<PAGE>
UNITED STATES
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, 1999
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)
6333 North State Highway 161, Fourth Floor, Irving, Texas 75038
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code (972) 870-6000
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,
1999: 5,423,341.
1
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H.D. VEST, INC.
INDEX
PART I. Financial Information (Unaudited) Page(s)
--------------------- -------
Item 1. Financial Statements
Consolidated Statements of Financial
Position - June 30, 1999 and
September 30, 1998 3-4
Consolidated Statements of Operations -
Three Months Ended June 30, 1999 and
June 30, 1998 5
Consolidated Statements of Operations -
Nine Months Ended June 30, 1999 and
June 30, 1998 6
Consolidated Statements of Cash Flows -
Nine Months Ended June 30, 1999 and
June 30, 1998 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
-----------------
Item 1. Legal Proceedings 14
Item 4. Submission of Matters to a Vote
of Shareholders 15
Item 5. Other Information 15-17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
2
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Part I. Financial Information
- ------------------------------
Item 1. Financial Statements (Unaudited)
- ------------------------------------------
H.D. VEST, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
ASSETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, September 30,
1999 1998
----------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,169,146 $ 9,204,362
Commissions and accounts
receivable 8,535,027 9,201,486
Notes receivable-
related parties - 97,159
Receivable from affiliate 223,798 138,496
Prepaid and other assets 1,018,842 739,061
----------- -----------
Total current assets 17,946,813 19,380,564
----------- -----------
Property and equipment, net
of accumulated depreciation
of $3,541,151 at June 30,
1999 and $2,194,457 at
September 30, 1998 6,854,872 6,313,281
Notes receivable - related parties,
net of current portion - 349,409
Intangible and other assets, net
of accumulated amortization of
$1,290,178 at June 30,
1999 and $906,545 at
September 30, 1998 3,597,591 3,067,772
----------- -----------
$28,399,276 $29,111,026
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
3
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H.D. VEST, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
LIABILITIES AND SHAREHOLDERS' INVESTMENT
(Unaudited)
<TABLE>
<CAPTION>
June 30, September 30,
1999 1998
----------- -------------
<S> <C> <C>
Current liabilities:
Accounts payable and accrued
expenses $ 5,821,242 $ 8,679,663
Amounts due on clearing
transactions 236,567 469,462
Commissions payable 6,525,903 4,839,345
----------- -----------
Total current liabilities 12,583,712 13,988,470
----------- -----------
Obligations under capital leases,
excluding current installments 2,265,508 2,506,506
Other noncurrent liabilities 4,768,255 2,946,702
Unearned revenues 654,793 1,279,410
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;
5,423,341 issued and outstanding 271,167 271,167
Additional paid-in capital 5,154,934 5,154,934
Retained earnings 1,200,505 1,463,435
----------- -----------
Total shareholders' investment 8,127,008 8,389,938
----------- -----------
$28,399,276 $29,111,026
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
4
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H.D. VEST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
----------------------------
1999 1998
-------------- ------------
<S> <C> <C>
Revenues:
Commissions $31,500,924 $28,458,369
Portfolio management fees 5,682,221 4,573,678
Marketing and education fees 2,317,827 1,831,259
Facility and service fee from
affiliate 25,573 118,081
Interest and other 240,551 247,247
----------- -----------
Total revenues 39,767,096 35,228,634
----------- -----------
Expenses:
Commissions 22,988,682 20,255,527
Portfolio management fees 3,939,091 3,028,732
General and administrative 8,753,404 6,987,486
Representative development 2,895,859 2,245,225
Representative recruiting 1,117,042 698,446
Interest 75,554 78,868
----------- -----------
Total expenses 39,769,632 33,294,284
----------- -----------
Income (loss) before taxes (2,536) 1,934,350
Income taxes 199,644 791,189
----------- -----------
Net income (loss) $ (202,180) $ 1,143,161
=========== ===========
Net income (loss) per
common share-basic and diluted $(0.04) $0.20
=========== ===========
Weighted average number of
common shares outstanding 5,423,341 5,423,341
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
5
<PAGE>
H.D. VEST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended June 30,
--------------------------
1999 1998
------------ -----------
<S> <C> <C>
Revenues:
Commissions $ 84,582,969 $69,988,343
Portfolio management fees 15,780,151 12,082,196
Marketing and education fees 8,176,798 6,132,662
Facility and service fee from
affiliate 304,315 515,431
