits (see
"Risk Factors").
The Company is aware that it is a part of a very dynamic and competitive
industry. The Company has an advantage over most of its competitors because of
its non-restrictive boundaries and its ability to offer its products and
services to new businesses, on a limited budget at low prices. However, there
are other companies that are offering services, similar to that of the Company,
in direct competition with the Company. We are aware of three such companies:
namely, Cyber Graphics Institute, Inc.; WorldWide Web Institute, Inc.; and Web
Results Institute, Inc. These three companies are our main competitors. We do
not have verifiable figures of their sales or operations; however, it appears
that all three companies are operating successfully. In the first nine months of
the Company's operations, the Company very seldom "crossed paths" with these or
any other competitors. In fact, the Company was required to conduct this
research to find out who its principal competitors actually were. The Company is
of the opinion that the market is so immense that it can accommodate a number of
successful competitive businesses. However, the Company is also cognizant of
remaining focused on new opportunities in this rapidly changing industry and
must be prepared to take advantage of and profit from the anticipated changes
and/or demands.
Government Regulation
The Company is regulated by or required to file with or obtain approval of the
Florida Department of Agriculture and Consumer Affairs. The Company has on file
an Affidavit of Exemption under the Florida Telemarketing Act. Federal law also
regulates the Company, including the Telephone Consumer Protection Act.
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Properties
The executive and administrative offices of the Company are located at 1500 East
Atlantic Blvd., Pompano Beach, Florida 33060. The Production Department is
located in an adjacent building. These offices containing approximately 2,500
square feet are rental properties having a one-year term with renewable options.
The Company currently fully utilizes these existing facilities that would
accommodate its need to additional space.
Employees
As of January 1, 1999, the Company employed 19 individuals on a full-time basis,
plus 15 people on a part-time basis, including web designers, independent
contractors and 2 consultants, none of whom are employed pursuant to a
collective bargaining or union agreement. The Company considers that its
relationship with its Employees is good.
Legal Proceedings
The Company is named Defendant in certain lawsuits arising in the ordinary
course of the Company's business. While the outcome of these lawsuits cannot be
predicted with certainty, the Company does not expect these matters to have a
material adverse effect on the Company's financial condition, liquidity or
results of operations.
Management Compensation
The Board of Directors will set compensation for the Management and Officers of
the Company upon the completion of this placement. Currently only Mr. Glean and
Mr. Utile the Officers or Directors are receiving $75,000 per year. No employee,
officer or director has been paid in excess of $75,000 per year since the
inception of the Company. The Company currently has no pensions or profit
sharing arrangements for its Officers, Directors or Employees.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
The Company has an immediate cash need of approximately $500,000 to commence the
acquisitions, to implement direct response marketing plans and general working
capital purposes.
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The Company intends to use the proceeds of the Offering to fund the foregoing
cash requirements. If the Offering is less than fully subscribed, the Company
may have to curtail one or more of the goregoing operations, which may have a
material, adverse effect on the Company's operations and profits If the Company
is unable to raise suffiecient capital from the Offering to commence operations,
the Company will pursue other methods of obtaing financing, but such other
methods may entail greater costs and will delay the commencement of operations.
which will have a material adverse effect on the Comoanv's financial position
(see "Risk Factors-Dependence on the Offering")
Once the Company starts direct response marketing campaigns ans certain key
acquisitions, management believes that certain revenues from sales of Internet
services and products will be sufficient to fully implement the Company's
overall business plan. Management anticipates that the Company will have
additional cash needs of approximately $200,000 for these purposes (see
"Description of Business - Marketing").
The Company intends to raise this capital through the initial public offering of
the Common Stock. The Company currently plans to complete this public Offering
in 1999. However, there are no assurances that this Of[enag will be completed at
a later date, if at all. If the Company is unable to secure financing through a
public offering, the Company will pursue other financing avenues, including
additional private placements of securities. Any delay in acquiring the
financing needed to implement the Company's business and marketing plans may
have a material adverse effect on the Company's operations and profits.
