FILED PURSUANT TO RULE 424(b)(3)
REGISTRATION NO. 333-101731
EQUITEX, INC.
25,223,061 SHARES OF COMMON STOCK TO BE OFFERED
AND SOLD BY THE SELLING SECURITYHOLDERS
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This is a public offering of shares of common stock of Equitex, Inc. by
the selling securityholders. The selling securityholders 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 selling securityholders.
Our common stock trades on the Nasdaq SmallCap Market under the symbol
EQTX. On January 8, 2003, the last reported sale price of our common stock on
the Nasdaq SmallCap Market was $.49 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 9.
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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 January 9, 2003
Table of Contents
Where You Can Find More Information.................................-3-
Forward-Looking Statements..........................................-4-
Equitex, Inc........................................................-5-
Recent Developments.................................................-8-
Risk Factors........................................................-9-
Description of Capital Stock.......................................-20-
Selling Securityholders............................................-22-
Plan of Distribution...............................................-30-
Indemnification Provided in Connection with the Offering
by the Selling Securityholders....................................-31-
Legal Matters......................................................-31-
Experts............................................................-31-
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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
securityholders sell all of their shares or until the registration rights of the
selling securityholders expire. This prospectus is part of a Registration
Statement that we filed with the Commission (Registration No. 333- 73374).
FILING PERIOD
Annual Report on Form 10-K....... For the year ended December 31, 2001
Quarterly Report on Form 10-Q.... For the quarter ended March 31, 2002
Quarterly Report on Form 10-Q.... For the quarter ended June 30, 2002
Quarterly Report on Form 10-Q.... For the quarter ended September 30, 2002
The Description of our Common
Stock.......................... Registration Statement on Form 8-A filed
with the Commission July 21, 1983
Current Report on Form 8-K....... Filed with the Commission on January 7, 2002
Current Report on Form 8-K....... Filed with the Commission on January 29, 2002
Current Report on Form 8-K/A..... Filed with the Commission on January 30, 2002
Current Report on Form 8-K/A..... Filed with the Commission on March 6, 2002
Definitive Proxy Statement
on Schedule 14A................ Filed with the Commission on November 27, 2002
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 securityholders 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.
We are a holding company that operates through our wholly-owned
subsidiaries, Key Financial Systems, Inc., a Florida corporation ("Key Financial
Systems"), Nova Financial Systems, Inc., a Florida corporation ("Nova Financial
Systems"), Chex Services, Inc., a Minnesota corporation ("Chex Services") and
our majority-owned subsidiary Denaris Corporation, a Delaware corporation
("Denaris").
KEY FINANCIAL SYSTEMS AND NOVA FINANCIAL SYSTEMS
Key Financial Systems and Nova Financial Systems are financial
companies that specialize in selling credit card programs designed for high
credit risk clients. Key Financial Systems and Nova Financial Systems are also
full service organizations, that provide credit card portfolio management
services, including automated application processing, customer service,
mediation, collection services, risk management, accounting and management
information systems.
Key Financial Systems was established in Clearwater, Florida in June
1997 to design, market and service credit card products aimed at the sub-prime
credit market. In late 1998, its sister company, Nova Financial Systems was
formed to provide the same services as Key Financial Systems for Key Financial
Systems' second bank client.
While Key Financial Systems marketed the Pay As You Go credit card
program with Net 1st National Bank, on March 1, 2002, federal banking regulators
closed Net 1st National Bank and subsequently the Federal Deposit Insurance
Corporation notified all of Net 1st National Bank's credit cardholders that
their accounts would be closed. In May 2002, Key Financial Systems filed a claim
with the FDIC for all funds due from Net 1st National Bank to Key Financial
Systems under its agreement with Net 1st National Bank through the date it was
closed by federal banking regulators. The total amount of the claim was
$4,311,027.
In October 2002, the FDIC notified Key Financial Systems that it had
determined to disallow all but $111,734 of the total claim. The notification
states that as the FDIC liquidates the assets of the receivership, Key Financial
Services may periodically receive payments on the allowed portion of this claim
through dividends. We and our legal counsel do not agree with this disallowance.
We have the right to file a lawsuit on our claim within 60 days from the date of
notice of the disallowance. Therefore, on November 18, 2002, we filed a lawsuit
in the United States District Court for the Southern District of Florida seeking
to recover, $4,311,027, the full amount of our claim.
Closing of the Net 1st National Bank portfolio resulted in the
termination of all future credit card servicing revenues to Key Financial
Services from the Net 1st National Bank portfolio after March 4, 2002. For the
year ended December 31, 2001, the Net 1st National Bank portfolio provided 71.3%
of the total credit card servicing revenues for Key Financial Services. The Net
1st National Bank portfolio was projected to represent an even greater
percentage of 2002 revenues due to the continuing attrition of the Key Financial
Services Bank & Trust and Merrick Bank portfolios that were originated in 1998
and 1999 and the expected growth in the Net 1st National Bank portfolio. Upon
the closing of Net 1st National Bank, Key Financial Services took immediate
steps to reduce personnel, marketing and other operating costs.
CHEX SERVICES, INC.
Chex Services was organized in July 1992. Chex Services provides
comprehensive cash access services to casinos, and other gaming establishments,
while also marketing its products ala' carte to other establishments in the
casino, entertainment, and hospitality industries. Chex Services' total funds
transfer system allows casino patrons to access cash through check cashing,
credit/debit card cash advances, automated teller machines and wire transfers.
Chex Services' check and credit card advance systems allow it to compile
detailed demographic data about patrons that utilize these services. The
collected patron demographic data is then provided to the casino operators and
can be used in their marketing efforts.
Currently, Chex Services has contracts to provide its comprehensive
cash access service portfolio to twenty- seven (27) locations. In addition, it
provides ala cartecarte products and services to twenty-two (22) other
locations. At each such location, Chex Services places credit/debit card cash
advance systems and/or automated teller machine terminals at the facility. In
locations where Chex Services provides its comprehensive services, Chex Services
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actually operates its own independent teller facility separate from the casino's
cashier cage. This teller facility is staffed by Chex Services' employees to
process transactions and disburse cash to the location's customers when they
transact requests for check cashing, credit/debit card advances, wire transfers
and other services, such as the issuance of money orders.
Chex Services provides services pursuant to the terms of a financial
services agreement entered into with each gaming establishment. The financial
services agreement specifies which cash access services will be provided by Chex
Services, the transaction fees to be charged by Chex Services to patrons for
each type of cash access transaction and the amount of compensation to be paid
by Chex Services to the casino. Pursuant to all of these agreements with the
locations serviced, Chex Services maintains the exclusive rights (with rare
exception) to provide its services for the term of the contract.
At each location where Chex Services provides its cash access services,
it must have sufficient cash available to process both check cashing and credit
card advance transactions. Additionally, at each location where it operates
automated teller machines, Chex Services must have sufficient cash available to
replenish the automated teller machine. The amount of cash required is dependent
upon transaction volume that Chex Services calculates on a location-by-location
basis to ensure sufficient reserves. To meet its cash needs, Chex Services
arranges to have the cash it maintains on deposit delivered from a local bank as
needed. Chex Services usually utilizes the same financial institution for
depositing customer checks.
CREDIT/DEBIT CARD CASH ADVANCE SERVICES.
Chex Services' credit/debit card cash advance services allow patrons to
use their VISA, MasterCard, Discover, and American Express cards to obtain cash.
The remote cash access terminals and other equipment used to provide credit card
cash advance services are provided by a vendor pursuant to cash advance service
agreements between Chex Services and the vendor. Each of the cash advance
service agreements provides that the vendor will supply, install and maintain,
at the vendor's expense, the equipment and supplies necessary to operate the
cash advance system.
Under the terms of the cash advance service agreement, the vendor
charges each patron completing a credit card advance transaction a service fee
based on the cash advance amount and pays a portion of such service fee to Chex
Services. The service fee and the credit card cash advance amount are charged
against the credit card account of the location patron effecting the transaction
and deposited by the appropriate credit card company into the vendor's account.
The vendor reimburses Chex Services for the advance amount by check and pays the
commission due to Chex Services in the month following the month the transaction
was completed. At the locations where Chex Services provides credit card advance
services, it pays the operator a commission for each completed credit card cash
advance transaction.
Patrons may initiate a credit card cash advance transaction at a remote
credit card cash advance terminal at Chex Services' teller facility. The remote
credit card cash advance terminals consist of a credit card reader with an
integrated keypad and a digital display. The patron initiates the credit card
cash advance transaction by swiping the credit card's magnetic strip through the
card reader and then entering the amount of cash requested. The remote terminal
automatically accesses the credit card company's authorization center for
approval of the transaction. If the transaction is approved, a cash advance
draft is automatically generated at the teller facility and the patron is
directed to go to the teller facility to obtain the cash advance. At the teller
facility, the employee verifies the patron's identity and performs certain other
security measures gathering certain demographic information, including the
patron's address and telephone number. The patron then endorses the back of the
cash advance draft, initials the front of the draft acknowledging the service
fee charge and receives the cash requested with a transaction receipt. The
vendor, pursuant to the terms of the cash advance service agreement with Chex
Services, guarantees payment to Chex Services for all transactions that are
processed in accordance with the procedures specified in the cash advance
service agreement.