Interest and other 753,221 774,106
------------ -----------
Total revenues 109,597,454 89,492,738
------------ -----------
Expenses:
Commissions 62,384,252 49,770,639
Portfolio management fees 11,068,533 7,940,011
General and administrative 25,988,245 20,326,968
Representative development 7,609,586 6,293,916
Representative recruiting 2,206,131 1,580,819
Interest 274,389 191,077
------------ -----------
Total expenses 109,531,136 86,103,430
------------ -----------
Income before taxes 66,318 3,389,308
Income taxes 233,596 1,379,429
------------ -----------
- -
Net income (loss) $ (167,278) $ 2,009,879
============ ===========
Net income(loss)per common share
- basic $ (0.05) $ 0.35
============ ===========
Net income(loss)per common share
- diluted $ (0.05) $ 0.34
============ ===========
Weighted average number of
common shares outstanding 5,423,341 5,423,341
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
6
<PAGE>
H.D. VEST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended June 30,
--------------------------
1999 1998
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (167,278) $ 2,009,879
Noncash items included in income:
Depreciation and amortization 1,730,327 968,875
Deferred tax liability 774,927 -
Loss on disposal of assets 6,792 164,996
Deferred rent 103,221 -
Changes in assets and liabilities:
Commissions and accounts receivable 666,459 (927,712)
Receivable from affiliate (85,302) (60,050)
Prepaid and other assets (279,781) (412,376)
Amounts due on clearing transactions (232,895) (151,653)
Accounts payable and accrued expenses (3,073,601) 841,173
Commissions payable 1,686,558 2,027,300
Unearned revenues (624,617) (981,577)
----------- -----------
Net cash provided by operating activities 504,810 3,478,855
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (308,725) (1,318,862)
Proceeds from sale of assets - 48,670
Costs to acquire/develop software (1,632,920) (1,905,309)
Additions to other assets (2,200) (210,282)
----------- -----------
Net cash used for investing activities (1,943,845) (3,385,783)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contribution - 41,600
Preferred stock dividends (95,652) (95,652)
Proceeds from deferred compensation plan 1,092,957 1,092,740
Payments on deferred compensation plan (139,934) -
Advances on notes receivable
-related parties - (473,514)
Payments received on notes receivable
-related parties 446,568 2,757,035
Payments on capital lease
obligations (900,120) (559,379)
----------- -----------
Net cash provided by financing activities 403,819 2,762,830
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (1,035,216) 2,855,902
CASH AND CASH EQUIVALENTS,
September 30, 1998 and 1997 9,204,362 6,384,992
----------- -----------
CASH AND CASH EQUIVALENTS,
June 30, 1999 and 1998 $ 8,169,146 $ 9,240,894
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
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/A for the year ended September 30, 1998. 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, 1999, and September 30, 1998, the results of
operations for the three and nine month periods ended June 30, 1999 and 1998,
and the cash flows for the nine month periods ended June 30, 1999 and 1998.
Results of operations for the interim period ended June 30, 1999, are not
necessarily indicative of the results that may be expected for the year ended
September 30, 1999. For additional information, refer to the consolidated
financial statements and footnotes included in the Company's annual report on
Form 10-K/A for the year ended September 30, 1998.
Certain reclassifications have been made to prior year's statements in order for
the amounts to be comparable with the current year presentation.
2) Related-Party Transactions
Herb D. Vest, Chairman of the Board of Directors, Chief Executive Officer and
President of H.D. Vest, Inc. (the Company), purchased approximately 1.4 million
shares of the Company's common stock from Barbara Vest Hancock, the Company's
Executive Manager of Representative Relations and a member of the Board of
Directors. With the acquisition (completed during April 1999), Mr. Vest owns
over 4 million of approximately 5.4 million currently outstanding shares, or
approximately 75% of the Company's issued and outstanding common stock.
3) Earnings Per Share
Basic earnings per share (basic EPS) is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding.
The number of shares used to compute basic EPS for the three and nine months
ended June 30, 1999 and 1998, was 5,423,341. Diluted earnings per share
(diluted EPS) is computed similarly to the computation of basic EPS except that
the denominator is increased to include the number of additional common shares
that would have been outstanding if the potential dilutive common shares had
been issued. The number of shares used to compute diluted EPS for
8
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the three and nine months ended June 30, 1999 and 1998 was 5,423,341 and
5,555,439, respectively.
