UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended JUNE 30, 2000
( ) 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 14, 2000: 7,106,943
<PAGE>
EQUITEX, INC. AND SUBSIDIARIES
PART I FINANCIAL INFORMATION Page
----
Item 1. Financial statements:
Independent accountants' report 3
Condensed consolidated balance sheets - June
30, 2000 and December 31, 1999 4
Condensed consolidated statements of operations-
three and six months ended June 30, 2000 and 1999 5
Condensed consolidated statement of changes in
stockholders' equity - six months ended June 30, 2000 6-7
Condensed consolidated statements of cash
flows - six months ended June 30, 2000, and 1999 8-9
Notes to condensed consolidated financial statements 10-17
Item 2. Management's discussion and analysis of financial
condition and results of operations 18-22
Item 3. Quantitative and qualitative disclosures of market
risk 22
PART II OTHER INFORMATION
Item 1. Legal proceedings 23
Item 2. Changes in securities and use of proceeds 23
Item 3. Defaults upon senior securities 23
Item 4. Submission of matters to a vote of security holders 23
Item 5. Other information 23
Item 6. Exhibits and reports on Form 8-K 23
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors
Equitex, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of
Equitex, Inc. and subsidiaries as of June 30, 2000, and the related condensed
consolidated statements of operations for the three-month and six-month periods
then ended, and the condensed consolidated statements of stockholders' equity
and cash flows for the six-month period then ended. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements for them
to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1999, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the year then ended (not presented herein); and in our report dated
April 10, 2000, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31, 1999, is
fairly stated, in all material respects, in relation to the balance sheet from
which it has been derived.
GELFOND HOCHSTADT PANGBURN, P.C.
Denver, Colorado
August 14, 2000
3
<PAGE>
EQUITEX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
2000 1999
------------- ------------
(Unaudited)
Cash and cash equivalents ........................ $ 220,161 $ 783,606
Mortgage loans held for sale, net ................ 14,787,080
Receivables, net:
Related parties ................................ 705,468 958,810
Other .......................................... 770,769 504,571
Inventories ...................................... 103,615 167,346
Investments:
Equity investments ............................. 1,145,000 1,707,898
Other investments .............................. 1,397,214 1,767,537
Furniture, fixtures, and equipment, net .......... 162,260 1,058,032
Intangible and other assets, net ................. 3,776,653 20,010,057
------------ ------------
$ 8,281,140 $ 41,744,937
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Warehouse loans ................................ $ 18,582,351
Accounts payable ............................... $ 193,456 1,584,926
Accrued liabilities:
Related parties .............................. 586,456 454,235
0thers ....................................... 77,804 2,773,989
Notes and advances payable:
Related parties .............................. 1,232,550 832,000
Others ....................................... 138,547 1,941,954
------------ ------------
Total liabilities .......................... 2,228,813 26,169,455
------------ ------------
Minority interest ................................ 5,488,070 6,473,070
------------ ------------
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock; par value $1,000;
4,500 shares authorized:
Series D, 6%; 1,200 shares issued and
outstanding; liquidation
preference $1,585,000 ..................... 1,200,000 1,200,000
Series E; 250 shares issued and outstanding 250,000 250,000
Common stock, par value $.02; 7,500,000
shares authorized; 7,140,293 shares issued;
7,106,943 shares outstanding ................ 142,806 142,806
Additional paid-in capital .................... 19,166,127 18,820,223
Accumulated deficit ........................... (20,080,639) (11,196,580)
Less treasury stock at cost (33,350 shares) ... (114,037) (114,037)
------------ ------------
Total stockholders' equity ................. 564,257 9,102,412
------------ ------------
$ 8,281,140 $ 41,744,937
============ ============
See notes to condensed consolidated financial statements.
