U.S. SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-K

           /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: YES

<PAGE>

                                  EQUITEX, INC.

                                    FORM 10-K

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

                                     PART I
                                     ------

ITEM 1. DESCRIPTION OF BUSINESS.

(a) General development of business.

     The  Registrant  was  organized  under the laws of the State of Delaware in
1983 and elected to become a business  development company and be subject to the
applicable  provisions of the Investment  Company Act in 1984.  Until January 4,
1999,  Equitex,  Inc.  (the  "Registrant")  was a business  development  company
("BDC") which is a form of closed-end,  non-diversified investment company under
the  Investment  Company  Act of 1940  (the  "Investment  Company  Act").  A BDC
generally  must  maintain  70% of its  assets in new,  financially  troubled  or
otherwise  qualified  companies,   known  as  investee  companies,   and  offers
significant  managerial  assistance to such companies.  BDC's are not subject to
the full extent of regulation  under the Investment  Company Act. The Registrant
primarily was engaged in the business of investing in and  providing  managerial
assistance  to  developing  companies  which,  in  its  opinion,  would  have  a
significant  potential for growth. The Registrant's  investment objective was to
achieve  long-term  capital  appreciation,  rather than current  income,  on its
investments.

     At a special  stockholders  meeting held on April 3, 1998, the Registrant's
stockholders  authorized the Registrant to change the nature of its business and
withdraw its election as a BDC under the Investment  Company Act. The withdrawal
would  become  effective  only upon the  Securities  and  Exchange  Commission's
receipt of the Registrant's  notice of election of withdrawal to be filed within
a period of one year from the date of vote. On January 4, 1999,  the  Registrant
filed its  withdrawal and elected to be treated for a maximum period of one year
as a "transient investment company" as that term is defined under the Investment
Company Act.  Following the  withdrawal,  the Registrant is no longer subject to
the  regulatory  provisions  of the  Investment  Company Act for BDC's,  such as
insurance,  custody,  composition  of the  board,  affiliated  transactions  and
compensation  arrangements.  Despite the Registrant's withdrawal of its election
as a BDC, the Registrant  continues to be subject to the reporting  requirements
of the Securities  Exchange Act of 1934, as amended (the "Exchange Act").  Under
the Exchange Act, the Registrant continues to file periodic reports such as Form
10-K and Form 10-Q,  as well as reports on Form 8-K,  proxy  statements  and any
other reports required under the Exchange Act.

                                      -1-
<PAGE>

     The  Registrant's  Board of  Directors  adopted  a plan  which  began  with
stockholder approval for the Registrant to withdraw as a BDC, with the intent of
becoming an operating company.  On August 13, 1998, the Registrant  acquired all
of the outstanding  stock of First  TeleServices  Corp.  ("FTC") in exchange for
625,000 shares of the Registrant's common stock. As a result of the transaction,
FTC became a wholly owned  subsidiary of the Registrant.  As a marketing arm for
financial  institutions,  FTC's  business  plan  calls  for it to  perform  as a
consumer  finance  company,  offering  financial  products  and  services to the
sub-prime  market.  These  products  will  be  developed  through  correspondent
relationships with companies specializing in the particular product offered.

     During late 1998 and early 1999, the Registrant  acquired  shares  totaling
7.5% of the  outstanding  common stock of First TeleBanc Corp.  ("FTB"),  a bank
holding company which operates  through its wholly owned  subsidiary,  net First
National  Bank,  in Boca Raton,  Florida  ("net1st").  FTB intends to focus as a
`direct to the consumer  bank' on a national  level.  It will use the  Internet,
including electronic payment processing,  to facilitate e-commerce transactions,
and call center technology to deliver its products and services to its customers
24 hours a day, 7 days a week. On April 9, 1999, the Registrant  signed a letter
of  intent  to merge  FTB with and into the  Registrant.  In  August  1999,  the
Registrant  filed an  application  with the Federal  Reserve Bank of Atlanta for
approval to become a bank holding  company.  Approval by the Federal  Reserve is
necessary for the Registrant to complete its proposed  acquisition of FTB. Since
the filing of the application,  the Registrant has received and responded,  most
recently in late March 2000, to numerous  inquiries from the Federal Reserve for
more  information  as  part  of  the  ongoing  application  process.   Once  the
application is approved,  of which there is no assurance,  the  Registrant  will
commence the process necessary to hold a special meeting of stockholders to seek
approval of the transaction at the earliest possible date.

     Consummation  of the FTB  merger  is  subject  to a number  of  conditions,
including:  (i) approval by the Federal Reserve Bank of Atlanta,  Georgia of the
Registrant's application to become a bank holding company under the Bank Holding
Company Act of 1956; (ii) the distribution of all of the  Registrant's  business
development company assets to a new wholly owned subsidiary,  Equitex 2000, Inc.
("E2000"),  and the spin-off of E2000 to the Registrant's  existing shareholders
(the  "Spin-Off")(as  explained  more  fully  in (c)  Narrative  description  of
business.);  and  (iii)  the  approval  of the FTB  merger  by the  Registrant's
shareholders.  The Registrant will solicit the approval of its  shareholders for
the FTB merger at a special  meeting  of  shareholders  to be called  later this
year.

     On August 23, 1999,  the  Registrant,  through a newly formed  wholly owned
subsidiary,  nMortgage,  Inc.  ("nMortgage"),  acquired  First Bankers  Mortgage
Services, Inc. ("FBMS"). FBMS, a Florida corporation, is a full service mortgage
banking company  headquartered in the Fort Lauderdale,  Florida.  The Registrant
acquired all of the outstanding  common stock of FBMS from its sole shareholder,
Vincent  Muratore.  The total aggregate  purchase price for FBMS, is up to 1,000
shares of the Registrant's  Series E Convertible  Preferred Stock (the "Series E
Preferred Stock").  Of these shares, 250 shares valued at $2,531,000 were issued
at closing  and 750 shares are  issuable  upon  satisfaction  of certain  future
performance   conditions.   In  addition,  the  purchase  price  is  subject  to
post-closing  adjustments  pursuant to the Agreement and Plan of Reorganization,
dated June 22, 1999.

     The Series E Convertible Preferred Stock issued in connection with the FMBS
acquisition is not entitled to dividends, does not have a liquidation preference
and carries no voting rights. The Series E Convertible Preferred Stock, if fully
issued,  automatically converts to 1,000,000 shares of common stock upon (i) the
approval of an increase in the authorized  shares of common stock from 7,500,000
shares  to  50,000,000  or the  subsequent  merger of the  Company  with or into
another company or (ii) the sale of substantially all the Registrant's assets.

     On  January  3,  2000,  the  Registrant  announced  that it had  executed a
definitive  agreement  whereby all of the outstanding  common stock of nMortgage
will be  acquired  by  Innovative  Gaming  Corporation  of America  ("IGCA"),  a
reporting company under the Securities  Exchange Act of 1934, whose common stock
trades on the Nasdaq  National  Market  under the symbol  "IGCA" (the  "Proposed
nMortgage Transaction").  Under the terms of the Proposed nMortgage Transaction,
in exchange for all  outstanding  shares of nMortgage,  the Registrant and other
nMortgage shareholders will receive, in the aggregate,  approximately 46,000,000

                                      -2-
<PAGE>

shares  of  IGCA  common  stock,  assuming  that  there  will  be  approximately
16,000,000  shares of IGCA common  stock  outstanding  on  fully-diluted  basis,
before  the  Proposed  nMortgage   Transaction.   For  accounting  purposes  the
transaction  will be treated as an  acquisition  of IGCA by  nMortgage  and as a
recapitalization of nMortgage.


     IGCA was formed in 1991 to  develop,  manufacture,  market  and  distribute
specialty  video  gaming  machines.  As a condition  of the  Proposed  nMortgage
Transaction,  IGCA will dispose of all of its gaming assets.  As a result,  upon
completion  of the  transaction,  the  business  of  nMortgage  will be the sole
business  operation of IGCA. In February  2000,  IGCA  announced an agreement to
sell its gaming to an unaffiliated  third party company to close  simultaneously
with the Proposed nMortgage Transaction.

     There  are a  number  of  additional  customary  conditions  that  must  be
satisfied  prior  to the  completion  of  the  Proposed  nMortgage  Transaction,
including approval by the stockholders of both companies,  if required,  and any
necessary  regulatory  or  governmental  approval.  On  February  2, 2000,  IGCA
announced  that it had filed a preliminary  proxy  statement  with the SEC for a
special  meeting at which the Registrant will seek  stockholder  approval of the
transaction.

     During  1999,  the  Registrant  commenced a private  placement  offering of
nMortgage,  Inc.  securities  through  which  5,000,000  shares  of  Series A 5%
Convertible Preferred Stock ("nMortgage  Preferred") was sold at $1.00 per share
for total  proceeds  of  $5,000,000.  Upon  closing  of the  Proposed  nMortgage
Transaction, each nMortgage Preferred share will convert into two shares of IGCA
common  stock.  If  the  Proposed  nMortgage  Transaction  is  terminated,  each
nMortgage  Preferred share will  automatically  convert on November 1, 2000 into
one  share  of  nMortgage  common  stock.  As a  result  of this  offering,  the
Registrant's  ownership interest in nMortgage has been reduced to 67% on a fully
diluted basis prior to the Proposed nMortgage Transaction.

     Both the Registrant and nMortgage  continue to evaluate  opportunities with
respect  to  possible  mergers  or  acquisitions.  Neither  the  Registrant  nor
nMortgage  have  reached a level in their  discussions  that would  lead  either
company to believe any particular  merger or acquisition is certain to occur and
have signed no binding agreements.

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

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

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

     On July 27,  1999 VP Sports  completed  an  acquisition  pursuant  to which
Victoria Precision, Inc. ("Victoria"), a corporation incorporated under the laws
of the  Province  of  Quebec,  Canada,  merged  with  and  into a  wholly  owned
subsidiary of VP SPORTS.  Victoria is a Canadian manufacturer and distributor of
a broad range of bicycles and tricycles.  VP Sports  acquired all of the capital
stock of Victoria  resulting in ownership of all of its assets,  liabilities and
business  operations.  The  transaction  included  future  rights to a four-year

                                      -3-
<PAGE>

international  consulting  and  non-compete  agreement  executed  with an entity
affiliated with Victoria's former principal stockholder.

     In June 1999,  VP Sports  commenced a private  placement  through  which it
offered  up to 40 units  with each unit  consisting  of 100 shares of $1,000 per
share 8% preferred stock,  12,500 shares of common stock at $2.00 per share, and
287,500  warrants to purchase  287,500 shares of common stock at $.10 per share.
As of December 31, 1999, 36 units had been sold for total  proceeds to VP Sports
of  $4,500,000.  The  majority  of these funds was used in  connection  with the
Victoria acquisition while the remainder was used for working capital purposes.

     Given the increase in shares  outstanding  following the VP Sports  private
placement,   the  Registrant's  ownership  percentage  in  VP  Sports  has  been
substantially reduced resulting in Equitex presently owning approximately 36% of
VP Sports'  outstanding  common stock.  For the first two quarter's of 1999, the
Registrant  consolidated the operations of VP Sports with that of the Registrant
and its subsidiaries.  Due to the changes in VP Sports' capital  structure,  for
the year ended  December 31, 1999, the Registrant is utilizing the equity method
of accounting for its ownership in VP Sports.

     During 1998, the Registrant  received  1,500,000 shares of the common stock
of Triumph  Sports,  Inc.  ("Triumph")  in  payment  of merger  and  acquisition
advisory services totaling  $375,000.  During 1997,  Triumph was unsuccessful in
its  attempt to acquire a golf  accessory  manufacturer.  During  1998,  Triumph
acquired five health food,  nutritional and supplement related retail outlets in
the South Florida area which it operated  during 1999.  Triumph is an authorized
franchisee of General Nutrition  Centers ("GNC") with two of retail outlets.  In
late  1999,   Triumph  received  notice  from  GNC  that  it  was  operating  in
contravention  of  clauses  in its  franchise  agreement  related  to owning and
operating  non-GNC  franchised  stores.  As a  result,  in  December  1999,  the
Registrant  sold one of its non-GNC  franchised  operations to a third party for
the value of the store's inventory plus a $200,000 five year promissory note.

     During the year ended December 31, 1999, the Registrant was not involved in
any bankruptcy, receivership or similar proceedings. In addition, the Registrant
has not undergone material  reclassification,  merger or consolidation;  has not
acquired or  disposed of any  material  amount of assets  otherwise  than in the
ordinary course of business;  and has not experienced any material change in its
mode of conducting business other than as explained above.