Options to purchase 53,948 shares of common stock at prices ranging from $7.63
to $8.50 per share were outstanding during the three and nine months ended June
30, 1999. Options to purchase 95,454 shares of common stock at $8.50 per share
were outstanding during the three and nine months ended June 30, 1998 and June
30, 1999. These options were not included in the computation of diluted EPS
because the options' exercise price was greater than the average market price of
outstanding common shares.
There were 250,067 shares of Non-voting Series A Convertible Preferred Stock
outstanding during the three and nine months ended June 30, 1999, and 1998 that
were not included in the number of shares used to compute diluted EPS for the
period because the conversion had an anti-dilutive effect on EPS.
4) Commitments and Contingencies
Beginning in September 1997, claims were made and litigation was initiated
against the Company or its subsidiary, H.D. Vest Investment Securities, Inc., in
regard to the activities of a former Registered Representative. As of September
30, 1998, claimants sought recovery for alleged out-of-pocket losses totaling
approximately $990,000. During the nine months ended June 30, 1999, additional
claims of approximately $350,000 were made against the Company or H.D. Vest
Investment Securities, Inc.
As of September 30, 1998, the Company paid approximately $260,000 in settlement
of approximately $550,000 of the pending claims, and paid an additional $45,000
in settlement of an estimated $270,000 in unasserted claims. During the nine
months ended June 30, 1999, the Company paid approximately $592,000 to settle
approximately $790,000 in pending claims, and paid approximately $52,000 in
settlement of an estimated $140,000 in unasserted claims. On April 14, 1999, the
Company paid approximately $45,000 to settle an additional claim of
approximately $104,000 related to this matter. These settlements disposed of
the pending litigation and pending claims related to the matter described above.
The Company is unable to determine whether additional material claims arising
from this Registered Representative's conduct will be asserted against the
Company or its subsidiaries. Although the Company believes that a defense to
any additional claims exists, and could vigorously defend such claims if
necessary, the Company could be adversely impacted if additional claims arise.
The Company is subject to other legal proceedings and claims that have arisen in
the ordinary course of its business and have not been finally adjudicated.
Management believes, based on the advice of legal counsel responsible for such
matters, that these actions, when finally concluded and determined, will not
have a material adverse effect upon the financial position of the Company.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
- -------------
Liquidity and Capital Resources
At June 30, 1999, the Company had net working capital of $5,363,101 compared to
net working capital of $5,392,094 at September 30, 1998. The $28,993 decrease
is primarily a result of the net loss incurred for the nine months ended June
30, 1999. The net loss for the period is due in part to lower than expected
revenues for the three months ended June 30, 1999, and costs incurred for the
continued acquisition and development of computer systems.
The Company's revenues for the three months ended June 30, 1999, increased by 13
% from the same period last year, compared to a 29% increase in revenues for the
six months ended March 31, 1999. Management believes that the lower revenue
growth for the three months ended June 30, 1999, is the result of an industry-
wide reduction in equity mutual fund investments. The Investment Company
Institute reported that the Mutual Fund Industry's net new cash flow from equity
mutual funds for the three months ended June 30, 1999, declined by 6.3%.
Management believes that the Company's focus on fee-based programs and
Representative recruitment and development helped to offset the effects of this
industry-wide decline.
During the first nine months of fiscal 1999, the Company dedicated much of its
capital to the continued development of new information systems for transaction
processing and to costs incurred for the ongoing implementation of other
computer systems related to its operating and marketing efforts. These other
operating systems include the Company's new Representative contact management
system and enhancements to the Company's internet site. In addition to these
internally developed systems, the Company incurred costs related to the
implementation of new accounting and human resource systems. Management believes
that this dedication to information systems will provide the Company with more
capacity to manage its current growth, support future growth and will lead to an
increase in efficiency.
In December 1998, Barbara Vest Hancock, executive manager of Representative
Relations, paid in full the outstanding principal balance, together with the
accrued interest, of her revolving line of credit from the Company. At June 30,
1999, Ms. Vest had no outstanding principal or accrued interest due on this
line.
Management believes that, in addition to external financial resources (primarily
leases), the Company's cash flow is sufficient to maintain its current
operations as well as its continued growth plan.
