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, 1998
( ) 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 8, 1998: 3,791,115
<PAGE>
EQUITEX, INC.
Part I. 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, 1998 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1998. 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, 1997.
F-1
<PAGE>
EQUITEX, INC.
Statements of Assets and Liabilities
MAR. 31, DEC. 31,
1998 1997
(Unaudited)
ASSETS
Investments, at fair value:
Securities (cost of $4,073,704 and
$3,568,045 in 1998 and 1997, respectively) ...... $4,932,935 $4,165,993
Notes receivable, net of allowance
for uncollectible accounts of $40,293
in 1998 and 1997, respectively .................. 420,393 418,210
Accrued interest receivable, net of
allowance for uncollectible interest
of $35 .......................................... 11,536 5,701
Trade receivables, net of allowance
for uncollectible accounts of $67,475
and $53,742 in 1998 and 1997, respectively ...... 173,007 110,954
---------- ----------
5,537,871 4,700,858
Cash ............................................... 71,398 9,187
Accounts receivable - brokers ...................... -- 73,741
Contract deposit receivable, net of
allowance for uncollectibility of $150,000 ...... 150,000 150,000
Income taxes refundable ............................ 2,150 2,150
Furniture and equipment, net of
accumulated depreciation of $120,472
and $117,750 in 1998 and 1997, respectively ..... 29,384 29,204
Deferred income tax benefit ........................ -- 63,180
Other .............................................. 15,205 10,105
---------- ----------
$5,806,008 $5,038,425
========== ==========
(Continued)
The accompanying notes are a part of this statement.
F-2
<PAGE>
EQUITEX, INC.
Statements of Assets and Liabilities
MAR. 31, DEC. 31,
1998 1997
(Unaudited)
LIABILITIES AND NET ASSETS
Liabilities
Notes payable - officer ......................... $ -- $ 177,599
Notes payable - others .......................... 100,000 250,000
Accounts payable and other
accrued liabilities ........................... 225,784 121,349
Accounts payable to brokers ..................... 937,857 650,302
Accrued bonus to officer ........................ 187,803 299,259
Deferred income taxes ........................... 128,170 --
---------- ----------
1,579,614 1,498,509
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; 3,824,465
and 3,494,465 shares issued; 3,791,115
and 3,461,115 shares outstanding in
1998 and 1997, respectively ................... 76,489 69,889
Additional paid-in capital ...................... 4,885,175 4,644,275
Retained earnings
Accumulated deficit prior to
becoming a BDC .............................. (118,874) (118,874)
Accumulated net investment loss ............... (13,644,149) (13,431,269)
Accumulated net realized gains from
sales and permanent write-downs
of investments .............................. 12,617,659 12,125,185
Unrealized net gains on investments
(net of deferred income taxes of
$318,038 and $233,201 in 1998 and
1997, respectively) ......................... 524,131 364,747
Less: treasury stock at cost
(33,350 shares) ............................. (114,037) (114,037)
---------- ----------
4,226,394 3,539,916
---------- ----------
$5,806,008 $5,038,425
========== ==========
The accompanying notes are a part of this statement.
F-3
<PAGE>
EQUITEX, INC.
Schedule of Investments
March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
NUMBER COST
OF AND/OR FAIR
COMPANY SHARES OWNED EQUITY VALUE
- ------- ------------ ------ -----
<S> <C> <C> <C>
CONTROLLED COMPANIES
COMMON STOCKS - PRIVATE
MARKET METHOD OF VALUATION (a)(e)
VP Sports, Inc. .......................
Entity formed to seek acquisitions
in the manufacturing segment of
the sporting goods and leisure-
time industry ....................... 2,000,000 $ 250,000 $1,000,000
COMMON STOCKS - COST METHOD
OF VALUATION
Triumph Sports Group .................. 1,000,000 250,000 250,000
Entity formed to seek acquisitions
in the non-manufacturing licensed and
supplemental segments of the sporting
goods and leisure-time industry
AFFILIATED COMPANIES
COMMON STOCKS - PUBLIC MARKET
METHOD OF VALUATION (c)(e)
RDM Sports Group
Manufacturer of fitness
equipment and juvenile products ..... 4,979,437 1,088,815 89,630
OTHER - PUBLIC MARKET METHOD
OF VALUATION
RDM Sports Group 8% Convertible
Manufacturer of fitness Subordinated
equipment and juvenile products ..... Debentures 150,682 2,625
---------- ----------
Sub-Total
CONTROLLED AND AFFILIATED COMPANIES 1,739,497 1,342,255
---------- ----------
UNAFFILIATED COMPANIES
COMMON STOCKS - PUBLIC MARKET
METHOD OF VALUATION
IntraNet Solutions, Inc. (formerly
MacGregor Sports & Fitness, Inc.)
