<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, 2000
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 I.D.)
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 July 31,
2000: 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, 2000 and September 30, 1999 3-4
Consolidated Statements of Operations
Three Months Ended June 30, 2000 and
June 30, 1999 5
Consolidated Statements of Operations
Nine Months Ended June 30, 2000 and
June 30, 1999 6
Consolidated Statements of Cash Flows
Nine Months Ended June 30, 2000 and
June 30, 1999 7
Notes to Consolidated Financial Statements
8-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 13-15
PART II. Other Information
-----------------
Item 1. Legal Proceedings 16
Item 4. Submission of Matters to a Vote
of Shareholders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
2
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Part I. Financial Information - (Unaudited)
--------------------------------------------
Item 1. Financial Statements
-----------------------------
H.D. VEST, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
ASSETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, September 30,
2000 1999
------------------ ---------------------
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 20,168,386 $ 11,918,613
Commissions and accounts
receivable 13,975,885 10,857,090
Receivable from affiliate 459,553 275,390
Prepaid and other assets 1,641,198 1,025,506
------------------ ---------------------
Total current assets 36,245,022 24,076,599
------------------ ---------------------
Property and equipment, net of
accumulated depreciation of
$5,728,982 at June 30, 2000 and
$3,997,687 at September 30,
1999 8,552,849 6,713,270
Intangible and other assets 4,385,671 3,680,780
------------------ ---------------------
$ 49,183,542 $ 34,470,649
================== =====================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
3
<PAGE>
H.D. VEST, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
LIABILITIES AND SHAREHOLDERS' INVESTMENT
(Unaudited)
<TABLE>
<CAPTION>
June 30, September 30,
2000 1999
------------------- ----------------
Current liabilities:
<S> <C> <C>
Accounts payable and accrued
expenses $ 7,357,541 $ 5,406,058
Amounts due on clearing transactions 3,116,233 2,952,533
Unearned revenue 1,814,435 2,063,112
Commissions payable 9,219,220 7,075,254
Note payable-current 2,666,666 -
------------------- -----------------
Total current liabilities 24,174,095 17,496,957
------------------- -----------------
Obligations under capital leases,
Excluding current installments 2,484,761 1,940,638
Note payable-long-term 5,333,334 -
Other non-current liabilities 7,482,247 5,551,758
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 2,782,602 2,554,793
------------------- -----------------
Total shareholders' investment 9,709,105 9,481,296
------------------- -----------------
$ 49,183,542 $ 34,470,649
=================== =================
</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,
-------------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Revenues:
Commissions $41,324,776 $31,500,924
Portfolio management fees 7,591,104 5,682,221
Marketing and education fees 3,004,083 2,317,827
Facility and service fee from
affiliate 29,000 25,573
Interest and other 503,371 240,551
----------- -----------
Total revenues 52,452,334 39,767,096
----------- -----------
Expenses:
Commissions 30,523,049 22,988,682
Portfolio management fees 5,525,020 3,939,091
General and administrative 6,103,861 5,936,528
Operations 2,935,085 2,493,102
Website development and promotion 1,773,470 -
Representative development 2,985,967 2,542,331
Representative recruiting 180,632 1,115,630
Amortization and depreciation 1,054,809 678,714
Interest 187,864 75,554
----------- -----------
Total expenses 51,269,757 39,769,632
----------- -----------
Income/(Loss) before taxes 1,182,577 (2,536)
Income taxes 540,345 199,644
----------- -----------
Net income/(loss) $ 642,232 $ (202,180)
=========== ===========
Net income/(loss) per common share
Basic and diluted $ 0.11 $ (0.04)
=========== ===========
</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,
--------------------------
2000 1999
--------- ---------
<S> <C> <C>
Revenues:
Commissions $114,935,907 $ 84,582,969
Portfolio management fees 20,160,823 15,780,151
Marketing and education fees 11,083,645 8,176,798
Facility and service fee from
affiliate 329,528 304,315
Interest and other 1,561,827 753,221
------------ ------------
Total revenues 148,071,730 109,597,454
------------ ------------
Expenses:
Commissions 84,957,696 62,384,252
Portfolio management fees 14,802,423 11,068,533
General and administrative 16,986,062 17,319,127
