UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_______ to_______
Commission File No. 0-12374
EQUITEX, INC.
-------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 84-0905189
- -------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
7315 East Peakview Avenue
Englewood, Colorado 80111
- ------------------------- -----
(Address of principal executive offices) (Zip code)
(303) 796-8940
--------------
(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, and (2) has been subject to such filing requirements
for the past 90 days. Yes ( X ) No ( )
Number of shares of common stock outstanding at November 1, 1996: 3,191,115
<PAGE>
EQUITEX, INC.
Part 1. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
The accompanying interim unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-QSB and do not include
all the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included, and the disclosures are adequate to
make the information presented not misleading. Operating results for the three
and nine months ended September 30, 1996 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1996. These
statements should be read in conjunction with the financial statements and notes
thereto included in the Annual 10-KSB Report (filed with the Securities and
Exchange Commission) for the year ended December 31, 1995.
F-1
<PAGE>
EQUITEX, INC.
Statements of Assets and Liabilities
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
1996 1995
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Investments, at fair value:
Securities (cost of $4,012,426 and
$3,470,057 in 1996 and 1995, respectively) .... $14,016,161 $18,376,939
Notes receivable, net of allowance
for uncollectible accounts of $10,350
and $136,545 in 1996 and 1995, respectively ... 10,000 126,195
Accrued interest receivable, net of
allowance for uncollectible interest of
$1,332 and $120,617 in 1996 and
1995, respectively ............................ 93 120,031
Trade receivables, net of allowance
for uncollectible accounts of $3,679
and $7,095 in 1996 and 1995, respectively ..... 9,211 19,563
----------- -----------
14,035,465 18,642,728
Cash ............................................. 433,215 176,752
Accounts receivable - brokers .................... 867 918
Income taxes refundable .......................... 166,609 166,609
Furniture and equipment, net of
accumulated depreciation of $101,825
and $111,615 in 1996 and 1995, respectively ... 40,770 21,041
Prepaid expenses ................................. 17,482 9,533
Other ............................................ 34,002 38,877
----------- -----------
$14,728,410 $19,056,458
=========== ===========
</TABLE>
The accompanying notes are a part of this statement. (Continued)
F-2
<PAGE>
EQUITEX, INC.
Statements of Assets and Liabilities
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
1996 1995
---- ----
(Unaudited)
<S> <C> <C>
LIABILITIES AND NET ASSETS
Liabilities
Accounts payable and other
accrued liabilities ......................... $ 162,104 $ 220,628
Accounts payable to brokers ................... 830,475 889,841
Accrued bonus to officer ...................... 353,772 530,379
Deferred income taxes ......................... 3,736,085 5,498,778
----------- -----------
5,082,436 7,139,626
Contingency (Note 2)
Net Assets
Preferred stock, par value $.01;
2,000,000 shares authorized; no
shares issued
Common stock, par value $.02;
7,500,000 shares authorized;
3,224,465 shares issued;
3,191,115 shares outstanding ................ 64,489 64,489
Additional paid-in capital .................... 4,447,175 4,447,175
Retained earnings
Accumulated deficit prior to
becoming a BDC ............................ (118,874) (118,874)
Accumulated net investment loss ............. (12,057,557) (11,439,353)
Accumulated net realized gains from
sales and permanent write-downs
of investments ............................ 11,318,990 9,895,044
Unrealized net gains on investments
(net of deferred income taxes of
$3,897,947 and $5,813,684 in 1996
and 1995, respectively) ................... 6,105,788 9,093,197
Less: treasury stock at cost
(33,350 shares and 6,850 shares
in 1996 and 1995, respectively) ........... (114,037) (24,846)
----------- -----------
9,645,974 11,916,832
----------- -----------
$14,728,410 $19,056,458
=========== ===========
</TABLE>
The accompanying notes are a part of this statement.
F-3
<PAGE>
EQUITEX, INC.