MANAGEMENT
OFFICERS AND DIRECTORS
The executive officers and directors are as follows
Name Age Position
J. Bruce Gleason 53 Chief Executive Officer, President ~ Controller
Michaci D. Umile 45 Vice President, Secretary
Gary D. Walk 46 Vice President of Operations
Bruce Drezner 50 Vice President of Marketing
J. Bruce Gleason
Mr. Gleason has been a resident of Pompano Beach for the past 1? years. He has a
diverse business background with over 30 years e~cpcAenoe in sales, marketing
and finance. Mr. Gleason has an accounting degree and worked for a public
accounting Finn for many years. He has assisted many businesses in becoming
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successful and owned a number of successful businesses himself. He started a
chain of Photo Shacks in Canada that grew to over 70 units and eventually sold
to a competitor. Mr. Gleason was President of Southern Telco, Inc., a
telecommunications company he co-founded in 1980, took to $5 million in revenues
in less than two years, then sold the Company.
Michael D. Umile
Mr. Umile has been a self-starter all his adult life. He has been involved in
sales and marketing for over 30 years. He has successfully owned and operated
his own companies over the years, including a used car dealership, a towing
company, a video game dealership, and a pay phone route in New York with over
400 telephones. Most recently, he was Vice President and General Manager of
Southern Telco, Inc. until it was sold in 1982. Mr. Umile resides with his
family in Boca Raton and has resided in South Florida for the past 10 years.
Bruce Drezuer
Mr. Drezner has spent 20 years in the investment banking industry. He has
extensive experience in raising capital for emerging growth companies. Mr.
Drezner has worked at Shearson, Hyden, Stone; Shearson/American Express; and
Dean Whitter Reynolds, Inc. as a StockBroker and a Commodities Broker. He brings
a wealth of experience in the financial markets and the development of small
companies in the public sector.
Harry Davis, Consultant
Mr. Davis is a resident of Delray Beach and has a very diverse business
background. He was a senior partner of FNMC, an investment firm he spearheaded,
which grew to over 300 employees and ten offices at its peak. He was also a
founding partner and director of Franklin Savings Bank of Michigan. After
selling out his interests, Mr. Davis ventured to Florida almost ten years ago
where he started a software development company specializing in computer
programs and became a Webmaster. Mr. Davis has the business experience and the
technical knowledge that will help in taking AITC to mega company status. Mr.
Davis is a senior employee of the Company.
Thomas R. Ricketts
Mr. Ricketts has been a resident of Dade/Broward since 1961. Having graduated
from Miami Norland High School and going on to become the youngest licensed
Funeral Director in the State of New York, he settled on the Real Estate
industry in South Florida. After many successful years of taking his real estate
company public, Tom moved into the automotive parts business. Tom took his auto
parts business on to become the third largest auto parts wholesaler in the
continental U.S.
Looking for a new challenge, Tom selected the vacation certificate business.
Selling a one and a half million-dollar promotion to GTE Cellular secured his
success in that industry. Designing programs for grocery chains, auto
dealerships, banks and a myriad of small businesses, his vacation programs
became one of the largest with offices in New York, Boston, Seattle, Atlanta,
and London.
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Shortly afterwards, Tom was introduced to the World Wide Web, the Internet.
Becoming one of the first to promote an Internet & computer Expo at the Broward
County Convention Center in December of 1995, it was one of the largest attended
events at the Center. After producing 7 more expos, with the final one at the
Miami Beach Convention Center in September of 1996, sponsored by BellSouth,
AT&T, NationsBank, BrandsMart and Office Depot, Tom took his connections and
started with a partner, the Internet Institute and the development of the
Student Program.
Tom now owns his own Internet hosting and web design firm offering all related
Internet products from the design to the nationwide Internet Access and is
moving aggressively into the exciting world of electronic commerce.
Gary Walk
Mr. Walk has a BS degree in Education, and MA degree in Education. He spent 10
years in investment banking and securities industry. He has participated in
several initial public offerings, private placements and start up situations.
