As filed with the Securities and Exchange Commission on July 23, 2001
Registration No. 333-64408
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1 TO FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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EQUITEX, INC.
(Exact name of Registrant specified in charter)
DELAWARE 84-0905189
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7315 EAST PEAKVIEW AVENUE
ENGLEWOOD, COLORADO 80111
(303) 796-8940
(Address, including zip code, and telephone
number, including area code,
Registrant's principal executive
offices)
HENRY FONG, PRESIDENT, TREASURER AND
CHIEF FINANCIAL OFFICER
7315 EAST PEAKVIEW AVENUE
ENGLEWOOD, COLORADO 80111
(303) 796-8940
(Name, address and telephone number, including area code, of agent for service)
Copies of communication, including all communication sent to the
agent for service, should be sent to:
JOHN W. KELLOGG, ESQ.
RACHANA SASTRY, ESQ.
FRIEDLOB SANDERSON PAULSON & TOURTILLOTT, LLC
1400 GLENARM PLACE, SUITE 300
DENVER, COLORADO 80202
(303) 571-1400
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the effective date of this Registration Statement as determined by
market conditions.
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If the only securities being registered on this Form are to be offered pursuant
to dividend or interest reinvestment plans, please check the following box: |_|
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: |X|
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check this following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
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CALCULATION OF REGISTRATION FEE
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Title of each class of securities to Amount to be Proposed Proposed Amount of
be registered registered (1) maximum maximum registration
offering price aggregate fee
per share offering price
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Common Stock Underlying Series D
Convertible Preferred Stock 330,000 (2) $5.98 (4) $1,282,710 $321
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Common Stock Underlying Series F 35,714 (3) $5.98 (4) $138,820 $35
Convertible Preferred Stock
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Common Stock Underlying Series G 1,134,286 (3) $5.98 (4) $4,408,970 $1,102
Convertible Preferred Stock
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Common Stock Underlying Warrants 120,000 (2) $5.50 (5) $660,000 $165
Granted in Connection with Series D
Convertible Preferred Stock Private
Placement
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Common Stock Underlying Warrants 130,000 (3) $ 4.00 (6) $520,000 $130
Granted in Connection with Series G
Convertible Preferred Stock Private
Placement
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TOTAL 1,750,000 (7) $7,010,500 $1,753
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(1) Plus such indeterminable number of shares of common stock as may be
issuable by reason of the anti-dilution provisions of such warrants or
convertible preferred stock.
(2) Pursuant to the Registration Rights Agreement dated May 3, 1999,
Equitex is registering a total of 450,000 shares of common stock,
including common stock issued in (i) lieu of cash dividend payments, or
as a stock dividend on the Series D Convertible Preferred Stock, (ii)
upon conversion of the Series D Convertible Preferred Stock, and/or
(iii) upon exercise of the warrants issued in connection with the
Series D Convertible Preferred Stock.
(3) Pursuant to the Registration Rights Agreement dated August 31, 2000,
Equitex is registering a total of 1,300,000 shares of common stock,
including common stock issued in (i) lieu of cash dividend payments, or
as a stock dividend on the Series F and G Convertible Preferred Stock,
(ii) upon conversion of the Series F and G Convertible Preferred Stock,
and/or (iii) upon exercise of the warrants issued in connection with
the Series F and G Convertible Preferred Stock.
(4) Pursuant to Rule 457(c) the offering price per share and aggregate
offering price are based upon the average closing bid price of
Equitex's common stock as quoted on the Nasdaq SmallCap Market on June
27, 2001.
(5) Pursuant to an agreement reached between Equitex and the selling
securityholder, and recorded in the Consent to Action by the Board of
Directors of Equitex, Inc. dated April 17, 2000, the exercise price of
the warrants issued in connection with the Series D Convertible
Preferred Stock is $5.50.
(6) Pursuant to an agreement reached between Equitex and the selling
securityholder, and recorded in the Consent to Action by the Board of
Directors of Equitex, Inc. dated April 3, 2001, the exercise price of
the warrants issued in connection with the Series G Convertible
Preferred Stock is $4.00.
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(7) The total number of shares being registered exceeds the amount
convertible as of June 27, 2001 using the average closing bid price
$5.98 as quoted on the Nasdaq SmallCap Market. Because the conversion
of the Series D and G Convertible Preferred Stock is based on
fluctuating market conditions, we are registering more than the amount
convertible as of June 27, 2001.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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EQUITEX, INC.
1,750,000 Shares of Common Stock to be Offered and Sold by The Shaar Fund,
as the Selling Securityholder
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This is a public offering of shares of common stock of Equitex, Inc. by
The Shaar Fund as selling securityholder. The Shaar Fund currently owns .26% of
our common stock. The Shaar Fund will offer the shares from time to time at
prevailing market prices. Equitex will not receive any of the proceeds from the
offering, except for any proceeds from the cash exercise of warrants owned by
The Shaar Fund.
Our common stock trades on the Nasdaq SmallCap Market under the symbol
EQTX. On July 19, 2001, the last reported sale price of our common stock on the
Nasdaq SmallCap Market was $5.45 per share.
We may amend or supplement this prospectus from time to time by filing
amendments or supplements as required. You should read this entire prospectus
and any amendments or supplements carefully before you make your investment
decision.
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AN INVESTMENT IN THE STOCK OF EQUITEX INVOLVES A HIGH DEGREE OF
RISK. THE SHARES SHOULD ONLY BE PURCHASED BY PERSONS WHO CAN
AFFORD A COMPLETE LOSS. SEE "RISK FACTORS" BEGINNING ON PAGE 11.
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THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR DETERMINED THAT THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. A
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is July 23, 2001
TABLE OF CONTENTS
Where You Can Find More Information.................................. 3
Forward-Looking Statements........................................... 4
Equitex, Inc......................................................... 5
Recent Developments.................................................. 8
Risk Factors.........................................................11
Description of Capital Stock.........................................21
Selling Securityholder...............................................23
Plan of Distribution.................................................25
Indemnification Provided in Connection with the
Offering by the Selling Securityholder..............................27
Legal Matters........................................................27
Experts..............................................................27
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WHERE YOU CAN FIND MORE INFORMATION
Federal securities law requires us to file information with the
Securities and Exchange Commission concerning our business and operations.
Accordingly, we file annual, quarterly, and special reports, proxy statements
and other information with the Commission. You can inspect and copy this
information at the Public Reference Facility maintained by the Commission at
Judiciary Plaza, 450 5th Street, N.W., Room 1024, Washington, D.C. 20549. You
can also do so at the following regional offices of the Commission:
o New York Regional Office, 7 World Trade Center, Suite 1300, New
York, New York 10048; or
o Chicago Regional Office, Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661.
You can receive additional information about the operation of the
Commission's Public Reference Facilities by calling the Commission at 1-(800)
SEC-0330. The Commission also maintains a website at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding companies that, like us, file information electronically with the
Commission.
The Commission allows us to "incorporate by reference" the information
we file with them, which means we can disclose important information to you by
referring you to the other information we have filed with the Commission. The
information that we incorporate by reference is considered to be part of this
prospectus, and related information that we file with the Commission will
automatically update and supersede information we have included in this
prospectus. We incorporate by reference the documents listed below and any
future filings we make with the Commission under Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended, until the selling
securityholder sells all of its shares or until the registration rights of the
selling securityholder expire. This prospectus is part of a Registration
Statement that we filed with the Commission (Registration No. 333-64408).
FILING PERIOD
Annual Report on Form 10-K/A.......... For the Year ended December 31, 2000
The Description of our Common Stock... Registration Statement on Form 8-A
filed with the Commission July 21, 1983
Quarterly Report on Form 10-Q......... For the Quarter ended March 31, 2001
Definitive Proxy Statement for
Special Meeting on Schedule 14A ...... Filed with the Commission on May 16, 2001
You can request a free copy of the above filings or any filings
subsequently incorporated by reference into this prospectus by writing or
calling us at the following address:
Equitex, Inc.
7315 East Peakview Avenue
Englewood, Colorado 80111
Telephone: (303) 796-8940
Facsimile: (303) 796-9762
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You should rely only on the information incorporated by reference or
provided in this prospectus or any supplement or amendment to this prospectus.
We have not authorized anyone else to provide you with different information or
additional information. The selling securityholder will not make an offer of
Equitex's common stock in any state where the offer is not permitted. You should
not assume that the information in this prospectus, or any supplement or
amendment to this prospectus, is accurate at any date other than the date
indicated on the cover page of such documents.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this prospectus and in the documents
incorporated by reference herein, constitute "forward-looking statements" within
the meaning of Section 27A of the Securities Act, as amended, and Section 21E of
the Exchange Act, as amended. These forward-looking statements can be identified
by the use of predictive, future-tense or forward-looking terminology, such as
"believes," "anticipates," "expects," "estimates," "may," "will" or similar
terms. Forward-looking statements also include projections of financial
performance, statements regarding management's plans and objectives and
statements concerning any assumption relating to the foregoing. Certain
important factors regarding our business, operations and competitive environment
which may cause actual results to vary materially from these forward-looking
statements are discussed below under the caption "Risk Factors."
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EQUITEX, INC.
EQUITEX AND ITS OPERATIONS
Equitex, Inc., was organized under Delaware law in 1983 and, in 1984,
elected to become a business development company, which is a form of closed-end,
non-diversified investment company under the Investment Company Act of 1940, and
to be subject to the applicable provisions of the Investment Company Act. On
January 4, 1999, we withdrew our election to be treated as a business
development company, instead being categorized as a "transient investment
company" as that term is defined in Rule 3a-2 under the Investment Company Act.
As a result of our acquisition of First Bankers Mortgage Services, Inc., on
August 23, 1999, we became an operating company that is not subject to
regulation under the Investment Company Act.
Notwithstanding our withdrawal to be treated as a business development
company, we retained our investment interests in IntraNet Solutions, Inc. (f/k/a
MacGregor Sports & Fitness, Inc.), VP Sports, Inc., and Triumph Sports, Inc.,
which together constitute a significant portion of our investment portfolio.
NMORTGAGE & Meridian Services
Our majority-owned subsidiary, nMortgage, is a business to consumer
retail Internet mortgage banking company which is developing its business to
business mortgage services technology and provides consulting services to the
mortgage industry. In September 2000, we completed the acquisition of Meridian
Residential by merging it with GR.com, our newly formed subsidiary. Subsequent
to the merger, GR.com changed its name to Meridian Services, Inc. ("Meridian
Services"). nMortgage utilizes the services of Meridian Services' virtual back
office.
Since March 1, 2000, Meridian Services has laid the groundwork for a
new business model. It has developed a web-based strategy called GreatRate.com
with the web address bearing the same name www.GreatRate.com. Through this site,
which is owned by nMortgage, Meridian Services has developed web based mortgage
products that will allow it to capitalize on its streamlined back office
operation to expand its business nationwide. The goal of the new business plan
is to create a business to business platform for Meridian Services, to reach out
to small banks and financial institutions allowing them to utilize Meridian
Services/nMortgage's technology and infrastructure. This will enable the
financial institution to enter into the business of providing residential and
small commercial mortgages to their clientele without having to maintain an
infrastructure to process residential mortgages.
