U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB
================================================================================
         /X/      ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
                   For the fiscal year ended: DECEMBER 31, 1997

         / /      TRANSITION  REPORT  PURSUANT TO SECTION 13 OR 15(d)
                  OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
                   For transition period from _____ to _____.
================================================================================
                         Commission File Number: 0-12374

                                  EQUITEX, INC.
                                  -------------
                 (Name of small business issuer in its charter)

DELAWARE                                                              84-0905189
--------                                                              ----------
(State or other jurisdiction of                                 (I.R.S. Employer
incorporation or organization)                            Identification Number)

              7315 EAST PEAKVIEW AVENUE, ENGLEWOOD, COLORADO 80111
              ----------------------------------------------------
               (Address of principal executive offices)(Zip Code)

                    Issuer's telephone number: (303) 796-8940

         Securities registered under Section 12 (b) of the Exchange Act:
                                      NONE

         Securities registered under Section 12 (g) of the Exchange Act:
                          COMMON STOCK, $.02 PAR VALUE
                                (Title of Class)
--------------------------------------------------------------------------------
Check  whether the Issuer (1) filed all reports  required to be filed by Section
13 or 15 (d) of the  Exchange  during  the past 12 months  (or for such  shorter
period that the Registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 Days: Yes /X/ No / /

Check if disclosure of delinquent  filers pursuant to Item 405 of Regulation S-K
is not  contained in this form,  and will not be  contained,  to the best of the
Registrant's   knowledge,   in  definitive   proxy  or  information   statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB: /X/

Issuer's revenues for its most recent fiscal year:  $378,391

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant  was  $12,645,315  based on the last sale  price of the  Registrant's
common stock on April 9, 1998, ($4.13 per share) as reported by the Nasdaq Stock
Market.

The issuer had 3,791,115 shares of common stock outstanding as of April 9, 1998.

Documents incorporated by reference: NONE

Transitional Small Business Disclosure Format:  Yes / /  No /X/
<PAGE>
                                  EQUITEX, INC.
                                   FORM 10-KSB

THIS REPORT MAY CONTAIN  CERTAIN  "FORWARD-LOOKING"  STATEMENTS  AS SUCH TERM IS
DEFINED  IN THE  PRIVATE  SECURITIES  LITIGATION  REFORM  ACT OF  1995 OR BY THE
SECURITIES AND EXCHANGE COMMISSION IN ITS RULES, REGULATIONS AND RELEASES, WHICH
REPRESENT THE  REGISTRANT'S  EXPECTATIONS OR BELIEFS,  INCLUDING BUT NOT LIMITED
TO, STATEMENTS  CONCERNING THE REGISTRANT'S  OPERATIONS,  ECONOMIC  PERFORMANCE,
FINANCIAL CONDITION, GROWTH AND ACQUISITION STRATEGIES,  INVESTMENTS, AND FUTURE
OPERATIONAL  PLANS. FOR THIS PURPOSE,  ANY STATEMENTS  CONTAINED HEREIN THAT ARE
NOT  STATEMENTS  OF  HISTORICAL  FACT  MAY  BE  DEEMED  TO  BE   FORWARD-LOOKING
STATEMENTS.  WITHOUT  LIMITING THE  GENERALITY OF THE  FOREGOING,  WORDS SUCH AS
"MAY", "WILL", "EXPECT", "BELIEVE", "ANTICIPATE", "INTENT", "COULD", "ESTIMATE",
"MIGHT", OR "CONTINUE" OR THE NEGATIVE OR OTHER VARIATIONS THEREOF OR COMPARABLE
TERMINOLOGY  ARE  INTENDED  TO  IDENTIFY   FORWARD-LOOKING   STATEMENTS.   THESE
STATEMENTS BY THEIR NATURE INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES,  CERTAIN
OF WHICH ARE BEYOND THE  REGISTRANT'S  CONTROL,  AND ACTUAL  RESULTS  MAY DIFFER
MATERIALLY  DEPENDING ON A VARIETY OF IMPORTANT FACTORS,  INCLUDING  UNCERTAINTY
RELATED TO  ACQUISITIONS,  GOVERNMENTAL  REGULATION,  MANAGING  AND  MAINTAINING
GROWTH,  THE  VALUE  OF THE  REGISTRANT'S  INVESTMENTS,  THE  OPERATIONS  OF THE
REGISTRANT'S INVESTEE COMPANIES, VOLATILITY OF STOCK PRICE AND ANY OTHER FACTORS
DISCUSSED IN THIS AND OTHER REGISTRANT  FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION.


                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS.

(a) Business Development

     (1) Equitex,  Inc. (the  "Registrant")  is a business  development  company
which is a form of  closed-end,  non-diversified  investment  company  under the
Investment  Company  Act of 1940 (the  "Investment  Company  Act").  A  business
development   company  generally  must  maintain  70%  of  its  assets  in  new,
financially  troubled or otherwise  qualified  companies and offers  significant
managerial assistance to such companies.  Business development companies are not
subject to the full extent of regulation under the Investment  Company Act. (See
Item 1 (b)  (8)  "Regulation  -  Business  Development  Companies"  below).  The
Registrant  primarily is engaged in the  business of investing in and  providing
managerial assistance to developing companies which, in its opinion,  would have
a significant potential for growth. The Registrant's  investment objective is to
achieve  long-term  capital  appreciation,  rather than current  income,  on its
investments.  There is no assurance that the Registrant's  investment  objective
will be achieved.

     The  Registrant  was  organized  under the laws of the State of Delaware in
1983 and elected to become a business  development company and be subject to the
applicable  provisions of the Investment Company Act in 1984. The Registrant has
three investee companies to which it currently provides  management  assistance.
An  investee  company  is a company in which the  Registrant  has  invested  and
generally is a new, financially troubled or otherwise qualified company.

                                        1
<PAGE>
     On  December  12,  1996,  the  Registrant  announced  that it  intended  to
implement a withdrawal of its election as a Business Development Company ("BDC")
under the Investment Company Act. The Registrant's Board of Directors instructed
its  management  to prepare a detailed  plan which will  address  the  corporate
governance  issues  and  process  which  must be  followed  for  decertification
including the legal,  accounting,  securities  listing and other effects of such
withdrawal  on the  Registrant.  On March 9,  1998  the  Registrant  sent to its
stockholders  of  record  as of March 6,  1998 a Notice  of  Meeting  and  Proxy
Statement for a Special Meeting of Stockholders to vote on  decertification as a
BDC at a  meeting  held on April 3,  1998.  At that  meeting,  the  Registrant's
stockholders approved a proposal authorizing the Registrant to change the nature
of its business and withdraw its election as a BDC under the Investment  Company
Act.

     The withdrawal will become  effective only upon the Securities and Exchange
Commission's receipt of the Registrant's notice of election of withdrawal. After
the  Registrant's  withdrawal  of its BDC election  becomes  effective  with the
Securities and Exchange Commission,  the Registrant will no longer be subject to
the  regulatory  provisions  of the  Investment  Company  Act for BDCs,  such as
insurance,  custody,  composition  of the  board,  affiliated  transactions  and
compensation arrangements. Even after the Registrant withdraws its election as a
BDC, the Registrant will continue to be subject to the reporting requirements of
the Securities  Exchange Act of 1934, as amended (the "Exchange Act"). Under the
Exchange Act, the  Registrant  would  continue to file periodic  reports on Form
10-KSB and Form 10-QSB,  as well as reports on Form 8-K and proxy statements and
any other reports required under the Exchange Act.

     The  Registrant's  Board of  Directors  has adopted a plan which began with
stockholder approval for the Registrant to withdraw as a BDC, with the intent of
becoming an operating  company.  The  Registrant is actively  pursuing  business
opportunities  to acquire or otherwise  purchase an ongoing  business or, in the
alternative,  target an  appropriate  merger  candidate.  The Registrant has not
reached a level in its  discussions  which  would  lead it to  believe  that any
particular  acquisition,  purchase  or merger is likely to occur with any of the
opportunities it has pursued to date; however, based on the types of discussions
held so far, the Registrant  believes that a transaction of this nature could be
completed  within six to twelve  months  following  stockholder  approval of the
proposal. Further, the Board believes that with the flexibility and authority to
withdraw as a BDC prior to entering into any  definitive  acquisition  or merger
agreement,  the  Registrant  has  increased  its  ability to attract  interested
businesses which it may acquire or consider merging with.

     The  Registrant  does not intend to file its  election to withdraw as a BDC
with the Securities and Exchange  Commission until such time as it is relatively
certain  that  it  will  qualify  as an  operating  business  rather  than as an
investment  company. A voluntary election to withdraw as a BDC becomes effective
upon filing with the Securities and Exchange  Commission  unless a later date is
specified  in the  election  form.  The  Board of  Directors  has opted for this
approach because it believes that if it does not qualify as an operating company
within a short period of time after the  Registrant  withdraws its election as a
BDC, the  Registrant  could  possibly be considered an  unregistered  investment
company which is not in compliance with the Investment Company Act.

                                        2
<PAGE>
     As an  operating  company,  the nature of the  Registrant's  business  will
change  from  investing  in a  portfolio  of  securities  to  achieve  gains  on
appreciation and dividend income, to becoming actively engaged in the management
of a  business  for the  generation  of  income  from  those  operations.  Thus,
withdrawal  of the  Registrant's  election as a BDC will result in a significant
change  in the  Registrant's  method  of  accounting  from the  value  method of
accounting  required of investment  companies to either fair value or historical
cost  accounting,  depending on the  classification  of the  investment  and the
Registrant's  intent  with  respect  to  the  period  it  intends  to  hold  the
investment.

     Over the past several  years,  the Registrant  has been  concentrating  its
efforts in acquiring interests in more mature investee companies, in some cases,
through asset-based financing  transactions.  In that regard, the Registrant has
devoted more of its time to providing managerial  assistance to fewer companies,
most of which time over the past  several  years was  devoted to  investees  RDM
Sports Group, Inc. and IntraNet Solutions, Inc., which constituted a significant
portion  of  the  Registrant's  investment  portfolio.   The  President  of  the
Registrant  was  President  and a director of RDM Sports Group from 1987 to June
1997 and was director of IntraNet  Solutions and its  predecessor  from February
1991 to October 1997.

     On  August  29,  1997  RDM  Sports  Group,  Inc.  ("RDM")filed  Chapter  11
bankruptcy  petitions for the company and all of its subsidiaries  with the U.S.
Bankruptcy Court for the Northern District of Georgia and ceased all operations.
As part of the ongoing bankruptcy proceedings, certain of RDM's assets have been
sold to pay  creditors  and no plan of  reorganization  has been  filed to date.
Following the initiation of this  bankruptcy  proceeding,  the fair value of the
Registrant's investment in RDM was substantially reduced so that at December 31,
1997,  the  Registrant  had a cost basis of $1,239,497 in its  investment in RDM
with fair value of $6,231.  Prior to the  bankruptcy  filing,  RDM was a leading
producer of fitness equipment and a leading producer and distributor of toys and
team sports  equipment.  The trademarks and brand names under which RDM sold its
products included Flexible Flyer,  Vitamaster,  MacGregor,  DP, Hutch, Reach and
Forster.

     On July  31,  1996,  MacGregor  Sports  and  Fitness,  Inc.  and  Technical
Publishing  Solutions,  Inc.  completed a merger through a tax-free  exchange of
common  stock and the  surviving  entity was renamed  IntraNet  Solutions,  Inc.
("IntraNet").  IntraNet  provides  integrated  solutions for the  management and
distribution  of business  critical  information  contained in  documents  using
proprietary  and standard  internet  technologies.  During 1996,  the Registrant
converted all of its  outstanding  debt,  consulting  fees and interest due into
shares of IntraNet  common stock.  Following the merger and a subsequent 4 for 1
reverse-split  declared by IntraNet on October 15, 1996,  the  Registrant  owned
645,085  shares of IntraNet  common  stock.  During 1997,  the  Registrant  sold
171,835  shares  leaving a balance at December 31, 1997 of 473,250  shares,  the
value of which  represented  approximately  60% of the  Registrant's  investment
portfolio at year end.

     During the fourth quarter of 1997, the Registrant received 2,000,000 shares
of common stock of VP Sports,  Inc. ("VP Sports") in payment for the transfer of
a letter of intent for the acquisition of an unrelated  company  involved in the
sporting  goods  business as well as merger and  acquisition  advisory  services
rendered  to VP  Sports.  The total  value for the  transfer  and  services  was
$250,000 which represents  the Registrant's cost basis for the shares. VP Sports

                                        3
<PAGE>
is currently  conducting a due  diligence  review and  negotiating  a definitive
agreement for the acquisition of the third party company.

     On January 2, 1996,  a reverse  stock split  approved  by the  Registrant's
stockholders  on December 18, 1995 became  effective and every two shares of the
Registrant's  $0.01 par value common stock were exchanged for one share of newly
created $0.02 par value common stock (1 for 2 reverse stock split). As a result,
the  Registrant's   authorized  shares  of  common  stock  were  decreased  from
15,000,000  to  7,500,000;  the  Registrant's  issued  shares from  6,448,930 to
3,224,465;  and outstanding shares from 6,435,230 to 3,217,615. The Registrant's
preferred  stock  remained  unchanged  with  2,000,000  $0.01 par  value  shares
authorized and no shares issued or outstanding.  All share amounts and per share
figures in this report for years prior to 1996 have been restated to reflect the
1 for 2 reverse split.

     In November  1997,  the  Registrant was notified by the Nasdaq Stock Market
that the  Registrant  failed to meet the minimum  maintenance  requirements  for
continued listing on the Nasdaq National Market as the Registrant's net tangible
assets were below the required  $4,000,000 as of September 30, 1997. As a result
of this  notification and subsequent  review by Nasdaq of materials  provided by
the  Registrant,  on  February  19,  1998 a  hearing  was held to  consider  the
Registrant's plan for continued compliance with the maintenance  requirements of
the Nasdaq  National  Market.  Pursuant to the February 19 1998 hearing,  Nasdaq
made a  determination  to move trading of the  Registrant's  common stock to the
Nasdaq  SmallCap  Market pursuant to a waiver to the initial $4.00 per share bid
price requirement and temporary exception to the net tangible assets requirement
of $4,000,000. This move was effective as of March 13, 1998. In addition, Nasdaq
appended  the  Registrant's  trading  symbol  with a "C" until  such time as the
Registrant demonstrated compliance with the terms of the exception. As requested
by Nasdaq,  on April 2, 1998,  the  Registrant  filed  with the  Securities  and
Exchange  Commission  on Form 8-K an unaudited  balance sheet as of February 28,
1998, with pro forma adjustments, evidencing net tangible assets in excess of $4
million.  As of the date of this report, the Registrant has not been notified by
Nasdaq of its acceptance of the documents which demonstrate  compliance with the
terms of the  temporary  exception  and the  Registrant's  common stock is still
trading on the Nasdaq SmallCap Market under the symbol EQTXC.

     (a)(2)(3)  During the year ended  December 31, 1997, the Registrant has not
been involved in any bankruptcy,  receivership or similar  proceedings;  has not
undergone material reclassification,  merger or consolidation;  has not acquired
or disposed of any  material  amount of assets  otherwise  than in the  ordinary
course of business;  and has not  experienced any material change in its mode of
conducting  business.  [See  Item  1(a)(1)  above  for  an  explanation  of  the
Registrant's proposed withdrawal during 1998 of its election as a BDC]

(b) Business of Issuer

     (1)(2)(3)  The  Registrant  is  a  closed-end,  non-diversified  investment
company  under the  Investment  Company Act and has elected to become a business
development company under that act. The Registrant's  investment objective is to
achieve  long-term  capital  appreciation,  rather than current  income,  on its
investments. There can be no assurance that this objective will be realized. The
Registrant's  investment decisions are made by its management in accordance with
policies  approved by its  board of  directors.  The  Registrant  does not  have

                                        4
<PAGE>
a registered  investment advisor.  In addition,  the Registrant does not operate
pursuant  to a written  investment  advisory  agreement  that  must be  approved
periodically by stockholders.  The Registrant relies solely upon its management,
particularly  its officers on a day to day basis,  and also on the experience of
its directors, in making investment decisions.

     In  accordance  with  this  objective,  the  Registrant  consults  with its
investees with respect to obtaining capital and offers managerial  assistance to
selected businesses that, in the opinion of the Registrant's management,  have a
significant potential for growth.

     In  addition  to  acquiring  investment  positions  in new  and  developing
companies,   the   Registrant   also  invests  in  more  mature   privately  and
publicly-held companies which the Registrant believes could be further developed
or revitalized, some of which may be experiencing financial difficulties.

     The Registrant  plans to take advantage of other  opportunities to maintain
and create  independent  companies with a significant  potential for growth. The
Registrant's  priorities  for the future will be to (1)  maximize  the value and
liquidity  of its present  investees,  (2)  increase  its cash flow,  sources of
income tax benefits  and  intermediate  term value  through the  acquisition  of
securities or assets of more established companies,  (3) make new investments in
more mature companies,  and (4) to a lesser degree, make a few small higher risk
investments in new and developing companies.

