<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15 (d)
---
of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 1995
or
Transition Report Pursuant to Section 13 or 15 (d)
---
of the Securities Exchange Act of 1934
For the Transition Period from _____ to _____
Commission File No. 0-19614
H.D. VEST, INC.
(Exact name of registrant as specified in its
charter)
Texas 75-2154244
-------------------------------- ------------------
(State or other jurisdiction of (IRS Employer ID.)
incorporation or organization)
433 E. Las Colinas Blvd., Third Floor, Irving, Texas 75039
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code (214) 556-1651
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class Exchange on which registered
---------------------------- -----------------------------
Common stock, $.05 par value NASDAQ National Market System
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such requirements for the
past 90 days.
Yes X No
----- -----
Number of shares of the registrant's Common Stock outstanding as of June 30,
1995: 5,413,370.
1
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H.D. VEST, INC.
INDEX
PART I. Financial Information Page No.
--------------------- --------
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial
Position--June 30, 1995 and
September 30, 1994 3-4
Consolidated Statements of Operations--
Three Months Ended June 30, 1995 and
June 30, 1994 5
Consolidated Statements of Operations--
Nine Months Ended June 30, 1995 and
June 30, 1994 6
Consolidated Statements of Cash Flows--
Nine Months Ended June 30, 1995 and
June 30, 1994 7
Notes to Consolidated Financial
Statements 8-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10-13
PART II. Other Information
-----------------
Signatures 14
2
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H.D. VEST, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
ASSETS
<TABLE>
<CAPTION>
June 30, September 30,
1995 1994
(Unaudited)
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $3,063,334 $4,193,240
Commissions and accounts
receivable 2,393,143 3,680,679
Receivable from affiliate 234,423 152,540
Notes receivable - related parties 461,448 214,783
Prepaid expenses 313,921 251,165
----------- -----------
Total current assets 6,466,269 8,492,407
----------- -----------
Property and equipment, net
of accumulated depreciation
of $1,780,135 at June 30,
1995, and $1,409,087 at September
30, 1994 1,300,601 1,602,573
Notes receivable - related parties 1,951,088 1,288,698
Other assets 1,198,528 953,174
----------- -----------
</TABLE>
$10,916,486 $12,336,852
=========== ===========
See accompanying notes to consolidated
financial statements.
3
<PAGE>
H.D. VEST, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
LIABILITIES AND SHAREHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
June 30, September 30,
1995 1994
(Unaudited)
----------- -----------
1995 1994
<S> <C> <C>
Current liabilities:
Accounts payable and accrued
expenses $ 2,247,859 $ 3,010,321
Amounts due on clearing
transactions 1,092,655 1,673,531
Commissions payable 2,124,793 2,391,139
Payable to officers and directors 201,834 405,400
----------- -----------
Total current liabilities 5,667,141 7,480,391
----------- -----------
Obligations under capital leases,
excluding current installments 412,392 543,848
Other noncurrent liabilities 319,605 483,331
Unearned revenues 284,416 1,190,387
Shareholders' investment:
Preferred stock, $6 par value;
250,067 shares outstanding 1,500,402 1,500,402
Common stock, $.05 par value;
100,000,000 shares authorized,
and 5,413,370 outstanding at
June 30, 1995 and 5,392,287
outstanding at September 30, 1994 270,680 269,614
Additional paid-in capital 5,051,321 4,982,387
Deficit (2,589,471) (4,113,508)
----------- -----------
Total shareholders' investment 4,232,932 2,638,895
----------- -----------
$10,916,486 $12,336,852
=========== ===========
</TABLE>
See accompanying notes to consolidated
financial statements.
