SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. __)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Sectioin 240.14a-12
Equitex, Inc.
-------------
(Name of Registrant as Specified in its Charter)
Thomas B. Olson
---------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
(1) Title of each class of securities to which transaction applies:
______________________________________________________________
(2) Aggregate number of securities to which transaction applies:
______________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuat to Exchange Act Rule 0-11:____________________________
(4) Proposed Maximum aggregate value of transaction:______________
(5) Total Fee Paid:_______________________________________________
[ ] Fee previously paid with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by regitration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:__________________________________
(2) Form, Schedule or Registration Statement No.:____________
(3) Filing Party:____________________________________________
(4) Date Filed:______________________________________________
<PAGE>
EQUITEX, INC.
7315 EAST PEAKVIEW AVENUE
GREENWOOD EXECUTIVE PARK, BUILDING 8
ENGLEWOOD, COLORADO 80111
-------------------------------------------------------------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON __________ __, 1998
- --------------------------------------------------------------------------------
TO THE STOCKHOLDERS OF EQUITEX, INC.:
A Special Meeting of the Stockholders of Equitex, Inc., a Delaware
corporation (the "Company"), will be held at the offices of Friedlob Sanderson
Raskin Paulson & Tourtillott, LLC, 1400 Glenarm Place, Third Floor, Denver,
Colorado 80202, on ___________ __, 1998 at _____ _.m. local time, for the
following purposes:
1. To consider and vote upon a proposal to authorize 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, as amended. (Passage of this
proposal requires the affirmative vote of a majority of the shares of common
stock outstanding and entitled to vote at the meeting.)
2. Such other business as may properly come before the meeting, or any
adjournment or adjournments thereof.
The discussion of the proposal of the Board of Directors set forth above is
intended only as a summary, and is qualified in its entirety by the information
relating to the proposal set forth in the accompanying Proxy Statement.
Only holders of record of common stock at the close of business on
__________ __, 1998 will be entitled to notice of and to vote at this Meeting,
or any postponements or adjournments thereof.
___________ __, 1998 By Order of the Board of Directors:
Thomas B. Olson
Secretary
IN ORDER TO ASSURE THE PRESENCE OF A QUORUM AND AVOID UNNECESSARY EXPENSE TO ALL
STOCKHOLDERS, YOU ARE URGED TO DATE, SIGN AND PROMPTLY RETURN YOUR PROXY SO THAT
YOUR SHARES MAY BE VOTED IN ACCORDANCE WITH YOUR WISHES. THE GIVING OF YOUR
PROXY DOES NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ATTEND THE MEETING.
YOUR VOTE IS IMPORTANT
<PAGE>
EQUITEX, INC.
7315 EAST PEAKVIEW AVENUE
GREENWOOD EXECUTIVE PARK, BUILDING 8
ENGLEWOOD, COLORADO 80111
PROXY STATEMENT
_____________ __, 1998
This Proxy Statement is furnished in connection with a solicitation of
proxies by the Board of Directors of Equitex, Inc. (the "Company") to be used at
the Special Meeting of Stockholders (the "Meeting") to be held at 10:00 a.m.
(local time), on ___________ __, 1998 at the offices of Friedlob Sanderson
Raskin Paulson & Tourtillott, LLC, 1400 Glenarm Place, Third Floor, Denver,
Colorado 80202, and any adjournment or postponements thereof. The Proxy
Statement and form of Proxy will first be mailed to stockholders on or about
_________ __, 1998.
REVOCABILITY OF PROXY
If the enclosed form of Proxy is signed and returned, it will be voted on
the proposal as indicated by the stockholder. A stockholder may revoke its
previously delivered Proxy at any time prior to its use by (i) giving notice of
revocation in writing to the Secretary of the Company which is delivered prior
to or at the Meeting, (ii) signing a later dated proxy and delivering it to the
Company prior to the Meeting, or (iii) voting in person at the Meeting.
