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, 1997
( ) 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 12, 1997: 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 six
months ended June 30, 1997 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1997. 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, 1996.
F-1
<PAGE>
EQUITEX, INC.
Statements of Assets and Liabilities
<TABLE>
<CAPTION>
JUNE 30, DEC. 31,
1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Investments, at fair value:
Securities (cost of $3,682,405 and
$3,767,309 in 1997 and 1996, respectively) .... $ 9,211,571 $10,138,562
Notes receivable, net of allowance
for uncollectible accounts of $100 ............ -- 20,250
Accrued interest receivable, net of
allowance for uncollectible interest of $35 ... 1,779 1,902
Trade receivables, net of allowance
for uncollectible accounts of $2,943 .......... 44,614 39,623
----------- -----------
9,257,964 10,200,337
Cash ............................................. 6,869 53,795
Accounts receivable - brokers .................... 774 4,766
Income taxes refundable .......................... 118,646 166,609
Furniture and equipment, net of
accumulated depreciation of $110,583
and $106,362 in 1997 and 1996, respectively ... 32,898 38,720
Prepaid expenses ................................. 21,644 13,776
----------- -----------
$ 9,438,795 $10,478,003
=========== ===========
</TABLE>
(Continued)
F-2
<PAGE>
EQUITEX, INC.
Statements of Assets and Liabilities
<TABLE>
<CAPTION>
JUNE 30, DEC. 31,
1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
LIABILITIES AND NET ASSETS
Liabilities
Notes payable to officer ...................... $ 113,000 $ --
Accounts payable and other
accrued liabilities ......................... 74,178 55,441
Accounts payable to brokers ................... 765,283 739,023
Accrued bonus to officer ...................... 289,688 148,106
Income taxes payable .......................... 4,696
Deferred income taxes ......................... 2,067,480 2,274,650
----------- -----------
3,314,325 3,217,220
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 ............. (12,626,587) (12,025,669)
Accumulated net realized gains from
sales and permanent write-downs
of investments ............................ 11,099,514 11,121,234
Unrealized net gains on investments
(net of deferred income taxes of
$2,156,374 and $2,484,788 in 1997
and 1996, respectively) ................... 3,372,790 3,886,465
Less: treasury stock at cost
(33,350 shares) ........................... (114,037) (114,037)
----------- -----------
6,124,470 7,260,783
----------- -----------
$ 9,438,795 $10,478,003
=========== ===========
</TABLE>
F-3
<PAGE>
EQUITEX, INC.
Schedule of Investments
June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
NUMBER COST
OF AND/OR FAIR
COMPANY SHARES OWNED EQUITY VALUE
- ------- ------------ ------ -----
<S> <C> <C> <C>
AFFILIATED COMPANIES
COMMON STOCKS - PUBLIC MARKET
METHOD OF VALUATION (c)(e)
IntraNet Solutions, Inc. (formerly
MacGregor Sports & Fitness, Inc.)
Document management services,
web-based internet software,
electronic document management
and demand printing ................. 645,085 $1,417,610 $2,685,165
RDM Sports Group (formerly
Roadmaster Industries, Inc.)
Manufacturer of fitness
equipment and juvenile products ....... 5,107,037 1,145,423 5,462,493
OTHER - PUBLIC MARKET METHOD
OF VALUATION
RDM Sports Group 8% Convertible
Manufacturer of fitness Subordinated
equipment and juvenile products ....... Debentures 150,682 131,250
---------- ----------
Sub-Total
AFFILIATED COMPANIES ................. 2,713,715 8,278,908
---------- ----------
UNAFFILIATED COMPANIES
COMMON STOCKS - PUBLIC MARKET
METHOD OF VALUATION
Diametrics Medical
Medical equipment ..................... 10,000 76,883 80,000
Cambridge Holdings
Real estate - commercial .............. 87,209 34,000 32,703
IVI Publishing
Publishing technology ................. 30,000 171,258 116,250
Meditech Pharmaceuticals, Inc.
Antiviral products .................... 500,000 40,000 10,000
Racotek
Medical technology .................... 50,000 317,387 112,500
Audio King
Consumer electronics .................. 12,000 31,543 39,000
</TABLE>
(Continued)
F-4
<PAGE>
EQUITEX, INC.