Meridian Services will provide the back office support to help
originate, fully process, underwrite and close residential mortgages. In order
to properly support this program, Meridian Services will utilize its high end
website that would allow its banking partners and their customers to access
current rates and loan status in real time.
nMortgage has been developing, and in conjunction with Meridian
Services introduced in the first quarter 2001, a business to business Internet
technology solution for the mortgage industry. The site will be targeted to
local savings banks and other similar financial institutions, individual
mortgage and small mortgage brokers, and eventually may be offered to mortgage
related businesses not currently offering mortgage loans such as insurance
brokers, stockbrokers, tax preparers, financial planners, etc. This site will
allow these businesses to leverage their client databases by offering a private
label solution offering Internet based mortgage loans.
On January 2, 2001, nMortgage and Meridian Services announced an
agreement with Mortgagebot, LLC of Cedarburg, Wisconsin, to provide the back
office system for originating and processing mortgage loans over the Internet.
Mortgagebot is a complete online lending service available 24 hours a day, 365
days a year that was built exclusively for the Internet. Utilizing Mortgagebot's
existing technology, nMortgage and Meridian Services will be able to offer
customers a complete Internet-based mortgage solution from application to
closing.
Meridian Services competes with mortgage brokers, bankers and financial
institutions both large and small from locally owned mortgage businesses to
multi-national financial institutions. These competitors include
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nationally recognized financial institutions with billions in assets and
considerable marketing budgets. With the increase in Internet-based mortgage
originations, many of the larger well-known mortgage companies have created web
sites to attract customers. nMortgage and Meridian Services intend to market
their products to those consumers who would rather do business with smaller
locally based financial institutions and mortgage professionals who know the
local market and seek to provide more personal service.
TRIUMPH SPORTS
At December 31, 2000, our majority-owned subsidiary, Triumph Sports,
owned and operated three vitamin and nutritional supplement related retail
stores in the Palm Beach, Florida area. In March 2001, we negotiated the early
termination of its lease and closed its final independent operation located in a
Bally's fitness center. The remaining two stores are registered franchisees of
General Nutrition Centers. During 2000, Triumph closed one of its independent
non-General Nutrition Centers franchised stores after its lease expired. During
1999, Triumph also operated a fifth location which was sold at the end of 1999.
The Triumph General Nutrition Centers franchise agreements run for a period of
ten years expiring in 2008 and include renewals for two consecutive five-year
terms contingent upon General Nutrition Centers conditions and approval.
Each retail location typically employs one full-time manager and one to
three part-time employees. The General Nutrition Centers stores offer a
wide-array of vitamins, nutritional supplements, meal replacement products and
other health and fitness products targeted to a large consumer demographic
seeking today's healthy and active lifestyle. From children to senior citizens
looking for vitamins, supplements, books and advice for healthy living to
triathletes and body builders seeking nutritional supplements, and meal
replacements for their workout regimes, General Nutrition Centers offers
recognized high-quality branded products for all ages and fitness levels. A
majority of the products sold in the General Nutrition Centers outlets are
General Nutrition Centers branded products with additional offerings consisting
mainly of meal replacement and nutritional supplement products from popular
major suppliers.
FIRST TELESERVICES CORP.
Our wholly-owned subsidiary, First TeleServices, is a development stage
company that has not yet generated significant income. As a marketing arm for
financial institutions, First TeleServices' business plan calls for it to
perform as a consumer finance company, offering a broad array of financial
products and services to the subprime market. These products will be developed
and serviced through correspondent relationships with companies specializing in
those particular products. During the year 2000, while continuing to develop its
business strategy, First TeleServices streamlined its operations and presently
is operating on a minimal budget. First TeleServices' office lease expired on
December 31, 2000 and it is presently operating from the home of its president.
FIRST BANKERS MORTGAGE SERVICES, INC.
On August 23, 1999, we acquired First Bankers Mortgage Services, Inc.
First Bankers Mortgage Services, a Florida corporation, is a full service
mortgage banking company headquartered in the Fort Lauderdale, Florida area. We
acquired all of the outstanding common stock of First Bankers Mortgage Services
from its sole stockholder, Vincent Muratore. The total aggregate purchase price
for First Bankers Mortgage Services, was 1,000 shares of our Series E
Convertible Preferred Stock, 250 shares of which were issued at closing and 750
shares of which were issuable upon satisfaction of certain performance
conditions. In addition, the purchase price was subject to post- closing
adjustments pursuant to the Agreement and Plan of Reorganization, dated June 22,
1999, among us, First Bankers Mortgage Services, Vincent Muratore and FBMS
Acquisition Corp., as amended. Under Delaware law, we were not required to, and
did not, seek stockholder approval for this transaction.
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
was being amortized by use of the straight line method over ten years prior to
the rescission.
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In connection with the First Bankers Mortgage Services transaction, we
and our subsidiaries invested approximately $10.7 million in First Bankers
Mortgage Services for working capital purposes.
Subsequent to the acquisition of First Bankers Mortgage Services, all
outstanding shares of First Bankers Mortgage Services were transferred to our
new wholly owned subsidiary, nMortgage.
On August 15, 2000, we reached an agreement in principal to rescind the
acquisition of First Bankers Mortgage Services effective June 28, 2000. Under
the terms of the rescission agreement, all assets and liabilities of First
Bankers Mortgage Services as of June 28, 2000 were returned to Mr. Muratore, the
former owner of First Bankers Mortgage Services. We retained certain
intellectual property rights valued at approximately $2,500,000 related to the
Internet-based mortgage banking business of nMortgage. Although all of the
performance conditions were not met, we issued an additional 50 shares of Series
E Convertible Preferred Stock as part of the agreement and rescission related to
those conditions that were satisfied, thus resulting in aggregate issuance of
300 shares of Series E Convertible Preferred Stock outstanding, which were
converted into 300,000 shares of common stock as a result of the increase in our
authorized shares approved on June 22, 2001 at a special meeting of our
stockholders (see "Recent Developments" below).
As a result of the rescission, we were divested of the assets,
liabilities, and operations of First Bankers Mortgage Services as of June 28,
2000 and recorded a loss of $3,979,000, which represents the write off of our
investment in First Bankers Mortgage Services, including remaining goodwill as
of the date of the rescission, net of technological rights retained. The
operating results of First Bankers Mortgage Services have been included in the
consolidated statement of operations from the date of acquisition through the
date of rescission.
ADDRESS AND PHONE NUMBER
Our executive offices are located at 7315 East Peakview Avenue,
Englewood, Colorado 80111 and our telephone number is (303) 796-8940.
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RECENT DEVELOPMENTS
INCREASE IN AUTHORIZED SHARES OF COMMON STOCK
On June 22, 2001, at a special meeting of our stockholders, the
stockholders voted to increase the authorized shares of our common stock from
7,500,000 to 50,000,000 shares.
DISTRIBUTION AND SPIN-OFF TRANSACTION
On June 22, 2001, also at the special meeting of our stockholders, the
stockholders approved the distribution by Equitex of all of its assets and
liabilities to Equitex 2000 and the distribution by Equitex of all of the
outstanding shares of common stock of Equitex 2000 to the stockholders of
Equitex on the basis of one share of common stock of Equitex 2000 for each share
of common stock of Equitex.
The distribution will occur immediately prior to the Nova Financial
Systems and Key Financial Systems acquisitions, discussed below.
We will contribute to Equitex 2000, the following:
o all of our cash, or such lesser amount as our board of directors
may determine in its sole discretion;
o all securities and investments owned by us in our investee
companies including our interest in First TeleServices and First
Telebank;
o all shares of Meridian Services, our wholly-owned mortgage
banking subsidiary;
o any residual rights related to the First Bankers Mortgage
Services acquisition and rescission;
o all shares of nMortgage, our Internet based mortgage banking
subsidiary;
o all receivables of any nature, including accounts and notes
receivable;
o all furniture, fixtures and equipment; and
o any other assets that are related in any manner to our company.
Equitex 2000 will assume our liabilities and will indemnify us and
assume our prosecution or defense in the following lawsuits: WILLIAM G. HAYES,
JR. LIQUIDATING AGENT FOR RDM SPORTS GROUP, INC. AND RELATED DEBTORS V. EQUITEX,
INC., SMITH, GAMBRELL, RUSSELL, L.L.P., DAVID J. HARRIS, P.C., AND DAVID J.
HARRIS, INDIVIDUALLY, Adversary Proceeding No., 00-1065 (U.S. Bankruptcy Court
for the Northern District of Georgia, Newnan Division); and EQUITEX, INC. AND
HENRY FONG V. BERTRAND T. UNGER, Case No. 98-CV-2437 (Dist. Ct. Arapahoe County,
Colorado).
Equitex will distribute, in the form of a special dividend, all of the
outstanding shares of common stock of Equitex 2000, on a pro rata basis, to the
holders of our common stock as of the record date of July 20, 2001 for the
special dividend. Each of our stockholders will retain his shares of our common
stock, and for each share of our common stock held by him on the record date for
the special dividend contemplated by the distribution and spin-off, will be
entitled to receive one share of Equitex 2000 common stock.
Prior to its distribution to our stockholders, we will have filed a
registration statement with the Securities and Exchange Commission to cause the
Equitex 2000 common stock to be registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934. That registsration statement may not be
effective on the date of the distribution of the Equitex 2000 common stock. We
believe the Equitex 2000 common stock will be initially quoted on the OTC
Bulletin Board service at such time as the common stock is registered pursuant
to Section 12(g).
-8-
Following the distribution and spin-off, we are expected to close on
the acquisitions of Nova Financial Systems and Key Financial Systems.
Our Board has retained discretion, even if all conditions to the
distribution and spin-off are satisfied, to abandon, defer or modify the
distribution and/or spin-off.
ACQUISITIONS OF NOVA FINANCIAL SYSTEMS AND KEY FINANCIAL SYSTEMS
On June 22, 2001, also at the special meeting of our stockholders, the
stockholders approved the acquisitions of Nova Financial Systems and Key
Financial Systems, companies under common control with nearly an identical
ownership structure, in exchange for the greater of 7,140,000 shares or 50% of
our outstanding common stock on a post acquisition basis, cash consideration of
$5 million and a warrant.
We will operate Nova Financial Systems and Key Financial Systems as
subsidiaries. Nova Financial Systems and Key Financial Systems are both
financial companies which specialize in selling credit card programs designed
for high credit risk clients. Consummation of the Nova Financial Systems and Key
Financial Systems mergers is subject to the distribution of all of our assets
and liabilities to Equitex 2000 and the spin-off of Equitex 2000 common stock as
discussed above (see "Distribution and Spin-Off Transaction" above ).
SERIES E CONVERTIBLE PREFERRED STOCK
The previously outstanding 250 shares of Series E Convertible Preferred
Stock plus the 50 additional shares of Series E Convertible Preferred Stock
issued in connection with the acquisition and rescission of First Bankers
Mortgage Services automatically converted into 300,000 shares of our common
stock upon the approval of the increase in our authorized shares of common stock
at the June 22, 2001 special meeting of our stockholders.
SERIES H 8% CONVERTIBLE PREFERRED STOCK
On July 19, 2001, we completed a private placement for the issuance of
2,409 shares of Series H 8% Convertible Preferred Stock at a price of $1,000 per
share for net proceeds of $2,409,000. On July 19, 2001, the outstanding 2,409
shares of Series H Convertible Preferred Stock converted into 481,800 shares of
our common stock, $0.02 par value, and 481,800 warrants, each warrant to
purchase one share of our common stock.