SOLICITATION
The cost of preparing, assembling and mailing the Notice of Meeting, Proxy
Statement and form of Proxy (the "Proxy Materials"), miscellaneous costs with
respect to the Proxy Materials and solicitation of the Proxies will be paid by
the Company. The Company also may use the services of its directors, officers
and employees to solicit Proxies, personally or by telephone and telegraph, but
at no additional salary or compensation. The Company intends to request banks,
brokerage houses and other custodians, nominees and fiduciaries to forward
copies of the Proxy Materials to those persons for whom they hold such shares
and request authority for the execution of the Proxies. The Company will
reimburse them for the reasonable out-of-pocket expenses incurred by them in so
doing.
<PAGE>
VOTING SECURITIES
Holders of record of the Company's common stock, $.02 par value (the
"Common Stock"), at the close of business on ___________ __, 1998 (the "Record
Date") will be entitled notice of the Meeting and to vote on all matters
presented at the Meeting. On the Record Date the Company had outstanding
_________ shares of Common Stock. Each stockholder is entitled to one vote per
share of Common Stock held of record. The only outstanding class of voting
securities of the Company is the Common Stock. One-third of the shares of Common
Stock issued and outstanding on the Record Date (______________ shares)
represented either in person or by proxy, will constitute a quorum for the
transaction of business at the Meeting.
Upon the determination that a quorum is present for the transaction of
business, the vote required for approval of Proposal Number One is the
affirmative vote of a majority of the Company's outstanding voting securities.
Under the Investment Company Act of 1940, as amended (the "IC Act"), a "majority
of the outstanding voting securities" means the lesser of either (i) more than
50% of the outstanding voting securities of the Company or (ii) 67% or more of
the outstanding voting securities present at the meeting, if the quorum present
at the Meeting is made up of more than 50% of the outstanding voting securities
of the Company.
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
Set forth below is information as to certain persons known by the Company
to be the beneficial owner of more than five percent of the outstanding Common
Stock and the beneficial ownership of the Company's directors, individually, and
officers and directors as a group as of _________ __, 1998:
Shares owned
Name and address of beneficially Percent
beneficial owner and of record (1) of Class
- ------------------- ------------------- --------
Henry Fong 881,329 (2)(3)(4) 24.0%
7315 E. Peakview Ave.
Englewood, CO 80111
Unnamed Association 187,500 (5) 5.4%
of Persons
c/o Gary L. Blum, Esq.
9595 Wilshire Blvd.
Suite 511
Beverly Hills, CA 90212
2
<PAGE>
Shares owned
Name and address of beneficially Percent
beneficial owner and of record (1) of Class
- ------------------- ------------------- --------
Russell L. Casement 75,000 (6) 2.1%
1355 South Colorado Blvd.
Suite 320
Denver, CO 80202
Aaron A. Grunfeld 59,800 (6) 1.7%
10390 Santa Monica Blvd.
Fourth Floor
Los Angeles, CA 90025
Officers and directors 1,021,129 (2)(3)(4) 27.4%
as a group (four (7)(8)
persons)
- ----------
(1) The beneficial owners exercise sole voting and investment power except
to the extent otherwise provided herein.
(2) Includes 206,545 shares underlying options granted under the Company's
1993 Stock Option Plan.
(3) Includes 15,000 shares of common stock owned by Mr. Fong's spouse and
of which Mr. Fong disclaims beneficial ownership.
(4) Includes 579,534 shares owned by a partnership in which Mr. Fong is a
general partner.
(5) Based upon a Schedule 13D filed with the Securities and Exchange
Commission on September 30, 1993.
(6) Includes 50,000 shares underlying options granted under the Company's
1993 Stock Option Plan for Non-Employee Directors.
(7) Includes 100,000 shares underlying options granted under the Company's
1993 Stock Option Plan for Non-Employee Directors.
(8) Includes 5,000 shares underlying options granted under the Company's
1993 Stock Option Plan which are owned by an officer of the Company not
named in this table.