Schedule of Investments
September 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Number Cost
of and/or Fair
Shares Owned Equity Value
------------ ------ -----
<S> <C> <C> <C>
CONTROLLED COMPANIES
Common Stocks - Public Market
Method of Valuation (c)(e)
- -----------------------------
IntraNet Solutions, Inc. (fka:
MacGregor Sports & Fitness, Inc.) - ............................. 2,394,046(c) $ 723,432 $ 4,548,737
Inter/intranet business solutions ............................. 309,782(b)(c) 624,183 588,586
AFFILIATED COMPANIES
Common Stocks - Public Market
Method of Valuation (c)(e)
- -----------------------------
Roadmaster Industries, Inc. -
Manufacturer of Fitness Equipment
and Toy Products .............................................. 5,105,437(c) 1,103,702 7,466,702
Other - Public Market Method
of Valuation
- ----------------------------
Roadmaster Industries, Inc. -
Manufacturer of Fitness Equipment Subordinated
and Toy Products .............................................. Debentures-8% 150,682 149,625
----------- -----------
SUB-TOTAL - CONTROLLED AND
AFFILIATED COMPANIES ........................................ 2,601,999 12,753,650
----------- -----------
UNAFFILIATED COMPANIES
Common Stocks - Public Market
Method of Valuation
- -----------------------------
Diametrics Medical -
Medical Technology ............................................ 10,000 76,883 45,000
Cambridge Holdings -
Real Estate ................................................... 87,209 34,000 43,604
IVI Publishing -
Publication Manufacturing ..................................... 60,000 398,687 183,750
Meditech Pharmaceuticals, Inc. -
Antiviral Products ............................................ 500,000 40,000 10,000
Meteor Industries -
Petroleum Distributor ......................................... 15,120 68,257 56,700
Racotek -
Medical Technology ............................................ 50,000 317,387 281,250
Audio King -
Consumer Electronics .......................................... 12,000 31,543 19,500
</TABLE>
(Continued)
F-4
<PAGE>
EQUITEX, INC.
Schedule of Investments (Page 2)
September 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Number Cost
of and/or Fair
Shares Owned Equity Value
------------ ------ -----
<S> <C> <C> <C>
UNAFFILIATED COMPANIES (Continued)
Common Stocks - Public Market
Method of Valuation
- ----------------------------------
Frontier Airlines -
Regional Airline .............................................. 10,000 $ 92,520 $ 67,500
LaMan Corporation -
Manufacturer-Decontamination Devices .......................... 8,500 units 55,250 24,438
30,250 61,265 43,484
Boca Raton Capital -
Capital Formation ............................................. 4,000 11,135 2,000
Skydoor, Inc. -
Entertainment ................................................. 50,000 50,000 12,500
Common Stocks - Private Market
Method of Valuation (a)(e)
- ------------------------------
All Systems Go -
Software Development .......................................... 20,000(b) 25,000 25,000
NevStar Gaming -
Gaming Development ............................................ 10,000(b) 38,500 38,500
Ocean Power Technology -
Energy Development ............................................ 35,714(b) 40,000 89,285
100,000 -- 250,000
Gain, Inc. ...................................................... 20,000 50,000 50,000
Juice Island .................................................... 1 unit 20,000 20,000
----------- -----------
SUB-TOTAL
UNAFFILIATED COMPANIES ....................................... 1,410,427 1,262,511
----------- -----------
TOTAL
ALL COMPANIES ................................................ $ 4,012,426 $14,016,161
=========== ===========
</TABLE>
The accompanying notes are a part of this statement. (Continued)
F-5
<PAGE>
EQUITEX, INC.
Schedule of Investments (Page 3)
September 30, 1996
(Unaudited)
RESTRICTIONS AS TO RESALE
(a) Non-public company whose securities are privately owned. The Board of
Directors determines fair value in good faith using cost information, but also
taking into consideration the impact of such factors as available financial
information of the investee, the nature and duration of any restrictions on
resale, and other factors which influence the market in which a security is
purchased and sold.
(b) May be sold under the provisions of Rule 144 of the Securities Act of 1933
after an initial two year holding period expires.
(c) Since the Company is a greater than five percent shareholder, it may be
affected by a sales limitation of one percent of the investee's outstanding
common stock during any three-month period.