Document management services,
web-based internet software,
electronic document management
and demand printing ............... 403,250 1,407,992 2,469,904
Racotek
Medical technology .................. 175,000 722,715 557,812
NevStar Gaming Corporation
Gaming development .................. 7,000 38,500 21,000
</TABLE>
The accompanying notes are a part of this statement. (Continued)
F-4
<PAGE>
EQUITEX, INC.
Schedule of Investments (Page 2)
March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
NUMBER COST
OF AND/OR FAIR
COMPANY SHARES OWNED EQUITY VALUE
- ------- ------------ ------ -----
<S> <C> <C> <C>
COMMON STOCKS - PRIVATE MARKET
METHOD OF VALUATION (a)(e)
All Systems Go
Software development ................ 20,000(b) 25,000 25,000
Ocean Power Technology
Alternative energy
research and development ............ 35,714(b) 40,000 98,214
100,000 -- 275,000
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 -- --
PREFERRED STOCKS - PRIVATE METHOD
OF VALUATION
Osage System Group, Inc. ..............
Network computing solutions
provider ............................ 1 30,000 73,750
----------- ---------- ----------
Sub-total
UNAFFILIATED COMPANIES .............. 2,334,208 3,590,680
---------- ----------
Total
ALL COMPANIES ....................... $4,073,704 $4,932,935
========== ==========
</TABLE>
(Continued)
The accompanying notes are a part of this statement.
F-5
<PAGE>
EQUITEX, INC.
Schedule of Investments (Page 3)
March 31, 1998
(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 an affiliate, it may be affected by sales limitations
of one percent of the investee's outstanding common stock during any
three-month period, or four-week average trading volume 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.
The accompanying notes are a part of this statement.
F-6
<PAGE>
EQUITEX, INC.
Schedule of Investments
December 31, 1997
<TABLE>
<CAPTION>
NUMBER COST
OF AND/OR FAIR
COMPANY SHARES OWNED EQUITY VALUE
- ------- ------------ ------ -----
<S> <C> <C> <C>
CONTROLLED COMPANIES
COMMON STOCKS - PRIVATE
MARKET METHOD OF VALUATION (a)(e)
VP Sports, Inc. .......................
Entity formed to seek-out
acquisitions in the sports
and health products industries ...... 2,000,000 $ 250,000 $1,000,000
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 ............... 473,250 1,410,776 2,498,529
RDM Sports Group (formerly
Roadmaster Industries, Inc.)
Manufacturer of fitness
equipment and juvenile products ..... 4,979,437 1,088,815 4,481
OTHER - PUBLIC MARKET METHOD
OF VALUATION
RDM Sports Group 8% Convertible
Manufacturer of fitness Subordinated
equipment and juvenile products ..... Debentures 150,682 1,750
---------- ----------
Sub-Total
CONTROLLED AND AFFILIATED COMPANIES 2,900,273 3,504,760
---------- ----------
UNAFFILIATED COMPANIES
COMMON STOCKS - PUBLIC MARKET
METHOD OF VALUATION
IVI Publishing
Publishing technology ............... 25,000 116,881 64,063
Racotek
Medical technology .................. 75,000 377,391 110,156
NevStar Gaming Corporation
Gaming development .................. 7,000 38,500 18,750
</TABLE>
(Continued)
The accompanying notes are a part of this statement.
F-7
<PAGE>
EQUITEX, INC.
Schedule of Investments (Page 2)
December 31, 1997
<TABLE>
<CAPTION>
NUMBER COST
OF AND/OR FAIR
COMPANY SHARES OWNED EQUITY VALUE
- ------- ------------ ------ -----
<S> <C> <C> <C>
COMMON STOCKS - PRIVATE MARKET
METHOD OF VALUATION (a)(e)
All Systems Go
Software development ................ 20,000(b) 25,000 25,000
Ocean Power Technology
Alternative energy
research and development ............ 35,714(b) 40,000 98,214
100,000 -- 275,000
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 .............. 667,772 661,233
---------- ----------
Total
ALL COMPANIES ....................... $3,568,045 $4,165,993
========== ==========
</TABLE>
(Continued)
The accompanying notes are a part of this statement.