Mr. Walk has worked in several over-the-counter brokerage firms specializing in
developmental growth companies. While working for Yeager Securities in Las
Vegas, Nevada, he helped raise 52 million dollars in the biggest, best efforts
offering in the securities industry. He brings a wealth of experience and
knowledge of raising capital for companies to implement growth, expansion and
acquisitions. Mr. Walk has worked for the Company since its inception.
PRINCIPAL SHAREHOLDERS
The following table sets forth the ownership of Shares of Common Stock as of the
date of this Memorandum by Company's officers and directors. All of the officers
and directors as a group and each person who is known by the Company to
beneficially own more that 5% of the outstanding Shares of Common Stock. The
table indicates the number of shares beneficially owned and the percentage of
ownership, respectively, assuming that the Offering is fully subscribed and all
shares of Preferred Stock are converted into shares of Common Stock.
Percentage Percentage
Prior to After
Name of Owner Number of Shares Offering Offering
J. Bruce Gleason 5,10O,000 50.19 46.5%
Michael Umile 5,00O,000 49.2% 45.6%
Gary Walk 3O,000 .3% .27%
Bruce Drezner 3O,000 .3% .27%
All Officers
As a Group 1O,16O,000 100% 92.64%
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INVESTOR SUITABILITY STANDARDS AND
INVESTMENT RESTRICTIONS
Suitability
Shares will be offered and sold pursuant an exemption under the Securities Act,
and exemptions under applicable state securities and Blue Sky laws. There are
different standard under these federal and state exemptions which must be met by
prospective investors in the Company.
The Company will sell Shares only to those Investors it reasonably believes meet
certain suitability requirements described below.
Each prospective Investor must complete a Confidential Purchaser questionnaire
and each Purchaser Representative, if any, must complete a Purchaser
Representative Questionnaire.
EACH INVESTOR MUST BE RESPONSIBLE FOR DETERMINING THAT IT IS PERMITTED TO INVEST
IN THE COMPANY, THAT ALL APPROPRIATE ACTIONS TO AUTHORIZE SUCH AN INVESTMENT
HAVE BEEN TAKEN, AND THAT ANY REQUIREMENTS THAT IT'S INVESTMENTS BE DIVERSIFIED
OR SUFFICIENTLY LIQUID HAVE BEEN MET.
An investor will qualify as an accredited Investor if it falls within any one of
the following categories at the time of the sale of the Shares to that Investor:
(1) A bank as defined in Section 3(a)(2) of the Securities Act, or a savings
and loan association or other institution as defined in Section 3(a)(5)(A)
of the Securities Act, whether; acting in its individual or fiduciary
capacity; a broker or dealer registered pursuant to Section 15 of the
Securities Exchange Act of 1934; an insurance company as defined in Section
2(13) of the Securities Act; an investment company registered under the
Investment Company Act of 1940 or a business development company as defined
in Section 2(a)(48) of that Act; a Small Business Investment Company
licensed by the United States Small Business Administration under Section
301(c) or (d) of the Small Business Investment Act of 1958; a plan
established and maintained by a state, its political subdivisions, or any
agency or instrumentality of a state or its political subdivisions, for the
benefit of its employees, if such plan has total assets in excess of
$5,00O,000; an employee benefit plan within the meaning of the Employee
Retirement Income Security Act of 1974, if the investment decision is made
by a plan fiduciary, as defined in Section 3(21) of that Act, which is
either a bank, savings and loan association, insurance company, or
registered investment adviser, or if the employee benefit plan has total
assets in excess of $5,00O,00O, or, if a self-directed plan with the
investment decisions made solely by persons that are accredited investors:
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(2) A private business development company as defined in Section 202(a)(22) of
the Investment Advisers Act of 1994
(3) An organization described in Section 501(c)(3) of the Internal Revenue Code
with total assets in excess of S5,OOO,000;
(4) A director or executive officer of the Company.