4
<PAGE>
EQUITEX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months Six months
ended June 30, ended June 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Product sales ............................ $ 105,024 $ 187,341 $ 220,588 $ 409,689
Loan production and processing revenues .. 96,590 293,065
Secondary marketing revenues, net ........ 10,559 871,134
Interest and dividend income ............. 105,340 48,766 334,655 60,815
Other .................................... 3,914 59,278 32,647
----------- ----------- ----------- -----------
321,427 236,107 1,778,720 503,151
----------- ----------- ----------- -----------
Expenses:
Cost of product sales .................... 63,688 111,466 136,321 242,552
Loan production and processing ........... 146,361 739,735
Selling, general and administrative ...... 1,429,242 845,315 4,071,120 1,747,272
Loss on FBMS rescission (Note 2) ......... 4,439,000 4,439,000
----------- ----------- ----------- -----------
6,078,291 956,781 9,386,176 1,989,824
----------- ----------- ----------- -----------
Loss from operations ...................... (5,756,864) (720,674) (7,607,456) (1,486,673)
----------- ----------- ----------- -----------
Other income (expenses):
Investment (losses) gains, net ........... (256,915) (121,844) (102,790) 177,810
Equity in (losses) earnings of affiliates (629,404) 151,500 (562,898) 151,500
Interest expense:
Related parties ........................ (74,560) (114,618)
Other .................................. (257,101) (6,766) (569,775) (27,552)
Other income ............................. 73,478
----------- ----------- ----------- -----------
(1,217,980) 22,890 (1,276,603) 301,758
----------- ----------- ----------- -----------
Loss before minority interest ............. (6,974,844) (697,784) (8,884,059) (1,184,915)
Minority interest ......................... 16,260 28,047
----------- ----------- ----------- -----------
Net loss .................................. (6,974,844) (681,524) (8,884,059) (1,156,868)
Other comprehensive income, unrealized
holding (losses) gains on investments .... (20,228) 15,623
----------- ----------- ----------- -----------
Comprehensive loss ........................ $(6,974,844) $ (701,752) $(8,884,059) $(1,141,245)
=========== =========== =========== ===========
Net loss .................................. $(6,974,844) $ (701,752) $(8,884,059) $(1,141,245)
Amortization of discount on preferred stock (1,333,098) (1,333,098)
Deemed preferred stock dividends .......... (18,200) (2,600) (35,900) (26,300)
----------- ----------- ----------- -----------
Net loss applicable to common
shareholders ............................ $(6,993,044) $(2,037,450) $(8,919,959) $(2,500,643)
=========== =========== =========== ===========
Basic and diluted net loss per common
share ................................... $ (.98) $ (.30) $ (1.25) $ (.40)
=========== =========== =========== ===========
Weighted average number of common
shares outstanding ...................... 7,140,293 6,854,356 7,140,293 6,236,754
=========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
EQUITEX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Convertible preferred stock Common stock
-------------------------- -------------------------
Shares Amount Shares Amount
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balances, January 1, 2000 ................. 1,450 $ 1,450,000 7,140,293 $ 142,806
Subsidiary equity transaction
Net loss
----------- ----------- ----------- -----------
Balances, June 30, 2000 ................... 1,450 $ 1,450,000 7,140,293 $ 142,806
=========== =========== =========== ===========
</TABLE>
(Continued)
6
<PAGE>
EQUITEX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)
SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Additional
Treasury paid-in Accumulated
stock capital deficit Total
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Balances, January 1, 2000 ................. $ (114,037) $18,820,223 $(11,196,580) $ 9,102,412
Subsidiary equity transactions ............ 345,904 345,904
Net loss .................................. (8,884,059) (8,884,059)
----------- ----------- ------------ -----------
Balances, June 30, 2000 ................... $ (114,037) $19,166,127 $(20,080,639) $ 564,257
=========== =========== ============ ===========
</TABLE>
See notes to condensed consolidated financial statements.
7
<PAGE>
EQUITEX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30,
(UNAUDITED)
2000 1999
------------ ------------
Cash flows used in operating activities:
Net loss ......................................... $ (8,884,059) $ (1,156,868)
------------ ------------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization ............... 1,087,393 35,880
Loss on FBMS rescission ..................... 4,439,000
Gain on sale of subsidiary assets ........... (76,620)
Stock issued for services ................... 150,000
Provision for bad debts ..................... 22,628
Investment gain, net ........................ 102,790 (177,810)
Equity in earnings of affiliates ............ 562,898 (151,500)
Minority interest ........................... (28,047)
Changes in assets and liabilities:
Decrease in investments in trading
securities ............................... 347,876 189,105
Increase in investments in available-for-
sale securities .......................... 8,964
Increase in receivables ................... (6,820) (28,574)
Decrease in mortgage loans held for sale .. 13,838,929
Increase in inventories ................... (4,331) (30,581)
Increase in other assets .................. (317,971) (75,814)
Decrease (increase) in accounts payable and
accrued liabilities ...................... 832,675 (737,807)
------------ ------------
Total adjustments ......................... 20,828,447 (846,184)
------------ ------------
Net cash provided by (used in) operating activities 11,944,388 (2,003,052)
------------ ------------
Cash flows from investing activities:
Purchase of other investments ............... (12,471) (290,000)
Increase in equity investments .............. (387,517)
Sales of other investments .................. 278,032
Purchases of furniture, fixtures and equipment (16,243) (20,968)
Repayment of loans and notes receivable ..... 115,998
Issuance of loans and notes receivable ...... (2,767,017) (3,178,469)
Increase in intangible and other assets ..... (483,233)
------------ ------------
Net cash used in investing activities ............ (2,401,701) (4,360,187)
------------ ------------
(Continued)
8
<PAGE>
EQUITEX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SIX MONTHS ENDED JUNE 30,
(UNAUDITED)
2000 1999
------------- ------------
Cash flows from financing activities:
Common stock issued for cash ................ 5,699,299
Preferred stock issued for cash ............. 1,950,000
Preferred stock dividends paid .............. (26,509)
Contribution from minority interest ......... 516,750
Increase in bank overdraft .................. (12,666)
Issuance of notes payable ................... 3,358,432 298,624
Repayment of notes payable .................. (80,320) (133,601)
Warehouse loans and other notes payable ..... (14,906,244)
Proceeds from subsidiary stock transactions . 1,522,000 1,837,000
------------ ------------
Net cash (used in) provided by financing
activities ...................................... (10,106,132) 10,128,897
------------ ------------
(Decrease) increase in cash and cash equivalents . (563,445) 3,765,658
Cash and cash equivalents, beginning ............. 783,606
------------ ------------
Cash and cash equivalents, ending ................ $ 220,161 $ 3,765,658
============ ============
Supplemental disclosure of cash flow information:
Cash paid for interest: ..................... $ 530,424 $ 57,251
============ ============
Supplemental disclosure of non-cash investing and
financing activities:
Recission and divestiture of FBMS:
Assets .................................... $ 22,593,000
Liabilities ............................... (15,654,000)
Intangible assets acquired ................ (2,500,000)
------------
Loss on FBMS rescission ................. $ 4,439,000
============
Sale of subsidiary assets:
Equipment ................................. $ 38,500
Intangible assets ......................... 84,880
Inventory ................................. 68,062
Note receivable issued in exchange ........ (268,062)
------------
Gain on sale of subsidiary assets ....... $ (76,620)
============
Common stock issued in satisfaction of note payable $ 150,000
============
Amortization of discount on preferred stock ...... $ 1,333,098
============
Conversion of preferred stock to common stock .... $ 2,142,459
============
See notes to condensed consolidated financial statements.