For the three months ended September 30, 2002, Chex Services processed
approximately 118,000 credit/debit card transactions with $42 million in
advances and earned fees of $1,369,859 on these transactions. For the nine
months ended September 30, 2002, Chex Services processed 377,000 credit/debit
card transactions with approximately $138 million in advances and earned fees of
$4,281,309.
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CHECK CASHING SERVICES.
Chex Services' check cashing services allow location patrons to access
cash by writing a check to Chex Services at its teller facility staffed by
employees of Chex Services. Chex Services' employees conduct the authorization
and verification process for check cashing transactions in accordance with
detailed procedures developed by Chex Services designed to help minimize bad
debts.
Chex Services' customers are granted check cashing limits based upon
their check cashing history that is captured and maintained by Chex Services.
The customer's ability to pay is critical in establishing their check cashing
limits.
Chex Services charges the customer a fee for cashing checks. The fee
for personal checks ranges from 3% to 10% of the amount of the cashed check. At
the locations where Chex Services provides check cashing services, Chex Services
pays the location operator a commission based upon the monthly amount of checks
cashed. Chex Services also cashes other financial instruments at varying
customer fees, such as money orders, government checks, payroll checks,
insurance checks, etc.
Chex Services' check cashing services benefit location operators by
providing demographic information on the location's patrons, relieving the
location of any risk and collection costs associated with returned checks and by
allowing the location to focus on the aspects of the business that they do best.
Chex Services mitigates its potential for returned items by
establishing check cashing limits based on the customer's history at Chex
Services locations. In addition, Chex Services utilizes national negative
databases to determine if a customer has written nonnegotiable checks in the
past. It also contacts the customer's bank to verify funds availability in the
customer's checking account. Additionally, Chex Services obtains the
fingerprints and a photo of its customers to deter potential bad checks and to
assist its efforts in collections when necessary.
For the three months ended September 30, 2002, Chex Services collected
fees of $111,954 on returned checks and had other income of $51,203. For the
nine months ended September 30, 2002, Chex Services collected total fees of
$336,985 on returned checks and had other income of $131,252.
AUTOMATED TELLER MACHINE SYSTEMS.
Under the terms of the agreements with the processor (vendor), Chex
Services receives a surcharge fee for each cash withdrawal and the vendor
credits Chex Services' bank settlement account for each transaction, less any
processing fees. The surcharge, which is a charge in addition to the cash
advance, is made against the bank account of the patron effecting the
transaction and is deposited in the vendor's account. The vendor reimburses Chex
Services for the cash advance amount generally within two days of the
transaction and pays the surcharge commission due Chex Services for each
withdrawal either immediately or in the month following the month the
transactions were completed. This variance in the timing of the surcharge
payments is based upon the automated teller machine processing agreements
between Chex Services and its vendors. Chex Services generally passes on an
agreed upon percentage of the surcharge commissions to the locations where the
automated teller machines are placed.
For the three months ended September 30, 2002, Chex Services processed
approximately 880,000 automated teller machine transactions and earned
commissions for fees of $919,686 on approximately $87 million in transactions.
For the nine months ended September 30, 2002, Chex Services processed
approximately 2.5 million automated teller machine transactions and earned
commissions for fees of $2,589,227 on approximately $255 million in
transactions.
MARKETING AND SALES OF SERVICES.
Chex Services' objective is to increase the number of locations at
which it provides cash access services in the gaming industry. It intends to
pursue additional contracts with new casinos, existing casinos not currently
contracting with a cash access provider and other existing casinos when such
casinos' current contracts with other cash access service providers expire. At
September 30, 2002, Chex Services had 51 contracts with casinos and other
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gaming establishments as compared to 44 at December 31, 2001. As of December 31,
2001, Chex Services is the number one provider of full service booth cash access
operations to the Native American gaming industry.
In furtherance of Chex Services' objective to increase its market
share, its marketing plan is designed to increase Chex Services' profile in the
casino industry. The marketing plan includes increasing direct personal contact
with casino management personnel responsible for decision making regarding cash
access services, including the implementation of customer service workshops that
are designed for Chex Services and the casino's employees. Chex Services has
developed a network of associates in the casino industry who are able to refer
casino management to Chex Services. It also advertises in trade publications,
attends industry trade shows and distributes sales material to casino operators
through direct mail.
DENARIS CORPORATION
Denaris Corporation was formed on August 16, 2002 to develop and market
a prepaid reloadable stored value card program. Stored value cards offer a
convenient alternative to customers, particularly immigrants, who choose not to
utilize traditional bank accounts due to language barriers and apprehension.
Initially, Denaris intends to focus on the development of marketing programs
targeting various immigrant populations that utilize international fund
remittance services to transfer funds. Additionally, we, through Denaris, intend
to market a proprietary stored value card program, with our initial focus on the
international funds remittance business between the United States and Jamaica.
RECENT DEVELOPMENTS
In September 2002, our board of directors approved a private placement
of Series J 6% convertible preferred stock. We authorized the issuance of up to
1,380 shares of Series J preferred stock with a stated value of $1,000 per
share. The Series J preferred stock is convertible, together with any cumulative
unpaid dividends, at any time into shares of our common stock at a conversion
price per share equal to 65% of the average closing bid price of our common
stock, but in no event shall the conversion price be less than $.40 per share.
On October 11, 2002, we closed on the issuance of a total of 715 shares of
Series J preferred stock and warrants to acquire 71,500 shares of our common
stock. In addition, we issued agent warrants to acquire an aggregate of 178,750
shares of our common stock. We received gross proceeds of $715,000 and paid
$71,500 in commissions and $11,055 in expenses to Feltl and Company in the
offering. On November 26, 2002, we closed on the issuance of a total of 665
shares of Series J preferred stock and warrants to acquire 66,500 shares of our
common stock. In addition, we issued agent warrants to acquire an aggregate of
166,250 shares of our common stock. We received gross proceeds of $665,000 and
paid $66,500 in commissions and $2,625 in expenses to Feltl and Company in the
offering.
On December 27, 2002, we held our annual meeting of shareholders at
which Henry Fong, Russell L. Casement, Aaron A. Grunfeld, Joseph W. Hovorka and
James P. Welbourn were elected as our directors to serve until the next annual
meeting of stockholders and until their successors have been elected and
qualified. The shareholders also approved the proposal to amend paragraph four
of our Certificate of Incorporation to cause a one share for six share reverse
split of our common stock and ratified the appointment of Gelfond Hochstadt
Pangburn, P.C. as our independent auditor for the year ending December 31, 2002.
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RISK FACTORS
Prospective investors should consider carefully the following risk
factors, as well as the other information contained in this prospectus, before
making an investment in our common stock. You should be aware that the ownership
of our common stock involves 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 our common stock.
RISKS REGARDING OUR HISTORY AND ACQUISITIONS
WE HAD A NET LOSS IN 2001, EXPECT TO INCUR A NET LOSS IN 2002 AND THERE IS NO
ASSURANCE WE WILL HAVE A PROFIT NEXT YEAR.
We incurred a net loss of approximately $1.03 million (a loss
applicable to common stockholders of approximately $4.2 million) for the year
ended December 31, 2001, compared to net income and net income applicable to
common stockholders of approximately $3.6 million for the year ended December
31, 2000. As of the nine months ended September 30, 2002, we had incurred a net
loss of $3.16 million (a loss applicable to common stockholders of approximately
$3.38 million). There is no assurance that we will have a profit for the year
ending December 31, 2003.
WE HAVE ACQUIRED THREE COMPANIES THAT HAVE ENTERED US INTO NEW BUSINESSES AND
THERE IS NO ASSURANCE THAT WE WILL SUCCEED IN THEIR CONTINUED MANAGEMENT AND
OPERATIONS.
Upon the acquisitions of Nova Financial Systems, Key Financial Systems
and Chex Services, we entered into new businesses that require the investment of
additional capital and the continuous involvement of senior management. Our
entry into these new businesses has resulted in increased demands on our
personnel and systems. An inability to customize and manage our new businesses
could have a material adverse effect on our financial condition, results of
operations and business prospects. Our ability to support and manage continued
growth is dependent upon, among other things, our ability to attract and retain
senior management for each our businesses, and our ability to hire, train, and
manage our workforce successfully. We may not be able to successfully meet all
of these challenges.
RISKS ASSOCIATED WITH OUR SECURITIES
FAILURE TO COMPLY WITH NASDAQ'S LISTING STANDARDS COULD RESULT IN OUR COMMON
STOCK BEING DELISTED BY NASDAQ FROM THE NASDAQ SMALLCAP MARKET AND LIMIT THE
ABILITY FOR STOCKHOLDERS TO SELL OUR COMMON STOCK.