(b) Financial information about segments.

     Information relating to the Registrant's operating segments can be found in
Note 17 to the Registrant's financial statements for the year ended December 31,
1999.

(c) Narrative description of business.

EQUITEX

     As a result of the  Registrant's  decertification  as a BDC on  January  4,
1999, the Registrant is now a holding company operating through its wholly owned
subsidiary,  FTC, and its majority owned subsidiaries  nMortgage and Triumph. In
addition,  the  Registrant  includes in its financial  statements,  on an equity
basis, its ownership interest in VP Sports.

     During each of the past three years, on a stand-alone basis, the Registrant
has relied mainly on sales of  investment  securities  for its revenues.  During
1997 and 1998,  while a BDC, the Registrant  also received  significant  revenue
from  consulting  services  related to its work with both  Triumph  and VP. As a
result of the  Registrant's  change from an  investment  company to an operating
company and the cessation of its investment activities, the Registrant will only
be able rely on sales of  investments  for its  revenues  until such time as its
investment  portfolio has been  liquidated.  During 1999, the Registrant  sold a
significant portion of its investment  portfolio leaving only a small portion of
its investment in IntraNet Solutions, Inc. remaining.  Further sales of IntraNet
Solutions  common stock have been made during the first  quarter of 1999.  As of
the filing of this report, the Registrant holds  approximately  15,000 shares of
IntraNet  Solutions common stock. The amount and timing of past and future sales

                                      -4-
<PAGE>

is primarily  dependent  upon the  securities  markets and the liquidity of each
investment.

     In  order  to  provide  for  future  revenue  streams  and as  part  of the
Registrant's overall decertification plan, the Registrant is proceeding with the
TeleBanc  Merger as described  earlier in this  section.  Following the TeleBanc
Merger,  if  consummated,  the  Registrant  will rely on the  operations  of its
operating subsidiaries, principally FTB, for its revenue.

     While continuing to operate as a single  branchless bank, net1st intends to
introduce during the second quarter of 2000 a full-service  Internet banking web
site with a national focus. The web site, which is currently in the final stages
of  development  and  beta  testing,  will  provide  a  one-stop,   full-service
interactive solution for both personal and business banking. In addition, net1st
maintains an active Small Business Administration ("SBA") loan program providing
SBA loans throughout the Southwestern United States.

     To  complement  the products and services to be directly  offered by net1st
including checking,  savings and time deposit accounts,  loans, credit cards and
other related products, FTB intends to develop correspondent  relationships with
other  Internet   financial   services  providers  in  order  to  offer  certain
non-banking  financial  services to its  customers.  These  services may include
mortgage, insurance, stock brokerage and other financial related products.

     Immediately  prior  to the  TeleBanc  Merger  and  the  Proposed  nMortgage
Transaction,  the Registrant  will  distribute  all of its business  development
company  assets to E2000,  the shares of which will be distributed to all of the
holders of record of the  Registrant's  common  stock on the record  date of the
special meeting of shareholders to approve the Spin-Off, TeleBanc Merger and the
Proposed  nMortgage  Transaction.  E2000 will file and seek to make effective an
application  for the inclusion of the E2000 common stock on the Nasdaq  SmallCap
Market.  The  assets  to be  transferred  to  E2000  will  be  comprised  of the
following:

     * all of the  Registrant's  cash in excess of  $2,000,000,  or such  lesser
amount  as the  Registrant's  Board  of  Directors  may  determine  in its  sole
discretion;

     * all  securities and  investments  owned by the Registrant in its investee
companies,   except  for  any  securities  owned  by  the  Registrant  in  First
TeleServices, Inc.;

     * the FBMS Investment;

     * If the conditions  precedent to the Proposed  nMortgage  Transaction have
not been satisfied at the time the Spin-off is approved, all shares of nMortgage
and any and all rights and obligations of the Registrant related to the Proposed
nMortgage Transaction;

     * all receivables of any nature, including accounts and notes receivable;

     * all furniture, fixtures and equipment of the Registrant; and

     * any other  assets  that are  related  in any  manner to the  Registrant's
business development Registrant assets.

     E2000 will also assume all liabilities of the Registrant related to its BDC
assets and will indemnify the  Registrant and assume the  prosecution or defense
of the  Registrant in the following  lawsuits:  Equitex,  Inc. and Henry Fong v.
Bertrand T. Ungar, Case No.  98-CV-2437  (Dist. Ct. Arapahoe County,  Colorado).
Prior to its  distribution to the  Registrant's  shareholders,  the E2000 common
stock will be registered  pursuant to Section  12(b) or 12(g) of the  Securities
Exchange Act of 1934, and E2000 shall have filed and sought to make effective an
application  for the inclusion of the E2000 common stock on the NASDAQ  SmallCap
Market.  The  Registrant  intends  to  structure  the  Spin-Off  as  a  tax-free
distribution to the Registrant's  stockholders under Section 355 of the Internal
Revenue Code of 1986, as amended.

                                      -5-
<PAGE>

nMORTGAGE

     nMortgage was formed to hold all of the outstanding shares of FBMS acquired
by the  Registrant  on August 23,  1999.  nMortgage,  through  its wholly  owned
operating  subsidiary  FBMS, is a business to consumer retail Internet  mortgage
banking company which is developing its business to business  mortgage  services
technology.  As  discussed  above,  the  Registrant  has  executed a  definitive
agreement  whereby,  upon  satisfaction  of  several  conditions,   all  of  the
outstanding  common stock of nMortgage,  including  shares of common stock to be
issued upon the  automatic  conversion  of its Series A Preferred  Stock will be
acquired by IGCA.

     nMortgage,   licensed  in  25  states,   is  engaged  in  the  business  of
originating, selling and brokering residential mortgage loans. Through a network
of loan  originators  and its Internet  mortgage web site,  nMortgage.com,  FBMS
offers a broad  array of  residential  mortgage  products  targeting  a range of
customers from sub-prime to high-credit-quality borrowers. FBMS operates as both
(1) a mortgage banker; processing,  underwriting, closing and funding loans, and
(2) a mortgage broker;  selling the loan products of over 20 different secondary
lenders.

     nMortgage is also  developing,  and intends to introduce  during 2000,  two
business to business Internet  technology  solutions for the mortgage  industry.
The first site will be targeted to mortgage  related  businesses  not  currently
offering mortgage loans such as insurance brokers,  stockbrokers, tax preparers,
financial planners, etc. This site will allow these businesses to leverage their
client  databases by offering a private label solution  offering  Internet based
mortgage  loans.  Utilizing  nMortgage's  Internet  mortgage  technology,  these
businesses  will be able to submit loan  applications,  check interest rates and
loan status, receive updates on mortgage programs and access the latest industry
news. The second site will target individual mortgage and small mortgage brokers
as well as local savings banks that currently  offer mortgage  loans.  Utilizing
the nMortgage  Internet website,  a suite of services  including a private label
website,   can  be  created  for  each   business.   This  will  allow  mortgage
professionals  to complete loan  applications,  access  marketing  materials and
investor rate sheets,  lock rates directly with a mortgage investor,  check loan
status, and link to other mortgage and financial related sites.  Businesses will
be able to input loans and submit them directly to the  nMortgage  "back office"
where an assigned loan coordinator will expedite the process.

     During  1999 as in past  years,  FBMS  offered  both  retail and  wholesale
lending  operations  and  served  primarily  as a mortgage  banker,  processing,
underwriting,  closing and funding loans. Loans were closed utilizing  warehouse
lines of credit and subsequently sold to other lenders (an "Investor")  within a
period averaging less than four weeks. FBMS currently maintains warehouse credit
lines of approximately  $25 million to fund loans until their subsequent sale to
Investors.  Inherent in this process are certain risks  associated with defaults
on  payment  by  borrowers  during  periods  ranging  from one to twelve  months
depending on agreements with each Investor. In the event of default, FBMS may be
required to repurchase a loan from the Investor  forcing FMBS to carry that loan
on its books causing considerable losses. Problems can also arise as a result of
errors or omissions made during the  underwriting  process,  which may cause the
Investor to delay or refuse purchase of a particular  loan incurring  additional
fees and/or losses to FBMS.

     Beginning in 2000,  nMortgage  intends to significantly  alter its mortgage
closing  procedure by  utilizing  the "table" loan process for a majority of its
retail  mortgage  loans.  With the "table" loan process,  nMortgage  processes a
borrower's application and prepares the file for underwriting.  The file is then
offered to an Investor  fitting the borrower's  lending  profile who accepts the
file for  underwriting  either directly or through its third party  underwriting
agent.  The process is then taken over by that Investor or its agent who carries
the loan through closing and funding. By employing this design,  nMortgage is no
longer  responsible  for funding  these loans  utilizing its lines of credit and
thereby  mitigates  its  exposure  to  interest   expense,   default  events  or
underwriting difficulties.

     As part of this change in closing  strategy,  nMortgage intends to leverage
its currently operating Internet web site,  nMortgage.com,  and capture an early
market  share of mortgage  products  through the  Internet.  nMortgage.com  is a
state-of-the-art  online  mortgage  services  system  offering both cutting edge
technology  and a personal  focus.  The strategy  that  nMortgage is pursuing is
two-fold:  (1) offer an interactive instant approval business to consumer retail

                                      -6-
<PAGE>

page; and (2) provide a business to business private label  technology  offering
for third party originators.  The company is developing for introduction  during
the summer of 2000 a business to business  Internet  solution  whereby  mortgage
professionals   including   mortgage  bankers,   mortgage   brokers,   financial
institutions, home builders, realtors and other mortgage related businesses will
have  access to FBMS's  online  mortgage  technology  either as a private  label
service or as a hyperlink to the nMortgage web site.

     nMortgage  believes its retail Internet  strategy is on the leading edge of
the online mortgage providers. Utilizing its second generation Internet web site
set for introduction in the second quarter of 2000, nMortgage will conditionally
approve the borrower by credit  scoring the data provided by the  borrower.  The
borrower  will have an  opportunity  to complete the data  themselves or connect
with a customer  representative  who will complete the data for them. While many
online  mortgage  providers are developing a totally  automated  online mortgage
system, nMortgage believes a majority of borrowers are attracted by the ease and
convenience of one-stop Internet shopping,  but are unwilling to give control of
their personal financial and other information to a computer. nMortgage believes
that a majority of Internet consumers are impatient with, or distrustful of, the
automated Internet  application  process.  nMortgage is currently developing its
next generation web site that will provide a real-time "interactive" application
process with a live human being assisting each borrower  through the application
should they so desire.

     When using  nMortgage.com,  the borrower is provided  with the  information
needed to decide on a loan  product  and then  allowed to apply  online for that
loan via the web site. The borrower will be afforded the  opportunity to inspect
rates, identify how much they can afford and pre-qualify  themselves for a loan.
Once they  understand the product and the amount they want or need, the borrower
can submit a loan application  online,  with or without live company assistance,
and receive an automated  underwriting decision instantly.  Telephone support to
answer questions or guide them through the application process will be available
around the clock.  Once the loan is in  process,  the  borrower  can lock in the
interest  rate over the Internet  and receive  real-time  status  updates on the
loan.  If more  information  is  required  from the  borrower,  an email is sent
requesting the necessary  information.  Conceivably,  a loan can be processed in
its  entirety  online.  Personal  service,  however,  is  emphasized  and always
available.

     Low  cost,  high  tech  and low  touch is  essential  to  success.  Ease of
operation  is  required  at both  the  borrower  level  as well as the  internal
operations level. Being able to fully utilize the technological  tools available
to devise, produce,  distribute and support the programs is essential.  The cost
to generate the business is typically lower than traditional  mortgage  channels
of business due to the volume capability.  Forecasting,  capacity management and
capital markets  management are essential for this endeavor due to the potential
of wide fluctuations in volume.

     The  nMortgage  Internet web site  provides the borrower a constant  direct
link to the nMortgage  which can serve as the initial  contact point between the
borrower and the nMortgage,  or as a follow up site for the borrower.  nMortgage
will make use of more  global  applications  already  available  to provide  the
borrower access to the nMortgage products and services.  Getting the borrower to
the  nMortgage.com  web site is crucial.  In addition  to  registering  with the
various  search  engines,  Internet  portals  and  participating  in a number of
multi-vendor  sites,  nMortgage intends to establish referral links with several
services that are related but do not offer mortgages themselves, such as realtor
networks  or  financial  advisory  companies.  An integral  part of  nMortgage's
customer service  initiative  involves the integration of the Internet  mortgage
process with 24 hour, seven days a week call center support.

     nMortgage  believes  its approach  will set a high service  standard in the
industry. nMortgage's "high tech/high touch" approach will enable it to lock the
loan faster than its competitors, thus lessening the impact of shoppers that use
the  Internet  as a research  vehicle  but do not  complete  a loan  transaction
online.  nMortgage  has completed the initial phase of its Internet web site and
is  continuing  its  development  to provide  increased  user  interactivity  by
offering a single  source for every  aspect of the  mortgage  loan  process from
application  to closing.  nMortgage  anticipates  that retail loan volume in the
next  twenty-four  months will shift from retail  originators  to Internet based
originators.