9
<PAGE>
EQUITEX, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
1. Basis of presentation:
The condensed consolidated financial statements of Equitex, Inc. and
subsidiaries (the "Company") for the three-month and six-month periods
ended June 30, 2000 and 1999, have been prepared by the Company, without
audit by the Company's independent auditors. In the opinion of the
Company's management, all adjustments necessary to present fairly the
financial position, results of operations, and cash flows of the Company
as of June 30, 2000, and for the periods then ended have been made. Those
adjustments consist only of normal and recurring adjustments, except for
those described in Note 2. The condensed consolidated balance sheet as of
December 31, 1999, has been derived from the audited consolidated balance
sheet of the Company as of that date.
Certain information and note disclosures normally included in the Company's
annual financial statements prepared in accordance with generally
accepted accounting principals have been condensed or omitted. These
condensed consolidated financial statements should be read in conjunction
with a reading of the financial statements and notes thereto included in
the Company's Form 10-K annual report for 1999, filed with the Securities
and Exchange Commission. The results of operations for the six months
ended June 30, 2000 and 1999, are not necessarily indicative of the
results to be expected for the full year.
The condensed consolidated financial statements as of and for the periods
ended June 30, 2000 include the accounts of Equitex, Inc. and the
following significant subsidiaries: nMortgage, Inc. ("nMortgage") and
through June 27, 2000, its wholly-owned subsidiary First Bankers Mortgage
Services, Inc. ("FBMS") (Note 2), First Teleservices Corporation ("FTC"),
and Triumph Sports Group, Inc. ("Triumph"). All significant intercompany
accounts and transactions have been eliminated in consolidation.
Minority interest at June 30, 2000, represents issued and outstanding
preferred stock of nMortgage. During the three months ended March 31,
2000, nMortgage issued 1,522,000 additional shares of Series A preferred
stock for $1,522,000, and as a result of the FBMS divestiture (Note 2),
minority interest was reduced by $2,507,000 during the three months ended
June 30, 2000, the amount of the FBMS preferred stock issued and
outstanding. During the six months ended June 30, 2000, net losses
incurred by the Company's majority-owned subsidiaries exceeded the
minority interest in the common equity (deficiency) of the subsidiaries.
As a result, the excess of losses applicable to the minority interest
have been charged against the Company and no minority interest is
reflected in the Company's statement of operations for the six months
ended June 30, 2000.
10
<PAGE>
EQUITEX, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
2. Rescission of August 23, 1999, FBMS Agreement and Plan of Reorganization
and divestiture of FBMS:
On August 23, 1999, the Company acquired all of the outstanding common
stock of FBMS in exchange for 250 shares of the Company's Series E
Convertible Preferred Stock valued at approximately $2,531,000. The
transaction was accounted for as a purchase. The total purchase price was
allocated to the assets and liabilities acquired based on their estimated
fair values, including goodwill of approximately $18,900,000, which has
been amortized by use of the straight line method over ten years.
Effective June 28, 2000, the Company entered into a rescission agreement
with the previous owner of FBMS, in which the Company and the previous
owner agreed to rescind the terms of the August 23, 1999 FBMS Agreement
and Plan of Reorganization (the "August 23, 1999 Agreement"). Under the
terms of the rescission agreement, all assets and liabilities of FBMS as
of June 28, 2000 were returned to the previous owner of FBMS.
Pursuant to the terms of the settlements relating to the rescission
agreement, the parties have agreed that nMortgage is to retain certain
technological rights which were developed since August 23, 1999, and
which were funded through the Company's investment. In addition, as part
of the settlement, the Company has agreed to issue up to 50 additional
shares of Series E Preferred Stock (Note 5) to fund the resolution of
certain claims. The technological rights that were retained have been
valued at approximately $2,500,000, which is to be amortized over a
three-year period.
As a result of the rescission agreement, the Company divested itself of the
assets, liabilities, and operations of FBMS as of June 28, 2000, and as a
result, recorded a loss of $4,439,000, which represents the write off of
the Company's investment in FBMS, which includes remaining goodwill as of
the date of the rescission, net of technological rights retained. The
operating results of FBMS have been included in the consolidated
statements of operations from the date of acquisition through the date of
rescission.
The following pro forma information has been prepared assuming the
recission of FBMS had taken place on January 1, 2000. The pro forma
information includes adjustments to remove the operating results of FBMS,
related amortization of goodwill arising from the acquisition of FMBS,
and the loss on the FBMS rescission, and to include amortization expense
related to the technological rights retained in the rescission
transaction.