4
<PAGE>
H.D. VEST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
Revenues:
Commissions $ 9,353,968 $11,237,705
Marketing and education fees 446,654 633,157
Portfolio management fees 834,376 427,411
Interest 89,945 47,084
Other 300,914 537,628
----------- -----------
Total revenues 11,025,857 12,882,985
----------- -----------
Expenses:
Commissions 6,876,490 8,031,603
General and administrative 2,501,796 4,260,404
Representative development 1,194,536 1,523,310
Representative recruiting 184,774 186,230
Interest 17,550 17,417
----------- -----------
Total expenses 10,775,146 14,018,964
----------- -----------
Net income (loss) before state
and federal income taxes 250,711 (1,135,979)
Provision for state and federal
income taxes - -
----------- -----------
Net income (loss) $ 250,711 $(1,135,979)
=========== ===========
Net income (loss) per common share $.04 $(.22)
=========== ===========
----
Weighted average number of
common shares outstanding 5,410,407 5,392,287
=========== ===========
</TABLE>
See accompanying notes to consolidated
financial statements.
5
<PAGE>
H.D. VEST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended June 30,
--------------------------
1995 1994
----------- -----------
<S> <C> <C>
Revenues:
Commissions $26,579,352 $33,098,347
Marketing and education fees 2,480,094 2,748,642
Portfolio management fees 2,240,263 1,107,111
Interest 254,839 129,517
Other 985,479 1,517,732
----------- -----------
Total revenues 32,540,027 38,601,349
----------- -----------
Expenses:
Commissions 19,561,510 23,955,413
General and administrative 7,609,087 10,236,848
Representative development 3,300,550 3,993,201
Representative recruiting 285,514 376,670
Interest 51,752 37,746
----------- -----------
-----
Total expenses 30,808,413 38,599,878
----------- -----------
Net income (loss) before state
and federal income taxes 1,731,614 1,471
Provision for state and federal
income taxes 111,925 93,000
----------- -----------
Net income (loss) $ 1,619,689 $ (91,529)
=========== ===========
Net income (loss) per common share $.28 $(.03)
=========== ===========
Weighted average number of
common shares outstanding 5,401,683 5,392,287
=========== ===========
</TABLE>
See accompanying notes to consolidated
financial statements
6
<PAGE>
H.D. VEST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended June 30,
--------------------------
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,619,689 $ (91,529)
Noncash items included in income -
Depreciation 371,048 283,011
Common stock award 70,000 -
Net changes in certain working
capital and other components
Commissions and accounts receivable 1,287,536 346,364
Receivable from affiliate (81,883) 60,418
Prepaid expenses (62,756) (79,134)
Payable to officers and directors (203,566) 217,217
Amounts due on clearing transactions (580,876) (91,943)
Accounts payable and accrued expenses (926,188) 960,188
Commissions payable (266,346) (11,817)
Unearned revenues (905,971) (726,710)
----------- -----------
Net cash provided by
operating activities 320,687 866,065
----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property and equipment (69,076) (366,181)
Additions to other assets (245,354) (108,192)
----------- -----------
Net cash used for
investing activities (314,430) (474,373)
----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Preferred stock dividends (95,652) (95,652)
Additions to notes receivable
-related parties (909,055) (1,015,175)
Payments on notes payable and
capital lease obligations (131,456) (171,560)
----------- -----------
Net cash used for
financing activities (1,136,163) (1,282,387)
----------- -----------
NET (DECREASE) IN CASH AND
CASH EQUIVALENTS (1,129,906) (890,695)
CASH AND CASH EQUIVALENTS,
September 30, 1994 and 1993 4,193,240 5,224,434
----------- -----------
CASH AND CASH EQUIVALENTS,
June 30, 1995 and 1994 $ 3,063,334 $ 4,333,739
=========== ===========
</TABLE>
See accompanying notes to consolidated
financial statements.