F-8
<PAGE>
EQUITEX, INC.
Schedule of Investments (Page 3)
December 31, 1997
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.
The accompanying notes are a part of this statement.
F-9
<PAGE>
EQUITEX, INC.
Statements of Operations
(Unaudited)
FOR THE THREE MONTHS
ENDED MARCH 31,
1998 1997
---- ----
Revenues
Interest and dividends .......................... $ 10,380 $ 7,590
Consulting fees ................................. 250,000 --
Administrative fees ............................. 941 14,123
Miscellaneous ................................... -- 63,655
---------- ----------
261,321 85,368
Expenses
Salaries and consulting fees .................... 75,153 77,763
Officer's bonus ................................. 43,545 75,323
Office rent ..................................... 8,689 7,500
Legal and accounting ............................ 27,633 28,396
Employee benefits ............................... 96,174 38,006
Other general and administrative ................ 96,779 46,751
Interest ........................................ 20,324 18,297
Bad debt expense ................................ 13,733 --
Depreciation and amortization ................... 2,721 2,904
---------- ----------
384,751 294,940
Net investment loss ................................ (123,430) (209,572)
Net realized gain on investments and
net unrealized gain on investments:
Proceeds from sales of investments .............. 712,143 60,258
Less: cost of investments ....................... 219,669 81,978
---------- ----------
Net realized gain (loss) on
investments before income taxes ................. 492,474 (21,720)
Net investment loss and net realized gain
(loss) on investments before income taxes ....... 369,044 (231,292)
Income tax benefit (provision) - current ........... -- (3,648)
Income tax benefit (provision) - deferred .......... (89,451) (59,950)
---------- ----------
Net investment loss and net realized
(loss) on investments ........................... 279,593 (294,890)
(Continued)
F-10
<PAGE>
EQUITEX, INC.
Statements of Operations (Page 2)
(Unaudited)
FOR THE THREE MONTHS
ENDED MARCH 31,
1998 1997
---- ----
RIncrease (decrease) in unrealized
appreciation on investments ..................... $ 261,283 $ (308,055)
Less income tax benefit (provision)
applicable to decrease (increase) in
realized appreciation ........................... (101,899) 120,141
---------- ----------
159,384 (187,914)
---------- ----------
Net increase (decrease) in net assets
resulting from operations ....................... $ 438,977 $ (482,804)
========== ==========
Increase (decrease) in net assets per
share - primary ................................. $ .12 $ (.15)
========== ==========
Increase (decrease) in net assets per
share - fully diluted ........................... $ .11 $ (.15)
========== ==========
Weighted average number of common shares ........... 3,560,115 3,214,708
========== ==========
F-11
<PAGE>
EQUITEX, INC.
Statements of Cash Flows
(Unaudited)
FOR THE THREE MONTHS
ENDED MARCH 31,
1998 1997
---- ----
RCash flows from operating activities:
Net change in net assets ........................ $ 438,977 $ (482,804)
Adjustments to reconcile net change in
net assets to net cash provided by
operating activities:
Depreciation and amortization .............. 2,721 2,904
Donation of stock .......................... -- 4,136
Provision for bad debts on notes
receivable ............................... -- --
Realized (gain) loss on sale of
investments .............................. (492,474) 21,720
Unrealized (gain) loss on investments ...... (261,283) 308,055
Proceeds from sales of investments .............. 712,143 60,258
Purchase of investments ......................... (725,328) (1,210)
Repayment of notes receivable ................... 16,083 19,150
Issuance of notes receivable .................... (18,266) --
Changes in assets and liabilities:
(Increase) decrease in interest receivable ... (5,835) 135
(Increase) decrease in other assets .......... (5,100) 768
(Increase) decrease in trade receivables ..... (62,053) 1,338
(Increase) decrease in accounts
receivable - brokers ....................... 73,741 3,992
Increase in accounts payable and
other accrued liabilities .................. 104,435 22,961
Increase in accounts payable to brokers ...... 287,555 9,777
Increase (decrease) in accrued bonus
to officer ................................. (111,456) 75,323
Increase (decrease) in deferred income taxes . 191,350 (60,190)
---------- ----------
Net cash (used) by operating
activities ................................. 145,211 (13,687)
Cash flows from investing activities:
Purchase of furniture and equipment ............. (2,901) --
---------- ----------
Net cash (used) by investing activities ...... (2,901) --
(Continued)
F-12
<PAGE>
EQUITEX, INC.
