As filed with the Securities and Exchange Commission on June 8, 2004
Registration No. 333-________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
EQUITEX, INC.
(Exact name of registrant as specified in its charter)
Delaware 84-0905189
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
7315 EAST PEAKVIEW AVENUE
ENGLEWOOD, COLORADO 80111
(303) 796-8940
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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HENRY FONG, PRESIDENT, TREASURER AND CHIEF FINANCIAL OFFICER
7315 EAST PEAKVIEW AVENUE
ENGLEWOOD, COLORADO 80111
Telephone (303) 796-8940
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies of communication, including all communication sent to the
agent for service, should be sent to:
William M. Mower, Esq.
Paul D. Chestovich, Esq.
Maslon Edelman Borman & Brand, LLP
3300 Wells Fargo Center, 90 South 7th Street
Minneapolis, Minnesota 55402
Telephone (612) 672-8200
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Approximate date of commencement of proposed sale to public: from time to time
after this registration statement becomes effective.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box: [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [x]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act of 1933, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act of 1933, check the following box and list the Securities Act
registration number of the earliest effective registration statement for the
same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434 under
the Securities Act of 1933, please check the following box: [ ]
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
SHARE (1) PRICE (1) FEE
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Common Stock, $.01 par value per share 7,843,137 $1.02 $8,000,000 $1,013.60
(2) . . . shares
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Common Stock, $.01 par value per share 1,100,000 $1.275 (4) $1,402,500 $177.70
(3) . . . shares
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(1) Estimated in accordance with Rule 457 solely for the purpose of calculation
of the registration fee based on the average high and low closing sales price on
June 4, 2004.
(2) Common stock issuable upon conversion of convertible promissory notes.
(3) Common stock issuable upon exercise of warrants issued in connection with
the issuance of the above-indicated convertible promissory notes.
(4) Proposed maximum offering price per share calculated in accordance with Rule
457(g) of the Securities Act.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATES AS MAY BE
NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER
AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES
ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH
DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
The information in this prospectus is not complete and may be changed.
Securities included in the registration statement of which this prospectus is a
part may not be sold until the registration statement filed with the Securities
and Exchange Commission is effective. This prospectus is not an offer to sell
these securities and it is not soliciting an offer to buy these securities in
any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED JUNE 8, 2004
PROSPECTUS
EQUITEX, INC.
8,943,137 SHARES OF COMMON STOCK
This prospectus relates to 8,943,137 shares of common stock of Equitex,
Inc. held by the selling securityholders listed on page 12 of this prospectus.
We will receive no proceeds from the sale of the common stock by the selling
securityholders.
Our common stock is listed on the Nasdaq SmallCap Market under the
symbol "EQTX." On June 4, 2004, the last sale price for our common stock as
reported on the Nasdaq SmallCap Market was $1.02.
The shares of common stock offered by this prospectus involve a high
degree of risk. See "Risk Factors" beginning on page 3 for a description of some
of the risks you should consider before buying any shares of our common stock
offered by this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The information contained in this prospectus is not complete and may be
changed. The selling securityholders listed on page 12 of this prospectus may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
The date of this prospectus is , 2004
TABLE OF CONTENTS
Page
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Prospectus Summary 1
Risk Factors 3
Cautionary Note Regarding Forward-Looking Statements 10
Material Developments 11
Use of Proceeds 12
Selling Securityholders 12
Plan of Distribution 14
Legal Matters 16
Experts 16
Where You Can Find More Information 17
Disclosure of Commission Position on Indemnification
for Securities Act Liabilities 18
This prospectus is part of a registration statement that we filed with
the Securities and Exchange Commission. The registration statement containing
this prospectus, including the exhibits to the registration statement, also
contains additional information about Equitex, Inc. and the securities offered
under this prospectus. That registration statement can be read at the Securities
and Exchange Commission's website (located at WWW.SEC.GOV) or at the Securities
and Exchange Commission's Public Reference Room mentioned under the heading
"Where You Can Find More Information" on page 17 of this prospectus.
You should rely only on the information contained in this document or
to which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document. Our business, financial condition or results of
operations may have changed since that date.
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS CERTAIN INFORMATION FOUND IN GREATER DETAIL
ELSEWHERE IN THIS PROSPECTUS. THIS SUMMARY MAY NOT CONTAIN ALL OF THE
INFORMATION THAT MAY BE IMPORTANT TO YOU. WE URGE YOU TO READ THIS ENTIRE
PROSPECTUS CAREFULLY, INCLUDING THE RISKS OF INVESTING IN OUR COMMON STOCK
DISCUSSED UNDER "RISK FACTORS" AND THE FINANCIAL STATEMENTS AND OTHER
INFORMATION THAT IS INCORPORATED BY REFERENCE INTO THIS PROSPECTUS, BEFORE
MAKING AN INVESTMENT DECISION. IN ADDITION, THIS PROSPECTUS SUMMARIZES OTHER
DOCUMENTS WHICH WE URGE YOU TO READ. ALL REFERENCES IN THIS PROSPECTUS TO
"EQUITEX," "WE," "US," "OUR" OR "OUR COMPANY" REFER TO EQUITEX, INC. AND OUR
CONSOLIDATED SUBSIDIARIES.
THE COMPANY
Equitex, Inc. was organized under the laws of the State of Delaware in
1983. From 1984 until January 4, 1999, we were a business-development company, a
form of closed-end, non-diversified investment company, subject to the
applicable provisions of the Investment Company Act of 1940. A
business-development company generally must maintain 70% of its assets in new,
financially troubled or otherwise qualified companies, known as investee
companies, and offer significant managerial assistance to such investee
companies. We primarily were engaged in the business of investing in and
providing managerial assistance to developing companies that, in our opinion,
had a significant potential for growth. On April 3, 1998, our stockholders
authorized us to change the nature of our business and withdraw our election as
a business-development company, which became effective on January 4, 1999.
Effective December 1, 2001, we acquired all the outstanding common stock of Chex
Services, Inc. in exchange for 1,992,001 shares of our common stock valued at
$10,119,000 ($5.08 per share), in a transaction accounted for as a purchase.
Chex Services provides comprehensive cash access services to 44 casinos and
other gaming establishments.
In August 2002 we formed a new majority owned subsidiary, Denaris
Corporation, to pursue opportunities in stored value card operations. In return
for assigning our rights to certain notes receivable as well as the opportunity
to acquire certain technological and other information from our subsidiary Key
Financial Systems, Denaris Corporation agreed to pay Equitex $250,000 in
the form of a promissory note as well as 5,000,000 shares of common stock of
Denaris Corporation. As of June 1, 2004, Denaris Corporation had 6,510,000
shares of common stock outstanding. Accordingly, we own 77% of the outstanding
common stock of Denaris Corporation as of such date.
On April 14, 2004, Chex Services, Inc. executed and delivered an
Agreement and Plan of Merger with Seven Ventures, Inc., a publicly traded Nevada
corporation (OTCBB: SVVI), and Seven Ventures Newco, Inc., a wholly owned
subsidiary of Seven Ventures and a Minnesota corporation. Seven Ventures, Inc.
had no business operations when the Agreement and Plan of Merger was executed.
