U.S. SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                  FORM 10-K/A-2

           /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, 1999

          / /  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)

--------------------------------------------------------------------------------
Indicate by check mark whether the Registrant (1) has 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 / /

Indicate by check mark 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/

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant  was  $51,466,792  based on the last sale  price of the  Registrant's
common  stock on April 10,  2000,  ($8.25 per share) as  reported  by the Nasdaq
Stock Market.

The issuer had  7,106,943  shares of common  stock  outstanding  as of April 10,
2000.

Documents incorporated by reference: NO

<PAGE>

                                  EQUITEX, INC.
                                      INDEX


                                                                        PAGE
                                                                        ----
PART II.

Item 5.  Market for Registrant's Common Equity
           and Related Stockholder Matters                               1

         Signatures                                                      7

PART IV.

Item 14. Financial statements                                            8


<PAGE>
                                     PART II

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

(d) Recent sales of unregistered securities

         On August 13, 1998, the Company issued 625,000 shares of its common
stock to the shareholders of First Teleservices Corp. in exchange for all of the
issued and outstanding common stock of First Teleservices Corp. The Company
valued the shares issued in this transaction at an aggregate amount of $565,639.
The Company relied upon the exemptions from registration provided by Sections
3(b) or 4(2) of the Securities Act and Rules 505 and 506 promulgated thereunder
based upon (i) representations from each of the shareholders of First
Teleservices Corp. that they are accredited or sophisticated investors with
experience in investing in securities such that they could evaluate the merits
and risks related to the Company's securities; (ii) that no general solicitation
of the securities was made by the Company; were informed in writing of the
restricted nature of the securities, provided with all information regarding the
Company as required under Rule 502 of Regulation D and were given the
opportunity to ask questions of and receive additional information from the
Company regarding its financial condition and operations. the securities issued
to the shareholders of First Teleservices Corp. were "restricted securities" as
that term is defined under Rule 144 promulgated under the Securities Act; (iv)
the Company placed appropriate restrictive legends and stop transfer
instructions with its transfer agent regarding the restricted nature of these
securities; and (v) prior to completion of the transaction, the First
Teleservices Corp. shareholders were informed in writing of the restricted
nature of the securities, provided with all information regarding the Company as
required under Rule 502 of Regulation D and were given the opportunity to ask
questions of and receive additional information from the Company regarding its
financial condition and operations. The Company did not pay any fees or
commissions to third parties with respect to this transaction.

         On April 8, 1999, the Company issued 145,788 shares of its common stock
to holders of the Company's Series A Convertible Preferred Stock (the "Series A
Shares") upon conversion of 900 Series A Shares. Under the terms of the Series A
Shares, conversion does not require the payment of any consideration. The
Company relied upon the exemption provided under Section 3(a)(9) of the
Securities Act for the issuance of the common stock upon conversion, based upon
the following factors: (i) the Company was the issuer of the Series A Shares and
the common stock issued upon conversion; (ii) the conversion right is only
available to holders of the Series A Shares; (iii) no additional consideration
was paid to the Company by the holders of the Series A Shares to complete the
conversion, nor were the terms of the Series A Shares modified to provide for
the conversion; and (iv) no commission or other remuneration was paid in
connection with the conversion.

         On April 8, 1999, the Company issued 77,941 shares of its common stock
to holders of the Company's Series B Convertible Preferred Stock (the "Series B
Shares") upon conversion of 600 Series B Shares. Under the terms of the Series B
Shares, conversion does not require the payment of any consideration. The
Company relied upon the exemption provided under Section 3(a)(9) of the
Securities Act for the issuance of the common stock upon conversion, based upon
the following factors: (i) the Company was the issuer of the Series B Shares and
the common stock issued upon conversion; (ii) the conversion right is only
available to holders of the Series B Shares; (iii) no additional consideration
was paid to the Company by the holders of the Series B Shares to complete

                                       1
<PAGE>

the conversion, nor were the terms of the Series B Shares modified to provide
for the conversion; and (iv) no commission or other remuneration was paid in
connection with the conversion.

         On April 8, 1999, the Company issued 96,799 shares of its common stock
to holders of the Company's Series C Convertible Preferred Stock (the "Series C
Shares") upon conversion of 600 Series C Shares. Under the terms of the Series C
Shares, conversion does not require the payment of any consideration. The
Company relied upon the exemption provided under Section 3(a)(9) of the
Securities Act for the issuance of the common stock upon conversion, based upon
the following factors: (i) the Company was the issuer of the Series C Shares and
the common stock issued upon conversion; (ii) the conversion right is only
available to holders of the Series C Shares; (iii) no additional consideration
was paid to the Company by the holders of the Series C Shares to complete the
conversion, nor were the terms of the Series C Shares modified to provide for
the conversion; and (iv) no commission or other remuneration was paid in
connection with the conversion.

         On April 19, 1999, the Company issued 50,000 shares of its common stock
to Quest Capital upon the exercise of warrants issued to Quest. The aggregate
consideration received by the Company upon exercise was $187,500. The Company
relied upon the exemptions from registration provided by Sections 4(6) or 4(2)
of the Securities Act and Rule 506 promulgated thereunder based upon (i)
representations provided by Quest at the time of exercise that it was an
accredited investor; (ii) that no general solicitation of the securities was
made by the Company; (iii) the securities issued upon exercise of the warrants
were "restricted securities" as that term is defined under Rule 144 promulgated
under the Securities Act, however, because the securities were registered for
resale by Quest pursuant to an effective registration statement, no restrictive
legend was placed on the certificates or stop transfer instructions noted by the
Company's transfer agent; (vi) written representations by Quest to the Company
that it would comply with the manner of sale provisions described in the
registration statement covering its resale of the securities and (vii) prior to
completion of the transaction, Quest was provided with all information regarding
the Company as required under Rule 502 of Regulation D and was given the
opportunity to ask questions of and receive additional information from the
Company regarding its financial condition and operations. The Company did not
pay any fees or commissions to third parties with respect to this transaction.

         On April 19, 1999, the Company issued 40,000 shares of its common stock
to the holders of its outstanding Series B Warrants, upon the exercise of 40,000
of those warrants. The aggregate consideration received by the Company upon
exercise was $335,800. The Company relied upon the exemptions from registration
provided by Sections 4(6) or 4(2) of the Securities Act and Rule 506 promulgated
thereunder based upon (i) representations provided by the warrant holders at the
time of exercise that they were accredited investors; (ii) that no general
solicitation of the securities was made by the Company; (iii) the securities
issued upon exercise of the warrants were "restricted securities" as that term
is defined under Rule 144 promulgated under the Securities Act, however, because
the securities were registered for resale by the holders of the Series B
Warrants pursuant to an effective registration statement, no restrictive legend
was placed on the certificates or stop transfer instructions noted by the
Company's transfer agent; (vi) written representations by the holders of the
Series B Warrants to the Company that they would comply with the manner of sale
provisions described in the registration statement covering their resale of the
securities; and (vii) prior to completion of the transaction, the holders of the
warrants were provided with all information

                                       2
<PAGE>

regarding the Company as required under Rule 502 of Regulation D and were given
the opportunity to ask questions of and receive additional information from the
Company regarding its financial condition and operations. The Company did not
pay any fees or commissions to third parties with respect to this transaction.

         On April 23, 1999, the Company issued 90,000 shares of its common stock
to the holders of its outstanding Series A Warrants, upon the exercise of 90,000
of those warrants. The aggregate consideration received by the Company upon
exercise was $738,450. The Company relied upon the exemptions from registration
provided by Sections 4(6) or 4(2) of the Securities Act and Rule 506 promulgated
thereunder based upon (i) representations provided by the warrant holders at the
time of exercise that they were accredited investors; (ii) that no general
solicitation of the securities was made by the Company; (iii) the securities
issued upon exercise of the warrants were "restricted securities" as that term
is defined under Rule 144 promulgated under the Securities Act however, because
the securities were registered for resale by the holders of the Series A
Warrants, pursuant to an effective registration statement, no restrictive legend
was placed on the certificates or stop transfer instructions noted by the
Company's transfer agent; (vi) written representations by the holders of the
Series A Warrants to the Company that they would comply with the manner of sale
provisions described in the registration statement covering their resale of the
securities; and (vii) prior to completion of the transaction, the holders of the
warrants were provided with all information regarding the Company as required
under Rule 502 of Regulation D and were given the opportunity to ask questions
of and receive additional information from the Company regarding its financial
condition and operations. The Company did not pay any fees or commissions to
third parties with respect to this transaction.

         On April 23, 1999, the Company issued 20,000 shares of its common stock
to Alan Gainsford upon the exercise of warrants issued to Mr. Gainsford. The
aggregate consideration received by the Company upon exercise was $145,000. The
Company relied upon the exemptions from registration provided by Sections 4(6)
or 4(2) of the Securities Act and Rule 506 promulgated thereunder based upon (i)
representations provided by Mr. Gainsford at the time of exercise that he was an
accredited investor; (ii) that no general solicitation of the securities was
made by the Company; (iii) the securities issued upon exercise of the warrants
were "restricted securities" as that term is defined under Rule 144 promulgated
under the Securities Act, however, because the securities were registered for
resale by Mr. Gainsford pursuant to an effective registration statement, no
restrictive legend was placed on the certificates or stop transfer instructions
noted by the Company's transfer agent; (vi) written representations by Mr.
Gainsford to the Company that he would comply with the manner of sale provisions
described in the registration statement covering his resale of the securities;
and (vii) prior to completion of the transaction, Mr. Gainsford was provided
with all information regarding the Company as required under Rule 502 of
Regulation D and was given the opportunity to ask questions of and receive
additional information from the Company regarding its financial condition and
operations. The Company did not pay any fees or commissions to third parties
with respect to this transaction.

         On April 27, 1999, the Company issued 60,000 shares of its common stock
to the holders of its outstanding Series C Warrants, upon the exercise of 60,000
of those warrants. The aggregate consideration received by the Company upon
exercise was $703,800. The Company relied upon

                                       3
<PAGE>

the exemptions from registration provided by Sections 4(6) or 4(2) of the
Securities Act and Rule 506 promulgated thereunder based upon (i)
representations provided by the warrant holders at the time of exercise that
they are accredited investors; (ii) that no general solicitation of the
securities was made by the Company; (iii) the securities issued upon exercise of
the warrants were "restricted securities" as that term is defined under Rule 144
promulgated under the Securities Act, however, because the securities were
registered for resale by the holders of the Series C Warrants pursuant to an
effective registration statement, no restrictive legend was placed on the
certificates or stop transfer instructions noted by the Company's transfer
agent; (vi) written representations by the holders of the Series C Warrants to
the Company that they would comply with the manner of sale provisions described
in the registration statement covering their resale of the securities; and (vii)
prior to completion of the transaction, the holders of the warrants were
provided with all information regarding the Company as required under Rule 502
of Regulation D and were given the opportunity to ask questions of and receive
additional information from the Company regarding its financial condition and
operations. The Company did not pay any fees or commissions to third parties
with respect to this transaction.

         On May 6, 1999, the Company issued 20,000 shares of its common stock to
Alan Gainsford upon the exercise of warrants issued to Mr. Gainsford. The
aggregate consideration received by the Company upon exercise was $145,000. The
Company relied upon the exemptions from registration provided by Sections 4(6)
or 4(2) of the Securities Act and Rule 506 promulgated thereunder based upon (i)
representations provided by Mr. Gainsford at the time of exercise that he is an
accredited investor; (ii) that no general solicitation of the securities was
made by the Company; (iii) the securities issued upon exercise of the warrants
were "restricted securities" as that term is defined under Rule 144 promulgated
under the Securities Act, however, because the securities were registered for
resale by Mr. Gainsford pursuant to an effective registration statement, no
restrictive legend was placed on the certificates or stop transfer instructions
noted by the Company's transfer agent; (vi) written representations by Mr.
Gainsford to the Company that he would comply with the manner of sale provisions
described in the registration statement covering his resale of the securities;
and (vii) prior to completion of the transaction, Mr. Gainsford was provided
with all information regarding the Company as required under Rule 502 of
Regulation D and was given the opportunity to ask questions of and receive
additional information from the Company regarding its financial condition and
operations. The Company did not pay any fees or commissions to third parties
with respect to this transaction.

         On May 19, 1999, the Company issued 22,500 shares of its common stock
to Alan Gainsford upon the exercise of warrants issued to Mr. Gainsford. The
aggregate consideration received by the Company upon exercise was $163,125. The
Company relied upon the exemptions from registration provided by Sections 4(6)
or 4(2) of the Securities Act and Rule 506 promulgated thereunder based upon (i)
representations provided by Mr. Gainsford at the time of exercise that he is an
accredited investor; (ii) that no general solicitation of the securities was
made by the Company; (iii) the securities issued upon exercise of the warrants
were "restricted securities" as that term is defined under Rule 144 promulgated
under the Securities Act, however, because the securities were registered for
resale by Mr. Gainsford pursuant to an effective registration statement, no
restrictive legend was placed on the certificates or stop transfer instructions
noted by the Company's transfer agent; (vi) written representations by Mr.
Gainsford to the Company that he would comply with the

                                       4
<PAGE>

manner of sale provisions described in the registration statement covering his
resale of the securities; and (vii) prior to completion of the transaction, Mr.
Gainsford was provided with all information regarding the Company as required
under Rule 502 of Regulation D and was given the opportunity to ask questions of
and receive additional information from the Company regarding its financial
condition and operations. The Company did not pay any fees or commissions to
third parties with respect to this transaction.

         On July 7, 1999, the Company issued 35,000 shares of its common stock
to Jeffrey Werbalowsky upon the exercise of warrants issued to Mr. Werbalowsky.
The aggregate consideration received by the Company upon exercise was $253,750.
The Company relied upon the exemptions from registration provided by Sections
4(6) or 4(2) of the Securities Act and Rule 506 promulgated thereunder based
upon (i) representations provided by Mr. Werbalowsky at the time of exercise
that he is an accredited investor; (ii) that no general solicitation of the
securities was made by the Company; (iii) the securities issued upon exercise of
the warrants were "restricted securities" as that term is defined under Rule 144
promulgated under the Securities Act, however, because the securities were
registered for resale by Mr. Werbalowsky pursuant to an effective registration
statement, no restrictive legend was placed on the certificates or stop transfer
instructions noted by the Company's transfer agent; (vi) written representations
by Mr. Werbalowsky to the Company that he would comply with the manner of sale
provisions described in the registration statement covering his resale of the
securities; and (vii) prior to completion of the transaction, Mr. Werbalowsky
was provided with all information regarding the Company as required under Rule
502 of Regulation D and was given the opportunity to ask questions of and
receive additional information from the Company regarding its financial
condition and operations. The Company did not pay any fees or commissions to
third parties with respect to this transaction.

