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, 1999
( ) 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 6, 1999: 7,140,293
<PAGE>
EQUITEX, INC.
Part 1. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
The accompanying interim unaudited consolidated condensed financial
statements have been prepared in accordance with the instructions to Form 10-QSB
and do not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included, and the
disclosures are adequate to make the information presented not misleading.
Operating results for the three and six months ended June 30, 1999 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999. 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, 1998, and in conjunction with the quarterly 10-QSB Report (filed with the
Securities and Exchange Commission) for the quarter ended March 31, 1999.
F-1
<PAGE>
EQUITEX, INC.
Consolidated Balance Sheet
(Unaudited)
JUNE 30,
1999
------------
ASSETS
Current assets
Cash and cash equivalents .............................. $ 3,765,658
Account receivable - related entity .................... 40,000
Accounts receivable - other ............................ 34,574
Advances to FirstNet Capital ........................... 565,327
Loans receivable - National Business Finance, LLC ...... 300,000
Inventories ............................................ 150,279
Prepaid expenses and other current assets .............. 112,418
Notes receivable - First Bankers Mortgage Service ...... 2,750,000
Notes receivable - other, net of allowance
for uncollectible accounts of $100 ................ 184,844
Investments:
Trading securities ................................ 1,269,621
Available-for-sale securities ..................... --
------------
9,172,721
Fixed assets:
Furniture and equipment ................................ 226,926
Leasehold improvements ................................. 85,087
------------
312,013
Less: accumulated depreciation ......................... (153,938)
------------
158,075
Other assets:
Investment in First TeleBanc ........................... 800,000
Equity in First Net One Joint Venture .................. 151,500
Other investments, at cost ............................. 250,000
Deferred acquisition costs ............................. 467,634
Goodwill, net of accumulated amortization
of $20,314 ........................................ 586,856
Trade name, franchise rights and other
intangibles, net of accumulated
amortization of $14,168 ........................... 215,483
Contract deposit receivable, net of
allowance for uncollectibility of $150,000 ........ 150,000
Deposits and other ..................................... 75,250
------------
2,696,723
------------
$ 12,027,519
============
(Continued)
The accompanying notes are a part of this statement.
F-2
<PAGE>
EQUITEX, INC.
Consolidated Balance Sheet
(Unaudited)
JUNE 30,
1999
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable - related parties ........................ $ 178,328
Notes payable - other .................................. 248,270
Accounts payable and other accrued liabilities ......... 240,588
Accounts payable to brokers ............................ 288,451
Accrued bonus to officer ............................... 264,161
------------
1,219,798
Minority interest ............................................ 738,703
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01; 2,000,000
shares authorized; no shares
issued and outstanding ............................ --
Common stock, par value $.02; 7,500,000
shares authorized; 7,090,293 shares
issued; 7,056,943 shares outstanding
in 1999 ........................................... 142,906
Additional paid-in capital ............................. 18,099,591
Accumulated comprehensive other income ................. 15,623
Accumulated deficit .................................... (8,075,065)
Less: treasury stock at cost ........................... (114,037)
------------
10,069,018
------------
$ 12,027,519
============
The accompanying notes are a part of this statement.
F-3
<PAGE>
EQUITEX, INC.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
(PRO FORMA)* (PRO FORMA)*
<S> <C> <C> <C> <C>
REVENUES
Sales ........................... $ 187,341 -- $ 409,689 --
Consulting fees ................. -- -- 30,000 --
Interest income ................. 48,766 2,309 60,815 2,674
Administrative fees ............. -- 1,297 2,647 2,238
Income from joint venture ....... 151,500 -- 151,500 --
----------- ----------- ----------- -----------
387,607 3,606 654,651 4,912
EXPENSES
Cost of goods sold .............. 111,466 -- 242,552 --
Salaries ........................ 163,763 75,153 327,751 150,306
Officer's bonus ................. 288,103 44,020 510,664 87,565
Consulting fees ................. 7,117 -- 159,617 88,000
Employee benefits ............... 63,588 36,587 160,689 132,761
Rent ............................ 38,587 7,499 75,057 16,188
Advertising and promotion ....... 53,291 3,221 84,613 5,555
Office expense .................. 16,136 4,290 35,717 37,280
Legal and accounting ............ 35,922 20,074 79,429 50,789
Interest ........................ 6,766 27,181 27,552 47,505
Repairs and maintenance ......... 1,071 4,191 5,055 4,191
Bad debt expense ................ -- 1,970 13,748 15,703
Cost of abandoned acquisition ... -- 20,000 -- 20,000
Depreciation and amortization ... 18,236 2,635 35,880 5,356
Other general and
administrative .............. 159,501 145,878 259,052 232,521
Unrealized holding losses (gains)
on trading securities ....... 121,844 635,009 (177,810) 324,097
----------- ----------- ----------- -----------
1,085,391 1,027,708 1,839,566 1,217,817
----------- ----------- ----------- -----------
Net income (loss)
before minority
interest and taxes ....... (697,784) (1,024,102) (1,184,915) (1,212,905)
Minority interest in net
income (loss) ............ 16,260 10,182 28,047 25,297
----------- ----------- ----------- -----------
Net income (loss) before
income taxes ............. (681,924) (1,013,920) (1,156,868) (1,187,608)
Provision for income taxes -
deferred ................. -- -- -- --
----------- ----------- ----------- -----------
Net income (loss) ........... (681,924) (1,013,920) (1,156,868) (1,187,608)
Other comprehensive income,
net of tax
Unrealized holding gains
(losses) on securities
arising during period .... (20,228) (938) 15,623 51,537
----------- ----------- ----------- -----------
Comprehensive income (loss) ..... $ (701,752) $(1,014,858) $(1,141,245) $(1,136,071)
=========== =========== =========== ===========
</TABLE>
* As if an operating company rather than a BDC.
The accompanying notes are a part of this statement.
F-4
<PAGE>
EQUITEX, INC.
Consolidated Statements of Operations
(Unaudited)
(Page 2)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
(PRO FORMA)* (PRO FORMA)*
<S> <C> <C> <C> <C>
Net income (loss) per common
share - primary ................. $ (.10) $ (.25) $ (.19) $ (.31)
=========== =========== =========== ===========
Net income (loss) per common
share - fully diluted ........... $ (.10) $ (.25) $ (.19) $ (.31)
=========== =========== =========== ===========
Weighted average number of
common shares ................... 6,854,356 4,016,029 6,236,754 3,789,331
=========== =========== =========== ===========
</TABLE>
* As if an operating company rather than a BDC.
