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 MARCH 31, 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 May 1, 1996: 3,217,615
<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
months ended March 31, 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>
Mar. 31, Dec. 31,
1996 1995
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Investments, at fair value:
Securities (cost of $3,456,931 and
$3,470,057 in 1996 and 1995, respectively) .... $17,196,658 $18,376,939
Notes receivable, net of allowance
for uncollectible accounts of $136,360
and $136,545 in 1996 and 1995, respectively ... 126,010 126,195
Accrued interest receivable, net of
allowance for uncollectible interest of
$113,431 and $120,617 in 1996 and
1995, respectively ............................ 112,618 120,031
Trade receivables, net of allowance
for uncollectible accounts of $7,163
and $7,095 in 1996 and 1995, respectively ..... 20,555 58,440
----------- -----------
17,455,841 18,681,605
Cash ............................................. 31,805 176,752
Accounts receivable - brokers .................... 9,752 918
Income taxes refundable .......................... 166,609 166,609
Furniture and equipment, net of
accumulated depreciation of $112,439
and $111,615 in 1996 and 1995, respectively ... 20,278 21,041
Other ............................................ 46,706 9,533
----------- -----------
$17,730,991 $19,056,458
=========== ===========
</TABLE>
(Continued)
The accompanying notes are a part of this statement.
F-2
<PAGE>
EQUITEX, INC.
Statements of Assets and Liabilities
<TABLE>
<CAPTION>
Mar. 31, Dec. 31,
1996 1995
----------- -----------
(Unaudited)
<S> <C> <C>
LIABILITIES AND NET ASSETS
Liabilities
Accounts payable and other
accrued liabilities ......................... $ 229,368 $ 220,628
Accounts payable to brokers ................... 903,436 889,841
Accrued bonus to officer ...................... 613,184 530,379
Deferred income taxes ......................... 5,068,036 5,498,778
----------- -----------
6,813,954 7,139,626
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;
3,217,615 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 ............. (11,725,983) (11,439,353)
Accumulated net realized gains from
sales and permanent write-downs
of investments ............................ 9,893,773 9,895,044
Unrealized net gains on investments
(net of deferred income taxes of
$5,358,494 and $5,813,684 in 1996
and 1995, respectively) ................... 8,381,233 9,093,197
Less: treasury stock at cost
(13,700 shares) ........................... (24,846) (24,846)
----------- -----------
10,916,967 11,916,832
----------- -----------
$17,730,991 $19,056,458
=========== ===========
</TABLE>
The accompanying notes are a part of this statement.
F-3
<PAGE>
EQUITEX, INC.
Schedule of Investments
March 31, 1996
(Unaudited)
<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 $ 2,833,358
150,000(b) 150,000 360,000
513,480 532,024 1,232,351
47,000 units 101,111 178,600
40,000 warrants 10,404 62,000
Preferred Stock - Private Market
Method of Valuation (e)
- --------------------------------
MacGregor Sports & Fitness
Sporting Goods 1,000 Series C(c) 500,000 2,400,000
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 9,180,000
5,437(b) 10,000 9,787
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 36,930
Subordinated
Debentures-8% 88,116 70,375
Sub-Total-CONTROLLED AND ----------- -----------
AFFILIATED COMPANIES $ 2,534,887 $16,363,402
----------- -----------
UNAFFILIATED COMPANIES
Common Stocks - Public Market
Method of Valuation
- -----------------------------
Diametrics Medical
Medical Technology 20,000 204,387 125,000
Cambridge Holdings
Real Estate 87,209 34,000 38,154
Therapy Lasers
Medical Products 96 1,217 18
Meditech Pharmaceuticals, Inc.
Antiviral Products 500,000 40,000 5,000
Meteor Industries
Petroleum Distributor 15,120 68,257 34,020
Racotek
Medical Technology 10,000 63,129 47,500
Audio King
Consumer Electronics 20,000 52,503 50,000
</TABLE>
(Continued)
F-4
<PAGE>
EQUITEX, INC.
Schedule of Investments (Page 2)
March 31, 1996
(Unaudited)
<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
- ----------------------------------
Health Tech International
Employee Testing Systems 100 $ 156,527 $ 280
LaMan Corporation
Manufacturer-Decontamination Devices 8,500 units 55,250 21,250
28,000 61,264 35,000
Boca Raton Capital
Capital Formation 4,000 20,135 3,000
LaBarge, Inc.