On June 7, 2004, we consummated the merger transaction. In the merger, Seven
Ventures Newco, Inc. merged with and into Chex Services, Inc., with Chex
Services surviving the merger as the wholly owned operating subsidiary of Seven
Ventures, Inc. At the closing of the merger, we exchanged 100% of our equity
ownership in Chex Services for 7,700,000 shares of common stock of Seven
Ventures, Inc., representing approximately 93% of the outstanding common stock
of Seven Ventures, Inc. following the merger. After the Merger, the sole
business of Seven Ventures, Inc. is the conduct of the business of Chex
Services, Inc.
At the closing of the merger, a bridge loan was consummated with MBC
Global, Inc., an Illinois corporation, whereby Seven Ventures received $400,000
in exchange for the issuance of a convertible promissory note. The promissory
note is convertible into 4,000,000 shares of common stock of Seven Ventures,
Inc., in stages, under certain criteria, including but not limited to: the
execution and delivery of a financial-services advisory agreement between Seven
Ventures, Inc. and MBC Global, Inc. (or an
1
affiliate) (at which time 25% of the principal amount of the note shall be
convertible); MBC Global's identification of an independent director to serve as
a director on the board of directors of Seven Ventures and delivery to Seven
Ventures of a list of potential suitable merger or acquisition candidates (at
which time an additional 25% of the principal amount of the note shall be
convertible); and the execution and delivery of a significant acquisition
agreement with a target entity introduced to Seven Ventures by MBC Global (at
which time the remaining 50% of the principal amount of the note shall be
convertible). MBC Global is an international merchant bank with principal
offices in Chicago, Illinois and was formerly known as Maroon Bells Capital,
LLC.
As a holding company, from time to time we evaluate opportunities for
strategic investments or acquisitions that would complement our current services
and products, enhance our technical capabilities or otherwise offer growth
opportunities. As a result, acquisition discussions and, in some cases,
negotiations may take place and future investments or acquisitions involving
cash, debt or equity securities or a combination thereof may result. Equitex,
Inc. maintains its principal office at 7315 East Peakview Avenue, Englewood,
Colorado 80111. You can reach us by telephone at (303) 796-8940.
THE OFFERING
Common stock offered................................... 8,943,137 shares
Common stock outstanding before offering (1)(2)........ 34,083,678 shares
Common stock outstanding after offering................ 43,026,215 shares
Nasdaq SmallCap Market symbol.......................... EQTX
(1) Represents shares of our common stock outstanding as of May 31,
2004. Does not include (a) shares of our common stock that are reserved for
issuance under various stock option agreements, including those issued under our
1993 Stock Option Plan for Non-Employee Directors, the Equitex, Inc. 1999 Stock
Option Plan and the Equitex, Inc. 2003 Stock Option Plan, and certain additional
options issued to certain directors and executive officers outside of these
plans; or (b) shares of our common stock that are reserved for issuance under
outstanding warrants.
(2) Includes shares already issued and outstanding that are being
offered for resale pursuant to this prospectus.
2
RISK FACTORS
BEFORE DECIDING TO INVEST IN OUR COMMON STOCK, YOU SHOULD CAREFULLY
CONSIDER EACH OF THE FOLLOWING RISK FACTORS AND ALL OF THE OTHER INFORMATION SET
FORTH IN THIS PROSPECTUS. THE FOLLOWING RISKS COULD MATERIALLY HARM OUR
BUSINESS, FINANCIAL CONDITION OR FUTURE RESULTS. IF THAT OCCURS, THE TRADING
PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU COULD LOSE ALL OR PART OF YOUR
INVESTMENT.
RISKS ASSOCIATED WITH OUR HISTORY:
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WE HAD A NET LOSS IN 2003, AND THERE IS NO ASSURANCE WE WILL BE PROFITABLE IN
2004.
We incurred a net loss of approximately $4.6 million (a loss applicable
to common stockholders of approximately $5.1 million) for the year ended
December 31, 2003, compared to a net loss of approximately $4.3 million and net
loss applicable to common stockholders of approximately $4.4 million for the
year ended December 31, 2002. For the three months ended March 31, 2004, we
incurred a net loss of approximately $631,000 (a loss applicable to common
stockholders of approximately $689,000). There is no assurance that we will have
a profit for the year ending December 31, 2004.
WE MAY INCUR SIGNIFICANT EXPENSE AS A RESULT OF PENDING LEGAL ACTIONS RELATING
TO OUR PRIOR ATTEMPTS TO ENGAGE IN A TRANSACTION THROUGH CHEX SERVICES, INC.
AND OTHERWISE.
Prior to our sale of Chex Services, Inc. to Seven Ventures, Inc. (of
which we hold approximately 93% of the outstanding common stock), we attempted,
unsuccessfully, to enter into similar transactions with Cash Systems, Inc. and
iGames Entertainment, Inc. We were able to execute and deliver definitive
agreements with both Cash Systems and iGames, but were unable to consummate
transactions with either company.
The litigation that arose with Cash Systems has been settled, as more
fully described in our Annual Report on Form 10-K for the year ended December
31, 2003, and our Quarterly Report on Form 10-Q for the quarter ended March 31,
2004. Nevertheless, we continue to engage in litigation with iGames. We intend
to vigorously defend ourselves against the litigation involving iGames. As a
result, there may be significant costs related to these legal actions and there
is no guarantee we will be successful either in defending against the iGames
lawsuit or successfully pursuing any possible counterclaims.
In addition, the Company is involved in additional litigation as
described in the above-referenced disclosure reports filed with the SEC. This
includes litigation alleging breaches of contract and certain securities law
violations, and litigation with the FDIC.
RISKS ASSOCIATED WITH OUR SECURITIES:
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FAILURE TO COMPLY WITH NASDAQ'S LISTING STANDARDS COULD RESULT IN OUR COMMON
STOCK BEING DE-LISTED BY NASDAQ FROM THE NASDAQ SMALLCAP MARKET, AND THEREBY
LIMIT THE ABILITY OF OUR 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 had fallen below
the $1.00 per share required for continued listing. We regained compliance with
the minimum bid price requirement on June 25, 2003, however, we can provide no
assurance that our common stock may not fall below the $1.00 per share required
for continued inclusion at some time in the future.
3
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 the pink sheets. This would make it more difficult for our
stockholders to sell their shares of our common stock on the market and would
decrease the liquidity of any investment in our common stock.
WE HAVE REACHED THE LIMIT FOR THE ISSUANCE OF COMMON STOCK UPON CONVERSION OF
OUR SERIES D, G AND I PREFERRED STOCK AND THERE IS NO ASSURANCE WE WILL BE ABLE
TO EITHER OBTAIN STOCKHOLDER APPROVAL FOR FURTHER ISSUANCES OR BE ABLE TO REDEEM
THE PREFERRED STOCK.