         On August 23, 1999, the Company issued 250 shares of its Series E
Convertible Preferred Stock (the "Series E Shares") to the shareholders of First
Bankers Mortgage Services, Inc. ("First Bankers"), in exchange for all of the
issued and outstanding common stock of First Bankers. The Company valued the
shares issued in this transaction at an aggregate amount of $2,531,000. Each
Series E Share automatically converts, without the payment of additional
consideration, into 1,000 shares of the Company's common stock upon the approval
by the Company's shareholders of an increase in the number authorized shares of
the Company's common stock. The Company relied upon the exemptions from
registration provided by Section 4(2) of the Securities Act and Rule 506
promulgated thereunder based upon (i) representations from each of the
shareholders of First Bankers that they are accredited or sophisticated
investors with experience in investing in securities such that they could
evaluate the merits and risks related to the Company's securities; (ii) that no
general solicitation of the securities was made by the Company; (iii) each of
the First Bankers shareholders represented to the Company that they were
acquiring the shares for their own account and not with a view towards further
distribution; (iv) the securities issued to the shareholders of First Bankers.
were "restricted securities" as that term is defined under Rule 144 promulgated
under the Securities Act; (v) the Company placed appropriate restrictive legends
and stop transfer instructions with its transfer agent regarding the restricted
nature of these securities; and (vi) prior to completion of the transaction, the
First Bankers shareholders were informed in writing of the restricted nature of
the securities, provided with all information regarding the Company as required
under Rule 502 of Regulation D and were given the opportunity to ask questions
of and receive

                                       5
<PAGE>

additional information from the Company regarding its financial condition and
operations. The Company did not pay any fees or commissions to third parties
with respect to this transaction.

         On August 27, 1999, the Company sold 3,500 shares of its Series D 6%
Convertible Preferred Stock (the "Series D Shares") to The Shaar Fund Ltd, for
aggregate consideration of $3,500,000. Of the aggregate gross proceeds,
$2,300,000 has been placed into escrow along with 2,300 Series D Shares to be
released upon satisfaction of certain conditions, including an increase in the
number of authorized common shares of the company from 7,500,000 to 50,000,000.
The Series D Shares are convertible without the payment of additional
consideration at any time, and from time to time at a conversion price per share
of common stock equal to 65% of the then market price of the common stock. The
Company relied upon the exemptions from registration provided by Sections 4(6)
or 4(2) of the Securities Act and Rule 506 promulgated thereunder based upon (i)
representations from each of the purchasers of the Series D Shares accredited or
sophisticated investors with experience in investing in securities such that
they could evaluate the merits and risks related to the Company's securities;
(ii) that no general solicitation of the securities was made by the Company;
(iii) representations form the Shaar Fund that it was acquiring the securities
for its own account and not with a view towards further distribution; (iv) the
Series D Shares were "restricted securities" as that term is defined under Rule
144 promulgated under the Securities Act; (v) the Company placed appropriate
restrictive legends on the certificates representing the securities regarding
the restricted nature of these securities; and (vi) prior to completion of the
transaction, the purchasers of the Series D Shares were informed in writing of
the restricted nature of the securities, provided with all information regarding
the Company as required under Rule 502 of Regulation D and were given the
opportunity to ask questions of and receive additional information from the
Company regarding its financial condition and operations.

                                       6
<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: May 14, 2001                     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: May 14, 2001                     /S/ HENRY FONG
                                       -----------------------------------
                                       Henry Fong, President,
                                       Treasurer and Director
                                       (Principal Executive, Financial,
                                       and Accounting Officer)

Date: May 14, 2001                     /S/ RUSSELL L. CASEMENT
                                       -----------------------------------
                                       Russell L. Casement, Director

Date: May 14, 2001                     /S/ AARON A. GRUNFELD
                                       -----------------------------------
                                       Aaron A. Grunfeld, Director


                                        7

<PAGE>

                         EQUITEX, INC. AND SUBSIDIARIES

                  YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                            Page
                                                                            ----

Independent auditors' report - Gelfond Hochstadt Pangburn, P.C.              F-1
Report of Independent Certified Public Accountants -
   Davis & Co., CPA's, P.C.                                                  F-2

Financial statements:

     Consolidated balance sheet - December 31, 1999                          F-3

     Statement of assets and liabilities - December 31, 1998                 F-4

     Schedule of investments - December 31, 1998                       F-5 - F-7

     Consolidated statement of operations - year ended
        December 31, 1999                                                    F-8

     Statements of operations - years ended December 31, 1998
        and 1997                                                             F-9

     Statements of stockholders' equity - years ended
        December 31, 1999,  1998, and 1997                           F-10 - F-13

     Consolidated statement of cash flows - year ended
        December 31, 1999                                            F-14 - F-15

Statements of cash flows - years ended December 31, 1998 and 1997    F-16 - F-17

Notes to consolidated financial statements                          F-18 - F- 46



<PAGE>

                          INDEPENDENT AUDITORS' REPORT
                          ----------------------------

Board of Directors
Equitex, Inc.

We have audited the accompanying consolidated balance sheet of Equitex, Inc. and
subsidiaries as of December 31, 1999, and the related consolidated statements of
operations,  stockholders'  equity and cash flows for the year then ended. These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit 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 audit provides a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial  position of Equitex,  Inc. and
subsidiaries  as of December 31, 1999,  and the results of their  operations and
their cash flows for the year then ended, in conformity with generally  accepted
accounting principles.

As  discussed  in Note 1 to the  consolidated  financial  statements,  effective
January  1,  1999,  the  Company  changed  its  method  of  accounting  for  its
majority-owned subsidiaries, its equity investments, and its investments in debt
and equity securities.

Our audit referred to above  included an audit of the 1999  financial  statement
schedule listed under Item 14.2. In our opinion,  this 1999 financial  statement
schedule presents fairly, in all material respects,  the 1999 information stated
therein,  when  considered  in relation to the 1999  information  required to be
stated therein.

GELFOND HOCHSTADT PANGBURN, P.C.

Denver, Colorado
April 10,  2000

                                       F-1
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors
Equitex, Inc.

We have  audited  the  accompanying  statement  of assets  and  liabilities  and
schedule of  investments  of Equitex,  Inc. as of  December  31,  1998,  and the
related statements of changes in stockholders' equity, operations and cash flows
for each of the years in the  two-year  period ended  December  31, 1998.  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 audit 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 1998 and 1997 financial statements referred to above present
fairly, in all material respects,  the financial position of Equitex, Inc. as of
December 31, 1998,  and the results of its operations and its cash flows each of
the years in the two-year  period ended  December  31, 1998 in  conformity  with
generally accepted accounting principles.

As explained more fully in Note 2, the financial statements at December 31, 1998
include  securities and receivables,  valued at $2,799,145 (68.2% of net assets)
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.

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 1998
and 1997  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, 1999
                                       F-2
<PAGE>

                         EQUITEX, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET

                                DECEMBER 31, 1999

                                     ASSETS

Cash and cash equivalents ......................................   $    783,606
Mortgage loans held for sale, net ..............................     14,787,080
Receivables, net:
     Related parties ...........................................        958,810
     Other .....................................................        504,571
Inventories ....................................................        167,346
Investments
     Equity investments ........................................      1,707,898
     Other investments .........................................      1,767,537
Furniture, fixtures and equipment, net .........................      1,058,032
Intangible and other assets, net ...............................     20,010,057
                                                                   ------------

                                                                   $ 41,744,937
                                                                   ============

                     LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
     Warehouse loans ...........................................   $ 18,582,351
     Accounts payable ..........................................      1,584,926
     Accrued liabilities:
       Related parties .........................................        454,235
       Others ..................................................      2,773,989
     Notes and advances payable:
       Related parties .........................................        832,000
       Others ..................................................      1,941,954
                                                                   ------------
Total liabilities ..............................................     26,169,455
                                                                   ------------

Minority interest ..............................................      6,473,070
                                                                   ------------

Commitments and contingencies

Stockholders' equity:
     Convertible preferred stock; par value $1,000;
       4,500 shares authorized:
         Series D, 6%, 1,200 shares issued and outstanding;
           liquidation preference $1,585,000 ...................      1,200,000
         Series E, 250 shares issued and outstanding ...........        250,000
     Common stock, par value $.02; 7,500,000
       shares authorized; 7,140,293 shares issued;
        7,106,943 shares outstanding ...........................        142,806
     Additional paid-in capital ................................     18,820,223
     Accumulated deficit .......................................    (11,196,580)
     Less treasury stock at cost (33,350 shares) ...............       (114,037)
                                                                   ------------
Total stockholders' equity .....................................      9,102,412
                                                                   ------------

                                                                   $ 41,744,937
                                                                   ============
                 See notes to consolidated financial statements.
                                      F-3
<PAGE>

                         EQUITEX, INC. AND SUBSIDIARIES

                       STATEMENT OF ASSETS AND LIABILITIES

                                DECEMBER 31, 1998

                                     ASSETS

Investments, at fair value:
     Securities (cost of $4,917,848) ...........................   $  4,226,541
     Notes receivable, net of allowance for
       uncollectible accounts of $100 ..........................      1,225,232
     Accrued interest receivable, net of
       allowance for uncollectible interest of $1,830 ..........         32,134
     Trade receivables, net of allowance for
       uncollectible accounts of $57,705 .......................        108,286
                                                                   ------------
                                                                      5,592,193

Cash ...........................................................         32,490
Accounts receivable - brokers ..................................         22,798
Contract deposit receivable, net of allowance for
  uncollectibility of $150,000 .................................        150,000
Income taxes refundable ........................................          2,150
Furniture and equipment, net ...................................         26,220
Other assets ...................................................         33,224
                                                                   ------------

                                                                   $  5,859,075
                                                                   ============

                           LIABILITIES AND NET ASSETS
Liabilities:
     Notes payable - officer ...................................   $    142,328
     Notes payable - others ....................................        220,000
     Accounts payable and other accrued liabilities ............         76,290
     Accounts payable to brokers ...............................        656,060
     Accrued bonus to officer ..................................        676,168
                                                                   ------------
                                                                      1,770,846
                                                                   ------------
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;
       5,417,665 shares issued; 5,384,315 shares outstanding ...        108,353
     Additional paid-in capital ................................      7,368,624
     Retained earnings

       Accumulated deficit prior to becoming a BDC .............       (118,874)
       Accumulated net investment loss .........................    (15,698,055)
       Accumulated net realized gains from sales and permanent
        write-downs of investments .............................     13,233,525
     Unrealized net gains (losses) on investments ..............       (691,307)
     Less treasury stock (33,350 shares) .......................       (114,037)
                                                                   ------------
                                                                      4,088,229
                                                                   ------------
                                                                   $  5,859,075
                                                                   ============
                 See notes to consolidated financial statements.
                                      F-4
<PAGE>

                                  EQUITEX, INC.

                             SCHEDULE OF INVESTMENTS

                                DECEMBER 31, 1998

<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)(d):
   VP Sports, Inc.
    Entity formed to seek acquisitions in the
      manufacturing segment of the sporting
      goods and leisure-time industry               2,000,000       $  250,000    $ 1,000,000

COMMON STOCKS - BOARD APPRAISAL
 METHOD OF VALUATION (a):
   First TeleServices Corporation
    Fee-based financial services                        1,000          565,639        565,639

COMMON STOCKS - COST METHOD OF
 VALUATION:
   Triumph Sports Group
    Entity formed to seek acquisitions in the
     non-manufacturing  licensed and supplemental
     segments of the sporting goods and leisure-
     time industry                                  1,500,000          375,000        375,000
   First TeleBanc Corporation
    Bank holding company                               40,000          400,000        350,000

AFFILIATED COMPANIES
COMMON STOCKS - PUBLIC MARKET
 METHOD OF VALUATION (c)(d):
   RDM Sports Group
    Manufacturer of fitness equipment and
     juvenile products                              4,979,437        1,088,815          8,963

OTHER-PUBLIC MARKET METHOD OF
 VALUATION:
   RDM Sports Group                                 8% Convertible
    Manufacturer of fitness equipment and           Subordinated
     juvenile products                              Debentures          50,681              -
                                                                    ----------    -----------

  Sub-total, controlled and affiliated companies                     2,730,135      2,299,602
                                                                    ----------    -----------
</TABLE>

                                  (Continued)
                                      F-5
<PAGE>

                                  EQUITEX, INC.

                       SCHEDULE OF INVESTMENTS (CONTINUED)

                                DECEMBER 31, 1998

<TABLE>
<CAPTION>
                                                     Number            Cost
                                                       of             and/or         Fair
         Company                                  shares owned        equity         value
------------------------------                    ------------        ------         -----
<S>                                                 <C>             <C>           <C>
UNAFFILIATED COMPANIES
COMMON STOCKS - PUBLIC MARKET
 METHOD OF VALUATION:
   Intranet Solutions, Inc. (formerly MacGregor
    Sports & Fitness, Inc.)
     Document management services, web-
      based internet software, electronic docu-
      ment management and demand  printing            188,585        1,053,200        919,351
   Zamba (formerly Racotek)
     Medical technology                               275,000          961,013        532,813
   NevStar Gaming Corporation
     Gaming development                                 7,000           38,500          6,562

COMMON STOCKS - PRIVATE MARKET
 METHOD OF VALUATION (a)(d):
   All Systems Go
    Software development                               20,000(b)        25,000         25,000
   Ocean Power Technology
    Alternative energy                                 35,714(b)        40,000         98,213
     research and development                         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 (e)(d):
   Juice Island
    Health food stores                                  2,500                -              -
                                                                    ----------    -----------

 Sub-total, unaffiliated companies                                   2,187,713      1,926,939
                                                                    ----------    -----------

Total, all companies                                                $4,917,848    $ 4,226,541
                                                                    ==========    ===========
</TABLE>

                                   (Continued)
                                      F-6
<PAGE>

                                  EQUITEX, INC.

                       SCHEDULE OF INVESTMENTS (CONTINUED)

                                DECEMBER 31, 1998

Restriction 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 an affiliate,  it may be affected by sales limitations
     of one  percent  of the  investee's  outstanding  common  stock  during any
     three-month   period,  or  four-week  average  trading  volume  during  any
     three-month period.

(d)  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 a 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.

(e)  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.