Manufacturing Electronic
Devices/Cables 10,000 11,875 46,250
Skydoor, Inc.
Entertainment 50,000(b) 50,000 25,000
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 -- --
----------- -----------
Sub-total
UNAFFILIATED COMPANIES 922,044 833,257
----------- -----------
Total
ALL COMPANIES $ 3,456,931 $17,196,658
=========== ===========
</TABLE>
(Continued)
F-5
<PAGE>
EQUITEX, INC.
Schedule of Investments (Page 3)
March 31, 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
Audio King
Consumer Electronics 25,000 65,629 62,500
</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
- ----------------------------------
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>
(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 months
ended March 31,
1996 1995
---- ----
<S> <C> <C>
Revenues
Interest and dividends ........................ $ 32,337 $ 26,345
Consulting fees ............................... 36,000 45,913
Administrative fees ........................... 14,107 18,440
Miscellaneous ................................. 8,656 1,990
----------- -----------
91,100 92,688
Expenses
Salaries and consulting fees .................. 85,445 84,228
Officer's bonus ............................... 132,982 128,314
Office rent ................................... 7,500 8,371
Legal and accounting .......................... 26,105 25,638
Employee benefits ............................. 38,075 36,729
Advertising and promotion ..................... 452 455
Other general and administrative .............. 47,068 45,450
Interest ...................................... 20,532 4,582
Bad debt expense .............................. (7,304) 12,821
Depreciation and amortization ................. 2,427 2,384
----------- -----------
353,282 348,972
Net investment loss .............................. (262,182) (256,284)
Net realized gain on investments
and net unrealized gain on investments:
Proceeds from sales of investments ............ 11,855 567,300
Less: cost of investments ..................... 13,126 385,162
----------- -----------
Net realized gain (loss) on investments
before income taxes ........................... (1,271) 182,138
Net investment loss and net realized gain
(loss) on investments before income taxes ..... (263,453) (74,146)
Income tax benefit (provision) - current ......... 61,703
Income tax benefit (provision) - deferred ........ (24,448) (33,966)
----------- -----------
Net investment loss and net realized
gain (loss) on investments .................... (287,901) (46,409)
</TABLE>
(Continued)
The accompanying notes are a part of this statement.
F-10
<PAGE>
EQUITEX, INC.
Statements of Operations (Page 2)
(Unaudited)
<TABLE>
<CAPTION>
For the three months
ended March 31,
1996 1995
---- ----
<S> <C> <C>
Increase (decrease) in unrealized
appreciation on investments ................... $(1,167,155) $(2,905,602)
Less income tax benefit (provision)
applicable to decrease (increase) in
realized appreciation ......................... 455,190 1,035,915
----------- -----------
(711,965) (1,869,687)
----------- -----------
Net increase (decrease) in net assets
resulting from operations ..................... $ (999,866) $(1,916,096)
=========== ===========
(Decrease) in net assets per share ............... $ (.31) $ (.60)
=========== ===========
Weighted average number of common shares ......... 3,217,615 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 three months
ended March 31,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net change in net assets ...................... $ (999,866) $(1,916,096)
Adjustments to reconcile net change in
net assets to net cash provided by
operating activities:
Depreciation and amortization ............ 2,427 2,384
Provision for bad debts on notes receivable (7,304)
Realized (gain) loss on sale of investments 1,271 (182,138)
Unrealized loss on investments ........... 1,167,155 2,905,602
Proceeds from sales of investments ............ 11,855 567,300
Purchase of investments ....................... -- (82,984)
Repayment of notes receivable ................. 370
Changes in assets and liabilities:
(Increase) in interest receivable .......... 14,599 (12,562)
(Increase) in other assets ................. 905 (2,098)
(Increase) decrease in trade receivables ... (1,060) (1,959)
(Increase) decrease in accounts
receivable - brokers ..................... (8,834) 1,474
(Increase) in income taxes refundable ...... (61,703)
Increase (decrease) in accounts payable and
other accrued liabilities ................ 8,740 (106,603)
Increase in accounts payable to brokers .... 13,595 --
Decrease in deferred revenue ............... -- (9,913)
Increase in accrued bonus to officer ....... 82,805 (41,506)
(Decrease) in provision for deferred
income taxes ............................. (430,742) (1,001,949)
----------- -----------
Net cash provided (used) by operating
activities ............................... (144,084) 57,249
Cash flows from investing activities:
Purchase of furniture and equipment ........... (1,663) --
Increase in deposit ........................... 800 --
----------- -----------
Net cash (used) by investing activities .... (863) --
</TABLE>
(Continued)
The accompanying notes are a part of this statement.