(e) Since these securities have certain restrictions as to resale, the Board of
Directors determines fair value in good faith using public market information,
but also taking into consideration the impact of such factors as available
financial information of the investee, the nature and duration of restrictions
on the disposition of securities, and other factors which influence the market
in which a security is purchased and sold.
(f) Valued at higher of cost or fair market value of underlying stock less
exercise price, subject to valuation adjustments as determined in good faith by
the Board of Directors, taking into consideration the impact of such factors as
available financial information of the investee, the nature and duration of any
restrictions on resale, and other factors which influence the market in which a
security is purchased and sold.
F-6
<PAGE>
EQUITEX, INC.
Schedule of Investments
December 31, 1995
<TABLE>
<CAPTION>
Number Cost
of and/or Fair
Company Shares Owned Equity Value
- ------- ------------ ------ -----
<S> <C> <C> <C>
CONTROLLED COMPANIES
Common Stocks, Units and Warrants -
Public Market Method of Valuation (c)(e)
- ------------------------------------------
MacGregor Sports & Fitness, Inc. -
Sporting Goods ................................................ 1,180,566(c) $ 11,737 $ 2,479,189
150,000(b) 150,000 354,375
513,480 532,024 1,317,181
............................................................... 47,000 units 101,111 229,125
............................................................... 40,000 warrants 10,404 67,500
Preferred Stock - Private Market
Method of Valuation (e)
- --------------------------------
MacGregor Sports & Fitness -
Sporting Goods ................................................ 1,000
............................................................... Series C(c) 500,000 2,100,000
AFFILIATED COMPANIES
Common Stocks - Public Market
Method of Valuation (c)(e)
- -----------------------------
Roadmaster Industries, Inc. -
Manufacturer of Bicycles, Junior
Wheel Goods and Fitness Equipment ............................. 5,100,000(c) 1,093,702 10,901,250
5,437(b) 10,000 11,622
Other - Public Market Method
of Valuation
- ----------------------------
Roadmaster Industries, Inc. -
Manufacturer of Bicycles, Jr ................................. Sr. Subordinated
Wheel Goods and Fitness Equip ................................. Notes-11.75% 37,793 34,876
............................................................... Subordinated
............................................................... Debentures-8% 88,116 84,000
----------- -----------
SUB-TOTAL - CONTROLLED AND
AFFILIATED COMPANIES ......................................... 2,534,887 17,579,118
----------- -----------
UNAFFILIATED COMPANIES
Common Stocks - Public Market
Method of Valuation
- -----------------------------
Diametrics Medical -
Medical Technology ............................................ 20,000 204,387 97,500
Cambridge Holdings -
Real Estate ................................................... 87,209 34,000 29,974
Therapy Lasers -
Medical Products .............................................. 96 1,217 12
Meditech Pharmaceuticals, Inc. -
Antiviral Products ............................................ 500,000 40,000 5,000
Meteor Industries -
Petroleum Distributor ......................................... 15,120 68,257 30,240
Racotek -
Medical Technology ............................................ 10,000 63,129 52,500
</TABLE>
(Continued)
F-7
<PAGE>
EQUITEX, INC.