     The  Registrant has no fixed policy as to the business or industry group in
which it may invest or as to the amount or type of  securities or assets that it
may  acquire.  During  the  Registrant's  first  several  years  as  a  business
development  company,  the  Registrant  made  investments  primarily  in new and
developing  companies whose securities had no established public market. Most of
these companies were unable to obtain  significant  capital on reasonable  terms
from conventional sources. However, the Registrant, over the past several years,
has been seeking out and evaluating  investments in more mature  companies.  The
Registrant  endeavors to assist its investee  companies and management  teams in
devising realistic business strategies and obtaining necessary financing.

     The  Registrant  does  not  currently  intend  to pay cash  dividends.  The
Registrant  may elect to make  in-kind  distributions  of its larger  investment
positions  to  its   stockholders   when  its  Board  of  Directors  deems  such
distributions appropriate.  Only one such distribution has been made to date and
there are no current plans for such a distribution.

     The Registrant believes that the key to achieving its objectives is finding
and  supporting  business  executives  who  have  the  ability,  entrepreneurial
motivation  and  experience  required  to  build  independent  companies  with a
significant potential for growth. In the Registrant's view, it is more difficult
to locate and attract capable  executives  than to identify,  select and finance
promising investment opportunities.  The Registrant believes that its ability to
attract  capable  executives  is  enhanced  by its  policy  and  reputation  for
maintaining  the  independence of its investee  companies,  supporting them when
appropriate  in  contracts,  arranging  or  supplying  necessary  financing  and
assisting  the   investee's   management   in  obtaining  a  meaningful   equity
participation in the investee.

                                        5
<PAGE>
     Business  development is by nature a high-risk  activity that can result in
substantial  losses.  The  companies  in which the  Registrant  invests and will
invest,  especially in the early stages of an  investment,  often lack effective
management,  face operating problems and incur substantial losses.  However, the
Registrant,  at this time,  is seeking out and  evaluating  investments  in more
mature companies.  Potential investees include established  businesses which may
be  experiencing  severe  financial  or  operating  difficulties  or may, in the
opinion  of  management,  be  ineffectively  managed or have the  potential  for
substantial growth or reorganization into separate independent companies.

     The Registrant attempts to reduce the level of its investment risks through
one or more of the following:

    (i)  carefully investigating potential investees;

    (ii) financing only what it believes to be practical business  opportunities
as contrasted with research projects;

    (iii) selecting effective, entrepreneurial management for its investees;

    (iv) providing active managerial assistance and support to investees;

    (v)  obtaining,  alone or with  others,  actual or  working  control  of its
investees;

    (vi) supporting the investees in obtaining necessary financing and arranging
major contracts, joint ventures or mergers and acquisitions where feasible; and

    (vii) maintaining sufficient capital resources to make follow-on investments
where necessary, appropriate and feasible.

Investment Policies
-------------------

     The  Registrant  has  elected to be  regulated  as a  business  development
company  and is  subject  to the  provisions  of  Sections  55 through 65 of the
Investment Company Act and also is subject to those provisions of the Investment
Company Act made applicable to business  development  companies by Section 59 of
the  Investment   Company  Act.  In  accordance  with  those   provisions,   the
Registrant's investment policies are defined and subject to certain limitations.
Furthermore,  under Section 58 of the Investment Company Act, the Registrant may
not withdraw  its election to be so regulated  without the consent of a majority
of its  stockholders.  If the  Registrant  were to withdraw  its  election to be
regulated as a BDC, it may be subject to full regulation under of the Investment
Company Act as if it were a closed-end  investment  company.  [See Item 1.(b)(8)
"Regulation  -  Business   Development   Companies."]   On  April  3,  1998  the
Registrant's  stockholders  approved a proposal to authorize  the  Registrant to
change  the nature of its  business  and  withdraw  its  election  as a business
development  company  under the  Investment  Company  Act.  [See  Item  1.(a)(1)
"Description of Business - Business Development"]

                                        6
<PAGE>
     The  Registrant has no fixed policy as to the business or industry group in
which it may invest or as to the amount or type of  securities or assets that it
may  acquire.  However,  the  Registrant  has been  seeking  out and  evaluating
investments  in more mature  companies.  The  Registrant has in the past and may
continue to invest in assets that are not qualifying  assets under Section 55 of
the  Investment  Company  Act;  however,  no such  additional  assets  have been
identified, and the Registrant does not intend to fall below the 70% requirement
as set forth in Section 55 [See Item 1. Business (a)].

     The Registrant  endeavors to achieve its objectives in accordance  with the
following general policies:

     (i) The Registrant acquires securities through negotiated private placement
transactions  directly  from the  investee  company,  its  affiliates,  or third
parties, or through open market transactions.

     (ii) The Registrant  attempts to acquire,  if possible and consistent  with
the  Registrant's  capital  resources,  a large or  controlling  interest in its
investees through purchases of equity securities,  including warrants,  options,
and other rights to acquire such securities combined, if appropriate,  with debt
securities,   including  demand  notes,   term  loans  and  guarantees  or  debt
instruments or preferred stock  convertible  into, or with warrants to purchase,
equity securities.

     (iii) The Registrant may make  additional or "follow-on"  investments in or
loans to its investees  when  appropriate to sustain the investees or to enhance
or protect the Registrant's existing investment.

     (iv) The  Registrant  determines  the  length  of time it will  retain  its
investment by evaluating  the facts and  circumstances  of each investee and its
relationship   with  such  investee.   The  Registrant   generally  retains  its
investments for a relatively long period,  sometimes many years, with the result
that its rate of portfolio  turnover is low.  Investments are retained until, in
the opinion of the Registrant, the investee company has a demonstrated record of
successful operations and there is a meaningful public market for its securities
which reflects the investment value the Registrant  sought (or such a market can
be readily  established) or until the Registrant  decides that its investment is
not likely to result in future long-term capital appreciation.

Valuation - Policy Guidelines
-----------------------------

     The Registrant's Board of Directors is responsible for the valuation of the
Registrant's assets in accordance with its approved guidelines. The Registrant's
Board  of  Directors  is  responsible  for (1)  recommending  overall  valuation
guidelines and (2) the valuation of specific investments.

     There is a range of values which are  reasonable  for an  investment at any
particular  time.  Fair  value is  generally  defined  as the price at which the
investment  in question  could change  hands,  assuming that both parties to the
transaction  are  under  no  unusual  pressure  to buy or  sell  and  both  have
reasonable  knowledge  of all the relevant  facts.  To increase  objectivity  in
valuing the securities,  the Registrant uses external  measures of value such as
public  markets  or  significant  third-party  transactions  whenever  possible.

                                        7
<PAGE>

Neither a long-term  work-out value nor an immediate  liquidation value is used,
and no increment  of value is included  for changes  which may take place in the
future.  The Registrant's  largest investee company IntraNet,  represents 60% of
the total value of the Registrant's  investment  portfolio.  It is valued by the
public market method, the Registrant's  preferred method of valuation.  IntraNet
is a company in the early stages of  development  which has yet to show a profit
as a  publicly-traded  company,  a situation  management of the company predicts
could  continue  for the near  term.  The  Registrant  may be  required  to make
follow-on investments or assist such companies in obtaining additional financing
or face impairment of its investments in such companies.  Certain members of the
Registrant's  Board of  Directors  hold minor  equity  positions  in some of the
Registrant's investee companies and certain members of the Board hold officer or
director  positions with some of the Registrant's  investee  companies.  No such
equity position exceeds 5% of the investee company's outstanding securities.

     Valuations  assume  that  in  the  ordinary  course  of  its  business  the
Registrant  will eventually sell its position in the public market or distribute
its larger positions to its stockholders. Accordingly, no premiums are placed on
investments to reflect the ability of the Registrant to sell block  positions or
control of companies, either by itself or in conjunction with other investors.

     The Registrant uses four basic methods of valuation for its investments and
there are variations  within each of these methods.  The  Registrant's  Board of
Directors has determined  that the  Registrant's  four basic  valuation  methods
constitute fair value. As an investee  evolves,  its progress  usually  requires
changes in the  Registrant's  method of valuing the investee's  securities.  The
Registrant's  investment is separated  into its  component  parts (such as debt,
preferred  stock,  common  stock or  warrants),  and each  component  is  valued
separately to arrive at total value.  The Registrant  believes that a mixture of
valuation  methods  is often  essential  to  represent  fairly  the value of the
Registrant's  investment position in an investee. For example, one method may be
appropriate  for the equity  securities of a company while another method may be
appropriate for the senior securities of the same company.

     The COST METHOD  values an  investment  based on its  original  cost to the
Company,  adjusted for the  amortization  of original  issue  discount,  accrued
interest and certain  capitalized  expenditures  of the Company.  While the cost
method is the  simplest  method of  valuation,  it is often the most  unreliable
because it is applied in the early stages of an  investee's  development  and is
often not directly  tied to  objective  measurements.  The original  cost may be
adjusted  by the Board of  Directors  in good faith  taking  into  account  such
factors as  available  financial  information  of the  investee,  the nature and
duration of any  restrictions as to resale and other factors which influence the
market in which a security is purchased or sold. All  investments are carried at
cost until significant  positive or adverse events subsequent to the date of the
original  investment call for a change to another method.  Some examples of such
events  are:  (1) a  major  recapitalization;  (2) a  major  refinancing;  (3) a
significant third-party transaction;  (4) the development of a meaningful public
market for the  investee's  common stock;  and (5) material  positive or adverse
changes in the investee's business.

     The APPRAISAL  METHOD is used to value an investment  position based upon a
careful analysis of  the best  available  outside  information when  there is no

                                        8
<PAGE>
established  public or private  market in the investee  company's own securities
and it is no longer  appropriate  to use the Cost Method.  Comparisons  are made
using factors (such as earnings,  sales or net worth) that  influence the market
value of similar  public  companies  or that are used in the  pricing of private
transactions of comparable  companies.  Major discounts,  usually 50%, are taken
when  private  companies  are  appraised  by  comparing  them to similar  public
companies.  Liquidation  value  may be  used  when  an  investee  is  performing
substantially  below  plan and its  continuation  as an  operating  entity is in
doubt.  Senior  securities  are  discounted  at a rate  to  yield  15% to 40% to
projected  maturity.  Depending  on the  relative  uncertainty  of the timing of
ultimate collection,  15% is used for relatively predictable positions,  and 40%
for less  predictable  positions.  Under the Appraisal  Method,  the differences
among  companies  in  terms  of the  source  and type of  revenues,  quality  of
earnings, and capital structure, are carefully considered.

     An appraisal  value can be defined as the price at which the  investment in
question could change hands,  assuming that both parties to the  transaction are
under no unusual  pressure to buy or sell and both have reasonable  knowledge of
all the  relevant  facts.  In the case of  start-up  companies  where the entire
assets  may  consist of only one or more of the  following:  a  marketing  plan,
management  or  a  pilot   operation,   an  evaluation  may  be  established  by
capitalizing  the amount of the investment that could reasonably be obtained for
a predetermined percentage of the company. Valuations under the Appraisal Method
are  considered to be more  subjective  than the Cost,  Public Market or Private
Market Methods.

     The  PRIVATE  MARKET  METHOD  uses  third-party   transactions  (actual  or
proposed) in the investee's  securities as the basis for valuation.  This method
is  considered  to be an  objective  measure of value since it depends  upon the
judgment of a sophisticated,  independent investor.  Actual firm offers are used
as well as historical  transactions,  provided that any offer used was seriously
considered  and well  documented  and adjusted (if  applicable)  by the Board of
Directors in good faith taking into account such factors as available  financial
information of the investee,  the nature and duration of any  restrictions as to
resale and other  factors  which  influence  the  market in which a security  is
purchased or sold.

     The PUBLIC MARKET METHOD is the preferred method of valuation when there is
an established  public market for the investee's common stock, since that market
provides the most  objective  basis for valuation.  In  determining  whether the
public market is sufficiently established for valuation purposes, the Registrant
examines  the  trading  volumes,  the number of  shareholders  and the number of
market  makers.  Under  the  Public  Market  Method,  as well as under the other
valuation  methods,  the  Registrant  discounts  investment  positions  that are
subject  to  significant  legal,   contractual  or  practical  restrictions  and
appropriate  adjustments  may be made by the Board of  Directors  in good  faith
taking into account such other factors as available financial information of the
investee,  the nature and  duration of any  restrictions  as to resale and other
factors  which  influence  the market in which a security is  purchased or sold.
When an investee's common stock is valued under the Public Market Method, common
stock equivalents such as presently  exercisable  warrants or options are valued
based on the  difference  between the exercise price and the market value of the
underlying common stock.  Although the Registrant  believes that a public market
could be  created for the  options  and  warrants of  certain of its  investees,

                                        9
<PAGE>
thereby  possibly  increasing  the value of these rights  above their  arbitrage
value, the Registrant does not reflect this possibility in its valuation.

Managerial Assistance
---------------------

     The  Registrant  believes  that  providing  managerial  assistance  to  its
investees is critical to its business development activities.  "Making available
significant managerial assistance" as defined in the Investment Company Act with
respect to a business  development  company such as the Registrant means (a) any
arrangement  whereby a business  development  company,  through  its  directors,
officers,  employees or general partners,  offers to provide,  and, if accepted,
does so provide,  significant  guidance and counsel  concerning the  management,
operations,  or business  objectives and policies of a portfolio company; or (b)
the exercise by a business  development company of a controlling  influence over
the  management or policies of a portfolio  company by the business  development
company  acting  individually  or as a part of a  group  acting  together  which
controls such  portfolio  company.  The Registrant is required by the Investment
Company Act to make significant  managerial  assistance  available at least with
respect to investee  companies that the Registrant  treats as qualifying  assets
for  purposes  of the 70% test.  The  nature,  timing and  amount of  managerial
assistance  provided  by the  Registrant  vary  depending  upon  the  particular
requirements of each investee company.

     The Registrant may be involved with its investees in recruiting management,
product  planning,  marketing and  advertising  and the development of financial
plans,  operating  strategies  and  corporate  goals.  In this  connection,  the
Registrant may assist clients in developing and utilizing accounting  procedures
to efficiently and accurately record transactions in books of account which will
facilitate  asset and cost  control  and the ready  determination  of results of
operations.  The  Registrant  also seeks  capital for its  investees  from other
potential investors and occasionally subordinates its own investment to those of
other investors. The Registrant introduces its investees to potential suppliers,
customers and joint venture  partners and assists its investees in  establishing
relationships  with commercial and investment  bankers and other  professionals,
including  management  consultants,  recruiters,  legal counsel and  independent
accountants.  The Registrant also assists with joint ventures,  acquisitions and
mergers.

     In  connection  with  its  managerial  assistance,  the  Registrant  may be
represented  by one or  more  of its  officers  or  directors  on the  board  of
directors of an investee.  As an  investment  matures and the investee  develops
management depth and experience, the Registrant's role will become progressively
less active.  However,  when the  Registrant  owns or on a pro forma basis could
acquire a substantial proportion of a more mature investee company's equity, the
Registrant  remains  active in and will  frequently  initiate  planning of major
transactions by the investee.  The Registrant's  goal is to assist each investee
company in establishing its own independent and effective board of directors and
management.

     (4)  Although  the  Registrant  does not  directly  compete with any single
company,  individual or  organization,  the Registrant is subject to substantial
competition  from business  development  companies,  venture capital firms,  new
product   development    companies,    marketing   companies   and   diversified
 
                                       10

<PAGE>
manufacturers,   most  of  whom  are  larger  than  the   Registrant   and  have
significantly  larger net worths and financial and personnel  resources than the
Registrant.  In addition, the Registrant competes with companies and individuals
engaged in the business of providing management consulting services.

     (5) The Registrant does not require raw materials.

     (6) The Registrant's business is not dependent upon a single customer, or a
few  customers,  the  loss of any one or more of  which  would  have a  material
adverse effect on the Registrant.

     (7) The Registrant  holds no patents or trademarks,  and has no interest in
any franchises, concessions, royalty agreements or labor contracts.

     (8)(9)  Regulation - Business  Development  Companies.  The  following is a
summary  description  of the  Investment  Company  Act as  applied  to  business
development  companies.  This  description  is  qualified  in  its  entirety  by
reference to the full text of the  Investment  Company Act and the rules adopted
thereunder by the SEC.

     The Small Business Investment Incentive Act of 1980 modified the provisions
of the  Investment  Company Act that are  applicable  to a company,  such as the
Registrant,  which elects to be treated as a "business development company." The
Registrant elected to be treated as a business  development  company on July 30,
1984. The Registrant may not withdraw its election  without first  obtaining the
approval of a majority of its outstanding  voting  securities.  On April 3, 1998
the Registrant's stockholders approved a proposal to authorize the Registrant to
change  the nature of its  business  and  withdraw  its  election  as a business
development  company  under the  Investment  Company  Act.  [See  Item  1.(a)(1)
"Description of Business - Business Development"]

     A  business  development  company  must  be  operated  for the  purpose  of
investing in the securities of certain  present and former  "eligible  portfolio
companies" and certain  bankrupt or insolvent  companies and must make available
significant  managerial  assistance  to  its  investee  companies.  An  eligible
portfolio company generally is a United States company that is not an investment
company  (except  for  wholly-owned   SBIC's  licensed  by  the  Small  Business
Administration)  and (1) does not have a class  of  securities  included  in the
Federal Reserve Board's over-the-counter margin list, (2) is actively controlled
by the  business  development  company  and  has an  affiliate  of the  business
development company on its board of directors,  or (3) meets such other criteria
as may be established by the SEC. Control,  under the Investment Company Act, is
presumed to exist where the business development company owns 25% or more of the
outstanding voting securities of the investee.