Operations 9,691,379 8,002,977
Website development and promotion 9,439,149 -
Representative development 7,620,146 6,542,352
Representative recruiting 585,418 2,209,149
Amortization and depreciation 2,839,971 1,730,357
Interest 359,944 274,389
------------ ------------
Total expenses 147,282,188 109,531,136
------------ ------------
Income before taxes 789,542 66,318
Income taxes 434,196 233,596
------------ ------------
Net income/(loss) $ 355,346 $ (167,278)
============= ============
Net income/(loss) per common share
basic and diluted $ 0.04 $ (0.05)
============= ============
</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,
------------------------------
2000 1999
------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 355,346 $ (167,278)
Noncash items included in income/(loss):
Amortization and depreciation 2,839,971 1,730,327
Deferred tax provision 382,238 774,927
Loss on disposal of assets 27,447 6,792
Deferred rent 43,293 103,221
Changes in assets and liabilities:
Commissions and accounts receivable (3,118,795) 666,459
Receivable from affiliate (184,163) (85,302)
Prepaid and other assets (615,692) (279,781)
Accounts payable and accrued expenses 1,157,085 (3,073,601)
Amounts due on clearing transactions 163,700 (232,895)
Commissions payable 2,143,967 1,686,558
Unearned revenues (248,677) (624,617)
----------- -----------
Net cash provided by
operating activities 2,945,720 504,810
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,148,760) (308,725)
Costs to acquire/develop software (1,453,239) (1,632,920)
Additions to intangible and other assets (319,393) (2,200)
----------- -----------
Net cash used in investing activities (2,921,392) (1,943,845)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Preferred stock dividends (127,537) (95,652)
Proceeds from deferred compensation plan 1,787,776 1,092,957
Proceeds from note payable 8,000,000 -
Payments on deferred compensation plan (87,966) (139,934)
Payments received on notes receivable
related parties - 446,568
Payments on capital lease obligations (1,346,828) (900,120)
----------- -----------
Net cash provided by financing activities 8,225,445 403,819
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 8,249,773 (1,035,216)
CASH AND CASH EQUIVALENTS,
September 30, 1999 and 1998 11,918,613 9,204,362
----------- -----------
CASH AND CASH EQUIVALENTS,
June 30, 2000 and 1999 $20,168,386 $ 8,169,146
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statement
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, 1999. 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, 2000, and September 30, 1999, the results of
operations for the three and nine month periods ended June 30, 2000 and 1999,
and the cash flows for the nine month periods ended June 30, 2000 and 1999.
Results of operations for the interim period ended June 30, 2000, are not
necessarily indicative of the results that may be expected for the year ended
September 30, 2000. 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, 1999.
Certain reclassifications have been made to prior year's statements in order for
the amounts to be comparable with the current year presentation.
2) 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, 2000 and 1999, 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 the three and nine
months ended June 30, 2000 were 5,540,037 and 5,575,057 respectively. The number
of shares used to compute diluted EPS for the three and nine months ended June
30, 1999 was 5,423,341.
The total number of options outstanding at June 30, 2000 was 903,948. Options to
purchase 273,948 shares of common stock at prices ranging from $7.63 to $20.00
per share were outstanding during the three and nine months ended June 30, 2000
and 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. The total number of options outstanding at June 30, 1999 was 385,948.
Options to purchase 53,948 shares of common stock at prices ranging from $7.63
to $8.50 per
8
<PAGE>
share were outstanding during the three and nine months ended June 30, 1999 and
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, 2000 and 1999, 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.
3) Commitments and Contingencies
On April 27, 2000, the Company was notified of a claim brought by clients of a
former Registered Representative against H.D. Vest Investment Securities, Inc.,
alleging actual damages of approximately $450,000 arising from alleged conduct
of the Representative. The Company is reviewing the claim, which has not yet
resulted in litigation, and is unable at this time to determine what, if any,
potential liability the Company may have in regard to this matter.
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.
