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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual Report Pursuant to Section 13 or 15(d)
-----
of the Securities Exchange Act of 1934 (Fee Required)
For the fiscal year ended September 30, 2000
or
_____ Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 (No Fee Required)
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
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(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
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 Tier
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 ______
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, 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-K or any
amendment to this Form 10-K. [X]
Aggregate market value of voting stocks (which consists solely of shares of
Common Stock) held by non-affiliates of the registrant as of November 30, 2000,
as computed by reference to the closing sale price of the registrant's Common
Stock on the NASDAQ National Market Tier of the NASDAQ Market System on such
date: $10,671,902.
Number of shares of the registrant's Common Stock outstanding as of November 30,
2000: 5,423,341.
DOCUMENTS INCORPORATED BY REFERENCE
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NONE
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PART I
Item 1. BUSINESS
(a) General Development of Business
H.D. Vest, Inc. (Company), founded by Herb D. Vest, was formed on December 17,
1986, as a Texas corporation. The Company is a financial services company,
organized for the purpose of investing in financial service companies and
providing management services to such companies as well as other entities. The
Company also conducts operations under the corporate assumed name of H.D. Vest
Financial Services. When we refer to "Company", "we", "us" or "our" in this
document, we mean H.D. Vest, Inc., and all of its subsidiaries on a consolidated
basis, unless the context otherwise requires. We own all outstanding shares of
the following subsidiaries:
H.D. Vest, Inc.
d/b/a H.D. Vest Financial Services
<TABLE>
<CAPTION>
Incorporated
Subsidiaries (TEXAS) Services
------------ ------- --------
<S> <C> <C>
H.D. Vest Investment 1983 Registered Securities Broker-dealer
Securities, Inc. "HDVIS" Products:
Mutual Funds
Unit Investment Trusts
Limited Partnerships
Stocks and Bonds
H.D. Vest Advisory Services, 1987 Registered Investment
Inc. "HDVAS" Advisor
Agent Licensing Assistance
Money Management Services
H.D. Vest Technology Services, 1999 Internet and Technology Services
Inc. "HDVTI"
H.D. Vest Mortgage Services, 1989 Inactive Subsidiary (1)
Inc. "HDVMS"
H.D. Vest Collateral 1988 Inactive Subsidiary
Management Company "HDVCMC"
H.D. Vest Business Valuation 1987 Inactive Subsidiary
Services, Inc. "HDVBVS"
H.D. Vest Corporate Finance, 1990 Inactive Subsidiary
Inc. "HDVCF"
</TABLE>
(1) Beginning October 1, 2000, this subsidiary resumed operations as a mortgage
service provider.
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We were established to meet the growing demand for professional financial
services, and to provide such services primarily through tax professionals. We
believe that the tax professional is uniquely qualified to give confidential
professional financial advice and implement financial plans for their customers
due to their knowledge of their clients' financial affairs. We offer the tax
professional the means to provide personalized financial services to the
consumer while simultaneously providing the tax professional with an additional
source of income.
We recruit tax professionals to become affiliated with our HDVIS and HDVAS
subsidiaries, and an affiliated insurance entity, to maintain and expand a
network for providing financial services. Representatives registered with us
include Certified Public Accountants (CPAs), Certified Financial Planners
(CFPs), Enrolled Agents (EAs), Chartered Financial Analysts (CFAs), tax
attorneys, and other tax professionals. Many hold state or national offices in
CPA societies, EA organizations and public accounting societies.
Our HDVIS subsidiary is a securities broker-dealer, registered with the
Securities and Exchange Commission (SEC) and securities regulatory commissions
in all 50 states, the District of Columbia and the Commonwealth of Puerto Rico.
HDVIS is a member of the National Association of Securities Dealers (NASD),
Securities Investors Protection Corporation (SIPC) and the Securities Industry
Association (SIA). HDVIS' Representatives are primarily tax professionals
located throughout the United States who provide their clients with a wide range
of financial services including investments such as mutual funds, unit
investment trusts ("UITs"), limited partnership interests, stocks and bonds. We
utilize HDVIS' Representatives to market services provided by our other
subsidiaries and an affiliated insurance entity.
Our HDVAS subsidiary is an investment advisor registered with the Securities and
Exchange Commission and various state regulatory agencies and is a member of the
Investment Company Institute. Through HDVAS, our Representatives can register
as Investment Advisor Representatives. HDVAS has developed proprietary fee-
based services, which give its Representatives the capability of providing fee-
based money management services to their clients.
In December 1999, The Company established H.D. Vest Technology Services, Inc.
("HDVTI") a wholly owned subsidiary of the Company. The sole purpose of this
entity is to record the costs and related revenues generated from the Company's
website initiative.
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We participate in various professional and industry organizations. These
include, but are not limited to the Securities Industry Association, Better
Business Bureau of Metropolitan Dallas, Greater Dallas Chamber of Commerce,
Greater Irving-Las Colinas Chamber of Commerce, U.S.-Mexico Chamber of Commerce,
International Association for Financial Planning, Mortgage Bankers Association
of America, Investment Company Institute, National Association of Securities
Dealers, Inc., National Investment Company Service Association and Securities
Investor Protection Corporation.
(b) Financial Information About Industry Segments
We have historically operated in a single industry segment: securities brokerage
and related financial services. 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 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.
The following table sets forth our total revenues by major source:
SUMMARY OF COMPANY'S SOURCES OF REVENUE
<TABLE>
<CAPTION>
Year ending September 30,
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2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Commission Revenue
Mutual Fund and UITs $105,271,660 $ 85,503,458 $ 75,302,440
Insurance Products 26,159,813 17,850,301 13,785,487
Stocks, Bonds and
Options 17,586,764 11,864,690 6,006,235
Partnership Interests 112,910 141,694 174,060
Trading 63,754 36,414 102,282
Portfolio Management Fees 28,386,151 21,900,550 17,049,614
Marketing and Education
Fees 13,589,214 10,923,662 7,964,579
Facility and Service Fees
From Affiliate 485,355 404,315 493,604
All Other 2,110,331 1,597,687 1,035,374
------------ ------------ ------------
Total Revenue $193,765,952 $150,222,771 $121,913,675
============ ============ ============
</TABLE>
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We had assets of $57,299,204 and $34,470,649 as of September 30, 2000 and 1999,
respectively. We had net income of $3,007,749 $1,187,011 and $1,427,312 for the
years ended September 30, 2000, 1999 and 1998 respectively.
(c) Narrative Description of Business
THE REGISTRANT AND ITS SUBSIDIARIES
We conduct our business under our corporate name and under the assumed name of
H.D. Vest Financial Services. Through our business divisions and nationwide
network of Representatives, we provide a comprehensive package of financial
services and products.
Following are the various services we provide which are discussed in more detail
on subsequent pages:
<TABLE>
<CAPTION>
Entity Name Service Performed
----------- -----------------
<S> <C>
H.D. Vest, Inc. Technology Development and Information Services,
Technical and Sales Support Services, Regional
Support System, Educational Services, Representative
Recruiting, Representative Development, Insurance
Agency Management Services.
H.D. Vest Investment Securities, Inc. Investment Services, Trading and Customer Service,
Representative Licensing, Compliance and Supervision
Services.
H.D. Vest Technology Services, Inc. Internet and Technology Services
H.D. Vest Advisory Services, Inc. Professional Investment Advisory Services
H.D. Vest Mortgage Services, Inc. Inactive Subsidiary (1)
H.D. Vest Collateral Management Company, Inc. Inactive Subsidiary
H.D. Vest Business Valuation Services, Inc. Inactive Subsidiary
H.D. Vest Corporate Finance, Inc. Inactive Subsidiary
</TABLE>
(1) Beginning October 1, 2000, this subsidiary resumed operations as a mortgage
service provider.
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TECHNOLOGY DEVELOPMENT AND INFORMATION SERVICES
The Information Services Department is responsible for developing programs and
maintaining the hardware that supports our operations as well as developing and
supporting our Internet initiatives.
At the Representative level, the Information Services Department continued to
develop our internet/intranet site and other programs to support the
Representatives. The internet/intranet site is designed to facilitate the
securities, advisory services and insurance business of our Representatives.
The site provides access to account information, stock quotes, market news, and
a venue for sharing marketing, business and product ideas with other
Representatives. Other programs developed to assist the Representatives
include: a CD-ROM Resource Library, which provides reference materials and
investment transaction forms; the CD-ROM Financial Check-Up System, which
assists in identifying clients' needs; and the CD-ROM Representative Success
Plan, which provides training on investment basics.
A portion of our Information Services Department is dedicated to the development
and support of our tax preparation web site as well as other Internet
initiatives.
To promote continuing technology education and the importance of technology to
our Company, we emphasize specialized education and training for our information
technology staff, as well as for managers in other departments. We are a
Microsoft Certified Solutions Provider, and approximately two-thirds of our
Information Services Department hold the Microsoft Certified Professional (MCP)
designation. The Information Services Department also includes Microsoft
Certified Solution Engineers and Microsoft Certified Solution Developers. Many
of our technology staff hold multiple Microsoft certifications. In addition to
our technology staff, managers in other departments receive extensive training
in one or more areas of technology and information management.
TECHNICAL AND SALES SUPPORT SERVICES
Our staff of financial professionals provides financial planning and investment
information to H.D. Vest Representatives. In turn, our Representatives, assist
their clients with their financial planning needs. These services to clients
include, but are not limited to, investment and insurance planning and product
selection, portfolio management, assistance in establishment of
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employee benefit plans, and estate planning. We provide technical and sales
support to the Representatives via the internet/intranet, telephone and other
means. To provide these services, we have assembled staff experts in areas of
individual and business financial planning, including CPAs, CFPs, CFAs,
Chartered Life Underwriters, Certified Investment Management Analysts, Chartered
Financial Consultants, Certified Employee Benefits Specialists, Certified
Pension Consultants, EAs, Certified Management Accountants, American Institute
of Certified Public Accountants-Personal Financial Specialists, Lawyers and
Pension and Executive Compensation Certificate recipients.
REGIONAL SUPPORT SYSTEM
We have developed a local support system designed to provide Representatives
with assistance in all aspects of financial planning including sales and
marketing training, time management, practice management, financial products,
and case studies. The program training is facilitated with monthly meetings held
across the country between the months of May and December. The Regional Support
System also provides a network for Representatives to consult with each other
and analyze actual client situations. This system operates on the philosophy
that Representatives will learn from other Representatives who have successfully
added financial planning services to their practices.
Each Regional Support System group is led by a successful H.D. Vest
Representative who has met specified criteria and has attended our training
prior to training fellow Representatives. The Regional Support System is
divided into Mentor and Chapters determined by varying degrees of Representative
production.
EDUCATIONAL SERVICES
We develop educational materials and seminars designed to enhance the technical
skills and knowledge of Representatives. The educational materials developed for
our Representatives and their clients include, but are not limited to training
videos, self study courses, computer based training programs, newsletters and
promotional pieces. Our seminars include two national events, each offering
Representatives a full week of training, as well as other seminars such as the
"Tax Season Crash Course" which provides investment training prior to the tax
rush experienced by Representatives preparing tax returns for their clients.
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We also provide regional conferences to the seminar offering. These conferences
are located in cities across the country and are designed to offer training on
our internet/intranet site, computer software and technical investment topics.