The accompanying notes are a part of this statement.
F-5
<PAGE>
EQUITEX, INC.
Statements of Operations
(Unaudited)
FOR THE THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1998
(WHILE A BDC) (WHILE A BDC)
----------- -----------
Revenues
Interest and dividends ...................... $ 13,816 $ 24,196
Consulting fees ............................. 125,000 375,000
Administrative fees ......................... 1,264 2,205
Miscellaneous ............................... -- --
----------- -----------
140,080 401,401
Expenses
Salaries and consulting fees ................ 75,153 150,306
Officer's bonus ............................. 44,020 87,565
Office rent ................................. 7,499 16,188
Legal and accounting ........................ 23,156 50,789
Employee benefits ........................... 36,587 132,761
Advertising and promotion ................... 3,221 5,555
Other general and administrative ............ 76,749 171,194
Interest .................................... 27,181 47,505
Bad debt expense ............................ 1,970 15,703
Depreciation and amortization ............... 2,635 5,356
----------- -----------
298,171 682,922
Net investment loss ............................ (158,091) (281,521)
Net realized gain on investments and
net unrealized gain on investments:
Proceeds from sales of investments .......... 149,450 861,593
Less: cost of investments ................... (18,994) (238,663)
----------- -----------
Net realized gain on investments
before income taxes ......................... 130,456 622,930
----------- -----------
Net investment loss and net realized gain
on investments before income taxes .......... (27,635) 341,409
Income tax benefit (provision) - current ....... -- --
Income tax benefit (provision) - deferred ...... (61,099) (150,550)
----------- -----------
Net investment loss and net realized
gain on investments ......................... (88,734) 190,859
(Continued)
The accompanying notes are a part of this statement.
F-6
<PAGE>
EQUITEX, INC.
Statement of Operations (Page 2)
(Unaudited)
FOR THE THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1998
(WHILE A BDC) (WHILE A BDC)
----------- -----------
Increase (decrease) in unrealized
appreciation on investments ................. $ (691,746) $ 190,859
Less income tax benefit (provision)
applicable to (increase) in
realized appreciation ....................... 269,781 167,882
----------- -----------
(421,965) (262,581)
----------- -----------
Net decrease in net assets
resulting from operations ................... $ (510,699) $ (71,722)
=========== ===========
Decrease in net assets per
share - primary ............................. $ (.13) $ (.02)
=========== ===========
Decrease in net assets per
share - fully diluted ....................... $ (.13) $ (.02)
=========== ===========
Weighted average number of common shares ....... 4,016,029 3,789,331
=========== ===========
The accompanying notes are a part of this statement.
F-7
<PAGE>
EQUITEX, INC.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
JUNE 30,
1999 1998
----------- -----------
(PRO FORMA)*
<S> <C> <C>
Cash flows (used) provided by operating activities:
Net income (loss) ............................... $(1,156,868) $(1,187,608)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation ............................... 35,880 5,356
Services for stock ......................... 150,000
Minority interest in net loss .............. (28,047) 25,297
Equity in joint venture .................... (151,500)
Changes in assets and liabilities:
Trade receivables
Accounts receivable - other ................ (28,574)
Accounts receivable - brokers .............. 45,241
Advances in FirstNet Capital ............... (565,327)
Loans receivable ........................... (300,000)
Inventories ................................ (30,581)
Prepaid expense and other .................. (75,814) (800)
Investments - trading securities ........... 189,105 153,093
Investments - available for sale securities 8,964
Notes receivable ........................... (2,878,469) (202,472)
Bank overdraft ............................. (12,666)
Accounts payable and other accrued
liabilities ............................. 41,809 200,172
Accounts payable to brokers ................ (367,609) 403,209
Deferred income taxes ...................... (17,332)
Accrued bonus to officer ................... (412,007) (216,216)
----------- -----------
Net cash (used) provided by operating
activities .............................. (5,581,704) (792,060)
Cash flows (used) provided by investing activities:
Purchase of fixed assets ........................ (20,968) (5,347)
Repayment of note receivable
Increase in other investments ................... (115,000) (115,000)
Increase in deferred acquisition costs .......... (381,634) (50,000)
Increase in deposits and other .................. (74,099)
Increase in tradename and franchise costs ....... (27,500)
Investment in First TeleBanc .................... (175,000)
----------- -----------
Net cash (used) provided by
investing activities ................. (794,201) (170,347)
</TABLE>
(Continued)
* As if an operating company rather than a BDC.
The accompanying notes are a part of this statement.
F-8
<PAGE>
EQUITEX, INC.
Consolidated Statements of Cash Flows (Page 2)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
JUNE 30,
1999 1998
----------- -----------
(PRO FORMA)*
<S> <C> <C>
Cash flows (used) provided by financing activities:
Common stock issued for cash .................... $ 5,699,299 $ 826,572
Minority interest increase ...................... 516,750 250,000
Subsidiary's preferred stock issued for cash .... 1,837,000
Preferred stock issued for cash ................. 2,100,000
Offering costs incurred ......................... (150,000)
Preferred dividends paid ........................ (26,509)
Issuance of notes payable - related parties ..... 18,199
Issuance of notes payable - other ............... 280,425 257,328
Repayment of notes payable - related parties .... (62,170)
Repayment of notes payable - other .............. (71,431) (327,599)
----------- -----------
Net cash (used) provided by financing
activities ................................. 10,141,563 1,006,301
Change in cash and cash equivalents ................... 3,765,658 43,894
Cash and cash equivalents,
beginning of period ............................. -- 9,187
----------- -----------
Cash and cash equivalents,
end of period ................................... $ 3,765,658 $ 53,081
=========== ===========
Supplemental disclosures of cash flow information:
Interest paid .............................. $ 57,251 $ 29,906
=========== ===========
Interest received .......................... $ 60,811 $ 662
=========== ===========
</TABLE>
Supplemental disclosure of non-cash activities:
In March 1999, a noteholder converted his note payable of $150,000 into
the Company's common stock.
In the first quarter of 1999, $200,000 of the Company's common stock was
issued to the placement agent for services rendered relative to the
preferred stock sale.