     The  business  to  business   private  label  strategy  will  leverage  off
nMortgage's  experience with brokers,  community banks and credit unions as well


                                       -7-
<PAGE>

as its second generation web site technology.  The goal is to place a customized
Internet  program with third  parties that will receive a home page at a nominal
price and "back office" support by nMortgage for all loans originated. nMortgage
will not only  earn  fees from the  mortgage  loans but will  become a fee based
Internet Service  Provider to third parties.  This allows the loan originator to
offer an efficient  online mortgage  solution  without the significant  time and
expense  involved in setting up and maintaining  their own Internet web site and
related  infrastructure.  Once an application is submitted  through the web site
either by the loan  originator on behalf of the client or by the client himself,
nMortgage  handles  processing the  application on behalf of the loan originator
and offers it for underwriting to either FBMS preferred  lenders or lenders used
by the loan originator.

     nMortgages's   business  to  business  strategy  involves  fully  utilizing
technology to enhance the efforts of its current retail  distribution  channels,
while  continuing to build its Internet direct to consumer  business.  Utilizing
nMortgage's  Internet technology  wholesale brokers or retail loan officers will
be able to communicate directly with nMortgage via the Internet to transmit loan
applications,   perform  automated  underwriting  submissions,   receive  status
information,  receive rate and product information, lock loans, as well as other
ancillary services, including scheduling a closing agent.

     The  technological  enhancements  being  introduced by nMortgage during the
year 2000 will allow  nMortgage  to  develop  new  non-traditional  distribution
channels.  In view  of the  simplicity  developed  in the  application  process,
nMortgage  will  be  introducing  an  Internet  driven   origination  system  to
accountants,  lawyers,  financial planners,  small banks, and credit unions that
wish to participate in the loan origination process.

     By focusing on the fulfillment  issues  surrounding  the mortgage  process,
nMortgage  has  adopted an  aggressive  integration  strategy  to  simplify  the
mortgage  process as well as provide  exceptional  service.  This  strategy will
allow the borrower or loan originator to electronically complete the application
with instant underwriting  approval provided by an automated system, order their
title search and appraisal,  and determine closing location and date, as well as
other mortgage related services.

     The  nMortgage  business  strategy  involves  an  operationally  integrated
approach with  Internet  direct sales  gradually  taking market share from other
more  traditional   distribution   systems.  The  Internet  will  serve  as  the
communications backbone to the nMortgage origination network. nMortgage operates
a mortgage  processing system that is Internet enabled.  The system is scalable,
offering process  scalability for the foreseeable  future and offers  integrated
web technology that will allow:

Customer Benefits
-----------------
     * importing data from the web site to the system
     * electronic   notification  to the  borrower of all  necessary  disclosure
       information
     * an electronic or email  response  within two minutes of the  underwriting
       decision
     * borrower   inquiry  status of the loan as well as  regular  email  status
       messaging
     * rules based  filtering  of product and pricing  information  for best-fit
       products
     * multiple products displayed allowing borrower choice
     * mortgage  calculators  including APR, rate comparisons,  credit grade and
       refinance analysis
     * online rate lock capabilities
     * general mortgage education information
     * rate and fee information
     * credit card processing
     * the ability to pull credit reports
     * submission of completed mortgage application (1003)
     * user-friendly applications that only ask for information pertinent to the
       applicant
     * disbursement of closing documents to borrower designated closing agent
     * links to other ancillary services
     * online assistance from a live service representative via phone or email
     * secure transmission of borrower data
     * 24 hour access to all mortgage services

                                      -8-
<PAGE>

Company Benefits
----------------
     * products and services offered around the clock
     * ability to maximize number of applicants with minimal staffing
     * reduced transcription errors
     * receipt of income to cover costs at time of application
     * ability to cut time between application and loan closing
     * capability to broaden marketplace without costly facilities or manpower
     * submission of data formatted to allow automated underwriting

     With very little  modification,  nMortgage  can provide web sites unique to
each third party originator, realizing the majority of the benefits listed above
regardless of the origination source. The fundamental concept is consistent:

     * capture mortgage required data from the originator's web site
     * import data to the mortgage processing system
     * perform automated underwriting
     * export status/underwriting results to originator's web site
     * order and  receive  ancillary  services  from the web site or  processing
       system
     * perform lock in/registration function with Investors
     * transmit data to closing agent to print closing package remotely

     To support its  growth,  nMortgage  has five  principal  business  strategy
elements.  First, nMortgage will focus primarily on the retail channel utilizing
the "table" funding  concept.  This channel allows nMortgage to control the loan
origination  process  and  provides  direct  access  to  the  consumer.  Second,
nMortgage  will leverage the  banker/broker  structure in order to  consistently
offer  consumers  low  rates  on a broad  array  of  mortgage  products.  Third,
nMortgage  will  provide  consumers  a  "one-stop"  source  of  mortgage-related
products.  These  mortgage-related  product  sales allow  nMortgage  to increase
revenues without significant capital investment. Fourth, nMortgage will employ a
commission  and  incentive  system for the  nMortgage  loan  originators  and an
incentive  compensation system for the operations  employees that is designed to
motivate them to maximize  loan volume and  profitability  while  simultaneously
creating a variable cost structure  which is adaptable to changes in origination
volume.  Last,  nMortgage will recruit  highly  skilled  employees with mortgage
industry  experience  and  seek  technologies  and  process   improvements  that
streamline the origination process to ensure the continuous delivery of superior
customer service.

     In 1998,  mortgage  origination volume in the U.S. reached a record high of
$1.5 trillion,  compared to $834 billion for 1997.  Demand for mortgage products
in  recent  years  has  been  favorably  affected  by low  interest  rates,  low
unemployment  rates,  increasing  wages,  high  consumer  confidence  and strong
housing  starts and home sales.  The retail  origination  market of the mortgage
banking industry is highly fragmented.  According to the National Association of
Mortgage  Brokers,  approximately  20,000 mortgage brokers were operating in the
U.S. in 1998.  During the past 18 months,  the Internet  has been  emerging as a
major source of mortgage  originations.  Industry analysts predict that Internet
mortgage  originations will grow from over $4.0 billion in 1998 to nearly $100.0
billion by 2003 as borrowers  recognize the convenience and benefits of shopping
for a mortgage from the comfort of their home or office.  Capturing market share
on the Internet  will be dependent  upon access to consumers  and the ability to
consistently provide broad product offerings at competitive rates.

     For  its  retail  business  to  consumer  mortgage  banking  and  brokering
activities,  nMortgage  competes  with both  traditional  mortgage  bankers  and
brokers as well as other  Internet  based mortgage  companies.  These  companies
range  in size  from  large  nationally  recognized  financial  institutions  to
individual mortgage brokers and bankers offering consumer mortgage products.  As
nMortgage  seeks  to  become  a  technology  driven  mortgage  provider  to both
businesses and consumers, nMortgage faces competition mainly from other Internet
focused mortgage companies such as Mortgage.com and eLoan, among others. Many of
these  competitors are much larger and posses  significantly  greater  financial
resources than those of nMortgage.

     nMortgage  currently  is licensed  to offer  mortgages  in 25 states.  Most
states have laws and  regulations  governing the  registration  or licensing and

                                      -9-
<PAGE>

conduct  of  persons  providing  mortgage  brokerage  services.  Such  laws  and
regulations also typically require certain consumer  protection  disclosures and
compliance with loan  solicitation  procedures and a variety of other practices,
throughout  the various  stages of the mortgage  solicitation,  application  and
approval  process.  In addition to state law,  mortgage  brokerage  services are
heavily regulated by federal law. nMortgage is subject to regulations of various
federal  entities  including the  Department  of Housing and Urban  Development,
Veterans  Administration,   Federal  Housing  Administration,  Federal  National
Mortgage  Association,  Government National Mortgage  Association,  Federal Home
Loan Mortgage  Corporation  and other  agencies.  These agencies  impose various
rules and regulations  which may include  licensing and financial  requirements,
discrimination  policies and underwriting  guidelines,  among others. Failure to
comply with these requirements can lead to civil and/or criminal liability, loss
of approved status,  demands for indemnification or loan repurchases from buyers
in the secondary market,  rights of rescission for mortgage loans,  class action
lawsuits and administrative and enforcement actions.

FIRST TELESERVICES CORP.

     FTC only recently began  operations  and has not yet generated  significant
income. As a marketing arm for financial institutions, FTC's business plan calls
for it to perform  as a  consumer  finance  company,  offering a broad  array of
financial products and services to the sub-prime market.  These products will be
developed  and  serviced  through  correspondent  relationships  with  companies
specializing in those particular products which may include:

     * debt transfer servicing
     * balance transfer servicing
     * secured credit cards
     * sub-prime mortgage loans
     * sub-prime auto loans
     * prepaid calling cards
     * prepaid residential long distance service
     * prepaid cellular service
     * insurance products
     * other selected products and services

     The calling  center  will be the engine  that  drives the product  delivery
system with the  capability  to handle tens of thousands of inbound and outbound
calls  monthly.  The inbound calls will be the result of various  targeted media
programs and the  by-product of FTC's  customer base. The outbound calls will be
the result of cross  selling large data bases of customers a variety of products
and services  offered on a brokered  basis  through FTC's  strategic  alliances.
Through interactive voice response  technology,  the latest call center software
and hardware,  and a  well-trained  staff of customer  service  representatives,
telemarketers and telebankers, FTC will be able to turn these calls into revenue
while operating at the highest level of efficiency.

     Initially,  FTC will  offer  secured  credit  cards to large  data bases of
customers through its debt transfer servicing program. "Debt transfer servicing"
is a term used in the  collection  industry which means using a new loan account
number to service  and  collect  debt  purchased  in the  secondary  market.  As
customers   continue   to  make   payments  on  their  new   accounts,   thereby
rehabilitating  their  credit,  the  Registrant  will begin cross  selling other
financial  and  telecommunications  products on a fee basis  without the risk of
extending credit.

     FTC believes that it differs from other financial services organizations in
that it understands and will  specialize in handling the sub-prime  consumer and
offer that consumer only those  products and services they need. FTC will target
those  financial  institutions  which  recognize  the potential in the sub-prime
market and have relationships  with strategic  alliances already working in this
market.

                                      -10-
<PAGE>

     FTC's  business is dependent  upon the alliance  partnerships  it maintains
with other  organizations  for referral of debt  portfolios  which  generate new
customers.  Because FTC's business is ultimately dependent upon the quantity and
quality  of  these  alliance  partnerships,  FTC  must  actively  seek  out  new
partnerships while maintaining and evaluating its current relationships.  If any
of these  alliance  partners fail to deliver  quality  products or services on a
timely basis, and if FTC is unable to develop  alternative  sources as required,
dissatisfied  clients  may turn to other  sources to  provide  the  products  or
services they desire which may adversely affect FTC's business.

TRIUMPH SPORTS

     Triumph  Sports owns and operates a total of four  vitamin and  nutritional
supplement related retail stores in the Palm Beach and Boca Raton, Florida area.
Triumph is a registered franchisee of General Nutrition Centers ("GNC") with two
retail outlets.  The remaining two stores are located in Bally's fitness centers
in the area. During 1999,  Triumph also operated a fifth location which was sold
in the beginning of 2000 as explained more fully in Part I Item 1. Business. The
Triumph  GNC  franchises  run for a period  of ten  years  expiring  in 2008 and
include  renewals  for two  consecutive  five-year  terms  contingent  upon  GNC
conditions and approval.

     Each  location  typically  employs  one  full-time  manager and one to four
part-time employees. The GNC stores offer a wide-array of vitamins,  nutritional
supplements,  meal  replacement  products and other health and fitness  products
targeted to a large  consumer  demographic  seeking  today's  healthy and active
lifestyle.  From children to senior citizens looking for vitamins,  supplements,
books and advice for healthy  living to  triathletes  and body builders  seeking
nutritional  supplements and meal  replacements for their workout  regimes,  GNC
offers recognized high-quality branded products for all ages and fitness levels.
A majority of the products sold in the GNC outlets are GNC branded products with
additional  offerings  consisting  mainly of meal  replacement  and  nutritional
supplement products from popular major suppliers. The two smaller stores located
in Bally's fitness center mainly offer meal replacement  bars,  shakes,  drinks,
nutritional supplements,  workout supplies and magazines targeted to the Bally's
consumers for their pre and post-workout convenience.