REPRESENTATIVE RECRUITING
At September 30, 2000, we had approximately 7,449 affiliates, of which
approximately 6,223 were fully licensed Representatives and approximately 1,226
Representatives who were in various stages of licensing.
We recruit Representatives for our HDVIS and HDVAS subsidiaries and an
affiliated insurance entity. Since our inception, we have developed a
recruiting process which we believe results in a larger network for distribution
of financial products and services. Based on our experience in this area, we
typically use methods that have been the most effective in the past. These
methods include direct mail, recruiting seminars, telemarketing, trade shows,
referral incentive programs, trade publication advertising and various
educational events. We may employ additional methods of recruiting in order to
develop and determine the effectiveness of such alternatives.
REPRESENTATIVE DEVELOPMENT
The Representative Development process is the cornerstone of our concept of
providing the client with the most qualified professional financial advisor
available. We have made, and will continue to make, significant investments in
the development of programs to provide Representatives with training designed to
keep them apprised of financial opportunities for their clients.
We require our Representatives to obtain specific licenses, complete training
programs and follow prescribed procedures in adding financial planning and
implementation services to their practices.
The training and marketing programs offered by us to our Representatives include
software support such as an asset allocation and tax return-based investment
analysis program. The training and marketing programs also offer educational
events such as the Regional Support System meetings (described above) and
marketing initiatives including self-study kits, newsletters, and various other
regional and national meetings sponsored by us.
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INSURANCE AGENCY MANAGEMENT SERVICES
H.D. Vest Insurance Agency (f/k/a H.D. Vest Insurance Services) (HDVIns) is
owned by Herb D. Vest. HDVIns general insurance agency appoints Representatives
with various insurance companies to enable them to sell insurance products to
their clients. The Company, in accordance with the terms of a facilities and
services agreement, provides certain management and other services to HDVIns and
is paid a fee for these services. The value of these services for fiscal year
ended 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. The services provided to HDVIns by the
Company are summarized as follows: management, accounting, referral data base,
client tracking services, solicitation, tracking of renewal policies of
insurance, collection of premiums and commissions, processing of insurance
transactions, payment of salaries and other expenses, cost of recruiting,
training and reporting to agents and other services as deemed appropriate by the
Company. The Company receives all variable commissions through HDVIS. Variable
commission revenue was $26,159,813, $17,850,301, and $13,785,487 for the years
ended September 30, 2000, 1999, and 1998, respectively. In accordance with this
agreement the Company has charged HDVIns $485,355, $404,315, and $493,604 for
the years ended September 30, 2000, 1999, and 1998, respectively, for facilities
and management services rendered. As of September 30, 2000, the Company had a
receivable of $505,395 from HDVIns for these services.
INVESTMENT SERVICES
H.D. Vest Investment Securities, Inc., formed in 1983 as a Texas Corporation, is
registered as a broker-dealer in all 50 states, the District of Columbia and the
Commonwealth of Puerto Rico, and is our investment products and trading
subsidiary. HDVIS offers for sale non-proprietary investment products including
mutual funds, UITs, direct investments, stocks and bonds. HDVIS is a member of
the National Association of Securities Dealers, the Securities Investors
Protection Corporation, and the Securities Industry Association.
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TRADING AND CUSTOMER SERVICE
We provide trading and customer services to our Representatives on an ongoing
basis. Our trading room processes trades in mutual funds, direct investments,
and UITs and individual securities. In addition, our discount brokerage service
allows investors to buy and sell individual securities at discounted commission
rates.
The following table summarizes the number of securities transactions processed
by the Company:
Fiscal Years Ended September 30,
--------------------------------
2000 1999 1998
---- ---- ----
8,889,592 7,074,259 5,551,515
We clear stock and bond trades and certain mutual fund and direct participation
programs, on a fully disclosed basis, through National Financial Services
Corporation (NFSC), 161 Devonshire Street, Mail Stop D6, Boston, Massachusetts
02110. NFSC, as the clearing firm for HDVIS, maintains all stock, bond and
option transactions of HDVIS' customers on its own records. However, the
majority of transactions involving mutual funds and direct participation
programs are handled directly with the product distributors.
REPRESENTATIVE LICENSING
We provide step-by-step assistance to Representatives in obtaining their
securities, insurance and Registered Investment Advisor licenses, including
educational programs for exams and administrative processing through the NASD,
and the state agencies supervising securities and insurance licensing.
COMPLIANCE AND SUPERVISION
The financial services industry is subject to extensive regulation on both the
federal and state levels, with which we must comply (see Government Regulation).
HDVIS and HDVAS must maintain current registration with the applicable
regulatory bodies.
We require that all Representatives follow our Compliance and Supervisory
Procedures. Our Compliance Department is responsible for Representatives'
compliance with rules of the regulatory bodies that supervise the financial
services industry. Due to the strict regulation of the financial services
industry by federal
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and state agencies, it is important that we stay abreast of the activities of
our Representatives and internal staff. Our Compliance Department uses
activities such as transaction reviews and on-site audits to supervise the
investing activities of all Representatives.
PROFESSIONAL INVESTMENT ADVISORY SERVICES
H.D. Vest Advisory Services, Inc. conducts our investment advisory activities.
HDVAS, formed in 1987 as a Texas corporation, is registered as an investment
advisor with the SEC and various state regulatory agencies and is a member of
the Investment Company Institute. Our Representatives can register as Investment
Advisor Agents under HDVAS, giving them the ability to provide fee-based
financial planning services to their clients.
HDVAS provides three fee-based services. The VestPremiere Investment Program is
designed for clients with a minimum $100,000 of investable assets, and allows
individual investors, foundations, endowments, retirement plans and trusts to
access comprehensive and independent consulting services that historically were
reserved for only large institutional investors. This service helps investors to
determine an appropriate asset allocation and to choose the proper money
managers to manage various portions of their investment portfolio. A quarterly
report is provided to each client detailing investment performance.
The VestFlex Investment Program is designed to provide clients with a minimum
$10,000 of investable assets with asset allocation and professional monitoring
services. Individual investment objectives and risk tolerances are utilized to
select the optimal portfolio in order to meet the client's needs. Each portfolio
is invested in a family of mutual funds and diversified into different asset
classes. A quarterly report is provided to each client detailing investment
performance.
The Vest Advisor Investment Program accommodates clients with a minimum of
$25,000 of investable assets. These investments are managed by the client's
Representative according to the portfolio goals established by the client. Each
client's investment is held in a single brokerage account. A quarterly report is
provided to each client detailing investment performance.
TRADEMARKS
We have trademarks, including H.D. Vest Financial Services, that protect us
against the unauthorized use of our corporate name and programs. These trade
names are valuable assets of ours and
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unauthorized use of these trade names is prosecuted as necessary to protect our
interests.
GOVERNMENT REGULATION
H.D. Vest Investment Securities, Inc. - The securities industry in the United
States is subject to extensive regulation under federal and state laws. The SEC
is the federal agency charged with administration of the federal securities
laws. Much of the regulation of broker-dealers, such as HDVIS, has been
delegated to self-regulatory organizations like the NASD. The NASD conducts
periodic examinations of member broker-dealers. Securities firms are also
subject to regulation by state securities commissions in the states in which
they are registered. HDVIS is currently registered as a broker-dealer in all 50
states, the District of Columbia and the Commonwealth of Puerto Rico.
The regulations to which broker-dealers are subject cover all aspects of the
securities business, including sales methods, Representative supervision, trade
practices among broker-dealers, capital structure of securities firms, record
keeping and the conduct of directors, officers and employees. Additional
legislation, changes in rules promulgated by the SEC and by self-regulatory
organizations, and changes in the interpretation of enforcement of existing laws
and rules often directly affect the method of operation and profitability of
broker-dealers. The SEC and the self-regulatory organizations may conduct
administrative proceedings that can result in censure, fine, suspension or
expulsion of a broker-dealer, its officers or employees. The principal purpose
of regulations and discipline of broker-dealers is the protection of customers
and the securities markets rather than protection of creditors and stockholders
of broker-dealers (see Item 3 Legal Proceedings).
HDVIS is a member of the SIPC which provides protection to customers (but not
shareholders) if a SIPC member fails financially. Customers (not including
investors in the stock of the Company) of HDVIS that have securities and/or cash
on deposit with HDVIS, would be protected up to a maximum of $500,000, including
up to $100,000 on claims for cash.
HDVIS is subject to the SEC's Uniform Net Capital Rule (Rule 15c3-1), which
requires the maintenance of minimum net capital and requires that the ratio of
aggregate indebtedness to net capital, both as defined, shall not exceed 15 to
1. Minimum net capital can never be lower than $250,000 or 6 2/3% of aggregate
indebtedness, as defined, whichever is greater. In computing net capital under
the Uniform Net Capital Rule, various adjustments
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are made to net worth to exclude assets which are not readily convertible into
cash and to conservatively state other assets, such as a firm's position in the
securities that it holds in its own account. To that end, a deduction is made
against the market value of such securities to reflect the possibility of a
market decline prior to their disposition. For each dollar that net capital is
reduced, by means of such deductions or otherwise (for example, through
operating losses or capital rules, which are unique to the securities industry),
financial restrictions are imposed upon us which are more severe than those
imposed on corporations engaged in certain other types of business (see
Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources).
HDVIS had net capital, required net capital and excess net capital for the years
ended September 30, 2000, 1999 and 1998 as follows:
<TABLE>
<CAPTION>
2000 1999 1998
---- ----- ----
<S> <C> <C> <C>
Net capital $5,255,640 $3,229,712 $2,134,772
Required net capital 1,107,995 747,403 407,842
---------- ---------- ----------
Excess net capital $4,147,645 $2,482,309 $1,726,930
========== ========== ==========
</TABLE>
H.D. Vest Advisory Services, Inc. - The financial planning industry is subject
to federal regulation under the Investment Advisers Act of 1940, requiring those
providing fee-based investment advice to register with the SEC. Most states also
have registration and reporting requirements. HDVAS is registered as an
investment advisor with the SEC and all 50 states, the District of Columbia, and
the Commonwealth of Puerto Rico.
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DEPENDENCE ON A SINGLE CUSTOMER
No material part of our consolidated commission revenues is originated by a
single Representative or client.
COMPETITION
There is intense competition in the brokerage and insurance industries from
large, diversified, well-capitalized brokerage firms, financial institutions and
other organizations. Retail oriented financial service providers and other
financial institutions are investing substantial funds in advertising and direct
solicitation of customers to increase their market share and, in many cases, we
are directly competing with such organizations for the same market share.
EMPLOYEES
At September 30, 2000, we employed 375 full-time employees who provide support
services to our Representatives. To the extent that we recruit additional
Representatives, the number of employees would be expected to increase during
the fiscal year ending September 30, 2001.
Employees by Department
As of September 30, 2000
Marketing and Technical Support 163
Administration and Other 62
Operations 134
Educational Services 16
---
Total Employees 375
===
The majority of employees are college graduates and are securities licensed.
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ITEM 2. DESCRIPTION OF PROPERTY
Our corporate headquarters occupy approximately 80,000 square feet of office
space in a facility located at 6333 North State Highway 161, Fourth Floor,
Irving, Texas 75038. Our lease expires in December 2007. We also occupy
approximately 32,000 square feet of space used for warehouse, mail fulfillment
and printing located at 3225 Premier Street, Suite 150, Irving, Texas 75063.