11
<PAGE>
EQUITEX, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
2. Rescission of August 23, 1999, FBMS Agreement and Plan of Reorganization
and divestiture of FBMS (continued):
The pro forma financial information is not necessarily indicative of the
results of operations as they would have been had the transaction been
effected on the assumed date.
Six months
ended June 30, 2000
-------------------
Revenues $ 345,000
Net loss $ (2,195,000)
Net loss applicable to common shareholders $ (2,231,000)
Basic and diluted loss per common share $ (.31)
Shares used in per share calculation 7,140,293
3. Subsidiary transactions:
Effective January 1, 2000, Triumph sold the assets of one of its four
retail stores in exchange for a $268,000 note receivable. In connection
with this transaction, Triumph recorded a gain on the sale of
approximately $76,600, which is presented as other income in the
accompanying statement of operations.
During the six months ended June 30, 2000, an officer/shareholder of the
Company sold marketable securities to Triumph at a cost of $10,000.
Triumph subsequently sold a portion of these marketable securities for
approximately $278,000. The market value of the remaining securities held
by the Company at March 31, 2000 and June 30, 2000, was approximately
$77,000 and $22,000 respectively. The difference between the cost and
market value of these securities of $345,904 and $40,701 was recorded as
an increase in additional paid-in capital during the quarter ended March
31, 2000, and as an investment loss for the quarter ended June 30, 2000,
respectively.
4. Equity investment:
During the three-months ended June 30, 2000, VP Sports, Inc. ("VP Sports")
issued additional shares of its common stock in exchange for the exercise
of warrants, which resulted in a decrease in the Company's ownership
interest in VP Sports from approximately 36% at March 31, 2000, to
approximately 24% at June 30, 2000.
5. Commitments and contingencies:
Litigation:
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse impact
either individually or in the aggregate on consolidated results of
operations, financial position or cash flows of the Company.
12
<PAGE>
EQUITEX, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
6. Stockholders' equity:
Series A, B, and C convertible 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 for $1,000 cash per
share, which is the stated value per share. Each series of stock was
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 during the first quarter of 1999, the amount of
the discount due to this beneficial conversion feature. The holders were
entitled to receive a cumulative annual dividend of $60 per share,
payable quarterly, and had preference to any other dividends which might
have been paid by the Company. The dividend was payable either in cash or
in shares of the Company's common stock, at the Company's option. The
preferred stockholders also 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 Series A, B and C convertible preferred
stock, plus accumulated dividends on those shares, were converted into
320,528 shares of common stock, at an average conversion price of $6.63
per share.
Series D convertible preferred stock:
In May 1999, the Company reached an agreement with an accredited investor
to sell 3,500 shares of Series D, 6% convertible preferred stock (the
"Series D Preferred Stock") for $1,000 cash per share, which is the
stated value per share. In August 1999, the Company issued a total of
1,200 shares of the Series D Preferred Stock in consideration for
$1,200,000. The balance of $2,300,000 for the remaining 2,300 shares of
Series D Preferred Stock is 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 holder of each share of Series D Preferred Stock is entitled to a 6%
cumulative annual dividend, payable quarterly. The dividend is payable
either in cash or in shares of the Company's common stock, at the
discretion of the Company. The Series D Preferred Stock contains a
liquidation preference equal to the sum of the stated value of each share
plus an amount equal to 100% of the stated value plus the aggregate of
all accrued and unpaid dividends on each share of Series D Preferred
Stock until the most recent dividend payment date or date of liquidation,
dissolution or winding up of the Company.
13
<PAGE>
EQUITEX, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
6. Stockholders' equity (continued):
Series D convertible preferred stock (continued):
The Series D Preferred Stock is convertible into common stock at any time,
at a conversion price per share of common stock 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 $1,884,615 during the third quarter
of 1999, the amount of the discount due to this beneficial conversion
feature.
Series E convertible preferred stock:
The holders of the Series E Preferred Stock are not entitled to dividends,
do not have a liquidation preference and do not have voting rights. The
Series E Preferred stock, if fully issued, automatically converts to
1,000,000 shares of common stock upon the approval of an increase in the
authorized shares of common stock from 7,500,000 shares to 50,000,000
shares, or the subsequent merger of the Company with or into another
company, or the sale of substantially all the Company's assets.
Series F convertible preferred stock:
In July 2000, the Company authorized the designation of the Series F
convertible preferred stock, and authorized the issuance of up to 425,000
shares of the Series F preferred stock, which is convertible into 425,000
shares of the Company's common stock (Note 7). The Series F preferred
stock includes a stated value of $8.00 per share and contains a
liquidation preference in the amount of 105% of the stated value. Series
F shareholders are entitled to dividends in the amount declared with
respect to the Company's common stock. The Series F preferred stock may
be converted into shares of the Company's common stock at any time
following the date of issuance until forty two months following the issue
date at a conversion price pre share of common stock equal to $7.00 per
share. Forty-two months after issue, the Series F preferred stock
outstanding is subject to mandatory conversion into shares of the
Company's common stock, utilizing the stated value per share. Through
June 30, 2000, no shares of Series F preferred stock have been issued.