Each warrant issued in connection with the Series H Convertible
Preferred Stock private placement is exercisable until July 19, 2004 at an
exercise price of $5.78.
The proceeds from the Series H Convertible Preferred Stock offering
will be used to fund the cash portion of the purchase price for the Nova
Financial and Key Financial transaction discussed above and for general
corporate purposes.
We are required to file a registration statement on Form S-3 under the
Securities Act of 1933 by October 17, 2001 for the offer and resale of our
common stock to be issued upon conversion of the Series H Convertible Preferred
Stock as well as the shares of common stock underlying the warrants issued in
connection with the Series H Convertible Preferred Stock.
SERIES I 6% CONVERTIBLE PREFERRED STOCK
We intend to commence a private placement for the issuance of up to
4,000 shares of our Series I 6% Convertible Preferred Stock and a warrant to
purchase 400,000 shares of our common stock at an aggregate price of $1,000 per
share.
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While the terms have not been fully negotiated, we expect the Series I
Convertible Preferred Stock to have a stated value of $1,000 per share and bear
dividends at 6% per annum, payable quarterly commencing September 30, 2001,
when, as and if declared by our board of directors. Dividends may be payable by
us in cash or, at our option, shares of common stock. The Series I Convertible
Preferred Stock is expected to be convertible, together with any accrued but
unpaid dividends, at any time and from time to time into shares of our common
stock at a conversion price per share equal to the lesser of $5.98 or 65% of the
market price upon the occurrence of certain material events. We expect all
outstanding shares of Series I Convertible Preferred Stock to be automatically
converted into common stock on the third anniversary of the date of the Series I
6% Convertible Preferred Certificate of Designations. The shares of Series I
Convertible Preferred Stock are expected to be redeemable at our option at any
time at a redemption price 25% above the stated value per share plus any accrued
but unpaid dividends.
The warrant to be issued in connection with the Series I Convertible
Preferred Stock offering is expected to be exercisable until three years
following the closing date of the offering at an exercise price equal to the
average of the closing bid prices of our common stock in a regular day session
as reported on the Nasdaq National SmallCap Market for the five trading days
immediately preceding the closing date of the offering.
The proceeds from the Series I Convertible Preferred Stock offering
will be used to fund a portion of the cash portion of the purchase price for the
Nova Financial and Key Financial transaction discussed above and for general
corporate purposes.
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RISK FACTORS
YOU SHOULD BE AWARE THAT THE DISTRIBUTION BY US OF ALL OF OUR ASSETS
AND LIABILITIES TO EQUITEX 2000, THE SPIN- OFF OF EQUITEX 2000 COMMON STOCK, THE
OWNERSHIP OF EQUITEX 2000 COMMON STOCK AND THE PROPOSED ACQUISITION OF NOVA
FINANCIAL SYSTEMS AND KEY FINANCIAL SYSTEMS INVOLVE RISKS, INCLUDING THOSE
DESCRIBED BELOW AND ELSEWHERE IN THIS REGISTRATION STATEMENT, THAT COULD
ADVERSELY AFFECT THE VALUE OF YOUR HOLDINGS. WE ARE NOT MAKING, AND NO OTHER
PERSON IS AUTHORIZED TO MAKE, ANY REPRESENTATION AS TO THE FUTURE MARKET VALUE
OF EQUITEX 2000 COMMON STOCK.
RISKS REGARDING OUR HISTORY AND ACQUISITIONS
WE HAVE HAD NET LOSSES IN THE PAST TWO YEARS AND THERE IS NO ASSURANCE WE WILL
HAVE A PROFIT THIS YEAR.
We incurred a net loss of approximately $12.5 million (a loss
applicable to common stockholders of $13.7 million) for the year ended December
31, 2000, compared to a loss of approximately $7.7 million (a loss applicable to
common stockholders of approximately $11 million) for the year ended December
31, 1999 and recorded a net decrease in net assets resulting from operations of
approximately $2 million for the year ended December 31, 1998 as a business
development company. In addition, we had a net loss of approximately $2.2
million for the three months ended March 31, 2001 (a loss applicable to common
stockholders of approximately $2.5 million). There is no assurance that we will
have a profit for the year ended December 31, 2001.
WE HAVE NOT CONSUMMATED CERTAIN RECENT MERGERS AND ACQUISITIONS AND WE CAN
PROVIDE NO ASSURANCE THAT WE WILL CONSUMMATE THE PROPOSED ACQUISITIONS.
We recently failed to consummate two acquisitions and one merger. On
August 2, 2000, we announced that our agreement for the acquisition of First
TeleBanc Corp had expired. In addition, as a result of certain deficiencies
noted in the operations of First TeleBanc Corp.'s operating bank, Net 1st
National Bank, we withdrew our application with the Federal Reserve to become a
bank holding company. On September 21, 2000, we agreed to terminate our
agreement and plan of merger with Innovative Gaming Corporation of America.
While we acquired First Bankers Mortgage Services on August 23, 1999, we reached
an agreement to rescind the acquisition on August 15, 2000, effective June 28,
2000. We can provide no assurance that we will consummate the proposed
acquisitions with Nova Financial Systems and Key Financial Systems or that if
consummated, the acquisitions will prove to be successful.
WE MAY BE UNABLE TO RAISE SUFFICIENT FUNDS TO COMPLETE THE ACQUISITIONS OF NOVA
FINANCIAL SYSTEMS AND KEY FINANCIAL SYSTEMS OR TO PROVIDE SUFFICIENT OPERATING
CAPITAL.
We currently do not have sufficient available funds to pay the
$5,000,000 cash portion of the purchase price for Nova Financial Systems and Key
Financial Systems, or sufficient funds to provide for our operations after the
completion of these acquisitions. Although, as discussed under "Recent
Developments," we are currently conducting private placements to raise up to an
aggregate of $7,000,000, there is no assurance that these offerings will
be successful or that sufficient proceeds will be raised to complete the
acquisitions and provide us with sufficient working capital. If we do not raise
sufficient funds, we would be unable to complete the acquisitions of Nova
Financial Systems and Key Financial Systems and may not complete the
distribution and spin-off of Equitex 2000. Furthermore, if sufficient funds are
raised to complete the acquisitions, we may not have sufficient available funds
to provide for our subsequent operations which would require us to seek
additional financing. Such financing may not be available to us, or if
available, the terms of such financing may be highly dilutive to our
shareholders or result in significant operating or financial restrictions on our
business.
OUR COMMON STOCK COULD BE DELISTED FROM THE NASDAQ SMALL CAP MARKET SYSTEM.
As a result of our proposal to spin off our current operations to
Equitex 2000, acquire both Key Financial Systems and Nova Financial Systems and
change our business plan, we may be required by Nasdaq to reapply for listing on
the SmallCap Market. If we are required to reapply for Nasdaq listing, there is
no assurance that we will
-11-
be able to satisfy all of Nasdaq's initial listing requirements.
If we do not secure Nasdaq listing following the spin-off of Equitex
2000 and the mergers with Key Financial Systems and Nova Financial Systems, we
may nevertheless proceed with these transactions, upon which trading of our
common stock would be conducted in the over-the-counter markets in the so-called
"Pink Sheets" or in the National Association of Securities' Dealers OTC Bulletin
Board service. Consequently, the liquidity of our common stock would likely be
significantly impaired, not only in the number of shares that could be bought
and sold, but also through delays in the timing of transactions, reduction in
coverage by securities analysts and the news media, the inability to margin
shares of our common stock and lower prices for our common stock than what might
otherwise prevail. In addition, our common stock may become subject to the SEC's
rules relating to "penny stocks." These rules require broker-dealers to make
special suitability determinations for purchasers other than established
customers and certain institutional investors and to receive the purchasers'
prior written consent for a purchase transaction prior to sale. These "penny
stock rules" may therefore adversely affect the ability of broker-dealers to
sell our common stock and may adversely affect your ability to sell shares of
our common stock in the secondary market.
RISKS ASSOCIATED WITH OUR SECURITIES
WE MAY ISSUE APPROXIMATELY 17,356,821 SHARES OF OUR COMMON STOCK IN CONNECTION
WITH OUR ACQUISITIONS, WHICH WILL CAUSE SUBSTANTIAL DILUTION TO OUR CURRENT
STOCKHOLDERS.
There may be approximately 17,356,821 shares of our common stock issued
in connection with our acquisitions, which includes 1,134,879 shares of our
common stock which have already been issued upon the conversion of Series D, F
and H Convertible Preferred Stock. This is 241% of the number of shares of our
common stock that was outstanding prior to the approval of the increase in
authorized shares by our stockholders on June 22, 2001 (See "Recent
Developments" above). Specifically, our stockholders may experience dilution
from the conversion of outstanding shares of our preferred stock and preferred
stock to be issued into approximately 1,700,776 shares of our common stock based
on the average closing bid price of our common stock as quoted on the Nasdaq
SmallCap Market on July 19, 2001. Please see the next two risk factors for a
detailed discussion of the dilution from our preferred stock. In connection with
the acquisitions of Nova Financial Systems and Key Financial Systems, we
presently intend to issue 8,738,998 shares of common stock, which is the greater
of 7,140,000 or 50% of our outstanding common stock on a post acquisition basis
and warrants for the purchase of our common stock equal to 100% of any warrants,
options, preferred stock or other convertible securities outstanding at the
closing date and exchangeable for or convertible into our common stock, which at
this time would be a warrant to purchase 3,627,000 shares of our common stock at
an exercise price of $5.79 per share and an additional warrant to purchase
972,468 shares of our common stock at a nominal exercise price. In the warrants
to be issued to Nova Financial Systems and Key Financial Systems, 3,227,900 is
attributable to outstanding options and warrants, 972,468 is attributable to
convertible preferred stock, and the remaining 400,000 is attributable to
warrants to be issued in the proposed Series I Convertible Preferred Stock
offering. The exact terms of the warrants may change based upon any changes in
outstanding options or warrants to purchase our common stock which take place
prior to closing.
THE CONVERSION OF OUTSTANDING PREFERRED STOCK AND PREFERRED STOCK TO BE ISSUED,
AND THE EXERCISE OF WARRANTS AND OPTIONS AT PRICES BELOW THE MARKET PRICE OF OUR
COMMON STOCK COULD CAUSE A DECREASE OR CREATE A CEILING ON OUR MARKET PRICE.
The conversion of outstanding preferred stock and preferred stock to be
issued into approximately 1,700,776 shares of our common stock at an estimated
average conversion price of $3.54 per share and the exercise of warrants and
options into 8,228,268 shares of our common stock at an estimated average
exercise price of $5.79 per share, which includes the warrants to purchase an
aggregate of 4,600,368 shares of our common stock to be issued in the Nova
Financial Systems and Key Financial Systems acquisition, may be below the market
price of our common stock. Depending on the market price of our common stock at
the time of the conversion or exercise, this may cause a decrease or create a
ceiling on the market price of our common stock.
