U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 205490.
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
ACT
OF 1934
For the transition period from_________ to_____________
Commission file number 0-3718
Equity Growth Systems, inc.
------------------------
(Exact name of registrant as specified in its charter)
Delaware 11-2050317
-------- ----------
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
8001 DeSoto Woods Drive; Sarasota, Florida 34243
----------------------------------------
(Address of principal executive offices)
(941) 358-8182
------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days.
Yes No X
As of March 31, 1999, the registrant had outstanding 5,991,148
shares of Common Stock, par value $0.01.
Transitional Small Business Disclosure Format:
Yes No X
<PAGE>
EQUITY GROWTH SYSTEMS, inc.
Index
Page
----
Part I - Financial Information
Item 1. Financial Statements
Management's Compilation Report .......................... 2
Balance Sheets ............................................3
Statements Income and Accumulated Deficit.......... 4
Statements of Shareholders' Equity............. 5
Statements of Cash Flows...................................6
Notes to Financial Statements..............................7-14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 15
Signatures................................................... 16
1
<PAGE>
Management's Compilation Report
To the Shareholders
Equity Growth Systems, inc.
Management has compiled the accompanying balance sheet of Equity Growth
Systems, inc. as of March 31, 1999 and 1998 and the related statements of income
and retained earnings and cash flows for the three months ended. The compilation
is limited to presenting information in the form of financial statements that is
solely the representation of management. These statements have not been audited
or reviewed and do not carry the opinion of an auditor or any other form of
assurance.
Signed,
/s/ Charles J. Scimeca /s/
- -------------------------
Charles J. Scimeca, President
May 14, 1999
2
<PAGE>
EQUITY GROWTH SYSTEMS, inc.
(A Development Stage Company)
BALANCE SHEET
March 31, 1999 AND 1998
1999 1998
A S S E T S
CURRENT ASSETS
Cash and cash equivalents ........... $ 5,526 $ 7
Mortgage receivable, current portion
(Note 7) ......................... -- 98,000
Promissory notes, current portion ...... -- 5,480
(Note 8)
----------- -----------
TOTAL CURRENT ASSETS ................... 5,526 223,960
OTHER ASSETS
Mortgages receivable (Note 7) ....... -- 113,573
Promissory notes (Note 8) ........... -- 251,831
Interest receivable ................. -- 49,031
----------- -----------
TOTAL OTHER ASSETS ................ -- 1,414,435
----------- -----------
TOTAL ASSETS .......................$ 5,526 $ 638,395
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and other current
liabilities (Note 3) .............. $ 10,401 $ 17,012
Mortgage payable, current portion ... -- 173,095
(Note 7)
Note payable ........................ -- 138,874
----------- -----------
TOTAL CURRENT LIABILITIES ............ 10,401 328,981
LONG-TERM LIABILITIES
Mortgage payable (Note 7) .......... -- 950,530
----------- -----------
TOTAL LIABILITIES ................... 10,401 1,279,511
----------- -----------
SHAREHOLDERS' EQUITY (Note 13)
Preferred stock-no par value authoriz-
ed-5,000,000 shares; zero issued and
outstanding .......................... -- --
Common stock-$.01 par value author-
ized-20,000,000 shares; issued and
outstanding-5,911,148 shares in 1999
and 3,826,148 in 1998 ................ 59,911 38,261
Capital in excess of par value ........ 2,914,395 2,891,645
Accumulated deficit prior to December
31, 1998 ............................... (2,965,785) (571,022)
Accumulated deficit from inception of
Development stage on December 31, 1998 .. (13,396) --
----------- -----------
TOTAL SHAREHOLDERS' EQUITY ........... (4,875) 358,884
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY ..............................$ 5,526 $ 638,395
=========== ===========
Read Management's Compilation Report
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
EQUITY GROWTH SYSTEMS, inc.