Our common stock is currently traded on the Nasdaq SmallCap Market. In
July 2002, we received notice from the Nasdaq Stock Market that for the last 30
consecutive trading days our common stock's minimum bid price has fallen below
the $1.00 per share required for continued inclusion. We have until January 14,
2003 to regain compliance with the minimum bid price requirement. If anytime
before January 14, 2003, the bid price of our common stock closes at $1.00 per
share or more for a minimum of 10 consecutive trading days, we would receive
written notification that we had regained compliance. If we do not meet the
required criteria by January 14, 2003, a determination will be made whether we
meet listing criteria. If we do, we will be granted an additional 180 calendar
days to demonstrate compliance with the $1.00 minimum closing bid price for 10
consecutive trading days. Initial inclusion criteria requires us to have (i)
stockholders' equity of $5 million, (ii) market value of listed securities of
$50 million, or (iii) net income from continuing operations of $750,000 in the
most recently completed fiscal year or in two of the last three completed fiscal
years. As of September 30, 2002 our balance sheet reflect stockholders' equity
of $10,707,796.
In November 2002, we received notice from Nasdaq that our issuance of
300,000 warrants to purchase common stock at $.50 per share to James P.
Welbourn, one of our directors, in March 2002, violated Nasdaq Marketplace Rule
4310(i)(1)(A). Mr. Welbourn exercised the warrants in March and April 2002 and
paid us $150,000 for the exercise price. We have provided Nasdaq with all
requested material regarding the warrants and the circumstances upon which they
were issued. Nasdaq has requested, and we have provided, a plan to achieve and
sustain compliance which includes the rescission of the warrants issued in
addition to our acquisition of the common stock that was issued in connection
with Mr. Welbourn's exercise of the warrants which would become treasury
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stock. Accordingly, Mr. Welbourn would return 300,000 shares of our common stock
to us and we would reimburse Mr. Welbourn $150,000 for the exercise price he
paid. Additionally, we have proposed to implement policies and procedures that
will require future issuances of any equity-based compensation, including
options and warrants, to any executive office, director, consultant or other
person as compensation for services rendered to us, be reviewed by outside
counsel for compliance with marketplace rules. Nasdaq has accepted our
definitive plan to achieve and sustain compliance, which we will implement as
soon as possible.
If for any reason our common stock is delisted from the Nasdaq SmallCap
Market, the price of our common stock may be quoted on either the electronic
bulletin board or on pink sheets. This would make it more difficult for
securityholders to sell their shares of our common stock on the market and would
decrease our liquidity.
We have reached the limit for the issuance of common stock upon conversion of
BOTH OUR SERIES G AND I PREFERRED STOCK AND THERE IS NO ASSURANCE WE WILL BE
ABLE TO EITHER OBTAIN SHAREHOLDER APPROVAL FOR FURTHER ISSUANCES OR BE ABLE TO
REDEEM THE STOCK.
Pursuant to the certificate of designations for our Series G and I
preferred stock, we cannot issue shares of common stock upon conversion in
excess of 1,421,389 shares for the Series G preferred stock and 1,658,500 for
the Series I preferred stock, which is 20% of the outstanding number of shares
of our common stock on the date the shares of preferred stock were issued. We
must obtain stockholder approval to issue shares in excess of this limitation,
or in lieu of such approval, redeem any shares in excess of the limitation at
125% of the stated value of the Series G and I preferred stock, which is $1,250
per share if a holder of these shares desires to convert the shares into our
common stock. While we have redeemed a total of 845 shares of Series I preferred
stock, there are still 1,885 shares of Series I preferred stock outstanding and
370 shares of Series G preferred stock outstanding at January 9, 2003. There is
no guarantee that we will be able to obtain shareholder approval for the
issuance of shares of common stock in excess of the limitation or that we will
have sufficient funds available for redemption of the shares of Series G or I
preferred stock in excess of the limitation. We have not, nor do we currently
have, plans to seek shareholder approval for the issuance of shares of common
stock in excess of the limitation.
THE CONVERSION OF OUTSTANDING PREFERRED STOCK 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 into approximately
12,413,895 shares of our common stock at an estimated average conversion price
of $0.3411 per share and the exercise of warrants and options into 11,410,979
shares of our common stock at an estimated average exercise price of $4.26 per
share, which includes the warrants to purchase an aggregate of 4,918,632 shares
of our common stock that were issued in the Nova Financial Systems and Key
Financial Systems acquisition, may be below the market price of our common
stock. This assumes that we obtain shareholder approval to issue shares upon
conversion of the preferred stock in excess of 20% of our outstanding shares of
common stock, as discussed above. 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.
THERE MAY BE SUBSTANTIAL DILUTION FROM THE CONVERSION OF OUTSTANDING PREFERRED
STOCK TO OUR CURRENT STOCKHOLDERS.
Our stockholders may experience dilution from the conversion of shares
of our Series D, G, I and J convertible preferred stock into approximately
12,413,895 shares of our common stock or 49.20% of the number of shares of
common stock currently outstanding, assuming our shareholders approve the
issuance of shares in excess of 20% of our outstanding shares of common stock,
as discussed above. Of the 1,200 shares of Series D 6% convertible preferred
stock issued, 600 shares have been converted into 764,498 shares of our common
stock through January 8, 2003. The remaining 600 outstanding shares of Series D
preferred stock would currently convert into approximately 1,883,831 shares of
our common stock as of January 8, 2003, using a conversion price of 65% of the
closing price of our common stock of $.49 at that date. Of the 1,300 shares of
our Series G convertible preferred stock issued, 930 shares have been converted
into 1,353,376 shares of our common stock through January 8, 2003. The remaining
370 outstanding shares of Series G preferred stock would currently convert into
approximately 1,161,696 shares of our common stock as of January 8, 2003, using
a conversion price of 65% of the closing price of our common stock of $.49 at
that date. Of the 4,000 shares of Series I convertible preferred stock issued,
845 shares have been redeemed and 1,270 shares have been converted into 975,993
shares of our common stock through January 8, 2003. The
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remaining 1,885 outstanding shares of Series I preferred stock would currently
convert into approximately 5,918,368 shares of our common stock as of January 8,
2003, using a conversion price of 65% of the closing price of our common stock
of $.49 at that date, however, the certificate of designations for the Series I
preferred stock prohibits us from issuing common stock in excess of 20% of the
outstanding number of shares of our common stock on the date the shares of
Series I preferred stock were issued. Since we are near this limit, only 661
shares of common stock can be issued upon conversion of Series I preferred stock
without stockholder approval. The 1,380 outstanding shares of Series J 6%
convertible preferred stock issued would currently convert into approximately
3,450,000 shares of our common stock as of January 8, 2003 at the conversion
floor price of $.40.
WE HAVE OUTSTANDING CONVERTIBLE SECURITIES THAT MAY CAUSE SUBSTANTIAL DILUTION
TO HOLDERS OF OUR COMMON STOCK.
The conversion terms of our outstanding Series D, G, I and J
convertible preferred stock may cause substantial dilution in the book value per
share of our common stock. The conversion features in the Series D, G, I and J
preferred stock 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 securityholders exercise their
warrants and then sell 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, I or J 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, G, I and J 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, I and J preferred
stock can create additional dilution to the existing holders
of our common stock.
o The conversion of the Series D, G, I and J 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, I or J
preferred stock until notice of conversion has been provided by the holder, we
cannot currently determine how many shares of common stock we will actually
issue upon conversion of the Series D, G, I or J preferred stock. The conversion
ratio for issuing shares of our common stock in exchange for Series D preferred
stock is determined by dividing the stated value of the Series D preferred stock
by the conversion price, which is 65% of the market price of our common stock.
The conversion ratio for issuing shares of our common stock in exchange
for Series G preferred stock is determined by dividing the stated value of the
Series G 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 preferred stock drops to 50% of
the market price.
For example and for illustrative purposes only, if the conversion date
is December 5, 2002, the closing market price of our common stock on January 8,
2003 was $.49, 65% of $.49 is $.3185. Therefore, the lower of $6.50 and $.3185
is $.3185 and $.3185 (65% of $.49) is the conversion price for our Series G
preferred stock.
The conversion ratio for issuing shares of our common stock in exchange
for Series I preferred stock is
-11-
determined by dividing the stated value of the Series I preferred stock by the
conversion price. The conversion price will be the lowest of:
o $5.98; 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 preferred stock drops to 50% of
the market price.
For example and for illustrative purposes only, if the conversion date
is January 8, 2003, the closing market price of our common stock on January 8,
2003 was $.49, 65% of $.49 is $.3185. Therefore, the lower of $5.98 and $.3185
is $.3185 and $.3185 (65% of $.49) is the conversion price for our Series I
preferred stock.
The conversion ratio for issuing shares of our common stock in exchange
for Series J preferred stock is determined by dividing the stated value of the
Series J preferred stock by the conversion price. The conversion price will 65%
of the market price of our common stock, however in no event shall the
conversion price be less than $.40.