In 1999, additional paid-in capital and the accumulated deficit were both
increased by $1,333,098 which is the amount of the discount relative to
the immediate beneficial conversion feature on the preferred stock.
During the second quarter of 1999, $2,142,459 of the Company's preferred
stock was converted into common stock.
* As if an operating company rather than a BDC.
The accompanying notes are a part of this statement.
F-9
<PAGE>
EQUITEX, INC.
Statement of Cash Flows
(Unaudited)
FOR THE SIX
MONTHS ENDED
JUNE 30, 1998
(WHILE A BDC)
------------
Cash flows from operating activities:
Net change in net assets .................................. $ (71,722)
Adjustments to reconcile net change in
net assets to net cash provided by
operating activities:
Depreciation and amortization ....................... 5,356
Donation of stock ................................... --
Provision for bad debts on notes
receivable ........................................ --
Realized (gain) loss on sale of
investments ....................................... (622,930)
Unrealized (gain) loss on investments ............... 430,463
Proceeds from sales of investments ........................ 861,593
Purchase of investments ................................... (942,520)
Collection of notes receivable ............................ 16,083
Issuance of notes receivable .............................. (462,876)
Changes in assets and liabilities:
(Increase) decrease in interest receivable ............ (9,352)
(Increase) decrease in trade receivables .............. (77,071)
(Increase) decrease in accounts
receivable - brokers ................................ 45,241
(Increase) in prepaid expense ......................... (800)
(Increase) in deferred income tax benefit ............. (17,332)
Increase in accounts payable and
other accrued liabilities ........................... 42,631
Increase in accounts payable to brokers ............... 403,209
Increase (decrease) in accrued bonus
to officer .......................................... (216,216)
Increase (decrease) in deferred income taxes .......... --
------------
Net cash (used) by operating
activities .......................................... (616,243)
Cash flows from investing activities:
Purchase of furniture and equipment ....................... (5,347)
Net cash (used) by investing activities ............... (5,347)
(Continued)
The accompanying notes are a part of this statement.
F-10
<PAGE>
EQUITEX, INC.
Statement of Cash Flows (Page 2)
(Unaudited)
FOR THE SIX
MONTHS ENDED
JUNE 30, 1998
(WHILE A BDC)
------------
Cash flows from financing activities:
Issuance of notes payable ................................. $ 142,328
Repayment of notes payable ................................ (327,599)
Common stock issued for cash .............................. 826,572
------------
Net cash provided (used) by
financing activities ............................... 641,301
Increase (decrease) in cash .................................. 19,711
Cash, beginning of period .................................... 9,187
------------
Cash, end of period .......................................... $ 28,898
============
Supplemental disclosures of cash flow information:
Interest paid ......................................... $ 45,040
============
Interest received ..................................... $ 14,844
============
The accompanying notes are a part of this statement.
F-11
<PAGE>
EQUITEX, INC.
Selected Notes to Financial Statements
(Not a Complete Presentation)
June 30, 1999
(Unaudited)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies include:
a. DECERTIFICATION AS A BUSINESS DEVELOPMENT COMPANY (BDC)
On January 4, 1999, the Company withdrew its election to be treated as
a BDC subject to the Investment Company Act. As a result of this withdrawal, the
Company is now required to present its financial statements consistent with
those of a normal operating company as opposed to a business development company
(BDC). Because the Company was a BDC for the three and six months ended June 30,
1998 the statement of operations and cash flows for the 1998 periods still
reflect the BDC format.
b. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements for 1999 include the accounts of
Equitex, Inc., its wholly-owned subsidiary, First TeleServices Corporation which
was acquired August 1998, and two majority-owned subsidiaries, VP Sports, Inc.
and Triumph Sports, Inc. which were formed in December 1997 and January 1998,
respectively. All significant intercompany accounts and transactions have been
eliminated. The equity method of accounting is used for the Company's interest
in two 50%-owned joint ventures over which the Company has the ability to
exercise significant influence. These joint ventures were started in late March
1999 and had no operational activity until the second quarter of 1999. The
Company also has other investments that are less than 20%-owned and are
accounted for at either cost or fair market value as described in Note 1d.
below.
The June 30, 1999 unaudited pro forma column in the statement of
revenues and statement of cash flows reflects the Company's consolidated
activity for the three and six months ended June 30, 1999 as if the Company were
an operating company rather than a BDC at that time.
c. INVENTORIES
Inventories consist of retail merchandise inventory and are stated at
the lower of cost or market. Cost is determined on the average cost method.
d. INVESTMENTS UNDER 20%-OWNED
Investments in marketable securities are stated at fair market value as
determined by the most recently traded price of each security at the balance
sheet date. All marketable securities are defined as trading securities or
available-for-sale securities under the provisions of Statement of Financial
Accounting Standards No. ("SFAS") 115, "Accounting for Certain Investments in
Debt and Equity Securities."
Management will determine the appropriate classification of its
investments in marketable securities at the time of purchase and will reevaluate
such determination at each balance sheet date. Securities that are bought and
held principally for the purpose of selling them in the near term are classified
as trading securities and unrealized holding gains and losses are included in
earnings. Debt securities for which the Company
F-12
(Continued)
<PAGE>
EQUITEX, INC.
Selected Notes to Financial Statements
(Not a Complete Presentation)
June 30, 1999
(Unaudited)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
d. INVESTMENTS UNDER 20%-OWNED (CONTINUED)
does not have the intent or ability to hold to maturity and equity securities
are classified as available-for-sale. Available-for-sale securities are carried
at fair value, with the unrealized gains and losses, net of tax, reported as a
separate component of stockholders' equity. The cost of investments sold is
determined on the specific identification or the first-in, first-out method. If
an investment does not have a readily determinable fair market value, then it is
carried at cost.
e. INTANGIBLE ASSETS
Intangibles include covenants-not-to-compete, lease assignments, trade
name and franchise rights and the excess of costs over fair value of net assets
of business (four retail stores) acquired. All intangibles are amortized by the
straight-line method over estimated useful lives as follows:
LIFE
Tradename and franchise rights 10 years
Lease assignment 10 years
Non-compete agreement 10 years
Goodwill 10-15 years
The Company periodically assesses whether its goodwill and other
intangible assets are impaired as required by SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
based on an evaluation of undiscounted projected cash flows through the
remaining amortization period. If an impairment exists, the amount of such
impairment is calculated based on the estimated fair value of the asset. In
management's opinion, no material impairment exists at June 30, 1999.
