SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Current Report Pursuant to Section 13 or
15(d) of The Securities Act of 1934
Date of Report (Date of earliest event reported):
October 12, 1999 (July 27, 1999)
EQUITEX, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-12374 84-0905189
- --------------------------------------------------------------------------------
(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
of incorporation)
7315 East Peakview Avenue
Englewood, Colorado 80111
------------------------------------------------
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (303) 796-8940
(Former name or former address, if changed since last report.)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
As described in the Registrant's Current Report on Form 8-K filed on
August 11, 1999 (the "Initial 8-K") effective July 27, 1999, the Registrant's
majority owned subsidiary, VP Sports, Inc. ("VP"), completed an acquisition
pursuant to which Victoria Precision, Inc. ("Victoria"), a corporation
incorporated under the laws of the Province of Quebec, merged with and into a
wholly-owned subsidiary of VP, 9066-8609 Quebec Inc., a corporation incorporated
under the laws of the Province of Quebec. VP acquired all of the capital stock
of Victoria from its existing stockholders, 141982 Canada Inc., a corporation
incorporated under the laws of Canada, and Mr. Philip Stanimir. Total invested
proceeds were approximately $6,000,000 CDN resulting in ownership of all of the
assets, liabilities and business operations of Victoria. The transaction
included future rights to a four-year international consulting and non-compete
agreement with PS Consulting Inc. of which Philip Stanimir is a principal. Of
the purchase price, $4,700,000 CDN was paid in cash at closing with the
remaining $1,300,000 paid in the form of a promissory note bearing interest at
6% per annum payable in equal installments at 6 and 12 months following the
closing. VP utilized cash on hand for payment of the $4,700,000 CDN cash
payment. The merger consideration was determined as a result of arms' length
negotiation between VP and Victoria and no relationship existed between the
companies prior to this transaction.
Victoria is a Canadian manufacturer and distributor of a broad range of
bicycles and tricycles. All production and assembly is performed in Victoria's
175,000 square foot manufacturing facility in Montreal, Quebec, Canada. Victoria
is the second largest manufacturer of bicycles in Canada. Victoria targets the
low to middle price ranges of the bicycle market, manufacturing durable,
precision crafted bicycles and tricycles priced to retail up to $600 CDN per
unit. Victoria has a product assortment of more than 90 models of bicycles
ranging from adult mountain and hybrid bicycles to juvenile and children's
bicycles, BMX bikes and tricycles. VP will continue the operations of Victoria.
This Current Report on Form 8-K/A amends and supplements the Initial
8-K to include financial statements and pro forma financial information
permitted pursuant to Item 7 of Form 8-K to be excluded from the Initial Form
8-K and required to be filed by amendment to the Initial Form 8-K not later that
60 days after the date the initial Form 8-K was required to be filed.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of the Business Acquired
Pursuant to paragraph (a)(4) of Item 7 of Form 8-K, the
attached financial statements were omitted from the
disclosure contained in the Company's Current report on Form
8-K filed with the Securities and Exchange Commission on
August 11, 1999. Attached hereto as are the audited
financial statements of Victoria Prescision, Inc. for the
year ended July 31, 1999.
(b) Pro Forma Financial Information
Pursuant to paragraph (b)(2) of Item 7 of Form 8-K, the
following pro forma financial information was omitted from
the disclosures contained in the Company's Current Report on
Form 8-K filed with the Securities and Exchange Commission
on August 11, 1999. Attached hereto are the unaudited pro
forma condensed consolidated balance sheet as of June 30,
1999, and the statements of operations for the year ended
December 31, 1998, and the six months ended June 30, 1999,
reflecting the acquisition of Victoria Precision, Inc., and
including the notes to the unaudited pro forma financial
statements.
2
VICTORIA PRECISION INC.
CONSOLIDATED FINANCIAL STATEMENTS
AS AT JULY 31, 1999
AUDITORS' REPORT
The Shareholders
Victoria Precision Inc.
We have audited the consolidated balance sheet of Victoria
Precision Inc. as at July 31, 1999 and the consolidated statements of earnings
and retained earnings and changes in cash resources for the year then ended.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.
In our opinion, these consolidated financial statements present
fairly, in all material respects, the financial position of the Company as at
July 31, 1999 and the results of its operations and the changes in its cash
resources for the year then ended in accordance with generally accepted
accounting principles.
/S/ HORWATH APPEL & PARTNERS
Montreal, Quebec
September 30, 1999 Chartered Accountants
AUDITORS' REPORT TO THE SHAREHOLDER
We have audited the consolidated balance sheet of Victoria Precision Inc. as at
July 31, 1998 and the consolidated statements of earnings and retained earnings
and changes in financial position for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards
and have obtained all the information and explanations we have required. Those
standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.
In our opinion, and according to the best of our information and the
explanations given to us, and as shown by the books of the Company, these
consolidated financial statements are properly drawn up so as to exhibit a true
and correct view of the state of affairs of the Company as at July 31, 1998 and
the results of its operations and the changes in its financial position for the
year then ended in accordance with generally accepted accounting principles.