F-12
<PAGE>
EQUITEX, INC.
Statements of Operations (Page 2)
(Unaudited)
<TABLE>
<CAPTION>
For the three months
ended March 31,
1996 1995
---- ----
<S> <C> <C>
Cash flows from financing activities:
Issuance of notes payable ..................... $ $ 75,000
Repayment of notes payable .................... (75,000)
Common stock issued for cash .................. -- --
----------- -----------
Net cash provided by financing activities . -- --
Increase (decrease) in cash ...................... (144,947) 57,249
Cash, beginning of period ........................ 176,752 18,043
----------- -----------
Cash, end of period .............................. $ 31,805 $ 75,292
=========== ===========
Supplemental disclosures of cash flow information:
Interest paid ............................. $ 20,532 $ 4,582
=========== ===========
Interest received ......................... $ 37,936 $ 962
=========== ===========
</TABLE>
The accompanying notes are a part of this statement.
F-13
<PAGE>
EQUITEX, INC.
Selected Notes to Financial Statements
March 31, 1996
(Unaudited)
Note 1: REVERSE STOCK SPLIT
At a meeting which occurred on December 18, 1995, the Company's
stockholders approved a reverse stock split effective January 2, 1996, whereby
each two shares of $.01 par value common stock were exchanged for one share of
$.02 par value common stock. All share amounts in the financial statements,
herein, reflect this reverse stock split.
Note 2: PLEDGE OF INVESTEE STOCK
In April 1996 the Company loaned to Roadmaster Industries, Inc. (RMI)
556,734 shares of the Company's MacGregor Sports & Fitness, Inc. common shares.
These shares are pledged as collateral on behalf of RMI, relative to a RMI bank
loan.
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 decreased
by $144,947 at March 31, 1996 as compared to an increase of $57,249 for March
31, 1995. Net cash used by operating activities was $144,084 for 1996 as
compared to $57,249 provided in the first quarter of 1995. The change in cash
provided by operating activities was primarily due to lower proceeds from sales
of investments.
In connection with its investments, the Registrant is required, from time
to time, to make loans to its investees in order to protect its investments. As
a result of these loans, the Registrant carried notes receivable of $126,010 and
$126,195 at March 31, 1996 and December 31, 1995, respectively.
Of the Registrant's liabilities of $6,813,954 at March 31, 1996, the
Registrant had no amounts due to banks. Of those liabilities, 74% or $5,068,036,
is deferred income taxes, primarily for the Registrant's unrealized appreciation
on investments, leaving $1,745,918 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 trade
in the equities markets. 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.
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 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. Although the
Registrant expects that its ability to liquidate portions of its portfolio
companies will be increased as the restrictions as to resale end, the Registrant
generally is a long-term holder of its investments and therefore does not
necessarily liquidate them upon the expiration of these restrictions. As the
Registrant cannot forecast the types of large-scale sales which generated
significant profit in previous years, the Registrant does not typically rely on
sales of this nature for its financing needs.
F-15
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued).
The Registrant's largest investee company, RMI, is a publicly held-company
which conducts most of its business through its wholly-owned subsidiaries. The
Registrant owns common stock, senior subordinated notes and convertible
debentures in RMI which is one of the largest manufacturers of bicycles and 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.
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. RMI's working capital decreased slightly (approximately $6,000,000)
in 1995.
In addition, RMI utilizes asset-based credit facilities provided by lending
institutions to provide for its fluctuating working capital needs. On October 2,
1995, RMI announced the signing of a three year loan and security agreement
which provides for borrowings based on certain inventories, accounts receivable
and capital expenditures, as well as funding for RMI's structures accounts
receivable subsidiary. RMI anticipates this loan facility will meet all of its
working capital needs through 1998. 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.