Pursuant to the certificates of designation for our Series D, G and I
preferred stock, we cannot issue shares of common stock upon conversion in
excess of 1,421,387 shares for the Series D preferred stock, 1,421,387 shares
for the Series G preferred stock and 1,638,503 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 these limitations or, in lieu of any such approval,
redeem any shares in excess of the limitation at 135% of the stated value of
Series D and G, and 125% of the stated value of Series I preferred stock, which
is $1,350 or $1,250 per share if a holder of these shares desires to convert the
preferred shares into our common stock. While we have redeemed a total of 1,130
shares of Series I preferred stock, there are still 1,600 shares of Series I
preferred stock outstanding, 315 shares of Series D preferred stock outstanding
and 370 shares of Series G preferred stock outstanding as of May 31, 2004. There
is no guarantee that we will be able to obtain stockholder 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 D, G or I
preferred 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 IN THE MARKET PRICE OF OUR COMMON STOCK.
The conversion of our outstanding preferred stock into approximately
3,446,455 shares of our common stock at an estimated average conversion price of
$0.663 per common share, and the exercise of warrants and options into
10,590,174 shares of our common stock at an estimated average exercise price of
$3.47 per common share, may be below the market price of our common stock. This
assumes that we obtain stockholder approval to issue shares upon conversion of
our outstanding Series D, G and I 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 of these
convertible securities, any issuance of common stock upon conversion or exercise
at below-market prices may cause a decrease in the market price of our common
stock.
OUR CURRENT STOCKHOLDERS MAY EXPERIENCE SIGNIFICANT DILUTION UPON THE CONVERSION
OF OUR OUTSTANDING PREFERRED STOCK.
Our stockholders may experience dilution from the conversion of shares
of our Series D, G, and I convertible preferred stock into approximately
3,048,718 shares of our common stock or 9.0% of the number of shares of common
stock currently outstanding, assuming our stockholders 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 preferred stock issued, 792 shares have
already been converted into 1,376,945 shares of our common stock through May 31,
2004. The remaining 315 outstanding shares of Series D preferred stock would
currently convert into approximately 475,113 shares of our common stock as of
June 4, 2004, using a conversion price of 65% of the closing price of our common
stock of $1.02 at that date. Of the 1,300 shares of our Series G preferred stock
issued, 930 shares have already been
4
converted into 1,353,336 shares of our common stock through May 31, 2004. The
remaining 370 outstanding shares of Series G preferred stock would currently
convert into approximately 558,069 shares of our common stock as of June 4,
2004, using a conversion price of 65% of the closing price of our common stock
of $1.02 at that date. Of the 4,000 shares of Series I preferred stock issued,
1,130 shares have been redeemed and 1,270 shares have already been converted
into 975,993 shares of our common stock through May 31, 2004. The remaining
1,600 outstanding shares of Series I preferred stock would currently convert
into approximately 2,413,273 shares of our common stock as of June 4, 2004,
using a conversion price of 65% of the closing price of our common stock of
$1.02 at that date; however, the certificate of designation 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 approval of our stockholders.
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 and I preferred
stock may cause substantial dilution in the book value per share of our common
stock. The conversion features in the Series D, G and I 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 market price of our common stock may
decline due to the additional shares in the market. This could in turn
allow the holders of preferred stock or options and warrants to
convert or exercise their remaining securities into greater amounts of
common stock, the sales of which would further depress our common
stock price.
o The significant downward pressure on the price of our common stock
could encourage short sales and consequently place further downward
pressure on the price of our common stock.
o Under the terms of our Series D, G and I 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, selling those
common shares on the market, and then converting another block of
preferred stock into common stock. By so doing, holders of our Series
D, G and I preferred stock can create additional dilution to our
existing common stockholders.
o The conversion of the Series D, G and I preferred stock may result in
substantial dilution to the interests of other holders of common
stock.
Since we cannot know the conversion price of the Series D, G or I
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 or I 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 at any given time 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
for Series G preferred stock will be the lowest of: (a) $6.50; or (b) 65% of the
market price of our common stock, provided
5
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 closing market price of our common stock on
the conversion date is $1.02, then the conversion price would be $.663 (i.e.,
65% of $1.02 is $.663; and $.663 is lower than $6.50).
The conversion ratio for issuing shares of our common stock upon
conversion of Series I preferred stock is determined by dividing the stated
value of the Series I preferred stock by the conversion price. The conversion
price will be the lowest of: (i) $5.98; or (ii) 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 closing market price of
our common stock on the conversion date is $1.00, then the conversion price
would be $.65 (i.e., 65% of $1.00 is $.65; and $.65 is lower than $5.98).
The following table sets forth, for illustrative purposes only, the
effect of increasing and decreasing stock prices on the conversion price per
share and number of shares issued upon conversion of the Series D, G and I
preferred stock, based on the closing market price of our common stock on June
4, 2004.
Aggregate
Aggregate Aggregate number of
number of number of shares of
shares of shares of common
common stock common stock stock
Conversion convertible Conversion convertible Conversion convertible
price of from all price of from all price of from all
Price per Series D Series D Series G Series G Series I Series I Percentage of
share of preferred preferred preferred preferred preferred preferred outstanding common
common stock stock (1) stock (2) stock (3) stock (4) stock (5) stock (6) stock (7) (8)
- ------------ --------- --------- --------- --------- --------- --------- -------------
$1.02 $.6630 475,113 $.6630 558,069 $.6630 2,413,273 9.18%
$.77 (9) $.5005 629,371 $.5005 739,261 $.5005 3,196,803 11.81%
$.51 (10) $.3315 950,226 $.3315 1,116,139 $.3315 4,826,546 16.82%
$1.28 (11) $.8320 378,606 $.8320 444,712 $.8320 1,923,077 7.46%
$1.53 (12) $0.9945 316,742 $0.9945 372,046 $0.9945 1,608,849 6.32%
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(1) The conversion price is 65% of the market price of our common
stock.
(2) Assumes that all 315 shares of Series D preferred stock, which have
an aggregate stated value of $315,000, are 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 (subject to
adjustment upon any de-listing of our common stock from the Nasdaq SmallCap
Market).
(4) Assumes that all 370 shares of Series G preferred stock, which have
an aggregate stated value of $370,000, are converted into common stock.
6
(5) 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 (subject to
adjustment upon any de-listing of our common stock from the Nasdaq SmallCap
Market).
(6) Assumes that all 1,600 shares of Series I preferred stock, which
have an aggregate stated value of $1,600,000, are converted into common stock.
This amount reflects our previous redemptions of an aggregate of 1,130 shares of
Series I preferred stock.
(7) Assumes 34,083,678 outstanding shares of our common stock prior to
the conversion of the Series D, G and I preferred stock.
(8) 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 applicable limits are 1,421,387 for Series D
preferred stock (of which 1,376,945 shares of common stock have already been
issued); 1,421,387 for Series G preferred stock (of which 1,353,336 shares of
common stock have already been issued); and 1,638,503 for Series I preferred
stock (of which 975,993 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 135 % of the stated value for Series D and G preferred stock, and 125% of the
stated value for Series I preferred stock.
(9) Reflects a 25% reduction from the average closing bid price of
$1.02.
(10) Reflects a 50% reduction from the average closing bid price of
$1.02.
(11) Reflects a 25% increase from the average closing bid price of
$1.02.
(12) Reflects a 50% increase from the average closing bid price of
$1.02.