KPMG LLP
Chartered Accountants
Montreal, Canada
September 30, 1998
VICTORIA PRECISION INC.
CONSOLIDATED BALANCE SHEET
AS AT JULY 31, 1999
1999 1998
$ $
ASSETS
CURRENT
Cash- ....................................... -- 2,143,871
Accounts receivable (Note 2) ................ 2,820,788 2,792,556
Current portion of loan to a director ....... 15,000 15,000
Income taxes recoverable .................... 96,743 59,009
Inventories (Note 3) ........................ 1,659,273 1,653,667
Prepaid expenses ............................ 171,114 147,075
----------- -----------
4,762,918 6,811,178
LOAN TO A DIRECTOR ............................... 135,000 150,000
DEFERRED FINANCE CHARGES ......................... 486,034 --
CAPITAL ASSETS (NOTE 4) .......................... 3,228,188 3,432,283
----------- -----------
8,612,140 10,393,461
=========== ===========
LIABILITIES
CURRENT
Bank indebtedness (Note 5) .................. 1,342,006 --
Accounts payable and accrued liabilities .... 1,232,699 1,423,833
Current portion of long-term debt (Note 6) .. 660,594 206,900
----------- -----------
3,235,299 1,630,733
----------- -----------
NON-CURRENT
Loan from parent company .................... 800,127 --
Long-term debt (Note 6) ..................... 2,710,598 1,371,192
----------- -----------
3,510,725 1,371,192
----------- -----------
DEFERRED INCOME TAXES ............................ 625,673 648,414
----------- -----------
SHAREHOLDERS' EQUITY
CAPITAL STOCK (NOTE 7) ........................... 1,696,812 1,696,812
(DEFICIT) RETAINED EARNINGS ...................... (456,369) 5,046,310
----------- -----------
Total shareholders' equity .................. 1,240,443 6,743,122
----------- -----------
8,612,140 10,393,461
=========== ===========
On behalf of the Board:
_______________________ Director
VICTORIA PRECISION INC.
CONSOLIDATED STATEMENT OF EARNINGS AND RETAINED EARNINGS
FOR THE YEAR ENDED JULY 31, 1999
1999 1998
$ $
GROSS SALES ...................................... 21,507,961 23,143,198
VOLUME AND ADVERTISING REBATES ................... (457,416) (407,493)
----------- -----------
NET SALES ........................................ 21,050,545 22,735,705
COST OF SALES (including amortization of $324,094;
1998 - $340,716) ............................ 18,115,915 19,940,839
----------- -----------
GROSS PROFIT ..................................... 2,934,630 2,794,866
----------- -----------
EXPENSES
Selling, general and administrative expenses 2,057,664 2,006,392
Interest expense (1) ........................ 1,096,945 555,199
Interest income ............................. (329,217) (48,564)
----------- -----------
2,825,392 2,513,027
----------- -----------
EARNINGS BEFORE PROVISION FOR INCOME TAXES ....... 109,238 281,839
----------- -----------
PROVISION FOR INCOME TAXES
Current ..................................... 34,658 97,500
Deferred .................................... (22,741) (26,000)
----------- -----------
11,917 71,500
----------- -----------
NET EARNINGS ..................................... 97,321 210,339
RETAINED EARNINGS - BEGINNING OF YEAR ............ 5,046,310 4,835,971
DIVIDEND PAID .................................... (5,600,000) --
----------- -----------
(DEFICIT) RETAINED EARNINGS - END OF YEAR ........ (456,369) 5,046,310
=========== ===========
(1) Includes interest on long-term debt of 1999 - $145,564; 1998 - 168,545
VICTORIA PRECISION INC.
CONSOLIDATED STATEMENT OF CHANGES IN CASH RESOURCES
FOR THE YEAR ENDED JULY 31, 1999
1999 1998
$ $
CASH PROVIDED BY (USED FOR) OPERATIONS
Net earnings ................................ 97,321 210,339
Add (deduct) items not affecting cash:
Amortization ............................ 370,018 403,480
Deferred income taxes ................... (22,741) (26,000)
----------- -----------
444,598 587,819
Net change in non-cash assets and liabilities
related to operations (Note 8) .......... (286,745) 2,117,962
----------- -----------
Cash provided by operations ................. 157,853 2,705,781
----------- -----------
CASH PROVIDED BY (USED FOR) INVESTMENT
Additions to capital assets ................. (165,923) (43,660)
Repayment of loan to a director ............. 15,000 15,000
Increase in loan from parent company ........ 800,127 --
----------- -----------
Cash provided by (used for) investment ...... 649,204 (28,660)
----------- -----------
CASH PROVIDED BY (USED FOR) FINANCING
Dividend paid ............................... (5,600,000) --
Repayment of long-term debt ................. (206,900) (184,140)
Proceeds of long-term debt .................. 2,000,000 --
Increase in deferred finance charges ........ (486,034) --
----------- -----------
Cash used for financing ..................... (4,292,934) (184,140)
----------- -----------
(DECREASE) INCREASE IN CASH FOR THE YEAR ......... (3,485,877) 2,492,981
CASH (BANK INDEBTEDNESS) - BEGINNING OF YEAR ..... 2,143,871 (349,110)
----------- -----------
(BANK INDEBTEDNESS) CASH - END OF YEAR ........... (1,342,006) 2,143,871
=========== ===========
VICTORIA PRECISION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS AT JULY 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary Victoria Precision Ontario Inc.