For example and for illustrative purposes only, if the conversion date
is January 8, 2003, the closing market price of our common stock on January 8,
2003 was $.49, 65% of $.49 is $.3185. Therefore, the conversion price for our
Series J preferred stock is $.40, because the conversion price can never be less
than $.40.
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, I and J preferred stock, based on the closing market price of our
common stock on January 8, 2003.
-12-
Price per Conversion Aggregate Conversion Aggregate Conversion Aggregate Conversion Aggregate Percentage
share of price of number 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 Series J shares of outstanding
stock preferred common preferred common preferred common preferred common common
stock (1) stock stock (3) stock stock (11) stock stock (13) stock stock (5)
convertible convertible convertible convertible (10)
from all from all from all from all
Series D Series G Series I Series J
preferred preferred preferred preferred
stock (2) stock (4) stock (12) stock (14)
$----------------------------------------------------------------------------------------------------------------------------------
0.49 $.3185 1,883,831 $.3185 1,161,696 $.3185 5,918,368 $0.40 3,450,000 49.20%
- ----------------------------------------------------------------------------------------------------------------------------------
$0.3675 (6) $.2389 2,511,511 $.2389 1,548,765 $.2389 7,890,331 $0.40 3,450,000 61.04%
- ----------------------------------------------------------------------------------------------------------------------------------
$0.245 (7) $.1592 3,768,844 $.1592 2,324,121 $.1592 11,840,452 $0.40 3,450,000 84.75%
- ----------------------------------------------------------------------------------------------------------------------------------
$0.6125(8) $.3981 1,507,159 $.3981 929,415 $.3981 4,734,991 $0.40 3,450,000 42.10%
- ----------------------------------------------------------------------------------------------------------------------------------
$0.735(9) $.4777 1,256,018 $.4777 774,545 $.4777 3,945,991 $0.40 3,450,000 37.36%
- ----------------------------------------------------------------------------------------------------------------------------------
(1) The conversion price is 65% of the market price of our common stock.
(2) Assumes that all 600 shares of Series D preferred stock, which have a
stated value of $600,000, will be converted into common 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 preferred stock.
(4) Assumes that all 370 shares of Series G preferred stock, which have a
stated value of $370,000, will be converted into common stock.
(5) Assumes 25,231,864 outstanding shares of our common stock prior to the
conversion of the Series D, G, I and J preferred stock.
(6) Reflects a 25% reduction from the average closing bid price of $.49.
(7) Reflects a 50% reduction from the average closing bid price of $.49.
(8) Reflects a 25% increase from the average closing bid price of $.49.
(9) Reflects a 50% increase from the average closing bid price of $.49.
(10) The Certificates of Designation for the Series D, G and I preferred stock
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. The limit is 1,421,387 for the Series D
preferred stock, of which 764,498 shares of our common stock have already
been issued; and 1,421,387 for the Series G preferred stock, of which
1,418,336 shares of our common stock have already been issued; and
1,638,503 for the Series I preferred stock, of which 1,637,842 shares of
common stock have already been issued. We must obtain stockholder approval
to issue shares in excess of the 20% limitation, or in lieu of such
approval redeem any shares in excess of the 20% limitation at 125% of the
stated value of those shares.
(11) The conversion price is the lesser of (a) $5.98 or (b) 65% of the market
price of our common stock for our Series I preferred stock.
(12) Assumes that all 1,885 shares of Series I preferred stock, which have a
stated value of $1,885,000, will be converted into common stock. This
amount reflects the redemption by us of 630 shares of Series I preferred
stock.
-13-
(13) The conversion price is 65% of the market price of our common stock for
our Series J preferred stock, however, in no event shall the conversion
price be less than $0.40.
(14) Assumes that all 1,380 shares of Series J preferred stock, which have a
stated value of $1,380,000, will be converted into common stock.
THIS PROSPECTUS REGISTERS FOR RESALE 25,223,061 SHARES OF COMMON STOCK OR COMMON
STOCK UNDERLYING PREFERRED STOCK AND WARRANTS, WHICH MAY AFFECT OUR ABILITY TO
RAISE FURTHER CAPITAL.
This prospectus registers for resale a large number of shares of common
stock, and 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.
RISKS RELATED TO THE BUSINESS OF
NOVA FINANCIAL SYSTEMS AND KEY FINANCIAL SYSTEMS
THE OPERATIONS OF NOVA FINANCIAL SYSTEMS AND KEY FINANCIAL SYSTEMS ARE
SUBJECT TO THE FOLLOWING RISKS:
WE HAVE NO BANK FOR THE PAY AS YOU GO CREDIT CARD PROGRAM AND AS A RESULT WE
HAVE NO REVENUE FROM MARKETing.
We currently have no banks issuing the Pay As You Go credit card, our
only product. Although we are currently developing new products and are seeking
banks to issue our products, there is no assurance that we can develop or obtain
a new credit card program or that we will be able to find a bank to issue our
credit cards.
ONLY ONE BANK OFFERED THE PAY AS YOU GO CREDIT CARD AND THAT BANK HAS BEEN
CLOSED AND ALL PAY AS YOU GO CREDIT CARD ACCOUNTS AT THAT BANK HAVE BEEN CLOSED.
The Pay As You Go Credit card was marketed only by Net 1st National
Bank. On March 1, 2002, the Office of the Comptroller of the Currency closed Net
1st National Bank and the Federal Deposit Insurance Corporation notified all of
Net 1st National Bank's credit cardholders that their accounts would be closed.
WHILE KEY FINANCIAL SYSTEMS IS PURSUING ALL AMOUNTS DUE FROM NET 1ST NATIONAL
BANK FROM THE FEDERAL DEPOSIT INSURANCE CORPORATION, THERE IS NO ASSURANCE IT
WILL BE SUCCESSFUL.
In May 2002, we filed a claim with the Federal Deposit Insurance
Corporation, which has taken possession of all assets of Net 1st National Bank,
for all funds due from Net 1st to Key under the credit card program agreement
through the date federal banking regulators closed Net 1st. The total amount of
the claim was $4,311,027. In October 2002, the Federal Deposit Insurance
Corporation notified Key that it had determined to disallow all but $111,734 of
the total claim. The notification states that as the Federal Deposit Insurance
Corporation liquidates the assets of the receivership, Key may periodically
receive payments on the allowed portion of this claim through dividends. We do
not agree with this disallowance and on November 18, 2002, we filed lawsuit in
the United States District Court for the Southern District of Florida seeking to
recover, $4,311,027, the full amount of our claim. Although we believe we will
ultimately be successful in collecting on this claim, there is no guarantee that
Key Financial Systems will be able to obtain all or any of the amounts owed.
MARKETING OF THE PAY AS YOU GO CREDIT CARD HAS BEEN SUSPENDED AND THERE IS NO
GUARANTEE THAT KEY FINANCIAL SYSTEMS WILL BE ABLE TO RESUME MARKETING ACTIVITIES
FOR THE PAY AS YOU GO CREDIT CARD.
Because of the closure of Net 1st National Bank and the accounts of all
credit cardholders at the bank at the order of the Office of the Comptroller of
the Currency, Key Financial Systems has suspended marketing for Net 1st National
Bank and the Pay As You Go credit card. There is no assurance that marketing of
the Pay As You Go credit card will resume.
-14-
KEY FINANCIAL SYSTEMS IS SEEKING TO MARKET ANOTHER CREDIT CARD, BUT THERE IS NO
ASSURANCE THAT IT WILL BE SUCCESSFUL IN ITS EFFORTs.
Although Key Financial Systems is seeking to obtain banks to market
another credit card program, there is no assurance that it will be able to: (i)
consummate or maintain marketing arrangements for such a program; (ii) obtain
state or federal regulatory approvals for the program; or (iii) obtain board of
director or stockholder approvals for the transaction. Key has made contact with
other financial institutions that had shown initial interest in a Key credit
card program to provide future credit card servicing revenues and help replace
the Net First program. To date none of these contacts have resulted in any
agreements and there is no assurance that a new financial institution will be
identified or a new secured credit card program instituted.
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 our receivables
or to determine the amount of or collect 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.
If we are able to find a new issuing bank or develop a new program, 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 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.
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.
OUR EARNINGS ARE DEPENDENT UPON THE MARKETING OF PRODUCTS.
Nova Financial Systems and Key Financial Systems previously marketed
one product, the Pay As You Go credit card. Because of the closing of Net 1st
National Bank, we are no longer marketing any credit card products. Although we
are looking for a product, 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
-15-
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 account holder 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 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.
WE FACE INTENSE COMPETITION AND THERE IS NO ASSURANCE THAT WE WILL ACHIEVE
MARKET ACCEPTANCE OF OUR PRODUCT.
We 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. If the lawsuit succeeds,
neither the ultimate outcome of this litigation nor its effect on the
competitive environment in the credit card industry 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
-16-
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 depends 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.
WE ARE DEPENDENT UPON OUR MANAGEMENT AND MAY NOT BE ABLE TO RETAIN KEY
EMPLOYEES.
Our growth and profitability 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 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.