RISKS RELATED TO THE BUSINESS OF SEVEN VENTURES, INC. AND CHEX SERVICES, INC.:
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THE POTENTIAL FOR LOSSES RELATED TO RETURNED CHECKS IS SIGNIFICANT, AND IF SUCH
LOSSES MATERIALIZE THEY COULD MATERIALLY AND ADVERSELY AFFECT THE FINANCIAL
PERFORMANCE AND OPERATIONS OF CHEX SERVICES, INC. AND SEVEN VENTURES, INC.
The Company estimates that Chex Services, Inc. will transact
approximately $244 million in check-cashing volume during 2004. Chex 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. Chex
employs a full-time collections specialist and has systems in place to mitigate
the amount of returned checks, but the potential for losses on returned checks
could be significant and could have a material negative impact on the financial
condition and results of operations of Chex and Seven Ventures, Inc., and on
Equitex in turn, in any given period.
7
FOR ITS REVENUES, CHEX'S BUSINESS IS HIGHLY DEPENDENT ON CHECK CASHING,
CREDIT/DEBIT CARD CASH ADVANCES AND ATM FEES, ANY OR ALL OF WHICH COULD BE
LIMITED BY STATE AND/OR FEDERAL REGULATION.
Chex's revenues are mainly composed of fees charged to its customers
for check cashing, credit card and ATM transactions. If federal or state
authorities were to limit or ban fees charged for any or all of these services,
Chex would suffer a significant decline in revenues that could have a material
adverse effect on its business, growth, financial condition and results of
operations, and correspondingly those of Seven Ventures, Inc. and the Company.
CHEX'S BUSINESS IS SUBJECT TO REGULATION BY VARIOUS TRIBAL AND GOVERNMENTAL
AGENCIES.
A majority of locations where Chex offers its services are on tribal
lands. Chex 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, a division of the U.S. Department of
Commerce, oversees the regulatory aspects of these compacts. If a tribe were
found to be violating the regulations of the state compact, its locations could
be closed down. Any such closures would have a material adverse effect on the
business, growth, financial condition and results of operations of Chex, and
correspondingly on Seven Ventures, Inc. and the Company. Furthermore, tribal
adherence to the applicable provisions of state compacts is beyond the control
of Chex, Seven Ventures and the Company.
CHEX RELIES ON CERTAIN NOTES PAYABLE TO FUND ITS CHECK-CASHING OPERATIONS AND
GROWTH. THESE NOTES ARE DEMAND NOTES SUBJECT TO REPAYMENT ON 90 DAYS NOTICE.
Chex relies in part on debenture notes from private investors to
operate its business and to fund its growth. There is no assurance that Chex
will continue to be able to raise the necessary funds to support its future
growth through similar financing transactions. Additionally, these debenture
notes are one year in length, but cancelable (and thereby subject to repayment)
by either party with 90 days notice. There is no assurance that Chex will be
able to replace funds in the event of the non-renewal of a note or a
cancellation notice. If in the future Chex is unable to continue relying on the
debenture notes to finance its continued operations and growth, Chex and/or
Seven Ventures may be forced to seek additional means of financing. There can be
no assurance that any form of financing will be available on terms acceptable to
the Company, if at all.
CHEX OPERATES AT GAMING ESTABLISHMENTS UNDER WRITTEN CONTRACTS WHOSE MATERIAL
TERMS MAY NOT BE ENFORCEABLE. IN ADDITION, CHEX OCCASIONALLY OPERATES AT GAMING
ESTABLISHMENTS WITH UNSIGNED CONTRACTS, VERBAL AGREEMENTS OR VERBAL AGREEMENTS
TO MODIFY EXISTING WRITTEN CONTRACTS, ANY OF WHICH MAY NOT BE ENFORCEABLE.
Generally, Chex operates at gaming establishments pursuant to written
contracts. Nevertheless, because many of the gaming establishments are located
in Native American tribal lands, some or all of the material provisions of these
contracts may not be enforceable due to the unwillingness of a tribe to provide
a waiver of its sovereign immunity, limited or otherwise. Alternatively, the
enforcement of an enforceable contract is likely to be much more costly if the
contracting party is a tribe, due to a failure to waive sovereign immunity.
In addition, Chex currently operates at some locations with unsigned
contracts, verbal agreements, or verbal amendments to written contracts any or
all of which may not be enforceable. Should any party bring challenges or claims
to Chex pursuant to these arrangements, we 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's business, growth, financial condition and
results of operations, and correspondingly those of Seven Ventures, Inc. and the
Company.
8
CHEX FACES INTENSE COMPETITION FOR ITS PRODUCTS AND SERVICES.
Chex 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 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 for ala carte credit card cash advance
systems and ATMs to the gaming and hospitality industries. Some of these
companies are much larger and better financed than Chex. There can be no
assurance that Chex will be able to compete successfully with these companies in
its particular market niche.
AS COMPETITION INCREASES, THERE CAN BE NO ASSURANCE THAT CHEX WILL BE ABLE TO
SECURE RENEWALS OF ITS EXISTING CONTRACTS.
Chex 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 historically has had significant success in
renewing these contracts for successive terms, there can be no assurance that
future contract renewals will be successful and that Chex 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's business,
growth, financial condition and results of operations, and correspondingly those
of Seven Ventures, Inc. and the Company.
CHEX'S FUTURE GROWTH DEPENDS ON ITS ABILITY TO OBTAIN NEW CUSTOMER CONTRACTS.
The continued expansion and development of Chex's business will depend
on the execution of new contracts with casinos and other gaming establishments.
To date, Chex has concentrated its efforts on Native American tribal casinos
where it has significant market penetration. In order to continue its growth,
Chex will likely be required to market its products to non-tribal casinos and
other gaming establishments in larger traditional gaming markets. In such event,
there can be no assurance that Chex will be successful. The inability to
penetrate these new markets could have a material adverse effect on Chex's
future growth. Any material negative effect would likely have a corresponding
material and negative effect on the business, financial condition and results of
operations of Seven Ventures, Inc. and the Company.
In addition, Chex intends to market its new products, the FastFunds
stored value card and the prepaid payroll card, to industries outside of the
Native American gaming industry where it currently primarily operates. Neither
the Company nor Chex can offer any assurance that Chex's efforts will be
successful. Chex's inability to penetrate these markets could have a material
adverse effect on its future growth, which would in turn affect the business,
financial condition and results of operations of Seven Ventures, Inc. and the
Company.
CHEX IS DEPENDENT UPON ITS MANAGEMENT AND MAY NOT BE ABLE TO RETAIN KEY
EMPLOYEES.
Chex's growth and profitability will materially 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 its key executives could have a material adverse effect on Chex's
business, growth, financial condition and results of operations, and a
corresponding adverse effect on Seven Ventures, Inc. and the Company.
9
CHEX'S COMPUTER SYSTEMS ARE SUBJECT TO SECURITY RISKS WHICH, IF BREACHED, COULD
ADVERSELY EFFECT ITS BUSINESS AND FINANCIAL CONDITION.