All intercompany accounts and transactions have been eliminated.
b) Inventories
Raw materials are valued at the lower of cost and replacement cost.
Work in process and finished goods are valued at the lower of cost and
net realizable value.
c) Deferred Finance Charges
The finance charges incurred for restructuring the financing of the
Company have been capitalized and will be amortized to earnings on a
straight line basis over a period of 5 years commencing in the year
2000.
d) Amortization
Capital assets additions are recorded at cost. Government assistance
relating to the acquisition of capital assets is recorded as a
deduction from the cost of the assets acquired. Amortization is
provided on a straight-line basis over the estimated useful lives of
the assets as follows:
Building 40 years
Machinery and equipment 15 years
Tooling and dies 5 years
Furniture and fixtures 10 years
Computer 5 years
Vehicles 4 years
Leasehold improvements 4 years
VICTORIA PRECISION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONT'D
AS AT JULY 31, 1999
e) Translation of Foreign Currencies
Monetary items denominated in foreign currencies are translated into
Canadian dollars at the rate of exchange in effect at the balance sheet
date. Non-monetary items denominated in foreign currencies are
translated into Canadian dollars at the approximate rate of exchange in
effect at the transaction date. Any revenue or expense resulting from a
transaction made in a foreign currency is translated into Canadian
dollars at the approximate rate of exchange in effect on the date of
the transaction. Foreign exchange gains or losses resulting from the
translation or the settlement of a monetary item in a foreign currency
are included in the determination of net earnings.
f) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
2. ACCOUNTS RECEIVABLE
1999 1998
$ $
Trade ....................................... 2,746,899 2,857,786
Allowance for doubtful accounts ............. (106,059) (132,884)
Other ....................................... 179,948 67,654
---------- ----------
2,820,788 2,792,556
========== ==========
3. INVENTORIES
1999 1998
$ $
Raw materials ............................... 734,594 885,061
Work in process ............................. 72,492 266,390
Finished goods .............................. 852,187 502,216
---------- ----------
1,659,273 1,653,667
========== ==========
VICTORIA PRECISION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONT'D
AS AT JULY 31, 1999
4. CAPITAL ASSETS 1999 1998
Accum. Net book Net book
Cost amort. value value
$ $ $ $
Land .................. 149,000 -- 149,000 149,000
Building 2,155,747 .... 1,077,035 1,078,712 1,132,606
Machinery and equipment 5,002,683 3,187,897 1,814,786 1,938,986
Tooling and dies ...... 1,289,582 1,192,075 97,507 118,035
Furniture and fixtures 214,797 196,404 18,393 15,788
Computer 261,838 ...... 219,490 42,348 17,233
Automobiles ........... 203,576 203,576 -- 5,751
Leasehold improvements 109,768 82,326 27,442 54,884
--------- --------- --------- ---------
9,386,991 6,158,803 3,228,188 3,432,283
========= ========= ========= =========
5. BANK INDEBTEDNESS
Accounts receivable, inventories and a first ranking moveable hypothec
providing for a universal charge over the assets of the Company have been
pledged as collateral against bank indebtedness.
6. LONG-TERM DEBT
1999 1998
$ $
Bank term loan bearing interest at prime rate
plus 1.50% repayable in 60 monthly principal
installments of $33,333 plus interest,
commencing August 1999, subject to the same
security as described in note 5 and maturing
July 2004. 2,000,000 --
Mortgage bearing interest at 12% per annum,
repayable in monthly installments of principal
and interest of $29,540. The mortgage matures
August 1, 2003 and is secured by land and
building. 1,146,192 1,353,092
Government loan, non-interest bearing, due in
eight equal annual installments commencing
April 30, 2000. 225,000 225,000
---------- ----------
3,371,192 1,578,092
Current portion of long-term debt 660,594 206,900
---------- ----------
2,710,598 1,371,192
========== ==========
VICTORIA PRECISION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONT'D
AS AT JULY 31, 1999
6. LONG-TERM DEBT - CONT'D
Principal payments due on long-term debt in each of the next five years
and thereafter are as follows:
$
2000 660,594
2001 689,327
2002 721,612
2003 757,888
2004 428,141
Thereafter 113,630
---------
3,371,192
=========
7. CAPITAL STOCK
a) Pursuant to a Certificate of Amalgamation issued under Part 1A of the
Quebec Companies Act, the Company was amalgamated with 9066-8609 Quebec
Inc on July 30, 1999. The operations of the amalgamating companies have
been continued by Victoria Precision Inc.
b) Authorized:
Unlimited number of participating,
voting Class "A" shares
Unlimited number of 8% annually,
non-cumulative,
non-participating,
non-voting, redeemable at
the option of the Company
and the shareholder at
amount paid thereon Class
"B" shares
Unlimited number of 8% monthly,
non-cumulative,
non-participating, voting,
redeemable at the option
of the Company and the
shareholder at amount paid
thereon Class "C" shares.