-12-
THERE MAY BE SUBSTANTIAL DILUTION FROM THE CONVERSION OF OUTSTANDING PREFERRED
STOCK AND PREFERRED STOCK TO BE ISSUED TO OUR CURRENT STOCKHOLDERS SINCE THE
APPROVAL THE INCREASE IN AUTHORIZED SHARES.
Our stockholders may experience dilution from the conversion of shares
of our Series D, G and I Convertible Preferred Stock into approximately
1,700,776 shares of our common stock or 19.5% of the number of shares of common
stock outstanding prior to the conversion. The 725 outstanding shares of Series
D 6% Convertible Preferred Stock would currently convert into approximately
204,658 shares of our common stock as of July 19, 2001, using a conversion price
of 65% of the closing price of our common stock of $5.45 at that date. The 1,300
outstanding shares of Series G Convertible Preferred Stock would currently
convert into approximately 366,972 shares of our common stock as of July 19,
2001, using a conversion price of 65% of the closing price of our common stock
of $5.45 at that date. Assuming all 4,000 shares of Series I Convertible
Preferred Stock are sold under the terms anticipated by us, they would currently
convert into approximately 1,129,146 shares of our common stock as of July 19,
2001, using a conversion price of 65% of the closing price of our common stock
of $5.45 at that date.
WE HAVE OUTSTANDING CONVERTIBLE SECURITIES AND INTEND TO ISSUE OTHER CONVERTIBLE
SECURITIES THAT MAY CAUSE SUBSTANTIAL DILUTION TO HOLDERS OF OUR COMMON STOCK.
The conversion terms of our outstanding Series D and G Convertible
Preferred Stock and the Series I Convertible Preferred Stock that we intend to
issue may cause substantial dilution in the book value per share of our common
stock. The terms of the Series I Convertible Preferred Stock are still being
negotiated. The conversion features in the Series D and G Convertible Preferred
Stock and the conversion features that we anticipate having in the Series I
Convertible Preferred Stock will allow the holders to purchase increasing shares
of common stock as a result of a decreasing market price of our common stock
price including but not limited to the following circumstances:
o To the extent that the selling securityholder converts or
exercises and then sells common stock, the common stock price may
decrease due to the additional shares in the market. This could
allow the holders to convert or exercise remaining Series D, G or
I Convertible Preferred Stock into greater amounts of common
stock, the sales of which would further depress the stock price.
o The significant downward pressure on the price of the common
stock could encourage short sales and consequently place further
downward pressure on the price of the common stock.
o Under the terms of our Series D and G Convertible Preferred Stock
and the proposed Series I Convertible Preferred Stock, holders of
these shares must own less than 5% of our outstanding shares of
common stock. Holders of these shares may circumvent this
restriction by converting an amount of preferred stock to common
stock in an amount less than 5% of our outstanding shares of
common stock, then selling those shares of common stock into the
market and then converting another block of preferred stock into
common stock. By doing the foregoing, holders of our Series D, G
or I Convertible Preferred Stock can create additional dilution
to the existing holders of our common stock.
o The conversion of the Series D, G and I Convertible Preferred
Stock may result in substantial dilution to the interests of
other holders of common stock.
Since we cannot know the conversion price of the Series D, G or I
Convertible Preferred Stock until notice of conversion has been provided by the
holder, we cannot currently determine how many shares of common stock we will
need to issue upon conversion of the Series D, G or I Convertible Preferred
Stock. The conversion ratio for issuing shares of our common stock in exchange
for Series D 6% Convertible Preferred Stock is determined by dividing the stated
value of the Series D 6% Convertible Preferred Stock by the conversion price,
which is 65% of the market price of our common stock
-13-
The conversion ratio for issuing shares of our common stock in exchange
for Series G Convertible Preferred Stock is determined by dividing the stated
value of the Series G Convertible Preferred Stock by the conversion price. The
conversion price will be the lowest of:
o $6.50; or
o 65% of the market price of our common stock provided that if our
common stock is delisted from the Nasdaq stock market for any
reason, then the conversion price for the remaining outstanding
shares of Series G Convertible Preferred Stock drops to 50% of
the market price.
For example and for illustrative purposes only, if the conversion date
is July 19, 2001, the closing market price of our common stock on July 19, 2001
was $5.45, 65% of $5.45 is $3.5425. Therefore, the lower of $6.50 and $3.5425 is
$3.5425 and is the conversion price for our Series G Convertible Preferred
Stock.
We anticiapte that the conversion ratio for issuing shares of our
common stock in exchange for Series I Convertible Preferred Stock to be
determined by dividing the stated value of the Series I Convertible Preferred
Stock by the conversion price. The conversion price is anticipated to be be the
lowest of:
o $5.45; or
o 65% of the market price of our common stock provided that if our
common stock is delisted from the Nasdaq stock market for any
reason, then the conversion price for the remaining outstanding
shares of Series I Convertible Preferred Stock drops to 50% of
the market price.
For example and for illustrative purposes only, if the conversion date
is July 19, 2001, the closing market price of our common stock on July 19, 2001
was $5.45, 65% of $5.45 is $3.5425. Therefore, the lower of $6.50 and $3.5425 is
$3.5425 and is the conversion price for our Series I Convertible Preferred
Stock.
The following table sets forth, for illustrative purposes only, the
effect of increasing and decreasing stock prices and its result on the
conversion price per share and number of shares issued upon conversion of the
Series D, G and I Convertible Preferred Stock based on the closing market price
of our common stock on July 19, 2001.
-14-
Price per Conversion Aggregate Conversion Aggregate Conversion Aggregate Percentage
share of price of number of price of number of price of number of of
common Series D shares of Series G shares of Series I shares of outstanding
stock Convertible common stock Convertible common stock Convertible common stock common
Preferred convertible Preferred convertible Preferred convertible stock (5)
Stock (1) from all Series Stock (3) from all Series Stock (11) from all Series (10)
D Convertible G Convertible I Convertible
Preferred Preferred Stock Preferred
Stock (2) (4) Stock (12)
- ------------------------------------------------------------------------------------------------------------------------------------
$5.45 $3.5425 204,658 $3.5425 366,972 $3.5425 1,129,146 19.46%
- ------------------------------------------------------------------------------------------------------------------------------------
$4.0875 $2.6569 272,874 $2.6569 489,292 $2.6569 1,505,514 25.95%
(6)
- ------------------------------------------------------------------------------------------------------------------------------------
$2.725 (7) $1.7712 409,327 $1.7712 733,966 $1.7712 2,258,356 38.92%
- ------------------------------------------------------------------------------------------------------------------------------------
$6.8125 $4.4281 163,727 $4.4281 293,580 $4.4281 903,322 15.57%
(8)
- ------------------------------------------------------------------------------------------------------------------------------------
$8.175 (9) $5.3137 136,440 $5.3137 244,651 $5.3137 752,771 12.97%
- ------------------------------------------------------------------------------------------------------------------------------------
(1) The conversion price is 65% of the market price of our common stock.
(2) Assumes that all 725 shares of Series D Convertible Preferred Stock,
which have a stated value of $725,000, will be converted into common
stock and there have been no prior conversions of the Series D
Convertible Preferred Stock.
(3) The conversion price is the lesser of (a) $6.50 or (b) 65% of the
market price of our common stock for our Series G Convertible Preferred
Stock.
(4) Assumes that all 1,300 shares of Series G Convertible Preferred Stock,
which have a stated value of $1,300,000, will be converted into common
stock and there have been no prior conversions of the Series G
Convertible Preferred Stock.
(5) Assumes 8,738,998 outstanding shares of our common stock prior to the
conversion of the Series D, G and I Convertible Preferred Stock.
(6) Reflects a 25% reduction from the average closing bid price of $5.45.
(7) Reflects a 50% reduction from the average closing bid price of $5.45.
(8) Reflects a 25% increase from the average closing bid price of $5.45.
(9) Reflects a 50% increase from the average closing bid price of $5.45.
(10) The Certificates of Designation for the Series D and G Convertible
Preferred Stock and the proposed Certificate of Designations for the
Series I Convertible Preferred Stock will limit us from issuing shares
of common stock exceeding 20% of the outstanding number of shares of
our common stock on the date the shares of preferred stock were issued
or will be issued. The limit is 1,404,489 for the Series D Convertible
Preferred Stock and 1,421,389 for the Series G Convertible Preferred
Stock. We must obtain stockholder approval to issue shares in excess of
the 20% limitation or redeem any shares in excess of the 20% limitation
at 125% of the stated value of those shares.
-15-
(11) We anticipate that the conversion price will be the lesser of (a) $5.98
or (b) 65% of the market price of our common stock, however, the final
terms of the Series I Convertible Preferred stock are still being
negotiated.
(12) Assumes that 4,000 shares of Series I Convertible Preferred Stock will
be sold and converted into common stock and there have been no prior
conversions of the Series I Convertible Preferred Stock.
UPON CLOSING OF THE ACQUISITIONS OF NOVA FINANCIAL SYSTEMS AND KEY FINANCIAL
SYSTEMS, WE WILL ISSUE A WARRANT WHICH WILL CAUSE DILUTION TO OUR EXISTING
STOCKHOLDERS.
Upon the closing of the acquisitions of Nova Financial Systems and Key
Financial Systems, we will issue a warrant equal to the aggregate amount of any
warrants, options, preferred stock or other convertible securities outstanding
at the closing. At this time, we estimate that we will issue warrants to
purchase an aggregate of 4,600,368 shares of our common stock. This number
assumes that 4,000 shares of Series I Convertible Preferred Stock will be sold.
RISKS ARISING FROM THE DISTRIBUTION AND SPIN-OFF
BY THE TIME OF THE SPIN-OFF, THE EQUITEX 2000 COMMON STOCK MAY NOT BE REGISTERED
UNDER 12(G) OF THE EXCHANGE ACT AND THE SHARES OF EQUITEX 2000 COMMON STOCK
WOULD HAVE NO PUBLIC MARKET FOR TRADING
If the Equitex 2000 common stock is not registered under 12(g) of the
Exchange Act by the time of the spin-off of shares of Equitex 2000 to our
shareholders, there will be no public market for trading the Equitex 2000 common
stock. Until such registration is effective, quotations for the Equitex 2000
common stock may only be available on the "Pink Sheets".
AN ACTIVE TRADING MARKET MIGHT NOT DEVELOP FOR THE EQUITEX 2000 COMMON STOCK AND
TRADING PRICES ARE UNCERTAIN.
If registered under Section 12(g) of the Exchange Act, we anticipate
that upon issuance, the Equitex 2000 common stock will be quoted on the OTC
Bulletin Board service, if not available on the "Pink Sheets." However, there is
presently no public market for the Equitex 2000 common stock and an active
market may not develop following the distribution and spin-off. There can be no
assurance regarding the prices at which the Equitex 2000 common stock will trade
on or after the spin-off of Equitex 2000 common stock. Until the Equitex 2000
common stock is fully distributed and an orderly market develops, the prices at
which the stock trades may fluctuate significantly. Prices for the Equitex 2000
common stock will be determined in the marketplace and may be influenced by many
factors, including, without limitation, (1) the depth and liquidity of the
market for the Equitex 2000 common stock; (2) investors' perceptions of Equitex
2000 and the industries in which it participates; (3) Equitex 2000's dividend
policy; and (4) changes in government regulation and general economic and market
conditions.
