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 JUNE 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 August 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
and six months ended June 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>
June 30, Dec. 31,
1996 1995
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Investments, at fair value:
Securities (cost of $3,834,224 and
$3,470,057 in 1996 and 1995, respectively) .... $19,030,583 $18,376,939
Notes receivable, net of allowance
for uncollectible accounts of $10,350
and $136,545 in 1996 and 1995, respectively ... -- 126,195
Accrued interest receivable, net of
allowance for uncollectible interest of
$1,071 and $120,617 in 1996 and
1995, respectively ............................ -- 120,031
Trade receivables, net of allowance
for uncollectible accounts of $3,611
and $7,095 in 1996 and 1995, respectively ..... 4,916 19,563
----------- -----------
19,035,499 18,642,728
Cash ............................................. 888,243 176,752
Accounts receivable - brokers .................... 780 918
Income taxes refundable .......................... 166,609 166,609
Furniture and equipment, net of
accumulated depreciation of $116,491
and $111,615 in 1996 and 1995, respectively ... 17,828 21,041
Prepaid expenses ................................. 19,592 9,533
Other ............................................ 33,678 38,877
----------- -----------
$20,162,229 $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>
June 30, Dec. 31,
1996 1995
----------- -----------
(Unaudited)
<S> <C> <C>
LIABILITIES AND NET ASSETS
Liabilities
Accounts payable and other
accrued liabilities ......................... $ 210,999 $ 220,628
Accounts payable to brokers ................... 641,920 889,841
Accrued bonus to officer ...................... 510,806 530,379
Deferred income taxes ......................... 5,764,718 5,498,778
----------- -----------
7,128,443 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;
3,217,615 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 ............. (11,877,453) (11,439,353)
Accumulated net realized gains from
sales and permanent write-downs
of investments ............................ 11,273,516 9,895,044
Unrealized net gains on investments
(net of deferred income taxes of
$5,926,580 and $5,813,684 in 1996
and 1995, respectively) ................... 9,269,779 9,093,197
Less: treasury stock at cost
(6,850 shares) ............................ (24,846) (24,846)
----------- -----------
13,033,786 11,916,832
----------- -----------
$20,162,229 $19,056,458
=========== ===========
</TABLE>
The accompanying notes are a part of this statement.
F-3
<PAGE>
EQUITEX, INC.
Schedule of Investments
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Number Cost
of and/or Fair
Company 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 $ 9,097,375
Inter/intranet business solutions 346,618(b)(c) 624,183 1,152,505
AFFILIATED COMPANIES
Common Stocks - Public Market
Method of Valuation (c)(e)
- -----------------------------
Roadmaster Industries, Inc. -
Manufacturer of Bicycles, Junior
Wheel Goods and Fitness Equipment 5,105,437(c) 1,103,702 7,466,702
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 41,000
Subordinated
Debentures-8% 88,116 67,250
--------- ----------
Sub-total - CONTROLLED AND
AFFILIATED COMPANIES 2,577,226 17,824,832
--------- ----------
UNAFFILIATED COMPANIES
Common Stocks - Public Market
Method of Valuation
- -----------------------------
Diametrics Medical -
Medical Technology 10,000 76,883 52,500
Cambridge Holdings -
Real Estate 87,209 34,000 38,154
IVI Publishing -
Publication Manufacturing 30,000 306,258 210,000
Meditech Pharmaceuticals, Inc. -
Antiviral Products 500,000 40,000 20,000
Meteor Industries -
Petroleum Distributor 15,120 68,257 56,700
Racotek -
Medical Technology 50,000 317,387 237,500
Audio King -
Consumer Electronics 12,000 31,543 27,000
</TABLE>
(Continued)
F-4
<PAGE>
EQUITEX, INC.
Schedule of Investments (Page 2)
June 30, 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
- ----------------------------------
Frontier Airlines -
Regional Airline 10,000 $ 92,520 $ 96,250
LaMan Corporation -
Manufacturer-Decontamination
Devices 8,500 units 55,250 18,062
28,000 61,265 29,750
Boca Raton Capital -
Capital Formation 4,000 20,135 3,000
Skydoor, Inc. -
Entertainment 50,000 50,000 14,000
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 89,335
100,000 -- 250,000
--------- ----------
Sub-total
UNAFFILIATED COMPANIES 1,256,998 1,205,751
--------- ----------
Total
ALL COMPANIES $3,834,224 $19,030,583
========== ===========
</TABLE>
(Continued)
The accompanying notes are a part of this statement.
F-5
<PAGE>
EQUITEX, INC.