(5) A natural person whose individual net worth, or joint net worth with that
person's spouse, at the time of such person's purchase of the Shares
exceeds $1,00O,000;
(6) A natural person who had an individual income in excess of $20O,000 in each
of the two most recent years or joint income with that person's spouse in
excess of $30O,000 in each of those years and has a reasonable expectation
of reaching the same income level in the current year;
(7) A trust with total assets in excess of $5,00O,00O, not formed for the
specific purpose of acquiring the securities offered, whose purchase is
directed by a sophisticated person as describe in Rule 506(b)(2)(ii) of
Regulation D; and
(8) An entity in which all of the equity owners are accredited investors (as
defined above).
THE COMPANY RESERVES THE RIGHT IN ITS ABSOLUTE DISCRETION TO DETERMINE IF
A POTENTIAL INVESTOR MEETS OR FAILS TO MEET THE SUITABILITY STANDARDS SET
FORTH IN THIS SECTION.
Additional Suitability Requirements for Benefit Plan Investors
In addition to the foregoing suitability standards generally applicable to all
Investors, the Employee Retirement Income Security Act of 1934, as amended
("ERISA"), and the regulations promulgated thereunder by the Department of Labor
impose certain additional suitability standards for Investors that are qualified
pension, profit-sharing or stock bonus plans ("Benefit Plan Investor"). In
considering the purchase of Shares, a fiduciary with respect to a prospective
Benefit Plan Investor must consider whether an investment in the Shares will
satisfy the prudence requirement of Section 404(a)(1)(B) of ERISA, since there
is not expected to be any market created in which to sell or otherwise dispose
of the Shares. In addition, the fiduciary must consider whether the investment
in Shares will satisfy the diversification requirement of Section 404(a)(1)(C)
of ERISA.
Restrictions on Transfer or Resale of Shares
The Availability of Federal and state exemptions and the legality of the offers
and sales of the Shares are conditioned upon, among other things, the fact that
the purchase of Shares by all Investors are for investment purposes only and not
with a view to resale or distribution.
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Accordingly, each prospective Investor will be required to represent in the
Subscription Agreement that it is purchasing the Shares for its own account and
for the purpose of investment only, not with a view to, or in accordance with,
the distribution of sale of the Shares and that it will not sell, pledge, assign
or transfer or offer to sell, pledge, assign or transfer any profits. Shares
without an effective registration statement under the Securities Act, or an
exemption therefrom (including an exemption under Regulation D, Section 504) and
an opinion of counsel acceptable to the Company that registration under the
Securities Act is not required and that the transaction complies with all other
applicable Federal and state securities or Blue Sky laws.
As used in this Memorandum, the term "net worth" means the excess of total
assets over total liabilities. In computing net worth for the purpose of (5)
above, the principal residence of the investor must be valued at cost, including
cost of improvements, or at recently appraised value by an institutional lender
making a secured loan, net of encumbrances. In determining income an investor
should add to the investor's adjusted gross income any amounts attributable to
tax exempt income received, losses claimed as a limited partner in any limited
partnership, deductions claimed for depletion, contributions to an IRA or KEOGH
retirement plan, alimony payments, and any amount by which income form long-term
capital gains has been reduced in arriving at adjusted gross income.
DESCRIPTION OF SECURITIES
The Company is authorized to issue 20,000,000 shares of common stock, par value
$.001 per share. As of the date of this Memorandum 10,160,000 Shares of Common
Stock are outstanding and are held off record by four shareholders. Holders of
the common stock are entitled to receive ratable dividends when, as, and if
declared by the Board of Directors out of funds legally available therefore,
subject to any preferential dividend rights of outstanding stock. Upon the
liquidation, dissolution or winding up of the Company, the holders of the common
stock are entitled to receive ratably the net assets of the Company available
after the payments of all debts and other liabilities and subject to the prior
ratably the net assets of the Company available after the payments of all debts
and other liabilities and subject to the prior rights of any outstanding stock.
Holders of common stock have no pre-emptive, subscription, or redemption rights.