Schedule of Investments (Page 2)
June 30, 1997
(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
Commercial air carrier ................ 10,000 92,520 39,375
Las Vegas Discount Golf
and Tennis
Sporting goods retailer ............... 30,000 31,600 30,000
COMMON STOCKS - PRIVATE MARKET
METHOD OF VALUATION (a)(e)
All Systems Go
Software development .................. 20,000(b) 25,000 25,000
NevStar Gaming Corporation 10,000 Series
Gaming development .................... A preferred 38,500 38,500
Ocean Power Technology
Alternative energy
research and development .............. 35,714(b) 40,000 89,285
100,000 -- 250,000
Gain, Inc.
Male vascular devices ................. 20,000(b) 50,000 50,000
Juice Island
Health food stores .................... 10,000(b) 20,000 20,000
WARRANTS (f)(e)
Nationsmart
Consumer services ..................... 10,000 -- 50
Juice Island
Health food stores .................... 2,500 -- --
--------------- ---------- ----------
Sub-total
UNAFFILIATED COMPANIES ................ 968,690 932,663
---------- ----------
Total
ALL COMPANIES ......................... $3,682,405 $9,211,571
========== ==========
</TABLE>
(Continued)
F-5
<PAGE>
EQUITEX, INC.
Schedule of Investments (Page 3)
June 30, 1997
(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 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 certain of 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, 1996
<TABLE>
<CAPTION>
NUMBER COST
OF AND/OR FAIR
COMPANY SHARES OWNED EQUITY VALUE
- ------- ------------ ------ -----
<S> <C> <C> <C>
AFFILIATED COMPANIES
COMMON STOCKS - PUBLIC MARKET
METHOD OF VALUATION (c)(e)
IntraNet Solutions, Inc. (formerly
MacGregor Sports & Fitness, Inc.)
Document management services,
web-based internet software,
electronic document management
and demand printing ................. 645,085 $1,417,610 $3,193,171
RDM Sports Group (formerly
Roadmaster Industries, Inc.)
Manufacturer of fitness
equipment and juvenile products ....... 5,142,037 1,149,559 5,789,367
OTHER - PUBLIC MARKET METHOD
OF VALUATION
RDM Sports Group 8% Convertible
Manufacturer of fitness Subordinated
equipment and juvenile products ....... Debentures 150,682 130,375
---------- ----------
Sub-Total
AFFILIATED COMPANIES ................. 2,717,851 9,112,913
---------- ----------
UNAFFILIATED COMPANIES
COMMON STOCKS - PUBLIC MARKET
METHOD OF VALUATION
Diametrics Medical
Medical equipment ..................... 10,000 76,883 42,500
Cambridge Holdings
Real estate - commercial .............. 87,209 34,000 54,506
IVI Publishing
Publishing technology ................. 30,000 171,258 93,750
Meditech Pharmaceuticals, Inc.
Antiviral products .................... 500,000 40,000 13,750
Meteor Industries
Petroleum distributor ................. 5,120 19,502 25,920
Racotek
Medical technology .................... 50,000 317,387 212,500
Audio King
Consumer electronics .................. 12,000 31,543 13,500
</TABLE>
(Continued)
F-7
<PAGE>
EQUITEX, INC.
Schedule of Investments (Page 2)
December 31, 1996
<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
Commercial air carrier ................ 10,000 92,520 32,500
LaMan Corporation
Manufacturer - decontamination
devices ............................... 29,400 61,265 36,750
Las Vegas Discount Golf
and Tennis
Sporting goods retailer ............... 30,000 31,600 27,188
COMMON STOCKS - PRIVATE MARKET
METHOD OF VALUATION (a)(e)
All Systems Go
Software development .................. 20,000(b) 25,000 25,000
NevStar Gaming Corporation 10,000 Series
Gaming development .................... A preferred 38,500 38,500
Ocean Power Technology
Alternative energy
research and development .............. 35,714(b) 40,000 89,285
100,000 -- 250,000
Gain, Inc.
Male vascular devices ................. 20,000(b) 50,000 50,000
Juice Island
Health food stores .................... 10,000(b) 20,000 20,000
WARRANTS (f)(e)
Juice Island
Health food stores .................... 2,500 -- --
--------------- ---------- ------------
Sub-total
UNAFFILIATED COMPANIES ................ 1,049,458 1,025,649
---------- ------------
Total
ALL COMPANIES ......................... $3,767,309 $ 10,138,562
========== ============
</TABLE>
(Continued)
F-8
<PAGE>
EQUITEX, INC.