RISKS RELATED TO THE BUSINESS OF
CHEX SERVICES
THE OPERATIONS OF CHEX SERVICES ARE SUBJECT TO THE FOLLOWING RISKS:
POTENTIAL FOR LOSSES ON RETURNED CHECKS COULD BE SIGNIFICANT
We estimate that Chex Services will transact approximately $300 million
in check cashing volume during 2002. Chex Services charges operations for
potential losses on returned checks in the period such checks are cashed, since
ultimate collection of these items is uncertain. Recoveries on returned checks
are credited in the period when the recovery is received. While Chex Services
employs a full-time collections specialist and has systems in place to mitigate
the amount of returned checks, the potential for losses on returned checks could
be significant and have a material negative impact on our financial condition
and results of operations in any given period.
-17-
CHEX SERVICES' BUSINESS IS HIGHLY DEPENDENT ON CHECK CASHING, CREDIT/DEBIT CARD
CASH ADVANCES AND AUTOMATED TELLER MACHINE FEES FOR ITS REVENUES WHICH COULD BE
LIMITED BY STATE AND/OR FEDERAL AUTHORITIES.
Chex Services revenues are mainly comprised from fees charged to its
customers for check cashing, credit card and automated teller machine
transactions. If federal or state authorities were to limit or ban fees charged
for Chex Services' check cashing, credit card or automated teller machine
transactions, Chex Services would see a significant decline in revenues that
could have a material adverse effect on Chex Services' business, growth,
financial condition and results of operations.
CHEX SERVICES' BUSINESS IS SUBJECT TO REGULATION BY VARIOUS TRIBAL AND
GOVERNMENTAL AGENCIES.
A majority of the locations where Chex Services offers its services are
on tribal lands. Chex Services is licensed at many of the locations where it
operates by the local tribal authority and/or various state licensing
organizations. All of the tribes operate under various compacts negotiated with
the states where they are domiciled. The Bureau of Indian Affairs, that reports
to the U.S. Department of Commerce, oversees the regulatory aspects of these
compacts. If a tribe were found in violation of the regulations of the state
compact, its locations could be closed down, which would have a material adverse
effect on Chex Services' business, growth, financial condition and results of
operations.
CHEX SERVICES RELIES ON CERTAIN NOTES PAYABLE TO FUND ITS CHECK CASHING
OPERATIONS AND GROWTH THAT ARE SUBJECT TO REPAYMENT ON 90 DAYS NOTICE.
Chex Services relies in part on debenture notes from private investors
to operate its business and to fund its growth. There is no assurance Chex
Services will continue to raise the necessary funds to support its future
growth. Additionally, these debenture notes are one year in length, but
cancelable by either party with 90 day notice. There is no assurance that Chex
Services will be able to replace funds in the event of a non-renewal note or a
cancellation notice.
CERTAIN OF CHEX SERVICES' CASINO CONTRACTS CONTAIN PROVISIONS THAT COULD BE
SUBJECT TO INTERPRETATION BY THE CONTRACTUAL PARTIES AND OPERATES AT SOME GAMING
ESTABLISHMENTS WITH UNSIGNED CONTRACTS, VERBAL AGREEMENTS OR VERBAL AGREEMENTS
TO EXISTING WRITTEN CONTRACTS.
While a majority of Chex Services' locations operate under written
contracts, certain of these contracts could be subject to interpretation by the
contractual parties particularly given the fact that many of these contracts are
with Native American owned casinos which have not waived their sovereign
immunity. In addition, Chex Services is operating at some locations with
unsigned contracts, verbal agreements or verbal amendments to written contracts
which may not be enforceable. Should any party bring challenges or claims to
Chex Services pursuant to these written contracts or verbal agreements, Chex
Services could experience a decrease in future revenue or be required to record
an unforeseen future liability which could have a material adverse effect on
Chex Services business, growth, financial condition and results of operations.
THERE IS NO ASSURANCE OF RENEWALS FOR CHEX SERVICES' CONTRACTS.
Chex Services operates its business at most locations through contracts
negotiated with tribal authorities and other entities that typically last for
one to five years. While Chex Services historically has had significant success
in renewing these contracts for successive terms, there is no assurance that
future contract renewals will be successful and that Chex Services will be able
to maintain its existing client base. Failure to complete a significant number
of contract renewals could have a material adverse effect on Chex Services
business, growth, financial condition and results of operations.
CHEX SERVICES GROWTH IS DEPENDENT ON NEW CONTRACTS.
The continued expansion and development of Chex Services' business will
depend on the execution of new contracts with casinos and other gaming
establishments. Chex Services has concentrated its efforts to date on Native
American owned casinos where it has significant market penetration. In order to
continue its growth, Chex Services may be required to market its products to
non-Native American owned casinos and other gaming establishments in larger
traditional gaming markets for which there is no assurance it will be
successful. The inability to penetrate
-18-
these markets could have a material adverse effect on Chex Services' future
growth, which would affect their business, financial condition and results of
operations.
CHEX SERVICES FACES INTENSE COMPETITION FOR IT SERVICES.
Chex Services competes with a number of companies in its market niche.
Companies such as Game Financial Corp. (owned by American Express), Global Cash
Access, Cash Systems and Americash offer full-service booth check cashing
operations. In addition, Chex Services competes with Global Cash Access, Game
Financial Corp., Cash Access Systems, Inc., Cash & Win (through an alliance with
Comerica Bank and NDC), Americash and Borrego Springs Bank which offer ala carte
credit card cash advance systems and automated teller machines to the gaming and
hospitality industries. Some of these companies are much larger and better
financed than Chex Services. There is no assurance that Chex Services will be
able to compete successfully with these companies in its particular market niche
and that such competition will not have a material adverse effect on Chex
Services' business, growth, financial condition and results of operations.
CHEX SERVICES IS DEPENDENT UPON ITS MANAGEMENT AND MAY NOT BE ABLE TO RETAIN KEY
EMPLOYEES.
Chex Services' growth and profitability will depend on its ability to
retain key executives and managers, attract capable employees, and maintain and
develop the systems necessary to operate its business. The loss of any one or
more of Chex Services' key executives could have a material adverse effect on
Chex Services' business, growth, financial condition and results of operations.
-19-
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 January 8, 2003, 25,231,864 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
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.
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 preferred stock has
a stated value of $1,000 per share. The Series D preferred stock ranks
prior to our common stock and pari passu with other series of preferred
stock issued prior to the Series D preferred stock and senior to any
series of preferred stock issued after the Series D preferred stock. The
Series D preferred stock entitles its holder to 6% annual dividends,
payable quarterly. The Series D 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 preferred stock until the most recent
dividend payment date of date of our liquidation, dissolution or winding
up. Lastly, the Series D 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 preferred stock
is (i) the number of shares to be converted, multiplied by (ii) the stated
value of the Series D preferred stock and divided by (iii) the applicable
conversion price. As of January 8, 2003, 600 shares of Series D preferred
stock were outstanding.
o SERIES G 6% CONVERTIBLE PREFERRED STOCK. The Series G preferred stock has
a stated value of $1,000 per share and bears dividends at 6% per annum
plus a 4% per annum dividend default rate, payable quarterly commencing
September 30, 2000, when, as and if declared by our board of directors.
Dividends may be
-20-
payable by us in cash or, at our option, shares of common stock. The
Series G 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 preferred stock shall be automatically
converted into common stock on August 31, 2003. The Series G preferred
stock are redeemable at our option at any time through August 31, 2003 at
a redemption price equal to $1,350 per share plus any accrued but unpaid
dividends. As of January 8, 2003, 370 shares of Series G preferred stock
were outstanding.
o SERIES I 6% CONVERTIBLE PREFERRED STOCK. The stated value of the Series I
preferred stock is $1,000 per share and bears dividends at 6% per annum
plust a 4% per annum dividend default rate, 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 preferred stock is 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. All outstanding shares of Series I preferred stock will
be automatically converted into common stock on the third anniversary of
the date of the Series I preferred certificate of designations. The shares
of Series I preferred stock are redeemable at our option at any time at a
redemption price 125% above the stated value per share plus any accrued
but unpaid dividends. The warrants issued in connection with the Series I
preferred stock offering will be exercisable until August 2, 2004, 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 SmallCap
Market for the five trading days immediately preceding the closing dates
for the sales of the Series I preferred stock. Accordingly, the warrants
issued in connection with the sales of Series I preferred stock that
closed on August 3, 2001, are exercisable at $5.25 per share; the warrants
issued in connection with the sales of Series I preferred stock that
closed on August 6, 2001 are exercisable at $5.25 per share; and the
warrants issued in connection with the sales of Series I preferred stock
that closed on August 8, 2001, are exercisable at $5.32 per share. As of
January 8, 2003, 1,885 shares of Series I preferred stock were
outstanding.