THE LIQUIDITY OF THE EQUITEX 2000 COMMON STOCK MAY BE LIMITED.
Because the Equitex 2000 common stock will not initially be listed on
the SmallCap or National Market, its liquidity may be significantly impaired,
not only in the number of shares that could be bought and sold, but also through
delays in the timing of transactions, reduction in coverage by securities
analysts and the news media, the inability to margin shares of our common stock
and lower prices for our common stock than what might otherwise prevail. In
addition, our common stock may become subject to the SEC's rules relating to
"penny stocks." These rules require broker-dealers to make special suitability
determinations for purchasers other than established customers and certain
institutional investors and to receive the purchasers' prior written consent for
-16-
a purchase transaction prior to sale. These "penny stock rules" may therefore
adversely affect the ability of broker-dealers to sell our common stock and may
adversely affect your ability to sell shares of our common stock in the
secondary market.
EQUITEX 2000 WILL INDEMNIFY US IN LITIGATION, BUT THERE IS NO ASSURANCE OF A
FAVORABLE OUTCOME.
As part of the distribution of all of our assets and liabilities,
Equitex 2000 will assume all of our liabilities and will indemnify us and assume
our prosecution or defense in the following lawsuits: William G. Hayes, Jr.
Liquidating Agent for RDM Sports Group, Inc. and Related Debtors v. Equitex,
Inc., Smith, Gambrell, Russell, L.L.P., David J. Harris, P.C., and David J.
Harris, individually, Adversary Proceeding No., 00-1065 (U.S. Bankruptcy Court
for the Northern District of Georgia, Newnan Division); and Equitex, Inc. and
Henry Fong v. Bertrand T. Unger, Case No. 98-CV-2437 (Dist. Ct. Arapahoe County,
Colorado). Although we believe these lawsuits are without merit, there is no
assurance of a favorable outcome. The costs to defend these matters may be
material and an unfavorable outcome of either or both matters may have a
material adverse effect on Equitex 2000.
EQUITEX 2000 MAY NOT PAY DIVIDENDS AFTER THE DISTRIBUTION AND SPIN-OFF.
The dividend policy of Equitex 2000 after the distribution by us of all
of our assets and liabilities to Equitex 2000 and spin-off of Equitex 2000
common stock will be determined by its board of directors. The future payment of
dividends by Equitex 2000 will be based on the results of operations and
financial condition of Equitex 2000 and other business considerations that its
board of directors considers relevant. We cannot assure investors that Equitex
2000 will pay any dividends after the distribution and spin-off of Equitex 2000
common stock.
EQUITEX 2000'S ABSENCE OF HISTORY AS AN INDEPENDENT COMPANY MAKES IT DIFFICULT
TO PREDICT FUTURE PERFORMANCE.
Equitex 2000's proposed business has historically been conducted by us
as part of our overall operations. Therefore, Equitex 2000 does not have an
operating history as an independent company. Equitex 2000 was recently formed
solely for the purpose of effecting the distribution by us of all of our assets
and liabilities to Equitex 2000 and spin-off of Equitex 2000 common stock.
Therefore, the financial information included in this proxy statement does not
necessarily reflect the financial position, results of operations and cash flows
of Equitex 2000 had Equitex 2000 been operated independently during the periods
presented. As a stand-alone company, Equitex 2000's results of operations may or
may not continue at a level similar to its results of operations while a part of
us. In addition, we have not been profitable in these operations. We also
believe that Equitex 2000's general and administrative expenses will be higher
than the expenses reflected in our historical financial statements of our
businesses.
EQUITEX 2000 MAY NOT BE ABLE TO CONSUMMATE OR INTEGRATE EFFECTIVELY ACQUISITIONS
AND ITS RESULTS MAY BE ADVERSELY AFFECTED.
We have completed several acquisitions and the business strategy of
Equitex 2000 contemplates continued expansion, including growth through future
acquisitions. However, the ability of Equitex 2000 to consummate and integrate
effectively the completed and any future acquisitions on terms that are
favorable to them may be limited. Equitex 2000 may not have adequate financial
resources to consummate any acquisitions. In addition, the ability of Equitex
2000 to issue additional equity securities to raise capital or consummate
acquisitions may be impaired, for a period of time after the distribution by us
of all of our assets and liabilities to Equitex 2000 and spin-off of Equitex
2000 common stock.
ANTI-TAKEOVER PROVISIONS MAY AFFECT THE MARKETABILITY AND MARKET PRICE OF
EQUITEX 2000 COMMON STOCK.
The articles of incorporation of Equitex 2000, as well as Delaware
statutory law, contain provisions that may have the effect of discouraging an
acquisition of control of Equitex 2000 not approved by its board of directors.
These provisions may also have the effect of discouraging third parties from
making proposals involving an acquisition or change of control of Equitex 2000,
although any proposals, if made, might be considered desirable by a majority of
-17-
Equitex 2000's stockholders. These provisions could also have the effect of
making it more difficult for third parties to replace current management of
Equitex 2000 without the concurrence of Equitex 2000's board of directors. The
existence of these provisions may adversely affect the marketability and market
price of Equitex 2000 common stock.
RISKS RELATED TO THE BUSINESS OF
NOVA FINANCIAL SYSTEMS AND KEY FINANCIAL SYSTEMS
UPON THE CLOSING OF THE ACQUISITIONS OF NOVA FINANCIAL SYSTEMS AND KEY
FINANCIAL SYSTEMS, WE WILL BE SUBJECT TO THE FOLLOWING RISKS:
ONLY ONE BANK CURRENTLY OFFERS THE PAY AS YOU GO CREDIT CARD AND LOSS OF THAT
RELATIONSHIP WOULD HAVE A MATERIAL ADVERSE IMPACT ON OUR BUSINESS.
The Pay As You Go Credit card is currently marketed only by Net 1st
National Bank. If Net 1st National Bank ceases to market our card for any
reason, we will have no ability to market the program, which will have a
material adverse effect on our business and results of operations. Although we
are seeking to obtain additional banks to market the program, we have been
unsuccessful in these efforts and there is no assurance that we will be able to
consummate or maintain additional marketing arrangements for the program.
SOCIAL, ECONOMIC AND GEOGRAPHIC FACTORS MAY AFFECT OUR RETENTION OF CREDIT CARD
ACCOUNTS.
The ability or willingness of cardholders to prepay credit cards may
change from a variety of social, economic and geographic factors. Social factors
include changes in consumer confidence levels, the public's perception of the
use of credit cards and changing attitudes about incurring debt and the stigma
of personal bankruptcy. Economic factors include the rates of inflation,
unemployment rates and relative interest rates offered for various types of
loans. As a result of these factors, our rate of retention of credit card
accounts may vary.
CONSUMER PROTECTION LAWS MAY RESTRICT OUR ABILITY TO COLLECT RECEIVABLES AND
MAINTAIN YIELD ON OUR PORTFOLIO.
Federal and state consumer protection laws regulate the creation and
enforcement of consumer loans. Congress and the states may enact additional laws
and amend existing laws to regulate further the credit card and
consumer revolving loan industry or to reduce finance charges or other fees or
charges. These laws, as well as many new laws, regulations or rulings which may
be adopted, may materially adversely affect our ability to collect the
receivables or to maintain previous levels of finance charges or fees.
Receivables also may be written off as uncollectible if a debtor seeks
relief under federal or state bankruptcy laws.
OUR ABILITY TO GENERATE CREDIT CARD REVENUE IS DEPENDENT UPON RETAINING OLD
CUSTOMERS AND OBTAINING NEW CUSTOMERS AND THERE IS NO ASSURANCE WE WILL BE
SUCCESSFUL IN OUR EFFORTS.
A significant portion of our revenue will be derived from credit card
fees charged on accounts. This revenue is directly tied to the number of active
accounts in the portfolio. Continued generation of new fee revenue depends, in
part, on the number of accounts or account balances lost to competing card
issuers and our ability to designate new accounts. The credit card industry is
highly competitive and we will compete with numerous other credit card providers
for new accounts and for use of the credit cards.
Credit card customers choose their credit card issuers largely on the
basis of price, credit limit and other product features and once an account is
originated, customer loyalty may be limited. Customers can and frequently do
move accounts from one credit card issuer to another, or cease or limit use of
one credit card in favor of another.
-18-
The credit card and consumer revolving loan industry is highly
competitive and operates in a legal and regulatory environment increasingly
focused on the cost of services charged to consumers. There is increased use of
advertising, target marketing, pricing competition, incentive programs and new
credit card issuers seeking to expand or to enter the market and compete for
customers. In addition, some of our competitors are now attempting to employ
programs similar to the specialized marketing programs and information based
strategies through which we have solicited new accounts.
MARKETING OF THE PAY AS YOU GO CREDIT CARD AND NET 1ST NATIONAL BANK WAS
SUSPENDED FOR ONE MONTH AND THERE IS NO GUARANTEE THAT ANOTHER SUSPENSION WILL
NOT OCCUR.
On November 15, 2000, Key Financial Systems temporarily suspended
marketing for Net 1st National Bank. This suspension was at the request of Net
1st National Bank to conform to the requirements of a Consent Order between Net
1st National Bank and the Office of the Comptroller of the Currency. Net 1st
National Bank was required to obtain legal opinions that Key Financial Systems's
credit card marketing and Pay As You Go program conform to all federal and state
laws. The necessary opinions have been prepared and have been forwarded to the
Office of the Comptroller of the Currency. On December 15, 2000, Net 1st
National Bank notified Key Financial Systems to resume marketing the Pay As You
Go credit card program. Despite Net 1st National Bank's compliance with all
requirements, there is no assurance that the Office of the Comptroller of the
Currency will not suspend marketing of this product in the future.
OUR EARNINGS ARE DEPENDENT UPON THE MARKETING AND ACCEPTANCE OF ONE PRODUCT.
Nova Financial Systems and Key Financial Systems currently market one
product, the Pay As You Go credit card. Our product may not be able to be
successfully marketed or achieve customer acceptance. If revenue from new
products or enhancements does not replace declining revenues from existing
products, we may experience lower operating revenues, lower net revenues, lower
cash flows and less liquidity.
TIMING OF PAYMENTS IS NOT CERTAIN.
The receivables may be paid at any time. We cannot assure you that any
particular pattern of accountholder payments will occur. In addition to other
factors discussed above in this "Risk Factors" section, changes in finance
charges can alter the monthly payment rates of accountholders.
THE ABILITY TO CHANGE TERMS OF THE CREDIT CARD ACCOUNTS COULD ALTER PAYMENT
PATTERNS AND REDUCE OUR EARNINGS.
As owner of a participation interest in the accounts, we will have the
right to change various account terms, including the fees and the required
monthly minimum payment. If any fees are reduced, there could be a corresponding
decrease in the collection of finance charges. In addition, changes in the
account terms may alter payment patterns.
We ordinarily will not reduce any fees, unless the issuing bank of our
cards is required by law to do so or it determines that such reduction is
necessary to maintain its credit card business on a competitive basis.
We may change the terms of the accounts or our servicing practices,
including the reduction of the required minimum monthly payment and the
calculation of the amount or the timing of fees and charge offs, if we take the
same action on our other substantially similar accounts.