For the year ended December 31, 1995, RMI had net sales of approximately
$731,000,000 with a net loss of approximately $51,000,000 and a loss per share
of $(1.04) primary and fully diluted. This compares to 1994 net sales of
$456,000,000 net earnings of $5,000,000 and earnings per share of $0.16
fully-diluted. At December 31, 1995, RMI's total assets were $577,107,000 and
its total liabilities were $521,583,000 with shareholders' equity of
$55,524,000. RMI's borrowings represented 64% of its total assets at December
31, 1995.
As of March 31, 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.
In April 1996 the Company loaned to Roadmaster Industries, Inc. (RMI)
556,734 shares of the Company's MacGregor Sports & Fitness, Inc. common shares.
These shares are pledged as collateral on behalf of RMI, relative to a RMI bank
loan.
F-16
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued).
RESULTS OF OPERATIONS. Revenues for the three months ended March 31, 1996
were $91,100 as compared to $92,688 for the three months ended March 31, 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. The Registrant received $144,000 in annual
consulting fees from RMI during the past two years which comprises the majority
of the consulting fee revenue in 1995 and all of it in 1996.
Overall the total revenue is fairly comparable. There is decreased
consulting fees but an increase in interest and dividend income received from
investee companies. In addition, in 1996 the Company received $14,100 in
payments on notes receivable which had been written off in prior years. This
amount is included as miscellaneous revenue.
The realized loss on investments before income taxes for the three months
ended March 31, 1996 was $(1,271) as compared to a gain of $182,138 for the same
period in 1995. The Registrant's sales activity in 1996 was very minimal as
compared to the first quarter of 1995 when investments with a cost basis
totaling $315,162 were sold. In addition, the lack of sales of large portions of
the Registrant's lower cost long-term investments as described above contributed
to the higher net investment loss (and/or less realized gain on investments
after taxes), and may do so in future periods in the absence of such sales.
While the restrictions as to resale on many of the Registrant's investments
continue to diminish, the opportunity for the sale of large portions of the
investments cannot be predicted.
Expenses for the three months ended March 31, 1996 were $262,182 as
compared to $256,284 in 1995, an increase of 2%. While the Registrant's expenses
increased just slightly in most categories, bad debt expense decreased by
$20,125. This was mostly offset by an increase in interest expense of $15,950 as
a result of the Company maintaining margin account balances at brokerage firms.
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.
At March 31, 1996, unrealized appreciation of investments decreased
$1,167,155 as compared to a decrease of $2,905,602 at March 31, 1995. The lower
decrease in 1996 over 1995 is attributed to the decrease of $1,734,656 in the
market price of the Registrant's largest investee, RMI, at March 31, 1996, not
being as significant as the decrease in RMI's market value in the first quarter
of 1995. In addition, in the first quarter of 1996, the decrease in fair market
value of Roadmaster was partially offset by an increase of $518,939 in the fair
market value of the Company's second largest investee, MacGregor Sports &
Fitness, Inc. There was no similar increase in the first quarter of 1995. As
there is no way to predict the future value of the Registrant's investment
portfolio, the Registrant cannot predict future changes in the unrealized value
of its investment portfolio. The net increase in net assets resulting from
operations decreased $996,866 for 1996 as compared to a decrease of $1,916,096
for the same period in 1995.
F-17
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued).
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 Proceeding
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) None
(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: May 13, 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 March 31, 1996, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 31,805
<SECURITIES> 17,196,658
<RECEIVABLES> 525,889
<ALLOWANCES> 256,954
<INVENTORY> 0
<CURRENT-ASSETS> 17,497,398
<PP&E> 132,717
<DEPRECIATION> 112,439
<TOTAL-ASSETS> 17,730,991
<CURRENT-LIABILITIES> 1,745,918
<BONDS> 0
0
0
<COMMON> 64,489
<OTHER-SE> 10,852,478
<TOTAL-LIABILITY-AND-EQUITY> 17,730,991
<SALES> 0
<TOTAL-REVENUES> 91,100
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 353,282
<LOSS-PROVISION> (7,304)
<INTEREST-EXPENSE> 20,532
<INCOME-PRETAX> (263,453)
<INCOME-TAX> 24,448
<INCOME-CONTINUING> (287,901)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (287,901)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