Schedule of Investments (Page 2)
December 31, 1995
<TABLE>
<CAPTION>
Number Cost
of and/or Fair
Company Shares Owned Equity Value
- ------- ------------ ------ -----
<S> <C> <C> <C>
UNAFFILIATED COMPANIES (Continued)
Common Stocks - Public Market
Method of Valuation
- ----------------------------------
Audio King -
Consumer Electronics .......................................... 25,000 $ 65,629 $ 62,500
Health Tech International -
Employee Testing Systems ...................................... 100 156,527 3,925
LaMan Corporation -
Manufacturer-Decontamination Devices .......................... 8,500 units 55,250 19,125
28,000 61,264 31,500
Boca Raton Capital -
Capital Formation ............................................. 4,000 20,135 9,000
LaBarge, Inc. -
Manufacturing Electronic
Devices/Cables ................................................ 10,000 11,875 35,000
Skydoor, Inc. -
Entertainment ................................................. 50,000(b) 50,000 18,750
Common Stocks - Private Market
Method of Valuation (a)(e)
- ------------------------------
All Systems Go -
Software Development .......................................... 20,000(b) 25,000 25,000
Mesquite Gaming -
Gaming Development ............................................ 10,000(b) 38,500 38,500
Ocean Power Technology -
Energy Development ............................................ 35,714(b) 40,000 89,285
100,000 -- 250,000
Warrants (f)(e)
- ---------------
Nations Mart -
Mass Merchant Consumer Services ............................... 10,000 -- 10
----------- -----------
SUB-TOTAL
UNAFFILIATED COMPANIES ....................................... 935,170 797,821
----------- -----------
TOTAL
ALL COMPANIES ................................................ $ 3,470,057 $18,376,939
=========== ===========
</TABLE>
The accompanying notes are a part of this statement. (Continued)
F-8
<PAGE>
EQUITEX, INC.
Schedule of Investments (Page 3)
December 31, 1995
RESTRICTIONS AS TO RESALE
(a) Non-public company whose securities are privately owned. The Board of
Directors determines fair value in good faith using cost information, but also
taking into consideration the impact of such factors as available financial
information of the investee, the nature and duration of any restrictions on
resale, and other factors which influence the market in which a security is
purchased and sold.
(b) May be sold under the provisions of Rule 144 of the Securities Act of 1933
after an initial two year holding period expires.
(c) Since the Company is a greater than five percent shareholder, it may be
affected by a sales limitation of one percent of the investee's outstanding
common stock during any three-month period.
(e) Since these securities have certain restrictions as to resale, the Board of
Directors determines fair value in good faith using public market information,
but also taking into consideration the impact of such factors as available
financial information of the investee, the nature and duration of restrictions
on the disposition of securities, and other factors which influence the market
in which a security is purchased and sold.
(f) Valued at higher of cost or fair market value of underlying stock less
exercise price, subject to valuation adjustments as determined in good faith by
the Board of Directors, taking into consideration the impact of such factors as
available financial information of the investee, the nature and duration of any
restrictions on resale, and other factors which influence the market in which a
security is purchased and sold.
F-9
<PAGE>
EQUITEX, INC.
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the three For the nine
months ended months ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Interest and dividends .......................... $ 16,071 $ 6,474 $ 195,729 $ 47,705
Consulting fees ................................. -- 36,000 281,500 127,826
Administrative fees ............................. 18,211 13,189 48,532 46,509
Miscellaneous ................................... 325 1,057 9,184 8,450
Gain on sale of fixed assets .................... 8,334 -- 8,334 --
----------- ----------- ----------- -----------
42,941 56,720 543,279 230,490
Expenses
Salaries and consulting fees .................... 73,503 86,686 246,949 255,051
Officer's bonus ................................. 28,963 152,889 331,397 408,601
Office rent ..................................... 7,500 7,500 22,500 23,371
Legal and accounting ............................ 5,857 4,178 35,369 57,046
Employee benefits ............................... 37,985 37,340 173,843 111,040
Advertising and promotion ....................... 482 529 2,428 1,630
Other general and administrative ................ 37,142 43,860 137,034 121,796
Interest ........................................ 19,850 3,059 58,143 11,835
Bad debt expense ................................ 329 3,313 (6,534) 23,650
Depreciation and amortization ................... 2,435 2,436 7,310 7,205
----------- ----------- ----------- -----------
214,046 341,790 1,008,439 1,021,225
Net investment gain (loss) ......................... (171,105) (285,070) (465,160) (790,735)
Net realized gain on investments
and net unrealized gain on
investments:
Proceeds from sales
of investments .................................. 145,398 108,682 2,640,926 1,265,428
Less: cost of investments ....................... 99,924 185,589 1,216,980 1,126,379
----------- ----------- ----------- -----------
Net realized gain on investments
before income taxes ............................. 45,474 (76,907) 1,423,946 139,049
Net investment gain (loss) and
net realized gain on investments
before income taxes ............................. (125,631) (361,977) 958,786 (651,686)
Income tax benefit (provision) -
current ......................................... -- (25,845) (93,250) 147,642
Income tax benefit (provision) -
deferred ........................................ -- 64,859 (153,044) (35,056)
Recovery of income taxes through
utilization of net operating
loss carryforward ............................... -- -- 93,250 --
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are a part of this statement. (Continued)
F-10
<PAGE>
EQUITEX, INC.