ITEM 3. 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 and is unable at this
time to determine what, if any, potential liability the Company may have in
regard to this matter.
We are subject to other legal proceedings and claims that have arisen in the
ordinary course of business and have not been finally adjudicated. We believe,
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 or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
None.
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Part II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of September 30, 2000 our stock was listed on the NASDAQ National Market tier
of the NASDAQ Stock Market under the symbol: HDVS. The total trading volume of
the Company's stock for fiscal 2000 was 1,080,500 shares. There can be no
assurance that a more active market will develop. The following table sets forth
the range of high and low closing bid prices of our Common Stock as reported by
the NASDAQ National Market System during the periods indicated. The prices set
forth below represent prices between dealers, do not include retail markups,
markdowns, or commissions and do not necessarily represent actual transactions.
3 Months Ended High Low
-------------- ---- ---
9/30/00 $6.69 $5.03
6/30/00 8.00 5.50
3/31/00 10.13 5.50
12/31/99 9.19 4.63
9/30/99 5.75 4.75
6/30/99 6.63 5.00
3/31/99 8.00 6.00
12/31/98 8.00 5.63
9/30/98 9.25 6.38
6/30/98 11.75 4.75
3/31/98 11.00 4.88
12/31/97 5.50 4.13
As of September 30, 2000, there were 546 holders of record of our common stock.
The NASDAQ NMS Qualification Standards require any company wishing to remain
listed to have net tangible assets of $4,000,000, public float of shares of
750,000 (which are shares not held directly or indirectly by any officer,
director or beneficial owner of more than 10% of the total shares outstanding),
market value of public float of $5,000,000, $1 minimum bid for outstanding
shares, 400 round lot shareholders and two market makers. As of September 30,
2000, there were 463 round lot holders of record of our common stock.
If we were subsequently delisted from the NASDAQ National Market System, such
delisting would materially limit the public market
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for our common stock through loss of news coverage, possible decline in share
price and possible difficulty in obtaining subsequent financing. In such event,
a stockholder might encounter difficulty in selling his or her common stock.
We have paid no dividends on our common stock since incorporation. We intend to
continue to devote our earnings, if any, to the growth and development of the
Company. Any dividends in the future will depend upon our financial requirements
and other factors.
POTENTIAL FUTURE SALES PURSUANT TO RULE 144
Of the 5,423,341 shares of common stock outstanding as of September 30, 2000,
4,045,154 shares of common stock are "restricted securities," as that term is
defined in Rule 144 under the Securities Act of 1933, as amended. Under this
rule, a person (or persons whose shares are aggregated) not affiliated with the
issuer who has satisfied a one-year holding period may, under certain
circumstances, sell within a three-month period a number of shares which does
not exceed the greater of 1% of the shares outstanding or the average weekly
trading volume during the four calendar weeks prior to such sale. Rule 144 also
permits, under certain circumstances, the sale of shares without any quantity
limitation by a person who is not an affiliate of the Company and who has
satisfied a one-year holding period. After a one year holding period, if a
person is not an affiliate and has not been an affiliate for the last three
months, then the person can sell his shares without any restrictions applicable
to Rule 144. Herb D. Vest, the Chairman of the Board and Chief Executive Officer
of the Company, owns 3,397,259 shares which are subject to Rule 144. Future
sales under Rule 144 may have a depressive effect on the price of our common
stock.
17
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following summary of certain financial information relating to the Company
for the five years ended September 30, 2000, has been derived from the audited
financial statements of the Company.
Such information should be read in conjunction with the Consolidated Financial
Statements and the report thereon of Arthur Andersen LLP, independent public
accountants, located elsewhere in this document.
Summary of Consolidated Statements of Operations
Fiscal Years Ended September 30,
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Revenues $193,765,952 $150,222,771 $121,913,675 $88,469,296 $67,509,222
Net Income $ 3,007,749 $ 1,187,011 $ 1,427,312 $ 2,142,063 $ 1,188,707
Net Income per
Common Share - Basic $ .53 $ .20 $ .24 $ .37 $ .20
Cash Dividends
Declared per Common Share $ - $ - $ - $ - $ -
</TABLE>
Summary of Consolidated Statements of Financial Position
As of September 30,
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Working Capital $13,285,689 $ 6,579,642 $ 4,112,684 $ 5,054,298 $ 2,821,115
Total Assets $57,299,204 $34,470,649 $29,111,026 $19,747,631 $16,950,759
Notes Payable and
Obligations under
Capital Leases (net of
current maturities) $ 6,858,547 $ 1,940,638 $ 2,506,506 $ 1,016,257 $ 676,844
Total Liabilities $44,969,580 $24,989,353 $20,721,088 $12,699,070 $11,949,226
Shareholders' Equity $12,329,624 $ 9,481,296 $ 8,389,938 $ 7,048,561 $ 5,001,533
-------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
We are a provider of financial services through tax and accounting
professionals. Our services are designed to assist in making individual tax and
accounting professionals financial service centers for their clients. We believe
that the tax professional is uniquely qualified to give confidential
professional financial advice and implement financial plans due to the tax
professional's knowledge of his or her clients' financial affairs.
During fiscal 2000, we launched a new interactive financial planning Web site
providing comprehensive, integrated financial needs analysis and appropriate
investment information for consumers. 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 has acquired
approximately 330,000 registered users and during the 2000 tax season over
260,000 tax returns were completed online.
During fiscal 2001, we plan to develop this Web site to become a personal
financial portal for our clients. Furthermore, we intend to pilot financial
planning centers located in the Affiliates' office which would utilize
interactive presentations to arrive at solutions to client's financial planning
needs.
The following discussion and analysis provides information that we believe to be
relevant to understanding our consolidated financial condition and results of
operations. This discussion should be read in conjunction with our consolidated
financial statements and the related notes thereto.
19
<PAGE>
RESULTS OF OPERATIONS
REVENUES:
The following tables set forth our revenues for the periods indicated:
<TABLE>
<CAPTION>
For the year ended September 30, 2000
-------------------------------------
Amount % change % of total
<S> <C> <C> <C>
Commission 149,194,901 29% 77%
Portfolio management Fees 28,386,151 30% 15%
Marketing and education Fees 13,589,214 24% 7%
Other 2,595,686 30% 1%
----------- ----
Totals 193,765,952 29% 100%
=========== === ====
<CAPTION>
For the year ended September 30, 1999
-------------------------------------
Amount % change % of total
<S> <C> <C> <C>
Commission $115,396,557 21% 77%
Portfolio management Fees 21,900,550 28% 15%
Marketing and education Fees 10,923,662 37% 7%
Other 2,002,002 31% 1%
------------ ----
Totals $150,222,771 23% 100%
============ === ====
<CAPTION>
For the year ended September 30, 1998
-------------------------------------
Amount % change % of total
<S> <C> <C> <C>
Commission $ 95,370,504 39% 78%
Portfolio management Fees 17,049,614 54% 14%
Marketing and education Fees 7,964,579 13% 7%
Other 1,528,978 (6)% 1%
------------ ----
Totals $121,913,675 38% 100%
============ === ====
</TABLE>
Our revenues for the years ended September 30, 2000, 1999 and 1998 were
$193,765,952, $150,222,771 and $121,913,675, respectively, a 29%, 23% and 38%
increase from the years ended September 30, 1999, 1998, and 1997, respectively.
We believe that the increase in revenues for the fiscal years is due to (i) the
continued strength in the overall financial markets, (ii) our commitment to
fee-based programs, (iii) the expansion of our Representative force through
recruitment, and (iv) our continued development of programs to support and
educate Representatives.
20
<PAGE>
COMMISSION REVENUE
<TABLE>
<CAPTION>
Year ending September 30,
-------------------------
2000 % Change 1999 % Change 1998 % Change
---- -------- ---- -------- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Commission Revenue
Mutual Fund
and UITs (1) $105,271,660 23% $ 85,503,458 14% $75,302,440 39%
Insurance Products (2) 26,159,813 47% 17,850,301 29% 13,785,487 37%
Stocks, Bonds and
Options (1) 17,586,764 48% 11,864,690 98% 6,006,235 47%
Partnership Interests 112,910 (20)% 141,694 (19)% 174,060 71%
Trading 63,754 75% 36,414 (64)% 102,282 (55)%
------------ ------------ ----------- ----
Total $149,194,901 29% $115,396,557 21% $95,370,504 39%
============ ===== ============ ==== =========== ====
</TABLE>
(1) Revenue increased in the fiscal years 2000, 1999, and 1998 due to the
continued strength in the financial markets and to the continued increases
in product sales resulting in part from the growth of the number of
Representatives. Other contributing factors include the training programs
provided by us and stable interest rates.
(2) Revenue increased due to the increase in the number of Representatives
licensed to offer this product and market conditions that made this product
a more attractive investment.
PORTFOLIO MANAGEMENT FEE REVENUE
Portfolio management fee revenue was $28,386,151, $21,900,550, and $17,049,614
for the years ended September 30, 2000, 1999, and 1998, respectively. This
represents a 30%, 28%, and 54% increase in 2000, 1999, and 1998, respectively.
The increase is primarily due to the assets under management in our fee-based
programs. Total assets under management were $2.070 billion, $1.583 billion, and
$1.094 billion at September 30, 2000, 1999, and 1998. This represents a 31%,
45%, and 30% increase in 2000, 1999, and 1998, respectively.
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. We hope to
maximize revenue by making both fee-based and commission-based services
available to customers. We
21
<PAGE>
believe and expect that market demand has and will cause fee-based services to
grow at a greater rate than commission-based services.
MARKETING AND EDUCATION FEE REVENUE
Marketing and education fee revenue was $13,589,214, $10,923,662, and $7,964,579
for the years ended September 30, 2000, 1999, and 1998, respectively. This
represents a 24%, 37%, and 13% increase in 2000, 1999, and 1998, respectively.
Revenues in 2000, 1999, and 1998 increased due to increases in sales and the
expansion of the educational programs and seminars provided by us. Product
sponsors assist in the funding of our educational services.
OTHER REVENUE
Other revenue was $2,595,686, $2,002,002, and $1,528,978 for the years ended
September 30, 2000, 1999, and 1998, respectively. This represents a 30% and 31%
increase in 2000 and 1999, respectively, and a decline of 6% in 1998. The
increase in 2000 is due primarily to interest revenue earned on increased cash
balances. Cash balances were higher due, in part, to funds received from a term
loan entered into during the year. The increase in 1999 is due primarily to
revenue generated from billings to Representatives for expenses incurred by us
related to compliance audits. The related expenses are recorded in General and
Administrative Expense. The NASD recently required these compliance audits. The
decline in 1998 is due to a decrease in the revenue from our catalog sales
products as well as a decrease in facility and service fee revenue due to a
reduced attractiveness of fixed insurance products offered by HDVIns.
EXPENSES
COMMISSION EXPENSE
Commission expense was $110,001,795, $84,822,640, and $68,152,972 for the years
ended September 30, 2000, 1999, and 1998, respectively. This represents a 30%,
20%, and 29% increase in 2000, 1999, and 1998, respectively. The matching
expense on the Company's Deferred Compensation Plan is included in commission
expense. As the Company increases participation in the Plan, commission expense
will increase at a faster rate than the related revenue. The increase in
commission expense during 2000, 1999, and 1998 is due to an increase in
commission revenue from the prior year and an increase in the payout ratio from
the prior year. The increase in the payout ratio is due to increased production
by Representatives at higher payout levels. We believe
22
<PAGE>
that in periods of short-term economic fluctuations, established Representatives
have an advantage over less experienced Representatives in selling investment
products. As we recruit and train Representatives in lower payout categories,
the revenue generated by these Representatives will help to offset increased
revenue by Representatives in higher payout categories.