                 See notes to consolidated financial statements.
                                      F-7
<PAGE>

                         EQUITEX, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF OPERATIONS

                          YEAR ENDED DECEMBER 31, 1999



Revenues:
     Product sales .............................................   $    738,456
     Loan production and processing revenues ...................        302,811
     Secondary marketing revenues, net .........................        395,034
     Interest and dividend income ..............................        878,998
     Other .....................................................        103,965
                                                                   ------------
                                                                      2,419,264
                                                                   ------------
Expenses:
     Cost of product sales .....................................        488,767
     Loan production and processing ............................        728,501
     Selling,  general and administrative:
       Officer's bonus .........................................        883,164
       Other ...................................................      6,250,365
                                                                   ------------
                                                                      8,350,797
                                                                   ------------
                                                                     (5,931,533)
                                                                   ------------
Other income (expenses):
     Investment loss, net ......................................       (571,267)
     Equity in losses of affiliates ............................       (418,209)
     Interest expense:
       Related parties .........................................        (10,357)
       Other ...................................................       (785,193)
                                                                   ------------
                                                                     (1,785,026)
                                                                   ------------
Net loss .......................................................     (7,716,559)
                                                                   ------------
Amortization of discount on preferred stock ....................     (3,217,713)
Deemed preferred stock dividends ...............................        (51,300)
                                                                   ------------
Net loss applicable to common shareholders .....................   $(10,985,572)
                                                                   ============

Basic and diluted net loss per common share ....................   $      (1.64)
                                                                   ============

Weighted average number of common shares outstanding ...........      6,718,170
                                                                   ============
                 See notes to consolidated financial statements.
                                      F-8
<PAGE>

                         EQUITEX, INC. AND SUBSIDIARIES

                            STATEMENTS OF OPERATIONS

                     YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
                                                             1998            1997
                                                          -----------    -----------
<S>                                                       <C>            <C>
Revenues:
     Interest and dividends ...........................   $    70,445    $    34,784
     Consulting and transaction fees ..................       375,000        250,000
     Administrative fees ..............................         2,371         26,495
     Miscellaneous ....................................            24         67,112
                                                          -----------    -----------
                                                              447,840        378,391
                                                          -----------    -----------
Expenses:
     Salaries and consulting fees .....................       300,613        300,164
     Officers' bonus ..................................     1,208,042        151,153
     Office rent ......................................        31,188         38,575
     Advertising and promotion ........................        48,612          2,951
     Legal and accounting .............................       276,359         69,502
     Loss on indemnity agreement ......................       509,054
     Other general and administrative .................       266,129        190,261
     Interest .........................................       101,002         87,005
     Bad debt expense .................................       (34,435)       240,991
     Depreciation and amortization ....................        12,833         11,388
     Employee benefits ................................       207,902        212,882
                                                          -----------    -----------
                                                            2,418,245      1,813,926
                                                          -----------    -----------
Net investment (loss) .................................    (1,970,405)    (1,435,535)
                                                          -----------    -----------
Net realized gain on investments and
 net unrealized gain on investments:
     Proceeds from sales of investments ...............     1,712,802      1,508,629
     Less: cost of investments sold ...................      (604,462)      (504,678)
                                                          -----------    -----------
       Realized gain from sales of investments ........     1,108,340      1,003,951
     Permanent write down of investments ..............          --             --
                                                          -----------    -----------
       Realized gain on investments before income taxes     1,108,340      1,003,951
                                                          -----------    -----------
     Net investment (loss) and realized gain on
       investments before income taxes ................      (862,065)      (431,584)
     Less: income taxes (provision) benefit
       Current ........................................          --          (56,307)
       Deferred .......................................       (63,180)        86,242
                                                          -----------    -----------
                                                              (63,180)        29,935
     Income tax benefit of NOL carryforward ...........          --             --
                                                          -----------    -----------
     Net investment (loss) and realized gain
       on investments after income taxes ..............      (925,245)      (401,649)
(Decrease) in unrealized appreciation of investments ..    (1,056,054)    (5,773,305)
Less: income tax benefit applicable to (decrease)
  in unrealized appreciation of investments ...........       431,361      2,251,587
Add: allowance for income tax benefit .................      (431,361)          --
                                                          -----------    -----------
                                                           (1,056,054)    (3,521,718)
                                                          -----------    -----------

Net (decrease) in net assets resulting from operations    $(1,981,299)   $(3,923,367)
                                                          ===========    ===========
(Decrease) in net assets per share - primary ..........   $      (.45)   $     (1.25)
                                                          ===========    ===========

Weighted average number of common shares ..............     4,416,988      3,192,600
                                                          ===========    ===========
</TABLE>

                 See notes to consolidated financial statements.
                                      F-9
<PAGE>

                         EQUITEX, INC., AND SUBSIDIARIES

                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997

<TABLE>
<CAPTION>
                              Convertible preferred           Common stock
                                      stock
                             ------------------------  -------------------------                   Additional
                                                                                    Treasury        paid in
                                Shares       Amount       Shares        Amount        stock         capital          Deficit
                             -----------   ----------  -----------   -----------   -----------   --------------   --------------
<S>                          <C>           <C>         <C>           <C>           <C>           <C>              <C>
Balance at December 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
investmentments
                             -----------   ----------  -----------   -----------   -----------   --------------   --------------
Balance at December 31,
1997                                                     3,494,465        69,889      (114,037)       4,644,275         (118,874)

Common stock sold to
officer at $1.16 per share                                  10,000           200                         11,400

Common stock sold to o/s
directors at $1.16 per
share                                                      139,200         2,784                        158,688

Common stock sold to
officers pursuant to
option conversions at:
   $3.00 per share                                          74,000         1,480                        220,520
   $3.19 per share                                          29,000           580                         91,930

Common stock sold to
others at :
   $ .75 per share                                         330,000         6,600                        240,900
   $1.16 per share                                         350,000         7,000                        399,000
   $3.25 per share                                         366,000         7,320                      1,182,180

Stock issued in exchange
for First TeleServices
Corporation                                                625,000        12,500                        553,139

Commissions/fees paid
on 1998 private placement

sales                                                                                                  (133,408)

Net investment (loss)

Net realized gain (loss)
on investments

Unrealized gain (loss) on
investments
                             -----------   ----------  -----------   -----------   -----------   --------------   --------------
</TABLE>

                                   (Continued)
                                      F-10
<PAGE>

                         EQUITEX, INC., AND SUBSIDIARIES

            STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)

              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997

<TABLE>
<CAPTION>
                                                                       Accumulated
                                                   Accumulated       appreciation on
                                                    realized        investments (1998,
                                                    net gains          1997) other          Total
                              Accumulated net      from sales         comprehensive      stockholders'
                              investment loss     of investment       income (1999)         equity
                              ---------------    ----------------    ---------------    ---------------
<S>                           <C>                <C>                 <C>                <C>
Balance at December 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)
investments                                                               (3,521,718)        (3,521,718)
                              ---------------    ----------------    ---------------    ---------------
Balance at December 31,
1997                              (13,431,269)         12,125,185            364,747          3,539,916

Common stock sold to
officer at $1.16 per share                                                                       11,600

Common stock sold to o/s
directors at $1.16 per
share                                                                                           161,472

Common stock sold to
officers pursuant to
option conversions at:
   $3.00 per share                                                                              222,000
   $3.19 per share                                                                               92,510

Common stock sold to
others at :
   $ .75 per share                                                                              247,500
   $1.16 per share                                                                              406,000
   $3.25 per share                                                                            1,189,500

Stock issued in exchange
for First TeleServices
Corporation                                                                                     565,639

Commissions/fees paid
on 1998 private placement
sales                                                                                          (133,408)

Net investment (loss)              (2,266,786)                                               (2,266,786)

Net realized gain (loss)
on investments                                          1,108,340                             1,108,340

Unrealized gain (loss) on
investments                                                               (1,056,054)        (1,056,054)
                              ---------------    ----------------    ---------------    ---------------
</TABLE>

                                   (Continued)
                                      F-11
<PAGE>

                         EQUITEX, INC., AND SUBSIDIARIES

            STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)

              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
                              Convertible preferred           Common stock
                                      stock
                             ------------------------  -------------------------                   Additional
                                                                                    Treasury        paid in
                                Shares       Amount       Shares        Amount        stock         capital          Deficit
                             -----------   ----------  -----------   -----------   -----------   --------------   --------------
<S>                          <C>           <C>         <C>           <C>           <C>           <C>              <C>
Balances, December                                       5,417,665       108,353      (114,037)       7,368,624         (118,874)
31, 1998

Cumulative effect of
accounting change                                                                                                     (3,361,147)

Reclassification adjustment
on unrealized loss on
investments

Issuance of Series A
preferred stock (net
of offering costs)                   900            9                                                   769,991

Issuance of Series B
preferred stock (net
of offering costs)                   600            6                                                   521,994

Issuance of Series C
preferred stock (net
of offering costs)                   600            6                                                   509,994

Private placement of common
stock (net
of offering costs)                                         350,312         7,006                        936,984

Conversion of Series
A, B and C preferred stock
to common stock                   (2,100)         (21)     320,528         6,411                         (6,390)

Conversion of note payable
and accrued interest to
common stock                                                48,688           974                        157,262

Exercises of stock options
issued to employees                                        665,600        13,312                      2,081,234

Exercises of warrants                                      337,500         6,750                      2,606,925

Issuance of warrants
for services                                                                                            150,000

Issuance of Series D
preferred stock                    1,200    1,200,000                                                  (180,000)

Issuance of Series E
preferred stock                      250      250,000                                                 2,281,000

Subsidiary stock
transactions                                                                                          1,622,605

Net loss                                                                                                              (7,716,559)
                             -----------   ----------  -----------   -----------   -----------   --------------   --------------
Balances, at December 31,
1999                               1,450   $1,450,000    7,140,293   $   142,806   $  (114,037)  $   18,820,223   $  (11,196,580)
                             ===========   ==========  ===========   ===========   ===========   ==============   ==============
</TABLE>

                                   (Continued)
                                      F-12
<PAGE>

                         EQUITEX, INC., AND SUBSIDIARIES

            STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)

              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997


<TABLE>
<CAPTION>
                                                                       Accumulated
                                                   Accumulated       appreciation on
                                                    realized        investments (1998,
                                                    net gains          1997) other          Total
                              Accumulated net      from sales         comprehensive      stockholders'
                              investment loss     of investment       income (1999)         equity
                              ---------------    ----------------    ---------------    ---------------
<S>                           <C>                <C>                 <C>                <C>
Balances, December
31, 1998                          (15,698,055)         13,233,525           (691,307)         4,088,229

Cumulative effect of
accounting change                  15,698,055         (13,233,525)                             (896,617)

Reclassification adjustment
on unrealized loss on
investments                                                                  691,307            691,307

Issuance of Series A
preferred stock (net
of offering costs)                                                                              770,000

Issuance of Series B
preferred stock (net
of offering costs)                                                                              522,000

Issuance of Series C
preferred stock (net
of offering costs)                                                                              510,000

Private placement of
common stock (net of
offering costs)                                                                                 943,990

Conversion of Series
A, B and C preferred stock
to common

Conversion of note payable
and accrued interest into
common stock                                                                                    158,236

Exercises of stock options
issued to employees                                                                           2,094,546

Exercises of warrants                                                                         2,613,675

Issuance of warrants
for services                                                                                    150,000

Issuance of Series D
preferred stock                                                                               1,020,000

Issuance of Series E
preferred stock                                                                               2,531,000

Subsidiary stock
transactions                                                                                  1,622,605

Net loss                                                                                     (7,716,559)
                              ---------------    ----------------    ---------------    ---------------
Balances, at December 31,
1999                                                                                         $9,102,412
                              ===============     ===============    ===============    ===============
</TABLE>

                 See notes to consolidated financial statements.
                                      F-13
<PAGE>

                         EQUITEX, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF CASH FLOWS

                          YEAR ENDED DECEMBER 31, 1999


Cash flows used in operating activities:
Net loss .......................................................   $ (7,716,559)
                                                                   ------------
Adjustments to reconcile net loss to net cash
  used in operating activities:
     Depreciation and amortization .............................        838,359
     Warrants issued for services ..............................        150,000
     Provision for bad debts on notes receivable ...............         19,248
     Investment loss, net ......................................        571,267
     Equity in losses of affiliates ............................        418,209
Changes in assets and liabilities, net of business acquisitions:
   Investments in trading securities............................        852,128
   Receivables .................................................         40,500
   Mortgage loans held for sale ................................      3,545,354
   Inventories .................................................       (109,797)
   Other assets ................................................      1,093,098
   Accounts payable and accrued liabilities ....................     (3,961,145)
                                                                   ------------
   Total adjustments ...........................................      3,457,221
                                                                   ------------

Net cash used in operating activities ..........................     (4,259,338)
                                                                   ------------
Cash flows from investing activities:
   Purchase of other investments ...............................       (410,000)
   Cash used in business acquisition ...........................     (2,327,500)
   Purchase of furniture fixtures and equipment.................       (278,025)
   Repayment of loans and notes receivable .....................      1,017,630
   Issuance of loans and notes receivable ......................     (2,903,242)
                                                                   ------------
Net cash used in investing activities ..........................     (4,901,137)
                                                                   ------------
Cash flows from financing activities:
   Common stock issued for cash ................................      5,652,211
   Preferred stock issued for cash .............................      2,822,000
   Issuance of notes payable ...................................        758,897
   Repayment of warehouse lines and other notes payable ........     (2,826,517)
   Proceeds from subsidiary stock transactions .................      3,505,000
                                                                   ------------
Net cash provided by financing activities ......................      9,911,591
                                                                   ------------

                                  (Continued)
                                      F-14
<PAGE>

                         EQUITEX, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)

                          YEAR ENDED DECEMBER 31, 1999


Increase in cash and cash equivalents ..........................        751,116

Cash and cash equivalents, beginning of year ...................         32,490
                                                                   ------------

Cash and cash equivalents, end of year .........................   $    783,606
                                                                   ============


Supplemental disclosure of cash flow information:

   Cash paid for interest: .....................................   $  2,939,873
                                                                   ============

Supplemental disclosure of non-cash investing and
 financing activities:

   Common stock issued in satisfaction of
     note payable and accrued interest .........................   $    158,236
                                                                   ============
   Conversion of preferred stock to common
     stock .....................................................   $  1,802,000
                                                                   ============
   Amortization of discount on preferred
     stock .....................................................   $  3,217,713
                                                                   ============

   Subsidiary stock transactions ...............................   $  1,622,605
                                                                   ============
   Purchase of FBMS, net of cash acquired:
     Fair value of assets acquired .............................   $ 12,392,600
     Intangible assets .........................................     18,900,000
     Liabilities assumed .......................................    (29,541,600)
     Fair value of Series E preferres stock ....................     (2,531,000)
                                                                   ------------
     Cash acquired .............................................   $   (780,000)
                                                                   ============
   Purchase of Victoria Precision, Inc.:
     Fair value of assets acquired .............................   $  5,769,500
     Intangible assets .........................................      3,166,000
     Liabilities assumed .......................................     (4,969,000)
     Fair value of assets exchanged ............................       (859,000)
                                                                   ------------
     Cash paid .................................................   $  3,107,500
                                                                   ============

                 See notes to consolidated financial statements.
                                      F-15
<PAGE>

                         EQUITEX, INC. AND SUBSIDIARIES

                            STATEMENTS OF CASH FLOWS

                     YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>

                                                            1998            1997
                                                         -----------    -----------
<S>                                                      <C>            <C>
Cash flows used in operating activities:
Net loss .............................................   $(1,981,299)   $(3,923,367)

Adjustments to reconcile net loss to net cash
 provided by operating activities:
     Depreciation and amortization ...................        12,833         11,388
     Provision for bad debts on notes receivable .....       (40,193)        40,193
     Realized gain on sale of investments ............    (1,108,340)    (1,003,951)
     Unrealized loss on investments ..................     1,056,054      5,773,305
     Donation of stock of investee company ...........                        4,136
Proceeds form sales of investments ...................     1,712,802      1,508,629
Purchases of investments .............................    (1,388,626)      (309,551)
Issuance of notes receivable .........................      (943,365)      (458,402)
Collections of notes receivable ......................       177,083         20,250
Changes in assets and liabilities:
   (Increase) in interest receivable .................       (26,433)        (3,799)
   (Increase) decrease in accounts receivable - broker        50,943        (68,975)
   (Increase) decrease in other assets ...............       (23,119)        (3,671)
   (Increase) decrease in trade receivables ..........         2,668        (71,331)
   (Increase) in contract deposit receivable .........                     (150,000)
   Decrease in income taxes refundable ...............                      164,459
   Increase (decrease) in accounts payable and other
     accrued expenses ................................       (45,059)        65,908
   (Decrease) increase in accounts payable to brokers          5,758        (88,721)
   (Decrease) increase in deferred income taxes ......        63,180     (2,337,830)
   Increase in bonus due to officer ..................       376,909        151,153
                                                         -----------    -----------
Net cash (used) by operating activities ..............    (2,098,204)      (672,835)
                                                         -----------    -----------
Cash flows from investing activities:
   Purchase of fixed assets ..........................       (10,396)        (1,872)
                                                         -----------    -----------
Net cash (used) by investing activities ..............       (10,396)        (1,872)
                                                         -----------    -----------
Cash flows from financing activities:
   Common stock issued for cash ......................     2,197,174        202,500
   Issuance of notes payable - officer ...............       165,000        531,000
   Issuance of notes payable - other .................       250,000        250,000
   Repayment of notes payable ........................      (480,271)      (353,401)
                                                         -----------    -----------
Net cash provided by financing activities ............     2,131,903        630,099
                                                         -----------    -----------
</TABLE>

                                   (Continued)
                                      F-16
<PAGE>

                         EQUITEX, INC. AND SUBSIDIARIES

                      STATEMENTS OF CASH FLOWS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
                                                            1998            1997
                                                         -----------    -----------

<S>                                                      <C>            <C>
Change in cash and cash equivalents ..................        23,303        (44,608)
Cash and cash equivalents, beginning of
  period .............................................         9,187         53,795
                                                         -----------    -----------

Cash and cash equivalents, end of period .............   $    32,490    $     9,187
                                                         ===========    ===========


Supplemental disclosures of cash flow information:

   Interest paid .....................................   $    95,677    $    79,305
                                                         ===========    ===========

   Interest received .................................   $    42,217    $    30,985
                                                         ===========    ===========

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


Non-cash financing activities:

   Common stock issued for common stock of
     previously unrelated entity .....................   $   565,639    $      --
                                                         ===========    ===========
</TABLE>

Supplemental disclosure of non-cash investing
 activities:
   On August 13, 1998, the Company acquired all of the
     outstanding stock of First TeleServices Corp. in
     exchange for 625,000 shares of the Company's common
     stock.