Chex currently maintains a site on the world wide web at
WWW.FASTFUNDSONLINE.COM to promote, enhance and encourage customers to use its
services and to educate them on its services and products. On a secure section
of its website, Chex maintains its proprietary application management software
for use by its customers. Like most computer systems, Chex's systems are subject
to the risks of computer viruses and unauthorized individuals (hackers)
obtaining access to and inadvertently or purposefully damaging its systems. Chex
and the Company believe the security and virus-detection systems and controls
that Chex has implemented significantly reduce these risks. If Chex's systems
were nonetheless compromised, its customers could lose data or be unable to
access the system. In addition, sensitive information regarding its customers
that is maintained on its system may become publicly available. In such an
event, Chex may be exposed to liability from its customers, may lose these
customers and may suffer significant damage to its business reputation. Any of
these events could have a material and adverse effect on Chex's business and
financial condition, and a corresponding effect on Seven Ventures, Inc. and the
Company.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, including the documents that are and will be
incorporated by reference into this prospectus, contain forward-looking
statements regarding our plans, expectations, estimates and beliefs.
Forward-looking statements in this prospectus are typically identified by words
such as "believes," "anticipates," "estimates," "expects," "intends," "will,"
"may" and other similar expressions. These forward-looking statements may
include, among other things, projections of our future financial performance,
our anticipated growth and anticipated trends in our businesses. These
statements reflect our current expectations or beliefs, and are subject to risks
and uncertainties that could cause actual results or events to vary from stated
expectations, which could be material and adverse. Given that circumstances may
change, and new risks to the business may emerge from time to time, having the
potential to negatively impact our business in ways we could not anticipate at
the time of making a forward-looking statement, you are cautioned not to place
undue reliance on these statements, and we undertake no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. The important factors that could cause
our results to differ include those identified in this prospectus and in any
applicable prospectus supplement under the section entitled "Risk Factors,"
those discussed in the Annual Report on Form 10-K for our fiscal year ended
December 31, 2003, those discussed in the Quarterly Report on Form 10-Q for our
quarter ended March 31, 2004, and similar sections in the other documents
incorporated into this prospectus by reference. We encourage you to read these
sections and documents carefully.
10
MATERIAL DEVELOPMENTS
We are a holding company that operates primarily through our
subsidiaries and affiliates, including Seven Ventures, Inc. (and its wholly
owned operating subsidiary, Chex Services, Inc., a Minnesota corporation), a
publicly traded Nevada corporation of which we own approximately 93% of the
issued outstanding common stock, and Denaris Corporation, a Delaware corporation
and another majority owned subsidiary. We also have run-off operations from our
wholly owned subsidiary Nova Financial Systems, Inc., a Florida corporation. Our
other wholly owned subsidiary, Key Financial Systems, Inc., a Florida
corporation, ceased run-off operations in the fourth quarter of 2003 and is
presented as a discontinued operation.
MATERIAL DEVELOPMENTS
LITIGATION WITH IGAMES ENTERTAINMENT, INC.
On November 3, 2003, we executed a stock purchase agreement with iGames
Entertainment, Inc. and Money Centers of America pursuant to which our then
wholly owned subsidiary, Chex Services, would have been acquired by iGames
Entertainment in exchange for Equitex's receipt of common stock of iGames
Entertainment and other consideration. On March 12, 2004, we notified iGames
Entertainment that we were terminating the stock purchase agreement due to
various material adverse developments with respect to the business of iGames
Entertainment, and simultaneously declaring a default under a term promissory
note made by iGames Entertainment in favor of Chex Services dated January 6,
2004, in the amount of $2 million.
On March 16, 2004, Chex Services commenced a lawsuit in Hennepin
County, Minnesota demanding repayment of $2 million, plus a $1 million
termination fee, accrued interest and other fees, due from iGames Entertainment
under the terms of the promissory note. On March 23, 2004, we commenced a
lawsuit in Delaware state court (New Castle County) relative to the termination
of the stock purchase agreement; and on March 24, 2004, iGames Entertainment
commenced a lawsuit in United States District Court for the District of Delaware
relative to both the termination of the stock purchase agreement and iGames
Entertainment's obligations under the promissory note which is the subject of
Chex Services' lawsuit in Hennepin County, Minnesota. Equitex is confident that
our legal claims will be upheld and believes that the various claims made by
iGames Entertainment lack merit. We intend to vigorously prosecute our claims
and defend against iGames Entertainment's claims.
MERGER OF CHEX SERVICES, INC.
On April 14, 2004, Chex Services, Inc. executed and delivered an
Agreement and Plan of Merger with Seven Ventures, Inc., a publicly traded Nevada
corporation (OTCBB: SVVI), and Seven Ventures Newco, Inc., a wholly owned
subsidiary of Seven Ventures and a Minnesota corporation. Seven Ventures, Inc.
had no business operations when the Agreement and Plan of Merger was executed.
On June 7, 2004, we consummated the merger transaction. In the merger, Seven
Ventures Newco, Inc. merged with and into Chex Services, Inc., with Chex
Services surviving the merger as the wholly owned operating subsidiary of Seven
Ventures, Inc. At the closing of the merger, we exchanged 100% of our equity
ownership in Chex Services for 7,700,000 shares of common stock of Seven
Ventures, Inc., representing approximately 93% of the outstanding common stock
of Seven Ventures, Inc. following the merger. After the Merger, the sole
business of Seven Ventures, Inc. is the conduct of the business of Chex
Services, Inc.
At the closing of the merger, a bridge loan was consummated with MBC
Global, Inc., an Illinois corporation, whereby Seven Ventures received $400,000
in exchange for the issuance of a convertible promissory note. The promissory
note is convertible into
11
4,000,000 shares of common stock of Seven Ventures, Inc., in stages, under
certain criteria, including but not limited to: the execution and delivery of an
financial-services advisory agreement between Seven Ventures, Inc. and MBC
Global, Inc. (or an affiliate) (at which time 25% of the principal amount of the
note shall be convertible); MBC Global's identification of an independent
director to serve as a director on the board of directors of Seven Ventures and
delivery to Seven Ventures of a list of potential suitable merger or acquisition
candidates (at which time an additional 25% of the principal amount of the note
shall be convertible); and the execution and delivery of a significant
acquisition agreement with a target entity introduced to Seven Ventures by MBC
Global (at which time the remaining 50% of the principal amount of the note
shall be convertible). MBC Global is an international merchant bank with
principal offices in Chicago, Illinois and was formerly known as Maroon Bells
Capital, LLC.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the common stock by
the selling securityholders.
SELLING SECURITYHOLDERS
The following table lists the total number of shares of our common
stock as of June 1, 2004, assuming the exercise of all warrants owned by the
selling securityholders and the conversion of all convertible promissory notes
at the lowest rate of conversion provided for under such promissory notes, held
by the selling securityholders and registered pursuant to the registration
statement of which this prospectus is a part. Except as indicated in the table
and accompanying footnotes, the selling securityholders are offering all of the
shares of common stock owned by them or issuable to them upon the exercise of
the warrants and conversion of the convertible securities. We will not receive
any proceeds from the sale of the common stock by the selling securityholder.