     The  Investment  Company Act  prohibits or restricts  the  Registrant  from
investing in certain  types of  companies,  such as brokerage  firms,  insurance
companies,  investment  banking firms and investment  companies.  Moreover,  the
Investment Company Act limits the type of assets that the Registrant may acquire
to "qualifying  assets" and certain assets necessary for its operations (such as
office furniture,  equipment and facilities) if, at the time of the acquisition,
less than 70% of the value of the  Registrant's  assets  consists of  qualifying
assets.  The  effect  of the  regulation  is to  require  that at least 70% of a
business  development  company's  assets  be  maintained  in  qualifying assets.

                                       11
<PAGE>
Qualifying  assets  include:  (1)  securities  of companies  that were  eligible
portfolio  companies at the time the Registrant  acquired their securities;  (2)
securities of bankrupt or insolvent  companies  that are not otherwise  eligible
portfolio  companies;  (3)  securities  acquired  as  follow-on  investments  in
companies that were eligible at the time of the Registrant's initial acquisition
of their securities but are no longer eligible, provided that the Registrant has
maintained a substantial  portion of its initial  investment in those companies;
(4) securities received in exchange for or distributed on or with respect to any
of the forgoing;  and (5) cash items,  government  securities  and  high-quality
short-term  debt. The  Investment  Company Act also places  restrictions  on the
nature of the transactions in which,  and the persons from whom,  securities can
be purchased  in order for the  securities  to be  considered  to be  qualifying
assets.  The Registrant  believes that, as of December 31, 1997, at least 90% of
its assets would be considered qualifying assets.

     The Registrant is permitted by the Investment  Company Act, under specified
conditions,  to issue  multiple  classes  of senior  debt and a single  class of
preferred stock if its asset coverage, as defined in the Investment Company Act,
is at least 200% after the  issuance  of the debt or the  preferred  stock.  The
Registrant  currently has no policy regarding issuing multiple classes of senior
debt or a class of preferred stock.

     The Registrant may issue in limited amounts,  warrants,  options and rights
to purchase its securities to its directors, officers and employees (and provide
loans to those persons for the exercise thereof) in connection with an executive
compensation  plan if certain  conditions are met. These conditions  include the
authorization of such issuance by a majority of the  Registrant's  voting shares
and the  approval  of a  majority  of the  independent  members  of the Board of
Directors and a majority of the directors who have no financial  interest in the
transaction.  The issuance of options,  warrants or rights to directors  who are
not also officers requires the prior approval of the SEC.

     The  Registrant  may  sell its  securities  at a price  that is  below  the
prevailing net asset value per share only upon the approval of the policy by the
holders of a majority  of its voting  securities,  including  a majority  of the
voting securities held by non-affiliated  persons, at its last annual meeting or
within  one year prior to the  transaction.  In  addition,  the  Registrant  may
repurchase  its Common  Stock,  subject to the  restrictions  of the  Investment
Company  Act.  The  Registrant  at this time does not  contemplate  selling  its
securities at a price below prevailing net asset value per share or repurchasing
its Common Stock.

     In accordance with the Investment Company Act, a majority of the members of
the  Registrant's  Board of Directors  must not be  "interested  persons" of the
Registrant  as that term is defined in the  Investment  Company Act.  Generally,
"interested  persons" of the Registrant  include all  affiliated  persons of the
Registrant and members of their immediate  families,  any "interested person" of
an underwriter or of an "investment  advisor" to the Registrant,  any person who
has acted as legal counsel to the Registrant  within the last two years,  or any
broker or dealer, or affiliate of a broker or dealer.

     Most of the  transactions  involving the  Registrant and its affiliates (as
well as affiliates of those affiliates) which were prohibited  without the prior

                                       12
<PAGE>
approval of the SEC under the  Investment  Company Act prior to its amendment by
the Small Business Investment  Incentive Act now require the prior approval of a
majority  of  the  Registrant's  independent  directors  and a  majority  of the
directors having no financial  interest in the  transactions.  The effect of the
amendment is that the Registrant may engage in certain  affiliated  transactions
that would be  prohibited  absent prior SEC  approval in the case of  investment
companies which are not business development  companies.  However,  transactions
involving certain closely  affiliated  persons of the Registrant,  including its
directors,  officers and employees, still require the prior approval of the SEC.
In general,  "affiliated  persons" of a person include: (a) any person who owns,
controls or holds with power to vote, more than five percent of the Registrant's
outstanding Common Stock (b) any director,  executive officer or general partner
of that  person,  (c)  any  person  who  directly  or  indirectly  controls,  is
controlled by, or is under common control with, that person,  and (d) any person
five  percent or more of whose  outstanding  voting  securities  are directly or
indirectly  owned,  controlled or held with power to vote, by such other person.
Such  persons  generally  must  obtain the prior  approval  of a majority of the
Registrant's  independent directors and, in some situations,  the prior approval
of the SEC, before engaging in certain transactions  involving the Registrant or
any company  controlled by the Registrant.  The Investment Company Act generally
does  not  restrict   transactions  between  the  Registrant  and  its  investee
companies.

     Finally,  notwithstanding  restrictions  imposed under  federal  securities
laws, it is anticipated that should the Registrant continue to operate as a BDC,
the Registrant will acquire  securities of investee  companies pursuant to stock
purchase  agreements or other agreements that may further limit the Registrant's
ability to distribute, or sell or transfer such securities;  and, as a practical
matter, even if such transfers are legally or contractually  permissible,  there
may be no market,  or a very limited  market,  for the  securities  and economic
conditions may make the price and terms of a sale or transfer unattractive.


Other Securities Law Considerations
-----------------------------------

     In addition to the  above-described  provisions of the  Investment  Company
Act, there are a number of other provisions of the federal securities laws which
affect the Registrant's  operations.  For example,  restrictions  imposed by the
federal  securities laws, in addition to possible  contractual  provisions,  may
affect  adversely the ability of the Registrant to sell or otherwise  distribute
its portfolio securities.

     Most if not all securities which the Registrant acquires as venture capital
investments will be "restricted securities" within the meaning of the Securities
Act of 1933  ("Securities  Act") and will not be permitted to be resold  without
compliance  with the Securities  Act. Thus, the Registrant will not be permitted
to resell portfolio securities unless a registration statement has been declared
effective by the SEC with respect to such  securities or the  Registrant is able
to rely on an available exemption from such registration  requirements.  In many
cases the  Registrant  will  endeavor  to  obtain  from its  investee  companies
"registration  rights"  pursuant to which the Registrant would be able to demand
that an investee  company register the securities owned by the Registrant at the
expense of  the  investee  company.   Even if the  investee  company  bears this

                                       13
<PAGE>
expense,  however, the registration of the securities owned by the Registrant is
likely to be a time-consuming process, and the Registrant always bears the risk,
because of these delays,  that it will be unable to resell such  securities,  or
that it will not be able to obtain an attractive price for the securities.

     Sometimes the Registrant  will not register  portfolio  securities for sale
but will seek to rely  upon an  exemption  from  registration.  The most  likely
exemption  available to the  Registrant  is section 4(1) of the  Securities  Act
which, in effect exempts sales of securities not involving a distribution of the
securities.  This exemption will likely be available to permit a private sale of
portfolio  securities,  and, in some cases,  a public sale, if the provisions of
Rule 144 under the Securities Act are  satisfied.  Among other things,  Rule 144
requires  that  securities  be sold in  "broker  transactions,"  and  imposes  a
one-year holding period prior to the sale of restricted  securities.  Securities
may be sold without  limitation  under Rule 144(k)  following a two-year holding
period subject to certain restrictions.

     (10)  During  the  last two  years  the  Registrant  spent  no  amounts  on
Registrant-sponsored or customer-sponsored research and development activities.

     (11)  The  Registrant  is  not  subject  to any  federal,  state  or  local
provisions  which have been  enacted  or adopted  regulating  the  discharge  of
materials into the  environment  or otherwise  relating to the protection of the
environment.

     (12)  The  Registrant  currently  employs  four  persons  all of  whom  are
full-time employees.


ITEM 2. DESCRIPTION OF PROPERTY.

(a) Description of Principal Plants and other Property

     The Registrant's  principal office is located at 7315 East Peakview Avenue,
Englewood,  Colorado  80111.  The  Registrant  leases this space,  consisting of
approximately  1,800 square feet,  for $2,500 per month,  from a partnership  in
which the Registrant's  president and his wife are sole partners. The Registrant
believes  these terms to be no less favorable than those which could be obtained
from a  non-affiliated  party  for  similar  facilities  in the same  area.  The
Registrant  also  leases at the market rate for such  facilities  in the area an
executive office in Palm Beach Gardens,  Florida where it shares secretarial and
office facilities with several other lessees.

(b) Investment Policies

     The  Registrant  currently  does not  invest in real  estate,  real  estate
mortgages,  or  securities  of  persons  who  primarily  engage  in real  estate
activities.  Although the  Registrant  does not currently  make  investments  as
described  above, and currently has no intention to make such investments in the
near future,  it is limited in making such investments only as described in Item
1.(b) "Regulation - Business Development Companies".

                                       14
<PAGE>
(c) Description of Real Estate and Operating Data

     The  Registrant  does not own property,  the book value of which amounts to
ten percent or more of the total assets of the Registrant.


ITEM 3. LEGAL PROCEEDINGS.

     The Registrant is the plaintiff in an action,  pending in the U.S. District
Court for the District of  Colorado,  entitled  EQUITEX,  INC. v. JAMES H. RAND,
SMITH,  GAMBRELL &  RUSSELL,  L.L.P.  AND DAVID J.  HARRIS,  Case No.  98-WM-715
(originally filed in the District Court of Arapahoe County,  Colorado on January
9, 1998) in which the Registrant seeks to recover $300,000 deposited into escrow
with the  defendants as escrow  agents,  pending  documentation  of a settlement
agreement.  The letter agreement  between the parties required the defendants to
return the escrow deposit to the Registrant if the settlement  agreement was not
completed within 30 days. When the parties were unable to successfully  conclude
the  settlement  documentation,  the  Registrant  demanded  return of the escrow
amount, which demand defendants ignored. The Registrant's  complaint filed seeks
return of the $300,000, and damages for breach of fiduciary duty, conversion and
civil theft under Colorado law. In response,  defendants  have asserted that the
escrow  amount is claimed by the  bankruptcy  trustee of RDM Sports  Group,  Inc
("RDM").  Defendants have asserted a counterclaim  for  interpleader  (asserting
that they are merely  holding the money for  whichever  party is entitled to it)
and have moved to join the RDM Bankruptcy Trustee as a party to this case.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     On  December  30,  1997,  the  Registrant  held an  Annual  Meeting  of its
Stockholders.  The  stockholders  re-elected  each  of  the  Registrant's  three
directors to serve until the next Annual Meeting of  Stockholders  and the votes
were cast as follows:

                                    For             Withhold Authority
                                 ---------          ------------------
    Henry Fong                   2,457,832                 55,352
    Russell L. Casement          2,461,637                 51,547
    Aaron Grunfeld               1,519,145                994,039

     Additionally,  the  following  proposal was presented and voted upon at the
meeting and the votes were cast as follows:

     To ratify the  appointment of Davis & Co.,  CPA's,  P.C. as the independent
auditor of the Registrant for the year ending December 31, 1997.

                    For           Against            Abstain          Non-Voted
                 ---------        -------            -------          ---------
Shares voted     2,487,366        14,285             11,533              -0-


                                       15
<PAGE>
                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

(a) Market Information

     The principal  market in which the  Registrant's  Common Stock is traded is
the over-the-counter market.

     The  Registrant's  Common Stock trades on the Nasdaq Stock Market under the
symbol EQTXC (see Part 1. Item 1(a) Business Development for further information
on the  Registrant's  trading  symbol on  Nasdaq).  The table  below  states the
quarterly  high and low last sale prices for the  Registrant's  Common  Stock as
reported by The Nasdaq Stock Market, and represent actual high and low last sale
prices.

                                                    Last Sale
                                         ------------------------------
         Quarter ended                   High                       Low
         -------------                   ----                       ---
         1996
         ----
         March 31, 1996                  $2.75                     $2.31
         June 30, 1996                   $4.00                     $2.13
         September 30, 1996              $3.69                     $3.00
         December 31, 1996               $3.13                     $1.66

         1997
         ----
         March 31, 1997                  $3.00                     $1.88
         June 30, 1997                   $2.13                     $1.50
         September 30, 1997              $1.88                     $0.69
         December 31, 1997               $1.56                     $0.69



(b) Holders

     The number of record holders of the  Registrant's  Common Stock as of April
9, 1998, was 2,637 according to the  Registrant's  transfer  agent.  This figure
excludes  an  indeterminate  number of  shareholders  whose  shares  are held in
"street" or "nominee" name.

(c) Dividends

     The  Registrant  does  not  currently  intend  to pay cash  dividends.  The
Registrant  may elect to make  in-kind  distributions  of its larger  investment
positions to its  stockholders  when the  Registrant's  Board of Directors deems
such distributions  appropriate.  Because the Registrant does not intend to make
cash  distributions,  shareholders  would  need to sell  securities  distributed
in-kind,  when  and if  distributed,  in  order to  realize  a  return  on their
investment.

     An in-kind  distribution  will be made only when,  in the  judgment  of the
Registrant's Board of Directors,  it is in the best interest of the Registrant's
stockholders  to do so. The Board of Directors will review,  among other things,
the  investment  quality and  marketability  of the  securities  considered  for
distribution;  the impact of a distribution of the investee's  securities on its
customers, joint venture associates, other investors, financial institutions and
management;  tax  consequences  and the market  effects of an initial or broader
distribution  of  such  securities.    Securities  of  the  Registrant's  larger

                                       16
<PAGE>
investment  positions in more mature investee  companies with established public
markets are most likely to be considered for  distribution.  It is possible that
the  Registrant  may  make  an  in-kind  distribution  of  securities  that  are
substantially  illiquid irrespective of the distributee  stockholders' rights to
sell such securities.  Any such in-kind  distribution would require  stockholder
approval  only  if  the  distribution   represents   substantially  all  of  the
Registrant's  assets.  It is possible  that the  Registrant  may make an in-kind
distribution of securities  which have  appreciated or depreciated from the time
of purchase depending upon the particular  distribution.  The Registrant has not
established  a policy as to the  frequency or size of  distributions  and indeed
there can be no assurance that any future  distributions  will be made. To date,
only one such  distribution  has been approved by the Board of Directors and was
distributed in April 1988.


ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS.

(a) Plan of Operation

     Not applicable

(b) Management's  Discussion and Analysis of Financial  Condition and Results of
Operations

     This Report may contain certain  "forward-looking"  statements as such term
is defined in the  Private  Securities  Litigation  Reform Act of 1995 or by the
Securities and Exchange Commission in its rules, regulations and releases, which
represent the  Registrant's  expectations or beliefs,  including but not limited
to, statements  concerning the Registrant's  operations,  economic  performance,
financial condition, growth and acquisition strategies,  investments, and future
operational  plans. For this purpose,  any statements  contained herein that are
not  statements  of  historical  fact  may  be  deemed  to  be   forward-looking
statements.  Without  limiting the  generality of the  foregoing,  words such as
"may", "will", "expect", "believe", "anticipate", "intent", "could", "estimate",
"might", or "continue" or the negative or other variations thereof or comparable
terminology  are  intended  to  identify   forward-looking   statements.   These
statements by their nature involve substantial risks and uncertainties,  certain
of which are beyond the  Registrant's  control,  and actual  results  may differ
materially  depending on a variety of important factors,  including  uncertainty
related to  acquisitions,  governmental  regulation,  managing  and  maintaining
growth,  the  value  of the  Registrant's  investments,  the  operations  of the
Registrant's investee companies, volatility of stock price and any other factors
discussed in this and other Registrant  filings with the Securities and Exchange
Commission.

     RESULTS OF  OPERATIONS.  Revenues for the year ended December 31, 1997 were
$378,391, down 60% as compared to $632,765 for the year ended December 31, 1996.
The  decrease  in  revenues  for 1997  over  1996 is  primarily  the  result  of
significantly  lower  interest  revenue  in 1997 over  1996 when the  Registrant
received a large interest  payment from MacGregor  Sports and Fitness  through a
conversion of debt to equity [See also Part 1 Item 1(a). Business  Development].
In the past,  the  Registrant  has  received  consulting  fees on both a monthly
contract basis as well as on a per  transaction  basis when assisting  investees
with acquisitions, refinancing or restructuring, however, the timing, nature and
amount of these fees  cannot be  predicted.  The  Registrant  expects  that 1998
revenues will be similar or possibly slightly higher than those of 1997.