                 See notes to consolidated financial statements.
                                      F-17
<PAGE>

                         EQUITEX, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

1.   Organization:

     Business history:

     Equitex, Inc. (the "Company"), a Delaware Corporation,  was incorporated on
       January 19,  1983.  On July 30,  1984,  the  Company  elected to become a
       "Business   Development  Company",  as  defined  in  the  Small  Business
       Investment  Incentive Act of 1980, an amendment to the Investment Company
       Act of 1940. This change  resulted in the Company  becoming a specialized
       type of investment company.

     Decertification as a Business Development Company ("BDC"):

     On January 4, 1999, the Company  withdrew  its  election to be treated as a
       BDC  subject  to  the  Investment  Company  Act.  As  a  result  of  this
       withdrawal,  the  Company  is  now  required  to  present  its  financial
       statements consistent with those of a normal operating company as opposed
       to a BDC.  Because the Company was a BDC during the years ended  December
       31, 1998 and 1997, the 1998 and 1997 financial statements reflect the BDC
       format.

     Accounting change:

     In connection with the Company's January 4, 1999 withdrawal of its election
       to be treated as a BDC,  effective  January 1, 1999, the Company  adopted
       Statement of Financial  Accounting Standards ("SFAS") No. 115, ACCOUNTING
       FOR  CERTAIN  INVESTMENTS  IN  DEBT  AND  EQUITY  SECURITIEs,  Accounting
       Principles  Board ("APB") Opinion No. 18, THE EQUITY METHOD OF ACCOUNTING
       FOR INVESTMENTS IN COMMON STOCK,  and SFAS No. 94,  CONSOLIDATION  OF ALL
       MAJORITY-OWNED  SUBSIDIARIES.  The  cumulative  effect of the  accounting
       change was to decrease  stockholders'  equity by  $896,617.  There was no
       effect on the 1999 Consolidated statement of operations.  These standards
       were not applicable to the Company is prior years, operating as a BDC.

     SFAS No. 115 requires that certain debt and equity securities be carried at
       market value and  requires  management  to  re-evaluate  the  appropriate
       classification  of securities  at each balance  sheet date,  based on its
       intent to trade or hold the  securities.  APB 18 requires  the use of the
       equity method of accounting for investments in which the investor has the
       ability to exercise  significant  influence  over operating and financial
       policies of the  investee  enterprise.  That ability is presumed to exist
       for  investments  of 20%  or  more  and is  presumed  not  to  exist  for
       investments  of less than 20%.  SFAS No. 94  provides  that  consolidated
       financial  statements  generally  shall include  enterprises in which the
       parent has a controlling financial interest.

     Principles of consolidation:

     The consolidated  financial  statements as of December 31, 1999 include the
       accounts of Equitex,  Inc., and the following  significant  subsidiaries;
       all  significant   intercompany   accounts  and  transactions  have  been
       eliminated in consolidation:

       Financial services segment:

               NMORTGAGE,  INC. ("nMortgage");  a Delaware corporation formed in
               September 1999 to acquire  First Bankers Mortgage Services,  Inc.
               and its wholly-owned subsidiary, United Appraisal Services, Inc.

                                      F-18
<PAGE>

                         EQUITEX, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   YEAR ENDED DECEMBER 31, 1999, 1998 AND 1997

1.   Organization (continued):

     Principles of consolidation (continued):

       Financial services segment (continued):

               FIRST  BANKERS  MORTGAGE  SERVICES,   INC.  ("FBMS");  a  Florida
               corporation  incorporated  in 1990 and acquired by the Company on
               August 23, 1999 (Note 3). FBMS, a mortgage  banking  company,  is
               wholly-owned  by the Company and engages in the  origination  and
               sale  of  residential  mortgages.  In  addition  to  conventional
               mortgage  products,  FBMS  also  provides  FHA  and  VA  assisted
               mortgages  under the U.S.  HUD  lending  program.  Mortgages  are
               originated  through retail branches and wholesale lending centers
               located principally in Florida.

               FIRST TELESERVICES  CORPORATION  ("FTC");  a Florida  corporation
               incorporated  in 1997 and  acquired by the Company in August 1998
               (Note 3). FTC, wholly-owned by the Company, is a consumer finance
               company offering financial products and services to the sub-prime
               market

       Sporting goods/product related segment:

               TRIUMPH SPORTS GROUP,  INC.  ("Triumph");  a Florida  corporation
               formed in January  1998 for the  purpose of  acquiring  operating
               entities  in  the  non-manufacturing  licensed  and  supplemental
               segments of the sporting goods and leisure-time industry. Between
               February and June of 1998, the Company  acquired an 88% ownership
               interest in Triumph  (Note 3).  Triumph  owns and  operates  four
               retail vitamin/health supplement centers in south Florida.

               VP SPORTS, INC. ("VP Sports");  a Delaware  corporation formed in
               December 1997 for the purpose of acquiring an operating entity in
               the sporting  goods/recreation  industry.  In December  1997, the
               Company acquired an 88% ownership  interest in VP Sports (Notes 3
               and 6).  Effective  July 27, 1999, VP Sports  acquired all of the
               outstanding common shares of Victoria  Precision Inc.  ("Victoria
               Precision"), a Canadian bicycle manufacturer.  In connection with
               a private  placement of VP Sports'  common  stock,  the Company's
               ownership  interest in VP Sports was reduced  from  approximately
               88% at December 31, 1998 to  approximately  35.7% at December 31,
               1999.  Due to the change in  ownership  percentage,  the  Company
               changed its method of accounting  for its investment in VP Sports
               in 1999 from consolidation to the equity method of accounting.

     Minority interest at December 31, 1999,  represents preferred stock of FBMS
       and nMortgage  (Note 17).  During the year ended  December 31, 1999,  net
       losses incurred by the Company's majority-owned subsidiaries exceeded the
       minority interest in the common equity  (deficiency) of the subsidiaries.
       As a result,  the excess of losses  applicable  to the minority  interest
       have been  charged  against  the  Company,  and no  minority  interest is
       reflected in the Company's 1999 statement of operations.

                                      F-19
<PAGE>

                         EQUITEX, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   YEAR ENDED DECEMBER 31, 1999, 1998 AND 1997

2.   Significant accounting policies:

     Use of accounting estimates in financial statement preparation:

     The  preparation  of financial  statements  in  conformity  with  generally
       accepted accounting  principles requires management to make estimates and
       assumptions  that affect the reported  amounts of assets and  liabilities
       and  disclosure of contingent  assets and  liabilities at the date of the
       financial  statements  and the reported  amounts of revenues and expenses
       during the  reporting  periods.  Actual  results  could differ from those
       estimates,  and it is reasonably  possible that significant changes could
       occur in the near term.

     Cash and cash equivalents:

     For purposes of the  statements  of cash flows,  the Company  considers all
       highly liquid  investments with an original maturity date of three months
       or less to be cash equivalents.

     Mortgage loans held for sale, net:

     Mortgage loans originated and intended for sale in the secondary market are
       carried at the lower of cost or  estimated  fair value in the  aggregate.
       Net  unrealized  losses,  if any,  are  recognized  through  a  valuation
       allowance  by  charges  to  income.  Gain or loss on  sales  of  loans is
       recognized at the time of the sale. Origination fees and loan origination
       costs on such loans are  recognized  when the mortgage is sold,  which is
       normally within 30 days of the  origination of the loan.  Interest earned
       on these  mortgages is recognized as income from the time the mortgage is
       closed to the time the mortgage is sold.

     The Company generally sells the servicing rights on mortgages.  The Company
       has  adopted the  provisions  of SFAS No. 122,  ACCOUNTING  FOR  MORTGAGE
       SERVICING  RIGHTS,  and  accordingly  capitalizes  the fair value (quoted
       market  price) of  retained  mortgage  servicing  rights  on loans  sold.
       Capitalized  mortgage  servicing  rights on such loans are  amortized  in
       proportion to and over the period of estimated net servicing income.  The
       carrying amount of capitalized mortgage servicing rights is evaluated for
       impairment  based upon quoted market prices of similar loans. At December
       31, 1999, there were no retained mortgage servicing rights.

     Mortgage loans:

     The Company  periodically  grants  mortgage loans to customers.  Loans that
       management has the intent and ability to hold for the foreseeable  future
       or until maturity or pay-off  generally are reported at their outstanding
       unpaid principal  balances  adjusted for  charge-offs,  the allowance for
       loan losses, and any deferred fees or costs on originated loans. Interest
       income is accrued on the unpaid principal balance. Loan origination fees,
       net of certain direct  origination  costs, are deferred and recognized as
       an adjustment to the related loan yield using the interest method.

                                      F-20
<PAGE>

                         EQUITEX, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   YEAR ENDED DECEMBER 31, 1999, 1998 AND 1997

2.   Significant accounting policies (continued):

     Mortgage loans (continued):

     The accrual of interest on mortgage and commercial loans is discontinued at
       the time the loan is 90 days delinquent unless the credit is well-secured
       and in  process  of  collection.  Loans  are  placed  on  non-accrual  or
       charged-off  status at an earlier  date if  collection  of  principal  or
       interest is considered  doubtful.  All interest accrued but not collected
       for  loans  that are  placed  on  non-accrual  or  charged-off  status is
       reversed  against  interest  income.  The  interest  on  these  loans  is
       accounted for on the cash-basis or cost-recovery method, until qualifying
       for return to accrual  status.  Loans are returned to accrual status when
       all the  principal  and interest  amounts  contractually  due are brought
       current and future payments are reasonably assured.

     Allowance for loan losses:

     The allowance for loan losses is evaluated on a regular basis by management
       and is based upon management's  periodic review of the  collectibility of
       the loans in light of historical experience, the nature and volume of the
       loan portfolio, adverse situations that may affect the borrower's ability
       to repay,  estimated  value of any  underlying  collateral and prevailing
       economic  conditions.  This  evaluation  is  inherently  subjective as it
       requires  estimates that are susceptible to significant  revision as more
       information  becomes  available.  Loan  losses are  charged  against  the
       allowance when management believes the uncollectibility of a loan balance
       is  confirmed.  Subsequent  recoveries,  if  any,  are  credited  to  the
       allowance.

     A loan is  considered  impaired  when,  based on  current  information  and
       events,  it is probable  that the  Company  will be unable to collect the
       scheduled  payments of  principal or interest  when due  according to the
       contractual terms of the loan agreement. Factors considered by management
       in determining  impairment include payment status,  collateral value, and
       the probability of collecting  scheduled  principal and interest payments
       when due. Loans that experience  insignificant payment delays and payment
       shortfalls   generally  are  not   classified  as  impaired.   Management
       determines the significance of payment delays and payment shortfalls on a
       case-by-case  basis,  taking into  consideration all of the circumstances
       surrounding the loan and the borrower, including the length of the delay,
       the reasons for the delay, the borrower's  prior payment record,  and the
       amount of the shortfall in relation to the  principal and interest  owed.
       Impairment  is  measured  on a loan  by loan  basis  for  commercial  and
       construction  loans by either the present  value of expected  future cash
       flows  discounted  at the  loan's  effective  interest  rate,  the loan's
       obtainable  market price, or the fair value of the collateral if the loan
       is collateral dependent.

     Inventories:

     Inventories  consist  primarily of vitamin and health  supplement  products
       held for sale by Triumph  and are valued at the lower of cost  (first-in,
       first-out) or market value.

                                      F-21
<PAGE>

                         EQUITEX, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   YEAR ENDED DECEMBER 31, 1999, 1998 AND 1997

2.   Significant accounting policies (continued):

     Investment valuation in 1998 and 1997 as a BDC:

     Investments at December 31, 1998 consist of holdings of  securities  in and
       receivables  of publicly and privately  held  companies.  The Company had
       representation  on the  boards  of  directors  of  four  of its  investee
       companies during 1998, and several investments were in companies in which
       there was either direct or indirect ownership or control of 5% or more of
       the outstanding  voting shares.  Through December 31, 1998, as a BDC, the
       Company  utilized the fair value method  adopted in 1984,  which 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  arms-length sale.  Investments through December
       31,  1998 were  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 of and duration of any restriction 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 of  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
               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 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 not  established  public or private  market in the
               investee's securities.

                                      F-22
<PAGE>

                         EQUITEX, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   YEAR ENDED DECEMBER 31, 1999, 1998 AND 1997

2.   Significant accounting policies (continued):

     Investment valuation in 1998 and 1997 as a BDC (continued):

     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.

     Furniture, fixtures, equipment and depreciation:

     Furniture,  fixtures, and equipment are stated at cost, and depreciation is
       provided by use of the  straight-line  method over the  estimated  useful
       lives of the assets.  The cost of leasehold  improvements  is depreciated
       over the  estimated  useful  lives of the  assets  or the  length  of the
       respective leases, whichever period is shorter. Estimated useful lives of
       furniture, fixtures and equipment are as follows:

                Vehicle                                       5 years
                Office equipment and furniture           3 to 7 years
                Computer hardware and software           3 to 5 years
                Leasehold improvements                        7 years

     Website development costs and amortization:

     Website  development  costs related to the development of major interactive
       mortgage banking systems are capitalized and amortized over the estimated
       useful life of the related project, not to exceed three years.

     Impairment of long-lived assets:

     The Company reviews  long-lived assets,  goodwill and certain  identifiable
       intangibles for impairment  whenever  events or changes in  circumstances
       indicate  that the  carrying  amount of an asset may not be  recoverable.
       Recoverability  of assets to be held and used is measured by a comparison
       of the carrying  amount of an asset to future net cash flows  expected to
       be generated by the asset.  If such assets are considered to be impaired,
       the  impairment  to be  recognized is measured by the amount by which the
       carrying amount of the assets exceeds the fair value of the assets. Based
       on management's review, the Company does not believe that any impairments
       have occurred on long-lived assets during 1999.