3
<PAGE>
At the Company's Annual Meeting of Stockholders held on December 30, 1997,
a person who attended the meeting stated that one of his relatives, whom he was
representing at the meeting, owns approximately 1,200,000 shares or
approximately 30% of the outstanding shares of Common Stock of the Company. The
Company has never received any Schedule 13D or amendment thereto directly from
any person reporting ownership of 30% of the Company's common stock, nor was the
Company able to locate any filing to this effect made with the Securities and
Exchange Commission.
No change in control of the Company has occurred since the beginning of the
last calendar year.
The Company does not know of any arrangements, the operation of which may,
at a subsequent date, result in a change in control of the Company.
PROPOSAL NUMBER ONE
WITHDRAWAL OF ELECTION OF COMPANY'S STATUS AS A
BUSINESS DEVELOPMENT COMPANY
The Company has elected status as a business development company ("BDC") as
that term is defined in Section 54 of the IC Act. As such, the Company is
subject to a number of provisions relating to BDCs rather than all of the
provisions of the IC Act applicable to registered investment companies. Section
58 of the IC Act provides that a BDC may not change the nature of its business
so as to cease to be, or withdraw its election as, a BDC unless it is authorized
to do so by a majority of its outstanding voting securities.
If the Company's stockholders approve withdrawal of the Company's BDC
election, the withdrawal will become effective only upon the Securities and
Exchange Commission's receipt of the Company's notice of election of withdrawal.
After the Company's withdrawal of its BDC election becomes effective with the
Securities and Exchange Commission, the Company will no longer be subject to the
regulatory provisions of the IC Act for BDCs, such as insurance, custody,
composition of the board, affiliated transactions and compensation arrangements.
Even after the Company withdraws its election as a BDC, the Company will
continue to be subject to the reporting requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). Under the Exchange Act, the
Company would continue to file periodic reports on Form 10-KSB and Form 10-QSB,
as well as reports on Form 8-K and proxy statements and any other reports
required under the Exchange Act.
The Company recently has been advised by Nasdaq that it plans to delist the
Company from the Nasdaq National Market because the Company currently does not
meet the Nasdaq National Market maintenance standards. The Company has appealed
Nasdaq's determination and has requested a hearing which has not yet been set.
If Nasdaq ultimately determines to remove the Company from the Nasdaq National
4
<PAGE>
Market, the Company will request that it be moved from the Nasdaq National
Market to the Nasdaq SmallCap Market. The Company does not anticipate that its
status on Nasdaq will be affected by the proposed withdrawal of its BDC
election.
REASONS FOR WITHDRAWAL AS A BDC
On numerous occasions the Company's Board of Directors has evaluated the
feasibility of the Company continuing its election as a BDC and, on December 19,
1997, the Board of Directors unanimously determined that it would be in the best
interest of the Company and its stockholders to seek stockholder approval to
withdraw the Company's election as a BDC.
In making the determination to present this proposal to the Company's
stockholders for approval, the Board of Directors considered a number of
factors. Over the years since the Company has operated as a BDC, the business,
regulatory and financial climates have gradually changed. It has become
increasingly more difficult for companies similar in size to the Company to
become listed on Nasdaq and to raise capital for the purpose of building the
Company's portfolio of securities. These factors, combined with the fact that
the Company is not actively involved with the management of any of its investee
companies, result in the Company having little control maintaining stability in
the valuation of its portfolio securities following the Company's initial
investment decision.
At September 30, 1997, the Company's total assets were approximately
$5,879,102. These assets consisted of investments in securities valued at their
fair value of $5,481,555, cash of $321,747 (of which $300,000 is held in an
escrow account), and other assets of $72,800. Of the Company's investment
securities, its holdings in IntraNet Solutions, Inc. are its most significant
asset. At September 30, 1997, the Company's 645,085 shares of common stock of
IntraNet Solutions, Inc. had a cost and/or equity basis of $1,417,610 and a fair
value of $4,719,610.