                                       17

<PAGE>
     The  realized  gain  on  investments  before  income  taxes  for  1997  was
$1,003,951 as compared to a gain of  $1,226,190 in 1996.  Proceeds from sales of
investments  was  significantly  lower in 1997  than  1996 but the cost of those
investments was also lower as a percentage of the gain producing only a slightly
lower  realized gain before income taxes. A majority of the sales of investments
in  both  1997  and  1996  were  IntraNet  Solutions  common  stock.  While  the
restrictions as to resale on many of the  Registrant's  investments  continue to
diminish,  the  opportunity  for the sale of large  portions of the  investments
cannot be predicted.  However,  the Registrant  currently has fewer positions in
its portfolio which are valued  utilizing the public market method and presently
believes there is sufficient  market  liquidity for the Registrant to conduct an
orderly sale of any position over a relatively short period of time.

     Expenses for 1997 were  $1,813,926  as compared to  $1,152,910  in 1996, an
increase of 57%.  While the  Registrant's  expenses were fairly  similar in most
categories,  significant  changes  were  recorded in officer's  bonus,  bad debt
expense  and  loss  on  indemnity   agreement  in  1997.   Officers   bonus  was
significantly  lower as a result of the Registrant's lower assets while the loss
on indemnity  agreement  between the  Registrant  and IntraNet as explained more
fully in Part III. Item 12. Certain Relationships and Related Transactions along
with bad debt expense accounted for a majority of the increase in expenses.  The
Registrant  currently  believes that  expenses for the year ending  December 31,
1998 will  continue  at levels  similar to those of 1997  should the  Registrant
continue to operate as a BDC.  Should the  Registrant  decertify as a BDC as set
forth below, the Registrant is unable to estimate its expenses for 1998.

     The Registrant's net investment loss and realized gain on investments after
taxes for the year ended  December 31, 1997 was a loss of $(401,649) as compared
to a gain of $639,874 in 1996. The  Registrant's  net realized loss for 1997 can
be  attributed to many factors  including  the mix of higher  expenses and lower
revenue and realized gain on the sale of investments.

     At December 31, 1997,  unrealized  appreciation  of  investments  decreased
$5,773,305  as compared to a decrease of  $8,535,628  at December 31, 1996.  The
decreases in the value of the  Registrant's  investments over the past two years
is mainly  attributable  to the roughly 50% decrease in the market values of the
Registrant's  two largest  investees,  RDM and IntraNet in 1996,  as well as the
bankruptcy of RDM during 1997 [see Part 1. Item 1(a) Business  Development].  As
there is no way to  predict  the  future  value of the  Registrant's  investment
portfolio,  the Registrant cannot predict future changes in the unrealized value
of its investments, however, the Registrant is encouraged by recent developments
with respect to IntraNet and added a new investee,  VP Sports, during 1997 which
the Registrant  believes will enhance its portfolio in 1998. The net decrease in
net assets  resulting  from  operations was $3,923,367 for 1997 as compared to a
decrease of $4,566,858 for 1996.

     In 1987 the Registrant  began  concentrating  on investments in more mature
investee  companies.  Due to this change,  the  Registrant's net asset value and
cash flows have fluctuated as a result of the market fluctuations of its largest
investees.  The Registrant  must increase the number of its investments in order
to  reduce  its   susceptibility   to  the  operating   performance  and  market
fluctuations  of its investee  companies  that have  occurred  over the past few
years.  During the past several years, the Registrant had been concentrating its
efforts on assisting its existing portfolio companies and therefore had not made
any  major  new  investments.  During  1997,  the  Registrant  added a major new
investee  company,  VP Sports,  and  anticipates  adding another new investee in
1998.   Until  such  time  as  more  of  these mature investments are added, the

                                       18
<PAGE>
Registrant will continue to be susceptible to market  fluctuations as long as it
continues to operate as a BDC.

     In July of 1984, the Registrant  elected to become a BDC. Utilizing the "at
value"  method of  evaluating  fair value as  described  in  "Valuation - Policy
Guidelines",  the  Registrant's  assets as of December 31, 1997 were  $5,038,425
with a net asset value of $3,539,9166.  Comparatively,  as of December 31, 1996,
the  Registrant's  assets  were valued at  $10,478,003  and it had net assets of
$7,260,783.

     At  a  special  meeting  of  stockholders   held  on  April  3,  1998,  the
Registrant's  stockholders  approved a proposal  authorizing  the  Registrant to
change the nature of its  business  and withdraw its election as a BDC under the
Investment  Company Act. The Registrant's  Board of Directors has adopted a plan
which began with  stockholder  approval for the Registrant to withdraw as a BDC,
with the intent of becoming an operating  company.  The  Registrant  is actively
pursuing  business  opportunities  to acquire or  otherwise  purchase an ongoing
business or, in the alternative,  target an appropriate  merger  candidate.  The
Registrant  has not  reached a level in its  discussions  which would lead it to
believe that any particular  acquisition,  purchase or merger is likely to occur
with any of the  opportunities  it has  pursued to date;  however,  based on the
types of discussions held so far, the Registrant  believes that a transaction of
this nature could be completed within six to twelve months following stockholder
approval of the proposal.  Further, the Board believes that with the flexibility
and  authority  to  withdraw  as a BDC  prior to  entering  into any  definitive
acquisition  or merger  agreement,  the  Registrant has increased its ability to
attract interested businesses which it may acquire or consider merging with.

     The  Registrant  does not intend to file its  election to withdraw as a BDC
with the Securities and Exchange  Commission until such time as it is relatively
certain  that  it  will  qualify  as an  operating  business  rather  than as an
investment  company. A voluntary election to withdraw as a BDC becomes effective
upon filing with the Securities and Exchange  Commission  unless a later date is
specified  in the  election  form.  The  Board of  Directors  has opted for this
approach because it believes that if it does not qualify as an operating company
within a short period of time after the  Registrant  withdraws its election as a
BDC, the  Registrant  could  possibly be considered an  unregistered  investment
company  which  is not in  compliance  with  the  Investment  Company  Act.  The
Registrant  will  continue  to conduct  business as a BDC until such time as the
election  to  withdraw  becomes  effective.  [See  Part I.  Item  1(a)  Business
Development]

     LIQUIDITY AND CAPITAL RESOURCES. Of the Registrant's current liabilities of
$1,498,509  at December 31, 1997,  the  Registrant  had no amounts due to banks.
This  compares to total  liabilities  of  $3,217,220,  deferred  income taxes of
$2,274,650  and  other  liabilities  of  $942,500  at  December  31,  1996.  The
Registrant is not  obligated to discharge a  significant  portion of its current
liabilities in the near future;  however,  the Registrant  intends to extinguish
these liabilities to make other investments as cash flow permits.

     In connection with its investments,  the Registrant is required,  from time
to time, to make loans to its investees in order to protect its investments.  As
a result  of  these  loans as well as other  notes  receivable,  the  Registrant
carried  notes  receivable  of $418,210 and $20,250 at years ended  December 31,
1997 and 1996, respectively. The majority of the increase in notes receivable at
year end 1997 as  compared  to 1996 is the  result  of the  Registrant  covering
portions of expenses and start-up costs for two new investees  during the latter

                                       19
<PAGE>
part of the year. As these companies complete mergers or acquisitions,  or raise
capital  through  private  or  public  offerings,  these  notes may be repaid or
otherwise extinguished although no assurance can be given at this time that such
repayments will take place.

     The Registrant's cash position decreased by $44,608 at December 31, 1997 as
compared to an decrease of  $122,957  at  December  31,  1996.  Net cash used by
operating  activities was $672,835 for 1997 as compared to $14,175 used in 1996.
No one use of cash used in operating  activities  accounted  for the change from
1996 to 1997; however, the Registrant discharged  significant amount of cash for
the purchase of a note receivable from IntraNet as described more fully above as
well as  transferred  cash to an  escrow  account  [See  Part I.  Item 3.  Legal
Proceedings].  Cash flows from investing activities used $1,872 for the purchase
of fixed assets in 1997 compared to $19,591 in 1996 due to the purchase of a new
company  vehicle.  Cash flows from  financing  activities  provided  $630,099 as
compared to $89,191 used during 1996. The cash provided by financing  activities
in 1997 was derived  from a sale of the  Registrant's  common stock in a private
placement  offering as well as the receipt of cash through the issuance of notes
payable to the Registrant's  President and others.  [See also Part III, Item 12.
Certain  Relationships and Related  Transactions and Part IV, Item 13. Financial
Statements].

     The Registrant's sources of income to defray operating overhead are derived
from consulting fees, transaction fees gained from the Registrant assisting both
existing and new investees in structuring and completing  mergers,  acquisitions
or asset-based  financing  transactions,  administrative  fees through which the
Registrant  directly  apportions a certain amounts of its operating  overhead to
investees  as  warranted  to help  defray  operating  costs,  and  sales  of the
Registrant's  investments.  During 1997 the Registrant's  sources of income were
sufficient to cover its operating overhead and it is anticipated this trend will
continue during 1998.

     The Registrant's  liquidity is affected  primarily by the business success,
securities prices and marketability of its investee  companies and by the amount
and  timing  of any new or  incremental  investments  it makes.  The  Registrant
believes  that its present  liquidity  and  capital  resources  are  adequate to
finance  anticipated  needs arising from or relating to its business in the 1998
year due to its increased  ability to sell  portions of its investee  companies'
stock positions as restrictions  on their ability to be sold end.  However,  the
Registrant  has sold and  anticipates  that it will  continue  to offer  limited
private  placements  of the  Registrant's  common stock in order to increase its
present  liquidity.  Although the Registrant's  ability to liquidate portions of
its portfolio companies have increased as the restrictions as to resale end, the
Registrant generally is a long-term holder if its investments and therefore does
not necessarily liquidate them upon the expiration of these restrictions. As the
Registrant  cannot  forecast  the  types of  large-scale  sales  which  generate
significant  profits,  the Registrant had not typically  relied on sales of this
large nature for its financing needs.  However,  as the Registrant expects lower
transaction and consulting fees and therefore reduced revenue during 1998, sales
of portfolio securities may be necessary for its financing needs.

     The  Registrant's  largest  investee  company is IntraNet,  a publicly held
company which provides  document  handling,  storage and retrieval  solutions to
Fortune 1000 companies  utilizing  internet and intranet  technologies.  For the
nine months ended December 31, 1997,  the latest  available  date,  IntraNet had
total revenues of $14.6 million and a net loss of $4.0 million.


                                       20
<PAGE>
     On  August  29,  1997  RDM  Sports  Group,  Inc.  ("RDM")filed  Chapter  11
bankruptcy  petitions for the company and all of its subsidiaries  with the U.S.
Bankruptcy Court for the Northern District of Georgia and ceased all operations.
As part of the ongoing bankruptcy proceedings, certain of RDM's assets have been
sold to pay  creditors  and no plan of  reorganization  has been  filed to date.
Following the initiation of this  bankruptcy  proceeding,  the fair value of the
Registrant's investment in RDM was substantially reduced so that at December 31,
1997,  the  Registrant  had a cost basis of $1,239,497 in its  investment in RDM
with fair value of $6,231.

     As of  December  31,  1997,  the  Registrant  had  made no  other  material
commitments  for  capital   expenditures  or  loans  to  investees  however  the
Registrant  may be required to make such  expenditures  or loans during 1998 the
amount of which is unknown at this time.  The  Registrant  expects  that it will
continue to sell certain of its  investments,  resulting in additional  realized
gains,  during the remainder of the current year. At the discretion of the Board
of Directors,  the Registrant also may sell certain of its investments resulting
in a realized  loss in order to  prevent  further  losses  from  occurring.  The
Registrant  does  not  currently  anticipate  any  extraordinary  costs  will be
incurred as a result of year 2000 computer date conversions.


ITEM 7. FINANCIAL STATEMENTS.

     The financial statements are listed under Item 13.


ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

     There have been no changes in or disagreements  with accountants during the
most recent two fiscal years.


                                       21
<PAGE>
                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.

(a) Identification of Directors and Executive Officers
                                                                 Length of
Name                    Age       Offices held                   Service
----                    ---       ------------                   ---------
Henry Fong              62        President, Treasurer,          Since Inception
                                  Principal Executive,
                                  Financial and Accounting
                                  Officer and Director

Thomas B. Olson         32        Secretary                      Since 1988

Russell L. Casement     54        Director                       Since 1989

Aaron A. Grunfeld       51        Director                       Since 1991

     The directors of the  Registrant  are elected to hold office until the next
annual meeting of the shareholders  and until their  respective  successors have
been elected and qualified.  Officers of the Registrant are elected by the Board
of  Directors  and hold  office  until  their  successors  are duly  elected and
qualified.

     No  arrangement  exists  between any of the above  officers  and  directors
pursuant  to which  any one of those  persons  was  elected  to such  office  or
position.

     The Registrant has appointed an audit committee currently consisting of Dr.
Casement as chairman and Mr.  Grunfeld and a  compensation  committee  currently
consisting of Mr. Grunfeld as chairman and Dr. Casement.

     HENRY FONG.  Mr. Fong has been the  President,  Treasurer and a director of
the Registrant since inception. From 1987 to June 1997, Mr. Fong was chairman of
the  board  and  chief  executive  officer  of RDM  Sports  Group,  Inc.  (f/k/a
Roadmaster Industries,  Inc.) a publicly-held investee of the Registrant and was
its  president  and  treasurer  from  1987 to  1996.  Subsequent  to Mr.  Fong's
departure  from RDM, the company  filed on August 29, 1997 Chapter 11 bankruptcy
petitions for the company and all of its subsidiaries  with the U.S.  Bankruptcy
Court for the Northern District of Georgia.  From July 1996 to October 1997, Mr.
Fong was a director  of  IntraNet  Solutions,  Inc.,  a  publicly-held  investee
company which provides internet/intranet solutions to Fortune 1000 companies and
was  the  chairman  of the  board  and  treasurer  of its  predecessor  company,
MacGregor  Sports and Fitness,  Inc.  from February 1991 until the two companies
merged in July 1996. Since January 1993, Mr. Fong has been chairman of the board
and Chief Executive  Officer of California Pro Sports,  Inc., a  publicly-traded
manufacturer  and  distributor of in-line skates,  hockey  equipment and related
accessories.  From 1959 to 1982 Mr. Fong served in various  accounting,  finance
and budgeting  positions with the Department of the Air Force. During the period
from  1972  to 1981 he was  assigned  to  senior  supervisory  positions  at the
Department  of the Air  Force  headquarters  in the  Pentagon.  In 1978,  he was
selected  to  participate in the  Federal Executive  Development  Program and in

                                       22
<PAGE>
1981, he was  appointed to the Senior  Executive  Service.  In 1970 and 1971, he
attended the Woodrow  Wilson  School,  Princeton  University and was a Princeton
Fellow in Public Affairs.  Mr. Fong received the Air Force Meritorious  Civilian
Service Award in 1982. Mr. Fong is a certified public accountant. In March 1994,
Mr. Fong was one of twelve CEOs  selected as Silver  Award  winners in FINANCIAL
WORLD magazine's corporate American "Dream Team."

     THOMAS B. OLSON.  Mr.  Olson has been  Secretary  of the  Registrant  since
January 1988. Since February 1990, Mr. Olson has been a director,  and since May
1994  secretary,  of Immune  Response,  Inc. a  publicly  held  investee  of the
Registrant  formerly engaged in laboratory  medical testing and related research
activities but which now is seeking other business opportunities.  Mr. Olson has
attended Arizona State University and the University of Colorado at Denver.

     RUSSELL L.  CASEMENT.  Dr.  Casement has been a director of the  Registrant
since February 1989. In 1994, Dr. Casement became the President of ProMark, Inc.
a privately-held  investee of the Registrant which currently is inactive.  Since
1969, Dr.  Casement has been the president of his own private  dental  practice,
Russell  Casement,  D.D.S.,  P.C., in Denver,  Colorado.  Dr.  Casement earned a
Doctor of Dental  Science  degree  from  Northwestern  University  in 1967.  Dr.
Casement is a member of the American  Dental  Association,  the Colorado  Dental
Association and the Metro Denver Dental Association.

     AARON A. GRUNFELD. Mr. Grunfeld has been a director of the Registrant since
November 1991. Mr. Grunfeld has been engaged in the practice of law for the past
27 years and has been of  counsel  to the firm of Resch,  Polster,  Alpert,  and
Berger,  LLP, Los Angeles,  California  since November 1995.  From April 1990 to
November  1995,  Mr.  Grunfeld was a member of the firm of Spensley Horn Jubas &
Lubitz,  Los Angeles,  California.  Mr.  Grunfeld  received an A.B. in Political
Science from UCLA in 1968 and a J.D. from  Columbia  University in 1971. He is a
member of the California Bar Association.

(b) Significant Employees

     None

(c) Family Relationships

     Not applicable

(d) Involvement in Certain Legal Proceedings

     Not applicable


SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
-------------------------------------------------------

     Section  16(a)  of the  Securities  Exchange  Act of  1934  ("Section  16")
requires the Registrant's officers,  directors and persons who own more than ten
percent of the Registrant's voting securities to file reports of their ownership
and changes in such ownership with the Securities and Exchange  Commission  (the
"Commission"). Commission regulations also require that such persons provide the
Registrant with copies of all Section 16 reports they file.