The Series I preferred stock is subject to a registration rights
agreement, which provides that we will use our best efforts to register
the common stock underlying the Series I preferred stock and the common
stock underlying the warrants within a specified time period. Because a
registration statement had not been declared effective by the stipulated
date, we incurred approximately $263,600 in penalties through September
30, 2002, which is reflected in a liability account on our balance sheet
as of September 30, 2002. The penalties are payable in cash. On May 3,
2002, we filed a Form S-3/A with the SEC to register the shares underlying
the Series I preferred stock. The registration statement was declared
effective by the SEC on May 30, 2002, and accordingly, we have not
incurred additional penalties since that date.
o SERIES J 6% CONVERTIBLE PREFERRED STOCK. The stated value of the Series J
preferred stock is $1,000 per share and bears dividends at 6% per annum
plus a 4% per annum dividend default rate, payable quarterly commencing
January 1, 2003, 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 J preferred stock is 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 65% of
the market price, provided that in no event shall the conversion price be
less than $0.40. All outstanding shares of Series J preferred stock will
be automatically converted into common stock on the third anniversary of
the date of the Series J preferred certificate of designations. The shares
of Series J preferred stock are redeemable at our option at any time
through the third anniversary date of issuance at a redemption price 125%
above the stated value per share plus any accrued but unpaid dividends.
The warrants issued in connection with the Series J preferred stock
offering will be exercisable until October 11, 2005, at an exercise price
of $.39. As of January 8, 2003, 1,380 shares of Series J preferred stock
were outstanding.
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, G, I and J 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.
-21-
Selling Securityholders
The following table lists the total number of shares of our common
stock and the total number of shares of common stock assuming the exercise of
all warrants owned by the selling securityholders and registered hereunder.
Except as indicated, the selling securityholders are offering all of the shares
of common stock owned by them or received by them upon the exercise of the
warrants.
Because the selling securityholders may offer all or part of the shares
of common stock currently owned or the shares of common stock received upon
exercise of the warrants, which they own pursuant to the offering contemplated
by this prospectus, and because their offering is not being underwritten on a
firm commitment basis, no estimate can be given as to the amount of 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 exercise of the
warrants offered by this prospectus may be offered from time to time by the
selling securityholders named below.
SELLING SHARES OF SHARES OF SHARES OF SHARES OF TOTAL AMOUNT OF PERCENT OF
SECURITYHOLDER COMMON COMMON STOCK COMMON STOCK COMMON STOCK SHARES OF COMMON STOCK OUTSTANDING
NAME STOCK TO BE ISSUED AND RECEIVED AND COMMON STOCK TO OWNED BY COMMON STOCK
OWNED OFFERED FOR ISSUABLE UPON TO BE RECEIVED BE OFFERED FOR SECURITYHOLDER OWNED BY
PRIOR TO SECURITYHOLDER'S CONVERSION OF UPON THE SECURITYHOLDER'S AFTER THE SECURITYHOLDER
THIS ACCOUNT PREFERRED EXERCISE OF ACCOUNT OFFERING AFTER THE
OFFERING STOCK WARRANTS OFFERING
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
NOVA AND KEY SELLING SECURITYHOLDERS
- ---------------------------------------------------------------------------------------------------------------------------------
Anthony N. Amico 6,000 869,970 869,970 6,000 0.03%
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
John Ablahani, as 445,153 241,250 686,403
Trustee of the
DNAA Irrevocable
Trust Agreement
dated February 7,
1996
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
First Union 578,699 313,625 892,324
National Bank as
Trustee of the
Anthony Amico,
Jr. Irrevocable
Trust Agreement
of 2001 Number 1
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
AmSouth Bank, as 578,699 313,625 892,324
Trustee of the
Anthony Amico,
Jr. Irrevocable
Trust Agreement
of 2001 Number II
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Thomas Little, 578,699 313,625 892,324
Esq., as Trustee
of the Anthony
Amico, Jr.
Irrevocable Trust
Agreement of
2001 Number III
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Laura Lipowski, 578,699 313,625 892,324
Esq., as Trustee
of the Anthony
Amico, Jr.
Irrevocable Trust
Agreement of
2001 Number IV
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
-22-
SELLING SHARES OF SHARES OF SHARES OF SHARES OF TOTAL AMOUNT OF PERCENT OF
SECURITYHOLDER COMMON COMMON STOCK COMMON STOCK COMMON STOCK SHARES OF COMMON STOCK OUTSTANDING
NAME STOCK TO BE ISSUED AND RECEIVED AND COMMON STOCK TO OWNED BY COMMON STOCK
OWNED OFFERED FOR ISSUABLE UPON TO BE RECEIVED BE OFFERED FOR SECURITYHOLDER OWNED BY
PRIOR TO SECURITYHOLDER'S CONVERSION OF UPON THE SECURITYHOLDER'S AFTER THE SECURITYHOLDER
THIS ACCOUNT PREFERRED EXERCISE OF ACCOUNT OFFERING AFTER THE
OFFERING STOCK WARRANTS OFFERING
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Shauna 200,000 579,869 779,869
Hoopingarner, as
Trustee of the
Anthony Amico,
Jr. Irrevocable
Trust Agreement
of 2001 Number V
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Brett Fisher, 90,856 49,239 140,095
Shauna
Hoopingarner and
Susan Revels, as
Co-Trustees of
the First American
Management
Irrevocable Trust
Agreement of 2001
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Northern Trust 90,856 49,239 140,095
Bank of Florida,
N.A., as Trustee
of the Hudson
Irrevocable Trust
Agreement of 2001
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Northern Trust 90,856 49,239 140,095
Bank of Florida,
N.A., as Trustee o
the Pope
Irrevocable Trust
Agreement of 2001
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Thomas C. Little, 90,856 49,239 140,095
Esq., as Trustee
of the Eagle One
Irrevocable Trust
Agreement
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Charles R. Darst 38,500 863,597 468,026 1,331,623 38,500 0.21%
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Dia Erickson 33,300 863,597 468,026 1,331,623 33,300 0.18%
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Scott A. Lucas 962,722 962,722
and Susan Lucas,
as Tenants by
the Entirety
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Scott A. Lucas 7,500 579,001 579,001 7,500 0.04%
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Ed Barbara and 578,699 313,625 892,324
Helen Barbara, as
Tenants by the
Entirety
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Patricia Jersey 89,031 48,250 137,281
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Robert Venniro 2,007 22,258 12,063 34,321 2,007 0.01%
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
-23-
SELLING SHARES OF SHARES OF SHARES OF SHARES OF TOTAL AMOUNT OF PERCENT OF
SECURITYHOLDER COMMON COMMON STOCK COMMON STOCK COMMON STOCK SHARES OF COMMON STOCK OUTSTANDING
NAME STOCK TO BE ISSUED AND RECEIVED AND COMMON STOCK TO OWNED BY COMMON STOCK
OWNED OFFERED FOR ISSUABLE UPON TO BE RECEIVED BE OFFERED FOR SECURITYHOLDER OWNED BY
PRIOR TO SECURITYHOLDER'S CONVERSION OF UPON THE SECURITYHOLDER'S AFTER THE SECURITYHOLDER
THIS ACCOUNT PREFERRED EXERCISE OF ACCOUNT OFFERING AFTER THE
OFFERING STOCK WARRANTS OFFERING
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Frank Cantero 22,258 12,063 34,321
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
George Lutich 133,546 72,375 205,921
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Richard Perez 222,577 120,625 343,202
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
John Ablahani 89,031 48,250 137,281
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Marilyn Silvers 89,031 48,250 137,281
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
David Giorgione 178,061 96,501 274,562
and Victoria
Giorgione, as
Tenants by the
Entirety
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Michelle Rice 178,061 96,501 274,562
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
John Gordon 89,031 48,250 137,281
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Brett Fisher 178,061 96,501 274,562
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Leonard Solie 44,515 24,125 68,640
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Henry Fong (1) 596,519 90,853 49,239 140,092 596,519 (2) 3.23% (2)
(2)
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Gary Benson 214,800 45,428 24,619 70,047 214,800
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Ralph Klein 50,000 45,428 24,619 70,047 50,000 0.27%
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Chex Services, 105,645 105,645
Inc. (3)
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
SERIES H PREFERRED STOCKHOLDERS
- ---------------------------------------------------------------------------------------------------------------------------------
Les Boelter 1,000 2,000 2,000 4,000 1,000 0.005%
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Joseph Bushman 10,000 10,000 20,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
F.D. Copp 45,000 10,000 10,000 20,000 45,000 0.24%
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Richard E. Dana 10,000 10,000 20,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Alan Gainsford 80,000 80,000 160,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Goben Enterprises 80,000 80,000 160,000
LP
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Duane Hennen 15,000 15,000 30,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Joseph R. Jensen 5,000 5,000 10,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Robert L. 20,000 20,000 40,000
Johander
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Steven A. Kalin 12,000 12,000 24,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Ralph & Sharon 60,000 60,000 120,000
Klein
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Billy & May Nin 10,000 10,000 20,000
Kong
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
-24-
SELLING SHARES OF SHARES OF SHARES OF SHARES OF TOTAL AMOUNT OF PERCENT OF
SECURITYHOLDER COMMON COMMON STOCK COMMON STOCK COMMON STOCK SHARES OF COMMON STOCK OUTSTANDING
NAME STOCK TO BE ISSUED AND RECEIVED AND COMMON STOCK TO OWNED BY COMMON STOCK
OWNED OFFERED FOR ISSUABLE UPON TO BE RECEIVED BE OFFERED FOR SECURITYHOLDER OWNED BY
PRIOR TO SECURITYHOLDER'S CONVERSION OF UPON THE SECURITYHOLDER'S AFTER THE SECURITYHOLDER
THIS ACCOUNT PREFERRED EXERCISE OF ACCOUNT OFFERING AFTER THE
OFFERING STOCK WARRANTS OFFERING
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Jake Kooiman 2,000 2,000 4,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Edward J. Names 58,958 10,000 10,000 20,000 58,958 0.32%
(4) (4)
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Charles J. Petit 10,000 10,000 20,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Dave Reimer 18,000 18,000 36,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Ron J. & Patricia 10,000 10,000 20,000
Shimek
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Laurie & Michael 7,000 7,000 14,000
Snow
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Dennis Staal 14,400 10,000 10,000 20,000 14,400 0.08%
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
John P. Thysell 20,000 20,000 40,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
W.G. Securities, 15,700 18,800 18,800 37,600 15,700 0.09%
L.P.