Shares of
Shares of common Percent of
Shares of common stock stock Total Amount of outstanding
common issued and issued and shares of common common stock common stock
stock owned issuable upon issuable stock to be owned by owned by
prior to conversion of upon offered for securityholder securityholder
Name of Selling this promissory exercise of securityholder's after this after this
Securityholder offering notes warrants account offering (1) offering (1)
-------------- -------- ----- -------- ------- ------------ ------------
Pandora Select 0 4,705,882 480,000 5,185,882 0 0%
Partners, L.P.
Whitebox Hedged 0 3,137,255 320,000 3,457,255 0 0%
High Yield
Partners, L.P.
Blake Capital 780,000 0 300,000 300,000 780,000 1.81%
Partners
TOTALS 7,843,137 1,100,000 8,943,137 780,000 1.81%
12
(1) Assumes the sale of all of the shares of common stock offered by
each selling securityholder pursuant to this prospectus.
On March 9, 2004, we closed on two convertible promissory notes from
Pandora Select Partners, LP and Whitebox Hedged High Yield Ltd aggregating
$5,000,000. The convertible promissory notes carry an interest rate of 7% per
annum, and each has a 45-month term. During months one through three, only
interest payments are required; beginning in month four, the principal and
interest payments will amortize over a 42-month period. The convertible
promissory notes are senior to all other debt of both Equitex and Chex Services,
Inc. The proceeds were loaned by us to Chex Services under terms identical to
the convertible promissory notes. The convertible promissory notes were
initially collateralized by all of the assets of Chex Services, our stock
ownership in Chex Services and the note between us and Chex Services. After the
merger of Chex Services with Seven Ventures Newco, Inc. (described above), our
direct ownership of stock of Chex Services no longer exists. As part of the
merger, the lenders and Seven Ventures, Inc. agreed that Seven Ventures Inc.'s
stock ownership in Chex Services after the merger would become collateral for
our repayment of the convertible promissory notes.
The promissory notes are convertible, at any time, into our common
stock at $1.35 per share up to an amount equal to 4.99% of our outstanding
common stock at any given point in time. We have the right to make any monthly
payment of principal and interest through the issuance of our common stock. In
any such event, the common stock will be valued at 85% of the average bid price
for the 20 trading days prior to the payment due date. The maximum number of
shares that can be delivered in lieu of cash payment will be 10% of the average
monthly trading volume for the month immediately prior to the payment due date.
We may also issue shares of common stock each month in an amount not to exceed
10% of the prior month's total share volume, up to a maximum aggregate value of
$100,000, as payment to be applied to the outstanding principal balance.
As part of the financing transaction, the lenders received a fee of
$150,000, legal fees of $15,000 for the preparation of transaction
documentation, and warrants to acquire up to 800,000 shares of our common stock
at an exercise price of $1.50 per share and exercisable for a period of five
years. The warrants include a cashless-exercise provision. Furthermore, we paid
a transaction fee to Blake Advisors, LLC, who introduced us to the lenders, of
$150,000. Blake Advisors also received warrants to acquire up to 300,000 shares
of our common stock at an exercise price of $1.00 per share and exercisable for
a period of two years. Finally, as part of the financing transaction, we agreed
to file a registration statement covering all the shares of common stock
issuable upon conversion of the promissory note, exercise of the warrants and
shares used to make monthly payments. If the registration statement is not
declared effective by September 5, 2004, we must issue additional stock or
warrants in amounts to be negotiated. If after 12 months from the closing date
the registration statement is not effective, the lenders shall have the right to
call the loan.
13
PLAN OF DISTRIBUTION
We are registering the shares of common stock offered by this
prospectus on behalf of the selling securityholders. As used in this prospectus,
"selling securityholders" include donees, pledges, transferees and other
successors in interest selling shares received from the selling securityholders
after the date of this prospectus, whether as a gift, pledge, partnership
distribution or other form of transfer. All costs, expenses and fees in
connection with the registration of the shares of common stock offered hereby
will be borne by Equitex, Inc. Brokerage commissions 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 offered hereby may be effected by the
selling securityholders from time to time in one or more types of transactions
(which may include block transactions):
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the
shares as agent, but may position and resell a portion of the block as
principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o short sales;
o through the writing or settlement of options or other hedging
transactions, whether through an options exchange or otherwise;
o broker-dealers may agree with the selling securityholder to sell a
specified number of such shares at a stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The selling securityholders may effect sales of shares of common stock
offered hereby at fixed prices, at prevailing market prices at the time of sale,
at prices related to the prevailing market price, at varying prices determined
at the time of sale, or at privately negotiated prices. Any of these
transactions may or may not involve brokers or dealers. Any such 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). 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.
14
The selling securityholders may, from time to time, pledge or grant a
security interest in some or all of the shares of common stock owned by him and,
if he defaults in the performance of his secured obligations, the pledgees or
secured parties may offer and sell the shares of common stock, from time to
time, under this prospectus, or under an amendment to this prospectus or other
applicable provision of the Securities Act amending the list of selling
securityholders to include the pledgee, transferee or other successors in
interest as selling securityholders under this prospectus. The selling
securityholders also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors in
interest will be the selling beneficial owners for purposes of this prospectus.
In connection with the sale of our common stock or interests therein,
the selling securityholders may enter into hedging transactions with
broker-dealers or other financial institutions, which may in turn engage in
short sales of the common stock in the course of hedging the positions they
assume. The selling securityholders may also sell shares of our common stock
short and deliver these securities to close out their short positions, or loan
or pledge the common stock to broker-dealers that in turn may sell these
securities. The selling securityholders may also enter into option or other
transactions with broker-dealers or other financial institutions or the creation
of one or more derivative securities, which require the delivery to such
broker-dealer or other financial institution of shares offered by this
prospectus, which shares such broker-dealer or other financial institution may
resell pursuant to this prospectus (as supplemented or amended to reflect such
transaction).
The aggregate proceeds to the selling securityholders from the sale of
the common stock offered by them will be the purchase price of the common stock
less discounts or commissions, if any. The selling securityholders reserve the
right to accept and, together with their agents from time to time, to reject, in
whole or in part, any proposed purchase of common stock to be made directly or
through agents. We will not receive any of the proceeds from this offering.
The selling securityholders may also resell all or a portion of the
shares in open market transactions in reliance upon Rule 144 under the
Securities Act of 1933, as amended, provided that they meets the criteria and
conform to the requirements of that rule.
The selling securityholders and any broker-dealers that act in
connection with the sale of securities might be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act, and any commissions
received by such broker-dealers and any profit on the resale of the securities
sold by them while acting as principals might be deemed to be underwriting
discounts or commissions under the Securities Act.
To the extent required, the shares of our common stock to be sold, the
name of the selling securityholder, the respective purchase prices and public
offering prices, the names of any agents, dealer or underwriter, any applicable
commissions or discounts with respect to a particular offer will be set forth in
an accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this prospectus.
In order to comply with the securities laws of some states, if
applicable, the common stock may be sold in these jurisdictions only through
registered or licensed brokers or dealers. In addition, in some states the
common stock may not be sold unless it has been registered or qualified for sale
or an exemption from registration or qualification requirements is available and
is complied with.