                                       23
<PAGE>
     Based solely upon its review of such reports received by the Registrant, or
written representations from certain persons that they were not required to file
any reports under Section 16, the  Registrant  believes  that,  during 1996, its
officers and directors have complied with all Section 16 filing requirements.


ITEM 10. EXECUTIVE COMPENSATION.

(a) General

     Henry Fong,  the  President of the  Registrant  and the only officer of the
Registrant whose total compensation  exceeded $100,000 for the fiscal year ended
December 31, 1997, received an annual salary of $183,013. Additionally, Mr. Fong
receives an annual  bonus which  equals 3% of the  Registrant's  total assets at
year end which bonus equaled $151,153 for the year ended December 31, 1997.

     On April 1, 1992,  the  Registrant  obtained a life  insurance  policy with
retirement  benefits for Mr. Fong which pays his  beneficiary  $2,600,000 in the
event of Mr. Fong's death or provides for retirement  benefits for Mr. Fong upon
his retirement at or after age 65 utilizing the cash value of the policy at that
time. This benefit is being provided to Mr. Fong in consideration of his fifteen
years of  service to the  Registrant  and in  anticipation  of his  serving  the
Registrant until  retirement.  The Registrant has no other retirement or pension
plan for Mr.  Fong.  The annual  premium on this policy is $105,414 per year for
seven  years  until  March  30,  1999,  and  may  be  considered   other  future
compensation  to Mr. Fong.  For the year ended  December 31, 1997,  $105,414 was
paid  toward the  policy  and an  additional  $59,586  was paid to Mr.  Fong for
deferred  income taxes on the policy.  Concurrently,  the Registrant  obtained a
Key-man Life Insurance policy which pays the Registrant  $3,000,000 in the event
of Mr. Fong's death. The Registrant paid $16,550 on this policy in 1997 which is
not considered compensation to Mr. Fong.

(b) Summary Compensation Table

     The following table sets forth information  regarding  compensation paid to
the officers of the Registrant  during the years ended  December 31, 1997,  1996
and 1995:

                                       24
<PAGE>
<TABLE>
<CAPTION>
                           SUMMARY COMPENSATION TABLE

                                          Annual Compensation             ($$)Long-Term
                                  ------------------------------------     Compensation
                                                                              Awards
(a)                    (b)          (c)           (d)          (e)              (g)               (i)
                                                              Other                               All
Name &                                                       Annual                              Other
Principal                         Salary         Bonus    Compensation        Options        Compensation
Position              Year          ($)           ($)          ($)           & SARs(#)            ($)
--------              ----          ---           ---          ---           ---------            ---
<S>                   <C>         <C>           <C>            <C>              <C>             <C>
Henry Fong            1997        183,013       151,153        -0-              -0-             165,000  <F1>
President,
Treasurer
Principal
Executive
Officer and
Accounting
Officer

Henry Fong            1996        183,013       314,328        -0-              -0-             165,000  <F1>

Henry Fong            1995        183,013       571,693        -0-              -0-             165,000  <F1>
---------
<FN>
<F1>  Includes  payments  and tax  liability  on the life  insurance  policy  as
explained more fully in "Item 10 (a) General" above.
</FN>
</TABLE>

(c) Option/SAR Grants Table

     The  Registrant  made no grants of stock  options  or SARs  during the year
ended December 31, 1996.

(d) Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value Table

Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
<TABLE>
<CAPTION>
(a)                         (b)                       (c)                       (d)                        (e)

                                                                             Number of
                                                                            Securities                  Value of
                                                                            Underlying                 Unexercised
                                                                            Unexercised               In-the-Money
                                                                           Options/SARs               Options/SARs
                          Shares                                           at FY-End (#)              at FY-End (#)
                        Acquired on                  Value                 Exercisable/               Exercisable/
Name                   Exercise (#)              Realized ($)              Unexercisable              Unexercisable
----                   ------------              ------------              -------------              -------------
<S>                         <C>                       <C>                   <C>                      <C>    <C>  
Henry Fong                  -0-                       -0-                   206,545/-0-              $(451,818)/-0-
</TABLE>


(e) Long Term Incentive Plans - - Awards in Last Fiscal Year.

     The Registrant has no long term incentive  plans, and consequently has made
no such awards.

                                       25
<PAGE>
(f) Compensation of Directors

     (1) Standard Arrangements

     Each  independent  member of the Registrant's  Board of Directors,  Messrs.
Russell L.  Casement  and Aaron A.  Grunfeld,  receive  $10,000 per year payable
monthly and $500 for each Board of Director's  meeting attended either in person
or by  telephone.  For the year ended  December 31, 1997,  Messrs.  Casement and
Grunfeld  each  received a total of $12,500.  Members of the Board of  Directors
also receive reimbursement for expenses incurred in attending board meetings.

     (2) Other Arrangements

     1993 Stock Option Plan for Non-Employee Directors
     -------------------------------------------------

     The  Registrant  has  adopted the 1993 Stock  Option Plan for  Non-Employee
Directors (the  "Directors'  Plan")  reserving an aggregate of 250,000 shares of
Common  Stock for  issuance  pursuant  to the  exercise  of stock  options  (the
"Options") which may be granted to non-employee directors of the Registrant.  On
July 5, 1995,  an order was issued by the  Securities  and  Exchange  Commission
authorizing  the  Directors'  Plan  and  the  options  granted  thereunder.  The
Directors'  Plan is for a ten-year term  commencing July 5, 1995 (the "Effective
Date"). Each non-employee director automatically,  as of the Effective Date, was
granted an option to purchase  50,000 shares of common stock at $3.00 per share.
Thereafter,  each  director  who first  becomes a  non-employee  director  shall
automatically,  as of the date 90 days  following the date such person becomes a
non-employee  director, be granted an option to purchase 50,000 shares of common
stock. No additional  options can be granted under the Directors' Plan except to
an individual  who first  becomes a  non-employee  director  after the Effective
Date. No discretionary grants can be made under the Directors' Plan.


(g) Employment Contracts and Termination of Employment and Change-in-Control
Arrangements

     On April 1, 1992,  the Registrant  obtained a life insurance  policy on the
Registrant's  President,  Henry Fong, which policy provides for a payment to Mr.
Fong's  beneficiary  of  $2,600,000  in the event of his  death or a  retirement
benefit to Mr. Fong  consisting  of the cash value of the policy upon Mr. Fong's
retirement  from the  Registrant at or after age 65 [See-Item 11. (a) "General."
above].  The  Registrant  has no other  compensation  plan or  arrangement  with
respect  to any  executive  officer  which plan or  arrangement  results or will
result  from  the  resignation,  retirement  or any  other  termination  of such
individual's  employment  with the  Registrant.  The  Registrant  has no plan or
arrangement  with respect to any such persons which will result from a change in
control  of the  Registrant  or a change  in the  individual's  responsibilities
following a change in control.

(h) Report on Repricing of Options/SARs

     Not applicable

                                       26
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

(a) (b) Security Ownership of Certain Beneficial Owners and Security Ownership
of Management.

     The  following  table  contains  information  at April 9,  1998,  as to the
beneficial  ownership of shares of the Registrant's  Common Stock by each person
who, to the knowledge of the Registrant at that date,  was the beneficial  owner
of five percent or more of the outstanding  shares of the class, each person who
is a director or executive  officer of the Registrant and all persons as a group
who  are  executive  officers  and  directors  of the  Registrant  and as to the
percentage of outstanding shares so held by them at April 9, 1998.

Name and address                       Amount and Nature of
of beneficial owner                  Beneficial Ownership (1)   Percent of Class
-------------------                  ------------------------   ----------------

Henry Fong                                 896,329 (2)(3)              22.4%
7315 East Peakview Avenue
Englewood, Colorado 80111

Wayne W. Mills                             300,000                      7.9%
5020 Blake Road South
Edina, Minnesota 55436

Russell L. Casement                         75,000 (5)                  2.0%
1355 S. Colorado Blvd., Suite 320
Denver, Colorado 80222

Aaron A. Grunfeld                           60,800 (5)                  1.6%
10390 Santa Monica Blvd, Fourth Floor
Los Angeles, California 90025

All officers and directors               1,037,129 (2)(3)(6)           25.3%
as a group (four persons)                            (7)
----------

(1)  The beneficial owners exercise sole voting and investment power.

(2)  Includes 206,545 shares  underlying  options granted under the Registrant's
     1993 Stock Option Plan.

(3)  Includes  579,534  shares  owned by a  partnership  in which Mr.  Fong is a
     general partner.

(4)  Based upon a Schedule 13D filed with the Securities and Exchange Commission
     on September 30, 1993.

(5)  Includes 50,000 shares  underlying  options granted under the  Registrant's
     1993 Stock Option Plan for Non-Employee Directors. [See also Item 10.(f)(2)
     "Other Arrangements"]

(6)  Includes 100,000 shares  underlying  options granted under the Registrant's
     1993 Stock Option Plan for Non-Employee Directors.

                                       27
<PAGE>
(7)  Includes 5,000 shares  underlying  options  granted under the  Registrant's
     1993 Stock Option Plan.

     At the Company's Annual Meeting of Stockholders  held on December 30, 1997,
a person who attended the meeting stated that one of his relatives,  whom he was
representing   at  the  meeting,   owns   approximately   1,200,000   shares  or
approximately 30% of the outstanding shares of Common Stock of the Company.  The
Company has never received any Schedule 13D or amendment  thereto  directly from
any person reporting ownership of 30% of the Company's common stock, nor was the
Company  able to locate any filing to this effect made with the  Securities  and
Exchange Commission.

(c) Changes in Control.

     The Registrant  does not know of any  arrangements,  the operation of which
may, at a subsequent date, result in a change in control of the Registrant.


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

(a) Transactions with Management and Others.

     The Registrant  currently leases  approximately 1,800 square feet of office
space in Greenwood Executive Park, 6400 South Quebec, Englewood, Colorado from a
partnership  in which its  President  and his wife are sole  partners,  on terms
comparable to the existing market for similar facilities.

     During the year ended December 1, 1997, the  Registrant's  President loaned
the Registrant a total of $531,000. Of this amount,  $353,401 was repaid leaving
a principal  balance due at December 31, 1997 of $177,599 plus accrued interest.
These  uncollateralized  loans are all due on demand and bear interest at 8% per
annum. All of the remaining balance was repaid during the first quarter of 1998.
In addition,  a related  entity loaned the  Registrant  $100,000 in August 1997.
This  loan  bears  interest  at  12%  per  annum,   is  due  on  demand  and  is
collateralized  by 25,000 shares of the  Registrant's  investment in an investee
company's common stock.

     Effective  October 29, 1997, the Registrant  entered into an agreement with
an  investee  company,  IntraNet  Solutions,  Inc.  ("IntraNet").   Because  the
Registrant had entered into a prior  indemnification  agreement with IntraNet in
July 1996,  it agreed to  purchase a certain  note  receivable  in the amount of
$564,755 which IntraNet had from an RDM subsidiary,  Hutch Sports USA ("Hutch").
Hutch had filed  bankruptcy on August 29, 1997. The Registrant  paid $414,755 of
the purchase amount to IntraNet on October 29, 1997. The balance of $150,000 was
due on demand but no later than  December 31, 1997  carried an interest  rate of
8.75% per annum, was secured by an officer's pledging of a common stock purchase
warrant relating to 62,550 shares of IntraNet and was also personally guaranteed
by the  Registrant's  President.  This note was  repaid  on  January  23,  1998.
Furthermore,  the  Registrant's  President  agreed to  resign  from the Board of
IntraNet, both IntraNet and the Registrant agreed to terminate effective October
29, 1997 the  indemnification  agreement  under which the  Registrant's  maximum
exposure  was  $2,000,000,  and agreed to mutually  release  each other from any
claims relating to this agreement and certain other items.

                                       28
<PAGE>
     The  Registrant  has placed  members of its Board and its  officers  on the
boards of directors of certain  investee  companies and other companies in which
it has obtained an equity  interest or to which it has made loans or guarantees.
In  most   instances,   the  board   representation   was  subsequent  to  these
acquisitions,  loans or  guarantees.  The  Registrant may be considered to be in
control of certain of its investee companies.

(b) Information which May be Excluded

     Not applicable

(c) Parents of Registrant

     Not applicable

(d) Transactions with Promoters

     Not applicable





                                       29
<PAGE>
                                     PART IV


ITEM 13. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.

(a) The  following  documents  are  filed as a part of this  report  immediately
following the signature page.

1. Financial Statements and Supplementary Data.
                                                                         Page
                                                                         ----
    Report of Independent Certified Public Accountants...........        F-1
    Statements of Assets and Liabilities  at
     December 31, 1997, and 1996..................................       F-3
    Schedule of Investments at December 31, 1997
     and December 31, 1996........................................       F-5
    Statements of Changes in Stockholders' Equity for the
     Years Ended December 31, 1997 and 1996.......................       F-11
    Statements of Operations for the Years Ended
     December 31, 1997 and 1996...................................       F-13
    Statements of Cash Flows for the Years Ended
     December 31, 1997 and 1996...................................       F-15
    Notes to Financial Statements.................................       F-17

2. Financial Statements Schedules.

    Schedule II - Valuation and Qualifying Accounts and Reserves..       S-1

3. Exhibits.

    3.1  Articles of  Incorporation (1)
    3.2  Bylaws (1)
    10.5 1993 Stock Option Plan (2)
    10.6 1993 Stock Option Plan for Non-Employee Directors (2)
    10.7 Custody Agreement between Colorado National Bank
          and the Registrant (2)
----------

(1)  Incorporated  by reference  from the like numbered  exhibits filed with the
     Registrant's  Registration  Statement on Form S-18, No. 2-82104-D effective
     April 11, 1983.

(2)  Incorporated  by reference  form the like numbered  exhibits filed with the
     Registrant's  Annual  Report on Form 10-K for the year ended  December  31,
     1993.

(b) Reports on Form 8-K.

     No reports on Form 8-K were filed during the period covered by this report.


                                       30
<PAGE>
                                   SIGNATURES
                                   ----------

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

Date:  April 15, 1998
       --------------

                                       EQUITEX, INC.
                                       (Registrant)


                                       By  /S/ HENRY FONG
                                           -------------------------
                                           Henry Fong, President


     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities and on the dates indicated.




Date:  April 15, 1998                  /S/ HENRY FONG
       --------------                  -----------------------------
                                       Henry Fong, President,
                                       Treasurer and Director
                                       (Principal Executive, Financial,
                                       and Accounting Officer)





Date:  April 15, 1998                  /S/ RUSSELL L. CASEMENT
       --------------                  -----------------------------
                                       Russell L. Casement, Director





Date:  April 15, 1998                  /S/ AARON A. GRUNFELD
       --------------                  -----------------------------
                                       Aaron A. Grunfeld, Director


                                       31
<PAGE>
               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


To the Board of Directors
Equitex, Inc.

We have  audited  the  accompanying  statements  of assets and  liabilities  and
schedule of  investments  of Equitex,  Inc. as of December 31, 1997 and 1996 and
the related statements of changes in stockholders'  equity,  operations and cash
flows  for  the  years  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 audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about 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.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the 1997 and 1996 financial statements referred to above present
fairly, in all material  respects,  the financial  position of Equitex,  Inc. at
December 31, 1997 and 1996 and the results of its  operations and its cash flows
for the years  then  ended in  conformity  with  generally  accepted  accounting
principles.

As explained  more fully in Note 1b., the  financial  statements at December 31,
1997 and 1996 include securities and receivables, valued at $1,468,214 (41.5% of
net assets) and $483,130 (6.7% of net assets),  respectively,  whose values have
been  estimated by the Board of  Directors in the absence of readily  attainable
market values. We have reviewed the procedures used by the Board of Directors in
arriving at its estimate of value of such  securities and  receivables  and have
inspected underlying  documentation,  and, in the circumstances,  we believe the
procedures are reasonable and the documentation appropriate. However, because of
the inherent uncertainty of valuation of restricted  securities and receivables,
those estimated values may differ  significantly from the values that would have
been used had a ready  market  for the  restricted  securities  and  receivables
existed,   and  had  the  precise   recoverability   of  the  receivables   been
determinable; and the differences could be material.

                                                                     (Continued)
                                       F-1
<PAGE>
Report of Independent Certified Public Accountants
Page Two


Our  audits  were  made for the  purpose  of  forming  an  opinion  on the basic
financial  statements taken as a whole. The schedule on S-1 is presented for the
purpose of complying with the Securities and Exchange  Commission's rules and is
not a required part of the basic  financial  statements.  This schedule has been
subjected to the auditing procedures applied in our audit of the basic financial
statements and, in our opinion,  fairly states in all material respects the 1997
and 1996  financial  data  required  to be set forth  therein in relation to the
basic financial statements taken as a whole.