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Daniel Bishop 50,000 50,000 100,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
John J. Appert 2,000 2,000 4,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
SERIES I PREFERRED STOCKHOLDERS
- ---------------------------------------------------------------------------------------------------------------------------------
Alpha Capital 557,474 110,000 667,474
Aktiengeselschaft
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Wayne Mills 115,274 40,000 155,274
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
The Shaar Fund 914,286 160,000 1,074,286
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Stonestreet 25,409 40,000 65,409
Limited
Partnership
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
W.E.C. Asset 82,950 50,000 132,950
Management, LLC
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
MISCELLANEOUS PRIVATE PLACEMENTS (5)
- ---------------------------------------------------------------------------------------------------------------------------------
Daniel Bishop 389,909 230,000 619,909
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
John H. Black 95,000 80,000 175,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Les Boelter 3,000 5,000 8,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
James Burford 83,333 83,333
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Trust Company of 36,363
the South FBO
James Burford
(IRA) 36,363
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Joseph Bushman 10,000 10,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Chex Services, 146,000 80,000 226,000
Inc.
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
-25-
SELLING SHARES OF SHARES OF SHARES OF SHARES OF TOTAL AMOUNT OF PERCENT OF
SECURITYHOLDER COMMON COMMON STOCK COMMON STOCK COMMON STOCK SHARES OF COMMON STOCK OUTSTANDING
NAME STOCK TO BE ISSUED AND RECEIVED AND COMMON STOCK TO OWNED BY COMMON STOCK
OWNED OFFERED FOR ISSUABLE UPON TO BE RECEIVED BE OFFERED FOR SECURITYHOLDER OWNED BY
PRIOR TO SECURITYHOLDER'S CONVERSION OF UPON THE SECURITYHOLDER'S AFTER THE SECURITYHOLDER
THIS ACCOUNT PREFERRED EXERCISE OF ACCOUNT OFFERING AFTER THE
OFFERING STOCK WARRANTS OFFERING
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
F.D. Copp, Jr. 10,000 10,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Richard Dana 10,000 10,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Dom Dichira 25,000 25,000 50,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Duane Hennen 15,000 15,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Joe Jensen 5,000 5,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
UBS 12,600 12,600 25,200
PaineWebber, Inc.
as Custodian FBO
Irwin Kaufman
#3R 50087
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Billy Kong & May 10,000 10,000
Nin Kong
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Jake Kooiman 2,000 2,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Joel & Dana 50,000 50,000 100,000
Mirviss
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Richard Myers 20,000 20,000 40,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Edward Names 10,000 10,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Charles Petit 10,000 10,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
David W. Reimer 22,000 40,000 62,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Chip Rice 200,000 200,000 400,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
William Rice 1,049 1,049
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Stewart Segal 40,000 20,000 60,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Gordon Severson 4,000 4,000 8,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Laurie A. & 7,000 7,000
Michael L. Snow
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Dennis Staal 10,000 10,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
John Thysell 10,000 30,000 40,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Joseph Trungale 80,000 80,000 160,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Mike Wruck 16,000 16,000 32,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
COMMON STOCK AND WARRANTS ISSUED TO CONSULTANTS/UNDERWRITERS
- ---------------------------------------------------------------------------------------------------------------------------------
Gary Benson 100,000 100,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Michael Casazza 10,000 10,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Allen Gainsford 100,000 100,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Feltl and Company 198,530 198,530
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
John C. Feltl 4,718 4,718
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
John E. Feltl 14,272 14,272
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
-26-
SELLING SHARES OF SHARES OF SHARES OF SHARES OF TOTAL AMOUNT OF PERCENT OF
SECURITYHOLDER COMMON COMMON STOCK COMMON STOCK COMMON STOCK SHARES OF COMMON STOCK OUTSTANDING
NAME STOCK TO BE ISSUED AND RECEIVED AND COMMON STOCK TO OWNED BY COMMON STOCK
OWNED OFFERED FOR ISSUABLE UPON TO BE RECEIVED BE OFFERED FOR SECURITYHOLDER OWNED BY
PRIOR TO SECURITYHOLDER'S CONVERSION OF UPON THE SECURITYHOLDER'S AFTER THE SECURITYHOLDER
THIS ACCOUNT PREFERRED EXERCISE OF ACCOUNT OFFERING AFTER THE
OFFERING STOCK WARRANTS OFFERING
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Bradford Geisen 13,333 86,667 100,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Hyperion Holdings 3,750 3,750 7,500
LLC
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Barry Hollander 17,000 17,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Nick Honigman 566 566
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Steve Hosier 3,303 3,303
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
David B. Johnson 14,272 14,272
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Todd C. Johnson 566 566
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Paul R. Kuehn 4,541 4,541
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
David Lantz 3,303 3,303
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Paul T. Mannion 4,312 4,312 8,624
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Miller Johnson 47,180 47,180
Steichen Kinnard
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Eldon C. Miller 14,272 14,272
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Richard J. Nigon 6,416 6,416
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Stan D. Rahm 4,541 4,541
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Andrew S. Reckles 4,312 4,312 8,624
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Chip Rice 101,167 101,167
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
William Rice 1,049(6) 1,049
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Vincent S. Sbarra 2,626 2,626 5,252
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Shaar Fund LTD 167,083 167,083
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
John F. Stapleton 50,000 50,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
World Capital 80,200 80,200
Funding
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Michael Wruck 15,734 15,734
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
DEBT CONVERSIONS
- ---------------------------------------------------------------------------------------------------------------------------------
Capco Asset 119,662(7) 20,000(7) 139,662
Management
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Russell L. 795(8) 795(8) 1,590
Casement
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Chex Services, 130,682(9) 130,682
Inc.
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Robert Darst 17,000 17,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Equitex 2000, Inc. 78,339(10) 78,339(10) 156,678
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Dia Erickson 30,000 30,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
-27-
SELLING SHARES OF SHARES OF SHARES OF SHARES OF TOTAL AMOUNT OF PERCENT OF
SECURITYHOLDER COMMON COMMON STOCK COMMON STOCK COMMON STOCK SHARES OF COMMON STOCK OUTSTANDING
NAME STOCK TO BE ISSUED AND RECEIVED AND COMMON STOCK TO OWNED BY COMMON STOCK
OWNED OFFERED FOR ISSUABLE UPON TO BE RECEIVED BE OFFERED FOR SECURITYHOLDER OWNED BY
PRIOR TO SECURITYHOLDER'S CONVERSION OF UPON THE SECURITYHOLDER'S AFTER THE SECURITYHOLDER
THIS ACCOUNT PREFERRED EXERCISE OF ACCOUNT OFFERING AFTER THE
OFFERING STOCK WARRANTS OFFERING
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Gulfstream 1998 191,425(11) 141,425(11) 332,850
Irrevocable Trust
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Joseph W. 477(12) 477(12) 954
Hovorka
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Scott Lucas 20,000 20,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
TR Capital Corp. 12,156(13) 12,156(13) 24,312
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
USA Skate Corp. 37,258(14) 37,258(14) 74,516
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
SERIES J STOCKHOLDERS
- ---------------------------------------------------------------------------------------------------------------------------------
Joe Bushman 75,000 3,000 78,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Chex Services, 1,625,000 65,000 1,690,000
Inc.
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Discount Video 750,000 30,000 780,000
Liquidators, Inc.
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Feltl and 345,000 345,000
Company, Inc.
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Duane Hennen 62,500 2,500 65,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Joseph Jenson 25,000 1,000 26,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Joel Mirviss 37,500 1,500 39,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Ray Newkirk 62,500 2,500 65,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Charles Pettie 125,000 5,000 130,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Dave Reimer 125,000 5,000 130,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Tee & Bee, Inc. 500,000 20,000 520,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
Tom Vertin 62,500 2,500 65,000
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
TOTALS 1,083,684 10,918,154(15) 5,617,193(16) 8,687,714(17) 25,223,061(18) 1,083,684
- ------------------ ---------- ---------------- ------------- -------------- ---------------- -------------- --------------
(1) Henry Fong is the President, Treasurer and Chief Financial Officer of
Equitex.