1999 1998
$ $
Issued and fully paid:
140,001 Class "A" shares 1,696,812 -
1,839 Series 1 preferred
shares -- 183,900
14,200 Series 4 preferred
shares -- 1,420,000
3,826 Series 5 preferred
shares -- 382,600
60 common shares -- 600
Excess of stated capital
over recorded
share capital for accounting
purposes -- (290,288)
---------- ----------
1,696,812 1,696,812
========== ==========
VICTORIA PRECISION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONT'D
AS AT JULY 31, 1999
7. CAPITAL STOCK - CONT'D
c) On July 30, 1999, the Company exchanged 1,839 Series 1 preferred
shares, 14,200 Series 4 preferred shares, 3,826 Series 5 preferred
shares and 60 common shares for 140,001 Class "A" shares of the new
amalgamated Company.
8. NET CHANGE IN NON-CASH ASSETS AND LIABILITIES
RELATED TO OPERATIONS
1999 1998
$ $
(Increase) decrease in accounts receivable (28,232) 632,928
Increase in income taxes recoverable (37,734) (163,079)
(Increase) decrease in inventories (5,606) 1,458,167
Increase in prepaid expenses (24,039) (321)
(Decrease) increase in accounts payable and
accrued liabilities (191,134) 90,267
---------- ----------
(286,745) 2,117,962
========== ==========
9. FINANCIAL INSTRUMENTS
a) Credit Risk
Due to the seasonality and nature of the business, a significant
portion of the Company's sales were made to five unrelated companies,
the most significant of which represented approximately 41% of the
year's sales. As at July 31, 1999, approximately 19% of trade
receivables outstanding are due from five unrelated customers.
Credit risk results from the possibility that a loss may occur from the
failure of another party to adhere to payment terms. To lower this
risk, the Company's extension of credit is based on an evaluation of
each customer's financial condition. Management reviews the ageing of
trade accounts receivable and other factors related to the risk that
customer accounts may not be paid in full and, when appropriate,
reduces the carrying value to provide for possible loss.
b) Interest Rate Risk
The Company's principal exposure to interest rate fluctuations is with
respect to its short-term financing which bear interest at floating
rates.
VICTORIA PRECISION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONT'D
AS AT JULY 31, 1999
9. FINANCIAL INSTRUMENTS - CONT'D
c) Fair Value Disclosure
Fair value estimates are made as of a specific point in time, using
available information about the financial instrument. These estimates
are subjective in nature and often cannot be determined with precision.
The Company has estimated that the carrying value of its short-term
assets and liabilities approximates their fair values as at July 31,
1999 due to settlement in the short-term of these financial
instruments.
The fair value and carrying value of other financial instruments are
presented below:
1999 1998
Carrying Fair Carrying Fair
Value value value value
$ $ $ $
Mortgage 1,146,192 1,245,000 1,353,092 1,500,000
========= ========== ========= =========
The fair value of the mortgage has been calculated using the present
value of future payments of principal and interest discounted at the
current market rates of interest available to the Company for the same
or similar debt instruments with the same remaining maturities.
The fair value of the government loan could not be determined because
an independently verifiable market value for a similar debt instruments
is not available.
d) Foreign Currency Risk
Approximately 68% of the Company's purchases of bicycle components are
denominated in foreign currencies. Depending on the purchase
transaction, the Company may use forward foreign exchange contracts to
hedge the risk related to the fluctuation of exchange rates between the
date of the purchase transaction and the payment date. At July 31,
1999, there were no contracts outstanding.
VICTORIA PRECISION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONT'D
AS AT JULY 31, 1999
10. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Data-sensitive systems may
recognize the Year 2000 as 1900 or some other date, resulting in errors
when information using Year 2000 dates is processed. In addition,
similar problems may arise in some systems, which use certain dates in
1999 to represent something other than a date. The effects of the Year
2000 Issue may be experienced before, on, or after January 1, 2000 and
if not addressed, the impact on operations and financial reporting may
range from minor errors to significant systems failure, which could
affect an entity's ability to conduct normal business operation. It is
not possible to be certain that all aspects of the Year 2000 Issue
affecting the entity, including those related to the effort of
customers, suppliers, or other third parties, will be fully resolved.
11. COMPARATIVE FIGURES
The 1998 comparative figures were reported on by other auditors and
have been reclassified where applicable to conform with the
presentation used in the current year.
VICTORIA PRECISION INC.