                                       Davis & Co., CPAs, P.C.
                                       Certified Public Accountants

Englewood, Colorado
March 27, 1998
















                                       F-2
<PAGE>
                                  EQUITEX, INC.
                      Statements of Assets and Liabilities

                                                            DECEMBER 31,
                                                         1997           1996
                                                         ----           ----
ASSETS

Investments, at fair value:

 Securities (cost of $3,568,045 and
   $3,767,309 in 1997 and 1996, respectively) ....   $ 4,165,993    $10,138,562
 Notes receivable, net of allowance
   for uncollectible accounts of $40,293 and
   $100 in 1997 and 1996, respectively ...........       418,210         20,250
 Accrued interest receivable, net of
   allowance for uncollectible interest
   of $35 ........................................         5,701          1,902
 Trade receivables, net of allowance
   for uncollectible accounts of $53,742
   and $2,943 in 1997 and 1996, respectively .....       110,954         39,623
                                                     -----------    -----------
                                                       4,700,858     10,200,337

Cash .............................................         9,187         53,795

Accounts receivable - brokers ....................        73,741          4,766

Contract deposit receivable, net of
   allowance for uncollectibility of $150,000 ....       150,000           --

Income taxes refundable ..........................         2,150        166,609

Furniture and equipment, net of
   accumulated depreciation of $117,750
   and $106,362 in 1997 and 1996, respectively ...        29,204         38,720

Deferred income tax benefit ......................        63,180           --

Other ............................................        10,105         13,776
                                                     -----------    -----------
                                                     $ 5,038,425    $10,478,003
                                                     ===========    ===========

The accompanying notes are a part of this statement.                 (Continued)

                                       F-3
<PAGE>b
                                  EQUITEX, INC.
                      Statements of Assets and Liabilities

                                                            DECEMBER 31,
                                                         1997           1996
                                                         ----           ----
LIABILITIES AND NET ASSETS

Liabilities
   Notes payable - officer .......................   $   177,599    $      --
   Notes payable - others ........................       250,000           --
   Accounts payable and other
     accrued liabilities .........................       121,349         55,441
   Accounts payable to brokers ...................       650,302        739,023
   Accrued bonus to officer ......................       299,259        148,106
   Deferred income taxes .........................          --        2,274,650
                                                     -----------    -----------
                                                       1,498,509      3,217,220
Commitments and contingencies (Notes 4, 7, 8 and 9)

Net Assets
   Preferred stock, par value $.01;
     2,000,000 shares authorized; no
     shares issued
   Common stock,  par value $.02;
     7,500,000  shares  authorized; 3,494,465
     and 3,224,465 shares issued;
     3,461,115 and 3,191,115 shares
     outstanding in 1997 and 1996,
     respectively ................................        69,889         64,489
   Additional paid-in capital ....................     4,644,275      4,447,175

   Retained earnings
     Accumulated deficit prior to
       becoming a BDC ............................      (118,874)      (118,874)
     Accumulated net investment loss .............   (13,431,269)   (12,025,669)
     Accumulated net realized gains from
       sales and permanent write-downs
       of investments ............................    12,125,185     11,121,234
     Unrealized net gains on investments
       (net of deferred income taxes of
       $233,201 and $2,484,788 in 1997
       and 1996, respectively) ...................       364,747      3,886,465
   Less: treasury stock at cost
       (33,350 shares) ...........................      (114,037)      (114,037)
                                                     -----------    -----------
                                                       3,539,916      7,260,783
                                                     -----------    -----------
                                                     $ 5,038,425    $10,478,003
                                                     ===========    ===========

The accompanying notes are a part of this statement.


                                       F-4
<PAGE>
                                  EQUITEX, INC.
                             Schedule of Investments
                                December 31, 1997

<TABLE>
<CAPTION>
                                                   NUMBER              COST
                                                     OF               AND/OR         FAIR
COMPANY                                         SHARES OWNED          EQUITY         VALUE
-------                                         ------------          ------         -----
<S>                                         <C>                   <C>            <C>
CONTROLLED COMPANIES
COMMON STOCKS - PRIVATE
  MARKET METHOD OF VALUATION (a)(e)
VP Sports, Inc. ..........................
  Entity formed to seek-out
  acquisitions in the sports
  and health products industries .........        2,000,000       $    250,000   $  1,000,000

AFFILIATED COMPANIES
COMMON STOCKS - PUBLIC MARKET
  METHOD OF VALUATION (c)(e)
IntraNet Solutions, Inc. (formerly
  MacGregor Sports & Fitness, Inc.)
  Document management services,
    web-based internet software,
    electronic document management
    and demand printing ..................          473,250          1,410,776      2,498,529

RDM Sports Group (formerly
  Roadmaster Industries, Inc.)
  Manufacturer of fitness
  equipment and juvenile products ........        4,979,437          1,088,815          4,481

OTHER - PUBLIC MARKET METHOD
  OF VALUATION
RDM Sports Group                             8% Convertible
  Manufacturer of fitness                      Subordinated
  equipment and juvenile products ........       Debentures            150,682          1,750
                                                                  ------------   ------------

   Sub-Total
   CONTROLLED AND AFFILIATED COMPANIES ...                           2,900,273      3,504,760
                                                                  ------------   ------------

UNAFFILIATED COMPANIES
COMMON STOCKS - PUBLIC MARKET
  METHOD OF VALUATION
IVI Publishing
  Publishing technology ..................           25,000            116,881         64,063
Racotek
  Medical technology .....................           75,000            377,391        110,156
NevStar Gaming Corporation
  Gaming development .....................            7,000             38,500         18,750
</TABLE>

The accompanying notes are a part of this statement.                 (Continued)

                                       F-5
<PAGE>
                                  EQUITEX, INC.
                        Schedule of Investments (Page 2)
                                December 31, 1997

<TABLE>
<CAPTION>
                                                   NUMBER              COST
                                                     OF               AND/OR         FAIR
COMPANY                                         SHARES OWNED          EQUITY         VALUE
-------                                         ------------          ------         -----
<S>                                         <C>                   <C>            <C>
COMMON STOCKS - PRIVATE MARKET
  METHOD OF VALUATION (a)(e)

All Systems Go
  Software development ...................           20,000(b)          25,000         25,000

Ocean Power Technology
  Alternative energy
  research and development ...............           35,714(b)          40,000         98,214
                                                    100,000               --          275,000
Gain, Inc. ...............................
  Male vascular devices ..................           20,000(b)          50,000         50,000

Juice Island
  Health food stores .....................           10,000(b)          20,000         20,000

WARRANTS (f)(e)
Nationsmart
  Consumer services ......................           10,000               --               50

Juice Island
  Health food stores .....................            2,500               --             --
                                            ---------------       ------------   ------------

  Sub-total
  UNAFFILIATED COMPANIES .................                             667,772        661,233
                                                                  ------------   ------------

  Total
  ALL COMPANIES ..........................                        $  3,568,045   $  4,165,993
                                                                  ============   ============
</TABLE>

The accompanying notes are a part of this statement.                 (Continued)

                                       F-6
<PAGE>
                                  EQUITEX, INC.
                        Schedule of Investments (Page 3)
                                December 31, 1997

RESTRICTIONS AS TO RESALE

(a)  Non-public  company  whose  securities  are privately  owned.  The Board of
     Directors  determines fair value in good faith using cost information,  but
     also  taking into  consideration  the impact of such  factors as  available
     financial  information  of the  investee,  the nature and  duration  of any
     restrictions  on resale,  and other factors  which  influence the market in
     which a security is purchased and sold.

(b)  May be sold under the  provisions of Rule 144 of the Securities Act of 1933
     after an initial holding period expires.

(c)  Since the Company is a greater  than five  percent  shareholder,  it may be
     affected by a sales limitation of one percent of the investee's outstanding
     common stock during any three-month period.

(e)  Since certain of these  securities have certain  restrictions as to resale,
     the Board of  Directors  determines  fair value in good faith using  public
     market  information,  but also taking into consideration the impact of such
     factors as available financial information of the investee,  the nature and
     duration  of  restrictions  on the  disposition  of  securities,  and other
     factors  which  influence  the market in which a security is purchased  and
     sold.

(f)  Valued at higher of cost or fair  market  value of  underlying  stock  less
     exercise  price,  subject to valuation  adjustments  as  determined in good
     faith by the Board of Directors,  taking into  consideration  the impact of
     such factors as available financial information of the investee, the nature
     and  duration  of any  restrictions  on  resale,  and other  factors  which
     influence the market in which a security is purchased and sold.







The accompanying notes are a part of this statement.

                                       F-7
<PAGE>
                                  EQUITEX, INC.
                             Schedule of Investments
                                December 31, 1996

<TABLE>
<CAPTION>
                                                   NUMBER              COST
                                                     OF               AND/OR         FAIR
COMPANY                                         SHARES OWNED          EQUITY         VALUE
-------                                         ------------          ------         -----
<S>                                         <C>                   <C>            <C>
AFFILIATED COMPANIES
COMMON STOCKS - PUBLIC MARKET
   METHOD OF VALUATION (c)(e)
IntraNet Solutions, Inc. (formerly
  MacGregor Sports & Fitness, Inc.)
  Document management services,
    web-based internet software,
    electronic document management
    and demand printing ..................          645,085       $  1,417,610   $  3,193,171

RDM Sports Group (formerly
  Roadmaster Industries, Inc.)
  Manufacturer of fitness
  equipment and juvenile products ........        5,142,037          1,149,559      5,789,367

OTHER - PUBLIC MARKET METHOD
  OF VALUATION
RDM Sports Group                             8% Convertible
  Manufacturer of fitness                      Subordinated
  equipment and juvenile products ........       Debentures            150,682        130,375
                                                                  ------------   ------------

   Sub-Total
   AFFILIATED COMPANIES ..................                           2,717,851      9,112,913
                                                                  ------------   ------------

UNAFFILIATED COMPANIES
COMMON STOCKS - PUBLIC MARKET
  METHOD OF VALUATION
Diametrics Medical
  Medical equipment ......................           10,000             76,883         42,500
Cambridge Holdings
  Real estate - commercial ...............           87,209             34,000         54,506
IVI Publishing
  Publishing technology ..................           30,000            171,258         93,750
Meditech Pharmaceuticals, Inc.
  Antiviral products .....................          500,000             40,000         13,750
Meteor Industries
  Petroleum distributor ..................            5,120             19,502         25,920
Racotek
  Medical technology .....................           50,000            317,387        212,500
Audio King
  Consumer electronics ...................           12,000             31,543         13,500
</TABLE>

The accompanying notes are a part of this statement.                 (Continued)

                                       F-8
<PAGE>
                                  EQUITEX, INC.
                        Schedule of Investments (Page 2)
                                December 31, 1996

<TABLE>
<CAPTION>
                                                   NUMBER              COST
                                                     OF               AND/OR         FAIR
COMPANY                                         SHARES OWNED          EQUITY         VALUE
-------                                         ------------          ------         -----
<S>                                         <C>                   <C>            <C>
UNAFFILIATED COMPANIES (CONTINUED)
COMMON STOCKS - PUBLIC MARKET
   METHOD OF VALUATION
Frontier Airlines
  Commercial air carrier .................           10,000             92,520         32,500
LaMan Corporation
  Manufacturer - decontamination
  devices ................................           29,400             61,265         36,750
Las Vegas Discount Golf
  and Tennis
  Sporting goods retailer ................           30,000             31,600         27,188

COMMON STOCKS - PRIVATE MARKET
  METHOD OF VALUATION (a)(e)
All Systems Go
  Software development ...................           20,000(b)          25,000         25,000
NevStar Gaming Corporation                    10,000 Series
  Gaming development .....................      A preferred             38,500         38,500
Ocean Power Technology
  Alternative energy
  research and development ...............           35,714(b)          40,000         89,285
                                                    100,000               --          250,000
Gain, Inc.
  Male vascular devices ..................           20,000(b)          50,000         50,000
Juice Island
  Health food stores .....................           10,000(b)          20,000         20,000

WARRANTS (f)(e)
Juice Island
  Health food stores .....................            2,500               --             --
                                            ---------------       ------------   ------------

  Sub-total
  UNAFFILIATED COMPANIES .................                           1,049,458      1,025,649
                                                                  ------------   ------------
  Total
  ALL COMPANIES ..........................                        $  3,767,309   $ 10,138,562
                                                                  ============   ============
</TABLE>

The accompanying notes are a part of this statement.                 (Continued)

                                       F-9
<PAGE>
                                  EQUITEX, INC.
                        Schedule of Investments (Page 3)
                                December 31, 1996


RESTRICTIONS AS TO RESALE

(a)  Non-public  company  whose  securities  are privately  owned.  The Board of
     Directors  determines fair value in good faith using cost information,  but
     also  taking into  consideration  the impact of such  factors as  available
     financial  information  of the  investee,  the nature and  duration  of any
     restrictions  on resale,  and other factors  which  influence the market in
     which a security is purchased and sold.

(b)  May be sold under the  provisions of Rule 144 of the Securities Act of 1933
     after an initial holding period expires.

(c)  Since the Company is a greater  than five  percent  shareholder,  it may be
     affected by a sales limitation of one percent of the investee's outstanding
     common stock during any three-month period.

(e)  Since certain of these  securities have certain  restrictions as to resale,
     the Board of  Directors  determines  fair value in good faith using  public
     market  information,  but also taking into consideration the impact of such
     factors as available financial information of the investee,  the nature and
     duration  of  restrictions  on the  disposition  of  securities,  and other
     factors  which  influence  the market in which a security is purchased  and
     sold.

(f)  Valued at higher of cost or fair  market  value of  underlying  stock  less
     exercise  price,  subject to valuation  adjustments  as  determined in good
     faith by the Board of Directors,  taking into  consideration  the impact of
     such factors as available financial information of the investee, the nature
     and  duration  of any  restrictions  on  resale,  and other  factors  which
     influence the market in which a security is purchased and sold.







The accompanying notes are a part of this statement.

                                      F-10
<PAGE>
                                  EQUITEX, INC.
                  Statements of Changes in Stockholders' Equity
                 For the Years Ended December 31, 1997 and 1996

<TABLE>
<CAPTION>
                                                                                ACCUMULATED
                                                                                 (DEFICIT)
                                                                   ADDITIONAL    PRIOR TO
                                COMMON STOCK           TREASURY     PAID-IN      BECOMING
                           SHARES          AMOUNT        STOCK      CAPITAL       A BDC
                           ------          ------      --------    ----------   -----------
<S>                      <C>           <C>          <C>           <C>          <C>
Balance at Dec. 31,
  1995 ...............    6,448,930        64,489      (24,846)    4,447,175     (118,874)

1 for 2 reverse
  stock split in
  January 1996 .......   (3,224,465)

Purchases of treasury
  stock in July and
  August 1996 ........                                 (89,191)

Net investment (loss)

Net realized gain on
  investments

Unrealized gain (loss)
  on investments

Balance at Dec. 31,      ----------    ----------   ----------    ----------   ----------
  1996 ...............    3,224,465        64,489     (114,037)    4,447,175     (118,874)

Common stock sold to
  officer/director at
  $.75 per share .....      270,000         5,400                    197,100

Net investment (loss)

Net realized gain on
  investments

Unrealized gain (loss)
  on investments

Balance at Dec. 31,      ----------    ----------   ----------    ----------   ----------
  1997 ...............    3,494,465    $   69,889   $ (114,037)   $4,644,275   $ (118,874)
                         ==========    ==========   ==========    ==========   ==========
</TABLE>

The accompanying notes are a part of this statement.                 (Continued)

                                      F-11
<PAGE>
                                  EQUITEX, INC.
                  Statements of Changes in Stockholders' Equity
                 For the Years Ended December 31, 1997 and 1996
                                    (Page 2)

<TABLE>
<CAPTION>
                                               ACCUM.
                                              REALIZED         ACCUM.
                               ACCUM.         NET GAINS        UNREA-        TOTAL
                                NET           FROM SALES      LIZED NET      STOCK-
                               INVEST.        OF INVEST-      APPREC. ON    HOLDERS'
                                LOSS           MENTS         INVESTMENTS     EQUITY
                               -------        ----------     -----------    ---------
<S>                        <C>             <C>             <C>            <C>       
Balance at Dec. 31, 1995    (11,439,353)      9,895,044       9,093,197     11,916,832

1 for 2 reverse
  stock split in
  January 1996 .........                                                          --

Purchases of treasury
  stock in July and
  August 1996 ..........                                                       (89,191)

Net investment (loss) ..       (586,316)                                      (586,316)

Net realized
  gain on
  investments ..........                      1,226,190                      1,226,190

Unrealized gain (loss)
  on investments .......                                     (5,206,732)    (5,206,732)
                           ------------    ------------    ------------   ------------
Balance at Dec. 31, 1996    (12,025,669)     11,121,234       3,886,465      7,260,783

Common stock sold to
  officer/director at
  $.75 per share .......                                                       202,500

Net investment (loss) ..     (1,405,600)                                    (1,405,600)

Net realized gain
  on investments .......                      1,003,951                      1,003,951

Unrealized gain (loss)
  on investments .......                                     (3,521,718)    (3,521,718)
                           ------------    ------------    ------------   ------------
Balance at Dec. 31, 1997   $(13,431,269)   $ 12,125,185    $    364,747   $  3,539,916
                           ============    ============    ============   ============
</TABLE>

The accompanying notes are a part of this statement.