NOTE 2. NOTES PAYABLE
As discussed in Note 3b. below, a noteholder exchanged his $150,000
note and accrued interest for the Company's common stock during the first
quarter of 1999.
NOTE 3. STOCKHOLDERS' EQUITY
a. PREFERRED STOCK
In January and February 1999, the Company issued a total of 2,100
shares of 6% Series A, B, and C Convertible Preferred Stock in consideration for
$1,000 cash per share which is the stated value per share. Each series of stock
is convertible into common stock at any time by the holders at a conversion
price equal to 65% of the average closing bid price of the Company's common
stock as specified in the agreement. Because this preferred stock contained an
immediate beneficial conversion feature, both additional paid-in capital and the
accumulated deficit were increased by $1,333,098 the amount of the discount due
to this beneficial conversion feature. The holders are entitled to receive a
cumulative annual dividend of $60 per share, which is payable quarterly and has
F-13
(Continued)
<PAGE>
EQUITEX, INC.
Selected Notes to Financial Statements
(Not a Complete Presentation)
June 30, 1999
(Unaudited)
NOTE 3. STOCKHOLDERS' EQUITY (CONTINUED)
a. PREFERRED STOCK (CONTINUED)
preference to any other dividends which might be paid by the Company. The
dividend is payable either in cash or in shares of the Company's common stock,
at the Company's option. The Company is required to convert these shares at the
three-year anniversary date. The preferred stockholders received warrants to
purchase a total of 250,000 shares of the Company's common stock at 120% of the
market price as of the grant date. In addition, the placement agent was issued
20,000 shares of the Company's common stock, valued at $200,000 in exchange for
services in connection with the preferred stock sales.
In April 1999 all 2,100 shares of the Company's 6% Series A, B and C
Convertible Preferred Stock, plus accrued dividends on those shares, were
converted into approximately 320,528 shares of common stock at an average
conversion price of $6.63 per share.
b. COMMON STOCK ISSUANCES
During the first six months of 1999, the Company sold 330,312 shares of
its common stock in a private placement for cash of $3.25 per share. In
addition, during the first quarter a note holder exchanged his note and accrued
interest for 48,688 shares of the Company's common stock.
During the six months of 1999, employees and officers exercised
previously granted stock options for 650,600 shares of common stock. In
addition, 302,500 shares were issued pursuant to warrant exercises.
c. STOCK OPTIONS AND WARRANTS
In January 1999, the Company's Board of Directors adopted an incentive
stock option plan covering up to 1,000,000 shares of the Company's common stock.
During the six months ended June 30, 1999, the Company granted incentive stock
options for 29,000 shares and 8,000 shares to the Company's officers and
employees, respectively. In addition, non-statutory stock options for 472,000
and 491,000 shares were granted to officers and directors, respectively. All
options were granted at a price of $6.75 per share which represents fair market
value at the grant date.
A warrant to purchase 50,000 shares of the Company's common stock at
$3.75 per share was granted to an unrelated entity for services rendered, valued
at $150,000. In addition, a warrant to purchase 62,500 shares at an exercise
price of $7.25 per share was granted to another unrelated party.
NOTE 4. PRIVATE PLACEMENT OF SUBSIDIARY'S CONVERTIBLE PREFERRED STOCK
In June 1999 the Company's subsidiary, VP Sports, Inc. (VP), authorized
a private placement of up to 40 units with total possible gross proceeds of
$5,000,000. Each unit consists of 100 shares of $1,000 per share 8% secured
convertible preferred stock, 12,500 shares of VP's common stock at $2 per share,
and warrants to purchase 287,500 shares of VP's common stock at $.10 per share.
The preferred
F-14
(Continued)
<PAGE>
EQUITEX, INC.
Selected Notes to Financial Statements
(Not a Complete Presentation)
June 30, 1999
(Unaudited)
NOTE 4. PRIVATE PLACEMENT OF SUBSIDIARY'S CONVERTIBLE PREFERRED STOCK
(CONTINUED)
stock is convertible into VP's common stock at any time by the holders at a
conversion price equal to $4.00 per share. The holders are entitled to receive a
cumulative annual dividend of $80 per share, which is payable quarterly and has
preference to any other dividends which might be paid by VP. The dividend is
payable either in cash or in shares of the VP's common stock, at the VP's
option. VP is required to convert these shares at the three-year anniversary
date. As of June 30, 1999 18.37 units with gross proceeds of $2,296,250 had been
sold by VP. The portion of the proceeds applicable to the preferred stock,
$1,837,000, has been included as part of the Company's additional paid-in
capital.
NOTE 5. SUBSEQUENT EVENTS
a. EXPECTED ISSUANCE OF SERIES D PREFERRED
In May 1999 gross proceeds of $3,500,000 were received into an
independent escrow account in exchange for 3,500 shares of Series D convertible
preferred stock, which the Company is committed to issue. The Series D preferred
stock contains the same rights as the Series A, B and C Preferred stock
discussed above. Because the Company does not have sufficient authorized common
shares available for issuance, this transaction has not yet been completed.
b. PROPOSED BUSINESS ACQUISITION
In June 1999 the Company executed a definitive agreement with a
previously unrelated mortgage lender. Under the terms of the agreement, the
Company is to acquire the mortgage company in exchange for shares of the
Company's common stock and a working capital contribution. During May and June
1999 $2.75 million in working capital funds were loaned to this entity pursuant
to the letter of intent. Subsequent to June 30, 1999 additional loans of
$916,561 were made pursuant to this agreement. The mortgage company's common
stock secures all of these advances. The Company is in the process of
negotiating an amendment to this agreement.
c. ADDITIONAL COMMON STOCK ISSUANCES
Subsequent to June 30, 1999, 47,850 shares and 175,000 shares of the
Company's common stock were issued pursuant to stock option and warrant
exercises, respectively.
d. ISSUANCE OF ADDITIONAL PREFERRED STOCK OF SUBSIDIARY
Subsequent to June 30, 1999, an additional 16.38 units of VP's 8%
Series A Convertible Preferred Stock were sold generating gross proceeds of
$2,047,500.
e. ACQUISITION BY VP
On July 17, 1999 VP completed an acquisition pursuant to which Victoria
Precision, Inc. ("Victoria"), a corporation incorporated under the laws of the
Province of Quebec, merged with and into a wholly-owned
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(Continued)
<PAGE>
EQUITEX, INC.