We have no restrictions on our ability to change the terms of the
accounts except as described above. Changes in relevant law, changes in the
marketplace, or prudent business practices could impel us to change account
terms.
-19-
WE FACE INTENSE COMPETITION AND THERE IS NO ASSURANCE THAT WE WILL ACHIEVE
MARKET ACCEPTANCE OF OUR PRODUCT.
We will face intense and increasingly aggressive competition from other
consumer lenders in all of our product lines. Many competitors are substantially
larger and have greater financial resources than us, and customer loyalty is
often limited. Competitive practices, such as the offering of lower interest
rates and fees and the offering of incentives to customers, could hurt our
ability to attract and retain customers.
The Gramm-Leach- Bliley Act of 1999, which permits the affiliation of
commercial banks, securities firms and insurance companies, may increase the
number of competitors in the banking industry and the level of competition in
providing banking products, including credit cards. To the extent that the
Gramm-Leach-Bliley Act of 1999 promotes competition or consolidation among
financial service providers active in the consumer credit market, we could
experience increased competition for customers, employees and funding. However,
we are unable to predict at this time the scope or extent of any such impact.
In October 1998, the U.S. Justice Department filed a complaint against
MasterCard International Incorporated, Visa U.S.A., Inc. and Visa International,
Inc., asserting that the overlapping ownership and control of both the
MasterCard and Visa associations by the same group of banks restrains
competition between Visa and MasterCard in the market for general purpose credit
card products and networks in violation of the antitrust laws. The government
seeks as relief that only member banks "dedicated" to one association be
permitted to participate in the governance of that association. In addition, the
complaint challenges the rules adopted by both MasterCard and Visa that restrict
member banks from joining American Express, Discover/Novus or other competing
networks. MasterCard and Visa have stated that they consider the suit without
merit and have denied the allegations of the complaint. Neither the ultimate
outcome of this litigation nor its effect on the competitive environment in the
credit card industry if the lawsuit succeeds can be predicted with any
certainty.
WE COULD HAVE INCREASED DELINQUENCIES AND CREDIT LOSSES WHICH MAY REDUCE OUR
EARNINGS.
The delinquency rate on our consumer loans, as well as the rate at
which our consumer loans are charged off as uncollectible, which are referred to
as the "credit loss rate", may increase, depending on a number of factors,
including (i) an increase in new accounts, which generally experience higher
delinquency and credit loss rates, and (ii) an increase in the number of
customers seeking protection under the bankruptcy laws. Increased delinquencies
and credit losses could also occur in the event of a national or regional
economic downturn or recession, or for other reasons. Unlike a traditional
credit card portfolio, sub prime portfolios experience higher initial
delinquency and first payment default rates. An increase in new accounts can
significantly increase delinquency and loss rates.
WE ARE RELIANT ON CERTAIN VENDOR RELATIONSHIPS WHICH WE MAY NOT BE ABLE TO
MAINTAIN.
Our business will depend on a number of services provided by third
parties, including marketing, data processing, nationwide credit bureaus, postal
and telephone service, bankcard associations and transaction processing
services. A major disruption in one or more of these services could
significantly hurt our operations.
OUR INDUSTRY IS HEAVILY REGULATED BY THE GOVERNMENT WHICH MAY AFFECT OUR ABILITY
TO CONDUCT BUSINESS.
Federal and state laws significantly limit the types of activities in
which we and/or our subsidiaries will be permitted to engage. In addition,
consumer protection and debtor relief laws limit the manner in which we may
offer, extend, manage and collect loans. Congress, the States, and other
jurisdictions in which we operate may enact new laws and amendments to existing
laws that further restrict consumer lending, including changes to the laws
governing bankruptcy, which could make it more difficult or expensive for us to
collect loans, or impose limits on the interest and fees that we may charge our
customers. Our earnings could also be hurt by changes in government fiscal or
monetary policies, including changes in capital requirements and rates of
taxation, and by changes in general social and economic conditions.
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WE ARE DEPENDENT UPON OUR MANAGEMENT AND MAY NOT BE ABLE TO RETAIN KEY
EMPLOYEES.
Our growth and profitability will depend on our ability to retain key
executives and managers, attract capable employees, maintain and develop the
systems necessary to operate our businesses and control the rate of growth of
our expenses. Expenses could significantly increase due to acquisition-related
expenses, new product development, facilities expansions, increased funding or
staffing costs and other internal and external factors.
WE FACE OTHER INDUSTRY RISKS RELATED TO THE FINANCIAL SERVICES INDUSTRY WHICH
COULD AFFECT OUR ABILITY TO ACHIEVE MARKET ACCEPTANCE.
We will face the risk of fraud by accountholders and third parties, as
well as the risk that increased criticism from consumer advocates and the media
could hurt consumer acceptance of our products. The financial services industry
as a whole is characterized by rapidly changing technologies. System disruptions
and failures may interrupt or delay our ability to provide services to our
customers. In particular, we face technological challenges in the developing
online credit card market. The secure transmission of confidential information
over the Internet is essential to maintain consumer confidence in the products
and services offered by e-commerce business. Security breaches, acts of
vandalism, and developments in computer capabilities could result in a
compromise or breach of the technology we use to protect customer transaction
data. Consumers generally are concerned with security breaches and privacy on
the Internet, and Congress, individual States and other jurisdictions could
enact new laws regulating the electronic commerce market that could adversely
affect us.
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
We are authorized to issue up to 50,000,000 shares of common stock,
$.02 par value per share. As of July 19, 2001, 8,738,998 shares of common stock
were outstanding. All outstanding shares of common stock are fully paid and
non-assessable, and all shares of common stock offered in the offering, when
issued, will be fully paid and non-assessable.
PREFERRED STOCK
Our preferred stock is so-called "blank check" preferred since our
board of directors may fix or change the terms, including: (i) the division of
such shares into series; (ii) the dividend or distribution rate; (iii) the dates
of payment of dividends or distributions and the date from which they are
cumulative; (iv) liquidation price; (v) redemption rights and price; (vi)
sinking fund requirements; (vii) conversion rights; (viii) restrictions on the
issuance of additional shares of any class or series. As a result, our board of
directors are entitled to authorize the creation and issuance of up to 2,000,000
shares of preferred stock in one or more series with such terms, limitations and
restrictions as may be determined in our board of director's sole discretion,
with no further authorization by our stockholders except as may be required by
applicable laws or securities exchange listing rules.
The holders of shares of preferred stock have only such voting rights
as are granted by law and authorized by the board of directors with respect to
any series thereof. Our board of directors has the right to establish the
relative rights of the preferred stock in respect of dividends and other
distributions and in the event of the voluntary or involuntary liquidation,
dissolution or winding up of our affairs as compared with such rights applicable
to the common stock and any other series of preferred stock.
The effect of preferred stock upon the rights of holders of common
stock may include: (i) the reduction of amounts otherwise available for payment
of dividends on common stock to the extent that dividends are payable on any
issued shares of preferred stock; (ii) restrictions on dividends on common stock
if dividends on preferred stock are in arrears; (iii) dilution of the voting
power of the common stock and dilution of net income and net tangible book value
per share of common stock as a result of any such issuance, depending on the
number of shares of common stock not being entitled to share in our assets upon
-21-
liquidation until satisfaction of any liquidation preference granted to shares
of preferred stock. It is not possible to state the effect that other series of
preferred stock may have upon the rights of the holder of common stock until the
board of directors determines the terms relating to those series of preferred
stock.
Currently, we have the following series of preferred stock outstanding
and, except in connection with the acquisitions of Nova Financial Systems and
Key Financial Systems, described above, the board of directors has no present
commitment, arrangement or plan that would require the issuance of shares of
preferred stock in connection with an equity offering, merger, acquisition or
otherwise:
o SERIES D 6% CONVERTIBLE PREFERRED STOCK. The Series D Convertible
Preferred Stock has a stated value of $1,000 per share. The Series D 6%
Convertible Preferred Stock ranks prior to the our common stock and
pari passu with other series of preferred stock issued prior to the
Series D 6% Convertible Preferred Stock and senior to any series of
preferred stock issued after the Series D 6% Convertible Preferred
Stock. The Series D 6% Convertible Preferred Stock entitles its holder
to 6% annual dividends, payable quarterly. The Series D 6% Convertible
Preferred Stock liquidation preference is equal to the sum of the
stated value of each share plus an amount equal to 30% of the stated
value plus the aggregate of all accrued and unpaid dividends on each
share of Series D 6% Convertible Preferred Stock until the most recent
dividend payment date of date of our liquidation, dissolution or
winding up. Lastly, the Series D 6% Convertible Preferred Stock is
convertible at any time, and from time to time at a conversion price
per share of common stock equal to 65% of the market price of the
common stock. The number of shares of common stock due upon conversion
of each share of Series D 6% Convertible Preferred Stock is (i) the
number of shares to be converted, multiplied by (ii) the stated value
of the Series D 6% Convertible Preferred Stock and divided by (iii) the
applicable conversion price. As of July 19, 2001, 725 shares of Series
D 6% Convertible Preferred Stock were outstanding.
o SERIES G CONVERTIBLE PREFERRED STOCK. The Series G Convertible
Preferred Stock has a stated value of $1,000 per share and bears
dividends at 6% per annum, payable quarterly commencing September 30,
2000, when, as and if declared by our board of directors. Dividends may
be payable by us in cash or, at our option, shares of common stock. The
Series G Convertible Preferred Stock is convertible, together with any
accrued by unpaid dividends, at any time and from time to time into
shares of common stock at a conversion price per share equal to the
lesser of $6.50 or 65% of the market price upon the occurrence of
certain material events. All outstanding shares of Series G Convertible
Preferred Stock shall be automatically converted into common stock on
August 31, 2003. The Series G Convertible Preferred Stock are
redeemable at our option at any time at a redemption price equal to
$1,350 per share plus any accrued but unpaid dividends. We are required
to redeem the Series G Convertible Preferred Stock if a registration
statement relating to the resale of certain shares of our common stock
underlying the Series G Convertible Preferred Stock is not declared
effective on or before 18 days of its filing. As of July 19, 2001,
1,300 shares of Series G Convertible Preferred Stock were outstanding.
We intend to commence the private placement for the issuance of up to
4,000 shares of Series I 6% Convertible Preferred Stock.
o SERIES I CONVERTIBLE PREFERRED STOCK. While the terms have not been
fully negotiated, we expect the Series I Convertible Preferred Stock to
have a stated value of $1,000 per share and bear dividends at 6% per
annum, payable quarterly commencing September 30, 2001, when, as and if
declared by our board of directors. Dividends may be payable by us in
cash or, at our option, shares of common stock. The Series I
Convertible Preferred Stock is expected to be convertible, together
with any accrued but unpaid dividends, at any time and from time to
time into shares of our common stock at a conversion price per share
equal to
-22-
the lesser of $5.98 or 65% of the market price upon the occurrence of
certain material events. We expect all outstanding shares of Series I
Convertible Preferred Stock to be automatically converted into common
stock on the third anniversary of the date of the Series I 6%
Convertible Preferred Certificate of Designations. The shares of Series
I Convertible Preferred Stock are expected to be redeemable at our
option at any time at a redemption price 25% above the stated value per
share plus any accrued but unpaid dividends. The warrant to be issued
in connection with the Series I Convertible Preferred Stock offering is
expected to be exercisable until three years following the closing date
of the offering at an exercise price equal to the average of the
closing bid prices of our common stock in a regular day session as
reported on the Nasdaq National SmallCap Market for the five trading
days immediately preceding the closing date of the offering. The
proceeds from the Series I Convertible Preferred Stock offering will be
used to fund a portion of the cash portion of the purchase price for
the Nova Financial and Key Financial transaction discussed above and
for general corporate purposes.