We have advised the selling securityholders that the anti-manipulation
rules of Regulation M under the Exchange Act may apply to sales of shares in the
market and to the activities of the selling securityholder and his affiliates.
In addition, we will make copies of this prospectus (as it may be supplemented
or amended from time to time) available to the selling securityholders for the
purpose of satisfying the prospectus delivery requirements of the Securities
Act. The selling securityholders may indemnify any
15
broker-dealer that participates in transactions involving the sale of the shares
against certain liabilities, including liabilities arising under the Securities
Act.
We have agreed to indemnify the selling securityholders against
liabilities, including liabilities under the Securities Act and state securities
laws, relating to the registration of the shares offered by 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 additional
capital.
We have agreed with the selling securityholders to keep the
registration statement that includes this prospectus effective until the earlier
of (1) such time as all of the shares covered by this prospectus have been
disposed of pursuant to and in accordance with the registration statement or (2)
the date on which the shares may be sold pursuant to Rule 144(k) of the
Securities Act.
The registration rights agreement entered into in connection with the
convertible promissory notes provides that the following events constitute a
default: (a) our failure to file the registration statement of which this
prospectus is a part by June 8, 2004; or (b) our failure to have this
registration statement declared effective by December 8, 2004.
LEGAL MATTERS
Legal matters in connection with the validity of the shares offered by
this prospectus will be passed upon for us by Maslon Edelman Borman & Brand,
LLP, Minneapolis, Minnesota.
EXPERTS
The consolidated balance sheets of Equitex, Inc. as of December 31,
2003 and 2002, 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, 2003, which appear in our Annual Report on
Form 10-K incorporated by reference into the registration statement of which
this prospectus is a part, have been audited by Gelfond Hochstadt Pangburn,
P.C., an independent registered public accounting firm, as indicated in their
report with respect thereto dated as of April 13, 2004, and are incorporated
herein in reliance upon the authority of that firm as experts in giving said
report.
With respect to the unaudited condensed consolidated financial
information for the periods ended March 31, 2004 and 2003, and incorporated
herein by reference into the registration statement of which this prospectus is
a part, the independent registered public accounting firm has applied limited
procedures in accordance with professional standards for a review of such
information. Nevertheless, as stated in their separate report included in our
Quarterly Report on Form 10-Q for the quarter ended March 31, 2004, they did not
audit and they do not express an opinion on that interim financial information.
Because of the limited nature of the review procedures applied, the degree of
reliance on their report on such information should be restricted. The
independent registered public accounting firm is 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 those report are
not a "report" or a "part" of the Registration Statement prepared or certified
by the accountants within the meaning of Sections 7 and 11 of the Securities Act
of 1933, as amended.
16
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. The reports, proxy statements and other
information that we file electronically with the SEC are available to the public
free of charge over the Internet at the SEC's website at http://www.sec.gov. You
may also read and copy any document we file with the SEC, at prescribed rates,
at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330 for further information on the
operation of its Public Reference Room. Our most current SEC filings, such as
our annual, quarterly and current reports, proxy statements and press releases
are available to the public free of charge on our Website. The address of our
website is http://www.equitex.net. Our website is not intended to be, and is
not, a part of this prospectus. We will provide electronic or paper copies of
our SEC filings to any stockholder free of charge upon receipt of a written
request for any such filing. All requests for our SEC filings should be sent to
the attention of Investor Relations at Equitex, Inc., 7315 East Peakview Avenue,
Englewood, Colorado 80111.
We "incorporate by reference" into this prospectus the information we
file with the SEC, which means that we can disclose important information to you
by referring you to those documents. The information incorporated by reference
is an important part of this prospectus. We incorporate by reference the
documents listed below and any filings we make with the SEC under Sections
13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934 after the
initial filing of the registration statement that contains this prospectus and
before the termination of the offering of our common stock pursuant to this
prospectus:
o Annual report on Form 10-K for the year ended December 31, 2003
(including information specifically incorporated by reference into our
Form 10-K), as filed on April 14, 2004;
o Quarterly report on Form 10-Q for the quarter ended March 31, 2004, as
filed on May 17, 2004;
o The description of our common stock included under the caption
"Securities to be Registered" in our Registration Statement on Form
8-A, dated July 21, 1983, including any amendments or reports filed
for the purpose of updating that description;
o Current Report on Form 8-K, filed on April 1, 2004; and
o Current Report on Form 8-K, filed on April 16, 2004.
The information about us that is contained in this prospectus is not
comprehensive and you should also read the information in the documents
incorporated by reference into this prospectus. Information that we file later
with the SEC and that is incorporated by reference into this prospectus will
automatically update and supersede information in this prospectus. You can
request a free copy of the above filings, or any filings subsequently
incorporated by reference into this prospectus, by writing to us at Equitex,
Inc., 7315 East Peakview Avenue, Englewood, Colorado 80111, Attention: Investor
Relations; or telephoning us at (303) 796-8940.
17
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
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.
18
PROSPECTUS
, 2004
EQUITEX, INC.
8,943,137 SHARES OF COMMON STOCK
UNTIL , ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS FOR SUBSCRIPTIONS.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Registrant estimates that expenses payable in connection with the
offering described in this registration statement will be as follows:
SEC registration fee $500
Legal fees and expenses 5,000
Accounting fees and expenses 5,000
Printing and engraving expenses 500
Miscellaneous 1,000
-------
TOTAL $12,000
=======
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides for, under
certain circumstances, the indemnification of Equitex's officers, directors,
employees and agents against liabilities which they may incur in such
capacities. A summarization of the circumstances in which such indemnifications
provided for is contained herein, but that description is qualified in its
entirety by reference to the relevant Section of the Delaware General
Corporation Law.
In general, the statute provides that any director, officer, employee
or agent of a corporation may be indemnified against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement, actually and
reasonably incurred in a proceeding (including any civil, criminal,
administrative or investigative proceeding) to which the individual was a party
by reason of such status. Such indemnity may be provided if the indemnified
person's actions resulting in the liabilities: (i) were taken in good faith;
(ii) were reasonably believed to have been in or not opposed to Equitex's best
interest; and (iii) with respect to any criminal action, such person had no
reasonable cause to believe the actions were unlawful. Unless ordered by a
court, indemnification generally may be awarded only after a determination of
independent members of the Board of Directors or a committee thereof, by
independent legal counsel or by vote of the stockholders that the applicable
standard of conduct was met by the individual to be indemnified.
The statutory provisions further provide that to the extent a director,
officer, employee or agent is wholly successful on the merits or otherwise in
defense of any proceeding to which he was a party, he is entitled to receive
indemnification against expenses, including attorneys' fees, actually and
reasonably incurred in connection with the proceeding.
Indemnification in connection with a proceeding by or in the right of
Equitex in which the director, officer, employee or agent is successful is
permitted only with respect to expenses, including attorneys' fees actually and
reasonably incurred in connection with the defense. In such actions, the person
to be indemnified must have acted in good faith, in a manner believed to have
been in Equitex's best interest and must not have been adjudged liable to
Equitex unless and only to the extent that the Court of Chancery or the court in
which such action or suit was brought shall determine upon application that,
despite the adjudication of liability, in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expense which the Court of Chancery or such other court shall deem proper.