     Revenue recognition, product sales:

     Product sales represent retail sales of vitamin/health supplement products.
       Sales  are  recognized  at the  time of the  sales  transaction  with the
       customer.

     Comprehensive income:

     SFAS No. 130, REPORTING COMPREHENSIVE INCOME,  establishes requirements for
       disclosure  of   comprehensive   income  which  includes   certain  items
       previously  not  included  in the  statements  of  operations,  including
       unrealized  gains and  losses on certain  investments  in debt and equity
       securities,  among others. In 1999, net income and  comprehensive  income
       were the  same.  In 1998 and  1997,  SFAS No.  130 had no  effect  on the
       Company  since it was  following  the fair  value  accounting  guidelines
       required for BDC's.

                                      F-23
<PAGE>

                         EQUITEX, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   YEAR ENDED DECEMBER 31, 1999, 1998 AND 1997

2.   Significant accounting policies (continued):

     Recently issued accounting standards:

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
       ACCOUNTING  FOR  DERIVATIVE  INSTRUMENTS  AND  HEDGING  ACTIVITIES.  This
       statement,  as amended by SFAS No. 137,  is  effective  for fiscal  years
       beginning after June 15, 2000.  Currently,  the Company does not have any
       derivative  financial  instruments  and does not  participate  in hedging
       activities.  Therefore,  management  believes  that SFAS No. 133 will not
       have an impact on its financial position or results of operations.

     Stock-based compensation:

     SFAS No. 123, ACCOUNTING FOR STOCK-BASED  COMPENSATION defines a fair-value
       based method of accounting for stock-based  employee  compensation  plans
       and  transactions  in which an entity  issues its equity  instruments  to
       acquire goods or services from non-employees, and encourages but does not
       require companies to record  compensation  cost for stock-based  employee
       compensation  plans at fair value.  The Company has chosen to continue to
       account for  stock-based  compensation  using the intrinsic  value method
       prescribed in Accounting  Principles Board Opinion No. 25, Accounting for
       Stock  Issued to  Employees  ("APB No. 25") and related  interpretations.
       Accordingly,  compensation  cost for stock  options  is  measured  as the
       excess,  if any, of the quoted market price of the Company's stock at the
       date of the grant over the  amount an  employee  must pay to acquire  the
       stock.

     Net loss per share (net assets per share in 1998 and 1997):

     In 1999, in connection with the Company's  withdrawal as a BDC, the Company
       adopted the provisions of SFAS No. 128,  EARNINGS PER SHARE. SFAS No. 128
       requires dual  presentation of basic and diluted earnings per share (EPS)
       for  all  entities  with  complex  capital   structures  and  requires  a
       reconciliation  of  the  numerator  and  denominator  of  the  basic  EPS
       computation  to  the  numerator  and   denominator  of  the  diluted  EPS
       computation.  Basic EPS  excludes  dilution;  diluted  EPS  reflects  the
       potential  dilution that could occur if securities or other  contracts to
       issue  common  stock were  exercised  or  converted  into common stock or
       resulted in the issuance of common stock that then shared in the earnings
       of the entity.

     Basic loss per share is computed by dividing net loss  applicable to common
       shareholders by the weighted-average  number of common shares outstanding
       for the year. In arriving at net loss applicable to common  shareholders,
       amortization  of  the  beneficial  conversion  features  related  to  the
       preferred  stock and dividends on the preferred stock (Note 18) increased
       this amount.  Diluted loss per share reflects the potential dilution that
       could occur if dilutive  securities  and other  contracts to issue common
       stock were  exercised or  converted  into common stock or resulted in the
       issuance of common stock that then shared in the earnings of the Company,
       unless the effect is to reduce a loss or increase earnings per share. The
       Company had no potential common stock  instruments  which would result in
       diluted loss per share in 1999,  1998 and 1997.  At December 31, 1999 and
       1998,  the total number of common shares  issuable  under the exercise of
       outstanding  options and warrants and upon the  conversion of convertible
       preferred stock was 1,370,281 and 749,000, respectively.

                                      F-24
<PAGE>

                         EQUITEX, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   YEAR ENDED DECEMBER 31, 1999, 1998 AND 1997

2.   Significant accounting policies (continued):

     Net loss per share (net assets per share in 1998 and 1997 (Continued):

     In 1998 and 1997, in accordance with the fair value accounting  method used
       by  regulated  investment  companies,  net  assets  (total  stockholders'
       equity) per share at December 31, 1998 and 1997 were as follows:

                               Number of shares
          Basis                1998        1997          1998        1997
          -----             ----------------------    ----------------------
          Primary           5,384,315    3,461,115    $     .74    $    1.03
                            =========    =========    =========    =========
          Fully diluted     6,156,015    3,772,660    $     .65    $     .95
                            =========    =========    =========    =========

3.   Business acquisitions:

     Acquisition of FBMS:

     On August 23, 1999, the Company, through its  wholly-owned  subsidiary FBMS
       Acquisition  Corp.,  entered into an Agreement and Plan of Reorganization
       (the "Acquisition Agreement") with FBMS to acquire all of the outstanding
       common stock of FBMS in exchange for 250 shares of the Company's Series E
       convertible  preferred  stock (the "Series E Preferred  Stock") valued at
       approximately  $2,531,000,  and contingent consideration consisting of up
       to 750 shares of Series E Preferred Stock, which include potential "Bonus
       Shares"  issuable  by  the  Company,  as  specified  in  the  Acquisition
       Agreement.  The  transaction  was  accounted  for as a purchase,  and the
       results  of  operations  of  FBMS  are  included  in the  Company's  1999
       consolidated  statement of operations from the date of  acquisition.  The
       total purchase price was allocated to the assets and liabilities acquired
       based on their estimated fair values, including goodwill of approximately
       $18,900,000  (Note  20),  which  is  being  amortized  by the  use of the
       straight-line method over ten years.

     In accordance with the terms of the Acquisition Agreement, FBMS Acquisition
       Corp. was merged into FBMS.  Subsequent to the merger, the Company formed
       nMortgage, Inc. as the Company's subsidiary holding company for FBMS.

     Investment in VP Sports:

     Effective July 27, 1999, the Company, through its majority-owned subsidiary
       VP Sports and VP Sports' wholly-owned subsidiary,  9066-8609 Quebec Inc.,
       a Canadian corporation,  acquired all of the outstanding common shares of
       Victoria  Precision  Inc.   ("Victoria   Precision"),   also  a  Canadian
       corporation,  as well as the future  rights to a four-year  international
       consulting and non-compete  agreement.  The transaction was accounted for
       as  a  purchase.   Total   consideration  of   approximately   $3,966,600
       ($6,000,000  CDN) was required.  The purchase  price for the common stock
       was $2,000,000  Canadian and was allocated to the assets and  liabilities
       acquired  based on their  estimated  fair  values,  including  intangible
       assets of approximately $3,166,000,  which are being amortized by the use
       of the straight-line method over two to ten years.

                                      F-25
<PAGE>

                         EQUITEX, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   YEAR ENDED DECEMBER 31, 1999, 1998 AND 1997

3.   Business acquisitions (continued):

     Investment in VP Sports (continued):

     In order  to  finance  the  acquisition,  in 1999  VP  Sports  completed  a
       $4,500,000  private  placement of 36 units;  each unit  consisting of 100
       shares of $1,000 per share, 8% convertible preferred stock, 12,500 shares
       of VP Sports common shares, and warrants to purchase 287,500 shares of VP
       Sports common stock at $.10 per share.  As a result of the   placement of
       units,  the  Company's  ownership  interest in VP Sports was reduced from
       approximately 88% at December 31, 1998 to approximately 35.7% at December
       31, 1999.

     Pro forma financial information:

     The following unaudited pro forma financial information for the years ended
       December 31, 1999 and 1998,  give effect to the above  acquisitions as if
       they had occurred at the beginning of each respective period.

                                                     Years ended December 31,
                                                   ---------------------------
                                                        1999           1998
                                                   ------------   ------------
       Revenue                                     $ 10,678,000   $ 22,933,000
       Net loss                                    $(14,372,000)   (12,021,000)
       Net loss applicable to common shareholders  $(17,641,000)  $(12,021,000)
       Basic and diluted loss per common share     $      (2.63)  $      (2.72)
       Shares used in per share calculation           6,718,170      4,416,988

     The unaudited  pro forma  financial  information  above does not purport to
       represent  the results  which would  actually  have been  obtained if the
       acquisitions  had been in effect during the periods covered or any future
       results which may in fact be realized.

     Acquisitions of FTC and Triumph:

     In August 1998, the Company acquired all of FTC's outstanding  common stock
       in exchange for 625,000  shares of the  Company's  common stock valued at
       $565,639.  In February  and June 1998,  the  Company  acquired a total of
       1,500,000  shares of Triumph  common  stock in  exchange  for  consulting
       services valued at $375,000,  which represented an ownership  interest of
       approximately  88% at December 31, 1998. Both of these  investments  were
       accounted for and presented as investments in controlled  companies as of
       and for the year ended  December 31, 1998. At December 31, 1998, the fair
       value of these investments was $940,639.  In 1999, in connection with the
       Company's change from a BDC to an operating company,  the Company changed
       its method of accounting for FTC and Triumph to consolidation.

4.   Mortgage loans held for sale, net:

     The inventory  of mortgage  loans  consists  primarily  of first trust deed
       mortgages on residential properties located throughout the United States.
       As of December 31, 1999,  the Company has mortgage loans held for sale of
       $14,787,080,  which is net of an allowance for loan losses of $1,386,000.
       All mortgage loans are pledged as collateral  for the warehouse  loans at
       December 31, 1999 (Note 9).

                                      F-26
<PAGE>

                         EQUITEX, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   YEAR ENDED DECEMBER 31, 1999, 1998 AND 1997

5.   Receivables:

     Receivables at December 31, 1999 consist of the following:

     Related parties:

     Notes   receivable   from   officers  of  the
       Company;  interest rates ranging from 8.25%
       to  10%;  notes  collateralized  in part by
       shares of the Company's stock;  maturing at
       various dates through October 2001                         $  577,800

     Note receivable from  affiliate;  interest at
       8%;  unsecured; due  on demand at  December
       31, 1999                                                      300,000

     Advances   receivable   from   employees  and
       affiliates;    non-    interest    bearing;
       unsecured                                                      81,010
                                                                  ----------
                                                                     958,810
                                                                  ----------
     Other:

     Accounts  receivable,   trade;   non-interest
       bearing; unsecured                                            167,390

     Mortgage  loans  receivable  from  customers;
       interest   rates   ranging  from  7.25%  to
       13.75%,  maturing at various  dates through
       2030; collateralized by real estate                           374,500

     Notes receivable; interest at 10%; unsecured;
       due on demand                                                 125,017
                                                                  ----------
                                                                     666,907
     Less allowance for uncollectible receivables                   (162,336)
                                                                  ----------
                                                                     504,571
                                                                  ----------
                                                                  $1,463,381
                                                                  ==========

     Receivables  at December  31,  1998,  are due from the following types
      of companies:

                              Controlled   Affiliated     Other        Total
                              ----------   ----------   ----------   ----------
     Notes receivable         $1,123,284   $   56,575   $   45,473   $1,225,332
     Interest receivable          29,843        1,829        2,292       33,964
     Trade receivables           111,287       11,427       43,277      165,991
     Less allowances
      for uncollectible
      receivables                 (5,527)      (7,685)     (46,423)     (59,635)
                              ----------   ----------   ----------   ----------
                              $1,258,887   $   62,146   $   44,619   $1,365,652
                              ==========   ==========   ==========   ==========

                                      F-27
<PAGE>

                         EQUITEX, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   YEAR ENDED DECEMBER 31, 1999, 1998 AND 1997

5.   Receivables (continued):

     Sources of revenue  during  1998 and 1997 are from the  following  types of
      companies:
                              Controlled   Affiliated     Other        Total
                              ----------   ----------   ----------   ----------
     1998
     ----
     Interest and other
      income                  $   68,043   $       10   $    2,416   $   70,469
     Consulting/transaction
      fees                       375,000                                375,000
     Administrative fees                        2,371                     2,371
                              ----------   ----------   ----------   ----------
                              $  443,043   $    2,381   $    2,416   $  447,840
                              ==========   ==========   ==========   ==========

     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
                              ==========   ==========   ==========   ==========

     During 1998, one investee company  accounted for 96% of the Company's total
       revenues of $447,840.

6.   Investments:

     At December 31, 1999, the Company's investments consist of the following:

                                                          Investment
                     Investment                             balance
                ------------------------                 ------------
                Equity investments:
                  V.P. Sports [A]                        $  1,472,898
                  Net 1 Capital, LLC [B]                      235,000
                                                         ------------
                                                         $  1,707,898
                                                         ============
                Other Investments:
                  Trading securities:
                   Intranet Solutions, Inc. [C]          $    786,250
                   Other                                      116,287
                                                         ------------
                                                              902,537
                                                         ------------
                Cost basis investments:
                   First TeleBanc Corporation [D]             800,000
                   Other                                       65,000
                                                         ------------
                                                              865,000
                                                         ------------
                                                         $  1,767,537
                                                         ============

                                      F-28
<PAGE>

                         EQUITEX, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   YEAR ENDED DECEMBER 31, 1999, 1998 AND 1997

6.   Investments (continued):

         [A]  Investment in VP Sports

              In December 1997, the Company  received  2,000,000 shares (88%) of
              the common stock of VP Sports.  The stock was received in exchange
              for consulting services and an acquisition letter of intent valued
              at $250,000. At December 31, 1998, these common shares were valued
              using the private market valuation method. The valuation reflected
              the price at which the most recent common stock sales  occurred in
              1998. The Company's president is also the President and a director
              of VP Sports.  During  1998,  the  Company  loaned  $103,131 to VP
              Sports for working capital purposes, of which $38,865 was repaid.

              Effective  January 1, 1999,  the Company  began  consolidating  VP
              Sports.  In  connection  with a private  placement  of VP  Sports'
              common stock,  the Company's  ownership  interest in VP Sports was
              reduced   from   approximately   88%  at  December   31,  1998  to
              approximately  35.7% at December  31,  1999.  Due to the change in
              ownership percentage, the Company changed its method of accounting
              for its investment in VP Sports in 1999 from  consolidation to the
              equity  method of  accounting.  During  1999,  the  receivable  of
              $64,266 at December 31, 1998 was repaid.

         [B]  Investment in Net 1 Capital, LLC

              In March 1999, FTC entered into a joint-venture agreement with Net
              1 Capital,  LLC ("Net 1  Capital"),  a Florida  Limited  Liability
              Company,   formed  for  the  purpose  of  acquiring   pre-existing
              portfolios of consumer debt and servicing  and/or  marketing these
              portfolios.  The Company  invested  $250,000 for a 50% interest in
              Net 1 Capital.  The Company  also  loaned Net 1 Capital  $317,629,
              which was  repaid in 1999.  The  Company is  accounting  for Net 1
              Capital  under the equity  method of  accounting.

         [C]  Investment  in  Intranet  Solutions,  Inc.  ("Intranet",  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).