VP SPORTS

     VP  Sports,   through   its   operating   subsidiary   Victoria   Precision
("Victoria"),  is a leading  Canadian  manufacturer  and  distributor of a broad
range of bicycles and tricycles.  Victoria is headquartered in Montreal, Quebec,
and  maintains  sales  offices in Edmonton,  Winnipeg,  Toronto and Quebec City.
Victoria is one of only a few companies in North America that both  manufactures
and distributes  bicycles on a large scale.  Victoria  targets the low to middle
price ranges of the bicycle market,  manufacturing  durable,  precision  crafted
bicycles  and  tricycles  priced to retail at up to CDN $1,000.  Victoria  has a
product  assortment  of 100 models of bicycles  ranging from adult  mountain and
hybrid  bicycles to juvenile and children's  bicycles,  BMX bikes and tricycles.
Victoria  markets  its  products  to  independent   bicycle  dealers  under  the
Leader(R), Minelli(R) and Precision(R) brand names and to wholesale distributors
under the Precision brand name and to merchants as private label brands.

     On March 24, 2000, VP Sports,  through Victoria,  completed the acquisition
of Torpedo, Inc. of Montreal,  Quebec, Canada ("Torpedo").  Torpedo manufactures
sporting goods, toys and recreational products in plants located in St. Narcisse
and Montreal,  Quebec.  Sales and  distribution  to the United States market are
made from sales offices and a warehouse location in South Paris, Maine.  Torpedo
is a leading  supplier to both the Canadian and United States markets for sleds,
toboggans,  entry level snow boards and poly snow toys. Torpedo,  operating as a
division of VP Sports,  will aggressively pursue sales to the sporting goods and
toy markets in the United States and Canada.

     Victoria's management estimates that bicycles are sold in over 2,500 retail
outlets  throughout  Canada.  Victoria sells to a network of  approximately  430
dealers and  approximately 30 mass  merchandisers  throughout  Canada.  To date,

                                      -11-
<PAGE>

almost all of  Victoria's  bicycles  have been sold to customers  who retail the
bicycles  within Canada.  Export sales have been only  occasional over the years
and did not account for any sales in fiscal 1999. Victoria's management believes
that the export market,  primarily to the U.S.,  represents a significant growth
opportunity. In addition to distributing bicycles that it manufactures, Victoria
maintains a complete  aftermarket  parts,  accessories and service program.  The
parts and accessories are sold primarily to independent bicycle dealers.

     Most of the Victoria's bicycles are manufactured, assembled and packaged at
its  175,000  square foot  production  facility in  Montreal.  Victoria  has the
capacity  to produce  approximately  750,000  bicycles  per year.  Victoria  has
developed  and  utilizes an advanced and  efficient  production  process,  which
utilizes  precision  robotics and machinery.  Victoria's  bicycle  manufacturing
process includes  multiple  production phases beginning with cutting and welding
tubes for frame  construction  to final  assembly.  All of  Victoria's  bicycles
utilize steel tubing  purchased from Canadian and U.S.  suppliers and components
purchased from around the world. Victoria's purchasing cycle generally begins in
August and runs through April.  Production begins in November,  reaches its peak
during  January,  February,  March and April,  and continues into or through May
depending  on orders and  reorders.  By the end of May the majority of assembled
bikes  have  been  shipped  to  customers.   Current  production   reflects  the
seasonality of the Canadian market.  Victoria's  management views exports as the
means to exploit under-utilized capacity.

     In fiscal 1998,  Victoria  estimates it manufactured about 12% of the total
number of units sold in the mass merchant  market in Canada.  Victoria  believes
that it has a very strong  position with  independent  bicycle dealers in Canada
and that it manufactures approximately 25% of the total units sold through these
stores.  Competition  in the  Canadian  market is based  primarily  on perceived
value, brand-image,  performance features, product innovation and price. The two
primary  Canadian  domestic   competitors  in  Canada  are   Raleigh-Canada  and
Pro-Cycle.  A  smaller  Canadian  domestic  competitor  is  Norco,  primarily  a
distributor  of  high-end   mountain  bikes  to  independent   bicycle  dealers.
Victoria's  management  believes that its primary  foreign  competition  is from
Asian imports.

     Victoria's  four sales  offices  in  Toronto,  Quebec  City,  Winnipeg  and
Edmonton  support  the  dealer  network  in Canada by taking  orders,  providing
technical  assistance,  resolving  problems and providing  aftermarket parts and
accessories.  All major mass merchandiser  accounts are serviced from Victoria's
headquarters in Montreal.

     Under the North American Free Trade Agreement ("NAFTA"), Victoria enjoyed a
preferential  environment with its North American trading partners.  Pursuant to
NAFTA,  trade between  Canada and the U.S. was tariff free in 1998. In the early
1990's, the Canadian Bicycle  Manufactures  Association brought to the attention
of the Canadian trade authorities  details of perceived unfair trading practices
in the bicycle industry originating in China and Taiwan. Subsequently,  Canadian
authorities  imposed a tariff of  approximately  30% on bicycles  imported  from
China and a tariff of approximately 13% on bicycles  imported from Taiwan.  Both
tariffs apply to bicycles  having 16" or greater wheel size and priced under CDN
$325  F.O.B.  port of  shipment.  The  Canadian  International  Trade  Tribunal,
extended these tariffs through 2003. The tariffs provide domestic  manufacturers
like Victoria with a competitive advantage over Chinese or Taiwanese competitors
that target the lower end of the mass merchant market.

EMPLOYEES

     The Registrant currently employs five full-time employees. In addition, FTC
employs two full-time employees and Triumph Sports employs 10 full and part-time
employees.  nMortgage has no full-time employees while its operating subsidiary,
FBMS employs approximately 30 people.

     VP Sports has two  full-time  employees.  Due to the  nature of  Victoria's
production cycle,  direct labor is seasonal.  Victoria employs  approximately 50
year-round  workers in its office and production  facilities in Montreal.  There
are  approximately  220  permanent  full-time  plant  employees who are employed
during   Victoria's   production   cycle   year-to-year.   Victoria   also  adds
approximately  130 temporary and part-time  employees during its peak production
and shipping season. Bicycle production employees are unionized and entered into
a  collective  agreement  with  Victoria on December 6, 1997,  which  expired on
September  30, 1999.  In December  1999,  Victoria  experienced  a work stoppage

                                      -12-
<PAGE>

lasting one month at its Montreal  plant.  A new union  contract was ratified on
January  24,  2000.  The work  stoppage  did not have a  material  effect on the
operations of the company.

(d) Financial information about geographic areas.

     Not applicable.

ITEM 2. PROPERTIES.

     The  Registrant's  principal  executive  office is  located  in  Englewood,
Colorado.  The Registrant leases this space,  consisting of approximately  1,800
square feet, on a month to month basis for $2,500 per month,  from a partnership
in which the  Registrant's  president is the partner.  The  Registrant  believes
these terms to be no less  favorable  than those which could be obtained  from a
non-affiliated party for similar facilities in the same area.

    The  Registrant  also  leases in Palm Beach  Gardens,  Florida an  executive
office  consisting  of  approximately  980 square  feet.  The term of this lease
expires on  February 1, 2004 and  includes  annual rent of $24,500 for the first
year and increases  $980 in each of years two through five.  The  Registrant and
its subsidiaries, nMortgage, Triumph Sports and VP Sports, utilize this space.

     In addition to the above referenced property, the Registrant's  subsidiary,
nMortgage,  through its operating  subsidiary,  FBMS, leases office space in Ft.
Lauderdale,  Florida  housing the FBMS corporate  office.  This lease expires on
August 31, 2003 and  includes a monthly  payment of $12,929 over the term of the
lease. In addition, FBMS leases space for its branch offices as follows:

Branch                            Monthly Payment                        Term
------                            ---------------                        ----
New Jersey                             10,342                          2/28/2001
Jacksonville                           14,354                          2/29/2001
                                       17,237                          2/28/2002
Delaware                                900                           11/30/2000
Pennsylvania                           1,053                          11/30/2000
Pennsylvania                           5,035                          11/30/2000


     The Registrant's  subsidiary,  FTC, leases approximately 931 square feet of
executive office space in Atlanta, Georgia. This lease runs through December 31,
2000 and includes a monthly payment of $1,595 over the lease term.

     VP Sports, through Victoria,  owns a manufacturing facility at in Montreal,
Quebec.  The  brick  building  originally  constructed  on this site in 1947 was
expanded in 1983 by the addition of an adjoining concrete  structure  containing
office premises,  showroom and manufacturing facilities. Part of the property is
subject to ground leases granted by the City of Montreal which terminate in 2013
but which may be  renewed  until  2023.  The  property  is  mortgaged  to secure
Victoria's bank and long term debt. Victoria leases approximately 100,000 square
feet of  warehouse  space  for the  purpose  of  inventory  storage  during  the
inventory build-up period.

ITEM 3. LEGAL PROCEEDINGS.

     The Registrant is a plaintiff in a declaratory  judgement action,  EQUITEX,
INC. AND HENRY FONG V. BERTRAND T. UNGAR,  Case No. 98 CV 2437 (District  Court,
Arapahoe  County,  Colorado),   commenced  in  July  1998,  asserting  that  the
Registrant has no obligation to Mr. Ungar for indemnification and defense claims
which  Ungar  had  previously  asserted  against  the  Registrant.  Ungar  filed
counter-claims  which  alleged  that while  acting as an attorney  and  business
advisor for Equitex, he had incurred tort liabilities to third parties, and that
Registrant,  as his client,  owed him a fiduciary duty and other alleged duties,
and  therefore  should  indemnify  and reimburse him for his losses and costs of
defense in the actions  with third  parties,  an amount  allegedly  in excess of

                                      -13-
<PAGE>

$1,000,000. The Registrant is vigorously pursuing its claims and will defend the
counterclaims.

     On March 10, 2000,  the US District Court for the North District of Georgia
granted  Motions to Dismiss  filed by the  Registrant  and its  President in the
cases of THEOHAROUS, ET AL. V. HENRY FONG, EQUITEX, INC., CHARLES E. SANDERS AND
METROMEDIA  INTERNATIONAL  GROUP,  INC.,  Civil  Action No.  1-98-CV-2366  (U.S.
District Court for the Northern  District of Georgia),  and LESLIE SCHUETTE,  ET
AL.  V.  HENRY  FONG,   EQUITEX,   INC.,   CHARLES  E.  SANDERS  AND  METROMEDIA
INTERNATIONAL  GROUP, INC., Civil Action No.  1-98-CV-3034 (U.S.  District Court
for the Northern District of Georgia).  These alleged class actions on behalf of
a purported class of stockholders of RDM Sports Group,  Inc.  ("RDM") were filed
on August 19, 1998, and October 19, 1998, respectively. Both cases asserted that
during 1996 and 1997, the defendants  (including the  Registrant)  made numerous
allegedly  false  statements  and overly  optimistic  predictions  regarding the
business and financial condition of RDM in the press releases and public filings
of RDM, with knowledge of their falsehood, thereby misleading RDM stockholders.


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

     On  December  27,  1999,  the   Registrant   held  its  Annual  Meeting  of
Stockholders.  The  stockholders  re-elected  each  of  the  Registrant's  three
directors to serve until the next Annual Meeting of  Stockholders  and the votes
were cast as follows:

                                   For            Withhold Authority
                                   ---            ------------------
Henry Fong                      5,147,328               62,281
Russell L. Casement             5,148,233               61,376
Aaron Grunfeld                  5,148,391               61,218

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

     To ratify  the  appointment  of  Gelfond  Hochstadt  Pangburn, P.C.  as the
independent auditor of the Registrant for the year ending December 31, 1999.

                        For            Against         Abstain        Non-Voted
                        ---            ------          -------        ---------
Shares voted          5,168,678         22,865          18,066             0




                                      -14-
<PAGE>

                                     PART II
                                     -------

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

(a) Market Information

     The principal  market in which the  Registrant's  common stock is traded is
the over-the-counter market.

     In November  1997,  the  Registrant was notified by the Nasdaq Stock Market
that the  Registrant  failed to meet the minimum  maintenance  requirements  for
continued   listing  on  the  Nasdaq  National  Market.  As  a  result  of  this
notification  and  subsequent  review  by Nasdaq of  materials  provided  by the
Registrant,   on  February  19,  1998,  a  hearing  was  held  to  consider  the
Registrant's plan for continued compliance with the maintenance requirements and
a determination was made to move trading of the Registrant's common stock to the
Nasdaq SmallCap Market effective March 13, 1998.