7
<PAGE>
H.D. VEST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1) Basis of Financial Statements
The accompanying unaudited consolidated financial statements have been prepared
in accordance with Rule 10-01 of Regulation S-X, "Interim Financial Statements",
and accordingly do not include all information and footnotes required under
generally accepted accounting principles for complete financial statements. The
financial statements have been prepared in conformity with the accounting
principles and practices as disclosed in the Company's Annual Report on Form 10-
K for the year ended September 30, 1994. In the opinion of management, these
interim financial statements contain all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the Company's
financial position as of June 30, 1995 and September 30, 1994, the results of
operations for the three and nine month periods ended June 30, 1995 and 1994,
and the cash flows for the nine month periods ended June 30, 1995 and 1994.
Results of operations for the interim period ended June 30, 1995, are not
necessarily indicative of the results that may be expected for the year ended
September 30, 1995. For additional information, refer to the consolidated
financial statements and footnotes included in the Company's Annual Report on
Form 10-K for the year ended September 30, 1994.
2) Officer Agreements
In April 1994, an Executive Vice President resigned from the Company. The
Company and the former officer entered into an agreement that provided for the
payment of $16,667 per month for a period of 30 months, in exchange for
restrictions on the use of company materials and information for a period of 48
months. In November 1994, the former officer rejoined the Company as President.
In connection with the officer's return, the agreement was terminated resulting
in the recognition of a $381,331 credit to general and administrative expense
for the unpaid balance during the quarter ended December 31, 1994.
3) Contingencies
During the fiscal year ended September 30, 1994, the Securities and Exchange
Commission (SEC) began an investigation of the Company's wholly owned broker-
dealer subsidiary, H.D. Vest Investment Securities, Inc. (HDVIS), relating to
the activities of a former Representative. In July 1995, concurrently with an
administrative proceeding instituted against HDVIS, the SEC
8
<PAGE>
and HDVIS entered into a settlement agreement. Pursuant to the agreement, HDVIS
paid a monetary sanction of $50,000 and agreed to modify its supervisory and
compliance procedures in accordance with the recommendations of an independent
consultant retained by the Company.
Additionally, during fiscal 1994, in connection with this matter, a group of
clients of the former Representative commenced a civil action against HDVIS and
the former Representative alleging violations of securities laws, fraud,
conversion and related causes of action. In June 1995, the Company agreed to
pay the plaintiffs approximately $450,000 as reimbursement of out-of-pocket
costs, plus interest. The Company believes approximately $250,000 of this
amount will be covered by a fidelity bond issued in favor of HDVIS. The
plaintiffs seek an additional unspecified amount of actual and punitive damages
not related to their actual economic losses. HDVIS is vigorously contesting the
plaintiffs' right to recover such damages to the extent they exceed actual
economic loss. During the fiscal year ended September 30, 1994, the Company
accrued expenses of $400,000 related to these matters.
4) Related-Party Transactions
During fiscal 1994, the Company entered into agreements to provide Herb D. Vest
and Barbara Howard-Vest revolving lines of credit in an amount not to exceed
$2,000,000 and $700,000, respectively. These lines of credit are collateralized
by the individual's unrestricted Company stock. The terms of the agreements
require that full payment of all outstanding principle and interest be made on
or before November 30, 2001. The agreements bear interest on unpaid principle
balances at an annual rate of 11%. At June 30, 1995, Herb D. Vest and Barbara
Howard-Vest had outstanding balances of approximately $1,963,528 and $312,741 in
principal, plus $123,187 and $13,080 of accrued interest, respectively.
5) Deferred Compensation Plan
During fiscal 1995 the Company filed a registration statement with the SEC to
(i) offer its Representatives the H.D. Vest Deferred Compensation Plan ("the
Plan") and (ii) register warrants issued in a prior offering of common stock.
Pursuant to the Plan, Representatives may forego current compensation, thus
postponing recognition of income otherwise currently taxable. The Plan obligates
the Company to pay the deferred compensation plus a matching contribution
following a deferral period selected in accordance with the Plan. The
registration statement was declared effective on May 8, 1995. The Company began
accepting deferrals on July 15, 1995.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Liquidity and Capital Resources
At June 30, 1995, the Company had net working capital of $799,128, a decrease
of $212,888 from the $1,012,016 of working capital at September 30, 1994. The
decrease in working capital is primarily the result of a decline in commission
revenues. Management believes that revenues during the nine months ended June
30, 1995, were negatively impacted by interest rates which made interest bearing
investments attractive to investors.