The Company owns 4,979,437 shares of common stock of RDM Sports Group
("RDM") and these investment securities were a significant asset until RDM filed
Chapter 11 bankruptcy petitions with the U.S. Bankruptcy Court on August 29,
1997. Following the initiation of this bankruptcy proceeding, the fair value of
the Company's investment in RDM was substantially reduced so that at September
30, 1997 the Company had a cost and/or equity basis of $1,088,815 in its
investment in RDM and the fair value of the RDM common stock and bonds owned by
the Company was reduced to $11,481.
After careful consideration of these and other relevant factors, the Board
of Directors has determined that the stockholders' return on assets is not
likely to warrant continued operations as a BDC over the long term. The Board
believes that the Company would be more likely to achieve greater stability in
the valuation of its assets and to prosper if the Company were to discontinue
5
<PAGE>
operations as a BDC to become a company owning and operating an ongoing
business. In addition, by withdrawing its election as a BDC, the Company would
no longer be burdened with the restrictions and additional costs of complying
with the IC Act rules and regulations which are associated with its current BDC
status.
The Board of Directors has adopted a plan to obtain stockholder approval
for the Company to withdraw as a BDC, with the intent of becoming an operating
company. The Company is actively pursuing business opportunities to acquire or
otherwise purchase an ongoing business or, in the alternative, target an
appropriate merger candidate. The Company 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
Company believes that a transaction of this nature could be completed within the
next six to twelve months. Further, the Board believes that if the Company has
the flexibility and authority to withdraw as a BDC prior to entering into any
definitive acquisition or merger agreement, the Company will increase its
ability to attract interested businesses which it may acquire or consider
merging with.
The Company 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 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 Company withdraws i9ts election as a BDC, the Company
could possibly be considered an unregistered investment company which is not in
compliance with the IC Act.
EFFECT OF WITHDRAWAL OF BDC ELECTION ON THE COMPANY'S FINANCIAL STATEMENTS
As an operating company, the nature of the Company's business will change
from investing in a portfolio 9of securities to achieve gains on appreciation
and dividend income, to becoming actively engaged in the management of a
business for the generation of income from those operations. Thus, withdrawal of
the Company's election as a BDC will result in a significant change in the
Company's method of accounting from the value method of accounting required of
investment companies to either fair value or historical cost accounting,
depending on the classification of the investment and the Company's intent with
respect to the period it intends to hold the investment.
Solely for the purpose of providing the stockholders an example of the
effect of changing methods of accounting upon the Company's withdrawal of its
BDC election, the Company has prepared pro forma financial statements as of
September 30, 1997 with the assumption that the Company withdrew its BDC
election effective January 1, 1997. These pro forma financial statements are
included as Exhibit A to this proxy statement. IN READING THESE ILLUSTRATIVE PRO
6
<PAGE>
FORMA FINANCIAL STATEMENTS, STOCKHOLDERS SHOULD BE AWARE THAT THIS IS WHAT THE
COMPANY'S FINANCIAL STATEMENTS WOULD LOOK LIKE ONLY DURING THE PERIOD AFTER
WHICH IT WITHDRAWS ITS BDC ELECTION UNTIL IT ACHIEVES THE STATUS OF AN OPERATING
COMPANY. As stated previously, the Company does not plan to withdraw its BDC
election until it targets a viable acquisition or merger candidate.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF THIS PROPOSAL TO
APPROVE WITHDRAWAL OF THE COMPANY'S ELECTION OF ITS STATUS AS A BUSINESS
DEVELOPMENT COMPANY UNDER THE IC ACT.
OTHER MATTERS
Management does not know of any other matters to be brought before the
meeting. However, if any other matters properly come before the meeting, it is
the intention of the appointees named in the enclosed form of Proxy to vote in
accordance with their best judgment on such matters.
STOCKHOLDER PROPOSALS
Any stockholder proposing to have any appropriate matter brought before the
1998 Annual Meeting of Stockholders, tentatively scheduled for December 29,
1998, must submit such proposal in accordance with the proxy rules of the
Securities and Exchange Commission. Such proposals should be sent to Thomas B.