     The  Registrant's  common stock trades on the Nasdaq Stock Market under the
symbol EQTX.  The table below states the quarterly high and low last sale prices
for the  Registrant's  common stock as reported by The Nasdaq Stock Market,  and
represent actual high and low last sale prices.

                                         Last Sale

Quarter ended                  High                      Low
-------------                  ----                      ---
1998
----
March 31, 1998                 $3.57                    $0.81
June 30, 1998                  $5.31                    $3.00
September 30, 1998             $7.13                    $4.50
December 31, 1998              $7.50                    $6.50

1999
----
March 31, 1999                $12.44                    $6.75
June 30, 1999                 $41.88                    $9.50
September 30, 1999            $13.38                    $9.50
December 31, 1999             $10.00                    $8.00

(b) Holders

     The number of record holders of the  Registrant's  common stock as of March
27, 2000, was 2,460 according to the  Registrant's  transfer agent.  This figure
excludes  an  indeterminate  number of  shareholders  whose  shares  are held in
"street" or "nominee" name.

(c) Dividends

     The Registrant has not declared or paid cash dividends on its common stock,
nor does it anticipate paying any cash dividends in the foreseeable  future. The
Registrant  currently  intends to retain any future  earnings to fund operations
and for the continued  development of its business.  While a BDC, the Registrant
made  an  in-kind  distribution  of  its  larger  investment  positions  to  its
stockholders.  Any further in-kind  distribution  will be made only when, in the
judgment of the Registrant's  Board of Directors,  it is in the best interest of
the  Registrant's  stockholders to do so. It is possible that the Registrant may
make  an  in-kind   distribution  of  securities,   which  have  appreciated  or
depreciated   from  the  time  of  purchase   depending   upon  the   particular
distribution. The Registrant has not established a policy as to the frequency or
size of  distributions  and  indeed  there can be no  assurance  that any future
distributions  will be made.  To  date,  only  one  such  distribution  has been
approved by the Board of Directors and was distributed in April 1988.

                                      -15-
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA.

     The following tables contain selected  financial data of the Registrant for
the previous five years.  As a result of the  Registrant's  change in accounting
method  from  that of an  investment  company  to that of an  operating  company
following  the  Registrant's  decertification  as a BDC on January  4, 1999,  as
described  more fully in Part I Item 1. Business,  the following  information is
being presented in two separate tables.  For the year ended December 31, 1999, a
single table reflecting the Registrant's consolidated selected financial data as
an operating company is being furnished.  The selected  financial data presented
in the second table  represents  the  Registrant's  operations  as an investment
company for each of the fiscal years ended  December 31,  1998,  1997,  1996 and
1995, respectively.

--------------------------------------------- ----------------
                                                   1999
--------------------------------------------- ----------------
Revenues                                           $2,419,264
--------------------------------------------- ----------------
Net loss                                            7,716,559
--------------------------------------------- ----------------
Net loss per common share                                1.09
--------------------------------------------- ----------------
Total assets                                       41,744,937
--------------------------------------------- ----------------
Total long-term liabilities                                 0
--------------------------------------------- ----------------
Redeemable preferred stock                                  0
--------------------------------------------- ----------------
Cash dividends                                              0
--------------------------------------------- ----------------
<TABLE>
<CAPTION>
---------------------------------------------  ------------  ------------  ------------  ------------
                                                   1998          1997          1996         1995
---------------------------------------------  ------------  ------------  ------------  ------------
<S>                                            <C>           <C>           <C>           <C>
Revenues                                          $447,840      $378,391      $632,765      $308,190
---------------------------------------------  ------------  ------------  ------------  ------------
Realized gain from sales of investments          1,108,340     1,003,951     1,226,190        31,232
---------------------------------------------  ------------  ------------  ------------  ------------
Net investment (loss) and realized gain on        (925,245)     (401,649)      639,874    (1,038,298)
investments after income taxes
---------------------------------------------  ------------  ------------  ------------  ------------
Increase (decrease) in unrealized               (1,056,054)   (3,521,718)   (5,206,732)     (736,710)
appreciation on investments net of deferred
income taxes
---------------------------------------------  ------------  ------------  ------------  ------------
Net increase (decrease) in net assets          $(1,981,299)  $(3,923,367)  $(4,566,858)  $(1,775,008)
resulting from operations
---------------------------------------------  ------------  ------------  ------------  ------------
Net increase (decrease) in net assets               $(0.45)       $(1.25)       $(1.42)       $(0.55)
resulting from operation per share
---------------------------------------------  ------------  ------------  ------------  ------------
Total assets                                    $5,859,075    $5,038,425   $10,478,003   $19,056,458
---------------------------------------------  ------------  ------------  ------------  ------------
Total long-term liabilities                              0             0             0             0
---------------------------------------------  ------------  ------------  ------------  ------------
Cash dividends                                           0             0             0             0
---------------------------------------------  ------------  ------------  ------------  ------------
</TABLE>


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

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

                                      -16-
<PAGE>

Registrant's investee companies, volatility of stock price and any other factors
discussed in this and other Registrant  filings with the Securities and Exchange
Commission.

The following  discussion and analysis of the Registrant's  financial  condition
and results of operations  should be read in conjunction  with the  consolidated
financial  statements  and notes thereto for the years ended  December 31, 1999,
1998 and 1997. As a result of the Registrant's change from a BDC to an operating
company as of January 4, 1999  effective  January  1, 1999,  the  Registrant  is
required  for the  year  ended  December  31,  1999  to  present  its  financial
statements  consistent  with  those of an  operating  company  as opposed to the
investment  company  presentation  utilized  in prior  years.  Accordingly,  the
Consolidated   balance   sheet,   Consolidated   statement  of  operations   and
Consolidated  statement  of cash flows for the year ended  December 31, 1999 are
presented for the Registrant as an operating  company.  These statements include
the accounts of the  Registrant,  its wholly owned  subsidiary  FTC and majority
owned  subsidiary  Triumph for the entire year ended December 31, 1999. The 1999
statements also include the accounts of majority owned subsidiary  nMortgage and
the Registrant's  35.7%  investment in VP Sports for September  through December
1999 following  nMortgage's  acquisition  of FBMS and VP Sports'  acquisition of
Victoria  Precision both in August 1999. The financial  statements for the years
ended  December 31, 1998 and 1997  continue to be  presented  in the  investment
company format as audited in those years.

(a) Liquidity.
(b) Capital Resources.

As a result of the Registrant's  restructuring during 1999 and its change from a
BDC to an  operating  company,  the  amount  and  sources  of  the  Registrant's
liquidity  changed  significantly.  Prior to 1999 while  operating as a BDC, the
Registrant  primarily  relied  on  sales  of  portfolio  securities  to fund its
operations  as well as fees charged to investees  for various  services.  During
1999,  as the  Registrant  restructured  its  business,  the  Registrant  relied
primarily on private  placements of equity securities to fund its operations and
acquisitions  as it sought to become an operating  entity.  However,  as in past
years, during 1999, the Registrant  continued to divest certain of its portfolio
securities.  For the year 2000, the Registrant,  prior to  consolidation  of any
subsidiaries,   anticipates  that  its  liquidity  and  capital   resources  are
sufficient to funds its operations as it works toward completing its merger with
First TeleBanc Corp. Presently, all of the Registrant's  subsidiaries operate on
a  stand-alone  basis  and each  are  individually  responsible  for  their  own
liquidity.  However,  the  Registrant may need to assist its  subsidiaries  from
time-to-time  should  unforeseen   liquidity  issues  arise.  Should  additional
liquidity be necessary to fund the operations of its subsidiaries or to complete
any merger or  acquisition,  the Registrant  believes it has sources  available,
including the sales of certain  investments  or the private  placement of equity
securities, to cover any such needs.

Following  the  acquisition  of FBMS  through  nMortgage  in  August  1999,  the
Registrant  began  a major  restructuring  at  nMortgage.  The  purpose  of this
restructuring is to significantly  reduce  nMortgage's  operating overhead as it
transitions from a traditional  brick and mortar mortgage banker to a technology
driven mortgage banker,  broker and Internet  solution  provider to the mortgage
industry.  As described  more fully in Part I, Item 1 Business,  as part of this
restructuring,  nMortgage is also seeking to mitigate the risk  associated  with
the  warehouse  funding  and  subsequent  sale  of its  mortgage  portfolios  by
employing the table funding method for its retail mortgage loans. As a result of
this restructuring, nMortgage sustained significant losses during the final four
months  of  1999  following  its  purchase  by the  Registrant  as it  works  to
fundamentally  change  the way it  operates  its  business.  Additional  capital
expenditures  were incurred as nMortgage  continued  developing its  information
technology in connection with its Internet-based  product offerings.  During the
fourth quarter of 1999,  nMortgage  completed a $5,000,000  private placement of
preferred  stock to provide the liquidity  necessary to fund the company  during
the restructuring period.

Beginning in the second quarter of 2000, as nMortgage  completes the first phase
of this restructuring,  the company will initially rely primarily on origination
and other loan related fees from lenders to whom it brokers  mortgage  loans. As
nMortgage  rolls out its  business to  business  Internet  solutions  during the
second and third  quarters of 2000,  additional  fees will be  recognized as the
company  institutes a fee-based program for private labeling third party website
solutions. This will generate additional loan related as well as service related
fees.

                                      -17-
<PAGE>

While nMortgage has created the infrastructure necessary to operate its Internet
related business strategies, further information technology expenditures will be
necessary to continue  developing  and refining its hardware and software as the
company  positions  itself to become a provider  of  Internet  solutions  to the
mortgage  industry.  In connection  with  nMortgage's  proposed merger with IGCA
described in Part I, Item 1, Business,  nMortgage will receive  approximately $2
million in cash and an additional $2 million in future cash consideration should
the  merger  be  consummated.  This  capital  infusion  is an  integral  part of
nMortgage's  future plans,  the loss of which would require  additional  capital
resources from unknown sources.  Additionally,  as a publicly traded entity with
access  to public  capital  markets,  nMortgage  would  have a broader  array of
financing options at its disposal should further funding be necessary. nMortgage
anticipates  it has the  liquidity and capital  resources  necessary to fund the
company during 2000 from the internal and external sources described above.

For most of 1999, FTC relied  exclusively on the Registrant for operating  funds
as the company  continued to develop its business plan. In the latter portion of
1999,  as FTC  implemented  its  business  plan,  the company  began  relying on
internal  sources of funds generated  through cash flows from operations for its
liquidity and capital resources.  As FTC implements its business plan and begins
operations,  it is  anticipated  the  company  will be less  dependent  upon the
Registrant for funds.  While future  capital  infusions by the Registrant may be
necessary, it is anticipated the amounts can be absorbed by the Registrant given
the relatively low overhead  requirements  at FTC. Given the low overhead and in
light of the fact FTC should  begin  generating  revenues,  FTC  believes it has
sufficient  liquidity and capital resources to fund its operations from internal
resources during 2000.

Triumph and VP Sport both rely primarily on cash flows from operations for their
working  capital.  In  addition,  during  1999  and  2000,  Triumph  recorded  a
considerable  gain on the sale of an  investment  providing  additional  cash to
operate its business. The Registrant anticipates Triumph's liquidity and capital
resources will be sufficient to fund its operations  during the year 2000. While
VP Sports is dependent upon debt instruments from time-to-time in order to build
its inventory in preparation  its selling  season,  it anticipates its liquidity
and capital  resources are sufficient to fund its continuing  operations for the
foreseeable future.

(c) Results of operations.

Because of the fundamental  change in the Registrant's  operations and financial
presentation for 1999, the comparison to prior years is difficult.  As a result,
the  discussion  and analysis of the  Registrant's  results of operations  while
containing year over year financial  comparisons  have been analyzed with a view
toward the Registrant's current and future business operations.

REVENUES:  Consolidated  revenues  for the year  ended  December  31,  1999 were
$2,419,264 for the Registrant and its subsidiaries.  Revenues for the Registrant
as a BDC were  $447,840 in the year ended  December 31, 1998 and $378,391 in the
year ended December 31, 1997. Of the 1999 revenues,  $1,547,754 are attributable
to nMortgage  with  $738,456  from Triumph and the balance of $133,054  from the
Registrant itself.