10
<PAGE>
Results of Operations
Revenues
The Company's revenues for the three months ended June 30, 1999, were
$39,767,096, a 13% increase over the Company's revenues for the three months
ended June 30, 1998. The Company's revenues for the nine months ended June 30,
1999, were $109,597,454, a 22% increase over the Company's revenues for the nine
months ended June 30, 1998.
The Company's revenues for the three months ended June 30, 1999, increased by 13
% from the same period last year, compared to a 29% increase in revenues for the
six months ended March 31, 1999. Management believes that the lower revenue
growth for the three months ended June 30, 1999, is the result of an industry-
wide reduction in equity mutual fund investments. The Investment Company
Institute reported that the Mutual Fund Industry's net new cash flow from equity
mutual funds for the three months ended June 30, 1999, declined by 6.3%.
Management believes that the Company's focus on fee-based programs and
Representative recruitment and development helped to offset the effects of this
industry-wide decline.
Due to the declining industry-wide trend of commission revenue as a percentage
of gross product sales, the Company has continued to devote resources to the
development of its fee-based programs. Fee-based programs produce revenue based
on quarterly charges to clients for the management of their accounts, whereas
commission-based services produce revenue based primarily on one-time front-end
sales charges for the purchase of products. Some clients may prefer fee-based
programs as opposed to more traditional commission-based services. The Company
hopes to maximize revenue by making both fee-based and commission-based services
available to customers. For the three months ended June 30, 1999, portfolio
management fees from these programs were $5,682,221, a 24% increase from the
three months ended June 30, 1998. Portfolio management fees were $15,780,151 for
the nine months ended June 30, 1999, a 31% increase over portfolio management
fees for the nine months ended June 30, 1998.
Net Income
The Company had a net loss of $202,181 for the three months ended June 30, 1999,
compared to net income of $1,143,161 for the three months ended June 30, 1998.
The Company had a net loss of $167,278 for the nine months ended June 30, 1999,
a decrease of $2,177,157 compared to net income of $2,009,879 for the nine
months ended June 30, 1998.
Net income for the three months ended June 30, 1999, decreased from the prior
year due in part to a 13% increase in commission expense and a 30% increase in
portfolio management fee expense. Net income for the nine months ended June 30,
1999, decreased from the comparable period in the prior year due in part to a
25% increase in commission expense and a 39% increase in portfolio management
fee expense. Commission and portfolio management fee expense increased at a
faster
11
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rate than the related revenue due primarily to Representatives moving into
higher payout categories as well as increased production from Representatives in
higher payout categories. Management believes that in periods of short-term
economic fluctuations, established Representatives have an advantage over less
experienced Representatives in selling investment products. As the Company
recruits and trains Representatives in lower payout categories, the revenue
generated by these Representatives will help to offset increased revenue by
Representatives in higher payout categories.
General and administrative expenses increased 25% to $8,753,404 for the three
months ended June 30, 1999, compared to the prior year. For the nine months
ended June 30, 1999, general and administrative expenses increased by 28% to
$25,988,245 compared to the same period for the prior year. The increase in
general and administrative expenses is directly related to the increase in
revenue, in that additional staffing is retained to support the revenue growth
and projected increases in operating levels. General and administrative expense
is also impacted by increased noncapitalizable costs to improve the Company's
utilization of technology. As the Company implements new computer systems, work
must be processed both in the existing systems and the new systems being
developed. Management believes that as the new systems enter production and the
need to process in two systems is eliminated, those costs should return to
normal operating levels.
Representative development costs for the three months ended June 30, 1999 were
$2,895,859, a 29% increase compared to the prior year. For the nine months ended
June 30, 1999, Representative development costs were $7,609,586, a 21% increase
over development costs of $6,293,916 for the nine months ended June 30, 1998.
The increase in Representative development costs is mainly due to increased
participation by Representatives and the expansion of staff necessary to support
participation in these programs. The increase in participation by
Representatives and the related costs is directly attributable to the increased
recruitment of new Representatives. As additional Representatives are recruited,
the Company expects participation and the related costs in development programs
to continue to increase.
Representative recruiting costs for the three months ended June 30, 1999, were
$1,117,041, a 60% increase compared to the prior year. For the nine months ended
June 30, 1999, recruiting costs were $2,206,131, a 40% increase compared to
recruiting costs of $1,580,819 for the nine months ended June 30, 1998. The
increase in recruiting costs are the result of an increase in direct mail and
other recruiting methods used to contact prospective Representatives. 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.