                                      F-12
<PAGE>
                                  EQUITEX, INC
                            Statements of Operations

                                                          FOR THE YEARS ENDED
                                                             DECEMBER 31,
                                                          1997           1996
                                                          ----           ----
Revenues
  Interest and dividends .........................   $    34,784    $   268,859
  Consulting and transaction fees ................       250,000        281,500
  Administrative fees ............................        26,495         62,198
  Miscellaneous ..................................        67,112         20,208
                                                     -----------    -----------
                                                         378,391        632,765
Expenses
  Salaries and consulting fees ...................       300,164        315,473
  Officers' bonus ................................       151,153        314,328
  Office rent ....................................        38,575         30,000
  Advertising and promotion ......................         2,951          4,084
  Loss on indemnity agreement ....................       509,054           --
  Other general and administrative ...............       259,763        208,527
  Interest .......................................        87,005         75,670
  Bad debt expense ...............................       240,991        (17,987)
  Depreciation and amortization ..................        11,388         10,246
  Employee benefits ..............................       212,882        212,569
                                                     -----------    -----------
                                                       1,813,926      1,152,910
                                                     -----------    -----------
Net investment (loss) ............................    (1,435,535)      (520,145)
                                                     -----------    -----------
Net realized gain on investments and
  net unrealized gain on investments:

  Proceeds from sales of investments .............     1,508,629      2,876,744

  Less: cost of investments sold .................       504,678      1,650,554
                                                     -----------    -----------

    Realized gain from sales of investments ......     1,003,951      1,226,190

  Permanent write-down of investments ............         (--)           (--)
                                                     -----------    -----------
    Realized gain on investments before
       income taxes ..............................     1,003,951      1,226,190
                                                     -----------    -----------
    Net investment (loss) and realized gain
       on investments before income taxes ........      (431,584)       706,045

  Less: income taxes (provision) benefit
    Current ......................................       (56,307)       (35,406)
    Deferred .....................................        86,242        (66,171)
                                                     -----------    -----------
                                                          29,935       (101,577)
    Income tax benefit of
       NOL carryforward ..........................          --           35,406
                                                     -----------    -----------
                                                          29,935        (66,171)

The accompanying notes are a part of this statement.                 (Continued)

                                      F-13
<PAGE>
                                  EQUITEX, INC
                        Statements of Operations (Page 2)

                                                          FOR THE YEARS ENDED
                                                             DECEMBER 31,
                                                          1997           1996
                                                          ----           ----
Net investment (loss) and realized gain
  on investments after income taxes ..............      (401,649)       639,874

(Decrease) in unrealized
   appreciation of investments ...................    (5,773,305)    (8,535,628)
Less income tax benefit applicable
   to (decrease) in unrealized
   appreciation of investments
      Deferred ...................................     2,251,587      3,328,896
                                                     -----------    -----------
                                                      (3,521,718)    (5,206,732)
                                                     -----------    -----------

Net (decrease) in net assets
   resulting from operations .....................   $(3,923,367)   $(4,566,858)
                                                     ===========    ===========

(Decrease) in net assets per
   share - primary ...............................   $     (1.25)   $     (1.42)
                                                     ===========    ===========
Weighted average number of common shares .........     3,192,600      3,214,708
                                                     ===========    ===========


The accompanying notes are a part of this statement.

                                      F-14
<PAGE>
                                  EQUITEX, INC.
                            Statements of Cash Flows

                                                          FOR THE YEARS ENDED
                                                             DECEMBER 31,
                                                          1997           1996
                                                          ----           ----
Cash flows from operating activities:
  Net change in net assets .......................   $(3,923,367)   $(4,566,858)
    Adjustments to reconcile net income to
    net cash provided by operating activities:
      Depreciation and amortization ..............        11,388         10,246
      Provision for bad debts on notes
        receivable ...............................        40,193        116,241
      Realized (gain) on sale of investments .....    (1,003,951)    (1,226,190)
      Unrealized loss on investments .............     5,773,305      8,535,628
      Donation of stock of investee company ......         4,136           --
Proceeds from sales of investments ...............     1,508,629      2,876,744
Purchases of investments .........................      (309,551)    (1,956,805)
Issuance of notes receivable .....................      (458,402)       (30,000)
Collections of notes receivable ..................        20,250         20,370
Changes in assets and liabilities:
  (Increase) decrease in interest receivable .....        (3,799)       118,129
  (Increase) in accounts receivable-broker .......       (68,975)        (3,848)
  (Increase) decrease in other assets ............         3,671         (4,243)
  (Increase) decrease in trade receivables .......       (71,331)        18,817
  (Increase) in contract deposit receivable ......      (150,000)          --
  Decrease in income taxes refundable ............       164,459           --

  Increase (decrease) in accounts payable
    and other accrued liabilities ................        65,908       (165,187)
  (Decrease) increase in accounts
    payable to brokers ...........................       (88,721)      (150,818)
  (Decrease) in deferred income taxes ............    (2,337,830)    (3,224,128)
  Increase (decrease) in amounts due
    to officer ...................................       151,153       (382,273)
                                                     -----------    -----------

  Net cash (used) by operating
    activities ...................................      (672,835)       (14,175)

Cash flows from investing activities:
  Purchase of fixed assets .......................        (1,872)       (33,091)
  Proceeds from sale of fixed assets .............          --           13,500
                                                     -----------    -----------

Net cash (used) by investing activities ..........        (1,872)       (19,591)


The accompanying notes are a part of this statement.                 (Continued)

                                      F-15
<PAGE>
                                  EQUITEX, INC.
                        Statements of Cash Flows (Page 2)

                                                          FOR THE YEARS ENDED
                                                             DECEMBER 31,
                                                          1997           1996
                                                          ----           ----
Cash flows from financing activities:
  Sale of common stock to officer/director .......   $   202,500    $      --
  Common stock re-purchased for cash .............          --          (89,191)
  Issuance of notes payable - officer ............       531,000           --
  Issuance of notes payable - other ..............       250,000           --
  Repayment of notes payable - officer ...........      (353,401)          --
                                                     -----------    -----------
  Net cash provided (used) by financing
    activities ...................................       630,099        (89,191)

(Decrease) in cash ...............................       (44,608)      (122,957)


Cash, beginning of period ........................        53,795        176,752
                                                     -----------    -----------
Cash, end of period ..............................   $     9,187    $    53,795
                                                     ===========    ===========


Supplemental disclosures of cash flow information:
    Interest paid ................................   $    79,305    $    17,526
                                                     ===========    ===========

    Interest received ............................   $    30,985    $    72,616
                                                     ===========    ===========

    Income taxes paid (refunded) .................   $  (116,496)   $     1,402
                                                     ===========    ===========

Non-cash financing activities:
  Conversion of notes receivable
  into investment in common stock ................   $      --      $   252,020
                                                     ===========    ===========


The accompanying notes are a part of this statement.

                                      F-16
<PAGE>
                                  EQUITEX, INC.
                        Notes to the Financial Statements


Note 1: SIGNIFICANT  ACCOUNTING POLICIES
Significant  accounting policies are as follows:

a.   BUSINESS HISTORY

     Equitex,  Inc. (the "Company") was incorporated under the laws of the State
of Delaware on January 19, 1983. On July 30, 1984 the Company  elected to become
a "Business  Development  Company"  (BDC),  as that term is defined in the Small
Business  Investment  Incentive  Act of 1980,  which Act is an  amendment to the
Investment  Company Act of 1940. This change resulted in the Company  becoming a
specialized type of investment  company.  Consistent with this change in type of
business entity, the Company changed its method of valuation of investments from
cost to fair value.

b.   INVESTMENT VALUATION

     The fair value method  adopted in 1984 provides for the Company's  Board of
Directors to be  responsible  for the  valuation of the  Company's  investments,
including  notes  receivable  and interest  receivable.  Fair value is the value
which could  reasonably  be expected  to be realized in a current  arm's  length
sale.  Investments  are  carried at fair value  using the  following  four basic
methods of valuation:

1. Cost - The cost method is based on the original cost to the Company  adjusted
for  amortization  of original  issue  discounts,  accrued  interest for certain
capitalized expenditures of the corporation, and other adjustments as determined
to be  appropriate  by  the  Board  of  Directors  in  good  faith  taking  into
consideration such factors as available  financial  information of the investee,
the nature and  duration of any  restrictions  as to resale,  and other  factors
which  influence  the market in which a security  is  purchased  and sold.  Such
method is to be applied in the early stages of an investee's  development  until
significant  positive or adverse  events  subsequent to the date of the original
investment require a change to another method.

2.  Private  market - The private  market  method uses actual or proposed  third
party  transactions  in the  investee's  securities  as a basis  for  valuation,
utilizing actual firm offers as well as historical  transactions,  provided that
any offer used is seriously considered and well documented by the investee,  and
adjusted  (if  applicable)  by the Board of  Directors in good faith taking into
consideration such factors as available  financial  information of the investee,
the nature and  duration of any  restrictions  as to resale,  and other  factors
which influence the market in which a security is purchased and sold.

3. Public market - The public market method is the preferred method of valuation
when there is an  established  public market for the investee's  securities.  In
determining  whether the public market method is  sufficiently  established  for
valuation  purposes,  the Company  examines  the trading  volume,  the number of
shareholders and the number of market makers in the investee's securities, along
with the trend in trading  volume as  compared  to the  Company's  proportionate
share of the investee's securities.  Investments in unrestricted securities that
are traded in the  over-the-counter  market are generally valued at the high bid


                                      F-17
<PAGE>
                                  EQUITEX, INC.
                        Notes to the Financial Statements

Note 1: SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 

price on the last day of the year. If the security is restricted as to resale or
has significant escrow provisions or other significant restrictions, appropriate
adjustments  are determined in good faith by the Board of Directors  taking into
consideration such factors as available  financial  information of the investee,
the  nature  and  duration  of  restrictions  on  the  ultimate  disposition  of
securities,  and other factors which influence the market in which a security is
purchased and sold.

4.  Appraisal - The  appraisal  method is used to value an  investment  position
after  analysis  of the best  available  outside  information  where there is no
established public or private market in the investee's securities.

c.   STATEMENT OF CASH FLOWS

     Consistent  with  the  reporting  requirements  of a  BDC,  cash  and  cash
equivalents consist only of demand deposits in banks and cash on hand. Financial
statement  account  categories such as investments and notes  receivable,  which
relate to the Company's activity as a BDC, are included as operating  activities
in the statement of cash flows.

d.   FURNITURE AND EQUIPMENT

     Expenditures  for furniture and equipment and for renewals and  betterments
which extend the  originally  estimated  economic  life of assets or convert the
assets  to a new use are  capitalized  at cost.  Expenditures  for  maintenance,
repairs  and other  renewals  of items are  charged to  expense.  When items are
disposed  of, the cost and  accumulated  depreciation  are  eliminated  from the
accounts  and any gain or loss is  included in the  results of  operations.  The
provision for depreciation is calculated using the  straight-line  method over a
five or seven year life.

e.   SECURITIES TRANSACTIONS

     Purchases  and sales of  securities  transactions  are accounted for on the
trade date which is the date the  securities  are purchased or sold. The cost of
securities  sold is reported on the first-in  first-out cost basis for financial
statement purposes.

f.   REVENUE RECOGNITION

     Due to the uncertainty of collection,  the Company  recognizes all types of
consulting fee revenues from portfolio  companies  (except for RDM Sports Group)
as cash is received.  All other types of revenues are  recognized on the accrual
basis.

g.   ESTIMATES

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions that affect certain  reported amounts and disclosures.  Accordingly,
actual  results  could  differ  from  those  estimates.  The  estimate  that  is
particularly  sensitive to future change is the  determination of the fair value
of the Company's  investments in and various  receivables  due from its investee
companies  (see Note 1b.,  herein).  Management  believes that its estimates and
assumptions  provide  a  reasonable  basis  for  the  fair  presentation  of the
Company's financial position and results of operations.

                                      F-18
<PAGE>
                                  EQUITEX, INC.
                        Notes to the Financial Statements

Note 1:  SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

h.   CAPITAL STRUCTURE

     In February 1997, the Financial  Accounting Standards Board issued SFAS No.
129, "Disclosure of Information about Capital Structure" ("SFAS No. 129"), which
requires all  companies to disclose all  relevant  information  regarding  their
capital  structure.  SFAS No. 129 presentation is required for reporting periods
ending  after  December  15, 1997.  Based on the capital  structure  disclosures
presented  in the  accompanying  consolidated  financial  statements  and  notes
thereto,  the  Company  does not believe  that any  additional  disclosures  are
required as a result of adopting this pronouncement.

i.   SEGMENT REPORTING

     In June 1997,  the  Financial  Accounting  Standards  Board issued SFAS No.
9131,  "Disclosure  about  Segments of an  Enterprise  and Related  Information"
("SFAS No.  131"),  which amends the  requirements  for a public  enterprise  to
report  financial and  descriptive  information  about its reportable  operating
segments. Operating segments, as defined in the pronouncement, are components of
an enterprise  about which separate  financial  information is available that is
evaluated  regularly by the Company in deciding how to allocate resources and in
assessing  performance.  The financial information is required to be reported on
the  basis  that is used  internally  for  evaluating  segment  performance  and
deciding how to allocate resources to segments. The disclosures required by SFAS
No. 131 are effective for all fiscal years  beginning  after  December 15, 1997.
The Company adopted SFAS No. 131 in 1997. For both years ended December 31, 1996
and 1997, there is no impact on the financial statements or disclosures.

j.   COMPREHENSIVE INCOME

     In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting  Comprehensive  Income" ("SFAS No. 130"), which establishes standards
for the reporting of comprehensive income. This pronouncement  requires that all
items  recognized  under  accounting  standards as components  of  comprehensive
income, as defined in the  pronouncement,  be reported in a financial  statement
that is  displayed  with the same  prominence  as  other  financial  statements.
Comprehensive income includes all changes in equity during a period except those
resulting from investments by owners and distributions to owners.  The financial
statement  presentation  required under SFAS No. 130 is effective for all fiscal
years  beginning  after  December 15, 1997. The Company has not adopted SFAS No.
130 in 1997 but will do so in 1998.

k.   STOCK-BASED COMPENSATION

     Statement  of  Financial  Accounting  Standards  No. 123,  "Accounting  for
Stock-Based  Compensation"  ("SFAS No. 123"),  was issued in October 1995 by the
Financial  Accounting  Standards  Board.  SFAS No. 123  provides an  alternative
method of accounting for stock-based  compensation  arrangements,  based on fair
value of the stock-based  compensation  utilizing various assumptions  regarding
the underlying attributes of the options and stock. The Company adopted SFAS No.
123 effective  January 1, 1996 for any options and warrants issued to employees,
directors,  or  consultants.  For 1997 and 1996 no expense  was  required  to be
recorded under these provisions.

                                      F-19
<PAGE>
                                  EQUITEX, INC.
                        Notes to the Financial Statements

l.   INCOME TAXES

     The Company is not entitled to the special treatment available to regulated
investment companies and is taxed as a regular corporation for Federal and state
income tax  purposes.  Until 1986,  the Company had made no provision for income
taxes because of financial statement and tax losses.  Effective January 1, 1993,
the Company adopted FASB Statement No. 109,  "Accounting for Income Taxes".  The
adoption of the new accounting  statement had no  significant  effect on the tax
provision or net income for 1993.

m.   RECLASSIFICATIONS

     Certain reclassifications have been made to the December 31, 1996 financial
statements to conform to the December 31, 1997 presentation.

n.   NET ASSETS PER SHARE

     In  accordance  with the fair value  accounting  method  used by  regulated
investment  companies,  net assets  (total  stockholders'  equity)  per share at
December 31, 1997 and 1996 were as follows:

                                   NUMBER OF SHARES
    BASIS                        1997            1996          1997        1996
                                 ----            ----          ----        ----

    Primary ................   3,461,115       3,191,115       $1.03       $2.26
                               =========       =========       =====       =====

    Fully diluted ..........   3,772,660       3,502,660       $ .95       $2.06
                               =========       =========       =====       =====

Note 2:  DETAIL OF RECEIVABLES AND SOURCES OF REVENUE

a.   RECEIVABLES

     Receivables  are from the following types of companies at December 31, 1997
and 1996, respectively.

                                       PORTFOLIO COMPANIES
                                                           LESS
                                                          THAN 5%
                              CONTROLLED   AFFILIATED      OWNED        TOTAL

1997
Notes receivable ...........   $ 401,928    $  56,575    $    --      $ 458,503
Interest receivable ........       3,917        1,819         --          5,736
Trade receivables ..........     123,283       41,413         --        164,696
Less: allowances for
  uncollectible receivables      (52,913)     (41,157)        --        (94,070)
                               ---------    ---------    ---------    ---------
                               $ 476,215    $  58,650    $    --      $ 534,865
                               =========    =========    =========    =========
1996
Notes receivable ...........   $    --      $  10,250    $  10,100    $  20,350
Interest receivable ........        --          1,557          380        1,937
Trade receivables ..........        --          5,881       36,685       42,566
Less:  allowances for
  uncollectible receivables         --         (2,943)        (135)      (3,078)
                               ---------    ---------    ---------    ---------
                               $    --      $  14,745    $  47,030    $  61,775
                               =========    =========    =========    =========

                                      F-20
<PAGE>
                                  EQUITEX, INC.
                        Notes to the Financial Statements

Note 2:  DETAIL OF RECEIVABLES AND SOURCES OF REVENUE (CONTINUED)

a.   RECEIVABLES (CONTINUED)

     Included in notes,  interest,  and  accounts  receivable  above are amounts
totaling $534,865 and $22,288 at December 31, 1997 and 1996, respectively, which
have been valued at fair value and whose collectibility cannot be determined due
to future events (such as the success of investees'  public/private  offerings),
the outcome of which cannot be determined at this time.

b.   SOURCES OF REVENUES

     Sources of revenues are from the following  types of companies for the year
ended December 31, 1997 and 1996, respectively.