For 1999,  nMortgage  recorded  revenues from its retail and wholesale  mortgage
operations in the form of origination and other loan fees,  secondary  marketing
revenues and interest income.  Following the Registrant's acquisition of FBMS by
nMortgage,  the Registrant  instituted a restructuring program to completely the
change the way FBMS conducts its mortgage operations. As discussed more fully in
Part I. Item 1, Business,  nMortgage, while continuing to offer retail mortgages
through both traditional as well as Internet  oriented  channels,  is minimizing
its practice of warehouse  funding a majority of its mortgage  loans in favor of
the table funding  concept.  This change  results in the need for  significantly
fewer employees as the responsibilities for underwriting, post closing, closing,
auditing and disbursing  loans are  transferred  from nMortgage to the investors
underwriting and funding the  originations.  As a result of these  restructuring
activities,  nMortgage  experienced  an overall  decrease  in loan  originations
during the period as the company  trimmed its work force in anticipation of this
change,  thereby reducing overhead costs. In addition,  nMortgage saw an overall
decrease in mortgage  originations due to increasing interest rates.  Financings
of new home purchases while down slightly remained relatively stable.  nMortgage

                                      -18-
<PAGE>

did, however,  experience a significant decrease in home refinancings during the
period as interest  rates reached  levels at which many  consumers  chose not to
refinance.

As nMortgage completes its restructuring  program and fully integrates the table
funding  concept  for its  mortgage  originations,  a  majority  of  nMortgage's
revenues  for the year  2000  will be  derived  from  origination  fees.  Once a
mortgage  originated by nMortgage is closed and funded by the lender,  nMortgage
will be paid its fee directly  from that lender.  nMortgage  is  continuing  its
restructuring  program and  anticipates it will not be fully completed until the
second quarter of 2000. As a result,  first and second quarter loan originations
are expected to be down until  nMortgage  fully  implements its plan.  nMortgage
expects to debut its second  generation  business to consumer website during the
second  quarter  and is  continuing  development  of its  business  to  business
strategies.  As  nMortgage's  Internet  business  to  consumer  and  business to
business technologies are introduced,  nMortgage anticipates an increase in loan
originations  during the latter  portion of 2000,  compared to the first half of
2000.

Triumph,  the second largest contributor to the Registrant's  revenues,  derived
those revenues from product sales at its five retail locations, one of which was
divested  at the end of 1999.  The year  ended  1999 was the first  full year of
operations   for   Triumph   and  sales  were  down   slightly  as  compared  to
pre-acquisition  periods. As a result, Triumph replaced its senior management in
charge of store operations.  For the year 2000,  Triumph has instituted  tighter
inventory  and sales audit  controls  while  installing  point-of-sale  computer
systems to aid in inventory tracking. These systems will allow Triumph to better
distinguish sales trends,  provide greater information with respect to inventory
management  and  assist  in  determining  appropriate  profit  margins.  Triumph
believes these  initiatives will provide greater sales while containing costs in
an effort to return to profitability.

The Registrant's  revenues for 1999 on a stand-alone basis consisted of interest
income and  transaction  fees related to long-term and  short-term  loans.  As a
holding company, the Registrant has no significant sources of revenue other than
those of its operating subsidiaries.  In addition, as the Registrant only became
an operating  company at the beginning of 1999, the  Registrant's  revenues on a
consolidated basis were significantly  lower that can be expected during 2000 as
the Registrant's  subsidiaries record a full year of operations.  The Registrant
partially  offset its operating  overhead  during 1999  utilizing  approximately
$800,000 from the sales of certain  investments which is not considered revenue.
For the year 2000, the Registrant anticipates it will continue to divest certain
of its  investments  to cover its  operating  overhead as it  continues  to work
toward completion of its merger with FTB.

EXPENSES:  The Registrant's total expenses on a consolidated basis for 1999 were
$8,350,797.  The  Registrant's  expenses  as a BDC for the year  ended 1998 were
$2,418,245 as compared to $1,813,926  for the same period in 1997.  The expenses
for 1999 consisted of the following: cost of product sales related to Triumph of
$488,767;  loan  production  and  processing  expense of $728,501 for nMortgage;
selling,  general and administrative expenses for all consolidated accounts; and
an  officer's  bonus of  $883,164  for the  Registrant.  Of the total  expenses,
nMortgage accounts for $4,485,588, Equitex $2,422,813, FTC $402,061, and Triumph
$1,040,335.

Of the selling, general and administrative expenses,  $3,716,059 is attributable
to nMortgage and its operating subsidiary FBMS. In the typical warehouse lending
scenario,  FBMS closes and funds a particular loan utilizing available credit on
one of its warehouse lending facilities.  Within a period usually less than four
weeks,  FBMS then sells that loan to an Investor and  receives  revenue from the
sale in the form of  premiums  paid by the  Investor  over and above the  amount
funded. In addition,  FBMS may receive additional revenue on the "credit spread"
if it is able to sell the loan at a lower  interest  rate  than  offered  to the
borrower.  Conversely,  if the  loan is sold at an  interest  rate  higher  than
offered to the  borrower,  a loss will  occur.  Additionally,  events of default
occasionally  occur  which  can  cause  considerable  expense  to FBMS.  FBMS is
required to sign agreements with its Investors  guaranteeing  the mortgage loans
it sells  for a period  from six  months  to  typically  one  year.  During  the
guarantee period,  if a borrower fails to make a first payment,  has one or more
late payments in an agreed upon period,  or if the paperwork  associated  with a
particular  loan is incorrect or incomplete,  an Investor can make a demand upon
FBMS to  repurchase  a loan.  As a result of this loan  repurchase,  FBMS may be
required to seek payment  and/or  foreclose on a loan,  sell the loan to another
Investor at a discount to value or at an inferior interest rate, or lose certain

                                      -19-
<PAGE>

revenues  associated with the original loan sale. During the latter part of 1999
following the  Registrant's  acquisition of FBMS, FBMS experienced a higher that
normal number of loan repurchase events that negatively impacted expenses during
the period.

In order to eliminate these expenses and considerably  lower the risk associated
with warehouse funding,  beginning in the second quarter of 2000, nMortgage will
table  fund a  majority  of the loans it  originates.  Under  the table  funding
method,  nMortgage  originates  the loan and then offers it to an  Investor  for
underwriting   through   funding.   As  the  Investor  is  responsible  for  the
underwriting through funding process, the risks associated with defaults events,
interest rate spreads and  underwriting  difficulties  is reduced or eliminated.
nMortgage  simply  originates the loan and receives a fee from the Investor upon
funding.

In addition to the  decreased  risk  associated  with table  funding,  operating
overhead is considerably  reduced with the elimination of as many as five layers
of employees.  This enables  nMortgage to originate loans at or above historical
levels  utilizing a  considerably  smaller  staff.  In  addition,  by offering a
majority of  nMortgage's  employees a  commission  or incentive  program,  their
success is directly related to that of the company thereby reducing  nMortgage's
exposure in the event of an economic downturn. Lower operating overhead also has
the obvious  effect of  lowering  the amount of  revenues  necessary  to achieve
profitability.

The  Registrant on a stand alone basis  accounts for  $1,539,649 of the selling,
general  and  administrative  expenses  and an  additional  expense of  $883,164
related to an officer's bonus.  These amounts relate to operation of the holding
company  during 1999.  These costs have remained  relatively  stable versus past
years in which there were $2,418,245 and $1,813,926 total expenses for the years
ended  December 31, 1998 and 1997 while  operating  as a BDC.  Included in these
expenses are legal and accounting fees associated with the transition from a BDC
to an  operating  company as well as typical  expenses  involved in  operating a
publicly traded company.  In 1998, the Registrant  changed the bonus program for
its  president to one  primarily  based on appreciate in the market price of the
Registrant's  common  stock  as  described  more  fully  in  Part  III.  Item 11
Compensation.  As a result,  a majority of the bonus  expense  resulted from the
increase in the market value of the Registrant's common stock in 1999.

Of  Triumph's  expense,   $551,568  is  attributable  to  selling,  general  and
administrative  expenses  associated with operation of the company's five retail
outlets  during  1999  and  $488,767  is from the cost of  sales.  FTC  recorded
$402,061 in selling,  general and  administrative  expense during the year as it
continued to develop its business plan.

OTHER INCOME (EXPENSES): Other income (expense) includes investment loss, net of
$571,267 equity in loss of affiliates of $418,209, and interest expense totaling
$795,550.

During 1999,  the  Registrant  recorded  investment  income of $797,516 from the
sales of investments.  At December 31, 1999, the Registrant  recorded a realized
loss of $1,368,783 on trading  securities  resulting in the investment loss, net
of  $571,267.  A  majority  of this  loss  totaling  $1,201,355  related  to the
Registrant's  investment in RDM Sports Group,  Inc. had previously been recorded
as an unrealized loss in the  stockholder's  equity section of the  Registrant's
financial statements.  However, the Registrant has determined the decline in the
value of the RDM common stock is other than  temporary,  and therefore  recorded
the charge as a realized  loss and charge to the statement of  operations.  This
adjustment of the  Registrant's  investment  in RDM from  unrealized to realized
while  contributing to the net loss for the year,  only decreased  stockholders'
equity by $167,428.

Equity  in net  losses  of  affiliates  corresponds  to the  Registrant's  35.7%
ownership interest in VP Sports which is accounted for on an equity basis. These
results for the period beginning  September 1, 1999 and ending December 31, 1999
following VP Sports'  acquisition  of Victoria  Precision are not  indicative of
future  results or the year on the whole.  Due to the  seasonality of VP Sports'
business,   the  period  from  September   through  December  of  each  year  is
traditionally the slowest for product sales as VP Sports increases inventory and
begins its  production  cycle for the coming year. As a result,  the  Registrant
anticipates that increased sales during the peak periods in the first and second
quarters  of 2000 will  favorably  impact VP Sports'  results of  operations  in
future periods.

                                      -20-
<PAGE>

A majority of the interest  expense is related to the warehouse loan  facilities
of nMortgage.  These  warehouse  credit lines carry interest rates which at year
end were  between  9.5% and 10.5%.  FBMS pays this rate of  interest  during the
typical  one to four week  period any loan is carried on the line.  During  this
period,  FMBS is receiving  interest from the borrower at rates that could be 1%
to 3% less than those paid on the warehouse  lines based on the market rates for
mortgage  loans at the time of funding.  This  results in  significant  interest
expense to FBMS based on the unfavorable  interest rate spread. With nMortgage's
change from warehouse  funding to table funding  described  above,  the interest
expense related to this  unfavorable  spread should be greatly reduced so as not
to be a material factor in FMBS' future business operations.

NET LOSS:  Net loss for the year ended  December 31, 1999 was  $7,716,559.  As a
BDC, the  Registrant  recorded  net  investment  loss and net  realized  gain on
investments  after income taxes of $(925,245) and $(401,649) and net decrease in
net assets  resulting from operations of $1,981,299 and $3,923,367 for the years
ended December 31, 1998 and 1997,  respectively.  As described more fully above,
this loss includes $1,368,783 from the write-down of certain of the Registrant's
investments  which  amount  includes  $1,201,355  in  unrealized  loss  that had
previously been written down on the  Registrant's  balance sheet. The Registrant
does not feel this loss is indicative of future results given the changes in the
Registrant's  business  operations during 1999. As the Registrant  completes its
restructuring to become a fully operating  company,  restructures and integrates
the  operations of its newly acquired  subsidiaries,  and completes its proposed
merger with FTB, the Registrant  believes future results will better reflect its
plans  and  objectives  to become a  profitable  financial  services  technology
company.

NET LOSS  APPLICABLE  TO  COMMON  STOCKHOLDERS:  Net loss  applicable  to common
stockholders  was  $10,985,572 for the year ended December 31, 1999. This amount
gives effect to the  amortization  of the discount on the preferred stock of the
Registrant if the preferred  stockholders  had converted  their shares to common
stock at year end.  This amount does not reflect an actual loss at year end over
and above the net loss figure presented above.

YEAR 2000 ISSUE

The   inability   of   computers,   software  and  other   equipment   utilizing
microprocessors  to  recognize  and properly  process  date fields  containing a
two-digit  year is commonly  referred to as the "Year 2000 Issue"  ("Y2K").  The
Registrant  reviewed  its  computer  systems  in  order  to  evaluate  necessary
modifications  for Y2K readiness and communicated  with others with whom it does
significant  business to determine their Y2K readiness  status and the extent to
which the  Registrant  could have been affected by any third party Y2K readiness
issues.  The  Registrant  experienced no Y2K related  problems or expenses.  The
Registrant  estimates that total expenses  incurred in preparation  for Y2K were
less than $1,000.