Statements of Operations (Page 2)
(Unaudited)
<TABLE>
<CAPTION>
For the three For the nine
months ended months ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net investment gain (loss)
and net realized gain
on investments .................................. $ (125,631) $ (322,963) $ 805,742 $ (539,100)
----------- ----------- ----------- -----------
Increase (decrease) in
unrealized appreciation
on investments .................................. (5,201,623) 1,147,464 (4,903,146) (1,725,294)
Less income tax benefit
(provision) applicable to
decrease (increase) in
realized appreciation ........................... 2,028,633 (447,510) 1,915,737 572,865
----------- ----------- ----------- -----------
(3,172,990) 699,954 (2,987,409) (1,152,429)
----------- ----------- ----------- -----------
Net increase (decrease) in
net assets resulting
from operations ................................. $(3,298,621) $ 376,991 $(2,181,667) $(1,691,529)
=========== =========== =========== ===========
Increase (decrease) in net
assets per share ................................ $ (1.03) $ .12 $ (.68) $ (.53)
=========== =========== =========== ===========
Weighted average number
of common shares ................................ 3,201,565 3,217,615 3,212,226 3,217,615
=========== =========== =========== ===========
</TABLE>
The accompanying notes are a part of this statement.
F-11
<PAGE>
EQUITEX, INC.
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the nine months
ended September 30,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net change in net assets ...................... $(2,181,667) $(1,691,529)
Adjustments to reconcile net change in
net assets to net cash provided by
operating activities:
Provision for bad debts on notes receivable 10,000
Depreciation and amortization ............ 7,310 7,205
Realized (gain) on sale of investments ... (1,423,946) (139,049)
Unrealized (gain) loss on investments .... 4,903,146 1,725,294
Proceeds from sales of investments ............ 2,640,926 1,265,428
Decrease in purchase of investments ........... (1,759,347) (997,512)
Increase in notes receivable .................. 116,195 490,000
Gain on sale of assets ........................ (8,334)
Changes in assets and liabilities:
(Increase) decrease in interest receivable . 119,938 (12,205)
(Increase) decrease in other assets ........ 4,875 (2,604)
(Increase) decrease in trade receivables ... 10,351 (8,256)
(Increase) decrease in accounts
receivable - brokers ..................... 51 661
(Increase) in prepaid expense .............. (7,949) --
(Increase) in income taxes refundable ...... -- (147,642)
(Decrease) in accounts payable and
other accrued liabilities ................ (58,524) (3,310)
(Decrease) in accounts payable to brokers .. (59,366) --
Decrease in deferred revenue ............... -- (19,826)
Increase (decrease) in accrued bonus
to officer ............................... (176,607) 28,031
Increase (decrease) in provision for
deferred income taxes .................... (1,762,693) (537,808)
----------- -----------
Net cash provided (used) by operating
activities ............................... 364,359 (33,122)
Cash flows from investing activities:
Purchase of furniture and equipment ........... (1,663) (2,780)
Purchase of automobile ........................ (30,542)
Proceeds from sale of automobile .............. 13,500
----------- -----------
Net cash (used) by investing activities .... (18,705) (2,780)
</TABLE>
The accompanying notes are a part of this statement. (Continued)
F-12
<PAGE>
EQUITEX, INC.