4) Related Parties
The Company has an agreement with Herb D. Vest (principal common shareholder)
for management services to the Company. Previously, the agreement with Mr. Vest
provided for a management fee per year plus an annual bonus based on the
Company's performance related to revenue and net income goals, additions of
Company U4's and Fee Based Assets under Management, as established by the Board
of Directors. In January 2000, Herb D. Vest and the Company agreed to remove
the bonus provision from Mr. Vest's management agreement for the fiscal year
ending September 30, 2000. The agreement also provides that Mr. Vest is
permitted to request and receive advances on future management fees based on
estimated future operations. At June 30, 2000, Mr. Vest had received $900,000
under this agreement, consisting of $675,000 in management fees related to the
nine months ended June 30, 2000 and advances totaling $225,000 (recorded in
Prepaid and other assets). Bonuses paid under the plan for the fiscal years
ended September 30, 1999, 1998 and 1997 were $2,315,412, $2,320,148 and
$1,869,497, respectively.
The Company has an agreement to provide Herb D. Vest a revolving line of credit
in an amount not to exceed $2,000,000, collateralized by Mr. Vest's Company
common stock in an amount equal to the unadjusted current balance of the line of
credit based on the stock's current ask price. Under the agreement interest
accrues on unpaid principal balances at an annual rate of 11%. During the
quarter ended June 30, 2000, Mr. Vest at various dates drew down a total of
$250,000 against the line. On June
9
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30, Mr. Vest repaid the full amount plus interest of $5,539. At June 30, 2000,
Mr. Vest had no outstanding principal or accrued interest outstanding on this
line.
The Company, pursuant to a facilities and services agreement, provides certain
management and other services to an insurance agency (HDVIns) owned by Mr. Vest,
and is paid a fee for these services. The value of these services for the three
and nine months ended June 30, 2000 has been determined based on the prorata
portion of certain relevant expenses as a percentage of HDVIns revenues to total
consolidated revenues. To the extent the Company renders services to HDVIns for
which it is not compensated at fair market value, such action could constitute a
conflict of interest since Mr. Vest is both the principal common shareholder and
Chairman of the Board of Directors of the Company. Effective January 1, 2000,
Mr. Vest converted his sole proprietorship into 13 different insurance agencies.
The Company entered into a new facilities and services agreement with the
insurance agencies under the same material terms and conditions as those
contained in the agreement with the sole proprietorship described previously.
5) Financing Arrangements
On June 29, 2000 the Company entered into a term loan agreement with a bank for
$8 million. The new term loan bears interest at prime plus 2% (11.5% as of June
30, 2000) and matures June 29, 2002. Principal and interest payments are due on
this term loan monthly. The Company used a portion of the proceeds to repay its
$3 million line of credit on this date.
6) Web Based Fees
During the nine months ended June 30, 2000, the Company invited selected
Representatives to participate in the Company's new website initiative. Each
Representative that elected to participate in the website initiative has their
individual profile included on the website and is eligible for new tax and
financial services referrals obtained from the website. As part of the website
initiative the Company charged each Representative that elected to participate
in the program, a fee of $950 to help offset the costs associated with the
promotion and development of the website. Each Representative that elected to
participate in the website initiative prior to December 31, 1999, has the option
to drop out of the program on October 1, 2000 and receive a full refund of the
$950 fee plus interest. As of June 30, 2000, approximately 2,100 Representatives
have been included in the website initiative. For the nine months ended June
30, 2000, the Company recognized $650,000 of these fees. The remainder has been
reserved for potential refund requests.
10
<PAGE>
7) Segment Reporting
Effective January 2000, H.D. Vest Technology Services, Inc. ("HDVTI"), a wholly
owned subsidiary of the Company became a reportable segment as defined by SFAS
131, "Disclosures about Segments of an Enterprise and Related Information".
H.D. Vest's Core business ("Core") is in the business of financial services,
organized for the purpose of investing in financial service companies and
providing management services to such companies as well as other entities. H.D.