OTHER ISSUES

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.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     The financial statements are listed under Item 14.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

     On August 20, 1999, Equitex, Inc. (the "Registrant") dismissed Davis & Co.,
CPA's, P.C. as its independent  certified public accountant.  There have been no
adverse  opinions,  disclaimers of opinion or qualifications or modifications as

                                      -21-
<PAGE>

to uncertainty,  audit scope or accounting  principles  regarding the reports of
Davis & Co., CPA's,  P.C. on the Registrant's  financial  statements for each of
the fiscal years ended  December 31, 1998 and 1997,  or any  subsequent  interim
period.  The Audit Committee of the Registrant's Board of Directors approved the
change of accountants and the Board of Directors of the Registrant ratified that
action.  There were no disagreements with Davis & Co., CPA's, P.C. on any matter
of accounting  principles  or  practices,  financial  statement  disclosure,  or
auditing scope or procedures leading to their dismissal.


     There  were no  reportable  events,  in each  case,  during  either  of the
Registrant's two most recent fiscal years or any subsequent interim period.

       Simultaneously  with  the  dismissal  of  its  former  accountants,   the
Registrant  approved and engaged Gelfond Hochstadt  Pangburn,  P.C. to act as it
independent certified public accountant as successor to Davis & Co., CPA's, P.C.
During the  Registrant's  two most recent  fiscal  years or  subsequent  interim
periods the  Registrant  has not  consulted  Gelfond  Hochstadt  Pangburn,  P.C.
regarding the application of accounting  principles to a specified  transaction,
either  completed  or  proposed;  or the type of  audit  opinion  that  might be
rendered on the Registrant's  financial  statements,  or any matter that was the
subject of a disagreement or a reportable event.


                                    PART III
                                    --------

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

(a)(b)(c)   Identification   of  directors,   executive   officers  and  certain
significant persons

                                                                Length of
Name                  Age      Offices held                     Service
----                  ---      ------------                     -------
Henry Fong            64       President, Treasurer,            Since Inception
                               Principal Executive
                               Financial and Accounting
                               Officer and Director

Thomas B. Olson       34       Secretary                        Since 1988

Russell L. Casement   56       Director                         Since 1989

Aaron A. Grunfeld     53       Director                         Since 1991

John Cahill           63       President - First                Since 1998
                               TeleServices Corp.

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

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

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

                                      -22-
<PAGE>

(d) Family relationships.

     Not applicable.

(e) Business experience.

HENRY  FONG
Mr. Fong has been the  President,  Treasurer and a director of the Company since
inception.  From 1987 to June 1997, Mr. Fong was chairman of the board and chief
executive officer of RDM Sports Group, Inc. (f/k/a Roadmaster Industries,  Inc.)
a publicly held investee of the Company and was its president and treasurer from
1987 to 1996.  Subsequent to Mr. Fong's  departure from RDM, it filed on Chapter
11  bankruptcy  petitions  for RDM and all of its  subsidiaries  with  the  U.S.
Bankruptcy  Court for the Northern  District of Georgia on August 29, 1997. From
July 1996 to October 1997, Mr. Fong was a director of IntraNet Solutions,  Inc.,
a publicly-held investee company which provides  internet/intranet  solutions to
Fortune 1000  companies  and was the chairman of the board and  treasurer of its
predecessor company, MacGregor Sports and Fitness, Inc. from February 1991 until
the two  companies  merged in July 1996.  From January 1993 to January 20, 1999,
Mr. Fong was chairman of the board and Chief Executive Officer of California Pro
Sports,  Inc., a publicly traded manufacturer and distributor of in-line skates,
hockey equipment and related  accessories.  From 1959 to 1982 Mr. Fong served in
various  accounting,  finance and budgeting positions with the Department of the
Air  Force.  During  the  period  from  1972 to 1981 he was  assigned  to senior
supervisory  positions at the  Department of the Air Force  headquarters  in the
Pentagon.  In 1978,  he was  selected to  participate  in the Federal  Executive
Development  Program  and in 1981,  he was  appointed  to the  Senior  Executive
Service.  In 1970 and 1971,  he attended the Woodrow  Wilson  School,  Princeton
University and was a Princeton  Fellow in Public Affairs.  Mr. Fong received the
Air Force  Meritorious  Civilian  Service Award in 1982. Mr. Fong has passed the
uniform  certified  public  accountant  exam. In March 1994, Mr. Fong was one of
twelve CEOs  selected as Silver  Award  winners in  FINANCIAL  WORLD  magazine's
corporate American "Dream Team."

THOMAS B. OLSON
Mr. Olson has been Secretary of the Registrant since January 1988. From February
1990 to February 2000,  Mr. Olson was a director,  and from May 1994 to February
2000  secretary,  of Immune  Response,  Inc. a  publicly  held  investee  of the
Registrant  which was recently merged with an unaffiliated  third party company.
Mr. Olson has attended  Arizona State  University and the University of Colorado
at Denver.

RUSSELL L. CASEMENT
Dr.  Casement has been a director of the Registrant  since February 1989.  Since
1969, Dr.  Casement has been the president of his own private  dental  practice,
Russell  Casement,  D.D.S.,  P.C., in Denver,  Colorado.  Dr.  Casement earned a
Doctor of Dental  Science  degree  from  Northwestern  University  in 1967.  Dr.
Casement is a member of the American  Dental  Association,  the Colorado  Dental
Association and the Metro Denver Dental Association.

AARON A. GRUNFELD
Mr.  Grunfeld has been a director of the  Registrant  since  November  1991. Mr.
Grunfeld  has been  engaged in the practice of law for the past 28 years and has
been of counsel to the firm of Resch,  Polster,  Alpert,  and Berger,  LLP,  Los
Angeles,  California  since November 1995. From April 1990 to November 1995, Mr.
Grunfeld was a member of the firm of Spensley Horn Jubas & Lubitz,  Los Angeles,
California. Mr. Grunfeld received an A.B. in Political Science from UCLA in 1968
and a J.D.  from Columbia  University in 1971. He is a member of the  California
Bar Association.

JOHN CAHILL
Mr. Cahill has been President of the Registrant's wholly owned subsidiary,  FTC,
since June 1, 1998. From 1992 to April 1998 Mr. Cahill was Senior Vice President
of  First  Data  Card  Services  Group.  Mr.  Cahill  has over  twenty  years of
experience in the bank card/credit card industry.

                                      -23-
<PAGE>

(f) Involvement in certain legal proceedings.

     Not applicable.

(g) Promoters and control persons.

     Not applicable.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
-------------------------------------------------------
     Section  16(a)  of the  Securities  Exchange  Act of  1934  ("Section  16")
requires the Registrant's officers,  directors and persons who own more than ten
percent of the Registrant's voting securities to file reports of their ownership
and changes in such ownership with the Securities and Exchange  Commission  (the
"Commission"). Commission regulations also require that such persons provide the
Registrant  with copies of all Section 16 reports  they file.  Based solely upon
its  review  of  such   reports   received   by  the   Registrant,   or  written
representations  from  certain  persons  that they were not required to file any
reports  under  Section 16, the  Registrant  believes  that,  during  1998,  its
officers and directors have complied with all Section 16 filing requirements.


ITEM 11. EXECUTIVE COMPENSATION.

(a) General.

    Henry Fong,  the  President  of the  Registrant  and the only officer of the
Registrant whose total compensation  exceeded $100,000 for the fiscal year ended
December 31, 1999, received an annual salary of $183,013. In January,  1998, the
Compensation  Committee  of the  Registrant's  board of  directors  retained  an
independent  consultant to review the President's  compensation.  As a result of
that  review,   a  new   compensation   arrangement  was  instituted   based  on
recommendations  made by the independent  consultant.  In addition to Mr. Fong's
annual  salary,  beginning  January 1, 1998,  Mr. Fong  receives an annual bonus
equaling 1% of the Registrant's total assets combined with 5% of the increase in
the market value of the Company's  common stock,  excluding  shares owned by the
President,  calculated  quarterly  from  January 1 to  December 31 of any fiscal
year. If there is a negative  computation in any given quarter, no bonus is paid
and that negative amount is carried  forward to offset the subsequent  quarter's
bonus  during the fiscal year.  Negative  amounts  will not be  accumulated  nor
carried into subsequent  fiscal years.  During the year ended December 31, 1999,
this bonus totaled  $883,164.  This new  compensation  arrangement  replaces the
previous bonus of 3% of the Registrant's total assets at year-end, which totaled
$151,153 for the year ended December 31, 1997.

    On April 1, 1992,  the  Registrant  obtained a life  insurance  policy  with
retirement  benefits for Mr. Fong, which pays his beneficiary  $2,600,000 in the
event of Mr. Fong's death or provides for retirement  benefits for Mr. Fong upon
his retirement at or after age 65 utilizing the cash value of the policy at that
time.  This  benefit  is being  provided  to Mr.  Fong in  consideration  of his
seventeen  years of service to the Registrant and in anticipation of his serving
the Registrant  until  retirement.  The  Registrant  has no other  retirement or
pension  plan for Mr.  Fong.  The annual  premium on this policy is $105,414 per
year for seven  years  until  March 30,  1999,  or such  other  period as may be
necessary  to  fully  fund  the  policy,  and  may be  considered  other  future
compensation  to Mr. Fong.  For the year ended  December 31, 1999,  $105,414 was
paid  toward the  policy  and an  additional  $59,586  was paid to Mr.  Fong for
deferred  income taxes on the policy.  Concurrently,  the Registrant  obtained a
Key-man Life Insurance policy which pays the Registrant  $3,000,000 in the event
of Mr. Fong's death. The Registrant paid $23,937 on this policy in 1999 which is
not considered compensation to Mr. Fong.

                                      -24-
<PAGE>

(b) Summary compensation table.

     The following table sets forth information  regarding  compensation paid to
the officers of the Registrant  during the years ended  December 31, 1999,  1998
and 1997:

                           SUMMARY COMPENSATION TABLE

                                                         Long-Term
                                                       Compensation
                           Annual Compensation            Awards
                      ----------------------------        ------
      (a)     (b)     (c)         (d)          (e)          (g)          (i)
                                              Other                      All
Name &                                        Annual                    Other
Principal            Salary      Bonus     Compensation   Options   Compensation
Position     Year     ($)         ($)          ($)       & SARs(#)       ($)
--------     ----     ---         ---          ---       ---------       ---

Henry Fong   1999    183,013      883,164       -0-        469,700    165,000(1)
President,
Treasurer
Principal
Executive
Officer and
Accounting
Officer

Henry Fong   1998    183,013    1,208,042       -0-        469,655    165,000(1)

Henry Fong   1997    183,013      151,153       -0-          -0-      165,000(1)

----------

(1)  Includes  payments  and tax  liability  on the  life  insurance  policy  as
explained more fully in "Item 10 (a) General" above.

(c) Option/SAR grants table.

                      OPTION/SAR GRANTS IN LAST FISCAL YEAR

                                                                      GRANT DATE
                          INDIVIDUAL GRANTS                              VALUE
(a)             (b)             (c)              (d)         (e)         (f)
             Number of
            Securities    Percent of total
            Underlying     options/ SARs       Exercise                  Grant
             Options/        granted to         of Base                  Date
               SARs         employees in         Price    Expiration     Present
Name        Granted (#)     Fiscal Year         ($/Sh)       Date       Value($)
----        -----------     -----------         ------       ----       --------
Henry Fong    469,700             47%           $6.75      1/4/2004    3,170,475

                                      -25-
<PAGE>

(d) Aggregated Option/SAR exercises and fiscal year-end Option/SAR value table.

               AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
                          AND FY-END OPTION/SAR VALUES

(a)                (b)             (c)             (d)                  (e)
                                                Number of
                                                Securities           Value of
                                                Underlying         Unexercised
                                                Unexercised        In-the-Money
                                                Options/SARs       Options/SARs
                 Shares                         at FY-End (#)      at FY-End (#)
              Acquired on         Value         Exercisable/       Exercisable/
Name          Exercise (#)     Realized ($)     Unexercisable      Unexercisable
----          ------------     ------------     -------------      -------------

Henry Fong       602,200         12,093,316       469,700/-0-       $587,125/-0-


(e) Long Term Incentive Plans -- awards in last fiscal year.

     Not applicable

(f) Defined benefit or actuarial plan disclosure.

     Not applicable.

(g) Compensation of directors.

     (1)Standard Arrangements

     Each  independent  member of the Registrant's  Board of Directors,  Messrs.
Russell L.  Casement  and Aaron A.  Grunfeld,  receive  $10,000 per year payable
monthly and $500 for each Board of Director's  meeting attended either in person
or by  telephone.  For the year ended  December 31, 1999,  Messrs.  Casement and
Grunfeld  each  received a total of $13,000.  Members of the Board of  Directors
also receive reimbursement for expenses incurred in attending board meetings.