The Company's cash flows provided by operations decreased to $320,687 for the
nine months ended June 30, 1995 compared to cash flows provided by operations of
$866,065 during the nine months ended June 30, 1994. The decrease in cash
provided by operations is primarily the result of the decrease in unearned
revenues and payments of accounts payable and accrued expenses during the nine
months ended June 30, 1995, offset by a smaller increase in commissions
receivable resulting from the economic conditions previously mentioned.
Cash used for investing activities for the purchase of property and equipment
included costs incurred for furniture, fixtures and computer equipment. These
costs were $69,076 and $366,181 for the nine months ended June 30, 1995 and
1994, respectively. The additions to other assets of $245,354 during the nine
months ended June 30, 1995 include software development costs and other deferred
charges. The additions to other assets of $108,192 during the nine months ended
June 30, 1994, includes development of training programs for Representatives,
book development costs and software development costs.
Cash used for financing activities of $1,136,163 during the nine months ended
June 30, 1995, included advances on the lines of credit with Mr. Vest of
$942,795 and net payments by Ms. Howard-Vest on her line of credit of $33,740,
payments for capital lease obligations of $131,456 and preferred stock dividends
of $95,652. Cash used for financing activities of $1,282,387 during the nine
months ended June 30, 1994 included payments for capital lease obligations,
preferred stock dividends and advances on the lines of credit with Mr. Vest and
Ms. Howard-Vest.
10
<PAGE>
Results of Operations
Revenues-
The Company's revenues for the three months ended June 30, 1995, were
$11,025,857, a 14% decrease from the three months ended June 30, 1994. Revenues
for the nine months ended June 30, 1995 were $32,540,027, a 16% decrease from
the nine months ended June 30, 1994. Management believes that revenues were
negatively impacted by interest rates which made interest bearing investments
attractive to investors.
Portfolio management fees were $834,376 for the three months ended June 30,
1995, a 95% increase over the three months ended June 30, 1994. Portfolio
Management fees were $2,240,263 for the nine months ended June 30, 1995, a 102%
increase over the nine months ended June 30, 1994. As Representatives switch
client investment strategies from commission-based investments to fee-based
investments, commission revenue will be replaced by portfolio management fees.
The Company believes that in the short term, the decrease in commission revenues
will be greater than the increase in portfolio management fees. However,
portfolio management fees will be earned continuously on client funds that
remain invested in fee-based programs, compared to the one-time front-end sales
charge on most commission-based investments.
Net Income -
Net income for the three months ended June 30, 1995, was $250,711, an increase
of $1,386,690 compared to a net loss of $1,135,979 for the three months ended
June 30, 1994. Net income for the nine months ended June 30, 1995 was
$1,619,689, compared to a net loss of $91,529 for the nine months ended June 30,
1994. The increase in net income is a result of measures taken by the Company
to improve operating efficiencies during the current fiscal year and one time
charges incurred in fiscal 1994.
General and administrative expenses decreased by $1,758,608 to $2,501,796 for
the three months ended June 30, 1995, compared to the same period for the prior
year. General and administrative expenses were $7,609,087 for nine months ended
June 30, 1995, a decrease of $2,627,761 from the prior year. The decrease in
general and administrative expenses is due in part to one time charges for
severance expenses that were incurred during the nine months ended June 1994 and
to a credit of $381,331 related to these severance expenses during the nine
months ended June 30, 1995. In addition, the Company has taken steps to improve
operating efficiencies and reduce general and administrative expenses.