Olson, Secretary, Equitex, Inc., 7315 East Peakview Avenue, Greenwood Executive
Park, Building 8, Englewood, Colorado 80111, for receipt no later than August
28, 1998.
By Order of the Board of Directors:
EQUITEX, INC.
Thomas B. Olson,
Secretary
7
<PAGE>
EXHIBIT A
---------
EQUITEX, INC.
Unaudited Pro Forma Financial Statements
September 30, 1997
The following unaudited pro forma information presents the financial
position, operations and cash flows of the Company at September 30, 1997 and for
the nine months then ended. This unaudited pro forma information gives effect to
the Company's proposed withdrawal of its election as a BDC as if it had occurred
on January 1, 1997. The unaudited pro forma financial statements at September
30, 1997 are based on the assumption that the IntraNet Solutions, Inc. and RDM
Sports Group investments carry no restrictions as to resale and are therefore
eligible to be classified as "available-for-sale securities."
F-1
<PAGE>
EQUITEX, INC.
Balance Sheets
<TABLE>
<CAPTION>
SEPT. 30, DEC. 31,
1997 1996
(Pro Forma-
Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash .......................................... $ 21,747 $ 53,795
Accounts receivable - brokers ................. 774 4,766
Income taxes refundable ....................... 2,150 166,609
Prepaid expenses .............................. 39,779 13,776
Trade receivables, net of allowance for
uncollectible accounts of $9,980 and $2,943
in 1997 and 1996, respectively ............ 10,284 39,623
Trading securities ............................ 266,063
------------ ------------
Total current assets ...................... 340,797 278,569
Furniture and equipment ........................... 145,083 145,083
Less accumulated depreciation ................. (114,986) (106,363)
------------ ------------
30,097 38,720
Other assets
Restricted cash held in escrow ................ 300,000
Investments in available-for-sale securities .. 4,724,091
Other investments, at cost .................... 135,000
Notes receivable, net of allowance
for uncollectible accounts of $100
at December 31, 1996 ...................... 45,000 20,250
Accrued interest receivable, net of
allowance for uncollectible interest of $35 1,782 1,902
Securities held as a BDC ...................... 10,138,562
------------ ------------
5,205,873 10,160,714
------------ ------------
$ 5,576,767 $ 10,478,003
============ ============
</TABLE>
F-2
<PAGE>
EQUITEX, INC.
Balance Sheets
<TABLE>
<CAPTION>
SEPT. 30, DEC. 31,
1997 1996
(Pro Forma-
Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Note payable to officer ....................... $ 321,519 $
Notes payable - others ........................ 100,000
Accounts payable and other
accrued liabilities ....................... 92,963 55,441
Accrued liability - indemnification agreement . 564,755
Accounts payable to brokers ................... 684,618 739,023
Accrued bonus to officer ...................... 273,568 148,106
------------ ------------
2,037,423 942,570
Deferred income taxes ............................. 196,829 2,274,650
Stockholders' equity
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)
Retained earnings as a BDC ................ 2,982,030 --
Accumulated net investment loss ........... -- (12,025,669)
Accumulated net realized gains from
sales and permanent write-downs
of investments .......................... -- 11,121,234
Unrealized net gains on investments
(net of deferred income taxes of
$2,484,788 in 1996 ...................... -- 3,886,465
Unrealized net holding losses ............. (2,332,950) --
Current year income (loss) ................ (1,585,318)
Less: treasury stock at cost
(33,350 shares) ......................... (114,037) (114,037)
------------ ------------
3,342,515 7,260,783
------------ ------------
$ 5,576,767 $ 10,478,003
============ ============
</TABLE>
F-3
<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-4
<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-5
<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-6
<PAGE>
EQUITEX, INC.