CONSOLIDATED SCHEDULE OF COST OF SALES
FOR THE YEAR ENDED JULY 31, 1999
1999 1998
$ $
INVENTORIES - BEGINNING OF YEAR 1,653,667 3,111,834
---------- ----------
Purchases 11,882,335 11,286,416
---------- ----------
Direct labor 3,271,449 3,478,856
---------- ----------
FACTORY OVERHEAD
Indirect labor 1,572,631 1,563,797
Insurance 53,868 54,016
Taxes 196,026 184,778
Outside warehousing 190,371 163,344
Utilities 241,025 239,779
Factory expense and repairs 325,219 242,751
Wage levies 268,760 255,761
Amortization - building 53,894 53,984
Amortization - machinery and equipment 217,496 234,028
Amortization - tooling and dies 52,704 52,704
Applied overhead (37,087) (9,463)
---------- ----------
3,134,907 3,035,479
---------- ----------
INVENTORIES - END OF YEAR 1,659,273 1,653,667
---------- ----------
COST OF SALES FROM OPERATIONS 18,283,085 19,258,918
---------- ----------
FOREIGN EXCHANGE IN EXCESS OF BUDGET (167,170) 681,921
---------- ----------
18,115,915 19,940,839
---------- ----------
1999 1998
$ % $ %
By components (% of sales):
Material content 11,876,729 (55.2) 12,744,583 (55.1)
Direct labour 3,271,449 (15.2) 3,478,856 (15.0)
Overhead 3,134,907 (14.6) 3,035,479 (13.1)
---------- ------ ---------- ------
Cost of sales from operations 18,283,085 (85.0) 19,258,918 (83.2)
Foreign exchange in excess of budget (167,170) (0.8) 681,921 (3.0)
---------- ------ ---------- ------
Cost of sales 18,115,915 (84.2) 19,940,839 (86.2)
========== ====== ========== ======
Gross sales 21,507,961 23,143,198
========== ==========
VICTORIA PRECISION INC.
CONSOLIDATED SCHEDULE OF SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES
FOR THE YEAR ENDED JULY 31, 1999
1999 1998
$ $
SELLING
Selling salaries 120,234 147,117
Commissions 164,460 146,039
Traveling and selling 177,709 183,298
Vehicle and delivery 270,209 159,982
Advertising 50,164 43,533
Amortization - vehicles 5,750 21,113
---------- ----------
788,526 701,082
---------- ----------
GENERAL AND ADMINISTRATIVE
Administrative salaries 475,826 465,690
Office salaries 431,492 442,112
Telephone 27,046 30,252
Office 84,618 94,127
Professional fees 119,627 124,544
General 1,500 76,890
Amortization - furniture and fixtures 6,465 7,498
Amortization - computer 6,267 6,711
Amortization - leasehold improvements 27,442 27,442
Bad debts 57,179 (3,391)
Bank charges 31,676 33,435
---------- ----------
1,269,138 1,305,310
---------- ----------
TOTAL SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,057,664 2,006,392
========== ==========
EQUITEX, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1999, AND
YEAR ENDED DECEMBER 31, 1998
Effective July 27, 1999, Equitex, Inc. (the "Registrant", or the "Company")
through its majority-owned subsidiary, VP Sports, Inc. ("VP") and VP's
wholly-owned subsidiary 9066- 8609 Quebec Inc., a Canadian corporation, acquired
all of the outstanding common shares of Victoria Precision Inc. ("Victoria"),
also a Canadian corporation, incorporated under the laws of the Province of
Quebec, as well as the rights to a four-year international consulting and
non-compete agreement. The transaction was accounted for as a purchase, and the
total purchase price was $3,966,600 ($6,000,000 CDN).
In order to finance the acquisition, in June 1999 VP authorized a private
placement of up to 40 units in exchange for cash of $5,000,000. Each unit
consists of 100 shares of $1,000 per share 8% secured convertible preferred
stock, 12,500 shares of VP common shares at $2 per share, and warrants to
purchase 287,500 shares of VP common stock at $.10 per shares. As of June 30,
1999, VP had sold 18.37 units for $2,269,250, and warrants to purchase 575,000
shares of VP common stock had been exercised resulting in proceeds of $57,500.
Subsequent to June 30, 1999, VP sold an additional 17.38 units for $2,172,500,
and warrants to purchase 1,725,000 shares of VP common stock had been exercised
in exchange for $172,500.
As a result of the private placement of 35.75 units, the exercise of warrants to
purchase 2,300,000 shares of VP common stock, and the issuance of 560,763 shares
of VP common stock under an employment agreement entered in connection with the
acquisition, the Company's investment in VP was reduced from approximately 87%
at December 31, 1998, to approximately 35.7%. Due to the change in ownership
percentage, the Company changed its method of accounting for its investment in
VP to the equity method of accounting from consolidation.