7. Proposed business transactions:
Proposed sale of nMortgage, Inc.:
On December 31, 1999, the Company entered into an agreement and plan of
merger, whereby all of the outstanding common stock of nMortgage is to be
acquired by Innovative Gaming Corporation of America ("IGCA"), an SEC
reporting company whose common stock trades on the Nasdaq SmallCap
Market. Under the terms of this proposed transaction, in exchange for all
outstanding shares of nMortgage, Inc., the Company and the other
nMortgage shareholders are to receive approximately 46,000,000 shares of
IGCA common stock, assuming that there will be approximately 16,000,000
shares of IGCA common stock outstanding on a fully-diluted basis, before
the transaction.
IGCA was formed in 1991 to develop, manufacture, market and distribute
specialty video gaming machines. As a condition of the proposed
transaction, IGCA is to dispose of its gaming assets, resulting in
nMortgage as the sole business operation of IGCA.
14
<PAGE>
EQUITEX, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
7. Proposed business transaction (continued):
Proposed sale of nMortgage, Inc. (continued):
There are a number of material conditions that must be satisfied prior to
the completion of this transaction, including any required approval by
the Company's shareholders, the disposal of IGCA's gaming assets, and
approval from all governmental bodies or agencies and regulatory
authorities. There is no assurance that the conditions summarized above
will be satisfied, or that the transaction will occur consistent with the
terms outlined above.
Acquisition of Nova Financial Systems, Inc. and Key Financial Systems,
Inc.:
On June 29, 2000, the Company signed a definitive agreement with Nova
Financial Systems, Inc. ("Nova") and Key Financial Systems, Inc. ("Key")
to acquire all the outstanding capital stock of Nova and Key in exchange
for approximately 7,000,000 shares of the Company's common stock, or 50%
of the then outstanding common stock of the Company, and cash of
$5,000,000. Nova and Key are both financial companies which specialize in
selling credit card programs designed for sub-prime high credit risk
clients.
Consummation of the Nova and Key acquisitions is subject to a number of
conditions, including (i) the distribution of the Company's business
development assets to a new wholly-owned subsidiary, Equitex 2000, Inc.
("E2000"), and the spin-off of E2000 to existing shareholders; (ii) the
approval of the Nova and Key mergers by the Company's stockholders; and
(iii) stockholder approval of the increase in the authorized shares of
common stock from 7,500,000 to 50,000,000 shares.
15
<PAGE>
EQUITEX, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
7. Proposed business transactions (continued):
Proposed transactions with First TeleBanc Corp.:
On May 4, 1999, the Company entered into a definitive agreement whereby
First TeleBanc Corp. ("First TeleBanc"), a single bank holding company
based in Boca Raton, Florida, is to merge with the Company, with the
Company being the surviving corporation (the "TeleBanc Merger"). First
TeleBanc owns all of the issued and outstanding stock of 1st National
Bank, a national banking association.
This agreement expired on July 31, 2000, and the Company has withdrawn its
application to become a Bank Holding Company. The Company and First
TeleBanc are continuing discussions, which may result in a new agreement
and submission of a revised application with the Federal Reserve.
Proposed transactions with Meridian Residential Group, Inc. and Meridian
Capital Group, LLC:
In July 2000, the Company signed an agreement and plan of merger with
Meridian Residential Group, Inc. ("MRG"), a New York Corporation, in
which the Company plans to acquire all of the outstanding common stock of
MRG in exchange for 425,000 shares of newly issued Series F preferred
stock of the Company, convertible into 425,000 shares of the Company's
common stock, and contingent consideration of up to $3,400,000 in shares
of the Company's common stock, issuable annually over a five-year period,
based on performance measures, as defined. The Company anticipates
closing the transaction in the third quarter 2000, subject to final due
diligence and financing.
In connection with the MRG transaction, the Company is negotiating a
purchase agreement with Meridian Capital Group, LLC ("MCG"), in which the
Company plans to purchase certain intellectual property owned by MCG for
cash of $850,000 and a 42-month option to exchange up to 50% of the
Equitex common shares issued to MRG (upon the conversion of the Series F
preferred stock) for shares of nMortgage common shares based on certain
conversion terms, as defined.
16
<PAGE>
EQUITEX, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
8. Operating segments:
As of and during the three and six month periods ended June 30, 2000, and
1999, the segment results were as follows:
Three months ended June 30,
---------------------------
2000:
-----
<TABLE>
<CAPTION>
Sporting goods/ Corporate activities
Financial product -------------------------
services related Investments Other Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $ 186,330 $ 122,502 $ 12,481 $ 114 $ 321,427
Segment gain (loss) (1,299,114) (127,664) (414,183) (5,133,883) (6,974,844)
</TABLE>
1999:
----
<TABLE>
<CAPTION>
Sporting goods/ Corporate activities
Financial product -------------------------
services related Investments Other Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $ 187,341 $ 16,119 $ 32,647 $ 236,107
Segment gain (loss) $ 8,394 (83,613) (137,775) (468,530) (681,524)
</TABLE>
Six months ended June 30,
-------------------------
2000:
-----
<TABLE>
<CAPTION>
Sporting goods/ Corporate activities
Financial product -------------------------
services related Investments Other Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $ 1,492,275 $ 238,066 $ 47,901 $ 478 $ 1,778,720
Segment gain (loss) (3,007,128) (143,753) (570,674) (5,162,504) (8,884,059)
Total assets 3,462,312 1,530,515 1,960,218 1,328,095 8,281,140
</TABLE>
1999:
-----
<TABLE>
<CAPTION>
Sporting goods/ Corporate activities
Financial product -------------------------
services related Investments Other Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $ 409,689 $ 60,815 $ 32,647 $ 503,151
Segment gain (loss) $ (80,732) (130,099) (137,775) (808,262) (1,156,868)
</TABLE>
17
<PAGE>
ITEM TWO
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.