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
1997 1996
---- ----
(Pro Forma)
<S> <C> <C>
Revenues
Interest and dividends ......................... $ 30,731 $ 195,729
Net realized gains (losses) on the sale
of available-for-sale securities ........... (74,796) 1,423,946
Consulting fees ................................ -- 285,000
Administrative fees ............................ 26,315 48,532
Net unrealized holding losses on
trading securities ......................... (234,996)
Miscellaneous .................................. 67,112 9,184
Gain on sale of fixed assets ................... -- 8,334
------------ ------------
(185,634) 1,967,225
Expenses
Salaries and consulting fees ................... 241,017 246,949
Officer's bonus ................................ 125,462 331,397
Office rent .................................... 26,724 22,500
Legal and accounting ........................... 69,864 35,369
Employee benefits .............................. 173,823 173,843
Advertising and promotion ...................... 1,959 2,428
Other general and administrative ............... 103,972 137,034
Interest ....................................... 59,874 58,143
Loss on indemnification agreement .............. 599,813
Bad debt expense ............................... 7,036 (6,534)
Depreciation and amortization .................. 8,623 7,310
------------ ------------
1,418,167 1,008,439
Net income (loss) before income taxes ............. (1,603,801) 958,786
Income tax benefit (provision) - current .......... (56,307) (93,250)
Income tax benefit (provision) - deferred ......... 74,790 (153,044)
Recovery of income taxes through utilization
of net operating loss carryforward ............. -- 93,250
------------ ------------
Net income (loss) ................................. $ (1,585,318) $ 805,742
============ ============
Net income (loss) per share ....................... $ (.50) $ .25
============ ============
Weighted average number of common shares .......... 3,191,115 3,212,226
============ ============
</TABLE>
F-7
<PAGE>
EQUITEX, INC.
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
1997 1996
---- ----
(Pro Forma)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) .............................. $ (1,585,318) $ 805,742
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization ............. 8,623 7,310
Donation of stock ......................... 4,136 --
Provision for bad debts on notes
receivable ............................. -- --
Realized (gain) loss on sale of
investments ............................ 74,796 (1,423,946)
Unrealized holding losses ................. 234,996 --
Proceeds from sales of investments ............. 424,713 2,640,926
Purchase of investments ........................ (61,215) (1,759,247)
(Issuance) of notes receivable ................. (45,000)
Collection of notes receivable ................. 20,250 116,195
Transfer of cash to escrow account ............. (300,000)
Gain on sale of assets ......................... -- (8,334)
Changes in assets and liabilities:
Decrease in interest receivable ............. 120 119,938
Decrease in other assets .................... -- 4,875
(Increase) decrease in trade receivables .... 29,339 10,351
(Increase) in prepaid expense ............... (26,003) (7,949)
(Increase) decrease in accounts
receivable - brokers ...................... 3,992 51
Decrease in income taxes refundable ......... 164,459 --
Increase (decrease) in accounts payable
and other accrued liabilities ............. 37,522 (58,524)
Increase in accrued liability -
indemnification agreement ................. 564,755
Increase (decrease) in accounts payable
to brokers ................................ (54,405) (59,366)
Increase (decrease) in accrued bonus to
officer ................................... 125,462 (176,607)
Increase (decrease) in provision for
deferred income taxes ..................... (74,780) 153,044
------------ ------------
Net cash (used) by operating
activities ................................ (453,567) 364,359
Cash flows from investing activities:
Purchases of fixed assets ...................... (32,205)
Proceeds from sales of fixed assets ............ 13,500
------------ ------------
Net cash (used) by investing activities ..... -- (18,705)
</TABLE>
(Continued)
F-8
<PAGE>
EQUITEX, INC.