PORTFOLIO MANAGEMENT FEE EXPENSE
Portfolio management fee expense was $20,814,386, $15,364,107, and $11,263,669
for the years ended September 30, 2000, 1999, and 1998, respectively. This
represents a 35%, 36%, and 53% increase in 2000, 1999, and 1998, respectively.
The increase in Portfolio management fee expense during 2000, 1999, and 1998 is
due to an increase in portfolio management revenue from the prior year and an
increase in the payout ratio from the prior year. Similar to the increase in
commission expense above, the increase in the payout ratio is due to increased
production by Representatives at higher payout levels.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expense was $21,119,007, $22,183,630, and $21,182,001
for the years ended September 30, 2000, 1999, and 1998, respectively. This
represents a 5% decrease in 2000 and a 5% and 43% increase in 1999 and 1998,
respectively. The reduction in expense in 2000 is related, in part, to cost
containment activities conducted by the Company's management and a reduction in
the fees related to Mr. Vest's management agreement. In January 2000, Mr. 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 increase in 1999
was driven by additional expenses incurred to support our infrastructure, which
was offset by a decrease in legal costs within the year. The increase in 1998
was due to nonrecurring costs of approximately $826,000 for expenses related to
claims and $572,000 associated with the relocation of our corporate
headquarters. Additionally, the increase in general and administrative expenses
was due, in part, to $750,959 in human resource expense related to our increase
in staffing and employee training programs and $707,427 in costs related to our
mail fulfillment operations.
OPERATIONS EXPENSE
Operations expense was $12,261,746, $10,719,749, and $7,179,790 for the years
ended September 30, 2000, 1999, and 1998,
23
<PAGE>
respectively. This represents a 14%, 49%, and 34% increase in 2000, 1999, and
1998, respectively. Operations expense includes our mutual fund operations,
customer service, licensing and compliance departments. The increase is due in
part to increased Compliance expense, increased noncapitalizable costs to
improve our utilization of technology, and the implementations of new mutual
fund processing computer systems.
WEBSITE DEVELOPMENT AND PROMOTION
Website development and promotion expense was $9,581,346 for the year ended
September 30, 2000. No such costs were incurred during fiscal years 1999 and
1998. Website development and promotion expense is mainly comprised of
approximately $9 million of advertising and promotion. The remaining expenses
were non-capitalizable investments in the Company's e-commerce and branding
initiatives.
REPRESENTATIVE DEVELOPMENT EXPENSE
Representative development expense was $9,560,437, $8,736,114, and $7,521,719
for the years ended September 30, 2000, 1999 and 1998, respectively. This
represents a 9%, 16%, and 16% increase in 2000, 1999, and 1998, respectively.
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.
The Representative development process is the cornerstone of our concept of
providing the client with the most qualified professional Representative
available. We have made, and will continue to make, significant investments in
the development of programs to provide Representatives with training designed to
keep them apprised of financial opportunities for their clients.
We require our Representatives to obtain specific licenses, complete training
programs and follow prescribed procedures in adding financial planning and
implementation services to their practices. The training and marketing programs
offered by us to our Representatives include software support such as an asset
allocation and tax return-based investment analysis program, educational events
such as Regional Support Systems meetings and marketing initiatives that include
self-study kits and newsletters, and various other regional and national
meetings
24
<PAGE>
sponsored by us as well as the sponsors of products sold by our Representatives.
REPRESENTATIVE RECRUITING EXPENSE
Representative recruiting expense was $705,532, $3,083,830, and $2,231,364 for
the years ended September 30, 2000, 1999, and 1998, respectively. This
represents a 77% decrease in 2000 and a 38% and 33% increase in 1999 and 1998,
respectively. The decrease in Representative recruiting expense during 2000 is
due to a decreased focus on recruiting efforts. 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 impacted negatively. The increase in
Representative recruiting expense during 1999 and 1998 is due to aggressive
recruiting goals for the fiscal year and the use of additional methods of
recruiting that have not been utilized in the past.
We recruit Representatives for our HDVIS and HDVAS subsidiaries and other
affiliated entities. Since our inception, we have developed a recruiting process
which we believe results in a larger network for distribution of financial
products and services. Based on our experience in this area, we typically use
methods that have proven to be the most effective in the past. These methods
include direct mail, recruiting seminars, telemarketing, trade shows, referral
incentive programs, trade publication advertising and various education events.
We may employ additional methods of recruiting in order to develop and determine
the effectiveness of such alternatives.
At September 30, 2000, we had approximately 7,449 affiliates, of which 6,223 are
fully licensed Representatives and approximately 1,226 Representatives were in
various stages of licensing. Our recruiting efforts for the year ended September
30, 2000 resulted in 1,143 new affiliates. The overall reduction in affiliates
of 1,101 from prior year is the result of the decreased focus on Representative
recruiting efforts. Our recruiting efforts for the years ended September 30,
1999 and 1998 resulted in increases in new affiliates of 2,861, and 2,227
respectively.
Many of H.D. Vest's Representatives are CPAs. Currently, 43 jurisdictions allow
CPAs to receive commission-based compensation for the sale of products or
services. The remaining 8 jurisdictions have regulations or laws which have been
interpreted to preclude CPAs from receiving such compensation. Some of our CPA
Representatives have been challenged in administrative actions brought by
accountancy
25
<PAGE>
boards in various states where the receipt of commissions was previously or is
currently prohibited. While we are currently aware of no material litigation
involving our CPA Representatives, there is no assurance that the remaining
states will change their rules and that future administrative actions will not
be brought against our Representatives.
The financial growth of H.D. Vest, Inc. may be adversely impacted in the event
that rules prohibiting commissions remain unchanged or should rules currently
allowing CPAs to receive commissions be changed to prohibit such activity.
AMORTIZATION AND DEPRECIATION
Amortization and depreciation expense was $3,939,526, $2,449,179, and $1,431,617
for the years ended September 30, 2000, 1999, and 1998, respectively. This
represents a 61%, 71%, and 53% increase in 2000, 1999, and 1998, respectively.
The increase is primarily driven by an increase in amortization and depreciation
expense caused by an increase in capitalizable software development and the
related computer hardware.
NET INCOME
Net income for the year ended September 30, 2000 was $3,007,749 compared to the
net income of $1,187,011 and $1,427,312 for the years ended September 30, 1999
and 1998, respectively. This represents a 153% increase in 2000 and a 20% and
33% decrease in 1999 and 1998, respectively. Net income for the year ended
September 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 and decreases in general
and administrative expenses and Representative recruiting expenses. As noted
above, the decrease for fiscal year 1999 is primarily due to an increase in
commission expense, an increase in costs to improve our technology and an
increase in Representative Recruiting expenses. The decrease in net income for
fiscal 1998 was due to increased legal and technology expenses.
LIQUIDITY AND CAPITAL RESOURCES
Our net working capital at September 30, 2000 was $13,285,689 compared to net
working capital of $6,579,642 at September 30, 1999. The $6,706,047 or 102%
increase, for the year ended September 30, 2000, is primarily a result of the
Company entering into a term loan agreement with a bank for $8 million. The
Company repaid an outstanding line of credit of $3 million with
26
<PAGE>
the proceeds. The new note bears interest, at prime plus 2% (11.5% as of
September 30, 2000) and matures June 29, 2002. Principal and interest payments
are due monthly under the term loan agreement.
During fiscal 2000, the Company dedicated much of its capital to the development
and promotion of a new interactive financial planning website 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.
Historically, our growth has been financed through loans, private placements of
preferred and common stock, public offerings of common stock and cash flows from
operations. For the period from inception through September 30, 2000, amounts
from these sources have been approximately $10.5 million, $2.6 million, $5.1
million and $27.7 million, respectively.
We have a Deferred Compensation Plan (the Plan) for our Representatives.
Pursuant to the Plan, Representatives may forego current compensation, and
subsequently receive the deferred compensation plus a Company matching
contribution, as defined in the Plan. The matching percentages for the Plan year
2001 are equal to 41%, 85%, 151% or 305% for periods of 36, 60, 84 or 120
months. As of September 30, 2000 and 1999, approximately $5,373,000 and
$3,450,000, respectively, had been cumulatively deferred under the Plan.
Matching contributions on amounts deferred under the Plan are accrued as
additional commission expense on a straight-line basis from the period deferred
until the Representative is paid the deferral amount and matching contribution.
Accordingly, commission expense will increase in the years in which commissions
are earned and deferred by participants. Such increases in commission expense
will have an adverse effect on our net income. To the extent that
Representatives elect to defer receipt of compensation under the Plan, such
compensation will ultimately be paid to the participant in the form of cash. As
of September 30, 2000 and 1999, we had cumulatively accrued matching
contributions of approximately $1,274,000 and $700,000, respectively. Accrued
matching contributions will be paid out over a maximum of ten
27
<PAGE>
years. During 2000, we paid approximately $103,000 to participants representing
deferred amounts and approximately $31,000 representing matching contributions.
The implementation of a new back office system in fiscal 1999 has led to an
increase in customer funds held which, in turn, has increased our required net
capital. This system will increase both our net capital and required net capital
in current and future periods. Such increases could adversely affect available
cash.
Historically, we have significantly increased our recruiting and development
activities upon obtaining financing through the sale of stock or cash flows. We
expense all costs related to these activities. Additionally, in periods of
increased recruiting and development activities, we have experienced higher
general and administrative costs as overhead increased to support the recruiting
and development activities. Consequently, we have recorded substantial expenses
subsequent to obtaining financing required to fund further growth. Should we
obtain future financing to fund our growth plans, it is likely that we would
record substantial expenses in the periods subsequent to obtaining such
financing.
We believe that, in addition to external financial resources (primarily bank
leases); our cash flow is sufficient to maintain our current operations as well
as our continued growth plan. We continually monitor the capital markets for
opportunities to obtain financing to meet our growth needs.
Year 2000 Assessment
We recognize the need to ensure that our 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 us, a Year 2000 plan was
established for the evaluation and management of risks associated with material
Year 2000 issues. The plan included a review of material computer systems that
we currently have in place, modification or replacement of such systems if
28
<PAGE>
required, inquiry to third-party providers with whom we have 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 our or third-party computer systems.
We have not experienced any major issues relating to the Year 2000. We have
continued to monitor and review all relevant systems within the Company as well
as third-party providers for any relevant issues.
We spent approximately $300,000 for testing, modification and replacement of our
computer systems related to Year 2000 issues as of September 30, 1999. For the
quarter ended December 31, 1999, we spent approximately $90,000 for testing,
modification and replacement of our computer systems related to Year 2000
issues. We expect that future expenses incurred, if any will continue to be
financed from internally generated funds.
The foregoing information is a Year 2000 readiness disclosure.