The outstanding shares of common stock are fully paid and non-assessable. The
rights and privileges of holders of the common stock are subject to, and may be
adversely affected by, the rights of holders of shares of any series of stock,
which the company may designate and issue in the future.
COMMON STOCK PURCHASE WARRANT
The Company has authorized the issuance of 8,000,000 Shares of Common Stock
Purchase Warrants to investors participating in this Private Placement. Each
investor will be given one ( 1) Common Stock Purchase Warrant for each Share of
Common Stock purchased. The Common Stock Purchase Warrant has an exercise price
of $.50. The Common Stock Purchase Warrant will be exercisable up to one (1)
year after a public market exists.
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As long as any warrants remain outstanding, the underlying Common Stock to be
issued upon the exercise of the warrants will be adjusted in the event of a
stock split, stock dividends, recapitalization, reclassification or similar
events. If any of the foregoing occurs, the Shares reserved for the issuance
upon the exercise of the warrants will be increased or decreased to reflect
proportionately the increase or decrease in the number of Shares of Common Stock
outstanding and the exercise price of the warrant will be adjusted accordingly.
The holders of the Warrants are not entitled to vote, to receive dividends or to
exercise any of the rights of holders of the Common Stock until the warrants
shall have been duly exercised and paid for and the Common Stock shall have been
issued. For the life of the warrants, the holders thereof are given the
opportunity to profit from a rise in the market value of Common Stock, which may
result in the dilution of the interest of other Shareholders. In addition, the
Company may find it more difficult to raise capital equity if it should be
needed for the business of the Company while the warrant is outstanding.
LIMITED TRANSFERABILITY OF SECURITIES
No present market exists for the stock, or the Common Stock issued upon the
conversion, thereof. The securities offered hereby have not been registered for
sale under the Securities Act of 1933, as amended, or registered or qualified
under the securities laws of any state, in reliance upon available exemptions
from such registration and qualification requirements. The exemptions from
registration and/or qualification relied upon by the Company for this offering
may be depended, in part, upon the "investment intent" of the investor and would
not be available if any investor was acquiring the securities with a view to
further sell or distribute. Accordingly, each investor, when executing a
subscription agreement for the stock, will be required an opinion of legal
counsel satisfactory to it regarding the availability or resale exemptions to be
provided by proposed seller of such securities. The following restrictive legend
will be placed on all certificates representing the stock, and the Common Stock
issued upon conversion thereof, to insure the effectiveness of these
restrictions.
"The securities represented by this certificate have not be registered under the
Securities Act of 1933, as amended (the "Securities Act"), or registered or
qualified under the securities laws of any state in reliance upon exemptions
from such registration andfor qualification requirements contained therein. No
holder may offer, sell, transfer, assign, pledge, hypothecate or otherwise
dispose or encumber the securities represented by this certificate except
pursuant to an effective registration statement and/or qualification under the
Securities Act and all applicable state securities laws, or upon receipt by the
issuer of an opinion or legal counsel for the holder reasonably satisfactory to
the issuer that such offer, sale transfer, assignment, pledge, hypothecation, or
other disposition or encumbrance is exempt from the registration andlor
qualification provisions of the Securities Act and all applicable State
securities laws."
Rule 144 under the Securities Act permits public resale (for federal securities
law purposes) of the stock and the common stock issued upon conversion, thereof,
under certain conditions after a oneyear holding period by the seller, including
the manner of sale, sales volume restrictions, filing requirements and that
information about the company be publicly available which is currently not the
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case. A non-affiliate of the company who has held such securities for three
years may resell them without restriction. In addition to the foregoing
requirements of Rule 144 under the federal securities laws, the various state
securities laws may impose further restrictions on the ability of a holder to
sell or transfer the stock or the common stock issued upon conversion, thereof.