Statements of Cash Flows (Page 2)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
1997 1996
---- ----
(Pro Forma)
<S> <C> <C>
Cash flows from financing activities:
Issuance of notes payable - officer ............ $ 321,519 $ --
Issuance of notes payable - other .............. 100,000 --
Repayment of notes payable ..................... -- --
Purchase of treasury stock ..................... -- (89,191)
------------ ------------
Net cash provided by financing activities .. 421,519 (89,191)
Increase (decrease) in cash ....................... (32,048) 256,463
Cash, beginning of period ......................... 53,795 176,752
------------ ------------
Cash, end of period ............................... $ 21,747 $ 433,215
============ ============
Supplemental disclosures of cash flow information:
Interest paid .............................. $ 55,332 $ 58,143
============ ============
Interest received .......................... $ 30,851 $ 204,729
============ ============
Non-cash financing activities:
Conversion of notes receivable into
investment in common stock ............... $ -- $ 252,020
============ ============
</TABLE>
F-9
<PAGE>
EQUITEX, INC.
Notes to Financial Statements
(Pro Forma - Unaudited)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Investments
When the Company revoked its election to be a BDC on January 1, 1997,
the Company adopted Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115").
Management determines the appropriate classification of its investments
at the time of acquisition and reevaluates such determination at each balance
sheet date. Trading securities are carried at fair value, with unrealized
holding gains and losses included in earnings. Available- for-sale securities
are carried at fair value, with unrealized holding gains and losses, net of tax,
reported as a separate component of stockholders' equity. Investments in equity
securities that do not have readily determinable fair values are stated at cost,
adjusted for impairments, and categorized as other investments. In determining
realized gains and losses, the cost of securities sold is based on the specific
identification method. Interest on corporate obligations, as well as any
dividends on preferred stock are accrued at the balance sheet date.
Note 2: Investments
At September 30, 1997, the Company held no investments which it
regarded as held-to-maturity.
The amortized cost, gross unrealized holding gains, gross unrealized
holding losses and fair value of the available-for-sale securities by major
security type at September 30, 1997 were as follows:
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
At September 30, 1997:
Equity securities $2,506,425 $3,302,000 $(1,084,334) $4,724,091
F-10
<PAGE>
- --------------------------------------------------------------------------------
PROXY
- --------------------------------------------------------------------------------
EQUITEX, INC.
7315 East Peakview Avenue
Greenwood Executive Park, Building 8
Englewood, Colorado 80111
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON ________ __, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Equitex, Inc. (the "Company") hereby
constitutes and appoints Henry Fong and Thomas B. Olson, or either of them, as
attorneys and proxies, to appear, attend and vote all of the shares of the
Common Stock of Equitex, Inc. standing in the name of the undersigned at the
Special Meeting of Stockholders of Equitex, Inc. to be held at the offices of
Friedlob Sanderson Raskin Paulson & Tourtillott, LLC, 1400 Glenarm Place, Third
Floor, Denver, Colorado 80202, on ________ __, 1998, at 10:00 a.m., local time,
and at any postponements or adjournments thereof:
1. To consider and vote upon authorization of the Company to change the
nature of its business and withdraw the Company's election as a business
development company under the Investment Company Act of 1940.
FOR ______ AGAINST ______ ABSTAIN ______
2. To transact such other business as may properly come before the meeting.
THE SHARES REPRESENTED HEREBY WILL BE VOTED AS SPECIFIED HEREON WITH
RESPECT TO PROPOSAL ONE AND FOR PROPOSAL ONE IF NO SPECIFICATION IS MADE. THIS
PROXY WILL BE VOTED IN ACCORDANCE WITH THE DISCRETION OF THE PROXIES ON ANY
OTHER BUSINESS.
Please mark, date and sign your name exactly as it appears hereon and
return the Proxy in the enclosed envelope as promptly as possible. It is
important to return this Proxy properly signed in order to exercise your right
to vote if you do not attend the meeting and vote in person. When signing as
agent, partner, attorney, administrator, guardian, trustee or in any other
fiduciary or official capacity, please indicate your title. If stock is held
jointly, each joint owner must sign.
Date: ____________, 1998
------------------------------------
Signature(s)
Address if different from that on label:
------------------------------------
Street Address
------------------------------------
City, State and Zip Code
------------------------------------
Number of shares
Please check if you intend to be present at the meeting: ______