(a) Liquidity.
(b) Capital Resources.
During 1999, as the Registrant restructured its business from an investment
company to an operating company, the Registrant relied primarily on private
placements of equity securities to fund its operations and acquisitions as it
sought to become a fully operating entity. Also during 1999, the Registrant
divested certain of its portfolio securities providing additional liquidity and
may continue to do so in 2000. Presently, all of the Registrant's subsidiaries
operate on a stand-alone basis and each is individually responsible for its own
liquidity. However, the Registrant may need to assist its subsidiaries from
time-to-time should unforeseen liquidity issues arise. Should additional
liquidity be necessary to fund the operations of its subsidiaries or to complete
any merger or acquisition, the Registrant believes it has sources available,
including the sales of certain investments or the private placement of equity
securities, to cover any such needs.
In August 1999, the Registrant through its majority owned subsidiary, nMortgage,
Inc., acquired First Bankers Mortgage Services, Inc. ("FBMS") a mortgage banking
company headquartered in Ft. Lauderdale, Florida in exchange for 250 shares of
the Registrant's Series E Convertible Preferred Stock. On June 28, 2000, the
Registrant notified the former owners of FBMS that it was rescinding, effective
June 28, 2000, the Agreement and Plan of Reorganization in connection with the
acquisition. The Registrant has executed an agreement for the recission of the
FBMS acquisition whereby all assets and liabilities of FBMS are being returned
to the previous owner effective June 28, 2000. The parties are presently
negotiating the full details of this agreement. Pursuant to the terms of the
settlements relating to the recission agreement, the parties have agreed that
the Registrant, through nMortgage, is to retain certain technological rights
which were developed after August 23, 1999, funded by the Registrant's
investment. These technological rights have been valued at approximately $2.5
18
<PAGE>
ITEM TWO
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONTINUED)
million. Also as part of the settlement, the Registrant has agreed to issue up
to 50 additional shares of its Series E Convertible Preferred Stock which would
bring the total Series E shares outstanding to 300.
nMortgage continues to offer its loan products through the Internet as part of
an arrangement with The Meridian Residential Group, Inc. ("Meridian") described
below. In addition, nMortgage continues to derive revenues from consulting
services provided to the mortgage industry. Equitex, through Gr.com, Inc.
("Gr.com"), a newly formed subsidiary, has signed a definitive agreement for the
merger of Gr.com with Meridian which is based in Brooklyn, New York. Closing of
the transaction is subject to final due diligence and other customary
pre-closing conditions. It is presently anticipated this transaction will close
in the third quarter. Customers accessing the nmortgage.com website are being
redirected to Meridian's website, greatrate.com, which currently operates in the
states of New York, New Jersey and Connecticut.
Following the acquisition of FBMS through nMortgage in August 1999, the
Registrant began incorporating major operational changes at nMortgage. The
purpose of these changes was to significantly reduce nMortgage's operating
overhead as it attempted to transition from a traditional brick and mortar
mortgage banker to a technology driven mortgage banker, broker and Internet
solution provider to the mortgage industry. nMortgage was seeking to mitigate
the risk associated with the warehouse funding and subsequent sale of its
mortgage portfolios by employing the "table funding" method described below for
closing its retail mortgage loans. This restructuring continued during the first
half of 2000 until the Registrant rescinded the FBMS transaction.
Prior to the recission, additional capital expenditures were incurred during the
first half of 2000 as nMortgage further developed its information technology in
connection with its Internet-based product offerings. Upon the closing of the
Meridian transaction, anticipated to occur in the third quarter, Gr.com will
become the operating unit of nMortgage which plans to move forward with its
business plan as described below and continue the roll out of its business to
consumer and business to business mortgage programs. As nMortgage continues the
first phase of the planned changes, it will initially rely primarily on
origination and other loan related fees from lenders to whom it brokers mortgage
loans. As nMortgage continues to develop its business to business Internet
solutions, which debuted during the second quarter of 2000, additional fees will
be recognized from fee-based programs for private labeling third party website
solutions. This should generate additional loan-related as well as
service-related fees.
Triumph and VP Sports both rely primarily on cash flows from operations for
their working capital. In addition, during 1999 and 2000, Triumph received a
cash infusion from the sale of an investment purchased from an officer of
Triumph considerably below market value. This capital infusion provided
additional cash of approximately $270,000 to operate its business and was
considered a contribution of capital. The Registrant anticipates Triumph's
liquidity and capital resources will be sufficient to fund its operations during
the year 2000.