Holders of common stock issued upon conversion of the stock may freely trade
their shares of common stock if the Company in a public offering pursuant to the
Securities Act registers such shares for sale. However, there are no assurances
that the company will undertake an initial public offering, or that the Company
will sell sufficient shares in an initial public offering for a market for the
common stock to develop. In addition, if the underwriter determines that there
are more shares included in a registration statement than the market can
support, then all shareholders exercising such registration rights (but not the
Company) must proportionally reduce their number (up to the total number if
required) of shares being registered and it further provides that upon request
by the Company, no holder will sell shares of common stock for 180 days after
the effective date of registration statement, except for shares included in that
registration statement.
INVESTORS CONTEMPLATING A PURCHASE OF THE STOCK PURSUANT TO THIS OFFERING SHOULD
SEEK THEIR OWN INDEPENDENT LEGAL ADVICE REGARDING THE EFFECT OF THESE
RESTRICTIONS AND INVESTMENT REPRESENTATIONS.
PLAN OF DISTRIBUTION
A maximum of 800,000 shares of stock are being offered to accredited investors
only for a subscription price of $1.25 per share with a minimum subscription of
8,000 shares. The Company reserves the right to accept subscriptions for fewer
shares at its sole discretion. Subscriptions are payable in full upon execution
of the subscription agreement. All subscription checks should be made payable to
the Company. The offering will expire on July 31,1999, but the Company may agree
to extend the term of the offering for an additional 60 days.
The execution of a subscription agreement constitutes a binding offer by each
prospective investor to buy the shares and an agreement to hold the offer open
until the Company accepts the subscription. The Company may, however, reject any
subscription for any reason without incurring any liability. No subscription
will be accepted until the Company has received a fully executed Subscription
Agreement Investor Questionnaire and any other document as may be required by
the Company.
Persons offering and selling the shares will be required to offer them only to
prospective investors who meet the conditions discussed under "Investor
Suitability Standards" and otherwise conduct the offering as required under
Regulation D and applicable state laws. A prospective investor may be
represented in making an investment in the shares by a purchaser representative
as that term is defined in Rule 505(h) of Regulation D, in which case a
professional Investment Advisor Purchaser Questionnaire must be executed by such
representative and the prospective investor. Any purchaser representative so
retained must comply with the requirements of Rule 505(h).
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ADDITIONAL INFORMATION
Each prospective investor will be given an opportunity to ask questions of and
receive answers from the Company and its officers and directors concerning the
terms and conditions of this offering and to obtain any additional information
to the extent that the Company possesses such information, or can acquire it
without unreasonable effort or expense, necessary to verify the accuracy of the
information contained in this Memorandum or deemed by the recipient necessary to
make an informed investment decision. Questions regarding this Memorandum or
written requests for additional information to verify or supplement the
information contained in this Memorandum should be directed to:
AMERICAN INTERNET TECHNICAL CENTER, INC.
1500 EAST ATLANTIC BOULEVARD
POMPANO BEACH, FL 33060
(954) 943-4748
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EXHIBIT A
FINANCIAL STATEMENTS
Marc Friedman & Associates, Inc.
PROFESSIONAL ACCOUNTING
4186 NW 6Sth Avenue
Coral Springs, F1 33067
Omce (9S4) 7S2-3889 Fax (9S4) 7SS-0399
January 20, 1999
To whom it may concern,
I, Marc Friedman, have examined the Balance Sheet and Statement of
Operations for American Internet Technical Center, Inc. for the nine months
ended December 31, 1998.
My investigation consisted of reviewing the books and records and
financial statements provided to me by the Company. In the course of my review,
which was conducted with Generally Accepted Accounting Principles, I examined
the bank statements and various ledgers and bookkeeping records maintained by
the Company. I was able to determine that the figures provided to me by the
Company were entered correctly; however, I did not perform an audit on the books
and records of the Company and therefore d not attest to the accuracy of these
financial statements.
Respectfully,
/s/ Marc Friedman /s/
Marc Friedman, President Marc Friedman & Assoc., Inc.
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American Internet Technical Center, Inc.