Statements of Cash Flows (Page 2)
(Unaudited)
<TABLE>
<CAPTION>
For the nine months
ended September 30,
1996 1995
---- ----
<S> <C> <C>
Cash flows from financing activities:
Issuance of notes payable ..................... $ -- $ 100,000
Repayment of notes payable .................... -- (75,000)
Purchase of treasury stock .................... (89,191) --
----------- -----------
Net cash provided by financing activities . (89,191) 25,000
Increase (decrease) in cash ...................... 256,463 (10,902)
Cash, beginning of period ........................ 176,752 18,043
----------- -----------
Cash, end of period .............................. $ 433,215 $ 7,141
=========== ===========
Supplemental disclosures of cash flow information:
Interest paid ............................. $ 58,143 $ 11,527
=========== ===========
Interest received ......................... $ 204,729 $ 20,789
=========== ===========
Conversion of notes receivable into
investment in common stock ............ $ 252,020 $ --
=========== ===========
</TABLE>
The accompanying notes are a part of this statement.
F-13
<PAGE>
EQUITEX, INC.
Selected Notes to Financial Statements
September 30, 1996
(Unaudited)
Note 1: CONVERSION OF INVESTEE PREFERRED STOCK AND DEBT
Pursuant to the original agreement, on May 1, 1996 the Company converted
its 1,000 shares of Series C preferred stock of MacGregor Sports & Fitness, Inc.
(MacGregor) into 1,000,000 shares of common stock. On June 30, 1996 the Company
canceled all of its notes, interest and accounts receivable due from MacGregor
and received in exchange 210,652 shares of common stock. Also, as part of the
same transaction, the Company received another 99,130 shares of common stock
from MacGregor in lieu of payment of $281,500 in consulting and transaction fees
due from prior years.
Note 2: ESCROW OF INVESTEE STOCK AND CONTINGENCY
As required in the amended merger agreement dated July 2, 1996 between
MacGregor Sports & Fitness, Inc. (an investee company) (MacGregor) and IntraNet
Integration Group, Inc., the Company delivered 597,500 of its shares of
Roadmaster Industries to an escrow agent on July 30, 1996. Based on the Deposit
Indemnification Escrow Agreement, this stock is to be held in escrow for up to
three years to indemnify the newly combined entity against any future claims
brought forward relative to the time period prior to the merger. The Company's
exposure related to any such prior liabilities of MacGregor is limited to
$2,000,000.
F-14
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
LIQUIDITY AND CAPITAL RESOURCES
The Registrant's cash position increased by $256,463 during the nine months
ended September 30, 1996 as compared to a decrease of $10,902 for September 30,
1995. The increase was from cash provided by operating activities less $18,705
used for investing activities and $89,191 used for financing activities. Cash
provided by operating activities was primarily due to increased proceeds from
sales of investments.
Of the Registrant's liabilities of $5,082,436 at September 30, 1996, the
Registrant had no amounts due to banks. Of those liabilities, $3,736,085 (or
74%) is deferred income taxes, primarily for the Registrant's unrealized
appreciation on investments, leaving $1,346,351 in other liabilities. This
compares to total liabilities of $7,139,626, deferred income taxes of $5,498,778
and other liabilities of $1,640,848 at December 31, 1995. The Registrant is not
obligated to discharge a significant portion of its current liabilities in the
near future; however, the Registrant intends to extinguish these liabilities to
make other investments as cash flow permits.
The Registrant's sources of income to defray operating overhead will be
derived primarily from consulting fees, transaction fees gained from the
Registrant assisting both existing and new investees in structuring and
completing mergers, acquisitions or asset-based financing transactions and
administrative fees through which the Registrant directly apportions a certain
amount of its operating overhead to an investee to help defray operating costs.
This allows some of the income generated by other sources to be used for
purposes other than operating overhead. The Registrant also receives income from
the sale of certain of its longer term investments from time to time during the
year as well as through utilizing its cash position at any given time to make
short-term investments.
The Registrant's liquidity is affected primarily by the business success,
securities prices and marketability of its investee companies and by the amount
and timing of any new or incremental investments it makes. The Registrant
believes that its present liquidity and capital resources are adequate to
finance anticipated needs arising from or relating to its business in the
remainder of the 1996 year due to its increased ability to sell portions of its
investee companies' stock positions as restrictions on their ability to be sold
end. During 1995 the Registrant's sources of income were sufficient to cover its
operating overhead and it is anticipated this trend will continue during 1996.