Selected Notes to Financial Statements
(Not a Complete Presentation)
June 30, 1999
(Unaudited)
e. ACQUISITION BY VP (CONTINUED)
subsidiary of VP. Pursuant to the acquisition, VP acquired all of the capital
stock of Victoria from its existing stockholders. Total consideration paid was
$6,000,000 CDN resulting in ownership of all of the assets, liabilities and
business operations of Victoria, and the rights to a four-year international
consulting and noncompete agreement. Of the purchase price, $4,700,000 CDN was
paid in cash at closing with the remaining $1,300,000 paid in the form of a
promissory note bearing interest at 6% per annum payable in equal installments
at 6 and 12 months following the closing.
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<PAGE>
Part 1. FINANCIAL INFORMATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
FORWARD LOOKING STATEMENTS
THIS 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 COMPANY'S EXPECTATIONS OR BELIEFS, INCLUDING BUT NOT LIMITED TO,
STATEMENTS CONCERNING THE COMPANY'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 COMPANY'S CONTROL, AND ACTUAL RESULTS MAY DIFFER
MATERIALLY DEPENDING ON A VARIETY OF IMPORTANT FACTORS, INCLUDING UNCERTAINTY
RELATED TO THE COMPANY'S OPERATIONS, MERGERS OR ACQUISITIONS, GOVERNMENTAL
REGULATION, THE VALUE OF THE COMPANY'S ASSETS AND ANY OTHER FACTORS DISCUSSED IN
THIS AND OTHER COMPANY FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.
OVERVIEW
On January 4, 1999, Equitex, Inc. ("Equitex", the "Company", or the
"Registrant") filed with the Securities and Exchange Commission to withdraw its
election to be treated as a business development company ("BDC") and elected to
be treated for a maximum period of one year as a "transient investment company"
as that term is defined in the Investment Company Act of 1940 (the "Investment
Company Act"). A BDC is a form of closed-end, non-diversified investment company
under the Investment Company Act. Following the withdrawal, the Registrant is no
longer subject to the regulatory provisions of the Investment Company Act for
BDC's, such as insurance, custody, composition of the board, affiliated
transactions and compensation arrangements. Despite the Company's withdrawal of
its election as a BDC, the Company continues to be subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Under the Exchange Act, the Registrant continues 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. As a result of
the Company's withdrawal of its election to be treated as a BDC, the Company is
now operating as a holding company which must consolidate its financial
statements with those of its wholly owned subsidiary, First TeleServices Corp.,
and majority-owned subsidiaries, Triumph Sports, Inc. and VP Sports, Inc.
On August 13, 1998, the Registrant acquired all of the outstanding stock of
First TeleServices Corp. ("FTC") in exchange for 625,000 shares of the
Registrant's common stock. As a result of this transaction, FTC became a wholly
owned subsidiary of the Company. FTC is a fee-based financial services
organization consisting of a database marketing division, consumer finance
division, an inbound/outbound
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<PAGE>
calling center, and an operations center. FTC has developed strategic alliances
with a number of nationwide organizations to outsource certain of its operations
as well as the products and services it offers.
FTC has only partially begun operations and has not yet generated income. As a
marketing arm for financial institutions, FTC will perform as a consumer finance
company, offering a broad array of financial products and services to the
sub-prime market. These products will be developed through correspondent
relationships with companies specializing in those particular products which may
include: debt transfer servicing; balance transfer servicing; secured credit
cards; sub-prime mortgage loans; sub-prime auto loans; prepaid calling cards;
prepaid residential long distance service; prepaid cellular service; insurance
products; and other selected products and services.
During the first quarter, FTC entered into a joint venture agreement with RLG
Holdings, LLC ("RLG") to service, collect and sell portfolios of consumer debt.
RLG is a Florida based financial services company specializing in acquisition,
value enhancement and profitable disposition of consumer collection portfolios
and performing and non-performing real estate secured notes receivable
portfolios. Utilizing funds provided by FTC and RLG, the joint venture company,
FirstNet Capital, acquired two debt portfolios, the first of which consists of
over 13,000 accounts representing in excess of $100 million. The second and most
recent acquisition consists of 15,600 charged-off credit accounts in Canada with
an aggregate balance of approximately $34 million Canadian. The Company, through
FTC, advanced a total of $565,000 to the joint venture during the quarter ended
March 31, 1999 all of which remained unpaid at June 30, 1999. A payment of
$200,000 was received from First Net Capital during July 1999.
Through the quarter ended June 30, 1999, the Company, through FTC, loaned
$300,000 to National Business Finance, LLC ("NBF"). NBF is a SBA (Small Business
Administration) loan originator which originates and sells to SBA lenders,
including net First National Bank, SBA loans for a fee.
In the fourth quarter of 1998, the Registrant acquired a number of shares of
First TeleBanc Corp. ("FTB") which now totals 7.5% of FTB's outstanding capital
stock. On April 12, 1998 the Registrant announced its intent to merge with FTB
and has since executed a definitive agreement for the merger which calls for the
Company to acquire all of the outstanding capital stock of FTB in an exchange of
stock. Under the terms of the agreement, the existing stockholders of FTB will
receive shares of Equitex common stock based on certain factors, principally the
relative value of each company. In addition, certain of the non-financial
services related assets of Equitex will be spun off to the Company's
stockholders through a newly formed publicly traded company. Equitex has filed
its final application with the Federal Reserve Bank of Atlanta which must
approve Equitex as a bank holding company prior to completion of the proposed
merger. The application is being amended in response to comments from the
Federal Reserve Bank. Upon a successful determination by the Federal Reserve, a
meeting of Equitex stockholders to vote on the merger will be scheduled as soon
as possible.
FTB is the bank holding company for net First National Bank, N.A., formerly
known as Boca Raton First National Bank, a 13 year-old nationally chartered bank
based in Boca Raton, Florida. FTB intends to operate as a single bank holding
company through net First National Bank offering both traditional walk-in
banking services as well as Internet banking. net First National Bank will also
focus on fee-based programs such as SBA lending, secured credit cards and
electronic transaction processing. Concurrent with the closing of the merger, if
consummated, the newly merged company intends to change its name to more
accurately reflect the new business operations of the Company, and FTB's
existing board of directors will become the board of the new bank holding
company.