Balance Sheet at December 31, 199$
ASSETS
Current Assets
Cash 3,694
Accounts receivable $ 110,528
Less allowance for doubtful accounts 24,914 85,614
Prepaid expenses 4.461
Total current assets 93,769
Fixed Assets
Future and equipment, at cost $26,196
less accumulated depreciation 3,930 22,266
Long Term Assets
Deposits $13,000
Incorporation Costs 300 13,300
$129,335
LIABILITIES & SHAREHOLDERS EQUITY
Current Liabilities
Accounts payable $38,174
Accrued liabilities payable 13,750
Withholding taxes payable 8,105
Total current liabilities $60,029
Shareholder's Equity
Common stock $ 100
Retaped earnings 69,206 69,306
$129,335
179
<PAGE>
American Internet Technical Center
Statement of Operations
For the nine months ended December 31, 1998
Gross Sales $857,418
Sales returns and allowances $ 18,603
Credit card commissions 16,398
Allowance for doubtful accounts 24,914 59,915
Net sales 797,503
Direct Costs
Sales commissions 159,495
Production department costs 129,219
Advertismg and promotion 164,267
Hosting and other costs 22,283
Total direct costs 475,264
Gross Margin 322,239
Operating Expenses
Administrative salaries 33,978
Bank charges and interest 2,525
Depreciation 3,930
Employee benefits expense 3,108
Insurance expense 2,683
Legal and accounting fees 6,275
Maintenance and repairs 3,614
Miscellaneous expenses 6,774
Office rent 13,939
Office supplies 8,090
Telephone expense 47,266
Utilities 2,535
Total operating expenses 134,717
Net Before Management Salaries 187,522
Management Salaries 118,316
Net Profit $ 69,206
180
<PAGE>
EXHIBIT B
SUBSCRIBER
QUESTIONNAIRE
AMERICAN INTERNET TECHNICAL CENTER |
SUBSCRIPTION DATA SHEET
Name of Subscriber (Offeree):
Address of Residence (if natural person):
Address of Business:
Subscriber's Telephone No:
Subscriber's Social
Security No. or Tax I.D. No:
Preferred Address for Receiving mail:
Residence Business Other, if any:
Date of Subscription:
Amount of Subscription: $
181
<PAGE>
EXHIBIT C
SUBSCRIPTION AGREEMENT AND INVESTMENT REPRESENTATION
SUBSCRIPTION AGREEMENT AND
INVESTMENT REPRESENTATION OF INVESTORS
American Internet Technical Center, Inc.
1500 E. Atlantic Blvd.
Pompano Beach, FL 33060
Gentlemen:
1. Subject to the terms and conditions hereof, the undersigned, intending to
be legally bound, hereby irrevocably subscribes for and agrees to accept
and subscribe to shares of Regulation D, Section 504 common stock of
American Internet Technical Center, Inc., a Florida Corporation (the
Company), for a total consideration of $ , the receipt and sufficiency of
which is hereby acknowledged.
2. In order to induce the Company to accept the subscription made hereby, the
undersigned hereby represents and warrants to the Company, and each other
person who acquires or has acquired the Shares, as follows:
a. The undersigned, if an individual (I) has reached the age of majority
in the state in which he resides and (ii) is a bona fide resident and
domiciliary (not a temporary or transient resident) of the state set
forth beneath his signature below.
b. The undersigned has the financial ability to bear the economic risk of
an investment in the Shares, has adequate means of providing for his
current needs and personal contingencies, has no need for liquidity in
such investment, and could afford a complete loss of such an
investment. The undersigned's overall commitment to investments that
are not readily marketable is not disproportionate to his net worth,
and his investment in the Company will not cause such overall
commitment to become excessive.
c. The undersigned meets at least one of the following criteria:
(i) the undersigned is a natural person whose individual net worth or
joint net worth with his spouse, at the time of his purchase
exceeds $1,000,000 (one million dollars; or
(ii) the undersigned is a natural person and had an individual income
in excess of $200,000 (two hundred thousand dollars) in each of
the two most recent years, or jointly with his spouse in excess
of $300,000 (three hundred thousand dollars) in each of those
years, and who reasonably expects to achieve at least the same
income level in the current year; or
(iii) qualifies as an accredited investor under Regulation D of the
Securities Act of 1933 (the "Act").