Forward-Looking Statements
The statements contained herein which are not historical fact are forward-
looking statements that are subject to risks and uncertainties that could cause
actual results to differ materially from those expressed in the forward-looking
statements. Words such as "believe," "expect," "anticipate," "intend," "aim,"
"will," and similar language, identify forward looking statements. The following
factors, among others, could affect our actual results and cause such results to
differ materially from those expressed in forward-looking statements: the
ability to access capital and financing on acceptable terms; heightened
competition; adverse publicity and news coverage regarding our Company, products
or services; adverse results in litigation; changes in social and economic
conditions; changes in generally accepted accounting policies and practices, and
the application of such policies and practices to us; loss or retirement of key
executives, employees or technical personnel; our inability to attract and
retain experienced executives, employees or technical personnel; natural events
and acts of God such as earthquakes, fires and floods; changes in domestic or
foreign laws and regulations affecting our ability to conduct business in the
manner in which we currently conduct such business.
29
<PAGE>
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk related to changes in U.S. prime interest rates.
No derivatives are currently used to alter the interest rate characteristics of
our debt instrument.
With respect to our interest-bearing liability, approximately $7.3 million of
long-term debt at September 30, 2000 is subject to variable rates of interest.
Based on a hypothetical 1.5% increase in interest rates, the potential
annualized losses in future pretax earnings would be a maximum of $110,000. The
impact of such a change in interest rates on the carrying value of long-term
debt would not be significant. The estimated changes to interest expense and the
fair value of long-term debt are determined considering the impact of
hypothetical interest rates on our borrowing cost and long-term debt balances.
These analyses do not consider the effects, if any, of the potential changes in
our credit ratings or the overall level of economic activity. Further, in the
event of a change of significant magnitude, management would expect to take
actions intended to further mitigate its exposure to such change.
30
<PAGE>
Item 8. Financial Statements and Supplementary Data
Index
Page(s)
-------
Report of Independent Public Accountants F-1
Consolidated Statements of Financial F-2 & F-3
Position - September 30, 2000 and 1999
Consolidated Statements of Operations - F-4
Three years ended September 30, 2000
Consolidated Statements of Shareholders' F-5
Investment - Three years ended
September 30, 2000
Consolidated Statements of Cash Flows -
Three years ended September 30, 2000 F-6
Notes to Consolidated Financial Statements F-7 - F-24
31
<PAGE>
Report of Independent Public Accountants
To the Shareholders and Directors of H.D. Vest, Inc.:
We have audited the accompanying consolidated statements of financial position
of H.D. Vest, Inc. (a Texas Corporation) as of September 30, 2000 and 1999, and
the related consolidated statements of operations, shareholders' investment and
cash flows for each of the three years in the period ended September 30, 2000.
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 auditing standards generally accepted
in the United States. 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 financial statements referred to above present fairly, in
all material respects, the financial position of H.D. Vest, Inc. as of September
30, 2000 and 1999, and the results of its operations and its cash flows for each
of the three years in the period ended September 30, 2000 in conformity with
accounting principles generally accepted in the United States.
Arthur Andersen LLP
Dallas, Texas,
October 25, 2000
F-1
<PAGE>
H.D. VEST, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
ASSETS
<TABLE>
<CAPTION>
September 30,
-------------
2000 1999
---- ----
<S> <C>
Current assets:
Cash and cash equivalents $24,219,035 $11,918,613
Commissions and accounts receivable, net 16,237,523 10,857,090
Receivable from affiliate 505,395 275,390
Prepaid expenses and other assets 2,058,469 1,025,506
------------- -------------
Total current assets 43,020,422 24,076,599
------------- -------------
Property and equipment, net of accumulated depreciation
of $6,286,141 and $3,997,687 at September 30, 2000
and 1999, respectively 8,736,940 6,713,270
Intangible and other assets, net of accumulated
amortization 5,541,842 3,680,780
------------- -------------
Total assets $57,299,204 $34,470,649
============= =============
</TABLE>
The accompanying notes are an intregral part of these consolidated financial
statements
F-2
<PAGE>
H.D. VEST, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
LIABILITIES AND SHAREHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
September 30,
-------------
2000 1999
---- ----
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $ 8,888,024 $ 5,406,058
Amounts due on clearing transactions 5,975,060 2,952,533
Unearned revenue 3,506,461 2,063,112
Commissions payable 8,698,522 7,075,254
Note payable - current 2,666,666 -
------------- -------------
Total current liabilities 29,734,733 17,496,957
------------- -------------
Obligations under capital leases, excluding current
installments 2,191,880 1,940,638
Note payable - long term 4,666,667 -
Other non-current liabilities 8,376,300 5,551,758
Commitments and contingencies
Shareholders' investment:
Preferred stock, $6 par value; 10,000,000 shares
authorized, 250,067 shares issued and outstanding
in both 2000 and 1999 1,500,402 1,500,402
Common stock, $.05 par value; 100,000,000 shares
authorized, 5,423,341 outstanding at September 30,
2000 and 1999 271,167 271,167
Additional paid-in capital 5,154,934 5,154,934
Retained earnings 5,403,121 2,554,793
------------- -------------
Total shareholders' investment 12,329,624 9,481,296
------------- -------------
Total liabilities and shareholders' investment $57,299,204 $34,470,649
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-3
<PAGE>
H.D. VEST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended September 30,
-------------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Revenues:
Commissions $149,194,901 $115,396,557 $ 95,370,504
Portfolio management fees 28,386,151 21,900,550 17,049,614
Marketing and education fees 13,589,214 10,923,662 7,964,579
Facility and service fee from affiliate 485,355 404,315 493,604
Other 2,110,331 1,597,687 1,035,374
------------ ------------ ------------
Total revenues 193,765,952 150,222,771 121,913,675
------------ ------------ ------------
Expenses:
Commissions 110,001,795 84,822,640 68,152,972
Portfolio management fees 20,814,386 15,364,107 11,263,669
General and administrative 21,119,007 22,183,630 21,182,001
Operations 12,261,746 10,719,749 7,179,790
Website development and promotion 9,581,346 - -
Representative development 9,560,437 8,736,114 7,521,719
Representative recruiting 705,532 3,083,830 2,231,364
Amortization and depreciation 3,939,526 2,449,179 1,431,617
Interest 724,595 359,899 294,981
------------ ------------ ------------
Total expenses 188,708,370 147,719,148 119,258,113
------------ ------------ ------------
Net income before state and federal income tax 5,057,582 2,503,623 2,655,562
Provision for state and federal income tax 2,049,833 1,316,612 1,228,250
------------ ------------ ------------
Net income $ 3,007,749 $ 1,187,011 $ 1,427,312
============ ============ ============
Net income per common share-basic $ 0.53 $ 0.20 $ 0.24
============ ============ ============
Net income per common share-dilutive $ 0.51 $ 0.20 $ 0.24
============ ============ ============
Weighted average number of common shares outstanding 5,423,341 5,423,341 5,423,341
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-4
<PAGE>
H.D. VEST, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
FOR THE YEARS ENDED SEPTEMBER 30, 2000, 1999, AND 1998
<TABLE>
<CAPTION>
Shares of Stock
Outstanding Additional
Preferred Common Paid-in Retained
Preferred Common Stock Stock Capital Earnings Total
--------- ------ ----- ------ ------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
September 30, 1997 250,067 5,423,341 $ 1,500,402 $ 271,167 $ 5,113,334 $ 163,658 $ 7,048,561
Capital Contribution - - - - 41,600 - 41,600
Preferred Dividends - - - - - (127,535) (127,535)
Net Income - - - - - 1,427,312 1,427,312
------- --------- ----------- --------- ----------- ----------- -----------
Balance at
September 30, 1998 250,067 5,423,341 1,500,402 271,167 5,154,934 1,463,435 8,389,938
Preferred Dividends - - - - - (95,653) (95,653)
Net Income - - - - - 1,187,011 1,187,011
-------- --------- ----------- --------- ----------- ----------- -----------
Balance at
September 30, 1999 250,067 5,423,341 1,500,402 271,167 5,154,934 2,554,793 9,481,296
Preferred Dividends - - - - - (159,421) (159,421)
Net Income - - - - - 3,007,749 3,007,749
-------- --------- ----------- --------- ----------- ----------- -----------
Balance at
September 30, 2000 250,067 5,423,341 $ 1,500,402 $ 271,167 $ 5,154,934 $ 5,403,121 $12,329,624
========= ========= =========== ========= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
F-5
<PAGE>
H.D. VEST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended September 30,
-------------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,007,749 $ 1,187,011 $ 1,427,312
Reconciliation of net income to net cash provided by operating activities
Amortization and depreciation 3,939,526 2,438,339 1,431,617
Deferred tax provision 673,366 509,107 679,586
Loss on sale of assets 27,447 10,840 282,783
Non-cash compensation expense - - 41,600
Deferred rent 47,736 137,628 285,083
Changes in assets and liabilities:
Commissions and accounts receivable (5,380,433) (1,655,604) (2,559,286)
Receivable from affiliate (230,005) (136,894) 3,649
Prepaid expenses and other assets (1,032,963) (286,445) (235,323)
Accounts payable and accrued expenses 2,382,251 (2,811,239) 3,011,066
Amounts due on clearing transactions 3,022,527 2,483,071 (70,076)
Unearned revenue 1,443,349 783,702 129,069
Commissions payable 1,623,268 2,235,909 150,222
----------- ----------- -----------
Net cash provided by operating activities 9,523,818 4,895,425 4,577,302
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Costs to acquire/develop software (1,886,848) (1,882,678) (2,200,982)
Additions to other assets (1,462,868) (87,108) (11,580)
Purchases of property and equipment (1,569,231) (627,706) (2,355,885)
Proceeds from sale of assets - - 48,670
----------- ----------- -----------
Net cash used for investing activities (4,918,947) (2,597,492) (4,519,777)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Preferred stock dividends (159,421) (95,653) (127,535)
Advances from deferred compensation plan 2,492,736 1,409,025 1,438,317
Payments on deferred compensation plan (133,316) (93,322) (13,112)
Advances on notes receivable to related parties - - (485,670)
Collection on notes receivable from related parties - 446,568 2,757,035
Proceeds from note payable 8,000,000 - -
Payments on notes payable and capital lease obligations (2,504,448) (1,250,300) (807,190)
----------- ----------- -----------
Net cash provided by financing activities 7,695,551 416,318 2,761,845
----------- ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 12,300,422 2,714,251 2,819,370
CASH AND CASH EQUIVALENTS, beginning of year 11,918,613 9,204,362 6,384,992
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year $24,219,035 $11,918,613 $ 9,204,362
=========== =========== ===========
</TABLE>
The accompanying notes are an internal part of these consolidated
financial statements
F-6
<PAGE>
H.D. VEST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Organization and Summary of Significant Accounting Policies
(a) Organization - H.D. Vest, Inc. (the "Company") is a Texas corporation
formed in December 1986, to manage the various financial services divisions of
the H.D. Vest Financial Services group. Through its wholly owned subsidiaries,
the Company provides financial services through tax and accounting
professionals. The Company's services are designed to assist in making
individual tax and accounting professionals financial service centers for their
clients.
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All material intercompany
transactions and balances have been eliminated.
(b) Cash and Cash Equivalents - Included in cash and cash equivalents are cash
balances and highly liquid investments with an original maturity of three months
or less.
(c) Commissions and Accounts Receivable - Commissions and accounts receivable
is stated net of certain allowances for doubtful accounts. The allowances at
September 30, 2000, 1999, and 1998 were approximately $1,350,000, $1,200,000,
and $810,000, respectively.