On June 29, 2000, the Registrant announced that it had executed a definitive
agreement for the acquisition of Key/Nova Financial Systems, Inc. ("Key") based
in Clearwater, Florida. Key is a three year old financial services call center
organization that markets and services credit card programs and provides
customer service support for online applications. Under the agreement, Key's
current stockholders will receive a combination of cash and stock of the
Registrant. The Registrant presently believes that it has sources of cash
available to complete the Key acquisition through the private offering of equity
securities of the Registrant.
19
<PAGE>
ITEM TWO
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONTINUED)
On August 2, 2000, the Registrant announced its agreement for the acquisition of
First TeleBanc Corp. ("First TeleBanc") had expired on July 31, 2000. In
addition, as a result of certain deficiencies noted in the operations of First
TeleBanc's operating bank, Net 1st National Bank, following an examination
performed by the Office of the Comptroller of the Currency ("OCC"), the
Registrant withdrew its application with the Federal Reserve to become a bank
holding company. Both the Registrant and First TeleBanc remain committed to the
transaction and both parties will continue to work toward the execution of a new
agreement and submission of a revised application with the Federal Reserve at
the appropriate time once Net 1st National Bank has adequately addressed the
concerns of the OCC.
(c) Results of operations.
The Registrant is divesting itself of the assets and operations of FBMS
effective June 28, 2000. The FBMS operating results of operations have been
included in the Registrant's consolidated statement of operations during the
period from August 1999 through June 28, 2000.
The Registrant fundamentally changed its operations during 1999 most notably
with the acquisition of FBMS in August 1999. As a result, comparison of the
results of operations for 1999 as compared to 2000 would not provide for a
meaningful analysis. The discussion and analysis of the Registrant's results of
operations have been analyzed with a view toward the Registrant's current and
future business operations.
REVENUES: The Registrant's consolidated revenues for the six months ended June
30, 2000 increased significantly when compared to June 30, 1999 as a result of
the addition of nMortgage. Of the total consolidated revenues of $1,778,720 for
the six months ended June 30, 2000, approximately $1,400,000 million is
attributable to nMortgage, most of which was recorded in the first quarter. For
the three months ended June 30, 2000, total revenues were $321,427 of which
nMortgage contributed approximately $183,000. Triumph Sports accounted for
approximately $115,000 and $122,000 in revenue for the first and second
quarters, respectively.
As discussed above, during the first half of 2000, nMortgage continued to
implement changes in its operations. During the six months ended June 30, 2000,
while continuing to offer retail mortgages through both traditional as well as
Internet oriented channels, nMortgage began to transition from its practice of
warehouse funding to table funding a majority of its mortgage loans. During the
second quarter of 2000, nMortgage materially completed this transition and table
funded nearly 100% of its loans. This change results in the need for
significantly fewer employees as the responsibilities for underwriting, post
closing, closing, auditing and disbursing loans are transferred from nMortgage
to the investors underwriting and funding the originations. With this change,
nMortgage consolidated its operations and decreased its operating overhead.
These changes resulted in certain write-offs and severance costs during the
first six months of the year. As a result of these operational changes,
nMortgage experienced an overall decrease in loan originations during the
period, most notably in the quarter ended June 30, 2000, as it trimmed its work
force and began implementing its Internet product roll-out. In addition,
nMortgage saw a decrease in mortgage originations due to increased interest
rates which affected both new home purchases and more notably refinancings as
most consumers chose not to refinance given the higher rates.
20
<PAGE>
ITEM TWO
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONTINUED)
The Registrant has executed an agreement for the merger of Gr.com with Meridian
as described above which when completed would allow nMortgage to resume offering
mortgage loans in the New York, New Jersey, Connecticut area. When that merger
is completed, the combined companies intend to seek an agreement with a
compatible financial institution allowing them to operate in a greater number of
jurisdictions. When nMortgage resumes operations, a majority of its revenues
should be derived from origination fees. Under the table funding concept, once a
mortgage originated by nMortgage is closed and funded by the lender, nMortgage
will be paid its fee directly from that lender. Management believes the table
funding concept is more advantageous due to, among other things, it minimized
the necessity to maintain warehouse lines of credit and reduces the potential
for repurchasing loans.
Triumph, the second largest contributor to the Registrant's revenues, derived
those revenues from product sales at its three retail locations. Total sales
were down as compared to the prior year as a result of the sale of one of its
retail locations. Second quarter 2000 sales were slightly higher than those
recorded in the first quarter of 2000. The sale of the retail location did
result in a gain of approximately $73,000, which is presented as other income
booked during the first quarter. Triumph expects total sales will be lower for
the year on the whole given the sale of this location.
The Registrant's revenues for the quarter and six months ended June 30, 2000 on
a stand-alone basis consisted primarily of interest income related to certain
long-term and short-term loans to non-affiliated entities. As a holding company,
the Registrant has no significant sources of revenue other than those of its
operating subsidiaries. The Registrant partially offset its operating overhead
during 1999 from the sales of certain investments which is considered other
income not revenue. For the year 2000, the Registrant may continue to divest
certain of its investments to cover its operating overhead as it continues to
work toward completion of its contemplated acquisition or merger transactions.