182
<PAGE>
d. The investment is one in which I am purchasing for myself and not for
others, the investment amount does not exceed 10% of my net worth and
I have the capability to understand the investment and the risk.
e. The undersigned has been given a full opportunity to ask questions of
and to receive answers from the Company concerning the terms and
conditions of the offering and the business of the Company, and to
obtain additional information necessary to verify the accuracy of the
information given him or to obtain such other information as is
desired in order to evaluate an investment in the Shares. All such
questions have been answered to the full satisfaction of the
undersigned.
f. If making his decision to purchase the Shares herein subscribed for,
the undersigned has relied solely upon independent investigations made
by him. He has received no representation or warranty from the Company
or from a broker-dealer, if any, or any of the affiliates, employees
or agents of either. In addition, he is not subscribing pursuant
hereto for any Shares as a result of or subsequent to
(i) any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or
broadcast over television or radio, or
(ii) any seminar or meeting whose attendees, including the
undersigned, had been invited as a result of, subsequent to, or
pursuant to any of the foregoing.
g. The undersigned understands that the Shares have not been registered
under the Act in reliance upon specific exemptions from registration
thereunder, and he agrees that his Shares may not be sold, offered for
sale, transferred, pledged hypothecated, or otherwise disposed of
except in compliance with the Act and applicable state securities
laws, which restrictions require the approval of the Company for the
transfer of any Shares (which approval, except under limited
circumstances, may be withheld by the Company in its sole discretion).
The undersigned has been advised that the Company has no obligations
to cause the Shares to be registered under the Act or to comply with
any exemption under the Act, including but not limited to that set
forth in Rule 144 promulgated under the Act, which would permit the
Shares to be sold by the undersigned. The undersigned understands that
it is not anticipated that there will be any market for resale of the
Shares, and that it may not be possible for the undersigned to
liquidate an investment in the Shares. The undersigned understands the
legal consequences of the foregoing to mean that he must bear the
economic risk of his investment in Shares. He understands that any
instruments representing the Shares may bear legends restricting the
transfer thereof.
3. To the extent I have the right to rescind my purchase of the Shares, which
right of recission is hereby offered, I waive and relinquish such rights
and agree to accept certificate(s) evidencing such Shares.
183
<PAGE>
4. This Agreement and the rights and obligations of the parties hereto shall
be governed by, and construed and enforced in accordance with the laws of
the State of Florida.
All pronouns contained herein and any variations thereof shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the parties hereto may require.
The Shares referred to herein may be sold to the subscriber in a transaction
exempt under Section 517.061 of the Florida Securities Act. The Shares have not
been registered under said act in the State of Florida In addition, if sales are
made to five or more persons in the State of Florida, any sale in the State of
Florida is voidable by the purchaser within three (3) days after the first
tender of consideration is made by such purchaser to the issuer, an agent of the
issuer, or an escrow agent or within three (3) days after the availability of
that privilege is communicated to such purchaser, whichever occurs later.
IN WITNESS WHEREOF, the undersigned has executed and agrees to be
bound by this Subscription Agreement and Investment Representation on the date
written below as the Date of Subscription:
(TO BE USED FOR INDIVIDUAL(S))
____________________________ ______________________________
Print Name of Individual Signature of Individual
___________________________ ______________________________
State of Residence Date of Subscription
(TO BE USED FOR PARTNERSHIPS,
CORPORATIONS, TRUSTS OR OTHER ENTITIES)
____________________________ ______________________________
Print Name of Partnership Signature of Authorized Representative
Corporation - Trust - Entity
______________________________ ______________________________
Capacity of Authorized Representative Print Name of Authorized Representative
______________________________ ______________________________
Print Jurisdiction of Incorporation Date of Subscription Organization
184
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<PERIOD-END> DEC-31-1998
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