              On October 31, 1997,  the Company  entered into an agreement  with
              IntraNet  relative to this  indemnification  agreement whereby the
              Company  agreed to purchase a note  receivable  of $564,755  which
              IntraNet  was owned by a  subsidiary  of RDM Sports  Group,  Hutch
              Sports USA (Hutch).  Hutch had filed for  bankruptcy on August 29,
              1997. The Company paid $414,755 of the purchase amount to IntraNet
              during 1997. The remaining balance of $150,000 was paid on January
              21, 1998. Also, the Company's  President agreed to resign from the
              Board of IntraNet  and both  IntraNet  and the  Company  agreed to
              terminate 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 common stock 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. During 1998, the Company sold 284,665 shares of IntraNet for
              proceeds of $1,240,613,  which was used to provide working capital
              and resulted in an ownership position of 188,585 shares (less than
              5%) at December  31,  1998.  These  shares  were valued  using the
              public market valuation method at December 31, 1998.

                                      F-29
<PAGE>

                         EQUITEX, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   YEAR ENDED DECEMBER 31, 1999, 1998 AND 1997

6.   Investments (continued):

         [C]  Investment  in  Intranet  Solutions,  Inc.  ("Intranet",  formerly
              MacGregor Sports & Fitness, Inc.) (continued):

              Effective  January 1, 1999, the Company  classified its investment
              in IntraNet as a trading security  pursuant to SFAS No. 115. As of
              December 31, 1999, the fair value of the IntraNet investmet, based
              on quoted  market  prices is $786,250 and the cost of the IntraNet
              investment is $216,159 (an  unrealized  gain of $570,091).  During
              1999,  the  Company   realized  gains  on  the  sale  of  IntraNet
              securities of $638,764.

         [D]  During  1998,  the  Company  acquired  a 9.9%  interest  in  First
              TeleBanc  Corporation ("First TeleBanc"),  a closely-held  Florida
              corporation,  for $300,000.  First  TeleBanc was  incorporated  in
              March 1997 for the purpose of becoming a one-bank  holding company
              and to acquire 100% of the  outstanding  stock of Boca Raton First
              National  Bank.  The  acquisition  by First TeleBanc of all of the
              outstanding  stock of Boca Raton First National Bank was completed
              on  December  30,  1998.  As a  one-bank  holding  company,  First
              TeleBanc may engage in any  activity  which the Board of Governors
              of the Federal Reserve System has previously  approved or approves
              subsequent to an application.

              During 1999,  the Company  continued to account for its investment
              in First  TeleBanc at cost.  The  Company's  total  investment  of
              $800,000  includes FTC's $500,000 investment balance.

     The  Company's  equity in the net  losses  of its  equity  investments  was
       $418,209  for the year ended  December  31,  1999.  Summarized  unaudited
       combined  financial  information for these  investments as of and for the
       year ended December 31, 1999, is as follows:

         Current assets                                  $  6,834,574
         Non-current assets                                 7,552,862
                                                         ------------
         Total assets                                    $ 14,387,436
                                                         ============

         Current liabilities                             $  6,070,949
         Non-current liabilities                            2,144,775
                                                         ------------
         Total liabilities                                  8,215,724
         Total equity                                       6,171,712
                                                         ------------

         Total liabilities and equity                    $ 14,387,436
                                                         ============

         Revenues                                        $  4,142,540
         Gross profit                                    $    611,100
         Operating losses                                $ (1,134,212)
         Net loss                                        $ (1,026,292)

     Investment in RDM Sports Group (formerly Roadmaster Industries):

     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 (as measured
       using the  public  market  valuation  method)  of this  investee  company
       dropped to near $0 as  reflected  in the  December  31, 1998  schedule of
       Investments.   The  company  also  reserved  100%  of  its  $7,685  trade
       receivable from RDM at December 31, 1998.  During July 1997, prior to the
       bankruptcy  filing,  the Company sold  127,600  shares of RDM on the open
       market for cash proceeds of $126,366.


                                      F-30
<PAGE>

                         EQUITEX, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   YEAR ENDED DECEMBER 31, 1999, 1998 AND 1997

 6.  Investments (continued):

     Investment in RDM Sports Group (formerly Roadmaster Industries)(continued):

     During 1998 and 1997,  the Company  recorded  administrative  fees from RDM
       totaling  $25,893 and $649,  respectively.  At  December  31,  1998,  the
       Company held a note  receivable from Hutch Sports USA (an RDM subsidiary)
       with a face  value  of  $564,755.  At  December  31,  1998,  the note was
       recorded at an estimated net realizable value from bankruptcy proceeds of
       $56,475.

     Effective January 1, 1999, the Company  classified its investment in RDM as
       an available for sale security  pursuant to SFAS No. 115. During 1999, in
       connection  with the Company's  evaluation of investments for impairment,
       management  determined that the decline in the value of its investment in
       RDM was other than  temporary.  As a result,  the  Company  adjusted  the
       unrealized loss on this investment of    $1,201,355,  previously recorded
       as a component of  stockholders'  equity,  to a realized  loss, and fully
       reserved the note  receivable from RDM. These  adjustments  resulted in a
       charge to the 1999 statement of operations of $1,233,209 (Note 20).

     Investment in FTC and Triumph:

     On August 13, 1998, the Company  acquired all of the  outstanding  stock of
       FTC in exchange for 625,000  shares of the Company's  common stock.  As a
       result of this transaction,  FTC became a wholly-owned  subsidiary of the
       Company.  The  Board of  Directors  used the  Board  appraisal  method of
       valuation for this investment and recorded FTC at $565,639, which was the
       net  asset  value of  FTC's  underlying  assets  and  liabilities  at the
       acquisition  date. From the date of the acquisition  through December 31,
       1998, the Company loaned $160,000 to FTC for working capital purposes.

     During 1998, the Company  received  1,500,000 shares of the common stock of
       Triumph in exchange  for  consulting  services  valued at  $375,000.  The
       Company's  president was also the President and a director of Triumph. At
       December 31 1998,  the  investment  was valued  using the cost  valuation
       method  because no more recent  common stock sales had  occurred.  During
       1997 and 1998, the Company loaned $401,927 and $561,569, respectively, to
       Triumph,  which was used by  Triumph  primarily  to acquire  four  retail
       vitamin/health  supplement  centers  in  south  Florida.  Triumph  repaid
       $64,478 of these notes and $39,939 of interest during 1998,  resulting in
       balances due the Company at December 31, 1998 of $899,018 and $23,088 for
       note principal and accrued interest, respectively.

       Effective January 1, 1999, and through December 31, 1999, the Company has
       consolidated FTC and Triumph pursuant to SFAS No. 94.

       Other investments:

       During 1999,  the  Company  determined  that two  investments  which were
         accounted for at cost basis and which  totaled  $70,000 at December 31,
         1998 were  impaired,  and were  written  off in the 1999  statement  of
         operations (Note 20).

       Other trading  securities at December 31, 1999 were recorded at estimated
         fair  value,  based on quoted  market  prices,  of  $116,287,  which is
         $38,517 less than cost.  During  1999,  the Company  realized  gains of
         $158,752 from the sale of certain other trading  securities held by the
         Company.

                                      F-31
<PAGE>

                         EQUITEX, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   YEAR ENDED DECEMBER 31, 1999, 1998 AND 1997

7.   Furniture, fixtures and equipment:

     Furniture,  fixtures,  and  equipment are stated at cost and consist of the
       following at December 31, 1999 and 1998:

                                                 1999            1998
                                              -----------    -----------
         Vehicle                              $    30,542    $    30,542
         Office equipment and furniture         1,410,699        120,608
         Computer hardware and software           430,082
         Leasehold improvements                    76,759          4,994
                                              -----------    -----------
                                                1,948,082        156,144
         Less accumulated depreciation           (890,050)      (129,924)
                                              -----------    -----------
                                              $ 1,058,032    $    26,220
                                              ===========    ===========

8.   Intangible and other assets:

     Intangible  and other assets  consist of the following at December 31, 1999
       and 1998:
                                                     1999            1998
                                                  -----------    -----------
              Goodwill                            $19,072,300
              Foreclosed assets                       299,400
              Tradename and franchise rights          172,800
              Restricted cash                         269,263
              Deposits                                395,000    $    23,750
              Other                                   472,872          9,474
                                                  -----------    -----------
                                                   20,681,635         33,224
               Less accumulated amortization         (671,578)
                                                  -----------    -----------
                                                  $20,010,057    $    33,224
                                                  ===========    ===========

     Goodwill  represents the cost of the Company's  investments in subsidiaries
       in excess of the net tangible  assets  acquired,  and is amortized on the
       straight-line method over ten years.  Foreclosed assets acquired through,
       or in lieu  of,  loan  foreclosure  are  held  for  sale by FBMS  and are
       initially recorded at fair value at the date of foreclosure, establishing
       a new cost basis.  Tradename and franchise rights are related to  Triumph
       and are amortized on the straight-line method over ten years.

     Restricted  cash  primarily  consists of funds held in escrow in connection
       with certain  contingent  matters.  Deposits  include a contract  deposit
       receivable  whereby the Company is the plaintiff in an action in which it
       is seeking to recover  $300,000  deposited into an escrow account pending
       the receipt of documentation needed pursuant to a contractual  agreement.
       The defendant has not delivered the required documents.  This deposit has
       been  recorded  at an  estimated  net  realizable  value of  $150,000  at
       December 31, 1999 and 1998.

                                      F-32
<PAGE>

                         EQUITEX, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   YEAR ENDED DECEMBER 31, 1999, 1998 AND 1997

9.   Warehouse loans:

     Under the terms of the Company's warehouse  agreements,  all mortgage loans
       held for sale are pledged as collateral for the warehouse  notes payable.
       The  weighted average  interest rate for total warehouse loans was  9.7%.
       Warehouse loans consist of the following as of December 31, 1999:

     Warehouse line with a mortgage lending group;
       total line, $15,000,000; advances under the
       line  bear  interest  at  the  Wall  Street
       Journal  published prime rate of U.S. money
       center  commercial banks plus 1.5% (9.5% at
       December 31, 1999); the Company is required
       to  maintain  a  cash   pledging   account;
       restricted  cash at December 31, 1999 under
       the pledge agreement was $210,169                         $ 13,014,121

     Warehouse  line  with  a  bank;  total  line,
       $15,000,000;  advances  under the line bear
       interest  at the one month  LIBOR rate plus
       4% (10.48% at December 31, 1999);  maturity
       date May 15,  2000;  renewable  annually at
       the lender's discretion                                      1,627,393

       Warehouse  line  with a bank;  total  line,
         $500,000;  advances  under  the line bear
         interest   at  the   note   rate  of  the
         originated  mortgage  (7.25%  to 8.37% at
         December 31, 1999); this facility matures
         March 2000                                                   481,723

     Warehouse  line  with  a  bank;  total  line,
       $400,000;  advances  under  the  line  bear
       interest at the note rate of the originated
       mortgage (8.5% at December 31, 1999);  this
       facility matures May 2000                                       84,211

     Warehouse  line  with  a  bank;   total  line
       $10,000,000;  advances  under the line bear
       interest at the lender's  prime rate plus a
       margin  determined  by the lender's fee and
       cost schedule in effect on the closing date
       of  the  advance  (9.75%  at  December  31,
       1999);  line  may  be terminated by bank at
       bank's discretion                                              488,569

     Warehouse  line  with  a  bank;   total  line
       $2,886,334;  advances  under  the line bear
       interest  at the  lender's  prime rate plus
       the  applicable  margin  determined  by the
       lender's  fee  schedule  (10.5% at December
       31, 1999); due on demand                                     2,886,334
                                                                 ------------
                                                                 $ 18,582,351
                                                                 ============

                                      F-33
<PAGE>

                         EQUITEX, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   YEAR ENDED DECEMBER 31, 1999, 1998 AND 1997

10.  Notes and advances payable:

     At December 31, 1999 and 1998,  notes  and advances payable consist of  the
       following:

                                                         1999          1998
                                                      ----------    ----------
       Related parties:

     Notes payable to affiliates;  interest at 8%;
       unsecured; notes  mature at  various  dates
       through December 2000                          $  542,000

     Advances  payable to affiliate,  non-interest
       bearing, due on demand                            240,000

     Notes payable to  officers;  interest at 12%;
       unsecured; due on demand                           50,000    $  142,328
                                                      ----------    ----------
                                                         832,000       142,328
                                                      ----------    ----------
     Others:

     Note  payable  to  bank;   interest  at  18%;
       unsecured; originally  due  November  1999;
       due on demand                                     477,000

     Notes payable  to individuals; interest rates
       ranging  from 8% to 18%,  unsecured;  notes
       mature  at  various  dates  through  August
       2000; at December 31, 1999, $454,473 of the
       notes payable were in default                     723,160       220,000

     Note payable to bank;  interest  at 1.5% over
       bank's  prime  rate  (10% at  December  31,
       1999) loan is  collateralized  by  property
       and equipment                                     250,000

     Capital  lease  obligations,   maturities  at
       various dates through October 2002                398,391

     Other                                                93,403
                                                      ----------    ----------
                                                       1,941,954       220,000
                                                      ----------    ----------
                                                      $2,773,954    $  362,328
                                                      ==========    ==========

                                      F-34
<PAGE>

                         EQUITEX, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   YEAR ENDED DECEMBER 31, 1999, 1998 AND 1997

11.  Commitments and contingencies:

     Leases:

     The Company leases its Florida  corporate  facilities from a related entity
       under a  non-cancelable  operating lease which expires in September 2003.
       The  Company  also  leases  production  offices  in  other  states  under
       non-cancellable  operating  leases which expire  through  February  2004.
       Future  minimum  lease  payments  under  these  operating  leases  are as
       follows:

             Year ending          Related
             December 31,         parties        Others          Total
             -----------        -----------    -----------    -----------
                2000            $   155,000    $   335,000    $   490,000
                2001                155,000        181,000        336,000
                2002                104,000         81,000        185,000
                2003                                47,000         47,000
                2004                                 3,000          3,000
                                -----------    -----------    -----------
                                $   414,000    $   647,000    $ 1,061,000
                                ===========    ===========    ===========

     In addition,  the   Company   leases   office   space  in   Colorado  on  a
       month-to-month  basis for  $2,500 per month from  Beacon  Investments,  a
       partnership owned by the Company's president.

     Total rent expense for the years ended December 31, 1999, 1998 and 1997 was
       approximately $272,000, $30,000 and $30,000, respectively.

     The Company has also entered into certain  capital  lease  agreements.  The
       capitalized  cost  of all  assets  under  capital  lease  obligations  is
       $766,609, less accumulated depreciation of $277,552 at December 31, 1999,
       and is included in furniture,  fixtures and equipment in the accompanying
       financial statements. Deprecation expense incurred on these leased assets
       during the year ended December 31, 1999 was $68,500.

     The future  minimum lease payments under capital leases and the net present
       value of the future minimum lease payments are as follows:

             Year ending
             December 31,
             ------------

                2000                           $   225,000
                2001                               205,000
                2002                                39,000
                                               -----------
             Total lease payments                  469,000
               Amount representing interest        (71,000)
                                               -----------
                                               $   398,000
                                               ===========

                                      F-35
<PAGE>

                         EQUITEX, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   YEAR ENDED DECEMBER 31, 1999, 1998 AND 1997

11.  Commitments and contingencies:

     Litigation:

     The Company is involved in various claims and legal actions  arising in the
       ordinary course of business.  In the opinion of management,  the ultimate
       disposition  of these  matters  will not have a material  adverse  impact
       either  individually  or in the  aggregate  on  consolidated  results  of
       operations, financial position or cash flows of the Company.