Vest does not track assets by operating segments. Consequently, we have not
disclosed assets by operating segments. For internal and external management
reporting purposes all amounts have been restated to be effective as of October
1, 1999. The following unaudited results are separated by operating segment for
the three and nine months ended June 30, 2000:
11
<PAGE>
For the three months ended June 30, 2000
<TABLE>
<CAPTION>
Core HDVTI Consolidated
----------------------------------------
<S> <C> <C> <C>
Revenues $ 52,442,315 $ 10,019 $ 52,452,334
Expenses 49,282,683 1,987,074 51,269,757
------------ ------------ ------------
Net income (loss)
before taxes 3,159,632 (1,977,055) 1,182,577
------------ ------------ ------------
Income taxes 1,421,834 (881,489) 540,345
------------ ------------ ------------
Net income (loss) $ 1,737,798 $ (1,095,565) $ 642,232
============ ============ ============
</TABLE>
For the nine months ended June 30, 2000
<TABLE>
<CAPTION>
Core HDVTI Consolidated
-----------------------------------------
<S> <C> <C> <C>
Revenues $ 148,049,675 $ 22,055 $ 148,071,730
Expenses 137,430,997 9,851,191 147,282,188
------------- ------------ -------------
Net income (loss)
before taxes 10,618,678 (9,829,136) 789,542
------------- ------------ -------------
Income taxes 4,778,405 (4,344,209) 434,196
------------- ------------ -------------
Net income (loss) $ 5,840,273 $ (5,484,927) $ 355,346
============= ============ =============
</TABLE>
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
--------------------------------------------------------------------------------
OF OPERATIONS
-------------
Results of Operations
Revenues
The Company's revenues for the three months ended June 30, 2000, were
$52,452,334, a 31.9% increase over the Company's revenues for the three months
ended June 30, 1999. The Company's revenues for the nine months ended June 30,
2000, were $148,071,730, a 35.1% increase over the Company's revenues for the
nine months ended June 30, 1999. Management believes that the increase in
revenues is due to (i) the continued strength in overall financial markets,
despite short term fluctuations in market indicies (ii) the Company's commitment
to training and developing Representatives in diversification and long-term
investment activities, and (iii) the number of Representatives and their
experience in the financial planning and sales industry directly impact
revenues.
For the three months ended June 30, 2000, portfolio management fees were
$7,591,104, a 33.6% increase from the three months ended June 30, 1999. For the
nine months ended June 30, 2000, portfolio management fees were $20,160,823, a
27.8% increase from the nine months ended June 30, 1999. 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.
Net Income (Loss)
The Company had net income of $642,232 for the three months ended June 30, 2000,
compared to a net loss of $202,180 for the three months ended June 30, 1999. The
Company had a net income of $355,346 for the nine months ended June 30, 2000,
compared to net loss of $167,278 for the nine months ended June 30, 1999.
Net income for the three and nine months ended June 30, 2000, increased from the
prior year in spite of significant investments in the Company's website
initiative. This increase was driven primarily by the above mentioned increase
in revenues. The investment in the website includes advertising and public
relations expense of approximately $9 million for the nine months and over $1
million for the three months. The web site is intended to promote brand
awareness, provide lead generation for our Representatives and to facilitate the
marketing of financial products and services. The Web site includes, among other
things, a tax planning organizer and program allowing consumers to prepare their
tax returns free of charge, retirement and college funding calculators, debt
management recommendations, insurance and risk management information, links to
our nationwide network of Representatives, and access to on-line strategic
partners products and services and options. In addition, a financial planning
analysis, a customized monthly
13
<PAGE>
newsletter, and tax updates are provided to the consumers generated from tax
return information.
Commission expense increased at a faster rate than commission revenue for the
three and nine months ended June 30, 2000, due to increased production by
Representatives in higher payout categories. Portfolio management fee expense
increased at a faster 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. During the quarter
market indicies fluctuated. Management believes that in periods of short-term
economic fluctuations, established Representatives have an advantage over less
experienced Representatives in selling investment products.
General and administrative expenses increased 2.8% to $6,103,861 for the three
months ended June 30, 2000, compared to the prior year. The three month
increase in general and administrative expenses is primarily due to increased
investments in technology and increased personnel cost. These increases were
offset to some degree by the reduction in fees related to Mr. Vest's management
agreement. General and administrative expenses decreased 1.9% to $16,986,062 for
the nine months ended June 30, 2000, compared to the prior year. The same
factors listed above are responsible for the decrease in general and
administrative expenses.
Operations costs for the three months ended June 30, 2000 were $2,935,085 a
17.7% increase compared to the prior year. Operations costs for the nine months
ended June 30, 2000 were $9,691,379 a 21.1% increase compared to the prior year.
The increase in operations costs is mainly due to an increase in the cost of
licensing Representatives. Operations expense also increased due to additional
costs required by the new back office system.