EXPENSES: Of the Registrant's total expenses on a consolidated basis for the six
months ended June 30, 2000, approximately $3,745,000 are attributable to
nMortgage, $725,000 to Equitex, $128,000 to First Teleservices and $349,000 to
Triumph. In addition, a one time loss of $4,439,000 representing the write off
of the Registrant's investment in FBMS and related goodwill, net of
technological rights was recorded. This is an increase of approximately 471%
when compared to the previous year which did not include the operations of
nMortgage. Excluding the one-time charge for the write off of FBMS, total
expenses for the second quarter of 2000 as compared to the first quarter were
significantly lower.
A majority of the total expenses are selling, general and administrative
expenses with nMortgage accounting for approximately $3,000,000 of the nearly
$4,000,000 total. nMortgage's operating overhead following the FBMS recission
and divestiture is significantly lower which translated to significantly lower
expenses incurred in the second quarter ended June 30, 2000 as compared to the
first quarter of 2000. This trend is expected to continue in the remaining six
months of 2000. The remaining portion of expenses attributable to Equitex,
Triumph and First TeleServices did not change significantly when compared to the
previous year's quarter and six month period..
OTHER INCOME (EXPENSES): Other income (expense) includes a net investment loss
of $102,790 for the six months ended June 30, 2000, which accounts for the
realized and unrealized loss on certain of the Registrant's investments, equity
in losses of affiliates of $562,898, interest expense of $684,393 and other
income of $73,478 from Triumph's sale of assets.
21
<PAGE>
ITEM TWO
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONTINUED)
Of the total interest expense, approximately $611,000 is attributable to
nMortgage. This expense is related to nMortgage's warehouse lines of credit. As
a result of the recission of the FBMS transaction this expense will
significantly decrease in future periods as nMortgage discontinues the use of
warehouse lines of credit to fund its loans. Interest expense recorded in the
second quarter ended June 30, 2000 did not change significantly when compared to
the first quarter ended March 31, 2000.
Equity in loss of affiliates corresponds to the Registrant's approximately 24%
ownership interest in VP Sports which is accounted for on an equity basis. VP
Sports' business is seasonal and traditionally, the first and second calendar
quarters are the peak sales periods for VP Sports with the latter portion of the
year being the slowest. However, at the end of the first quarter 2000, VP Sports
acquired Torpedo, Inc. ("Torpedo") of Montreal, Canada. Torpedo's business is
counter seasonal to the operations of VP Sports which contributed to the losses
for the second quarter. In addition, due to the exercise of certain warrants in
VP Sports during the second quarter by unaffiliated third parties, Equitex's
ownership was reduced from approximately 36% to approximately 24% which
accounted for an unrealized loss on the Registrant's investment further
contributing to the equity in loss of affiliates.
NET LOSS: Of the net loss for the six months ended June 30, 2000, approximately
$2,937,000 is attributable to nMortgage, approximately $1,295,000 to Equitex,
approximately $69,000 to First TeleServices and approximately $144,000 to
Triumph. Additionally, $4,439,000 is attributable to the loss on the FBMS
divestiture. This compares to a net loss of $1,141,245 for the six months ended
June 30, 1999 which did not include the operations of nMortgage. Excluding the
one-time write off of the FBMS recission and divestiture, the net loss for the
second quarter ended June 30, 2000 was approximately $2,536,000 as compared to
$1,909,000 for the first quarter ended March 31, 2000.
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS: Net loss applicable to common
stockholders was $8,919,959 for the six months ended June 30, 2000 This amount
includes deemed preferred stock dividends on the Registrant's outstanding Series
D preferred stock of $35,900 for the quarter.
ITEM THREE
QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK
Not applicable
22
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On March 10, 2000, summary judgment was granted in favor of Equitex and
Henry Fong in the following matters: THEOHAROUS, ET AL. V. HENRY FONG, EQUITEX,
INC., CHARLES E. SANDERS AND METROMEDIA INTERNATIONAL GROUP, INC., Civil Action
No. 1_98_CV_2366 (U.S. District Court for the Northern District of Georgia), and
LESLIE SCHUETTE, ET AL. V. HENRY FONG, EQUITEX, INC., CHARLES E. SANDERS AND
METROMEDIA INTERNATIONAL GROUP, INC., Civil Action No. 1_98_CV_2366 (U.S.
District Court for the Northern District of Georgia). These alleged class
actions on behalf of a purported class of stockholders of RDM Sports Group, Inc.
("RDM") were filed on August 19, 1998, and October 19, 1998, respectively. Both
cases assert that during 1996 and 1997, the defendants (including Equitex) made
numerous allegedly false statements and overly optimistic predictions regarding
the business and financial condition of RDM in the press releases and public
filings of RDM, with knowledge of their falsehood, thereby misleading RDM
stockholders. The complaints alleged that the defendants, (including Equitex)
violated Section 10(b) of the Securities Exchange Act and SEC Rule 10b_5, and
that the individual defendants violated Section 20(a) of the Exchange Act, and
seek unspecified compensatory damages, costs, expenses and attorney fees. The
plaintiff's have appealed the court's granting of summary judgment in favor of
Equitex and Henry Fong. As of June 30, 2000, that appeal was pending before the
court. Counsel for the plaintiffs has agreed to remove Equitex from the appeal.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Financial Data Schedule for SEC Registrants
(b) None
23
<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)
Date: August 16, 2000 By: /s/ Henry Fong
--------------
Henry Fong
President, Treasurer and
Chief Financial Officer
24