Statements of Cash Flows (Page 2)
(Unaudited)
FOR THE THREE MONTHS
ENDED MARCH 31,
1998 1997
---- ----
Cash flows from financing activities:
Repayment of notes payable ...................... $ (327,599) $ --
Common stock issued for cash .................... 247,500 --
---------- ----------
Net cash provided (used) by
financing activities ..................... (80,099) --
Increase (decrease) in cash ........................ 62,211 (13,687)
Cash, beginning of period .......................... 9,187 53,795
---------- ----------
Cash, end of period ................................ $ 71,398 $ 40,108
========== ==========
Supplemental disclosures of cash flow information:
Interest paid ............................... $ 21,249 $ 18,297
========== ==========
Interest received ........................... $ 4,546 $ 7,725
========== ==========
F-13
<PAGE>
EQUITEX, INC.
Selected Notes to Financial Statements
March 31, 1998
(Unaudited)
NOTE 1. INVESTMENT IN TRIUMPH SPORTS
During the first quarter of 1998, the Company received 1,000,000 shares
of the common stock of Triumph Sports, a private company formed for the purpose
of seeking out and acquiring an operating entity in the non- manufacturing
licensed and supplemental segments of the sporting goods and leisure-time
industry. The stock was received in exchange for consulting services valued at
$250,000. The Company's president is also the President and a director of
Triumph Sports.
NOTE 2. PRIVATE PLACEMENT OF COMMON STOCK
In March 1998, the Company's Board of Directors authorized a private
placement offering of the Company's common stock. The Company is authorized to
sell up to 500,000 shares of its common stock at $1.16 per share. As of May 5,
1998, 260,000 shares have been subscribed.
NOTE 3. SUBSEQUENT EVENT
At a meeting held on April 3, 1998, the Company's stockholders approved
a proposal authorizing the Company to change the nature of its business and
withdraw its election as a Business Development Company under the Investment
Company Act of 1940. The withdrawal will become effective when the Securities
and Exchange Commission receives the Company's official notice of election of
withdrawal. The Company does not intend to file its election of withdrawal until
such time as it is relatively certain that it will qualify as an operating
business rather than an investment company.
F-14
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
FORWARD-LOOKING STATEMENTS
The report may contain certain "forward-looking" statements as such
term is defined in the Private Securities Litigation Reform Act of 1995 or by
the Securities and Exchange Commission in its rules, regulations and releases,
which represent the Registrant's expectations or beliefs, including but not
limited to, statements concerning the Registrant's operations, economic
performance, financial condition, growth and acquisition strategies,
investments, and future operational plans. For this purpose, any statements
contained herein that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the generality of the foregoing,
words such as "may", "will", "expect", "believe", "anticipate", "intent",
"could", "estimate", "might", or "continue" or the negative or other variations
thereof or comparable terminology are intended to identify forward-looking
statements. These statements by their nature involve substantial risks and
uncertainties, certain of which are beyond the Registrant's control, and actual
results may differ materially depending on a variety of important factors,
including uncertainty related to acquisition, governmental regulation, managing
and maintaining growth, the value of the Registrant's investments, the
operations of the Registrant's investee companies, volatility of stock price and
any other factors discussed in this and other Registrant filings with the
Securities and Exchange Commission.
LIQUIDITY AND CAPITAL RESOURCES
Of the Registrant's liabilities of $1,579,614 at March 31, 1998, the
Registrant had no amounts due to banks. This compares to total liabilities of
$1,498,509 at December 31, 1997. 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.
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 as well as other notes receivable, the
Registrant carried notes receivable of $420,393 and $418,210 at March 31, 1998
and December 31, 1997, respectively. The majority of the increase in notes
receivable at both of these dates as compared to 1996 is the result of the
Registrant covering portions of expenses and start-up costs for two new
investees during the latter part of 1997. As these companies complete mergers or
acquisitions, or raise capital through private or public offerings, these notes
may be repaid or otherwise extinguished although no assurance can be given at
this time that such repayments will take place.
The Registrant's cash position increased by $71,390 at March 31, 1998
as compared to December 31, 1997. Net cash provided by operating activities was
$145,211 for 1998 as compared to $13,687 used in 1997. No one use or provision
of cash from operating activities accounted for the change from 1997 to 1998.
(Continued)
F-15
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued).
Cash flows from investing activities used $2,601 for the purchase of fixed
assets in 1998 compared to $0 in the first three months of 1997. The cash
provided by financing activities of $247,500 in 1998 was derived from a sale of
the Registrant's common stock in a private placement offering. These funds were
used to repay notes payable of $327,599 resulting in an overall cash usage from
financing activities of $80,098.