Schedule of Investments (Page 3)
December 31, 1996
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 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 certain of 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,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Interest and dividends .......................... $ 23,011 $ 156,321 $ 30,601 $ 188,658
Consulting fees ................................. -- 245,500 -- 281,500
Administrative fees ............................. 12,149 16,214 26,272 30,321
Miscellaneous ................................... 2,805 203 66,460 8,859
----------- ----------- ----------- -----------
37,965 418,238 123,333 509,338
Expenses
Salaries and consulting fees .................... 76,107 88,001 153,870 173,446
Officer's bonus ................................. 66,259 169,451 141,582 302,433
Office rent ..................................... 7,500 7,500 15,000 15,000
Legal and accounting ............................ 4,164 3,407 32,560 29,512
Employee benefits ............................... 38,006 97,783 76,012 135,858
Advertising and promotion ....................... 1,419 1,494 1,494 1,946
Other general and administrative ................ 37,742 52,824 84,418 99,892
Interest ........................................ 17,646 17,761 35,943 38,293
Bad debt expense ................................ -- 441 -- (6,863)
Depreciation and amortization ................... 2,918 2,449 5,822 4,876
----------- ----------- ----------- -----------
251,761 441,111 546,701 794,393
Net investment gain (loss) ......................... (213,796) (22,873) (423,368) (285,055)
Net realized gain on investments
and net unrealized gain on
investments:
Proceeds from sales
of investments .................................. -- 2,483,673 60,258 2,495,528
Less: cost of investments ....................... -- 1,103,930 81,978 1,117,056
----------- ----------- ----------- -----------
Net realized gain (loss) on
investments before income taxes ................. -- 1,379,743 (21,720) 1,378,472
Net investment gain (loss) and
net realized gain on investments
before income taxes ............................. (213,796) 1,356,870 (445,088) 1,093,417
Income tax benefit (provision) -
current ......................................... (52,659) (93,250) (56,307) (93,250)
Income tax benefit (provision) -
deferred ........................................ (61,293) (128,596) (121,243) (153,044)
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,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net investment gain (loss)
and net realized gain
on investments .................................. $ (327,748) $ 1,228,274 $ (622,638) $ 940,373
----------- ----------- ----------- -----------
Increase (decrease) in
unrealized appreciation
on investments .................................. (534,034) 1,456,633 (842,089) 289,578
Less income tax benefit
(provision) applicable to
decrease (increase) in
realized appreciation ........................... 208,273 (568,087) 328,414 (112,897)
----------- ----------- ----------- -----------
(325,761) 888,546 (513,675) 176,581
----------- ----------- ----------- -----------
Net increase (decrease) in
net assets resulting
from operations ................................. $ (653,509) $ 2,116,820 $(1,136,313) $ 1,116,954
=========== =========== =========== ===========
Increase (decrease) in net
assets per share ................................ $ (.20) $ .65 $ (.35) $ .35
=========== =========== =========== ===========
Weighted average number
of common shares ................................ 3,191,115 3,217,615 3,191,115 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,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net change in net assets ....................... $(1,136,313) $ 1,116,954
Adjustments to reconcile net change in
net assets to net cash provided by
operating activities:
Depreciation and amortization ............. 5,822 4,876
Donation of stock ......................... 4,136 --
Provision for bad debts on notes receivable -- --
Realized (gain) loss on sale of investments 21,720 (1,378,472)
Unrealized (gain) loss on investments ..... 842,089 (176,581)
Proceeds from sales of investments ............. 60,258 2,495,528
Purchase of investments ........................ (1,210) (1,468,294)
Collection of notes receivable ................. 20,250 370
Changes in assets and liabilities:
Decrease in interest receivable ............. 123 120,031
Decrease in other assets .................... -- 5,199
(Increase) decrease in trade receivables .... (4,993) 14,647
(Increase) in prepaid expense ............... (7,868) (10,059)
(Increase) decrease in accounts
receivable - brokers ...................... 3,992 138
Decrease in income taxes refundable ......... 47,963 --
Increase (decrease) in accounts payable and
other accrued liabilities ................. 18,737 (9,629)
Increase (decrease) in accounts payable
to brokers ................................ 26,260 (247,921)
Increase (decrease) in accrued bonus to
officer ................................... 141,582 (19,573)
Increase in income taxes payable ............ 4696 --
Increase (decrease) in provision for deferred
income taxes .............................. (207,170) 265,940
----------- -----------
Net cash (used) by operating
activities ................................ (159,926) 713,154
Cash flows from investing activities:
Purchase of furniture and equipment ............ -- (1,663)
Increase in deposit ............................ -- --
----------- -----------
Net cash (used) by investing activities ..... -- (1,663)
</TABLE>
(Continued)
F-12
<PAGE>
EQUITEX, INC.