One of the Registrant's largest investee companies, RMI, is a publicly
held-company which conducts most of its business through its wholly-owned
subsidiaries. At September 30, 1996 the Registrant owned common stock and
convertible debentures in RMI, which is a leading producer of fitness equipment,
toys and team sports equipment in the United States. Management of the
Registrant devotes significant efforts and resources to providing managerial
assistance to RMI.
F-15
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued).
The seasonal nature of the RMI subsidiaries' sales imposes fluctuating
demands on their cash flow, due to the temporary build-up of inventories in
anticipation of, and receivables subsequent to, the peak seasonal period which
historically has occurred around November of each year. In the past, the
subsidiaries have relied heavily on revolving loan borrowings for working
capital. These loans provided them with an immediate and continued source of
liquidity.
For the six months ended June 30, 1996, RMI had net sales of approximately
$234,000,000 and a net pre-tax income of approximately $3,000,000 ($.06 per
share). This compares to 1995's first six months net sales of $348,000,000 and a
pre-tax net loss of $12,000,000 ($.24 per share). At June 30, 1996, RMI's total
assets were $430,000,000 and its total liabilities were $375,000,000 with
shareholders' equity of $55,000,000. RMI's borrowings represented 61% of its
total assets at June 30, 1996. During the first quarter of 1996 RMI sold its
camping equipment subsidiary, Nelson/Weather-Rite, Inc. to Brunswick Corporation
for cash of $120,000,000. RMI used $106,000,000 of the proceeds to reduce its
outstanding revolving credit facility.
During the third quarter of 1996, RMI announced that a definitive agreement
had been signed with the Brunswick Corporation whereby the bicycle and snow toys
division of RMI were sold for cash proceeds of approximately $200,000,000. The
proceeds will be used primarily to reduce outstanding indebtedness.
Concurrent with the sale of its bicycle division, RMI negotiated a new loan
and security agreement which provides for borrowings based on certain
inventories, accounts receivable and capital expenditures, as well as funding
for RMI's structured accounts receivable subsidiary. The Debentures, Notes and
the loan and security agreement carry restrictive covenants which may limit
RMI's ability to pay dividends to shareholders, including the Registrant.
As of September 30, 1996, the Registrant had made no other material
commitments for capital expenditures or loans to investees. The Registrant
expects that it will continue to sell certain of its investments, resulting in
additional realized gains, during the remainder of the current year. At the
discretion of the Board of Directors, the Registrant also may sell certain of
its investments resulting in a realized loss in order to prevent further losses
from occurring.
RESULTS OF OPERATIONS
Revenues for the nine months ended September 30, 1996 were $543,279 as
compared to $230,490 for the nine months ended September 30, 1995. The
Registrant receives consulting fees on both a monthly contract basis as well as
on a per transaction basis when assisting investees with acquisitions,
refinancing or restructuring. During the second quarter of 1996 the Registrant
received $281,500 of consulting and transaction fees due to it since 1993 from
its largest investee, MacGregor Sports & Fitness,Inc. Up until the end of 1995,
F-16
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued).
the Registrant received $144,000 in annual consulting fees from RMI which
comprised the majority of the consulting fee revenue in 1995.
There is also an increase in interest received from investee companies in
1996 compared to 1995 as the Company received $145,378 of interest from
MacGregor relative to the above mentioned fees and other items.
Revenues for the three months ended September 30, 1996 of $42,941 were
comparable to the $56,720 for the third quarter of 1995.
The realized gain on investments before income taxes for the nine months
ended September 30, 1996 was $1,423,946 as compared to a gain of $139,049 for
the same period in 1995. The Registrant's sales activity volume in 1996 was
greater as compared to the first nine months of 1995. Specifically, the
Registrant sold 40,000 warrants, 47,000 units and 472,000 shares of MacGregor in
the open market during the second quarter of 1996 at a realized gain of
$1,539,719. While the restrictions as to resale on many of the Registrant's
investments continue to diminish, the opportunity for the additional sales of
large portions of the investments cannot be predicted.