                                       PORTFOLIO COMPANIES

                              CONTROLLED    AFFILIATED     OTHER        TOTAL
1997
Interest and other
  income ...................   $   3,917    $  88,967    $   9,012    $ 101,896
Consulting/transaction
  fees .....................     250,000         --           --        250,000
Administrative fees ........        --         26,176          319       26,495
                               ---------    ---------    ---------    ---------
                               $ 253,917    $ 115,143    $   9,331    $ 378,391
                               =========    =========    =========    =========

1996
Interest and other
  income ...................   $    --      $ 226,786    $  62,281    $ 289,067
Administrative fees ........        --         61,960          238       62,198
Consulting/transaction
  fees .....................        --        281,500         --        281,500
                               ---------    ---------    ---------    ---------
                               $    --      $ 570,246    $  62,519    $ 632,765
                               =========    =========    =========    =========

     During 1997 two investee companies accounted for 67% and 22%, respectively,
of the Company's total revenues of $378,391.

Note 3:  INVESTMENTS

     Investments  consist  of  holdings  of  securities  in and  receivables  of
publicly and privately held  companies.  The Company has  representation  on the
boards of directors of four of its investee  companies.  Several investments are
in companies in which there is either direct or indirect ownership or control of
five percent or more of the outstanding voting shares.

a.   INVESTMENT IN RDM SPORTS GROUP (FORMERLY ROADMASTER INDUSTRIES, INC.)

     On August  29,  1997,  RDM  Sports  Group  (RDM)  and all of its  operating
subsidiaries  filed  concurrent  Chapter 11 petitions  with the U.S.  Bankruptcy
Court.  As a result of this,  the fair  market  value of this  investee  company
dropped to almost zero as reflected in the Schedule of Investments,  herein. The
Company  has also  reserved  100% of its  $7,093  trade  receivable  from RDM at
December 31, 1997.

                                      F-21
<PAGE>
                                  EQUITEX, INC.
                        Notes to the Financial Statements

Note 3:  INVESTMENTS (CONTINUED)

a.   INVESTMENT IN RDM SPORTS GROUP (FORMERLY ROADMASTER INDUSTRIES, INC.)
     (CONTINUED)

     During 1996 the Company  purchased  36,600 shares of RDM on the open market
and 75,000 (face value) of RDM's 8% subordinated debentures. During July of 1997
the Company sold 127,600  shares of RDM on the open market for cash  proceeds of
$126,366.

     During 1997 and 1996,  the Company  recorded  administrative  fees from RDM
totaling $25,893 and $58,828, respectively.

b.   INVESTMENT IN INTRANET SOLUTIONS, INC. (FORMERLY MACGREGOR SPORTS &
     FITNESS, INC.)

     On July 31, 1996,  MacGregor  Sports & Fitness,  Inc. merged with Technical
Publishing  Solutions,  Inc. (TPSI) through a tax-free exchange of common stock.
As part of the merger  agreement the Company  agreed to indemnify the new entity
up to a maximum limit of $2,000,000  against any subsequent  claims  relating to
MacGregor  (pre-merger).  TPSI  was  formed  in  1990  and  provides  integrated
solutions to large  corporations for the management and distribution of business
critical  information  contained in  documents  using  proprietary  and standard
internet  technologies.  After the merger the Company owned 8.6% of the combined
entity, which was named IntraNet Solutions, Inc.

     In May of 1996 the Company's 1,000 shares of Class C Convertible  Preferred
stock of MacGregor were automatically  converted into 1,000,000 shares of common
stock.  Concurrently,  $70,000 in accumulated  dividends on the preferred  stock
were paid to the Company by  MacGregor  with the  issuance  of 26,515  shares of
common  stock.  Immediately  prior  to the  merger  in June  1996,  the  Company
converted  accounts,  notes, and interest  receivable in the aggregate amount of
$227,540  (net of  reserves  for  uncollectibility  of  $242,363)  along  with a
previous stock  subscription  into 200,566 shares of MacGregor  common stock. In
addition,  in lieu of $281,500 of unpaid consulting fees dating back to 1991 and
$145,378 of applicable interest the Company received 109,216 shares of MacGregor
common stock. With these additional shares the Company owned 2,580,340 shares of
MacGregor common stock at the time of the merger. On October 15, 1996,  IntraNet
Solutions  declared a 1-for-4  reverse  stock split  resulting in the  Company's
December 31, 1996 ownership position in IntraNet Solutions of 645,085 shares (or
8.6%).

     Effective  October 31, 1997,  the Company  entered  into an agreement  with
IntraNet. Because the Company had entered into a prior indemnification agreement
with IntraNet in July 1996,  it agreed to purchase a certain note  receivable in
the amount of $564,755 which IntraNet had from an RDM  subsidiary,  Hutch Sports
USA (Hutch). Hutch had filed bankruptcy on August 29, 1997 (see Note 3a. above).
The Company paid $414,755 of the purchase  amount to IntraNet  during 1997.  The
balance of $150,000 is due on demand but no later than  December 31,  1997.  The
note bears interest at 8.75% per annum, is secured by an officer's pledging of a
common stock purchase  warrant relating to 62,550 shares of IntraNet and is also


                                      F-22
<PAGE>
                                  EQUITEX, INC.
                        Notes to the Financial Statements

Note 3:  INVESTMENTS (CONTINUED)

b.   INVESTMENT IN INTRANET SOLUTIONS, INC.(FORMERLY MACGREGOR SPORTS & FITNESS,
     INC.) (CONTINUED) 

personally  guaranteed by the Company's  President.  The note was repaid in full
along with accrued interest on January 23, 1998 (see Note 10). Furthermore,  the
Company's  President agreed to resign from the Board of IntraNet,  both IntraNet
and  the  Company   agreed  to   terminate   effective   October  31,  1997  the
indemnification  agreement  under  which  the  Company's  maximum  exposure  was
$2,000,000,  and agreed to mutually  release each other from any claims relating
to this agreement and certain other items.

     During 1997, the Company sold and/or  forfeited  171,835 shares of IntraNet
for $814,653 used to pay the above mentioned indemnity settlement and also raise
working capital,  resulting in an ownership position of 473,250 shares (or 5.7%)
at December 31, 1997.

c.   INVESTMENT IN VP SPORTS, INC.

     In December of 1997, the Company received  2,000,000 shares (or 20%) of the
common  stock of VP Sports,  Inc., a private  company  formed for the purpose of
seeking out and acquiring an operating  entity in the sporting  goods/recreation
industry.  The stock was  received in exchange  for  consulting  services and an
acquisition letter of intent valued at $250,000. The Company's president is also
the President and a director of VP.

Note 4:  COMMON STOCK

a.   STOCK OPTIONS

     Effective  April 1, 1993 the Company  adopted two stock option  plans:  the
1993 Stock  Option Plan (the  "Option  Plan") and the 1993 Stock Option Plan for
Non-Employee Directors (the "Directors' Plan").

     Effective April 1, 1993 the Company's Board of Directors granted options to
purchase a total of 211,545  shares of common  stock under the Option Plan to an
officer/director and an officer of the Company. These options are exercisable at
$3.00 per share and  expire  March 31,  1998.  The Option  Plan and the  options
granted  thereunder were approved by the Company's  stockholders on December 28,
1993.

     Under the terms of the Directors' Plan, each  non-employee  director of the
Company  was  automatically  granted as of July 5, 1995,  an option to  purchase
50,000  shares of common  stock at an exercise  price of $3.00 per share.  These
options  expire ten years from the date of grant.  The  Directors'  Plan and the
options granted  thereunder were also approved by the Company's  stockholders on
December 28, 1993.

b.   TREASURY STOCK

     On October  21,  1992,  the Board of  Directors  authorized  the Company to
repurchase  up to  500,000  shares of its own common  stock in the open  market.
During 1996 the Company  purchased 26,500 shares of its common stock on the open
market for $89,191.

                                      F-23
<PAGE>
                                  EQUITEX, INC.
                        Notes to the Financial Statements

Note 4:  COMMON STOCK (CONTINUED)

c.   REVERSE STOCK SPLIT

     The Company's stockholders approved a reverse stock split effective January
2, 1996 whereby  each two shares of $.01 par value  common stock were  exchanged
for one share of $.02 par value common stock.  Information  included  herein has
been adjusted to reflect this reverse split.

d.   SALE OF STOCK TO OFFICER

     During December of 1997, the Company's  President  purchased 270,000 shares
of common stock at $.75 each.

Note 5:  INCOME TAXES

     The provision  (benefit) for income taxes for the years ended  December 31,
1997 and 1996, consists of the following:

                                                             December 31,
                                                          1997           1996
                                                          ----           ----
Current:
  Federal and state ..............................   $   (56,307)   $   (35,406)
  Benefit of net operating loss
   carryback/carryforward ........................          --           35,406
                                                     -----------    -----------
  Total current (provision) benefit ..............   $   (56,307)   $      --
                                                     ===========    ===========

Deferred:
  Accrued unpaid bonus ...........................   $   (48,930)   $   (52,038)
  Bad debt expense ...............................        93,948         (7,755)
  Other ..........................................        41,224         (6,378)
                                                     -----------    -----------
  Total deferred (provision) benefit .............   $    86,242    $   (66,171)
                                                     ===========    ===========

     Deferred taxes reflect the tax effects of  differences  between the amounts
recorded as assets and  liabilities  for  financial  reporting  purposes and the
amounts  recorded  for  income tax  purposes.  The tax  effects  of  significant
temporary  differences giving rise to deferred tax assets and liabilities are as
follows:

                                                             December 31,
                                                          1997           1996
                                                          ----           ----
Deferred tax assets:
Accrued items not currently deductible ...........   $   203,417    $   117,174
Excess "tax" basis on investment .................        92,964         92,964
                                                     -----------    -----------
Total deferred tax assets ........................       296,381        210,138
                                                     -----------    -----------

Deferred tax liabilities:
Tax on unrealized gain on investments ............      (233,201)    (2,484,788)
                                                     -----------    -----------
Total deferred tax liabilities ...................      (233,201)    (2,484,788)
                                                     -----------    -----------
Net deferred tax asset (liability) ...............   $    63,180    $(2,274,650)
                                                     ===========    ===========

     A  significant  portion of the deferred tax assets at December 31, 1997 are
expected to be  recovered  through the  carryback  of amounts  which will become
deductible when paid.

                                      F-24
<PAGE>
                                  EQUITEX, INC.
                        Notes to the Financial Statements

Note 5:  INCOME TAXES (CONTINUED)

     Tax years prior to 1993 are "closed" to  adjustments  by the running of the
statute of limitations. An agreement was finalized with the IRS Appeals Division
during 1996  regarding the  deductibility  of certain  expenses on the Company's
1992 federal income tax return.  The additional taxes incurred  relative to this
agreement were not significant.

Note 6:  RELATED PARTY TRANSACTIONS

a.   OFFICE RENTAL

     The Company  rents  office space on a  month-to-month  basis for $2,500 per
month from Beacon  Investments,  a partnership in which the Company's  President
and his wife are the sole partners.

b.   BONUSES TO OFFICERS

     In  November,  1989 the  Board of  Directors  adopted  a bonus  arrangement
whereby  the  Company's  President  is  entitled  to an annual  bonus equal to 3
percent of the Company's  total assets as of each year end. All bonuses are paid
out of the Company's cash flow.  The unpaid  portion of these  bonuses,  amounts
totaling  $299,259 and $148,106 have been accrued as a "Bonus to Officer" in the
December 31, 1997 and 1996 balance  sheets,  respectively.  During 1997 and 1996
the  Company's  Corporate  Secretary  received  bonuses of $6,744  and  $16,674,
respectively.

c.   DIRECTORS' FEES

     During  1997 and 1996 the Company  paid  $12,500 to each of its two outside
directors for their attendance at the meetings held in each year.

d.   NOTE PAYABLE TO OFFICER

     During 1997 the Company's  President loaned the Company a total of $531,000
primarily for working  capital needs.  Of this amount $353,401 was repaid during
the year leaving $177,599 unpaid at December 31, 1997.  These  uncollaterialized
loans are all due on demand and bear interest at 8% per annum.

e.   NOTE PAYABLE TO RELATED ENTITY

     A related  entity loaned the Company  $100,000 in August 1997 pursuant to a
note  agreement,  which is due on demand,  pays interest at 12% per annum and is
collateralized by 25,000 common shares of IntraNet Solutions.

Note 7:  CONTRACT DEPOSIT RECEIVABLE

     The Company is the plaintiff in an action  whereby it is seeking to recover
$300,000  deposited  into escrow  pending the  receipt of  documentation  needed
pursuant to a contractual agreement.  The defendant never delivered the required
documents.  The deposit  receivable  has been recorded under  "Contract  Deposit
Receivable", herein.

Note 8:  OFF-BALANCE-SHEET  RISK AND CONCENTRATIONS OF CREDIT RISK 

     The Company is party to financial instruments with  off-balance-sheet  risk
in the  normal  course of  business  to meet  financing  needs of its  portfolio
companies. These financial instruments consist primarily of financial guarantees
including  pledges of the  Company's  investment  portfolio.  These  instruments
involve,  to varying  degrees,  elements  of credit risk in excess of the amount
recognized in the financial statements.

                                      F-25
<PAGE>
                                  EQUITEX, INC.
                          Notes to Financial Statements

Note 8:  OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF CREDIT RISK (CONTINUED)

     At December 31, 1997, the Company's  primary  concentration  of credit risk
relates to its investments in certain portfolio companies,  certain of which are
highly  leveraged  companies  within the United States and which are involved in
the sporting goods and manufacturing industries.  Consideration was given to the
financial position of these portfolio companies when determining the appropriate
fair values at December 31, 1997 and 1996.

Note 9:  RETIREMENT PLAN FOR OFFICER

     As  part  of  the  President's  total  compensation  package,  the  Company
purchased  a whole  life  insurance  policy on April 1, 1992 in order to provide
compensation for the President's retirement.  The Company pays an annual premium
of  $105,413  per year for 7 years  (ending  March  31,  1999) on  behalf of the
President and also  reimburses the President  each year for the personal  income
tax on this additional compensation.

     Should  the  President  die  prior to age  sixty-five,  the  policy  pays a
$2,600,000 death benefit to his spouse. Upon retirement,  provided the President
is at least age  sixty-five,  the cash  surrender  value and death benefit rider
become the President's property.

     For the year ended December 31, 1997, the Company paid $105,413 in premiums
and $59,586 of  additional  compensation  to the  President  for related  income
taxes.

Note 10: SUBSEQUENT EVENTS

     Since  December 31, 1997, the Company has sold 330,000 shares of its common
stock at $.75 per share to unrelated private investors.

     On January 23,  1998,  the Company  repaid its  $150,000  note  payable and
related accrued interest to IntraNet Solutions (see Note 3b.).

     Since December 31, 1997, the Company has loaned $43,000 to VP Sports,  Inc.
pursuant to note agreements  which are  uncollateralized,  due on demand and pay
interest at 10% per annum. VP has repaid $25,000 of the above notes.

     At a meeting held on April 3, 1998, the Company's  stockholders  approved a
proposal  authorizing  the  Company  to change the  nature of its  business  and
withdraw its election as a Business  Development  Company  under the  Investment
Company Act of 1940.  The withdrawal  will become  effective when the Securities
and Exchange  Commission  receives the Company's  official notice of election of
withdrawal. The Company does not intend to file its election of withdrawal until
such time as it is  relatively  certain  that it will  qualify  as an  operating
business rather than an investment company.

                                      F-26
<PAGE>
                                  EQUITEX, INC.
                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                                   SCHEDULE II


COLUMN A                    COLUMN B        COLUMN C         COLUMN D   COLUMN E
                                            ADDITIONS

                                       BALANCE    CHARGED                BALANCE
                            BEGINNING  CHARGED    TO OTHER                AT END
                               OF      TO COSTS/  ACCOUNTS-   DEDUC-        OF
                             PERIOD    EXPENSES   DESCRIBE    TIONS       PERIOD
For the year ended
  Dec. 31, 1997:
Allowance for un-
collectible accounts
  Notes receivable ......   $    100   $ 40,193    $         $   --     $ 40,293
  Interest receivable ...         35       --                    --           35
  Accounts receivable ...      2,943     50,799                  --       53,742

For the year ended
  Dec. 31, 1996:
Allowance for un-
collectible accounts
  Notes receivable ......   $136,545   $   --      $         $136,445   $    100
  Interest receivable ...    120,617        264               120,846         35
  Accounts receivable ...      7,095        229                 4,381      2,943




The accompanying notes are a part of this schedule.

                                       S-1