The Registrant's sources of income to defray operating overhead are
derived 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, administrative fees through
which the Registrant directly apportions a certain amount of its operating
overhead to investees as warranted to help defray operating costs, and sales of
the Registrant's investments. During 1997 and the first quarter of 1998, the
Registrant's sources of income were sufficient to cover its operating overhead
and it is anticipated this trend will continue during the remainder of 1998.
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 1998 year due to its increased ability to sell portions of its investee
companies' stock positions as restrictions on their ability to be sold end.
However, the Registrant has sold and anticipates that it will continue to offer
limited private placements of the Registrant's common stock in order to increase
its present liquidity. Although the Registrant's ability to liquidate portions
of its portfolio companies have 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 generate
significant profits, the Registrant has not typically relied on sales of this
large nature for its financing needs. However, as the Registrant expects lower
transaction and consulting fees and therefore reduced revenue during 1998, sales
of portfolio securities may be necessary for its financing needs.
The Registrant's largest investee company is IntraNet, a publicly held
company which provides document handling, storage and retrieval solutions to
Fortune 1000 companies utilizing internet and intranet technologies. For the
nine months ended December 31, 1997, the latest available date, IntraNet had
total revenues of $14.6 million and net loss of $4.0 million.
On August 29, 1997 RDM Sports Group, Inc. ("RDM") filed Chapter 11
bankruptcy petitions for the company and all of its subsidiaries with the U.S.
Bankruptcy Court for the Northern District of Georgia and ceased all operations.
(Continued)
F-16
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued).
As part of the ongoing bankruptcy proceedings, certain of RDM's assets have been
sold to pay creditors and no plan of reorganizations has been filed to date.
Following the initiation of this bankruptcy proceeding, the fair value of the
Registrant's investment in RDM was substantially reduced so that at March 31,
1998 and December 31, 1997, the Registrant had a cost basis of $1,239,497 in its
investment in RDM with fair value of $92,255 and $6,231, respectively.
As of March 31, 1998, the Registrant had made no other material
commitments for capital expenditures or loans to investees. However, the
Registrant may be required to make such expenditures or loans during the
remainder of 1998, the amount of which is unknown at this time. 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. The Registrant does not currently anticipate any extraordinary
costs will be incurred as a result of year 2000 computer date conversions.
RESULTS OF OPERATIONS
Revenues for the three months ended March 31, 1998 were $261,321 as
compared to $85,368 for the three months ended March 31, 1997. The increase
in revenues for 1998 over 1997 is primarily the result of the consulting fee
revenue recognized relative to the Registrant's newest investee company, Triumph
Sports (Triumph). The Registrant received stock in Triumph in exchange for
consulting services. In the first quarter of 1997, the Registrant received
payments of $63,850 on notes receivable which had been written off in prior
years. In the past, the Registrant has received consulting fees on both a
monthly contract basis as well as on a per transaction basis when assisting
investees with acquisitions, refinancing or restructuring, however, the timing,
nature and amount of these fees cannot be predicted. The Registrant expects that
overall 1998 revenues will be similar or possibly slightly higher than those of
1997.
The realized gain on investments before income taxes for 1998 was
$492,474 as compared to a loss of $21,720 in 1997. Proceeds from sales of
investments were significantly higher in 1998 than 1997. A majority of the sales
of investments in 1998 was IntraNet Solutions common stock. 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. However, the Registrant currently has fewer positions in
its portfolio which are valued utilizing the public market method and presently
believes there is sufficient market liquidity for the Registrant to conduct an
orderly sale of any position over a relatively short period of time.
Expenses for the first quarter of 1998 were $384,751 as compared to
$294,940 in the first quarter of 1997, an increase of 30%. While the
Registrant's expenses were fairly similar in many categories, significant
(Continued)
F-17
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued).
changes were recorded in officer's bonus, bad debt expense, employee benefits
and other general and administrative in 1998. The officer's bonus was
significantly lower as a result of the Registrant's lower assets while the bad
debt provision for bad debts increased as a result of additional lending
activity which occurred in the latter half of 1997. Other general and
administrative expenses increased as a result of additional costs associated
with the April shareholders meeting and the private placement. The Registrant
currently believes that expenses for the remainder of the year ending December
31, 1998 will continue at levels similar to those of 1997 should the Registrant
continue to operate as a BDC. Should the Registrant decertify as a BDC as set
forth below, the Registrant is unable to estimate its expenses for later in
1998.