Statements of Cash Flows (Page 2)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
1997 1996
---- ----
<S> <C> <C>
Cash flows from financing activities:
Issuance of notes payable ...................... $ 113,000 $ --
Repayment of notes payable ..................... -- --
Common stock issued for cash ................... -- --
----------- -----------
Net cash provided by financing activities .. 113,000 --
Increase (decrease) in cash ....................... (46,926) 711,491
Cash, beginning of period ......................... 53,795 176,752
----------- -----------
Cash, end of period ............................... $ 6,869 $ 888,243
=========== ===========
Supplemental disclosures of cash flow information:
Interest paid .............................. $ 35,865 $ 38,293
=========== ===========
Interest received .......................... $ 30,724 $ 419,236
=========== ===========
Non-cash financing activities:
Conversion of notes receivable into
investment in common stock ............... $ 252,020
===========
</TABLE>
F-13
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
FORWARD-LOOKING STATEMENTS
Certain statements made below relating to plans, conditions, objectives,
and economic performance go beyond historical information and may provide an
indication of future results. To that extent, they are forward-looking
statements within the meaning of Section 21E of the Exchange Act, and each is
subject to factors that could cause actual results to differ from those in the
forward-looking statement. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those anticipated, estimated or projected.
LIQUIDITY AND CAPITAL RESOURCES
The Registrant's cash position decreased by $46,926 at June 30, 1997 as
compared to an increase of $711,491 at June 30, 1996. The Company's increase in
cash during the first six months of 1996 was caused by two operational items.
One was the receipt of $281,500 in consulting and transaction fees, and $145,378
in interest income from MacGregor Sports & Fitness (now Intranet Solutions,
Inc.). In addition, there were realized gains of $1,378,472 from the sales of
investments during the six months ended June 30, 1996 as compared to a loss of
$21,720 during the comparable period of 1997.
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 $20,250 at
December 31, 1996. These loans were repaid during the six months ended June 30,
1997 and no new loans have been made to investees.
Of the Registrant's liabilities of $3,314,325 at June 30, 1997, the
Registrant had no amounts due to banks. Of those liabilities, 62% or $2,067,480
is deferred income taxes, primarily for the Registrant's unrealized appreciation
on investments, leaving $1,246,845 in other liabilities. This compares to total
liabilities of $3,217,220, deferred income taxes of $2,274,650 and other
liabilities of $942,570 at December 31, 1996. The increase in other liabilities
reflects $113,000 in loans from an officer which were made during the second
quarter of 1997, and an increase in the officer bonus of $141,582 from December
31, 1996. Regular trade payables increased only $18,737 between December 31,
1996 and June 30, 1997. There were no loans from officers during the six months
ended June 30, 1996. 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
F-14
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued).
the year as well as through utilizing its cash position at any given time to
trade in the equities markets. During 1996 the Registrant's sources of income
were sufficient to cover its operating overhead and it is anticipated this trend
will continue during 1997 as the Registrant expects to realize gains from the
sale of some of its longer term investments during the third and fourth quarters
of 1997.
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 1997
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.
The Registrant's largest investee company, RDM Sports Group, Inc. (RDM), is
a publicly held-company which conducts most of its business through its
wholly-owned subsidiaries. The Registrant owns common stock and convertible
debentures in RDM which is one of the largest manufacturers of juvenile products
and a leading producer of fitness equipment, toys and team sports equipment in
the United States. Management of the Registrant devoted significant efforts and
resources to providing managerial assistance to RDM. Effective, June 20, 1997,
the Registrant's President resigned from all his positions with RDM and its
subsidiaries, including Chief Executive Officer and director. The Registrant and
RDM are currently negotiating the settlement of all amounts owed to the
Registrant or its President.
The fair value of the Registrant's investment in RDM comprised 61% of the
Registrant's investment portfolio at June 30, 1997. The trademarks and brand
names under which RDM currently sells its products include Flexible Flyer,
Vitamaster, MacGregor, DP, Hutch, Reach and Forster. RDM is listed on the New
York Stock Exchange where it is traded under the symbol "RDM".