We conduct substantially all of our operations through our
subsidiaries. We are dependent upon the cash flow of our subsidiaries to meet
our obligations, including our obligations under the convertible stock. As a
result, the Series D, F, G, H and I Convertible Preferred Stock will be
effectively subordinated to all existing and future indebtedness and other
liabilities and commitments of our subsidiaries with respect to the cash flow
and assets of those subsidiaries.
SELLING SECURITYHOLDER
The following table lists the total number of shares of our common
stock and the total number of shares of common stock assuming the conversion or
exercise of all convertible preferred stock and warrants owned by The Shaar Fund
as the selling securityholder and registered hereunder. Except as indicated, The
Shaar Fund is offering all of the shares of common stock owned by it or received
by it upon the exercise or conversion of the warrants or convertible preferred
stock.
Because the selling securityholder may offer all or part of the shares
of common stock currently owned or the shares of common stock received upon
conversion or exercise of the convertible preferred stock and/or warrants, which
it owns pursuant to the offering contemplated by this prospectus, and because
its offering is not being underwritten on a firm commitment basis, no estimate
can be given as to the amount of convertible preferred stock and/or warrants
that will be held upon termination of this offering. The shares of common stock
currently owned and the shares of common stock received upon conversion or
exercise of the convertible preferred stock and/or warrants offered by this
prospectus may be offered from time to time by the selling securityholder named
below.
-23-
- -------------------------------------------------------------------------------------------------------------------------------
Selling Securityholder: The Shaar Fund
- -------------------------------------------------------------------------------------------------------------------------------
Title of each Shares owned Percent of Shares of common Total shares of Shares of Percent of
class of owned prior outstanding stock to be received common stock to common stock outstanding
securities to be to offering common stock upon the conversion be offered to beneficially common stock
registered beneficially of preferred stock or securityholder's owned after beneficially
owned by exercise of warrants account the owned by
securityholder to be offered for the offering (1) securityholder
before the securityholder's after the
offering (1) account (2) offering (6)
- -------------------------------------------------------------------------------------------------------------------------------
Common Stock 20,000 .21% 0 20,000 20,000 .21%
- -------------------------------------------------------------------------------------------------------------------------------
Common Stock 330,000 3.53% 330,000 (3) 330,000 0 0%
Underlying
Series D
Convertible
Preferred Stock
- -------------------------------------------------------------------------------------------------------------------------------
Common Stock 35,715 .38% 35,715 (4) 35,715 0 0%
Underlying
Series F
Convertible
Preferred Stock
- -------------------------------------------------------------------------------------------------------------------------------
Common Stock 1,134,285 12.13% 1,134,285 (4) 1,134,285 0 0%
Underlying
Series G
Convertible
Preferred Stock
- -------------------------------------------------------------------------------------------------------------------------------
Common Stock 120,000 1.28% 120,000 (3) 120,000 0 0%
Underlying
Warrants
Granted in
Connection with
Series D
Convertible
Preferred Stock
Private
Placement
- -------------------------------------------------------------------------------------------------------------------------------
Common Stock 130,000 1.39% 130,000 (4) 130,000 0 0%
Underlying
Warrants
Granted in
Connection with
Series G
Convertible
Preferred Stock
Private
Placement
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL 1,770,000 18.92% 1,750,000 (5) 1,750,000 20,000 .21%
- -------------------------------------------------------------------------------------------------------------------------------
(1) Pursuant to Rule 13d-3 under the Exchange Act, The Shaar Fund is
considered to have beneficial ownership of the shares of our common
stock underlying the Series D and G Convertible Preferred Stock and
common stock to be received upon exercise of the warrants issued in
connection with the Series D and G Convertible Prefrred Stock. As of
the date of this Prospectus, The Shaar Fund has not converted any of
the preferred stock or exercised any of the warrants named in this
table, except on July 19, 2001, The Shaar Fund converted its Series F
Convertible Preferred Stock into 35,715 shares of our common stock.
The precentage of beneficial ownership has been calculated after giving
effect to the assumed conversion of all preferred stock and exercise of
all warrants named in this table.
-24-
(2) Plus such indeterminable number of shares of common stock as may be
issuable by reason of the anti-dilution provisions of such warrants or
convertible preferred stock.
(3) Pursuant to the Registration Rights Agreement dated May 3, 1999,
Equitex is registering a total of 450,000 shares of common stock,
including common stock issued in (i) lieu of cash dividend payments, or
as a stock dividend on the Series D Convertible Preferred Stock, (ii)
upon conversion of the Series D Convertible Preferred Stock, and/or
(iii) upon exercise of the warrants issued in connection
with the Series D Convertible Preferred Stock.
(4) Pursuant to the Registration Rights Agreement dated August 31, 2000,
Equitex is registering a total of 1,300,000 shares of common stock,
including common stock issued in (i) lieu of cash dividend payments, or
as a stock dividend on the Series F and G Convertible Preferred Stocks,
(ii) upon conversion of the Series F and G Convertible Preferred Stock,
and/or (iii) upon exercise of the warrants issued in connection with
the Series F and G Convertible Preferred Stock.
(5) The total number of shares being registered exceeds the amount
convertible as of July 19, 2001 using the average closing bid price
$5.45 as quoted on the Nasdaq SmallCap Market. The number of shares
actually convertible using the average closing bid price of $5.45 is
204,658 shares of our common stock for the Series D Convertible
Preferred Stock, and 366,972 shares of our common stock for the Series
G Convertible Preferred Stock. Because the conversion of the Series D
and G Convertible Preferred Stock is based on fluctuating market
conditions, and pursuant to the registration rights agreements, we are
registering more than the amount convertible as of July 19, 2001.
(6) Assumes all shares offered are sold, including shares of common stock
underlying the conversion of the Series D, F and G Convertible
Preferred Stock and exercise of warrants. There are 8,738,998
outstanding shares of our common stock.
PLAN OF DISTRIBUTION
We are registering the shares of common stock on behalf of the selling
securityholder. As used in this prospectus, "selling securityholder" includes
donees and pledgees selling shares received from the selling securityholder
after the date of this prospectus. All costs, expenses and fees in connection
with the registration of the shares of common stock offered will be borne by us.
Brokerage commission and similar selling expenses, if any, attributable to the
sale of shares of common stock will be borne by the selling securityholder.
Sales of shares of common stock may be effected by the selling securityholder
from time to time in one or more types of transactions (which may include block
transactions), in the over-the-counter market, in negotiated transactions,
through put or call options transactions relating to the shares of common stock,
through short sales of shares of common stock, or a combination of these methods
of sale, at market prices prevailing at the time of sale, or at negotiated
prices. Any of these transactions may or may not involve brokers or dealers. The
selling securityholder has advised us that it has not entered into any
agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of its securities, nor is there any
underwriter or coordinating broker acting in connection with the proposed sale
of shares of common stock by the selling securityholder.
The selling securityholder may effect transactions by selling shares of
common stock directly to purchasers or to or through broker-dealers, which may
act as agents or principals. Broker-dealers may receive compensation in the form
of discounts, concessions, or commissions from the selling securityholder and/or
the purchaser(s) of shares of common stock for whom those broker-dealers may act
as agents or to whom they sell as principal, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions).
-25-
The selling securityholder and any broker-dealers that act in
connection with the sale of shares of common stock might be deemed to be
underwriters within the meaning of Section 2(a)(11) of the Securities Act, and
any commissions received by those broker-dealers and any profit on the resale of
the shares of common stock sold by them while acting as principals might be
deemed to be underwriting discounts or commissions under the Securities Act. We
have agreed to indemnify the selling securityholder against liabilities,
including liabilities arising under the Securities Act. The selling
securityholder may agree to indemnify any agent, dealer or broker-dealer that
participates in transactions involving sales of the shares of common stock
against liabilities, including liabilities arising under the Securities Act.
Because the selling securityholder may be deemed to be an underwriter
within the meaning of Section 2(a)(11) of the Securities Act, the selling
securityholder will be subject to the prospectus delivery requirements of the
Securities Act. We have informed the selling securityholder that the
anti-manipulative provisions of Regulation M issued under the Exchange Act may
apply to its sales in the market.
The selling securityholder also may resell all or a portion of the
shares of common stock in open market transactions in reliance upon Rule 144
under the Securities Act, provided it meets the criteria and conform to the
requirements of that Rule.
After the selling securityholder notifies us that any material
arrangement has been entered into with a broker-dealer for the sale of shares of
common stock through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer, a supplement to this
prospectus will be filed, if required, under Rule 424(b) to the Securities Act,
disclosing (a) the name of the selling securityholder and of the participating
broker-dealer(s), (b) the number of shares of common stock involved, (c) the
price at which those shares of common stock were sold, (d) the commissions paid
or discounts or concessions allowed to such broker-dealer(s), where applicable,
(e) that such broker-dealer(s) did not conduct any investigation to verify the
information contained or incorporated by reference in this prospectus and (f)
other facts material to the transaction. In addition, after being notified by
the selling securityholder that a donee or pledgee intends to sell more than 500
shares of common stock, we will file a supplement to this prospectus.
We are unable to predict the effect which sales of the shares of common
stock offered by this prospectus might have upon our ability to raise further
capital.
In order to comply with states' securities laws, if applicable, the
shares of common stock will be sold in those jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states, the
shares of common stock may not be sold unless they have been registered or
qualified for sale in those states or an exemption from registration or
qualification is available and complied with.
INDEMNIFICATION PROVIDED IN CONNECTION WITH THE
OFFERING BY THE SELLING SECURITYHOLDER
The selling securityholder has agreed to indemnify, to the extent
permitted by law, us, our directors, certain of our officers and each person who
controls us (within the meaning of the Securities Act) against any losses,
claims, damages, liabilities and expenses resulting from any untrue or alleged
untrue statement of material fact or any omission or alleged omission of a
material fact required to be stated in a registration statement or prospectus,
or any amendment thereof or supplement thereto or necessary to make the
statements therein (in the case of a prospectus, in the light of the
circumstances under which they were made) not misleading, in each case to the
extent, but only to the extent, that any such loss, liability, claim, damage or
expense arises out of or is based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made therein in reliance upon
and in conformity with written information or affidavits relating to the selling
securityholder furnished by the selling securityholder to us for use therein.
-26-
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, or persons controlling us pursuant
to the foregoing provisions we have been informed that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
LEGAL MATTERS
The legality of the shares of common stock being offered will be passed
on for Equitex by Friedlob Sanderson Paulson & Tourtillott, LLC, Denver,
Colorado.
EXPERTS
The statement of operations of Equitex, Inc. for the year ended
December 31, 1998, and the related statements of changes in stockholders' equity
and cash flows for the year ended December 31, 1998, which appear in our annual
report on Form 10-K/A, incorporated by reference herein, has been so
incorporated in reliance upon the report of Davis & Co., CPAs, P.C., independent
certified public accountants, and upon the authority of said firm as experts in
auditing and accounting.