At March 31, 1998, unrealized appreciation of investments increased
$261,283 as compared to a decrease of $308,055 at March 31, 1997. The increase
was caused by slight improvements in the fair market values of RDM, IntraNet,
and Racotek, and the addition of Osage System Group. During the quarter ended
March 31, 1997, the Registrant's investment in RDM was experiencing market value
declines. 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 investments, however, the Registrant is encouraged by
recent developments with respect to IntraNet, and a new investee, VP Sports,
which the Registrant added during 1997, and which the Registrant believes will
enhance its portfolio in 1998. The net increase in net assets resulting from
operations was $438,977 for 1998 as compared to a decrease of $482,804 for the
comparable period of 1997.
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 its
largest investees. The Registrant must increase the number of its investments in
order to reduce its susceptibility to the operating performance and market
fluctuations of its investee companies that have occurred over the past few
years. During the past several years, the Registrant had been concentrating its
efforts on assisting its existing portfolio companies and therefore had not made
any major new investments. During 1997, the Registrant added a major new
investee company, VP Sports, and in the first quarter of 1998 added another new
investee, Triumph Sports. Until such time as more of these mature investments
are added, the Registrant will continue to be susceptible to market fluctuations
as long as it continues to operate as a BDC.
At a special meeting of stockholders held on April 3, 1998, the
Registrant's stockholders approved a proposal authorizing the Registrant to
(Continued)
F-18
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued).
change the nature of its business and withdraw its election as a BDC under the
Investment Company Act. The Registrant's Board of Directors has adopted a plan
which began with stockholder approval for the Registrant to withdraw as a BDC,
with the intent of becoming an operating company. The Registrant is actively
pursuing business opportunities to acquire or otherwise purchase an ongoing
business or, in the alternative, target an appropriate merger candidate. The
Registrant has not reached a level in its discussions which would lead it to
believe that any particular acquisition, purchase or merger is likely to occur
with any of the opportunities it has pursued to date; however, based on the
types of discussions held so far, the Registrant believes that a transaction of
this nature could be completed within six to twelve months following stockholder
approval of the proposal. Further, the Board believes that with the flexibility
and authority to withdraw as a BDC prior to entering into any definitive
acquisition or merger agreement, the Registrant has increased its ability to
attract interested businesses which it may acquire or consider merging with.
The Registrant does not intend to file its election to withdraw as a
BDC with the Securities and Exchange Commission until such time as it is
relatively certain that it will qualify as an operating business rather than as
an investment company. A voluntary election to withdraw as a BDC becomes
effective upon filing with the Securities and Exchange Commission unless a later
date is specified in the election form. The Board of Directors has opted for
this approach because it believes that if it does not qualify as an operating
company within a short period of time after the Registrant withdraws its
election as a BDC, the Registrant could possibly be considered an unregistered
investment company which is not in compliance with the Investment Company Act.
The Registrant will continue to conduct business as a BDC until such time as the
election to withdraw becomes effective.
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
F-19
<PAGE>
PART II. OTHER INFORMATION (CONTINUED)
Item 6. Exhibits and Reports of Form 8-K
(a) Financial data schedule for SEC registrants
(b) On January 29, 1998, the Registrant filed a Current Report on
Form 8-K dated January 13, 1998 covering a disclosure under
Item 5, Other Events.
F-20
<PAGE>
SIGNATURES
----------
Pursuantto 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 14, 1998
F-21
<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, 1998, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 71,398
<SECURITIES> 4,932,935
<RECEIVABLES> 712,739
<ALLOWANCES> 107,803
<INVENTORY> 0
<CURRENT-ASSETS> 5,537,871
<PP&E> 149,856
<DEPRECIATION> 120,472
<TOTAL-ASSETS> 5,806,008
<CURRENT-LIABILITIES> 1,579,614
<BONDS> 0
0
0
<COMMON> 76,489
<OTHER-SE> 4,149,905
<TOTAL-LIABILITY-AND-EQUITY> 5,806,008
<SALES> 0
<TOTAL-REVENUES> 261,321
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 350,694
<LOSS-PROVISION> 13,733
<INTEREST-EXPENSE> 20,324
<INCOME-PRETAX> 369,044
<INCOME-TAX> 89,451
<INCOME-CONTINUING> 438,977
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 438,977
<EPS-PRIMARY> .12
<EPS-DILUTED> .11
</TABLE>