For the quarter ended March 29, 1997, RMI had sales of approximately
$55,518,000 with a net loss of $(9,240,000). At March 29, 1997, RMI's total
assets were $266,794,000 and its total liabilities were $222,687,000 with
shareholders' equity of $44,107,000. RMI's borrowings represented 46% of its
total assets at March 29, 1997.
As of June 30, 1997, the Registrant had made no other material commitments
for capital expenditures or loans to investees. The Registrant expects that it
will sell certain of its investments during the remaining two quarters 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.
F-15
<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 and six months ended June 30, 1997 were $37,965 and
$123,333, respectively; as compared to $418,238 and $509,338, respectively for
the three and six months ended June 30, 1996.
The total revenue during the first six months of 1996 was unusually high
due to the receipt of $281,500 in consulting and transaction fees, and $145,378
in interest income from IntraNet Solutins, Inc. (IntraNet), formerly known as
MacGregor Sports & Fitness. During 1997, the Company has received no consulting
fees. During 1997 the decreased consulting fees and interest income was offset
partially by an increase in miscellaneous income received from investee
companies which included $65,850 in payments on notes receivable which had been
written off in prior years.
During the six months ended June 30, 1996 there were realized gains of
$1,378,472 from the sales of investments as compared to a loss of $21,720 during
the comparable period of 1997. The Registrant's sales activity in 1996 was very
high as compared to the first and second quarters of 1997 when only minimal
investments were sold. The lack of sales of large portions of the Registrant's
lower cost long-term investments during 1997 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.
During the first six months of 1996 the Registrant had increased operating
expenses of $247,692 as compared to the comparable period of 1997. The higher
1996 operating expenses were primarily in officer's bonus and employee benefits.
The officer's bonus was higher in 1996 principally because of the higher
unrealized appreciation of investments at June 30, 1996 as compared to the
unrealized depreciation which existed at June 30, 1997.
For the six months ended June 30, 1997, the net unrealized gain on
investments decreased $513,675 as compared to an increase of $176,581 for the
same period in 1996. The decrease in 1997 is attributed to decreases of both
IntraNet and RDM as compared to their fair market values at December 31, 1996.
This compares to a decrease of $3,457,000 in RMI's market value in the first six
months of 1996 which was more than offset by an increase in the value of
IntraNet. 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.
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 and Intranet.
The Registrant expects that its cash flows and investment values will continue
to be susceptible to the market fluctuations of these 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.
F-16
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued).
On December 12, 1996, the Registrant announced that it intended to
implement a withdrawal of its election as a Business Development Company ("BDC")
under the Investment Company Act. The Registrant's Board of Directors instructed
its management to prepare a detailed plan which will address the corporate
governance issues and process which must be followed for decertification
including the legal, accounting, securities listing and other effects of such
withdrawal on the Registrant. While the Registrant is currently working on a
detailed withdrawal plan, at the present time management of Registrant believes
any such withdrawal might require the decertification to take place concurrently
with the acquisition of an operating company. The Registrant continues to study
whether or not the acquisition of an operating company would be required in
order to decertify. As of the filing of the report, the Registrant has not
identified a suitable acquisition candidate and continues to work on the plan
for decertification.
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) Financial data schedule for SEC registrants
(b) No reports on Form 8-K were filed during the current
quarter covered by this report
F-17
<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 13, 1997
F-18
<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, 1997, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 6,869
<SECURITIES> 9,211,571
<RECEIVABLES> 49,371
<ALLOWANCES> 2,978
<INVENTORY> 0
<CURRENT-ASSETS> 9,257,964
<PP&E> 143,481
<DEPRECIATION> 110,583
<TOTAL-ASSETS> 9,438,795
<CURRENT-LIABILITIES> 3,314,325
<BONDS> 0
0
0
<COMMON> 64,489
<OTHER-SE> 6,059,981
<TOTAL-LIABILITY-AND-EQUITY> 9,438,795
<SALES> 0
<TOTAL-REVENUES> 123,333
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 510,758
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,943
<INCOME-PRETAX> (455,088)
<INCOME-TAX> 177,550
<INCOME-CONTINUING> (622,638)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (622,638)
<EPS-PRIMARY> (.20)
<EPS-DILUTED> (.20)
</TABLE>