The consolidated balance sheets of Equitex, Inc. as of December 31,
2000 and 1999 and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the years in the two-year period
ended December 31, 2000, which appear in our Annual Report on Form 10-K/A,
incorporated by reference herein, has been so incorporated in reliance upon the
report of Gelfond Hochstadt Pangburn, P.C., independent certified public
accountants, and upon the authority of said firm as experts in auditing and
accounting. With respect to the unaudited condensed consolidated financial
information for the periods ended March 31, 2001 and 2000, incorporated herein
by reference, the independent certified public accountants have applied limited
procedures in accordance with professional standards for a review of such
information. However, as stated in their separate report included in Equitex's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2001, and
incorporated by reference herein, they did not audit and they do not express an
opinion on that interim financial information. Because of the limited nature of
the review procedures applied, the degree of reliance on their report on
provisions of Section 11 of the Securities Act of 1933 for their report on the
unaudited interim financial information because that report is not a "report" or
a "part" of the Registration Statement prepared or certified by the accountants
within the meaning of Sections 7 and 11 of the Securities Act of 1933.
The financial statements of Nova Financial Systems, Inc. as of December
31, 2000 and 1999, and the related statements of operations, stockholders'
equity, and cash flows for the years ended December 31, 2000 and 1999, and for
the period from inception, October 10, 1998, through December 31, 1998, and the
financial statements of Key Financial Systems, Inc. as of December 31, 2000 and
1999, and the related statements of income, stockholders' equity, and cash flows
for the years ended December 31, 2000, 1999 and 1998, both which appear in
Equitex's Definitive Proxy Statement on Schedule 14A as filed May 16, 2001, have
been incorporated by reference herein in reliance upon the reports of McGladrey
& Pullen, LLP, independent certified public accountants, and upon the authority
of said firm as experts in auditing and accounting.
-27-
EQUITEX, INC.
1,750,000 SHARES OF COMMON STOCK TO BE OFFERED AND SOLD BY THE SHAAR FUND
AS THE SELLING SECURITYHOLDER
July 23, 2001
------------------------------------
PROSPECTUS
------------------------------------
- --------------------------------------------------------------------------------
| |
| No dealer, salesman or other person has been authorized to give any |
| information or to make any representations other than those contained in this|
| prospectus. Any information or representations not herein contained, if given|
| or made, must not be relied upon as having been authorized by Equitex. This |
| prospectus does not constitute an offer or solicitation in respect to these |
| securities in any jurisdiction in which such offer or solicitation would be |
| unlawful. The delivery of this prospectus shall not, under any circumstances,|
| create any implication that there has been no change in the affairs of |
| Equitex or that the information contained herein is correct as of any time |
| subsequent to the date of this prospectus. However, in the event of a |
| material change, this prospectus will be amended or supplemented accordingly.|
- --------------------------------------------------------------------------------
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14 - OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemization of all expenses (subject to future
contingencies) incurred or to be incurred by the Registrant in connection with
the issuance and distribution of the securities being offered. All expenses are
estimated except the registration fee.
Registration and filing fee $ 1,753
Printing and engraving 1,500
Accounting fees and expenses 2,500
Legal fees and expenses 15,000
Transfer and Warrant Agent 500
Other 538
----------
Total $ 21,791
==========
ITEM 15 - INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides for, under
certain circumstances, the indemnification of Equitex's officers, directors,
employees and agents against liabilities which they may incur in such
capacities. A summarization of the circumstances in which such indemnifications
provided for is contained herein, but that description is qualified in its
entirety by reference to the relevant Section of the Delaware General
Corporation Law.
In general, the statute provides that any director, officer, employee
or agent of a corporation may be indemnified against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement, actually and
reasonably incurred in a proceeding (including any civil, criminal,
administrative or investigative proceeding) to which the individual was a party
by reason of such status. Such indemnity may be provided if the indemnified
person's actions resulting in the liabilities: (i) were taken in good faith;
(ii) were reasonably believed to have been in or not opposed to Equitex's best
interest; and (iii) with respect to any criminal action, such person had no
reasonable cause to believe the actions were unlawful. Unless ordered by a
court, indemnification generally may be awarded only after a determination of
independent members of the Board of Directors or a committee thereof, by
independent legal counsel or by vote of the stockholders that the applicable
standard of conduct was met by the individual to be indemnified.
The statutory provisions further provide that to the extent a director,
officer, employee or agent is wholly successful on the merits or otherwise in
defense of any proceeding to which he was a party, he is entitled to receive
indemnification against expenses, including attorneys' fees, actually and
reasonably incurred in connection with the proceeding.
Indemnification in connection with a proceeding by or in the right of
Equitex in which the director, officer, employee or agent is successful is
permitted only with respect to expenses, including attorneys' fees actually and
reasonably incurred in connection with the defense. In such actions, the person
to be indemnified must have acted in good faith, in a manner believed to have
been in Equitex's best interest and must not have been adjudged liable to
Equitex unless and only to the extent that the Court of Chancery or the court in
which such action or suit was brought shall determine upon application that,
despite the adjudication of liability, in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expense which the Court of Chancery or such other court shall deem proper.
Indemnification is otherwise prohibited in connection with a proceeding brought
on behalf of Equitex in which a director is adjudged liable to Equitex, or in
connection with any proceeding charging improper personal benefit to the
director in which the director is adjudged liable for receipt of an improper
personal
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benefit.
Delaware law authorizes Equitex to reimburse or pay reasonable expenses
incurred by a director, officer, employee or agent in connection with a
proceeding in advance of a final disposition of the matter. Such advances of
expenses are permitted if the person furnishes to Equitex a written agreement to
repay such advances if it is determined that he is not entitled to be
indemnified by Equitex.
The statutory section cited above further specifies that any provisions
for indemnification of or advances for expenses does not exclude other rights
under Equitex's Certificate of Incorporation, Bylaws, resolutions of its
stockholders or disinterested directors, or otherwise. These indemnification
provisions continue for a person who has ceased to be a director, officer,
employee or agent of the corporation and inure to the benefit of the heirs,
executors and administrators of such persons.
The statutory provision cited above also grants the power to Equitex to
purchase and maintain insurance policies which protect any director, officer,
employee or agent against any liability asserted against or incurred by him in
such capacity arising out of his status as such. Such policies may provide for
indemnification whether or not the corporation would otherwise have the power to
provide for it. No such policies providing protection against liabilities
imposed under the securities laws have been obtained by Equitex.
Article VII Section 9 of Equitex's Bylaws provides that Equitex shall
indemnify its directors, officers, employees and agents to the fullest extent
permitted by the Delaware General Corporation Law. In addition, Equitex has
entered into agreements with its directors indemnifying them to the fullest
extent permitted by the Delaware General Corporation Law.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling
Equitex pursuant to the foregoing provisions, Equitex has been informed that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
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ITEM 16 EXHIBITS
- --------------------------------------------------------------------------------
The following is a complete list of exhibits filed as part of this
Registration Statement:
EXHIBIT
NUMBER DESCRIPTION
- --------------------------------------------------------------------------------
3(i).1 Certificate of Amendment to the Certificate of Incorporation of
Equitex, Inc. - Designation of Preferences, Limitations and Relative
Rights of the Series D Convertible Preferred Stock of Equitex, Inc. *
3(i).2 Certificate of Amendment to the Certificate of Incorporation of
Equitex, Inc. - Designation of Preferences, Limitations and Relative
Rights of the Series E Convertible Preferred Stock of Equitex, Inc.
(INCORPORATED BY REFERENCE TO THE REGISTRANT'S REPORT ON FORM 8-K AS
FILED WITH THE COMMISSION ON SEPTEMBER 8, 1999, FILE NO. 814-00036)
3(i).3 Certificate of Amendment to the Certificate of Incorporation of
Equitex, Inc. - Designation of Preferences, Limitations and Relative
Rights of the Series F Convertible Preferred Stock of Equitex, Inc.
(INCORPORATED BY REFERENCE TO THE REGISTRANT'S REPORT ON FORM 10-K AS
FILED WITH THE COMMISSION FOR THE YEAR ENDED DECEMBER 31, 2000 FILE NO.
000-12374)
3(i).4 Certificate of Amendment to the Certificate of Incorporation of
Equitex, Inc. - Designation of Preferences, Limitations and Relative
Rights of the Series G Convertible Preferred Stock of Equitex, Inc.
(INCORPORATED BY REFERENCE TO THE REGISTRANT'S REPORT ON FORM 10-K AS
FILED WITH THE COMMISSION FOR THE YEAR ENDED DECEMBER 31, 2000 FILE NO.
000-12374)
3(i).5 Certificate of Amendment to the Certificate of Incorporation of
Equitex, Inc. - Designation of Preferences, Limitations and Relative
Rights of the Series H Convertible Preferred Stock of Equitex, Inc. *
3(i).6 Certificate of Amendment to the Certificate of Incorporation of
Equitex, Inc. - Amended Certificate of Designation of Series H 8%
Convertible Preferred Stock of Equitex, Inc.(FILED HEREWITH)
3(i).7 Certificate of Amendment to the Certificate of Incorporation of
Equitex, Inc. dated June 29, 2001. *
5.1 Opinion of Friedlob Sanderson Paulson & Tourtillott, LLC (FILED
HEREWITH)
23.1 Consent of Friedlob Sanderson Paulson & Tourtillott, LLC - see Exhibit
5.1
23.2 Consent of Independent Certified Public Accountants, Gelfond Hochstadt
Pangburn, P.C. (FILED HEREWITH)
23.3 Acknowledgment of Independent Certified Public Accountants, Gelfond
Hochstadt Pangburn, P.C. (FILED HEREWITH)
23.4 Consent of Independent Certified Public Accountants, Davis & Co. CPAs,
P.C. (FILED HEREWITH)
23.5 Independent Auditor's Consent, McGladrey & Pullen, LLP
(FILED HEREWITH)
23.6 Independent Auditor's Consent, McGladrey & Pullen, LLP
(FILED HEREWITH)
24. Power of Attorney - See Signature Page of Registration Statement *
- ----------------------------
* Previously Filed
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ITEM 17 - UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this registration
statement or any material change to such information in this
registration statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post- effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the 1933
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) The undersigned hereby undertakes that, for purposes of determining
liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to Section 13 (a) or 15 (d) of the Securities Exchange
Act of 1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15 (d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at the time shall be deemed to be the
initial bona fide offering thereof.
(5) The undersigned hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report, to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Palm Beach Gardens, State of Florida, on July 23,
2001.
EQUITEX, INC.
By /s/ Henry Fong
---------------------------------
Henry Fong, President, Treasurer and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURES TITLE DATE
- ---------- ----- -----
/s/ Henry Fong Principal Financial and July 23, 2001
- ------------------------- Accounting Officer and
Henry Fong Director
/s/ Russell L. Casement * Director July 23, 2001
- -------------------------
Russell L. Casement
/s/ Aaron A. Grunfeld *
- -------------------------
Aaron A. Grunfeld Director July 23, 2001
/s/ Joseph W. Hovorka *
- -------------------------
Joseph W. Hovorka Director July 23, 2001
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