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<PAGE>
On May 13, 1999, the Company announced the signing of a letter of intent with
First Bankers Mortgage Services, Inc. ("FBMS") of Ft. Lauderdale, Florida. The
letter of intent calls for the acquisition by the Registrant of all of the
outstanding capital stock of FBMS for a combination of Equitex common stock and
a commitment of working capital to the ongoing entity. As of June 30, 1999, the
Registrant made loans totaling $2,750,000 to FBMS which are secured by all of
the issued and outstanding common stock of FBMS. During the period from July 1,
1999 to the filing of this report, additional loans totaling $916,561 have been
advanced. As of the filing of this report, the companies have performed
customary due diligence and are presently renegotiating certain terms of a
definitive agreement executed in June 1999. FBMS is one of the 70 largest
mortgage lenders in the United States operating in 25 states and is the largest
privately held mortgage lender in the state of Florida. FBMS profitably
originated in excess of $850 million in mortgage loans during 1998.
In June 1998, the Registrant commenced a private placement of up to 300,000
shares of the Registrant's common stock at $3.25 per share to accredited
investors. In October 1998, the board of directors of the Registrant increased
the number of shares which could be sold pursuant to the offering from 300,000
to 750,000 shares. During the quarter ended March 31, 1999, the Registrant
completed this offering with the sale of 364,000 shares of common stock for
total proceeds of $1,183,000, $158,236 of which was converted debt.
During the first quarter of 1999, the Registrant completed three offerings
through which a total of 2,100 shares of the Company's $.01 par value preferred
stock were sold to accredited investors for $1,000 per share. The Company sold
900 shares of its Series A 6% Convertible Preferred Stock for total proceeds of
$900,000, less offering expenses. The Series A 6% Convertible Preferred Stock
carries a 6% interest rate paid quarterly in either cash or stock and may be
convertible into shares of the Company's common stock at 65% of the five day
average bid price of the Company's common stock for the five days immediately
preceding conversion. The Company sold 600 shares of its Series B 6% Convertible
Preferred Stock for proceeds of $600,000 and 600 shares of its Series C 6%
Convertible Preferred Stock for proceeds of $600,000. The Series B and C
Preferred Stock carries the same terms and conditions as those of Series A.
During the month of April 1999, all of the outstanding shares of the Series A, B
and C preferred stock, including dividends payable, were converted into a total
of 320,528 shares of Equitex common stock.
During the month of May 1999, the Company reached agreement with an accredited
investor to sell 3,500 shares of its Series D 6% Convertible Preferred Stock
under terms and conditions similar to those of the Series A, B and C Preferred
Stock. The total proceeds of $3,500,000, less offering costs, are currently
being held in escrow pending authorization by the Company's stockholders of a
sufficient number of shares of the Company's common stock to cover those shares
underlying the Series D preferred stock. The Company has filed a preliminary
proxy statement with the Securities and Exchange Commission for a Special
Meeting of Stockholders to be held during the Summer of 1999 at which the
Company's stockholders will be asked to vote on a proposal to increase the
number of authorized shares of the Company's common stock from 7,500,000 to
50,000,000.
In addition to the above common stock issuances, the Registrant has issued stock
pursuant to the exercise of certain warrants to purchase common stock. A total
of 250,000 warrants to purchase common stock were issued in conjunction with the
Series A, B and C 6% Convertible Preferred Private Placements at exercise prices
ranging from $8.205 to $11.73 per share. Of these outstanding warrants, 190,000
were exercised during the quarter ended June 30, 1999 for total proceeds to the
Registrant of $1,798,000. An additional 112,500 shares of common stock were
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<PAGE>
issued pursuant to the exercise of 112,500 warrants to purchase common stock
issued to two separate entities for total proceeds to the Registrant of
$640,625.
During the six months ended June 30, 1999, officers, directors, and employees of
the Registrant exercised 662,600 stock options pursuant to the Registrant's 1993
Stock Option Plan and 1993 Stock Option Plan for Non-Employee Directors. Total
proceeds from these exercises were $2,084,976.
A majority of the proceeds from the issuances of common stock, preferred stock,
and warrants have been and will be used in connection with the Registrant's
merger and acquisition activities as well as for working capital. For the six
months ended June 30, 1999, the Company has loaned a total of $1,110,129 to its
wholly owned subsidiary, FTC, which was used in connection with FTC's investment
activities as outlined above as well as for working capital and operating
overhead. Additionally, portions of the proceeds were also used in the loans
made to FBMS totaling $3,666,561 as explained above.
As part of the Company's transition from a BDC to an operating company, the
operations of two of the Company's BDC investments, Triumph Sports, Inc.
("Triumph") and VP Sports, Inc. ("VP"), both of which are majority owned by the
Registrant, must be consolidated with those of the Registrant and that of its
wholly owned subsidiary FTC. In the latter part of 1998, Triumph acquired four
health food, nutritional and supplement related retail outlets in south Florida
and now operates a total of five locations. Triumph is an authorized franchisee
of General Nutrition Centers ("GNC") which stores comprise two of those
operated. The Company owns approximately 79% of Triumph.
On July 27, 1999 VP completed an acquisition pursuant to which Victoria
Precision, Inc. ("Victoria"), a corporation incorporated under the laws of the
Province of Quebec, merged with and into a wholly-owned subsidiary of VP.
Pursuant to the acquisition, VP acquired all of the capital stock of Victoria
from its existing stockholders. Total consideration paid was $6,000,000 CDN
resulting in ownership of all of the assets, liabilities and business operations
of Victoria, and the rights to a four-year international consulting and
non-compete agreement. Of the purchase price, $4,700,000 CDN was paid in cash at
closing with the remaining $1,300,000 paid in the form of a promissory note
bearing interest at 6% per annum payable in equal installments at 6 and 12
months following the closing.
Victoria is a Canadian manufacturer and distributor of a broad range of bicycles
and tricycles. All production and assembly is performed in Victoria's 175,000
square foot manufacturing facility in Montreal, Quebec, Canada. Victoria is the
second largest manufacturer of bicycles in Canada. Victoria targets the low to
middle price ranges of the bicycle market, manufacturing durable, precision
crafted bicycles and tricycles priced to retail up to $600 CDN per unit.