     Indemnification and mortgage loan repurchases:

     Under the  terms of the  Company's  various  agreements  with  third  party
       investors who purchase  mortgage  loans from the Company in the secondary
       market, the Company may be required to indemnify the investor for certain
       losses  as a result  of the  mortgage  loan  borrower's  non-performance.
       Additionally, under certain circumstances, the Company may be required to
       repurchase  loans  previously  sold.  Management  believes  it  has  made
       adequate  provision  for these  items,  which is included in the mortgage
       loans held for sale less the loan loss reserve.

     Minimum regulatory capital requirements:

     FBMS is subject to various regulatory capital requirements  administered by
       the various state banking agencies in certain states in which the Company
       is licensed to do business.  Failure to meet minimum capital requirements
       can initiate  certain  mandatory  and possibly  additional  discretionary
       actions by regulators  that, if undertaken,  could have a direct material
       effect on the Company's  consolidated  results of  operations,  financial
       position  and/or  cash  flows.  At  December  31,  1999,  FBMS  is not in
       compliance with all regulatory requirements in certain states.

12.  Off-balance sheet risk and concentrations of credit risk:

     During 1998 and 1997, the Company was party to financial  instruments  with
       off-balance-sheet risk in the normal course of business to meet financing
       needs of the portfolio companies.  These financial  instruments consisted
       primarily  of financial  guarantees  including  pledges of the  Company's
       investment  portfolio.  These instruments  involved,  to varying degrees,
       elements  of  credit  risk in  excess  of the  amount  recognized  in the
       financial statements.

     At December 31, 1998, the Company's  primary  concentration  of credit risk
       related to its  investments in certain  portfolio  companies,  certain of
       which were highly leveraged  companies within the United States and which
       were  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,
       1998 and 1997.

13.  Income taxes:

     The Company recognizes deferred tax liabilities and assets for the expected
       future  tax  consequences  of events  that have  been  recognized  in the
       financial  statements  or tax returns.  Under this  method,  deferred tax
       liabilities and assets are determined based on the difference between the
       financial  statement  carrying  amounts  and  tax  bases  of  assets  and
       liabilities  using  enacted tax rates in effect in the years in which the
       differences are expected to reverse.

                                      F-36
<PAGE>

                         EQUITEX, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   YEAR ENDED DECEMBER 31, 1999, 1998 AND 1997

13.  Income taxes (continued):

     The Company did not incur  income tax  expense for the year ended  December
       31, 1999. The difference between the expected tax benefit computed at the
       federal  statutory  income tax rate of 34% and the effective tax rate for
       the year ended  December 31, 1999 was due  primarily to the tax effect of
       the valuation allowance. The provision (benefit) for income taxes for the
       years ended December 31, 1998, and 1997 is as follows:

                                                        1998            1997
                                                     -----------    -----------
         Current:
            Federal and state                        $         -    $   (56,307)
                                                     -----------    -----------
         Deferred:
            Accrued unpaid bonus                                        (48,930)
            Bad debt expense                                             93,948
            Other                                         63,180         41,224
                                                     -----------    -----------
                                                          63,180         86,242
                                                     -----------    -----------
         Net tax provision                           $    63,180    $    29,935
                                                     ===========    ===========

     The  following  is a summary  of the  Company's  deferred  tax  assets  and
       liabilities at December 31, 1999 and 1998:

                                                        1998            1997
                                                     -----------    -----------
         Deferred tax assets:
          Accrued items not currently deductible     $   281,260    $   263,140
          Tax benefit of unrealized loss
           on investments                                465,390        431,361
          Allowance for loan losses                      592,690
          Net operating loss carryforwards             2,531,000
                                                     -----------    -----------
         Total deferred tax assets                     3,870,340        694,501
          Valuation allowance                         (3,870,340)      (694,501)
                                                     -----------    -----------
         Net deferred tax asset (liability)          $         -    $         -
                                                     ===========    ===========

       Net  operating  loss   carryforwards  of  approximately   $7,444,000  are
         available to offset future taxable  income,  if any,  through 2019. The
         net operating loss carryforwards may be subject to certain  limitations
         due to  the  FBMS  acquisition  and  other  transactions.  A  valuation
         allowance  has been  provided to reduce the  deferred  tax  assets,  as
         realization of the assets is not assured.

                                      F-37
<PAGE>

                         EQUITEX, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   YEAR ENDED DECEMBER 31, 1999, 1998 AND 1997

14.  Related party transactions:

     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% of the  Company's  total  assets as of each year end.  All bonuses are
       paid out of the Company's cash flow. In August 1998, the Company's  Board
       of  Directors  approved  a  new  bonus  arrangement  with  the  Company's
       president,  with the annual bonus to be calculated  quarterly  based on a
       combination  of 1% of the Company's  assets and 5% of the increase in the
       market value of the Company's  common stock each  quarter.  The new bonus
       arrangement  is effective  January 1, 1998. The bonus accrual at December
       31, 1998 was adjusted to reflect the terms of the new bonus  arrangement.
       The unpaid portion of these bonuses was $454,235 and $676,168 at December
       31, 1999 and 1998,  respectively.  During 1997,  the Company's  corporate
       secretary received a bonus of $6,744.

     Directors' fees:

     During 1999,  1998 ,and 1997,  the Company  paid $12,500 to each of its two
       outside directors for their attendance at meetings held each year.

15.  Benefit plans:

     Officer retirement plan:

     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  for the  President's  retirement.  The  Company  pays an  annual
       premium on behalf of the President and also reimburses the President each
       year for the personal income tax on this additional compensation.  Should
       the Present  die prior to age  sixty-five,  the policy pays a  $2,600,000
       death benefit to his beneficiary. Upon retirement, provided the president
       is at least sixty-five,  the cash surrender value and death benefit rider
       become the President's  property.  For the years ended December 31, 1999,
       1998,  and 1997,  the Company  paid  $105,413  per year in  premiums  and
       $59,586 per year of additional  compensation to the President for related
       income taxes.

     Employee benefit plan:

     FBMS has a defined  contribution  plan covering all full-time  employees of
       FBMS who have three months of service and are at least  twenty-one  years
       of age.  For the  period  ended  December  31,  1999,  the FBMS  matching
       contribution  equaled  50% of the  portion  of the  participant's  salary
       reduction  which does not exceed 2% of the  participant's  compensation .
       The Company incurred contribution expense of $21,200 for the period ended
       December 31, 1999.

                                      F-38
<PAGE>

                         EQUITEX, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   YEAR ENDED DECEMBER 31, 1999, 1998 AND 1997

16.  Fair value of financial instruments:

     The fair value of a financial  instrument is the current  amount that would
       be exchanged between willing parties, other than in a forced liquidation.
       Fair value is best determined  based upon quoted market prices.  However,
       in many  instances,  there are no quoted  market prices for the Company's
       various  financial  instruments.  In cases where quoted market prices are
       not available,  fair values are based on estimates using present value or
       other valuation techniques.  Those techniques are significantly  affected
       by the  assumptions  used,  including  the discount rate and estimates of
       future  cash  flows.  Accordingly,  the fair value  estimates  may not be
       realized  in an  immediate  settlement  of the  instrument.  SFAS No. 107
       excludes certain financial  instruments and all nonfinancial  instruments
       from its disclosure requirements.  Accordingly,  the aggregate fair value
       amounts presented may not necessarily represent the underlying fair value
       of the Company.

     The  following  methods  and  assumptions  were  used  by  the  Company  in
       estimating fair value disclosures for financial instruments:

       Mortgage loans held for sale:

       The fair value of mortgage loans held for sale is based on commitments on
       hand from investors or prevailing market prices. For variable-rate  loans
       that re-price  frequently and with no significant  change in credit risk,
       fair  values  are based on  carrying  values.  Fair  values  for  certain
       mortgage  loans are based on quoted  market  prices of similar loans sold
       (adjusted  for  differences  in loan  characteristics).  Fair  values for
       non-performing loans are estimated using discounted cash flow analyses or
       underlying  collateral  values,  where  applicable.  The  fair  value  of
       mortgage  loans  held  for sale at  December  31,  1999  was  $14,923,000
       (carrying value of $14,787,080).

       Receivables:

       The fair values of notes receivable from non-related parties approximates
       their carrying values because of the short  maturities of the notes.  The
       fair values of notes  receivable from related parties are not practicable
       to  estimate,  based  upon the  related  party  nature of the  underlying
       transactions.

       Warehouse and other notes and advances payable:

       The  fair  values  of  warehouse  notes  payable  and  notes  payable  to
       non-related  parties  approximates  their carrying  values because of the
       short  maturities  of the  notes.  The fair  values of notes  payable  to
       related parties are not  practicable to estimate,  based upon the related
       party nature of the underlying transactions.

       Other financial instruments:

       The fair value of other financial instruments (cash and cash equivalents,
       accounts receivable,   accounts payable and accrued expenses) approximate
       their carrying amount because of the short maturity of those instruments.

                                      F-39
<PAGE>

                         EQUITEX, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   YEAR ENDED DECEMBER 31, 1999, 1998 AND 1997

17.  Subsidiary stock transactions:

     During  1999,  in  connection  with  the  Company's  acquisition  of  FBMS,
       nMortgage issued 35,050 shares of its Series A , 5% convertible preferred
       stock and 400  shares of Series  B, 5%  convertible  preferred  stock for
       $3,966,070.  The amounts recorded as subsidiary preferred stock have been
       presented as minority  interest at December 31, 1999.  Minority  interest
       also includes shares of FBMS, 12% cumulative, callable preferred stock of
       $2,507,000.

     In connection with VP  Sports'  private  placement  of  common  stock,  the
       Company's  underlying  equity in its investment  increased by $1,622,605,
       which was accounted for as an increase to paid-in capital in 1999.

18.  Stockholders' equity:

     Series A, B, and C convertible preferred stock:

     In January and February 1999, the Company issued a total of 2,100 shares of
       6% Series A, B, and C  convertible  preferred  stock for $1,000  cash per
       share,  which is the  stated  value per share.  Each  series of stock was
       convertible  into common stock at any time by the holders at a conversion
       price  equal to 65% of the  average  closing  bid price of the  Company's
       common stock as specified in the agreement.

     Because this preferred stock contained an immediate  beneficial  conversion
       feature, both additional paid-in capital and the accumulated deficit were
       increased  by  $1,333,098,  the  amount  of  the  discount  due  to  this
       beneficial  conversion  feature.  The holders were  entitled to receive a
       cumulative annual dividend of $60 per share,  payable quarterly,  and had
       preference  to any  other  dividends  which  might  have been paid by the
       Company.  The  dividend  was  payable  either in cash or in shares of the
       Company's   common  stock,  at  the  Company's   option.   The  preferred
       stockholders also received warrants to purchase a total of 250,000 shares
       of the Company's common stock at 120% of the market price as of the grant
       date. In addition,  the  placement  agent was issued 20,000 shares of the
       Company's  common  stock,  valued at $200,000 in exchange for services in
       connection with the preferred stock sales.

     In April 1999  all  2,100  shares  of the  Series  A,  B and C  convertible
       preferred stock, plus accrued  dividends on those shares,  were converted
       into  approximately  320,528  shares  of  common  stock,  at  an  average
       conversion price of $6.63 per share.

     Series D convertible preferred stock:

     In May 1999, the Company reached an agreement  with an accredited  investor
       to sell 3,500  shares of Series D, 6%  convertible  preferred  stock (the
       "Series D  Preferred  Stock")  for $1,000  cash per  share,  which is the
       stated  value per share.  In August 1999,  the Company  issued a total of
       1,200  shares  of the  Series  D  Preferred  Stock in  consideration  for
       $1,200,000.  The balance of $2,300,000 for the remaining  2,300 shares of
       Series D Preferred Stock is being held in escrow pending authorization by
       the  Company's  stockholders  of a  sufficient  number  of  shares of the
       Company's  common  stock to cover those  shares  underlying  the Series D
       Preferred Stock.

     The  holder  of the  Series D  Preferred  Stock is  entitled  to 6%  annual
       dividends,  payable  quarterly.  The Series D Preferred  Stock contains a
       liquidation preference equal to the sum of the stated value of each share
       plus an amount equal to 30% of the stated value plus the aggregate of all
       accrued and unpaid  dividends  on each share of Series D Preferred  Stock
       until  the most  recent  dividend  payment  date or date of  liquidation,
       dissolution or winding up of the Company.

                                      F-40
<PAGE>

                         EQUITEX, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   YEAR ENDED DECEMBER 31, 1999, 1998 AND 1997

18.  Stockholders' equity (continued):

     Series D convertible preferred stock (continued):

     The Series D Preferred  Stock is convertible  into common stock at any time
       at a  conversion  price per share of  common  stock,  equal to 65% of the
       average  closing bid price of the Company's  common stock as specified in
       the  agreement.  Because  this  preferred  stock  contained  an immediate
       beneficial  conversion  feature,  both additional paid-in capital and the
       accumulated deficit were increased by $1,884,615,  the amount of discount
       resulting form the beneficial  conversion feature. The holder is entitled
       to  receive  a  cumulative  annual  dividend  of $60 per  share,  payable
       quarterly,  and has preference to any other dividends which might be paid
       by the Company.  The  dividend is payable  either in cash or in shares of
       the Company's common stock, at the discretion of the Company.

     Series E convertible preferred stock:

     In connection  with the FBMS acquisition,  the Company issued 250 shares of
       Series E  Convertible  Preferred  Stock (the "Series E Preferred  Stock")
       valued  at  approximately   $2,531,000,   and  contingent   consideration
       consisting of up to 750 shares of Series E Preferred Stock, which include
       potential  "Bonus  Shares"  issuable by the Company,  as specified in the
       Acquisition Agreement.

     The holders of the Series E Preferred  Stock are not entitled to dividends,
       do not have a liquidation  preference and do not have voting rights.  The
       Series E Preferred  stock,  if fully  issued,  automatically  converts to
       1,000,000  shares of common stock upon the approval of an increase in the
       authorized  shares of common stock from  7,500,000  shares to  50,000,000
       shares,  or the  subsequent  merger of the Company  with or into  another
       company, or the sale of substantially all the Company's assets.

     Common stock:

     During 1999,  the Company sold 350,312  shares of common stock in a private
       placement  for  cash of  $3.25  per  share.  In  addition  a note  holder
       exchanged a note and accrued interest totaling $158,236 for 48,688 shares
       of the Company's common stock.

     During  1999,  employees and officers of the Company  exercised  options to
       purchase  665,600  shares of common  stock for  $2,094,546.  In addition,
       337,500 shares were issued pursuant to warrant exercises for $2,613,675.

                                      F-41
<PAGE>

                         EQUITEX, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   YEAR ENDED DECEMBER 31, 1999, 1998 AND 1997

18.  Stockholders' equity (continued):

     Common stock (continued):

     During 1998, the Company sold to an officer,  10,000 shares of common stock
       at $1.16 per share. Another 139,200 shares were sold to outside directors
       at $1.16 per share.  Common stock sales to unrelated  individuals  during
       1998 were as follows:

                  Share price                            Number sold
                  -----------                            -----------
                    $ .75                                  330,000
                    $1.16                                  350,000
                    $3.25                                  306,000

     In March 1998,  the  Company's  Board of  Directors  authorized  a  private
       placement  offering of up to 500,000 shares of the Company's common stock
       at $1.16 per share.  As of the close of the private  placement on May 21,
       1998, 499,200 shares were sold.

     On June 29, 1998, the Company's Board of Directors authorized an additional
       private  placement of up to 750,000 shares of the Company's  common stock
       at $3.25 per share.  As of December  31, 1998,  306,000  shares were sold
       under this placement.