Schedule of Investments (Page 3)
June 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
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)
<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 six
months ended months ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Interest and dividends .......................... $ 156,321 $ 14,886 $ 188,658 $ 41,231
Consulting fees ................................. 245,500 45,913 281,500 91,826
Administrative fees ............................. 16,214 14,880 30,321 33,320
Miscellaneous ................................... 203 5,403 8,859 7,393
----------- ----------- ----------- -----------
418,238 81,082 509,338 173,770
Expenses
Salaries and consulting fees .................... 88,001 84,137 173,446 168,365
Officer's bonus ................................. 169,451 127,398 302,433 255,712
Office rent ..................................... 7,500 7,500 15,000 15,871
Legal and accounting ............................ 3,407 27,230 29,512 52,868
Employee benefits ............................... 97,783 36,971 135,858 73,700
Advertising and promotion ....................... 1,494 646 1,946 1,101
Other general and administrative ................ 52,824 32,486 99,892 77,936
Interest ........................................ 17,761 4,194 38,293 8,776
Bad debt expense ................................ 441 7,516 (6,863) 20,337
Depreciation and amortization ................... 2,449 2,385 4,876 4,769
----------- ----------- ----------- -----------
441,111 330,463 794,393 679,435
Net investment gain (loss) ......................... (22,873) (249,381) (285,055) (505,665)
Net realized gain on investments
and net unrealized gain on
investments:
Proceeds from sales
of investments .................................. 2,483,673 589,446 2,495,528 1,156,746
Less: cost of investments ....................... 1,103,930 555,628 1,117,056 940,790
----------- ----------- ----------- -----------
Net realized gain on investments
before income taxes ............................. 1,379,743 33,818 1,378,472 215,956
Net investment gain (loss) and
net realized gain on investments
before income taxes ............................. 1,356,870 (215,563) 1,093,417 (289,709)
Income tax benefit (provision) -
current ......................................... (93,250) 111,784 (93,250) 173,487
Income tax benefit (provision) -
deferred ........................................ (128,596) (65,949) (153,044) (99,915)
Recovery of income taxes through
utilization of net operating
loss carryforward ............................... 93,250 -- 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 six
months ended months ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net investment gain (loss)
and net realized gain
on investments .................................. $ 1,228,274 $ (169,728) $ 940,373 $ (216,137)
----------- ----------- ----------- -----------
Increase (decrease) in
unrealized appreciation
on investments .................................. 1,456,633 32,844 289,478 (2,872,758)
Less income tax benefit
(provision) applicable to
decrease (increase) in
realized appreciation ........................... (568,087) (15,540) (112,897) 1,020,375
----------- ----------- ----------- -----------
888,546 17,304 176,581 (1,852,383)
----------- ----------- ----------- -----------
Net increase (decrease) in
net assets resulting
from operations ................................. $ 2,116,820 $ (152,424) $ 1,116,954 $(2,068,520)
=========== =========== =========== ===========
Increase (decrease) in net
assets per share ................................ $ .65 $ -- $ .35 $ (.64)
=========== =========== =========== ===========
Weighted average number
of common shares ................................ 3,217,615 3,217,615 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 six months
ended June 30,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net change in net assets ...................... $ 1,116,954 $(2,068,520)
Adjustments to reconcile net change in
net assets to net cash provided by
operating activities:
Depreciation and amortization ............ 4,876 4,769
Realized (gain) on sale of investments ... (1,378,472) (215,956)
Unrealized (gain) loss on investments .... (176,581) 2,872,758
Proceeds from sales of investments ............ 2,495,528 1,156,746
Purchase of investments ....................... (1,468,294) (663,622)
Collection of notes receivable ................ 370 500,000
Changes in assets and liabilities:
(Increase) decrease in interest receivable . 120,031 (19,615)
(Increase) decrease in other assets ........ 5,199 (9,708)
(Increase) decrease in trade receivables ... 14,647 (7,199)
(Increase) decrease in accounts
receivable - brokers ..................... 138 (57,012)
(Increase) in prepaid expense .............. (10,059) --
(Increase) in income taxes refundable ...... -- (173,487)
(Decrease) in accounts payable and
other accrued liabilities ................ (9,629) (278,887)
(Decrease) in accounts payable to brokers .. (247,921) --
Decrease in deferred revenue ............... -- (19,826)
Increase (decrease) in accrued bonus to officer (19,573) 40,484
Increase (decrease) in provision for
deferred income taxes .................... 265,940 (985,318)
----------- -----------
Net cash provided (used) by operating
activities ............................... 713,154 75,607
Cash flows from investing activities:
Purchase of furniture and equipment ........... (1,663) --
----------- -----------
Net cash (used) by investing activities .... (1,663) --
</TABLE>
(Continued)
The accompanying notes are a part of this statement.
F-12
<PAGE>
EQUITEX, INC.