The realized gain on investments for the three months ended September 30,
1996 of $45,474 is substantially higher than the loss of $76,907 in the third
quarter of the prior year due to the same reason cited above for the nine month
comparison.
Expenses for the nine months ended September 30, 1996 were $1,008,439 as
compared to $1,021,225 in 1995, a decrease of 1%. While the Registrant's
expenses decreased just slightly in most categories, employee benefits increased
by $62,803, and interest expense increased by $46,308 as a result of the Company
maintaining margin account balances at brokerage firms. These increases were
offset by decreases in officer's bonus and legal and accounting expense. The
Registrant currently believes that expenses for the remainder of the year ending
December 31, 1996 will continue at levels similar to those of 1995.
Total expenses of $214,046 for the three months ended September 30, 1996
were less than the total of third quarter of 1995 of $341,790 primarily due to a
decrease in the officer's bonus.
There was a decrease in unrealized gains of $2,987,409 for the first nine
months of 1996 compared to a decrease of $1,152,429 for the first nine months of
1995. The decrease over 1995 is attributed the decrease of $3,415,421 in the
market price of RMI at September 30, 1996. This decrease was offset in the
second quarter 1996 by an increase in the fair market value of MacGregor Sports
& Fitness, Inc. (MacGregor). However, MacGregor had a substantial decline of
F-17
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued).
$5,571,176 in fair market value after its merger with IntraNet Solutions
(IntraNet) in the third quarter of 1996 which resulted in an overall net
decrease in the fair market value of MacGregor/IntraNet of $1,410,047 for the
nine months ended September 30, 1996. As there is no way to predict the future
value of the Registrant's investments, the Registrant cannot predict future
changes in the unrealized value of its investment portfolio. There was a net
decrease in net assets resulting from operations of $2,181,667 for the first
three quarters of 1996 as compared to a decrease of $1,691,529 for the same
period in 1995.
With the acquisition of RMI in 1987, the Registrant began concentrating on
investments in more mature investee companies. Due to this change, the
Registrant's net asset value and cash flows have fluctuated as a result of the
market fluctuations of a few larger investees, particularly RMI. As the
Registrant increases the number of its investments in more mature companies, the
Registrant's net asset value and cash flows should become less susceptible to
the market fluctuations of fewer investee companies. During the past three
years, the Registrant has been concentrating its efforts on enhancing the value
of its existing portfolio companies and therefore has not made any major new
investments. Until such time as more of these mature investments are added, the
Registrant will continue to be susceptible to market fluctuations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports of Form 8-K
(a) Exhibit 27 - Financial Data Schedule (for SEC use only)
(b) No reports on Form 8-K were filed during the current quarter
F-18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EQUITEX, INC.
(Registrant)
By:/S/ HENRY FONG
--------------------------------
Henry Fong
President, Treasurer and Chief
Financial Officer
Date: November 14, 1996
F-19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements contained in the Registrant's Quarterly Report on
Form 10-QSB for the quarter ended September 30, 1996 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 433,215
<SECURITIES> 14,016,161
<RECEIVABLES> 34,665
<ALLOWANCES> 15,361
<INVENTORY> 0
<CURRENT-ASSETS> 14,653,638
<PP&E> 142,595
<DEPRECIATION> 101,825
<TOTAL-ASSETS> 14,728,410
<CURRENT-LIABILITIES> 1,346,351
<BONDS> 0
0
0
<COMMON> 64,489
<OTHER-SE> 9,581,485
<TOTAL-LIABILITY-AND-EQUITY> 14,728,410
<SALES> 2,640,926
<TOTAL-REVENUES> 543,279
<CGS> 1,216,980
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 956,830
<LOSS-PROVISION> (6,534)
<INTEREST-EXPENSE> 58,143
<INCOME-PRETAX> 967,786
<INCOME-TAX> 153,044
<INCOME-CONTINUING> (2,181,667)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,181,667)
<EPS-PRIMARY> (.68)
<EPS-DILUTED> (.68)
</TABLE>