Victoria has a product assortment of more than 90 models of bicycles ranging
from adult mountain and hybrid bicycles to juvenile and children's bicycles, BMX
bikes and tricycles. VP will continue the operations of Victoria.
In June 1999, VP commenced a private placement through which it is offering up
to 40 units with each unit consisting of 100 shares of $1,000 per share 8%
preferred stock, 12,500 shares of common stock at $2.00 per share, and 287,500
warrants to purchase 287,500 shares of common stock at $.10 per share. As of
F-20
<PAGE>
June 30, 1999, 18.37 units had been sold for proceeds to VP of $2,296,250. As of
the filing of this report, 16.38 additional units have been sold for proceeds of
$2,047,500. A majority of these funds were used for payment of the $4,700,000
cash purchase component of the Victoria acquisition while the remainder will be
used for working capital purposes.
RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the consolidated
financial statements and notes thereto. As a result of the Company's change from
a BDC to an operating company effective January 4, 1999, the Company is now
required to present its financial statements consistent with those of an
operating company as opposed to an investment company. Accordingly, the
statements of operations and cash flows for the three and six months ended June
30, 1998 are presented in both a pro-forma format which assumes the Company was
an operating company instead of a BDC as well as the investment company format
which includes the actual results for the Company's operations as a BDC in that
period.
REVENUES: Revenues for the quarter ended June 30, 1999 were $387,607 as compared
to pro-forma revenues of $3,606 at June 30, 1998 and actual revenues of $140,080
for the Company's BDC operations for the same period. For the six months ended
June 30, 1999, revenues were $654,651 compared to pro-forma revenues of $4,912
and actual revenues of $401,401 at June 30, 1998. Of these revenues for the six
months ended June 30, 1999, $409,689 are attributed directly to the operations
of Triumph with $151,500 from FTC and the balance from the Registrant itself. VP
generated no revenues during the quarter or six month period. Due to the
Registrant's change from a BDC to an operating company at the beginning of 1999,
and as the Registrant continues to carry out its plans relative to becoming a
fully operating company through the FTB merger and FBMS acquisition, the
Registrant anticipates it will continue to record minimal revenues.
EXPENSES: The Registrant's expenses during the second quarter of 1999 were
$1,085,391 as compared to a pro-forma $1,027,708 and actual expenses of $298,171
for the same period in 1998. For the six months ended June 30, 1999, the
Registrant had total expenses of $1,839,566 with pro-forma expenses of
$1,217,817 and actual expenses of $682,922 for the same period in 1998. A
majority of this increase for the six months is a direct result of the
consolidation of three new entities with that of the Registrant. The addition of
cost of goods sold of $242,522 for Triumph as well as the addition of salaries
for Triumph and FTC totaling $177,445, combine to form a significant portion of
this increase.
In addition, officer's bonus increased from $87,565 in the prior period to
$510,664 for the current period as a result of a change in the nature in which
the officer's bonus is paid from a percentage of total assets to primarily the
increase in the market value of the Registrant's common stock. Of the Company's
total expenses, approximately $530,463 are attributed to Triumph and $193,170
are attributed to FTC. VP had only minimal expenses during the period.
Included in these expenses is unrealized holding losses on trading securities.
This represents both the realized and unrealized gain or loss on those
securities that have been designtated as trading securities. For the quarter
ended June 30, 1999, unrealized holding losses (gains) on trading securities was
$121,844 as compared to $635,009 on a pro-forma basis during the previous year's
period. For the six months ended June 30, 1999, unrealized holding losses
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<PAGE>
(gains) on trading securities was $(177,810) as compared to $324,097 for the
1998 period. With the exception of a significant realized gain on the sale of
certain shares of IntraNet Solutions common stock during the first quarter of
1999 which accounts for the gain of $177,810 at June 30, 1999, a majority of
these losses are unrealized and represent the change in the market value of the
trading securities from period to period. While these unrealized gains and
losses are categorized as expenses, they typically represent only paper gains or
losses which have not actually been incurred.
MINORITY INTEREST: For the three and six months ended June 30, 1999, the
Registrant had minority interest in net income of $16,260 and $28,047 as
compared to $10,182 and $25,297, respectively, on a pro-forma basis for the same
period in the previous year.
OTHER INCOME: The Registrant recorded $(20,228) and $15,623 in other
comprehensive income (loss), net of tax for the three and six months ended June
30, 1999 as compared to $(938) and $51,537 pro-forma, respectively, for the same
period in 1998. This represents non-cash income for unrealized gains on certain
of the Company's securities investments that have been classified as "available
for sale securities".
NET LOSS: For the three months ended June 30, 1999, the Registrant recorded a
net loss of $701,752 or $.10 per primary and fully diluted share as compared to
pro-forma net loss of $1,014,858 or $.25 per primary and fully diluted share for
the quarter ended June 30, 1998. As a BDC, the Company recorded net investment
loss and net realized gain on investments of $(88,734) and a net decrease in net
assets resulting from operations of $510,699 for the first quarter of 1998. For
the six months ended June 30, 1999, the Registrant recorded a net loss of
$1,141,245 or $.19 per primary and fully diluted share as compared to pro-forma
net loss of $1,187,608 or $.31 per primary and fully diluted share for the six
months ended June 30, 1998. As a BDC, the Company recorded net investment loss
and net realized gain on investments of $190,859 and a net decrease in net
assets resulting from operations of $71,722 for the first six months of 1998.
LIQUIDITY AND CAPITAL RESOURCES: The Registrant's sources of liquidity and
capital resources are primarily derived from several sources including sales of
investments and proceeds from sales of the Registrant's common and preferred
stock. As a result of the cash receipts outlined below as well as the
anticipated sale of the Series D Convertible Preferred, the Registrant presently
anticipates its liquidity and capital resources are sufficient to fund the
Company's current and planned operations for the foreseeable future. However, as
more fully explained in "Overview" above, the Company has signed agreements,
which, if consummated, would result in a fundamental change in the nature of the
Company's business. While terms of those agreements call for significant cash
balances to remain with the Registrant following the proposed transactions, no
assurance can be made that the Company's present liquidity and capital resources
will be sufficient to fund the future operations of the Registrant should the
contemplated mergers and acquisitions take place. Further sales of the
Registrant's securities or other sources of income may be necessary to
adequately fund those operations.