(A Development Stage Company)
CONDENSED STATEMENT OF INCOME
AND ACCUMULATED DEFICIT
(Discontinued Operations)
Three Months Ended Three Months Ended
March 31, 1999 March 31,1998
-------------------- ------------------
Income .............................. $ -0- $ 40,357
General and Adminis-
trative Expenses ................... 8,396 46,109
----------- -----------
Net Income (Loss)
Before Provisions for
Income Taxes ....................... (8,396) (5,752)
Provisions for Income
Taxes Note (10) ...................... -0- -0-
----------- -----------
Net Income (Loss) from
Continuing Operations ........... (8,936) (5,752)
Discontinued Operations:
Settlement/Consulting Fee ... (5,000) -0-
Net Loss ......................... (13,396) (5,752)
Accumulated Deficit-
Beginning ......................... -0- (2,565,270)
=========== ===========
Accumulated Deficit-
Ending ............................ (13,396) (2,571,022)
=========== ===========
Basic Loss Per Share ............. (0.0032) (0.002)
Weighted Average of
Shares Outstanding ............... 4,174,778 3,826,148
Fully Diluted Loss Per Share ..... (0.0032) -0-
Fully Diluted Average
Shares Outstanding ............... 4,222,191 -0-
Read Management's Compilation Report
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
EQUITY GROWTH SYSTEMS, inc.
(A Development Stage Company)
STATEMENTS OF SHAREHOLDERS' EQUITY
March 31, 1999
Capital in
No. of Common Excess of Accumulated
Shares Stock Par Value Deficit
Balances
January 1, 1997 ...... 3,771,148 37,711 2,892,195 (2,492,327)
Common Stock Issued ... 55,000 550 550
Net (loss) for the
year ended December
31, 1997 ............ (72,043)
----------- ----------- ----------- -----------
Balances, December 3,826,148 38,261 2,892,745 (2,566,370)
31, 1997
Common Stock Issued ...415,000 4,150 4,150 -0-
(Services) at $0.02
Per Share
Common Stock Issued
(Cash) at $0.02
Per Share 1,750,000 17,500 17,500 -0-
Net (loss) for the
year ended December
31, 1998 .................. (399,415)
----------- ----------- ----------- -----------
Balances, December
31, 1998 ............. 5,991,148 $ 59,911 $ 2,914,395 $(2,965,785)
Common Stock Issued .... -0-
Net income for the
three months ended
March 31, 1999 ......... (13,396)
----------- ----------- ----------- ------------
Balances
March 31, 1999 ....... 5,991,148 $ 59,911 $ 2,914,395 $(2,979,181)
=========== =========== =========== ===========
Read Management's Compilation Report
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
EQUITY GROWTH SYSTEMS, inc.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED March 31, 1999 AND 1998
1999 1998
Cash Flows From Operating Activities:
Net Profit (Loss) ....................... $(13,396) $ (5,752)
Adjustments to Reconcile Net Profit (Loss)
to Net Cash Used for Operating
Depreciation ........................... -- --
Decrease in other receivable ........... -- 580
Decrease in mortgages and notes
receivable ............................ --
30,500
Increase (decrease) in accounts
payable and current liabilities ....... 5,740
12,012
Increase (decrease) in mortgage
and notes payable ..................... -- (37,333)
-------- --------
Net Cash Provided (Used) by Operations . (7,656) 7
-------- --------
Cash Flows From Financial Activities
Capital stock issued - -
Additional paid in capital - -
-------- --------
Net Cash Provided by Financial
Activities - -
-------- --------
Net Increase (Decrease) in Cash (7,656) 7
Cash-Beginning of Year ................. 13,182 --
-------- --------
Cash-End of Period ..................... $ 5,526 $ 7
======== ========
Supplemental Cash Flows Information
Cash paid for interest .................. $ -- $ 33,138
======== ========
Read Management's Compilation Report
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
EQUITY GROWTH SYSTEMS, inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
A copy of the audited financial statements and footnotes for the period ending
December 31, 1998 was included in the 10-KSB filed by the Registrant with the
Commission on May 17, 1999 and are incorporated by reference as exhibits to this
report, as permitted by SEC Rule 12b-23.
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 was 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 March 31, 1999 there is no concentration of credit risk from
uninsured bank balances.