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

     Stock options and warrants:

     In 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").  In January 1999, the Company's Board
       of  Directors  adopted an  incentive  stock  option  plan  covering up to
       1,000,000  shares of the Company's  common  stock.  During the year ended
       December 31, 1999, the Company granted incentive stock options for 29,000
       shares  and  8,000  shares  to  the  Company's  officers  and  employees,
       respectively.  In addition,  non-statutory  stock options for 472,000 and
       491,000 shares were granted to officers and directors,  respectively. All
       options were granted at a price of $6.75 per share which  represents fair
       market value at the grant date.

                                      F-42
<PAGE>

                         EQUITEX, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   YEAR ENDED DECEMBER 31, 1999, 1998 AND 1997

18.  Stockholders' equity (continued):

     Stock options and warrants:

     In 1999 and 1998,  the  Board of  Directors  granted  the  following  stock
       options to officers and employees of the Company:

                                                        Number       Option
                      Option type         Grantee      of shares     price
                      -----------         --------     ---------     ------

         1999:        Inventive           Officers       477,700     $ 6.75
                      Non-qualified       Officers       522,300     $ 6.75
                                                       ---------
                                                       1,000,000
                                                       =========
         1998:        Incentive           Officer         62,000     $ 3.19
                      Non-qualified       Officers       447,655     $ 3.19
                      Non-qualified       Employees       28,800     $ 3.19
                                                      ----------
                                                         538,455
                                                      ==========

     A summary of the status of the Company's stock options and weighted average
       exercise prices is as follows:

                              1993 Plans        1999 Plan             Total
       -------------------------------------------------------------------------
                                     Weighted          Weighted         Weighted
                                     average           average          average
                                     exercise          exercise         exercise
                            Shares    price    Shares   price    Shares   price
       -------------------------------------------------------------------------

       January 1, 1997      311,545   $3.00                      311,545  $3.00
        Granted
        Exercised
        Canceled/expired
                           --------   -----  ---------  -----  ---------  -----
       December 31, 1997    311,545    3.00                      311,545   3.00
        Granted             538,455    3.19                      538,455   3.19
        Exercised           (98,000)   3.05                      (98,000)  3.05
        Canceled/expired
                           --------   -----  ---------  -----  ---------  -----
       December 31, 1998    752,000    3.13                      752,000   3.13

        Granted                              1,000,000  $6.75  1,000,000   6.75
        Exercised          (665,600)   3.19                     (665,600)  3.19
        Canceled/expired
                           --------   -----  ---------  -----  ---------  -----
       December 31, 1999     86,400   $3.19  1,000,000  $6.75  1,086,400  $6.46
                           ========   =====  =========  =====  =========  =====

       Options outstanding and exercisable at:

          December 31, 1998      749,000            $3.13
          December 31, 1999    1,086,400            $6.46

                                      F-43
<PAGE>

                         EQUITEX, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   YEAR ENDED DECEMBER 31, 1999, 1998 AND 1997

18.  Stockholders' equity (continued):

     Stock options and warrants (continued):

     Options exercisable at December 31, 1999 expire from 2004 through 2005. Had
       compensation cost for the Company's  stock-based  compensation plans been
       determined based on the fair value at the grant dates consistent with the
       provisions  of SFAS  No.  123,  the  Company's  net loss and net loss per
       common  share would have  increased  to the pro forma  amounts  indicated
       below:

                                                         1999          1998
                                                     ------------  ------------
         Net loss applicable to common stockholders/
          decrease in net assets, as reported        $(10,985,572)  $(1,981,299)
         Net loss applicable to common stockholders/
          decrease in net assets, pro forma          $(14,416,572)  $(2,724,153)
         Net loss/decrease in net assets per
          share, as reported                         $      (1.64)  $      (.45)
         Net loss/decrease in net assets per
          share, pro forma                           $      (2.15)  $      (.62)

     The fair value of each option granted during 1999 was estimated on the date
       of grant using the  Black-Scholes  option-pricing  model.  The  following
       assumptions were utilized:

                                                       1999             1998
                                                    -----------     -----------
         Expected dividend yield                       0                0
         Expected stock price volatility               71%              83%
         Risk-free interest rate                       6%               6.5%
         Expected life of options                      3 years          5 years

     In connection with the Company's private placements of common and preferred
       stock in 1999, the Company issued warrants to purchase  397,500 shares of
       common  stock at a weighted  average  exercise  price of $7.99 per share.
       During  1999,  337,500  of these  warrants  were  exercised,  and  60,000
       warrants  remain  outstanding  and  exercisable  at  a  weighted  average
       exercise price of $9.82 at December 31, 1999.  These  warrants  expire in
       February 2002.

     In 1999, a warrant to purchase 50,000 shares of the Company's  common stock
       at $3.75 per share was granted to an unrelated entity for services valued
       at $150,000.

                                      F-44
<PAGE>

                         EQUITEX, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   YEAR ENDED DECEMBER 31, 1999, 1998 AND 1997

19.    Operating segments:

     In 1999, the Company adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
       ENTERPRISE  AND RELATED  INFORMATION,  which  establishes  reporting  and
       disclosure  standards for an enterprise's  operating segments.  Operating
       segments are defined as components of an  enterprise  for which  separate
       financial   information  is  available  and  regularly  reviewed  by  the
       Company's senior management.

     Beginning in 1999,  in  connection  with the  Company's  acquisitions,  the
       Company has three  reportable  segments:  The accounting  policies of the
       segments are the same as those  described  in the summary of  significant
       accounting policies. The Company evaluates performance based on operating
       earnings  of the  respective  business  units.  As of and during the year
       ended December 31, 1999, the segment results were as follows:

<TABLE>
<CAPTION>

                                        Sporting
                                        goods/        Corporate activities
                          Financial     product     ------------------------
                          services      related     Investments    Other         Total
                         -----------   ----------   ----------   -----------   -----------
       <S>               <C>           <C>          <C>          <C>           <C>
       Revenues          $ 1,547,754   $  738,456                $   133,054   $ 2,419,264
       Segment loss       (4,153,125)    (800,997)  $ (571,257)   (2,191,180)   (7,716,559)
       Total assets       35,851,114    1,211,539    2,915,435     1,619,349    41,744,937
       Capital
        expenditures         135,329      122,335                     20,361       278,025
       Depreciation and
        amortization         737,629       87,954                     12,776       838,359
</TABLE>

20.  Fourth-quarter adjustments:

     During  the  fourth  quarter  of 1999,  in  connection  with the  Company's
       evaluation  of  its   investments   in   available-for-sale   securities,
       management  determined  that a decline in the value of its  investment in
       RDM Sports  Group,  Inc.  was other than  temporary.  As a result of this
       determination,  the  Company  recorded  an  adjustment  to  decrease  the
       unrealized loss of $1,201,355 on this investment,  previously recorded as
       a  component  of  stockholders' equity, and recorded a  realized  loss of
       $1,201,355 in the 1999 statement of operations. The Company also recorded
       a $70,000  impairment  charge  related to cost basis  investments  in the
       fourth quarter

     In addition,  management became  aware of certain  loan losses that had not
       been  adequately  provided  for by FBMS at the  date of  acquisition  the
       allocation of the FBMS purchase  price during the fourth quarter of 1999,
       and  determined  that an  adjustment  was  necessary  to more  reasonably
       allocate  the  excess  of  consideration  over  the net  tangible  assets
       acquired.  The Company  recorded an  adjustment  to increase  goodwill by
       approximately  $9,700,000 and decrease the amount of net tangible  assets
       acquired.

                                      F-45
<PAGE>

                         EQUITEX, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   YEAR ENDED DECEMBER 31, 1999, 1998 AND 1997

21.  Proposed business transactions:

     Proposed sale of nMortgage, Inc.:

     On September 22, 1999, the Company entered into a letter of intent, whereby
       all of the  outstanding  common  stock of  nMortgage is to be acquired by
       Innovative  Gaming  Corporation  of America  ("IGCA"),  an SEC  reporting
       company whose common stock trades on the Nasdaq  SmallCap  Market.  Under
       the terms of this proposed  transaction,  in exchange for all outstanding
       shares  of  nMortgage,   Inc.,  the  Company  and  the  other   nMortgage
       shareholders  are to  receive  approximately  46,000,000  shares  of IGCA
       common stock, assuming that there will be approximately 16,000,000 shares
       of IGCA common stock  outstanding on a  fully-diluted  basis,  before the
       transaction.

     IGCA was formed in 1991 to  develop,  manufacture,  market  and  distribute
       specialty  video  gaming  machines.   As  a  condition  of  the  proposed
       transaction,  IGCA is to  dispose  of its  gaming  assets,  resulting  in
       nMortgage as the sole business operation of IGCA.

     There are a number of material  conditions  that must be satisfied prior to
       the completion of this  transaction,  including any required  approval by
       the Company's  shareholders,  the disposal of IGCA's gaming  assets,  the
       negotiation and execution of a definitive  agreement  between the Company
       and IGCA,  and  approval  from all  governmental  bodies or agencies  and
       regulatory  authorities.  There  is  no  assurance  that  the  conditions
       summarized  above will be satisfied,  or that the transaction  will occur
       consistent with the terms outlined above.

     Proposed transactions with First TeleBanc Corp.:

     On May 4, 1999, the Company  entered  into a definitive  agreement  whereby
       First TeleBanc Corp.  ("First  TeleBanc"),  a single bank holding company
       based in Boca Raton, Florida, is to merge with and into the Company, with
       the Company  being the surviving  corporation  (the  "TeleBanc  Merger").
       First  TeleBanc  owns  all of the  issued  and  outstanding  stock of 1st
       National  Bank,  a  national  banking  association.  Consummation  of the
       TeleBanc Merger is subject to a number of conditions,  including approval
       by the Federal  Reserve Bank of Atlanta,  Georgia,  the  distribution  of
       certain of the Company's assets to a new wholly-owned  subsidiary and the
       "spin-off" of that subsidiary, and the approval of the TeleBanc Merger by
       the Company's shareholders.

                                      F-46
<PAGE>

                                  EQUITEX, INC.
                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                                   SCHEDULE II


                         Column A    Column B   Column C   Column D    Column E

                                                Charged
                         Balance      Charged   to other                Balance
                         beginning   to costs/  accounts-               at end
                         of period   expenses   describe   Deductions  of period
                         ---------   --------   --------   ----------  ---------

FOR THE YEAR ENDED
DECEMBER 31, 1999:

Allowance for
 uncollectible
 accounts:

   Mortgage loans held
      for sale          $1,386,000          -          -           -  $1,386,000
   Mortgage loans
      receivable            57,500          -          -           -      57,500
   Notes receivable            100     45,601     10,874(*)        -      56,575
   Interest receivable       1,830          -          -      (1,765)         65
   Accounts receivable      57,705          -          -      (9,109)     48,596

FOR THE YEAR ENDED
DECEMBER 31, 1998:

Allowance for
 uncollectible
 accounts:

   Notes receivable      $  40,293  $       -  $       -    $ (40,193) $     100
   Interest receivable          35      1,795          -            -      1,830
   Accounts receivable      53,742      3,936          -            -     57,705

FOR THE YEAR ENDED
DECEMBER 31, 1997:

Allowance for
 uncollectible
 accounts:

   Notes receivable      $     100  $  40,193  $       -    $       -  $  40,293
   Interest receivable          35          -          -            -         35
   Accounts receivable       2,943     50,799          -            -     53,742


(*) Amount was reclassified between the allowance for uncollectible interest and
    accounts receivable.

                                       S-1

<PAGE>

                                  EQUITEX, INC.
             UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

The following  unaudited pro forma consolidated  balance sheet and statements of
operations present the pro forma consolidated  financial position and operations
of Equitex,  Inc. at December  31,1998 and for the year then ended.  Because the
Company withdrew its election to be a BDC on January 4, 1999, this unaudited pro
forma information reflects the December 31, 1998 financial information as if the
Company were an operating  company rather thana BDC for all of 1998. As a result
of  being  an  operating  company,   the  1998  pro  forma  unaudited  financial
information  is presented on a  consolidated  basis and includes the accounts of
Equitex, Inc., its wholly-owned subsidiary First Teleservices Corporation, which
was acquired in August 1998 and two majority-owned subsidiaries, VP Sports, Inc.
and Triumph Sports,  Inc.,  which were formed in December 1997 and January 1998,
respectively.  Pro forma adjustments were made for revaluing certain investments
from fair market value to cost,  consolidating  three entities  versus  carrying
them as investments at fair value,  eliminating  all  intercompany  receivables,
payables,  income  and  expense,  and  recording  gains and  losses  on  trading
securities.

                                  EQUITEX, INC.
                 PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
                          DECEMBER 31, 1998 (UNAUDITED)
                            (As if operating company)

ASSETS
Current assets:
     Receivables .............................................      $    71,090
     Inventories .............................................          119,698
     Other current assets ....................................            5,530
     Notes receivable ........................................          101,948
     Investments .............................................        1,467,689
                                                                    -----------
                                                                      1,765,955

Net fixed assets .............................................          153,876
Other assets:
     Investment in First TeleBanc ............................          725,000
     Other investments .......................................          195,000
     Intangible assets .......................................          975,746
     Deposits and other ......................................          196,619
                                                                    -----------
                                                                    $ 4,012,196
                                                                    ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
     Notes payable ...........................................      $   411,575
     Accounts payable and other accrued liabilities ..........          996,552
     Accrued bonus to officer ................................          676,168
                                                                    -----------
                                                                      2,084,295

Minority interest ............................................          215,429

STOCKHOLDERS' EQUITY
     Common stock ............................................          108,353
     Additional paid-in capital ..............................        7,368,624
     Accumulated comprehensive other income ..................            2,732
     Accumulated deficit .....................................       (5,653,200)
     Less: treasury stock at cost ............................         (114,037)
                                                                    -----------
                                                                    $ 4,012,196
                                                                    ===========

<PAGE>

                                  EQUITEX, INC.
                   PRO FORMA CONDENSED STATEMENT OF OPERATIONS
                    YEAR ENDED DECEMBER 31, 1998 (UNAUDITED)
                            (As if operating company)


REVENUES
     Sales, consulting and other fees ........................      $   574,425
     Interest and dividend income ............................            7,052
     Gain (loss) on trading securities .......................          105,367
                                                                    -----------
                                                                        686,844

EXPENSES
     Cost of goods sold ......................................          201,898
     Advertising and promotion ...............................           54,088
     Interest ................................................          112,040
     Bad debt expense ........................................          (34,435)
     Depreciation and amortization ...........................           37,512
     General and administrative ..............................        3,178,710
                                                                    -----------
                                                                      3,549,813
                                                                    -----------
     Income (loss) before minority interest
       and taxes .............................................       (2,862,969)

     Minority interest in income (loss) ......................           34,571
                                                                    -----------

     Income (loss) before income taxes .......................       (2,828,398)

     Provision for income taxes - deferred ...................          (63,180)
                                                                    -----------

     Net income (loss) .......................................       (2,891,578)

     Other comprehensive income, net of tax
        Unrealized holding gains (losses) on
        securities arising during period .....................            2,732
                                                                    -----------

     Comprehensive income (loss) .............................      $(2,888,846)
                                                                    ===========

     Basic and diluted net income (loss) per
       common share ..........................................      $      (.65)
                                                                    ===========

     Weighted average number of common shares ................        4,416,988
                                                                    ===========