The accompanying unaudited condensed pro forma consolidated balance sheet gives
effect to the acquisition as if the purchase had been consummated on June 30,
1999. The accompanying unaudited condensed pro forma consolidated statements of
operations for the six months ended June 30, 1999, and the year ended December
31, 1998, give effect to the acquisition as if the purchase had been consummated
on January 1, 1999, and January 1, 1998, respectively.
The unaudited pro forma consolidated financial statements should be read in
conjunction with the historical financial statements of Victoria (included
herein) as well as those of the Company. The unaudited pro forma financial
statements do not purport to be indicative of the financial position or results
of operations that actually would have occurred had the acquisition been in
effect during the periods presented, or to project the Company's financial
position or results of operations to any future period.
1
EQUITEX, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
Historical Accounting for the
--------------------------- pro forma effects
of the Company's
Equitex, Inc. Pro forma investment in
and Victoria adjustments VP Sports, Inc. Pro forma
subsidiaries Precision Inc. ------------ Pro forma ------------ combined
ASSETS June 30, 1999 July 31, 1999 Note 1 combined Note 2 as adjusted
------------ ------------ ------------ ------------ ------------ ------------
Cash and cash equivalents $ 3,765,658 $ 2,345,000 (1) $ 3,003,488 $ (1,769,080) (7) $ 1,234,408
(3,107,170) (2)
Accounts, advances, and
loans receivable 939,901 $ 1,911,083 2,850,984 (1,911,083) (7) 939,901
Inventories 150,279 1,124,157 1,274,436 (1,124,157) (7) 150,279
Prepaid expenses and other 112,418 126,092 238,510 (126,092) (7) 112,418
Notes receivable, net 2,934,844 2,934,844 2,934,844
Investments, trading securities 1,269,621 1,269,621 1,269,621
------------ ------------ ------------ ------------ ------------ ------------
Total current assets 9,172,721 3,161,332 (762,170) 11,571,883 (4,930,412) 6,641,471
Fixed assets, net 158,075 2,187,099 2,345,174 (2,187,099) (7) 158,075
Other assets 1,201,500 420,751 1,622,251 (420,751) (7) 1,085,500
(116,000) (7)
Receivables from VP Sports, Inc. 173,652 (7) 173,652
Investment in VP Sports, Inc. 3,966,600 (2) 3,165,823 (7) 3,415,823
(3,966,600) (2) 250,000 (7)
Intangible and other assets 1,495,223 3,165,823 (2) 4,661,046 (3,165,823) (7) 1,495,223
------------ ------------ ------------ ------------ ------------ ------------
Total assets $ 12,027,519 $ 5,769,181 $ 2,403,653 $ 20,200,353 $ (7,230,609) $ 12,969,744
============ ============ ============ ============ ============ ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Accounts payable and
accrued expenses $ 793,200 $ 797,079 $ 1,590,279 $ (797,079) (7) $ 792,871
(329) (7)
Notes payable 426,598 1,336,034 1,762,632 (1,336,034) (7) 426,598
Note payable to Seller,
current portion 0 0 $ 429,715 (2) 429,715 0 429,715
------------ ------------ ------------ ------------ ------------ ------------
Total current liabilities 1,219,798 2,133,113 429,715 3,782,626 2,133,442) 1,649,184
Deferred income taxes 436,048 436,048 (436,048) (7) 0
Note payable to Seller,
net of current portion 429,715 (2) 429,715 429,715
Long-term debt and
notes payable 2,399,244 2,399,244 (2,399,244) (7) 0
------------ ------------ ------------ ------------ ------------ ------------
Total liabilities 1,219,798 4,968,405 859,430 7,047,633 (4,968,734) 2,078,899
Minority interest 738,703 738,703 738,703
Stockholders' equity 10,069,018 800,777 2,345,000 (1) 12,414,017 (2,261,875) (7) 10,152,142
(800,777) (2)
(1,121,526) (3)
1,121,526 (3)
------------ ------------ ------------ ------------ ------------ ------------
Total liabilities and
stockholders' equity $ 12,027,519 $ 5,769,181 $ 2,403,653 $ 20,200,353 $ (7,230,609) $ 12,969,744
============ ============ ============ ============ ============ ============
2
EQUITEX, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
Historical Accounting for the
--------------------------- pro forma effects
of the Company's
Equitex, Inc. Pro forma investment in
and Victoria adjustments VP Sports, Inc. Pro forma
subsidiaries Precision Inc. ------------ Pro forma ------------ combined
ASSETS June 30, 1999 July 31, 1999 Note 1 combined Note 2 as adjusted
------------ ------------ ------------ ------------ ------------ ------------
Revenues $ 654,651 $ 11,836,767 $ 12,491,418 $(11,836,767) (7) $ 654,651
Cost of sales 242,552 10,197,011 10,439,563 (10,197,011) (7) 242,552
------------ ------------ ------------ ------------ ------------ ------------
Gross profit 412,099 1,639,756 2,051,855 (1,639,756) 412,099
------------ ------------ ------------ ------------ ------------ ------------
Selling, general, and
administrative
expenses 1,747,272 779,711 $ 352,000 (4) 3,065,903 (779,711) (7) 2,282,815
186,920 (6) (3,377) (7)