Representative development costs for the three months ended June 30, 1995, were
$1,194,536, a 22% decrease from development costs of
11
<PAGE>
$1,523,310 for the three months ended June 30, 1994. Representative development
costs for the nine months ended June 30, 1995, were $3,300,550 compared to
$3,993,201 for the prior year. This reduction in Representative development
costs in 1995 is a result of measures taken by the Company to evaluate the costs
and effectiveness of past training programs. These cost reductions and program
modifications enabled the Company to reduce development expenses while
establishing more cost effective development programs such as:
Regional Support System (RSS)
-----------------------------
The RSS program is designed to provide Representatives with local support in
all aspects of financial planning including sales and marketing training, and
time and practice management. Each RSS group is led by an H.D. Vest
Representative. The RSS program is built around Foundation Teams(for
Representatives seeking to achieve $25,000 in gross revenue), Chapters (which
are similar to the Foundation Teams except that they are held in larger
workshop formats) and Summit Teams (for Representatives above the $25,000
rolling gross revenue threshold). Each month 110 Chapter and 52 Foundation
team meetings are held nationwide.
Total Client Commitment (TCC) program
-------------------------------------
The TCC program reflects the Company's belief that H.D. Vest Representatives
have a continuing obligation to provide comprehensive, knowledge-based
services to their clients in a professional and ethical manner. To support the
Representatives in fulfilling this obligation, the Company is providing a wide
range of educational tools including newsletters, audiotapes, direct marketing
programs and success training. Additional programs include Client Appreciation
Week, Client Service Awards, and the H.D. Vest Merit Scholarship program for
children of H.D. Vest investment clients.
Partners for Success (PFS) program
----------------------------------
The PFS program offers successful H.D. Vest Representatives the opportunity to
work with low-producing Representatives to generate a new source of revenue,
while providing the low-producing Representatives the opportunity to increase
their revenue stream with little effort, time or money.
The Rep Desktop program
-----------------------
The Rep Desktop program is designed to provide H.D. Vest Representatives with
an innovative and integrated office management system. A key component of the
program features an automated contact management system and new communication
system which will be the cornerstone of the Rep Desktop.
Representative recruiting costs for the three months ended June 30, 1995 were
$184,774, compared to recruiting costs of $186,230 for the three months ended
June 30, 1994. Representative recruiting costs for the nine months ended June
30, 1995 were $285,514, a 24% decrease from recruiting costs of $376,670 for the
prior year. This change in recruiting cost is related to a more efficient use of
12
<PAGE>
direct mail and an increased emphasis on the Company's referral related programs
for Representative recruitment. To the extent that the Company decides in the
future to devote significant resources to rapidly expand its Representative base
through aggressive recruiting activities, future profitability would likely be
negatively impacted.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
H. D. VEST, INC.
-------------------------
(Registrant)
Date: August 14, 1995 By: s\ Herb D. Vest
------------------------
Herb D. Vest
Chief Executive Officer,
Chairman of the Board
Date: August 14, 1995 By: s\ Wesley Ted Sinclair
------------------------
Wesley Ted Sinclair
Chief Financial Officer,
Vice President (Principal
Financial and Accounting
Officer)
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 3RD QUARTER
10-Q AND IS QUALIFIED IN ITS ENTIRETY TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 3,063,334
<RECEIVABLES> 5,040,102
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 0
<PP&E> 2,499,129
<TOTAL-ASSETS> 10,916,486
<SHORT-TERM> 0
<PAYABLES> 5,667,141
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 731,997
<COMMON> 270,680
0
1,500,402
<OTHER-SE> 2,461,850
<TOTAL-LIABILITY-AND-EQUITY> 10,916,486
<TRADING-REVENUE> 0
<INTEREST-DIVIDENDS> 254,839
<COMMISSIONS> 26,579,352
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 2,240,263
<INTEREST-EXPENSE> 51,752
<COMPENSATION> 19,561,510
<INCOME-PRETAX> 1,731,614
<INCOME-PRE-EXTRAORDINARY> 1,619,689
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,619,689
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
</TABLE>