Indemnification is otherwise prohibited in connection with a
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proceeding brought on behalf of Equitex in which a director is adjudged liable
to Equitex, or in connection with any proceeding charging improper personal
benefit to the director in which the director is adjudged liable for receipt of
an improper personal benefit.
Delaware law authorizes Equitex to reimburse or pay reasonable expenses
incurred by a director, officer, employee or agent in connection with a
proceeding in advance of a final disposition of the matter. Such advances of
expenses are permitted if the person furnishes to Equitex a written agreement to
repay such advances if it is determined that he is not entitled to be
indemnified by Equitex.
The statutory section cited above further specifies that any provisions
for indemnification of or advances for expenses does not exclude other rights
under Equitex's Certificate of Incorporation, Bylaws, resolutions of its
stockholders or disinterested directors, or otherwise. These indemnification
provisions continue for a person who has ceased to be a director, officer,
employee or agent of the corporation and inure to the benefit of the heirs,
executors and administrators of such persons.
The statutory provision cited above also grants the power to Equitex to
purchase and maintain insurance policies which protect any director, officer,
employee or agent against any liability asserted against or incurred by him in
such capacity arising out of his status as such. Such policies may provide for
indemnification whether or not the corporation would otherwise have the power to
provide for it. No such policies providing protection against liabilities
imposed under the securities laws have been obtained by Equitex.
Article VII Section 9 of Equitex's corporate bylaws provides that
Equitex shall indemnify its directors, officers, employees and agents to the
fullest extent permitted by the Delaware General Corporation Law. In addition,
Equitex has entered into agreements with its directors indemnifying them to the
fullest extent permitted by the Delaware General Corporation Law.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling
Equitex pursuant to the foregoing provisions, Equitex has been informed that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
ITEM 16. EXHIBITS
The following exhibits are filed as part of this registration
statement:
5.1 Opinion of Maslon Edelman Borman & Brand, LLP (FILED HEREWITH)
10.1 Purchase Agreement by and among Equitex, Inc., Pandora Select
Partners, L.P. and Whitebox Hedged High Yield Partners, L.P., dated
March 8, 2004 (incorporated by reference to Exhibit 10.9 to the
registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 2003, as filed on April 14, 2004)
10.2 Convertible Promissory Note in the principal amount of $3,000,000,
in favor of Pandora Select Partners, L.P., dated March 8, 2004
(incorporated by reference to Exhibit 10.10 to the registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
2003, as filed on April 14, 2004)
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10.3 Convertible Promissory Note in the principal amount of $2,000,000,
in favor of Whitebox Hedged High Yield Partners, L.P., dated March
8, 2004 (incorporated by reference to Exhibit 10.11 to the
registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 2003, as filed on April 14, 2004)
10.4 Chex Note Security Agreement by and between Chex Services, Inc. and
Equitex, Inc., dated March 8, 2004 (incorporated by reference to
Exhibit 10.16 to the registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2003, as filed on April 14, 2004)
10.5 Equitex Security Agreement by and among Equitex, Inc., Pandora
Select Partners, L.P. and Whitebox Hedged High Yield Fund, L.P.,
dated March 8, 2004 (incorporated by reference to Exhibit 10.13 to
the registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 2003, as filed on April 14, 2004)
10.6 Guaranty Agreement by and among Chex Services, Inc., Pandora Select
Partners, L.P. and Whitebox Hedged High Yield Partners, L.P.
(incorporated by reference to Exhibit 10.14 to the registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
2003, as filed on April 14, 2004)
10.7 Chex Guarantee Security Agreement by and among Chex Services, Inc.,
Pandora Select Partners, L.P. and Whitebox Hedged High Yield
Partners, L.P. (incorporated by reference to Exhibit 10.15 to the
registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 2003, as filed on April 14, 2004)
10.8 Registration Rights Agreement by and among Equitex, Inc., Pandora
Select Partners, L.P. and Whitebox Hedged High Yield Partners, L.P.,
dated March 8, 2004 (incorporated by reference to Exhibit 10.17 to
the registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 2003, as filed on April 14, 2004)
10.9 Secured Promissory Note of Chex Services, Inc. in the principal
amount of $5,000,000, in favor of Equitex, Inc., dated March 8, 2004
(incorporated by reference to Exhibit 10.12 to the registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
2003, as filed on April 14, 2004)
10.10 Security Agreement by and among Equitex, Inc., Seven Ventures, Inc.,
Pandora Select Partners, L.P. and Whitebox Hedged High Yield
Partners, L.P., dated June 7, 2004 (FILED HEREWITH)
15.1 Acknowledgement of Independent Registered Pubic Accounting Firm,
Gelfond Hochstadt Pangburn, P.C. (FILED HEREWITH)
23.1 Consent of Independent Registered Public Accounting Firm, Gelfond
Hochstadt Pangburn, P.C. (FILED HEREWITH)
23.2 Consent of Maslon Edelman Borman & Brand, LLP (see Exhibit 5.1)
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ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions or otherwise, the registrant has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(b) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement: (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act; (ii) to reflect
in the prospectus any facts or events arising after the effective date of the
registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement; and (iii) to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering; and
(4) That, for purposes of determining any liability under the
Securities Act, each filing of the registrant's annual report pursuant to
Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Exchange Act) that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report, to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Palm Beach Gardens, State of Florida, on June 8,
2004.
Equitex, Inc.
(Registrant)
/s/ Henry Fong
------------------------------------
Henry Fong
Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
Henry Fong, as such person's true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution for such person and in such
person's name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this registration statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing necessary or desirable to be done in and about the
premises, as fully to all intents and purposes as such person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1933, as
amended, this registration statement has been signed below by the following
persons in the capacities and on the date indicated.
Name Title Date
- ---- ----- ----
/s/ Henry Fong Principal financial June 8, 2004
- ------------------------------------ and accounting
Henry Fong officer and Director
/s/ Russell L. Casement Director June 8, 2004
- ------------------------------------
Russell L. Casement
/s/ Aaron A. Grunfeld Director June 8, 2004
- ------------------------------------
Aaron A. Grunfeld
/s/ Michael S. Casazza Director June 8, 2004
- ------------------------------------
Michael S. Casazza
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EXHIBITS
Exhibit Description Page
- ------- ----------- ----
5.1 Opinion of Maslon Edelman Borman & Brand, LLP II-7
10.10 Security Agreement by and among Equitex, Inc., Seven Ventures, II-9
Inc., Pandora Select Partners, L.P. and Whitebox Hedged High
Yield Partners, L.P., dated June 7, 2004
15.1 Acknowledgement of Independent Registered Pubic Accounting Firm,
Gelfond Hochstadt Pangburn, P.C. II-23
23.1 Consent of Independent Registered Public Accounting Firm, Gelfond
Hochstadt Pangburn, P.C. II-24
23.2 Consent of Maslon Edelman Borman & Brand, LLP (contained in Exhibit 5.1)
- -------------------------------
Remaining exhibits are incorporated by reference as indicated in Item 16 of this
Registration Statement.
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