Fixed Assets
The fixed assets are depreciated over their estimated allowable useful
lives, primarily over five to seven years utilizing the modified acceleration
cost recovery system. Expenditures for major renewals and betterments that
extend the useful lives of fixed assets are capitalized. Expenditures for
maintenance and repairs are charged to expenses as incurred.
Income Taxes
In February 1992, the Financial Accounting Standards Board issued a
Statement on Financial Accounting Standards 109 of "Accounting for Income
Taxes". Under Statement 109, deferred tax assets and liabilities are recognized
for the estimated future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective bases.
7
<PAGE>
EQUITY GROWTH SYSTEMS, inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
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 operating loss carryovers in
excess of $2,000,000 which expire by the year 2013. There is no reasonable
expectation that the carryover will be utilizable in the future.
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. The number of shares used for the three months ended March 31, 1999 and
1998 were 4,174,778 and 3,826,148, respectively.
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. The number
of shares used for the three months ended March 31, 1999 was 4,222,191. No fully
diluted loss per common share was calculated for March 31, 1998.
NOTE 2 - PROPERTY, PLANT AND EQUIPMENT
1998
Equipment $ 2,022
-------
Less: Accumulated depreciation (2,022)
-
=======
Depreciation expense charged during 1999 and 1998 was $-0- and $-0-,
respectively.
NOTE 3 - SETTLEMENT WITH CREDITORS
On November 28, 1998, the Company offered 150,000 shares of its common
stock in consideration for cancellation of debt for legal an advisory services.
The settlement was based on a stock valuation of $1.00 per share; however, in
light of Mr. Granville-Smith's termination of the Registrant's business
operations, the settlement agreement was amended, writing off consulting fees
and resulting in reduction in the valuation of the payment to only $3,000.00
(the cost associated therewith). The stock transfer is expected to be completed
early in the second quarter of 1999.
8
<PAGE>
EQUITY GROWTH SYSTEMS, inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
NOTE 4 - SETTLEMENT AGREEMENT
Granville-Smith Jr. Recission Settlement Agreement
On March 22, 1999 the Registrant's former president, Edward Granville-Smith,
rescinded by agreement all employment, consulting and creditor agreements and
the following transactions described in previous reports on 10-KSB by the
Registrant and on previous filing 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, A Panamanian Corporation, also known as Bolina
Trading Registrant, A Panamanian Corporation, and Bolena Trading Corporation,
S.A., Panamanian Corporation, and WEFT Trust signed and executed for the
protection of the Company a general release.
9
<PAGE>
EQUITY GROWTH SYSTEMS, inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
NOTE 5 - CONSULTING AGREEMENTS
In 1998 a consulting agreement with Yankee Companies, Inc.(Yankee) a
Florida corporation was executed to 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. In consideration for
Yankee's assistance, Yankee received options for common stock equal to 10% of
the outstanding shares of the Company measured as of the time of final exercise.
10
<PAGE>
EQUITY GROWTH SYSTEMS, inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
NOTE 6 - MORTGAGES March 31 March 31
1999 1998
------- -------
Mortgages consist of the following:
Subordinate "wrap" mortgage receivables:
(a) Nevada/California Property 12.9041 .... -0- $ 657,333
(b) Oregon Propert 9.080% .... -0- 576,713
---------- ----------
-0- 1,234,046
Less: Current Portion ....................... -0- 120,473
---------- ----------
-0- $1,113,573
========== ==========
Original Mortgages Payable:
(a) Nevada/California Property 9.750% .. -0- $598,325
(b) Oregon Property 9.750% .. -0- 525,300
--------- ----------
-0- 1,123,625
Less: Current Portion ...................... -0- 173,095
---------- ----------
-0- $ 950,530
========== ==========
11
<PAGE>
EQUITY GROWTH SYSTEMS, inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
NOTE 6 - MORTGAGES (Continued)
Effective December 31, 1998, the Company discontinued the mortgage business.