(d) Property and Equipment - Property and equipment is stated at cost and is
depreciated by the straight-line method using estimated useful lives ranging
from six to ten years for leasehold improvements and two to five years for all
other property and equipment. At September 30, 2000 and 1999, property and
equipment consisted of:
September 30,
-------------
2000 1999
---- ----
Leasehold improvements $ 1,320,478 $ 917,340
Computer equipment 8,640,510 4,887,903
Furniture and fixtures 3,939,319 3,835,498
Telephone equipment and autos 1,122,774 1,070,216
Less accumulated depreciation (6,286,141) (3,997,687)
----------- -----------
Total property and equipment, net $ 8,736,940 $ 6,713,270
=========== ===========
F-7
<PAGE>
H.D. VEST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During fiscal year 2000, the Company wrote off fully depreciated assets, which
were no longer in service, and retired other assets with an aggregate historical
cost of $189,865 and accumulated depreciation of $162,418. Depreciation expense
was $2,450,872, $1,814,070, and $1,235,323 for the years ended December 31,
2000, 1999, and 1998, respectively.
(e) Intangible and Other Assets - In accordance with Statement of Position
("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use," the Company capitalizes certain costs associated
with the design and implementation of the Company's internal use software. These
costs, along with costs incurred to acquire intangible and certain other assets
are stated at cost and where applicable are amortized by the straight-line
method using an estimated useful life of two to five years. At September 30,
2000 and 1999, intangible and other assets and accumulated amortization are:
September 30,
-------------
2000 1999
---- ----
Software development $ 6,422,203 $ 4,535,355
Other assets 2,149,948 687,080
Accumulated amortization (3,030,309) (1,541,655)
----------- -----------
Total other assets, net $ 5,541,842 $ 3,680,780
=========== ===========
Amortization expense was $1,488,654, $635,109, and $196,294 for the years ended
December 31, 2000, 1999, and 1998, respectively.
(f) Long-Lived Assets - The Company periodically evaluates whether events and
circumstances have occurred that indicate the remaining estimated useful lives
of its long-lived assets may warrant revision or that the remaining balance of
an asset may not be recoverable. The assessment of possible impairment is based
on the ability to recover the carrying amount of the asset from expected future
cash flows on an undiscounted basis. If the assessment indicates that the
carrying amount of the asset exceeds the undiscounted cash flows, an impairment
has occurred. The impairment is calculated as the total by which the carrying
amount of the asset exceeds its fair value. The fair value of long-lived assets
is estimated based on quoted market prices, if available, or the expected total
value of cash flows, on a discounted basis. No adjustments have been made to the
carrying amounts of the Company's assets due to impairment.
F-8
<PAGE>
H.D. VEST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(g) Amounts Due on Clearing Transactions - The Company remits customer
investment funds on certain clearing transactions on a settlement date basis
rather than on a trade date basis. Under the settlement date basis of
remittance, the Company holds customer funds from the trade date until the time
at which the trades are cleared by the product sponsor (not to exceed three
business days). See Note 7 for additional discussion.
(h) Revenue Recognition - Commission revenue and related commission expense are
recognized on a trade date basis. The Company charges its Representatives
licensing renewal processing fees, which are unearned until the first quarter of
each fiscal year. Marketing and education fees are charged to various product
wholesalers, the Company's Registered Representatives, and new licensees for
Company-sponsored educational seminars and materials. Portfolio management fees
represent fee-based revenues and are recognized based on the value of client
investment balances during the period.
(i) Web Based Fees - During the year ended September 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. For the year ended September 30, 2000, the
Company recognized $1,669,000 of these fees. The remainder has been reserved for
potential refund requests.
(j) Advertising Costs - Advertising expenses are included primarily in website
development and promotion, general and administrative, Representative
development, and Representative recruiting. The expenses principally represent
costs incurred to promote the Company's web site initiatives and are expensed as
incurred. The amounts of such costs were $5,769,303 for the year ended September
30, 2000 and were insignificant for the years ended September 30, 1999 and 1998.
F-9
<PAGE>
H.D. VEST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(k) Representative Development - Representative development expenses consist of
incremental salaries, office expenses, telephone expenses, educational events,
and promotional expenses directly related to training Registered
Representatives.
(l) Representative Recruiting - Representative recruiting expenses represent
the incremental costs incurred by the Company to recruit potential Registered
Representatives. Recruiting expenses include certain salaries, office expenses,
referral incentive programs, advertising, direct mail, and telemarketing costs.
(m) Income Taxes - Deferred income taxes are provided for temporary differences
between the tax basis of assets and liabilities and their financial reporting
amounts. Deferred taxes are recorded using the enacted tax rates expected to
apply to taxable income in the periods in which the deferred tax liability or
asset is expected to be settled or realized. The Company joins with its
subsidiaries and certain other affiliates in filing a consolidated federal
income tax return.
(n) Supplemental Cash Flow Information - Cash interest payments for the years
ended September 30, 2000, 1999, and 1998 were $650,483, $293,425, and $294,016,
respectively. Cash payments for federal income taxes for the years ended
September 30, 2000, 1999, and 1998 were $692,000, $282,000, and $1,187,265,
respectively. During the fiscal years ended September 30, 2000, 1999, and 1998,
the Company acquired assets through capital leases amounting to $2,911,196,
$788,053, and $3,219,053, respectively.
(o) Use of Estimates in the Preparation of Financial Statements - The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States 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 consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
(p) Prior Years' Statements - Certain reclassifications have been made to prior
years' statements in order for the amounts to be comparable with the current
year presentation.
F-10
<PAGE>
H.D. VEST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(q) Fair Value of Financial Instruments - Statement of Financial Accounting
Standards ("SFAS") 107, "Disclosures about Fair Value of Financial Instruments,"
requires certain disclosures regarding the fair value of financial instruments.
The carrying amounts reflected in the consolidated financial statements of cash
and cash equivalents, accounts receivable, accounts payable, and accrued
liabilities approximate fair value due to the short-term maturity of the
instruments. The carrying amount reflected in the consolidated financial
statements of the note payable approximates fair value because of its floating
rate and based on its effective interest rate compared to current market rates.
(r) New Accounting Standards - In December 1999, the Securities and Exchange
Commission issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue
Recognition in Financial Statements," which is effective for the fourth quarter
ending September 30, 2001. SAB 101 provides guidance in applying generally
accepted accounting principles to revenue recognition in financial statements.
The Company is evaluating the provisions of SAB 101 and does not expect the
adoption to have a material effect on the financial position or results of
operations of the Company.
(2) 401(k) Retirement Plan
In March 1993, the Company formed a Salary Savings Plan 401(k) retirement plan
for eligible employees. Employees are eligible for participation on the
enrollment date following completion of six months of service with the Company
or, if later, the enrollment date after attaining age 21. Employees may
contribute up to 15 percent of their income, up to the annual maximum allowed by
law. On January 1, 1999, the Company began to match contributions made by
employees based upon full years of service; 20 percent match for less than 3
years of service, 40 percent match for 3 to 4 years service, and 60 percent for
5 or more years of service. Previously, the Company matched all employees at a
20 percent rate. The Company modified the plan to reward tenure among employees.
Company contributions to the 401(k) retirement plan for the fiscal years ended
September 30, 2000, 1999, and 1998 were $422,629, $278,068, and $106,042,
respectively.
F-11
<PAGE>
H.D. VEST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) Financing Arrangements
In September 1997, the Company entered into a lease line of credit with a bank
under which the Company may finance leases up to an arrangement amount of
$2,000,000. Each lease will have a maturity of no greater than 5 years and will
require level monthly principal and interest payments set in accordance with the
bank's lease matrix, as defined. The collateral for each lease will be the
equipment it finances. At September 30, 2000 the Company had used all of the
lease line.
In February 1998, the Company also renewed its line of credit with a bank for
$1,000,000. This line of credit was subsequently increased to $3,000,000 in
February 2000. The line of credit bears interest, payable monthly, at prime plus
1/2% (10.00% as of September 30, 2000). Additionally, the Company's two largest
shareholders pledged a portion of their holdings as collateral for the line of
credit. The Company used a portion of the proceeds from the below term loan to
repay this line on June 29, 2000.
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
September 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.
The maturities of the long-term debt during the next five years are $2,666,666
in fiscal year 2001, $4,666,667 in fiscal year 2002, and $0 in fiscal years
2003, 2004, and 2005.
Under this agreement, we are subject to various financial ratios including total
liabilities to tangible net worth and a fixed charge ratio. We are also subject
to certain restrictions on material changes in the nature of our business and
certain other material transactions.
This loan is collateralized by certain intangibles and intellectual property and
all furniture, fixtures, and equipment of the Company. This loan is also
guaranteed by certain subsidiaries of the Company.
F-12
<PAGE>
H.D. VEST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) 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 years ended September 30,
2000, 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 the years ended September 30,
2000, 1999, and 1998 were 5,537,198, 5,488,398, and 5,537,762, respectively.
Options to purchase 273,948 shares of common stock at prices ranging from $7.63
to $20.00 per share were outstanding during the fiscal year ended September 30,
2000. Options to purchase 53,948 shares of common stock at prices ranging from
$7.63 to $8.50 per share were outstanding during the fiscal year ended September
30, 1999. Options to purchase 95,454 shares of common stock at $8.50 per share
were outstanding during the year ended September 30, 1998. 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 convertible preferred stock outstanding during the
years ended September 30, 2000, 1999, and 1998 not included in the computation
of diluted EPS because the conversion had an anti-dilutive effect on EPS.
(5) Commitments and Contingencies
(a) Leases - The Company leases its office space and certain office equipment
under lease agreements, which qualify as operating leases. The Company also
leases certain office equipment under certain lease agreements, which qualify as
capital leases. At September 30, 2000 and 1999, the capitalized basis of the
leases included in property and equipment was approximately $8,631,369 and
$5,869,047 and accumulated amortization applicable to the leased equipment was
approximately $3,820,289 and $2,382,733, respectively.
F-13
<PAGE>
H.D. VEST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Future minimum lease payments under operating lease commitments with initial or
noncancellable terms in excess of one year and under capital lease obligations
as of September 30, 2000, are:
Capital Operating
Leases Leases
------ ------
Year ended September 30:
2001 $2,372,229 $ 2,209,879
2002 1,753,154 2,080,115
2003 483,514 1,883,638
2004 18,261 1,816,774
2005 2,464 1,796,894
Thereafter - 4,040,332
---------- -----------
Total minimum lease payments 4,629,622 $13,827,632
========== ===========
Less amount representing interest 292,788
----------
Present value of net minimum capital
lease payments 4,336,834
Less current installments included in
accounts payable and accrued expenses 2,144,954
Obligations under capital leases, ----------
excluding current installments $2,191,880
==========
Rent expense for the years ended September 30, 2000, 1999, and 1998 was
approximately $2,734,928, $1,930,768, and $2,149,893, respectively.
(b) Litigation 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 and is unable at this time to determine what, if any,
potential liability the Company may have in regard to this matter.
F-14
<PAGE>
H.D. VEST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
We are subject to other legal proceedings and claims that have arisen in the
ordinary course of business and have not been finally adjudicated. We believe,
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 or results of operations of the Company.