Certain sections of this Management's Discussion and Analysis of Financial
Condition and Results of Operations include forward-looking statements that
involve a number of risks and uncertainties. In addition to the factors
described above, among other factors that could cause actual results to differ
materially include: drastic changes in market conditions; effects of new
technology; interest rates; the Year 2000 compliance and readiness of the
Company's suppliers and service providers; changes of the availability of
12
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prospective representatives; and the risks described from time to time in the
Company's SEC reports, including but not limited to the report on Form 10-K for
the year ended September 30, 1998.
13
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PART II OTHER INFORMATION
- --------------------------
Item 1. Legal Proceedings
- --------------------------
Beginning in September 1997, claims were made and litigation was initiated
against the Company or its subsidiary, H.D. Vest Investment Securities, Inc., in
regard to the activities of a former Registered Representative. As of September
30, 1998, claimants sought recovery for alleged out-of-pocket losses totaling
approximately $990,000. During the nine months ended June 30, 1999, additional
claims of approximately $350,000 were made against the Company or H.D. Vest
Investment Securities, Inc.
As of September 30, 1998, the Company paid approximately $260,000 in settlement
of approximately $550,000 of the pending claims, and paid an additional $45,000
in settlement of an estimated $270,000 in unasserted claims. During the nine
months ended June 30, 1999, the Company paid approximately $592,000 to settle
approximately $790,000 in pending claims, and paid approximately $52,000 in
settlement of an estimated $140,000 in unasserted claims. On April 14, 1999, the
Company paid approximately $45,000 to settle an additional claim of
approximately $104,000 related to this matter. These settlements disposed of
the pending litigation and pending claims related to the matter described above.
The Company is unable to determine whether additional material claims arising
from this Registered Representative's conduct will be asserted against the
Company or its subsidiaries. Although the Company believes that a defense to
any additional claims exists, and could vigorously defend such claims if
necessary, the Company could be adversely impacted if additional claims arise.
The Company is subject to other legal proceedings and claims, which have arisen
in the ordinary course of its business and have not been finally adjudicated.
Management believes, based on the advice of legal counsel responsible for such
matters, that these actions, when finally concluded and determined, will not
have a material adverse effect upon the financial position of the Company.
14
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Item 4. Submission of Matters to a Vote of Shareholders
- --------------------------------------------------------
The annual meeting of shareholders of the Company was held on June 4, 1999 at
the Ernest N. Morial Convention Center in New Orleans, Louisiana. Matters voted
on and approved by the Company's Shareholders at the meeting included the re-
election of Herb D. Vest as Chairman of the Board of Directors, the re-election
of Barbara Vest Hancock, Kenneth E. Reynolds, Jack B. Strong, Jerry M. Prater,
Phillip W. Mayer and Kenneth R. Petree as Directors of the Company. Additionally
brought to a vote at this meeting was the approval of Arthur Andersen LLP as the
Company's independent public accountants for the ensuing year. Below is a list
of the items brought to a vote at the annual shareholder meeting and the
distribution of votes.
<TABLE>
<CAPTION>
Matter Voted Voted For Voted Against Abstained Non-vote
- ------------------------------- --------------- ---------------------- --------------- ---------------
Directors
<S> <C> <C> <C> <C>
Herb D. Vest 5,207,967 - 23,960 191,414
Barbara Vest Hancock 5,137,930 - 93,997 191,414
Jack B. Strong 5,213,167 - 18,760 191,414
Kenneth E. Reynolds 5,213,167 - 18,760 191,414
Jerry M. Prater 5,213,167 - 18,760 191,414
Phillip W. Mayer 5,213,167 - 18,760 191,414
Kenneth R. Petree 5,213,167 - 18,760 191,414
Independent Auditors 5,208,274 21,000 2,653 191,414
</TABLE>
Item 5. Other Information
- --------------------------
The following information is a Year 2000 Readiness Disclosure
The Company recognizes the need to ensure that its operations will not be
adversely impacted by "Year 2000" systems failures. Year 2000 issues arise
because some computer software and hardware products ("computer systems") were
designed to handle only a two-digit year, not a four-digit year (e.g., 1997 is
seen by the computer as "97"). When the year 2000 begins, these computer systems
may interpret "00" as the year 1900 and not 2000, and could either stop
processing date-related computations or process them incorrectly.