     (2) Other Arrangements

     The  Registrant  adopted  the  1993  Stock  Option  Plan  for  Non-Employee
Directors (the  "Directors'  Plan")  reserving an aggregate of 250,000 shares of
Common  Stock for  issuance  pursuant  to the  exercise  of stock  options  (the
"Options") which may be granted to non-employee directors of the Registrant.  On
July 5, 1995,  an order was issued by the  Securities  and  Exchange  Commission
authorizing  the  Directors'  Plan  and  the  options  granted  thereunder.  The
Directors'  Plan was for a ten-year term commencing July 5, 1995 (the "Effective
Date"). Each non-employee director automatically,  as of the Effective Date, was
granted an option to purchase  50,000 shares of common stock at $3.00 per share.
This plan was  terminated  effective  with the creation of the 1999 Stock Option
Plan described below.

     On June 2,  1998,  the  Registrant's  board  of  directors  authorized  the
granting of 75,000 options to purchase common stock of the Registrant to each of
the  Registrant's  two independent  directors at $3.19 per share for a period of
five  years.  The  grant of these  options  was  contingent  upon the  Company's
successful  withdrawal  as a BDC.  On January 4, 1999 the  Registrant  filed for
withdrawal  as a BDC [see Part I, Item 1 (a) Business for a  description  of the
Registrant's withdrawal of its election as a BDC].

     On January 5, 1999, the Registrant's board of directors adopted a new stock
option plan,  the 1999 Stock Option Plan. On January 5, 1999,  the  Registrant's
two independent  directors each received  options to purchase  158,700 shares of
the  Registrant's  common stock at an exercise price of $6.75 per share expiring

                                      -26-
<PAGE>

on January 5, 2004.  These options were granted in lieu of the 75,000 options at
$3.19 per share  authorized on June 2, 1998,  which were canceled.  In addition,
each  director  received  86,800  options  to  purchase  86,800  shares  of  the
Registrant's common stock at an exercise price of $6.75 per share under the 1999
Plan.

(h) Employment  contracts and  termination  of employment and  change-in-control
arrangements.

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

(i) Report on repricing of Options/SARs

     Not applicable.

(j) Additional information with respect to Compensation Committee Interlocks and
Insider Participation in compensation decisions.

     The  Registrant's  Compensation  Committee for the year ended  December 31,
1999  consisted  of Mr.  Grunfeld  as  chairman  and Dr.  Casement  both of whom
continue to serve in that capacity. No member of the Compensation  Committee was
an officer or employee of the Registrant or any of its  subsidiaries  during the
year. No executive officer of the Registrant served on the board of directors of
any other entity with either member of the Compensation Committee.

(k) Board compensation committee report on executive compensation.

     In January,  1998, the Compensation  Committee of the Registrant's board of
directors   retained  an  independent   consultant  to  review  the  President's
compensation.  The compensation committee directed the consultant to review both
the President's salary and bonus structure.  The independent consultant analyzed
the compensation structure of the Registrant and compared it to the compensation
structures of companies similar to the Registrant. The consultant recommended no
change in the President's  salary.  The consultant did recommend a change in the
bonus  component of the  President's  compensation  from one based solely on the
assets of the  Registrant,  to one based  primarily  on  increases in the market
value of the Registrant's  common stock.  The Compensation  committee agreed and
directed the consultant to provide a  recommendation,  based on their  research,
for a bonus plan tied to the Registrant's market performance.

     As a result of that further  review,  the consultant  recommended an annual
bonus plan equaling 1% of the Registrant's  total assets combined with 5% of the
increase in the market  value of the  Registrant's  common stock not held by the
Registrant's President.  The bonus is calculated and paid quarterly from January
1 to  December  31 of  any  fiscal  year  based  on a  formula  provided  by the
consultant. The Compensation Committee feels this compensation arrangement, tied
primarily  to the market  performance  of the  Registrant's  common  stock while
including  incentives for increases in assets,  is the most equitable method for
compensating the Registrant's President. This provides a quantitative measure on
which to reward the  President's  performance,  by directly  emphasizing  market
performance,  which  correlates  directly with the expectations and goals of the
Registrant and its stockholders.

     During 1999, the Compensation Committee reviewed the compensation structure
and  determined no changes  should be made.  Although  this plan was  instituted
during  the  period in which  the  Registrant  was  operating  as an  investment
company,  the  Compensation  Committee  feels  it is no  less  valid  under  the
operating company structure. In reviewing any issues related to that change, the
Committee determined the 1% bonus based on total assets would be paid based upon
The Registrant's  assets prior to consolidation with any subsidiary.  No further
refinements were warranted.

                                      -27-
<PAGE>

Compensation Committee
----------------------
Russell L. Casement
Aaron A. Grunfeld


(i) Performance graph.


                      12/30/94  12/31/95  12/31/96  12/31/97  12/31/98  12/31/99
                      --------  --------  --------  --------  --------  --------
Nasdaq US              100.00    141.33    173.89    231.07    300.25    542.43
Nasdaq Financial       100.00    145.68    187.03    286.11    277.73    274.63
Equitex                100.00    133.33     92.09     41.30    349.21    406.35


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

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

     The  following  table  contains  information  at March 31, 2000,  as to the
beneficial  ownership of shares of the Registrant's  common stock by each person
who, to the knowledge of the Registrant at that date,  was the beneficial  owner
of five percent or more of the outstanding  shares of the class, each person who
is a director or executive  officer of the Registrant and all persons as a group
who  are  executive  officers  and  directors  of the  Registrant  and as to the
percentage of outstanding shares so held by them at March 31, 2000.

Name and address                  Amount and Nature of
of beneficial owner              Beneficial Ownership (1)       Percent of Class
-------------------              ------------------------       ----------------
Henry Fong                            1,154,544 (2)(3)                15.2%
7315 East Peakview Avenue
Englewood, Colorado 80111

Russell L. Casement                     402,900 (4)                    5.5%
1355 S. Colorado Blvd.
Suite 320
Denver, Colorado 80222

Aaron A. Grunfeld                       328,200 (5)                    4.4%
10390 Santa Monica Blvd
Fourth Floor
Los Angeles, California 90025

All officers and directors            1,946,944 (2)(3)(6)(7)          23.8%
as a group (four persons)

                                      -28-
<PAGE>

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

(2) Includes  469,700 shares  underlying  options granted under the Registrant's
1999 Stock Option Plan.

(3)  Includes  459,554  shares  owned by a  corporation  in which Mr. Fong is an
officer and director.

(4) Includes 36,400 shares  underlying  options  granted under the  Registrant's
1993 Stock Option Plan for Non- Employee Directors and 245,500 shares underlying
options granted under the Registrant's 1999 Stock Option Plan.

(5) Includes 50,000 shares  underlying  options  granted under the  Registrant's
1993 Stock Option Plan for Non- Employee Directors and 245,500 shares underlying
options granted under the Registrant's 1999 Stock Option Plan.

(7) Includes 86,400 shares  underlying  options granted under the Company's 1993
Stock Option Plan for Non- Employee  Directors and 1,000,000  shares  underlying
options granted under the Company's 1999 Stock Option Plan.

     The  Registrant's  does  not  know  of  any  arrangements,   including  the
Registrant's  proposed  acquisition of First  TeleBanc Corp. as described  under
Part I, Item 1.  Business,  the  operation of which may, at a  subsequent  date,
result in a change in control of the company.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

(a) Transactions with Management and Others.

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

     During  1998, a company in which the  Registrant's  President is an officer
and director  loaned the  Registrant a total of $165,000  which is due on demand
and bears  interest at 8% per annum.  Of that amount,  $22,672 was repaid during
1998 and the balance of $142,328 was repaid in November 1999.

     In addition,  a related  entity  loaned the  Registrant  $100,000 in August
1997. This loan carried an interest rate of 12% per annum, was due on demand and
was  collateralized  by  25,000  shares  of the  Registrant's  investment  in an
investee company's common stock. The Registrant paid $30,000 in principal due on
this note during 1998 and paid the balance of $70,000 in April 1999.

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

(b) Certain business relationships.

     Not applicable.

(c) Indebtedness of management.

     During 1998, Aaron Grunfeld, a director of the Registrant, purchased 39,200
shares of common  stock of the  Registrant  pursuant to a private  placement  at
$1.16 per share. In payment of the shares,  Mr. Grunfeld executed a note payable
to the  Registrant in the amount of $45,472,  which was due on December 15, 1998

                                      -29-
<PAGE>

and carried interest at 8% per annum. The due date on this note was subsequently
extended to February 15, 1999.  All  principal and interest due was paid on this
note prior to the extended expiration date.

     In August 1999, the Registrant loaned a director, Aaron Grunfeld, $180,000.
The note bears interest at 9.75% annually, is collateralized by 39,200 shares of
the Registrant's  common stock, and was originally due on November 18, 1999. The
note has been extended to June 30, 2000.  On January 10, 2000 Mr.  Grunfeld paid
all accrued  interest  through December 31, 1999. On April 4, 2000, Mr. Grunfeld
paid  $80,000 in  principal  and all  accrued  interest  through  March 31, 1999
leaving an unpaid principal balance of $100,000 as of that date.

(d) Transactions with promoters.

     Not applicable


                                      -30-
<PAGE>

                                     PART IV
                                     -------

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

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

                                                                            Page
                                                                            ----
1. Financial Statements and Supplementary Data

Independent auditors' report - Gelfond Hochstadt Pangburn, P.C.              F-1
-------------------------------------------------------------------- -----------
Report of Independent Certified Public Accountants -
Davis & Co. CPA's. P.C.                                                      F-2
-------------------------------------------------------------------- -----------
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
-------------------------------------------------------------------- -----------
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
-------------------------------------------------------------------- -----------
Consolidated statement of cash flows - year ended December 31, 1999         F-14
-------------------------------------------------------------------- -----------
Statements of cash flows - years ended  December 31, 1998 and 1997          F-16
-------------------------------------------------------------------- -----------
Notes to consolidated financial statements                                  F-18
-------------------------------------------------------------------- -----------

2. Financial Statements Schedules.

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


3. Exhibits.

3.1     Articles of Incorporation (1)
------- ------------------------------------------------------------------------
3.2     Bylaws (1)
------- ------------------------------------------------------------------------
10.1    1993 Stock Option Plan (2)
------- ------------------------------------------------------------------------
10.2    1993 Stock Option Plan for Non-Employee Directors (2)
------- ------------------------------------------------------------------------
10.3    Custody Agreement between Colorado National Bank and the Registrant (2)
------- ------------------------------------------------------------------------
10.4    1999 Stock Option Plan. (3).
------- ------------------------------------------------------------------------
21      List of Subsidiaries. Filed Herewith.
------- ------------------------------------------------------------------------
27.1    Financial Data Schedule. Filed Herewith
------- ------------------------------------------------------------------------

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

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

(3)  Incorporated  by reference  form the like numbered  exhibits filed with the
Registrant's Annual Report on Form 10-KSB for the year ended December 31, 1998.

(b) Reports on Form 8-K.

     On October 12, 1999, the  Registrant  filed a report on Form 8-K/A relating
to Items 2 and 7 amending the 8-K filed on August 12, 1999, to include financial
statements  of the business  acquired  (Victoria  Precision  Inc.) and pro forma
financial information.

     On November 4, 1999, the  Registrant  filed a report on Form 8-K/A relating
to Items 2 and 7  amending  the 8-K  filed on  September  8,  1999,  to  include
financial  statements of the business acquired (First Bankers Mortgage Services,
Inc. and subsidiary) and pro forma financial information.

                                      -31-
<PAGE>

 (c) Exhibits required by Item 601 of Regulation S-K

     See Item 14(a)(3) above.

(d) Financial statement schedules required by Regulation S-X

     Not applicable.

                                      -32-
<PAGE>

                                   SIGNATURES

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

Date: April 13, 2000                   EQUITEX, INC.
                                       (Registrant)

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

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

Date: April 13, 2000                   /S/ HENRY FONG
                                       -----------------------------------
                                       Henry Fong, President,
                                       Treasurer and Director
                                       (Principal Executive, Financial,
                                       and Accounting Officer)

Date: April 13, 2000                   /S/ RUSSELL L. CASEMENT
                                       -----------------------------------
                                       Russell L. Casement, Director

Date: April 13, 2000                   /S/ AARON A. GRUNFELD
                                       -----------------------------------
                                       Aaron A. Grunfeld, Director


                                      -33-
<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

     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
                                                                    ===========