(6) Shareholders' Investment
In September 1991, the Company issued 166,667 shares of non-voting, cumulative
Series A Convertible Preferred Stock at a price of $6.00 in exchange for
$1,000,002 in principal amount on a note payable to a financial services
company. The Company issued an additional 83,400 shares on non-voting,
cumulative Series A Preferred Stock at a price of $6.00 in exchange for $500,400
in cash to a second financial services company. The Company's preferred stock
pays a dividend at an annual rate of 8.5% and is payable quarterly. The
preferred stock is callable by the Company and convertible by the preferred
stockholder based on terms detailed in the offering agreement. Dividends of
$159,421 ($0.64 per share), $95,653 ($0.38 per share) and $127,535 ($0.51 per
share) were paid during fiscal years 2000, 1999, and 1998, respectively.
In August 1997, Herb D. Vest, principal common shareholder, purchased 166,667
shares of the Company's outstanding non-voting Series A Convertible Preferred
Stock in a private transaction. On December 31, 1998, Herb D. Vest, principal
common shareholder, entered into an agreement to purchase 83,400 shares of the
Company's outstanding Non-voting Series A Convertible Preferred Stock in a
private transaction. This transaction was completed on January 7, 1999. As a
result of this transaction, Herb D. Vest now owns 250,067 shares of the
Company's Non-voting Series A Convertible Preferred Stock.
(7) Net Capital Requirements
The Company's main operating subsidiary, H.D. Vest Investment Securities, Inc.,
is subject to the Securities and Exchange Commission Uniform Net Capital Rule
(Rule 15c3-1), which requires the maintenance of minimum net capital and
requires that the ratio of aggregate indebtedness to net capital, both as
defined, shall not exceed 15 to 1. Minimum net capital can never be lower than
$250,000 or 6 2/3% of aggregate indebtedness, whichever is greater. HDVIS had
net capital,
F-15
<PAGE>
H.D. VEST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
required net capital, and excess net capital for the years ended September 30,
2000, 1999, and 1998 as follows:
2000 1999 1998
---- ---- ----
Net capital $5,255,640 $3,229,712 $2,134,772
Required net capital 1,107,995 747,403 407,842
---------- ---------- ----------
Excess net capital $4,147,645 $2,482,309 $1,726,930
========== ========== ==========
To the extent that technology increases the amount of client funds held, the
Company's required net capital will increase incrementally.
(8) Related-Party Transactions
The Company has an agreement with Herb D. Vest (principal common shareholder)
for management services to the Company. The agreement with Herb D. Vest provides
for a management fee per year including an annual bonus based on the Company's
performance related to revenue and net income goals, additions of Company
affiliates 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. In addition, in September 2000, Mr. Vest and the Company
agreed to reduce Mr. Vest's base compensation from $900,000 to $675,000 for
fiscal year 2000. Pursuant to his management agreement, Mr. Vest is entitled to
receive his full base salary and bonus during fiscal year 2001. The agreement
also provides that Mr. Vest is permitted to request and receive advances on
future management fees based on estimated future operations. At September 30,
2000, Mr. Vest had received $675,000 under this agreement, consisting entirely
of management fees related to fiscal year 2000. The Company paid a bonus of
$2,315,412 and $2,340,148 in fiscal 1999 and 1998, respectively. Management
fees, including bonus, under these agreements were $3,215,412 and $3,240,148 for
the years ended September 30, 1999 and 1998, respectively.
Herb D. Vest, Chairman of the Board of Directors and Chief Executive Officer of
the Company, purchased approximately 1.4 million shares of the Company's common
stock
F-16
<PAGE>
H.D. VEST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
from Barbara 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 approximately 3.6 million of
approximately 5.4 million currently outstanding shares, or approximately 67% of
the Company's issued and outstanding common stock.
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 unrestricted
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. The terms of the
agreement require an annual payment to be made on November 30 of each year equal
to one-seventh of the then outstanding principal plus accrued interest. The
final payment of all outstanding principal and accrued interest shall be due and
payable on or before November 30, 2001. Under the agreement interest accrues on
unpaid principal balances at a rate of 11%. At September 30, 2000, Mr. Vest had
no outstanding principal or accrued interest on this line.
The Company also had a consulting agreement with Mrs. Barbara Hancock through
October 1996. In November 1996, Mrs. Hancock was employed by the Company as its
Representative Relations Director, thereby terminating her consulting contract.
Amounts paid to Mrs. Hancock during the years ended September 30, 2000, 1999,
and 1998, under these arrangements, were approximately $354,615, $325,000, and
$325,000, respectively.
The Company has an agreement to provide Barbara Hancock a revolving line of
credit in an amount not to exceed $700,000, collateralized by Mrs. Hancock's
unrestricted 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. The terms
of the agreement require an annual payment to be made on November 30 of each
year equal to one-seventh of the then outstanding principal plus accrued
interest. The final payment of all outstanding principal and accrued interest
shall be due and payable on or before November 30, 2001. Under the agreement,
interest accrues on unpaid principal balances at a rate of 11%. In December
1998, Mrs. Hancock repaid in full the outstanding principal balance, together
with the accrued interest, of her revolving line of credit from the Company. At
September 30, 2000, Mrs. Hancock had no outstanding principal or accrued
interest on this line.
F-17
<PAGE>
H.D. VEST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
H.D. Vest Insurance Agency (f/k/a H.D. Vest Insurance Services) (HDVIns) is
owned by Herb D. Vest. HDVIns general insurance agency appoints Representatives
with various insurance companies to enable them to sell insurance products to
their clients. The Company, in accordance with the terms of a facilities and
services agreement, provides certain management and other services to HDVIns and
is paid a fee for these services. The value of these services for the fiscal
year ended 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. The services provided to HDVIns by the
Company are summarized as follows: management, accounting, referral data base,
client tracking services, solicitation, tracking of renewal policies of
insurance, collection of premiums and commissions, processing of insurance
transactions, payment of salaries and other expenses, cost of recruiting,
training and reporting to agents and other services as deemed appropriate by the
Company. The Company receives all variable commissions through HDVIS. Variable
commission revenue was $26,159,813, $17,850,301, and $13,785,487 for the years
ended September 30, 2000, 1999, and 1998, respectively. In accordance with this
agreement the Company has charged HDVIns $485,355, $404,315, and $493,604,
respectively, for the years ended September 30, 2000, 1999, and 1998 for
facilities and management services rendered. As of September 30, 2000, the
Company had a receivable of $505,395 from HDVIns for these services.
In March 1997, Herb D. Vest, principal common shareholder, purchased options to
acquire 150,000 shares of common stock with an exercise price of $5.00 from two
former executive officers in a private transaction. In June 1998, Herb D. Vest,
principal common shareholder, purchased options to acquire 64,000 shares of the
Company's restricted common stock with exercise prices between $2.38 and $7.63
from two directors of the Company's Board of Directors. Accounting principles
generally accepted in the United States require that equity transactions of this
type involving an entity's principal shareholder be recorded on the entity's
financial statements. Accordingly, the Company recorded a capital contribution,
net of tax effect, and expense of a like amount to reflect this transaction.
F-18
<PAGE>
H.D. VEST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) Income Taxes
Income tax expense consisted of the following components:
September 30,
-------------
2000 1999 1998
---- ---- ----
Current:
Federal $1,132,653 $ 718,035 $ 419,389
State 243,814 89,471 129,275
Deferred:
Federal 587,950 277,008 643,619
State 85,416 232,098 35,967
---------- ---------- ----------
$2,049,833 $1,316,612 $1,228,250
========== ========== ==========
The effective income tax rate differs from the statutory federal income tax rate
for the following reasons:
September 30,
---------------------------------------------
2000 1999 1998
---- ---- ----
Statutory rate 34.0% 34.0% 34.0%
State taxes, net of
Federal 6.1 8.4 7.5
Other 0.4 10.2 5.1
---------------------------------------------
Effective rate 40.5% 52.6% 46.6%
=============================================
The following table presents the components of the net deferred tax liability:
<TABLE>
<CAPTION>
Deferred Expense
October 1, 1999 (Benefit) September 30, 2000
--------------- ---------------- ------------------
<S> <C> <C> <C>
Research and development $ (1,263,374) $ 187,942 $ (1,451,316)
Depreciation (153,333) 481,359 (634,692)
Other 228,015 4,065 223,950
------------ ----------- --------------
Net deferred tax liability $ (1,188,692) $ 673,366 $ (1,862,058)
============ =========== ==============
</TABLE>
The deferred tax liability is included in other noncurrent liabilities in the
financial statements.
F-19
<PAGE>
H.D. VEST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(10) Stock Option Plans
In fiscal 1997, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123
encourages, but does not require, companies to record compensation cost for
stock-based employee compensation plans at fair value. The Company adopted the
disclosure provisions of SFAS No. 123. The Company continues to apply the
accounting provisions of APB Opinion 25, "Accounting for Stock Issued to
Employees," and related interpretations to account for stock-based compensation.
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 grant over
the amount an employee must pay to acquire the stock.
The Company has a Nonqualified Stock Option Plan (the "Nonqualified Plan"). The
Nonqualified Plan is for all employees, as defined in the Nonqualified Plan, and
the Company has reserved 800,000 shares of common stock for this plan. As of
September 30, 2000, 599,948 options are outstanding under the Nonqualified Plan.
The Company has a total of 733,948 options outstanding as of September 30, 2000.
A summary of the status of the Company's outstanding stock options as of
September 30, 2000, 1999, and 1998 and changes during the years then ended are
as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
2000 1999 1998
------------------------------------------------------------------------------------------------------------------
Exercise Exercise Exercise
Price price price
----- ----- -----
Shares (1) Shares (1) Shares (1)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 375,948 $ 5.25 431,454 $5.59 423,454 $5.58
Granted 540,000 11.70 - - 8,000 6.26
Exercised - - - - - -
Expired and cancelled 182,000 - 55,506 - - -
Outstanding at end
of year 733,948 9.85 375,948 5.25 431,454 5.59
Exercisable at end
of year 583,948 10.84 326,000 4.76 336,000 4.61
Fair value of options
granted $ 1.45 - - - $ 4.93 -
------------------------------------------------------------------------------------------------------------------
</TABLE>
1) weighted average per option granted.
F-20
<PAGE>
H.D. VEST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The 733,948 options outstanding as of September 30, 2000 have exercise prices
between $2.38 and $20.00, with a weighted average exercise price of $9.85 and a
weighted average remaining contractual life of 10 years. Approximately 583,948
of these options are exercisable with a weighted average exercise price of
$10.84. The remaining 150,000 unexercisable options have an exercise price of
$6.00.
On October 13, 1999, The Board of Directors resolved to issue to Herb D. Vest
from the Nonqualified Stock Option Plan options for the purchase of 220,000
shares of the Company's common stock exercisable at a strike price of $20 per
share for a period of three years from the date of issuance.
On November 8, 1999, the Board of Directors approved the issue of stock options
to certain employees and officers. The options granted to these employees and
officers allowed for the purchase, collectively, of up to 348,000 total shares
of the Company's common stock at an exercise price of $6.00 per share. As of
September 30, 2000, 150,000 of these options are still outstanding.