Statements of Cash Flows (Page 2)
(Unaudited)
<TABLE>
<CAPTION>
For the six months
ended June 30,
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 ...................... 711,491 75,607
Cash, beginning of period ........................ 176,752 18,043
----------- -----------
Cash, end of period .............................. $ 888,243 $ 93,650
=========== ===========
Supplemental disclosures of cash flow information:
Interest paid ............................. $ 38,293 $ --
=========== ===========
Interest received ......................... $ 419,236 $ --
=========== ===========
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
June 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
cancelled all of its notes, interest and accounts receivable due from MacGregor
and received in exchange 234,018 shares of common stock. Also, as part of the
same transaction, the Company received another 112,600 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 $711,491 during the six months
ended June 30, 1996 as compared to an increase of $75,607 for June 30, 1995. The
increase was totally from cash provided by operating activities and was
primarily due to increased proceeds from sales of investments.
Of the Registrant's liabilities of $7,128,443 at June 30, 1996, the
Registrant had no amounts due to banks. Of those liabilities, $5,764,718 (or
81%) is deferred income taxes, primarily for the Registrant's unrealized
appreciation on investments, leaving $1,363,725 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.
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 June 30, 1996 the Registrant owned 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.
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.
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 structured 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 three months ended March 31, 1996, RMI had net sales of
approximately $129,000,000 and a net pre-tax income of approximately $11,000,000
($.09 per share). This compares to 1995 first quarter net sales of $175,000,000
and a pre-tax net loss of $2,000,000 ($.03 per share). At March 31, 1996, RMI's
total assets were $443,047,000 and its total liabilities were $383,210,000 with
shareholders' equity of $59,837,000. RMI's borrowings represented 54% of its
total assets at March 31, 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.
RMI recently announced a letter of intent had been signed with another
large sporting goods conglomerate whereby the bicycle division of RMI would be
sold for cash proceeds of $212,000,000, which proceeds would then be used
primarily to reduce outstanding indebtedness.
As of June 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.
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 six months ended June 30, 1996 were $509,338 as compared
to $173,770 for the six months ended June 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, 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 June 30, 1996 of $418,238 were
substantially higher than the $81,082 for the second quarter of 1995. The
reasons for the increase are the same as stated above for the six month
comparison.
The realized gain on investments before income taxes for the six months
ended June 30, 1996 was $1,378,472 as compared to a gain of $215,956 for the
same period in 1995. The Registrant's sales activity volume in 1996 was greater
as compared to the first six 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 June 30, 1996
of $1,379,743 is substantially higher than the gain of $33,818 in the second
quarter of the prior year due to the same reason cited above for the six month
comparison.
Expenses for the six months ended June 30, 1996 were $794,393 as compared
to $679,435 in 1995, an increase of 16%. While the Registrant's expenses
increased just slightly in most categories, employee benefits increased by
$62,158, which was the result of a timing difference and interest expense
increased by $29,517, 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.
Total expenses of $441,111 for the three months ended June 30, 1996
exceeded the total of second quarter of 1995 of $330,463. The increase was due
to the same factors noted above for the six month increase.
There was an increase in unrealized gains of $176,581 for the first six
months of 1996 compared to a substantial decrease of
F-17
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations. (Continued).
$1,852,383 for the first six months of 1995. The improvement over 1995 is
attributed to two factors. First, the decrease of $3,456,796 in the market price
of RMI at June 30, 1996 was slightly less than the decrease in RMI's market
value that occurred in the first six months of 1995. Second, an increase in the
fair market value of MacGregor Sports & Fitness, Inc. occurred in the first six
months of 1996 and there was no similar increase in the first six months of
1995. 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. The net increase in net assets resulting from
operations increased $1,116,954 for the first half of 1996 as compared to a
decrease of $2,068,520 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 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: August 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 June 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 888,243
<SECURITIES> 19,030,583
<RECEIVABLES> 19,948
<ALLOWANCES> 15,032
<INVENTORY> 0
<CURRENT-ASSETS> 20,110,723
<PP&E> 134,319
<DEPRECIATION> 116,491
<TOTAL-ASSETS> 20,162,229
<CURRENT-LIABILITIES> 1,363,725
<BONDS> 0
0
0
<COMMON> 64,489
<OTHER-SE> 12,969,297
<TOTAL-LIABILITY-AND-EQUITY> 20,162,229
<SALES> 2,495,528
<TOTAL-REVENUES> 509,338
<CGS> 1,117,056
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 762,963
<LOSS-PROVISION> (6,863)
<INTEREST-EXPENSE> 38,293
<INCOME-PRETAX> 1,093,417
<INCOME-TAX> 153,044
<INCOME-CONTINUING> 1,116,954
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,116,954
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
</TABLE>