In order to minimize the impact of the Year 2000 on the Company, a Year 2000
plan has been established for the evaluation and management of risks associated
with material Year 2000 issues. The plan includes a review of material computer
systems that the Company currently has in place, modification or replacement of
such systems if required, inquiry to third-party providers with whom the Company
has material business relationships as to their state of readiness for potential
Year 2000 issues, and the development of contingency plans in the event material
Year 2000 issues arise in Company or third-party computer systems.
The Company has identified all mission-critical computer systems as of June 30,
1999 and completed its testing of those systems. The Company has made any
required modifications to all but one system. The Company
15
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anticipates that required modifications to this latter system will be completed
by September 30, 1999. During the fiscal year ended September 30, 1998, the
Company expended approximately $100,000 to address potential Year 2000 issues,
exclusive of costs associated with previously scheduled modifications or
replacements unrelated to Year 2000 issues. The Company anticipates spending
approximately $150,000 for testing, modification and replacement of its computer
systems related to Year 2000 issues during the fiscal year ending September 30,
1999.
Based on current and anticipated operating needs, many of the Company's mission-
critical computer systems have recently been replaced with more technologically
advanced versions. Each new system has been reviewed for Year 2000 compliance.
The computer systems that have been or are in the process of being replaced,
include, but are not limited to, the Company's investment processing system,
accounting system, human resources and payroll system, work station and network
operating systems, and systems used to communicate with the Company's
Representatives. The remaining computer systems, including but not limited to
phone equipment and general office equipment, have been reviewed for Year 2000
compliance as part of the overall plan for testing and modification discussed
above.
In addition to reviewing its own computer systems, the Company has communicated
with material third-party providers, including but not limited to suppliers,
product sponsors, financial institutions, facility owners and other companies
with which the Company has material business relationships in order to assess
these companies' state of Year 2000 readiness. The Company has requested, among
other things, disclosure of the companies' plans for minimizing the impact of
the Year 2000 on their computer systems and the Company. As of June 30, 1999,
the Company has not received from any third-party provider with which a material
business relationship exists notice of a material Year 2000 issue or inability
to address material Year 2000 issues prior to the Year 2000. The Company is
generally not in a position to verify whether third-party service providers are
or will become Year 2000 ready apart from such assurances or until a Year 2000
issue arises.
Management does not anticipate a material effect on business operations as a
result of Year 2000 computer system issues. As a precaution, however, the
Company has developed a contingency plan for business operations in the event
material Year 2000 issues arise in the Company's or third-party computer
systems. In the event material issues arise, the Company is prepared to conduct
business, particularly the processing of investment transactions, utilizing
manual processes and third-party, off-site, computer systems and back-up data
routinely archived by the Company. The Company anticipates that the cost of
conducting business utilizing the Company's contingency plans would be higher
than conducting business utilizing current and anticipated operational plans,
although the Company is unable to estimate potential cost increases in this
regard.
16
<PAGE>
In the event the Company receives notice from a material third-party provider as
to a potential Year 2000 issue affecting the Company, or a material Year 2000
issue arises as to a third party, the Company anticipates minimizing potential
business interruptions by shifting mission-critical functions, including but not
limited to products sold or recommended by the Company's subsidiaries, to third-
party providers demonstrating Year 2000 compliance.
To the extent the Company or third-party providers cannot correct material Year
2000 issues, and the Company is unable to efficiently conduct business in
accordance with its anticipated contingency plans, operations of the Company
could be negatively impacted.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
On April 19, 1999, an Item 5 8-K was filed stating that Herb D. Vest, Chairman
of the Board of Directors, Chief Executive Officer and President of H.D. Vest,
Inc. (the Company), purchased approximately 1.4 million shares of the Company's
common stock from Barbara Vest Hancock, the Company's executive manager of
Representative Relations, and a member of the Board of Directors.
17
<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 13, 1999 By: s\ Herb D. Vest
-----------------------------
Herb D. Vest
Chief Executive Officer,
Chairman of the Board
Date: August 13, 1999 By: s\ Wesley Ted Sinclair
-----------------------------
Wesley Ted Sinclair
Chief Financial Officer,
Vice President (Principal
Financial and Accounting
Officer)
18
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