Unrealized holding gains
on trading securities (177,810) (177,810) (177,810)
Equity earnings in
VP Sports, Inc. (153,844) (7) (153,844)
Interest expense 27,552 282,642 25,780 (5) 335,974 (282,642) (7) 47,184
0 (6,148) (7) 0
------------ ------------ ------------ ------------ ------------ ------------
1,597,014 1,062,353 564,700 3,224,067 (1,225,722) 1,998,345
------------ ------------ ------------ ------------ ------------ ------------
Income (loss) before
minority interest and taxes (1,184,915) 577,403 (564,700) (1,172,212) (414,033) (1,586,245)
Minority interest 28,047 0 0 28,047 28,047
------------ ------------ ------------ ------------ ------------ ------------
Income (loss) before taxes (1,156,868) 577,403 (564,700) (1,144,165) (414,033) (1,558,198)
Provision for income taxes 146,467 146,467 (146,467) (7) 0
------------ ------------ ------------ ------------ ------------ ------------
Net income (loss) (1,156,868) 430,936 (590,485) (1,290,632) (267,566) (1,558,198)
Other comprehensive income,
net of tax 15,623 15,623 15,623
------------ ------------ ------------ ------------ ------------ ------------
Comprehensive income (loss) $ (1,141,245) $ 430,936 $ (564,700) $ (1,275,009) (267,566) $ (1,542,575)
============ ============ ============ ============ ============ ============
Net loss per share, basic and
fully diluted $ (0.19) $ (0.25)
============ ============
Weighted average number of
common shares outstanding 6,236,754 6,236,754
============ ============
3
EQUITEX, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
Historical Accounting for the
--------------------------- pro forma effects
of the Company's
Equitex, Inc. Pro forma investment in
and Victoria adjustments VP Sports, Inc. Pro forma
subsidiaries Precision Inc. ------------ Pro forma ------------ combined
ASSETS June 30, 1999 July 31, 1999 Note 1 combined Note 2 as adjusted
------------ ------------ ------------ ------------ ------------ ------------
Revenues $ 447,840 $ 15,340,839 $ 15,788,679 $(15,340,839) (7) $ 447,840
Cost of sales 0 13,412,007 13,412,007 (13,412,007) (7) 0
------------ ------------ ------------ ------------ ------------ ------------
Gross profit 447,840 1,928,831 2,376,671 (1,928,831) 447,840
------------ ------------ ------------ ------------ ------------ ------------
Selling, general, and
administrative
expenses 2,317,243 1,367,702 $ 704,000 (4) 4,762,785 (1,367,702) (7) 3,200,068
373,840 (5) (195,015) (7)
Net realized gain on investments (1,108,340) (1,108,340) (1,108,340)
Decrease in unrealized
appreciation of investments 1,056,054 1,056,054 1,056,054
Equity earnings in
VP Sports, Inc. (29,055) (7) (29,055)
Interest expense 101,002 463,180 38,670 (5) 602,852 (463,180) (7) 135,196
(4,476) (7)
------------ ------------ ------------ ------------ ------------ ------------
2,365,959 1,830,882 1,116,510 5,313,351 (2,059,428) 3,253,923
------------ ------------ ------------ ------------ ------------ ------------
Income (loss) before taxes (1,918,119) 97,950 (1,116,510) (2,936,680) 130,596 (2,806,083)
Provision for income taxes 63,180 16,562 79,742 (16,562) (7) 63,180
============ ============ ============ ============ ============ ============
Net income (loss) $ (1,981,299) $ 81,387 $ (1,116,510) $ (3,016,422) $ 147,159 $ (2,869,263)
============ ============ ============ ============ ============ ============
Net loss per share,
basic and fully diluted $ (0.45) $ (0.65)
============ ============
Weighted average number of
common shares outstanding 4,416,988 4,416,988
============ ============
4
EQUITEX, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED PRO FORMA
CONSOLIDATED BALANCE SHEET AND
STATEMENTS OF OPERATIONS
AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 1999, AND FOR THE YEAR ENDED DECEMBER 31, 1998
The purchase method of accounting conforms the accounting policies followed by
the consolidated entities. There were no significant accounting policy
differences or other items which required adjustment in the unaudited pro forma
consolidated financial statements.
Effective July 27, 1999, Equitex, Inc. (the "Registrant", or the "Company")
through its majority owned subsidiary, VP Sports, Inc. ("VP") and VP's
wholly-owned subsidiary 9066- 8609 Quebec Inc., a Canadian corporation, acquired
all of the outstanding common shares of Victoria Precision Inc. ("Victoria"),
also a Canadian corporation, incorporated under the laws of the Province of
Quebec, as well as the rights to a four-year international consulting and
non-compete agreement for $3,966,600 ($6,000,000 CDN) in a transaction accounted
for as a purchase. Of the total purchase price, $3,107,170 ($4,700,000 CDN) was
paid in cash at the date of closing, and $859,430 ($1,300,000 CDN) was exchanged
in the form of a 6%, promissory note, due in two equal installments of $429,715
at six months and twelve months following the closing date.