During the first six months of 1999, the Registrant received a total of
$7,650,000 before expenses from the sale of common stock and preferred stock,
the exercise of common stock purchase warrants and the exercise of officer,
director and employee stock options. As a result of the aforementioned proceeds
from the sale and issuance of equity securities of the Company, as well as other
cash revenues generated as a result of the Registrant's operations, the
Registrant had a total cash position at June 30, 1999 of $3,765,658. Of this
amount, $1,386,564 was held by the Registrant, $2,354,434 was held by VP, and
the remainder was held by Triumph and FTC.
F-22
<PAGE>
In addition, the Company has received a third party commitment to purchase 3,500
shares of its Series D 6% Convertible Preferred stock for total proceeds of
$3,500,000 which currently are being held in escrow pending an increase in the
number of authorized shares of the Company. Completion of this offering is a
crucial part of the Registrant's business plan and is integral to completion of
both the FTB merger and FBMS acquisition.
YEAR 2000 READINESS
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process date field containing a
two-digit year is commonly referred to as the "Year 2000 Issue." As the year
2000 approaches, such systems may recognize a date using "00" as the year 1900
rather than the year 2000 and be unable to accurately process certain date-based
information. This error could potentially result in a system failure or
miscalculation causing disruptions of operations, including, among other things,
a temporary inability to process transactions or engage in similar normal
business activities.
The Registrant has reviewed its computer system in order to evaluate
necessary modifications for the Year 2000 readiness. In addition, The Registrant
is in the process of communicating with others with whom it does significant
business to determine their Year 2000 readiness status and the extent to which
the Company could be affected by any third party Year 2000 readiness issues.
Although the Registrant has not received responses from all third parties with
which it does business, The Registrant does not anticipate that it will be
materially affected by any third party Year 2000 readiness issues. However, the
systems of the Registrant or those of other companies on which the Registrant's
systems rely may not be timely converted. A failure to convert by another
company, or a conversion that is incompatible with the Company's systems, could
have a material adverse effect on the Registrant.
Currently, the Registrant estimates its cost related to Year 2000
modifications to be less than $3,000 for the Company and its subsidiaries. The
anticipated costs and timeliness of completion of Year 2000 modifications are
based on management's best estimates, which were derived using numerous
assumptions relating to future events, including, without limitation, the
continued availability of certain resources and third party modification plans.
However, these estimates and assumptions may turn out to be inaccurate.
F-23
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
On April 8, 1999 the Registrant issued 145,788 shares of its
common stock in exchange for 900 shares of the Registrant's
Series A Convertible Preferred Stock. The Registrant relied on
exemptions from registration provided by Sections 4(2) and/or
4(6)
of the Securities Act.
On April 8, 1999 the Registrant issued 77,941 shares of its
common stock in exchange for 600 shares of the Registrant's
Series B Convertible Preferred Stock. The Registrant relied on
exemptions from registration provided by Sections 4(2) and/or
4(6) of the Securities Act.
On April 8, 1999 the Registrant issued 96,799 shares of its
common stock in exchange for 600 shares of the Registrant's
Series C Convertible Preferred Stock. The Registrant relied on
exemptions from registration provided by Sections 4(2) and/or
4(6) of the Securities Act.
On April 19, 1999 the Registrant issued 50,000 shares of its
common stock in exchange for 50,000 warrants to purchase common
stock at $3.75 per share. The Registrant relied on exemptions
from registration provided by Sections 4(2) and/or 4(6) of the
Securities Act.
On April 19, 1999 the Registrant issued 40,000 shares of its
common stock in exchange for 40,000 warrants to purchase common
stock at $8.895 per share. The Registrant relied on exemptions
from registration provided by Sections 4(2) and/or 4(6) of the
Securities Act.
On April 23, 1999 the Registrant issued 90,000 shares of its
common stock in exchange for 90,000 warrants to purchase common
stock at $8.205 per share. The Registrant relied on exemptions
from registration provided by Sections 4(2) and/or 4(6) of the
Securities Act.
On April 23, 1999 the Registrant issued 20,000 shares of its
common stock in exchange for 20,000 warrants to purchase common
stock at $7.25 per share. The Registrant relied on exemptions
from registration provided by Sections 4(2) and/or 4(6) of the
Securities Act.
On April 27, 1999 the Registrant issued 60,000 shares of its
common stock in exchange for 60,000 warrants to purchase common
stock at $11.73 per share. The Registrant relied on exemptions
from registration provided by Sections 4(2) and/or 4(6) of the
Securities Act.
On May 6, 1999 the Registrant issued 20,000 shares of its common
stock in exchange for 20,000 warrants to purchase common stock
at $7.25 per share. The Registrant relied on exemptions from
registration provided by Sections 4(2) and/or 4(6) of the
Securities Act.
(Continued)
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<PAGE>
PART II. OTHER INFORMATION (CONTINUED)
On May 19, 1999 the Registrant issued 22,500 shares of its
common stock in exchange for 22,500 warrants to purchase common
stock at $7.25 per share. The Registrant relied on exemptions
from registration provided by Sections 4(2) and/or 4(6) of the
Securities Act.
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) The Company filed no reports on Form 8-K during the
quarter covered by this report
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<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 20, 1999
<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, 1999, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,765,658
<SECURITIES> 1,269,621
<RECEIVABLES> 3,874,845
<ALLOWANCES> 100
<INVENTORY> 150,279
<CURRENT-ASSETS> 9,172,721
<PP&E> 226,926
<DEPRECIATION> 85,087
<TOTAL-ASSETS> 12,027,519
<CURRENT-LIABILITIES> 1,219,798
<BONDS> 0
0
0
<COMMON> 142,906
<OTHER-SE> 18,115,214
<TOTAL-LIABILITY-AND-EQUITY> 12,027,519
<SALES> 409,689
<TOTAL-REVENUES> 654,651
<CGS> 242,552
<TOTAL-COSTS> 242,552
<OTHER-EXPENSES> 1,555,714
<LOSS-PROVISION> 13,748
<INTEREST-EXPENSE> 27,552
<INCOME-PRETAX> (1,184,915)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,184,915)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,184,915)
<EPS-BASIC> (.19)
<EPS-DILUTED> (.19)
</TABLE>