NOTE 7 - NOTES RECEIVABLE
1999 1998
Nevada/California Property
Quarterly payments of $868.55
4% above prime, currently 12.40%
original amount $63,000 -0- $157,702
Oregon
Quarterly payments of $501.13
4% above prime, currently 12.40%
original amount $38,742 -0- 99,609
-------- --------
-0- 257,311
Less Current Portion -0- 5,480
-------- --------
-0- $251,831
======== ========
12
<PAGE>
EQUITY GROWTH SYSTEMS, inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
NOTE 8 - 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
periods ended March 31, 1999 and 1998 arising from net operating losses are as
follows:
1999 1998
Deferred tax benefit -0- $36,664
Valuation allowance -0- (36,664)
------- --------
$-0- $ -0-
======= =======
The Company has operating loss carry forwards in excess of
$2,000,000. There is no reasonable expectation that any tax benefits can be
utilized in the future.
NOTE 9 - 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
(c) The Company was authorized to issue 5,000,000 shares of preferred
stock, the attributes of which are to be determined by the Company's Board of
Directors from time to time, prior to issuance, in conformity with the
requirements of Sections 151 of the Delaware General Corporation Law.
13
<PAGE>
EQUITY GROWTH SYSTEMS, inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
During the year ended December 31, 1998, the Company also issued stock
options for 200,000 shares to the president of the corporation. The options are
exercisable at $0.02 per share and accordingly no compensation expense has been
recorded or will be incurred with the issuance.
During the year ended December 31, 1998, the Company entered into a
consulting agreement that requires issuance, for an aggregate of $60,000, of
stock equal to 10% of the Company's outstanding stock, at the time exercise is
completed. Such obligation is of indeterminate duration since it expires 45 days
after warrants and their underlying common stock are registered with the
Securities and Exchange Commission. The agreement was valued by the parties at
$20,000.
NOTE 10 - GOING CONCERN
The accompanying financial statements have been prepared assuming that the
organization will continue as a going concern. Management entered into
agreements (Note 4) that reduced 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 11 - LOSS FROM DISCONTINUED OPERATIONS
On March 22, 1999, the Company entered into an agreement (Note 4) that
results in the discontinued operations of the mortgage finance business. A
summary of losses from operations of the discontinued business is incorporated
into the audited financial statements included in the filing of the 10-KSB (Note
9).
14
<PAGE>
EQUITY GROWTH SYSTEMS, inc.
(A Development Stage Company)
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The response to this item is incorporated by reference to the Registrant's
report on Form 10-KSB for the year ended December, 31, 1998.
The following discussion should be read in conjunction with the
Registrant's financial statements. The Registrant historically engaged in the
business of acquiring and operating interests in income producing commercial
real estate. During March 1999, the Board of Directors took steps to divest the
Registrant of past agreements and liabilities related to real estate activity,
thus positioning the Registrant to undertake new business endeavors or become a
more attractive acquisition candidate.
Overview
The Registrant has completed the first quarter of operations following the
decision to discontinue operations related to the mortgage finance business.
During this period the Registrant has begun to actively seek non-start up
acquisition candidates and potential clients who can benefit from the services
and expertise of the Board in starting and operating a public company. No
definitive arrangements have been entered into, nor can there be any assurances
that definitive arrangement will ever take place.
Interim Periods
During the three months ended March 31, 1999 the Registrant experienced losses
due to ongoing general and administrative expense in the amount of $8,396. An
additional $5,000 was posted as a loss due to the conclusion of business related
to discontinued operations. No revenues were realized during this period,
resulting in a net loss of $13,396.
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.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant
had duly caused the report to be signed on its behalf by the undersigned
thereunto duly authorized.
Equity Growth Systems, inc.
Dated: May 17, 1998
/s/ Charles J. Scimeca
--------------------------
Charles J. Scimeca, President
16
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 5526
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5526
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 5526
<CURRENT-LIABILITIES> 10,401
<BONDS> 0
0
0
<COMMON> 2,974,306
<OTHER-SE> (2,979,181)
<TOTAL-LIABILITY-AND-EQUITY> 5526
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 8,396
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (8,396)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,396)
<DISCONTINUED> (5,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,396)
<EPS-PRIMARY> (0.032)
<EPS-DILUTED> (0.032)
</TABLE>