Website development and promotion expenses were $1,773,470 for the three months
ended June 30, 2000 and $9,439,149 for the nine months ended June 30, 2000.
Website development and promotion expense is mainly comprised of approximately
$1 million of advertising and promotion for the three months and nearly $9
million for the nine months. The remaining expenses were non-capitalizable
investments in the Company's e-commerce and branding initiatives.
Representative development costs for the three months ended June 30, 2000 were
$2,985,967, a 17.4% increase compared to the prior year. Representative
development costs for the nine months ended June 30, 2000 were $7,620,146, a
16.5% increase compared to the prior year. As a result of prior year
Representative recruiting efforts, Representative development costs have
increased due to increased participation by Representatives and the expansion of
staff necessary to support participation in these programs. 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, 2000, were
$180,632, a 83.8% decrease compared to the prior year. Representative recruiting
costs for the nine months ended June 30, 2000, were $585,418, a 73.5% decrease
compared to the prior year. The reduction in recruiting costs is the result of a
decreased focus on Representative recruiting efforts. To
14
<PAGE>
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; regulatory changes; changes in the availability of
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, 1999.
Liquidity and Capital Resources
At June 30, 2000, the Company had net working capital of $12,070,927 compared to
net working capital of $6,579,642 at September 30, 1999. The $5,491,285
increase is primarily a result of the Company entering into a term loan
agreement with a bank for $8 million. The Company repaid the outstanding line
of credit of $3 million with the proceeds. Also, net income for the nine months
ended June 30, 2000 was $355,346. The new note bears interest, at prime plus 2%
(11.5% as of June 30, 2000) and matures June 29, 2002. Principal and interest
payments are due monthly under the term loan agreement.
During the first nine months of fiscal 2000, the Company dedicated much of its
capital to the development and promotion of a new interactive financial planning
Web site 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,
enhancements to the Company's internet site, a back office system
implementation, and providing more technology tools for Representative use.
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.
The Company continually monitors the capital markets for opportunities to obtain
financing to meet Company growth needs. To the extent that funds are available,
the Company would accelerate the development and promotion of the Company's e-
commerce strategy. Other funds would be utilized for recruiting, development
and other general business purposes. The Company is required to expense many of
the costs related to these items. Should the Company obtain future financing to
fund these growth plans, it is likely that it would record substantial expenses
in the periods during and subsequent to obtaining such financing.
15
<PAGE>
PART II OTHER INFORMATION
--------------------------
Item 1. Legal Proceedings
--------------------------
On April 27, 2000, the Company was notified of a claim brought by clients of a
former Registered Representative against H.D. Vest Investment Securities, Inc.,
alleging actual damages of approximately $450,000 arising from alleged conduct
of the Representative. The Company is reviewing the claim, which has not yet
resulted in litigation, and is unable at this time to determine what, if any,
potential liability the Company may have in regard to this matter.
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.
Item 4. Submission of Matters to a Vote of Shareholders
--------------------------------------------------------
The annual meeting of shareholders of the Company was held on June 2, 2000 in
Anaheim, California. 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 5,254,477 21,020 147,844
Barbara Vest Hancock 5,252,782 22,715 147,844
Jack B. Strong 5,254,882 20,615 147,844
Kenneth E. Reynolds 5,254,882 20,615 147,844
Jerry M. Prater 5,254,882 20,615 147,844
Phillip W. Mayer 5,254,982 20,515 147,844
Kenneth R. Petree 5,254,882 20,615 147,844
Independent Auditors 5,262,264 9,510 3,723 147,844
</TABLE>
Item 5. Other Information
--------------------------
None.
Item 6. Exhibit and Reports on Form 8-K
----------------------------------------
No reports an the Form 8-K were filed during the quarter ended June 30, 2000.
16
<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.
<TABLE>
<CAPTION>
<S> <C>
H. D. VEST, INC.
----------------------------
(Registrant)
Date: August 2, 2000 By: /s/ Herb D. Vest
-------------------------
Herb D. Vest
Chief Executive Officer,
Chairman of the Board
Date: August 2, 2000 By: /s/ Wesley Ted Sinclair
-------------------------
Wesley Ted Sinclair
Chief Financial Officer,
Vice President
(Principal Financial and
Accounting Officer)
</TABLE>
17