In order to finance the acquisition, in June 1999 VP authorized a private
placement of up to 40 units in exchange for cash of $5,000,000. Each unit
consists of 100 shares of $1,000 per share 8% secured convertible preferred
stock, 12,500 shares of VP common stock at $2 per share, and warrants to
purchase 287,500 shares of VP common stock at $.10 per shares. As of June 30,
1999, VP had sold 18.37 units for $2,269,250, and warrants to purchase 575,000
shares of VP common stock had been exercised resulting in proceeds of $57,500.
Subsequent to June 30, 1999, VP sold an additional 17.38 units for $2,172,500,
and warrants to purchase 1,725,000 shares of VP common stock had been exercised
in exchange for $172,500.
As a result of the private placement of 35.75 units, the exercise of warrants to
purchase 2,300,000 shares of VP common stock, and the issuance of 560,763 shares
of VP common stock under an employment agreement entered in connection with the
acquisition, the Company's investment in VP was reduced from approximately 87%
at December 31, 1998, to approximately 35.7%.
5
EQUITEX, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED PRO FORMA
CONSOLIDATED BALANCE SHEET AND
STATEMENTS OF OPERATIONS
AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 1999, AND FOR THE YEAR ENDED DECEMBER 31, 1998
NOTE 1: PRO FORMA ADJUSTMENTS:
The following is a description of each of the pro forma adjustments:
(1) To reflect $2,345,000 of cash proceeds received from the sale of 17.38
units subsequent to June 30, 1999 and the exercise of warrants to
purchase 1,725,500 shares of VP common stock.
(2) To reflect the July 27, 1999, acquisition of all the outstanding common
stock of Victoria and the rights to a four-year international
consulting and non-compete agreement in exchange for consideration of
$3,966,600, which consists of $3,107,170 cash and a $859,430, 6%
promissory note payable, which is due in two equal, semi-annual
installments of $429,715. The acquisition price of $3,966,600 less the
net book value of the assets acquired, was allocated as follows:
Book value of net assets acquired $ 800,777
International consulting and non-compete
agreement 2,688,800
Other intangible assets 477,023
-----------
Purchase price $ 3,966,600
===========
(3) To reflect the issuance of 560,763 shares of VP common stock, valued at
$2 per share, and recognition of deferred compensation expense, under a
three-year employment agreement.
6
EQUITEX, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED PRO FORMA
CONSOLIDATED BALANCE SHEET AND
STATEMENTS OF OPERATIONS
AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 1999, AND FOR THE YEAR ENDED DECEMBER 31, 1998
NOTE 1: PRO FORMA ADJUSTMENTS (CONTINUED):
(4) To record amortization expense related to the intangible and other
assets as follows:
a. International consulting and non-compete agreement, valued at
$2,688,800, amortized on a straight-line basis over 4 years.
b. Other intangible assets valued at $477,023, amortized on a
straight-line basis over 15 years.
(5) To record interest expense on the 6%, $859,430 promissory note payable
to the
sellers.
(6) To record compensation expense under a three-year employment agreement.
NOTE 2: ACCOUNTING ADJUSTMENTS TO REFLECT THE COMPANY'S INVESTMENT IN
VP SPORTS, INC.:
The following is a description on each of the pro forma adjustments to reflect
the change in the Company's accounting for its investment in VP to the equity
method of accounting from consolidation:
(7) As described above, In connection with VP's private placement of units
and the related exercise of warrants to purchase common stock of VP,
and certain other equity transactions, the Company's ownership interest
in VP was reduced from approximately 87% at December 31, 1998, to
approximately 35.7%.
Because the Company's ownership interest in VP was reduced to less than
50% of the outstanding common stock of VP, the Company changed its
method of accounting for its investment in VP (which includes VP's
wholly-owned subsidiaries 9066-8609 Quebec Inc. and Victoria), from
consolidation to the equity method of accounting.
7
EQUITEX, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED PRO FORMA
CONSOLIDATED BALANCE SHEET AND
STATEMENTS OF OPERATIONS
AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 1999, AND FOR THE YEAR ENDED DECEMBER 31, 1998
NOTE 2: PRO FORMA EFFECTS OF ACCOUNTING FOR THE COMPANY'S INVESTMENT IN VP
SPORTS (CONTINUED):
At June 30, 1999, an entry has been recorded to reflect the Company's
equity investment in VP Sports of $3,415,823. For the six months ended
June 30, 1999, and the year ended December 31, 1998, entries have been
recorded to reflect the Company's 35.7% equity interest in the earnings
of VP Sports, Inc.
8
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EQUITEX, INC.
Date: October 12, 1999 By: /s/ Thomas B. Olson
--------------------------
Thomas B. Olson, Secretary