(2) Includes 390,219 shares owned by another company in which Henry Fong is the
sole member.
(3) Chex Services, Inc., is our wholly-owned subsidiary.
(4) Includes 39,758 shares owned by another company in which Edward J. Names
the general partner.
(5) Includes 78,635 shares of common stock sold in January 2002 for $2.75 per
share; 83,333 shares of common stock sold in April 2002 for $1.20 per
share; 247,818 shares of common stock sold in June 2002 for $.55 per share;
802,600 shares of common stock and warrants to purchase 992,649 shares of
common stock sold in July 2002 for $.50 per share.
(6) 1,049 shares issued upon conversion of a warrant issued to an underwriter
in connection with the Series H
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preferred stock issuance at an exercise price of $0.50 per share.
(7) Shares of common stock and warrants issued pursuant to a convertible
promissory note in the amount of $102,910 dated December 20, 2001, between
us and Capco Asset Management.
(8) Shares of common stock and warrants issued to one of our directors upon
conversion of a $4,166 debt based upon the closing stock price of $5.24 per
share as reported by the Nasdaq Stock Market at the close of business on
August 1, 2001
(9) 130,682 shares issued pursuant to a promissory note in the amount of
$62,814 between us and Chex Services, Inc., dated January 3, 2002.
(10) Shares of common stock and warrants issued as compensation to Equitex 2000,
Inc., for $410,496 in expenses related to our acquisitions of Nova
Financial Systems, Inc., and Key Financial Systems, Inc., based upon the
closing stock price of $5.24 per share as reported by the Nasdaq Stock
Market at the close of business on August 1, 2001.
(11) Shares of common stock and warrants issued to Gulfstream 1998 Irrevocable
Trust upon conversion of a $1,003,067 note based upon the closing stock
price of $5.24 per share as reported by the Nasdaq Stock Market at the
close of business on August 1, 2001.
(12) Shares of common stock and warrants issued to one of our directors upon
conversion of a $2,500 debt based upon the closing stock price of $5.24 per
share as reported by the Nasdaq Stock Market at the close of business on
August 1, 2001.
(13) Shares of common stock and warrants issued to TR Capital Corp. upon
conversion of a $63,695 note based upon the closing stock price of $5.24
per share as reported by the Nasdaq Stock Market at the close of business
on August 1, 2001.
(14) Shares of common stock and warrants issued to USA Skate Corp. upon
conversion of $195,232 in debt.
(15) 9,084,773 shares of common stock issued pursuant to the acquisitions of
Nova Financial Systems, Inc. and Key Financial Systems, Inc., which were
previously registered on our Prospectus on Form 424B1 to the Registration
Statement on Form S-3/A (Amendment No. 1), Commission File No. 333-73374,
are being carried over pursuant to Rule 429(b).
(16) 2,167,193 shares of common stock issued or to be issued upon conversion of
our Series H and I preferred stock, which were previously registered on our
Prospectus on Form 424B1 to the Registration Statement on Form S-3/A
(Amendment No. 1), Commission File No. 333-73374, are being carried over
pursuant to Rule 429(b).
(17) 5,795,284 shares of common stock underlying warrants, which were previously
registered on our Prospectus on Form 424B1 to the Registration Statement on
Form S-3/A (Amendment No. 1), Commission File No. 333-73374, are being
carried over pursuant to Rule 429(b).
(18) 17,047,250 shares of common stock underlying warrants, which were
previously registered on our Prospectus on Form 424B1 to the Registration
Statement on Form S-3/A (Amendment No. 1), Commission File No. 333-73374,
are being carried over pursuant to Rule 429(b).
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PLAN OF DISTRIBUTION
We are registering the shares of common stock on behalf of the
individual selling securityholders. As used in this prospectus, "selling
securityholders" include donees and pledgees selling shares received from the
selling securityholders 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 securityholders. Sales of shares of common stock may be effected by the
selling securityholders 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 securityholders have advised us that they have
not entered into any agreements, understandings or arrangements with any
underwriters or broker-dealers regarding the sale of their securities, nor is
there any underwriter or coordinating broker acting in connection with the
proposed sale of shares of common stock by the selling securityholders.
The selling securityholders 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 securityholders
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).
Each of the selling securityholders 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 securityholders against liabilities,
including liabilities arising under the Securities Act. The selling
securityholders 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 individual selling securityholders may be deemed to be
underwriters within the meaning of Section 2(a)(11) of the Securities Act, the
selling securityholders will be subject to the prospectus delivery requirements
of the Securities Act. We have informed the selling securityholders that the
anti-manipulative provisions of Regulation M issued under the Exchange Act may
apply to their sales in the market.
The selling securityholders 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 they meet the criteria and conform to the
requirements of that Rule.
After the selling securityholders notify 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 securityholders 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 securityholders 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.
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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 SECURITYHOLDERS
The selling securityholders have 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
securityholders furnished by the selling securityholders to us for use therein.
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 us by Friedlob Sanderson Paulson & Tourtillott, LLC, Denver, Colorado.
EXPERTS
The consolidated/combined balance sheets of Equitex, Inc. as of
December 31, 2001 and 2000 and the related consolidated/combined statements of
operations, changes in stockholders' equity and cash flows for each of the years
in the three-year period ended December 31, 2001, which appear in our Annual
Report on Form 10-K, incorporated by reference herein, have been so incorporated
in reliance upon the report of Gelfond Hochstadt Pangburn, P.C., independent
certified public accountants, and which states that the combined balance sheet
as of December 31, 2000, and the combined statements of operations, changes in
stockholders' equity, and cash flows for each of the years in the two-year
period ended December 31, 2000, represent the combination of the financial
statements of Key Financial Systems, Inc. and Nova Financial Systems, Inc.,
which were audited and reported on separately by other auditors, 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 September 30, 2002 and 2001, June 30, 2002 and
2001, and March 31, 2002 and 2001, 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 reports included in our Quarterly reports
on Forms 10-QSB for the quarters ended September 30, 2002, June 30, 2002, and
March 31, 2002, 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 reports on such information should be restricted. The accountants are not
subject to the liability provisions of Section 11 of the Securities Act of 1933
for their reports on the unaudited interim financial information because those
reports are not a "report" or a "part" of the Registration State prepared or
certified by the accountants within the meaning of Section 7 and 11 of the
Securities Act of 1933.
The balance sheet of Key Financial Systems, Inc. as of December 31,
2000, and the related statements of operations, stockholders' equity, and cash
flows for the years ended December 31, 2000 and 1999, and the balance sheet of
Nova Financial Systems, Inc. as of December 31, 2000, and the related statements
of income, stockholders' equity, and cash flows for the years ended December 31,
2000 and 1999, both which appear in our Annual Report on
-31-
Form 10-K, have been incorporated by reference herein, have been so incorporated
in reliance upon the report of McGladrey & Pullen, LLP, independent certified
public accountants, and upon the authority of said firm as experts in auditing
and accounting.
The balance sheet of Chex Services, Inc., as of December 31, 2000, and
the related statements of operations, stockholders' equity, and cash flows for
the years ended December 31, 2000, which appear in our Current Report on Form
8-K/A filed March 6, 2002, have been incorporated by reference herein, have been
so incorporated in reliance upon the report of Silverman Olson Thorvilson &
Kaufmann, LTD, independent certified public accountants, and upon the authority
of said firm as experts in auditing and accounting.
With respect to the unaudited interim financial information of Chex
Services, Inc., for the periods ended September 30, 2001 and 2000, incorporated
by reference in this prospectus, the independent accountants, Silverman Olson
Thorvilson & Kaufmann, LTD, have reported that they have applied limited
procedures in accordance with professional standards for a review of such
information. However, their separate report included in our Current Report on
Form 8-K/A filed March 6, 2002, and incorporated by reference herein, states
that they did not audit and they do not express an opinion on that interim
financial information. Accordingly, the degree of reliance on their report on
such information should be restricted in light of the limited nature of the
review procedures applied. The accountants are not subject to the liability
provisions of Section 11 of the Securities Act of 1933, as amended, 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 Act.
The financial statements of Chex Services, Inc., as of and for the year
ended December 31, 1999, appearing in our Current Report on Form 8-K/A filed
March 6, 2002 and have been incorporated by reference in this prospectus, have
been audited by BDO Seidman, LLP, independent certified public accountants, to
the extent set forth in their report incorporated herein by reference and are
incorporated herein reliance upon such report given upon the authority of said
firm as experts in auditing and accounting.
-32-
EQUITEX, INC.
25,223,061 SHARES OF COMMON STOCK TO BE OFFERED
AND SOLD BY SELLING SECURITYHOLDERS
January 9, 2003
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PROSPECTUS
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| 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. |
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