Had compensation costs been determined consistent with SFAS No. 123, the
Company's net income and earnings per share would have been recorded in the
following pro forma amounts:
2000 1999 1998
---- ---- ----
Net income - as reported $3,007,749 $1,187,011 $1,427,312
Net income - pro forma 2,222,388 1,187,011 1,387,872
Earnings per share - as reported .53 .20 .24
Earnings per share - pro forma .38 .20 .23
Because the method prescribed by SFAS No. 123 has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
F-21
<PAGE>
H.D. VEST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
2000 1999 1998
---- ---- ----
Risk free interest rate 6.42% 5.86% 5.86%
Expected dividend yields - - -
Expected lives in years 10 10 10
Expected volatility 55.87% 66.77% 66.77%
(11) Deferred Compensation Plan
In July 1995, the Company began accepting contributions to the Deferred
Compensation Plan (the "Plan") for its Representatives. Pursuant to the Plan,
Representatives may forego current compensation, thus postponing recognition of
income otherwise currently taxable, and subsequently receive the deferred
compensation plus a Company matching contribution as defined in the Plan.
Amounts deferred as of September 30, 2000 were approximately $4,900,000 included
in other noncurrent liabilities and $285,000 included in accrued expenses.
Amounts deferred as of September 30, 1999 were approximately $3,264,000 included
in other noncurrent liabilities and $100,000 included in accrued expenses. For
the year ended September 30, 2000 the Company had paid $103,000 to participants
representing deferred amounts and $31,000 representing matching contributions.
Matching contributions of amounts deferred under the Plan must be accrued as
additional commission expense on a straight-line basis from the period deferred
until the Representative is paid the deferral amount and matching contribution.
Accordingly, participation in the Plan by Representatives will have the effect
of increasing commission expense in the years in which commissions are earned
and deferred by participants. Such increases in commission expense will have an
adverse effect on the net income of the Company. To the extent that
Representatives elect to defer receipt of compensation under the Plan, such
compensation will ultimately be paid to the participant in the form of cash.
Matching contributions accrued as of September 30, 2000 and 1999 approximated
$1,240,000 and $700,000, respectively, and are included in noncurrent
liabilities and accrued expenses.
F-22
<PAGE>
H.D. VEST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(12) 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. HDVTI's sole purpose is to record the cost and related revenues
generated from the Company's website initiative. 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.
For the year ended September 30, 2000
-------------------------------------
Core HDVTI Consolidated
---------- --------- ----------------
Revenues $193,743,712 $ 22,240 $193,765,952
Expenses 178,500,628 10,207,742 188,708,370
Net Income (Loss) Before
Taxes 15,243,084 (10,185,502) 5,057,582
Income Tax Provision
(Benefit) 6,249,664 (4,199,831) 2,049,833
Net Income (Loss) $ 8,993,420 $ (5,985,671) $ 3,007,749
Expenses for HDVTI include $626,396 in amortization and depreciation expense and
$0 in interest expense.
F-23
<PAGE>
H.D. VEST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(13) Unaudited Quarterly Financial Data
The following tables set forth the unaudited quarterly results of operations:
<TABLE>
<CAPTION>
For the year ended September 30, 2000
-----------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $43,910,425 $51,708,972 $52,452,334 $45,694,222
Net income/(loss) $ 1,892,268 $(2,179,153) $ 642,232 $ 2,652,403
Net income/(loss) per
common share-basic $ 0.34 $ (0.41) $ 0.11 $ 0.48
Net income/(loss) per
common share-diluted $ 0.34 $ (0.41) $ 0.11 $ 0.46
</TABLE>
<TABLE>
<CAPTION>
For the year ended September 30, 1999
-----------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $34,535,387 $35,294,971 $39,767,096 $40,625,316
Net income/(loss) $ 179,354 $ (144,452) $ (202,180) $ 1,354,289
Net income/(loss) per
common share-basic $ 0.03 $ (0.03) $ (0.04) $ 0.25
Net income/(loss) per
common share-diluted $ 0.03 $ (0.03) $ (0.04) $ 0.24
</TABLE>
F-24
<PAGE>
Item 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
32
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table provides certain information about each of the Company's and
its subsidiaries' current members of the Board of Directors, officers and
directors of certain divisions of the Company as of September 30, 2000.
Name Age Position with the Company
---- --- -------------------------
Herb D. Vest 56 Chairman of the Board of
Directors and Chief
Executive Officer
Barbara Hancock 54 Board of Directors and
Representative Relations
Director
Kenneth E. Reynolds 71 Board of Directors
Jack B. Strong 70 Board of Directors
Jerry M. Prater 58 Board of Directors
Phillip W. Mayer 58 Board of Directors
Kenneth R. Petree 57 Board of Directors
Roger Ochs 39 President
W. Ted Sinclair 36 Vice President and Chief
Financial Officer
R. Bredt Norwood 36 General Counsel and
Corporate Secretary
33
<PAGE>
KEY EMPLOYEES
Herb D. Vest, Chairman of the Board of Directors and Chief Executive Officer.
Prior to assuming his present position with the Company and HDVIS in June 1983,
Mr. Vest practiced public accounting and financial planning for ten years as the
sole proprietor of Herb D. Vest, CPA. Prior to June 1983, Mr. Vest was also
registered with a National Association of Securities Dealers firm. Mr. Vest is a
Certified Public Accountant, Certified Management Accountant, Certified
Financial Planner, Chartered Financial Analyst, Certified Fund Specialist,
Certified Microsoft Professional, Master, Fellow Life Management Institute,
Chartered Life Underwriter, Registered Health Underwriter, Chartered Financial
Consultant, Accredited Personal Financial Specialist and Certified Employee
Benefit Specialist. He holds certificates in Pension and Executive Compensation
and Estate Planning & Taxation from The American College. Mr. Vest holds a
Bachelor of Science Degree in Political Science and three Masters of Science
Degrees, in Taxation, Financial Services. He holds a Juris Doctorate from an
unaccredited law school and is licensed to practice law in California. He holds
an LLM from an accredited law school. Mr. Vest holds a Doctorate in
International Business Administration. He is a National Association of
Securities Dealers General Securities Principal, Registered Options Principal,
Municipal Securities Principal, and Financial and Operations Principal. He is a
licensed real estate broker in three states and licensed life, health and
accident insurance agent in forty-nine states. Mr. Vest is also a licensed
Property and Casualty Insurance Agent. Following graduation from college in
1966, Mr. Vest served as an infantry officer in the U.S. Army, including two
tours of duty in Vietnam. He has served as a lecturer at local colleges and
universities including the University of Texas at Arlington and the Seminar for
Financial Analysts held at the University of Windsor, Ontario. He is also a
member of the American Institute of Certified Public Accountants, the Texas
Society of CPAs, American Bar Association, Association for Investment Management
and Research, Dallas Association of Investment Analysts, National Association of
Business Economists, World Future Society, Association of International
Accountants, the State Bar of California and Mensa. Additionally, Mr. Vest has
written on international trade, taxation, portfolio management and the financial
services profession for such publications as Global Custodian, Business Mexico,
Personal Financial Planning, Accounting Today, CFP Today, Real Estate Securities
& Capital Markets, and The Dallas Business Journal. Mr. Vest has been voted
among the 100 Most Influential People in Accounting by Accounting Today magazine
since 1994 and is the winner of an Ernst and Young Entrepreneur of the Year
Award in 1999. Mr. Vest has co-authored
34
<PAGE>
two books, "Wealth Workout" and "Wealth- How to get it, How to keep it".
Barbara Hancock, Board of Directors, Representative Relations Director. She has
been involved in every phase of developing the Company. Her responsibilities
include expanding the Company's Representative force and developing
Representative services. Mrs. Hancock was integrally involved in Herb Vest's
private CPA practice for ten years in Irving, Texas and was an independent
consultant to the Company until October 1996 when she was employed by the
Company as Representative Relations Director. She is qualified to speak on many
facets of practice development for the tax and financial professional. Image
building, goal setting, referral development and employee training are just a
few of the topics in Mrs. Hancock's speaking repertoire. Mrs. Hancock is active
in many national and local professional organizations and is a dedicated Company
Representative for the community and political affairs. She holds a master's
degree from Texas Tech University and is a member of Mensa. She holds a real
estate license, a Group I Life Insurance license, and is a NASD General
Securities Principal. Mrs. Hancock is also a member of the Texas Woman's
Alliance and Sales and Marketing Executives associations.
Kenneth E. Reynolds, Board of Directors. He started his Norman, Oklahoma-based
Certified Public Accounting practice in 1965. He is past Chairman of the
Personal Financial Planning Committee of the Oklahoma Society of CPAs and past
President of the Norman Chapter of the Oklahoma Society of CPAs. Also, Mr.
Reynolds serves on the Arthur Andersen LLP A-plus Tax User Advisory Committee.
He became a registered Representative of the Company in 1987 and became a
Director of the Company in fiscal year 1993.
Jack B. Strong, Board of Directors. Mr. Strong has been a practicing attorney
since 1952. He was elected to the Texas State Senate in 1962, where he served
until his retirement in 1971. Since leaving the Senate, he has served on various
state committees, boards and commissions, including chairing Lt. Governor
Hobby's Blue Ribbon Committee on Ethics Reform, the Regional Medical Program of
Texas, and the Texas State Board of Education, and currently serves on the
Interstate Oil Compact Commission. Mr. Strong serves as President of Texas-based
General Equities, Inc. and Strongworth, Inc. From January 1992 to January 1993,
Mr. Strong served as an advisor to the Company's Board. He has been a Director
of the Company since fiscal year 1993.
Jerry M. Prater, Board of Directors. He has been a practicing Certified Public
Accountant since 1983. Mr. Prater has held positions with agencies of the U.S.
Department of Defense,
35
<PAGE>
Continental Electronics Mfg. Co., Hill & Wilkinson and Quazon Corporation, prior
to founding his own Dallas, Texas-based public accounting practice in 1983. Mr.
Prater was elected to the Board of Directors of the Company in 1994.
Phillip W. Mayer, Board of Directors. He has held a variety of command and staff
positions as an Infantry Officer in the United States Army prior to his
retirement in 1982. Mr. Mayer holds two masters degrees and was designated a
Certified Public Manager by the Arizona State University Advanced Public
Executive Program in 1990. Since 1985, he has worked in the corrections
profession as a Program Manager and Director of Staff Training. He currently
serves as a Staff Training Manager for the Santa Clara County Department of
Correction, San Jose, California. Mr. Mayer was elected to the Board of
Directors of the Company in 1994.
Kenneth R. Petree, Board of Directors. Mr. Petree is a Development Officer for
the Central, North, West and East Texas Regions for Bank United, Texas. He
currently serves on the Board of Directors and chairs the Loan and Discount
Committee for the Fort Worth Economic Development Corporation, a non-profit
entity. Mr. Petree has extensive experience in the banking industry and has held
executive positions with Overton Bank and Trust, N.A., and Irving National Bank.
Roger Ochs, President. Mr. Ochs was employed by the Company in 1987 and was
promoted to President in July of 1999. He had served as Marketing Director since
1995. He was responsible for directing the Company's Recruiting and Development,
Field Support, Educational Services, Marketing, Advisory Services and Financial
Planning Support departments. Mr. Ochs previously served as Manager of the
Technical Services Division, which included Advisory Services, Retirement
Services, Estate Planning Services and the Banking Division. He graduated from
Angelo State University with a bachelor of business administration, a master of
business administration from Trinity University and a juris doctor degree from
Southern Methodist University School of Law. He is licensed to practice law in
the state of Texas. He is a General Securities Representative, General
Securities Principal, Registered Options Principal, Municipal Securities
Principal, General Life Insurance Agent, Certified Financial Planner and a
Chartered Life Underwriter.
W. Ted Sinclair, Vice President/Chief Financial Officer. Mr. Sinclair was
employed by the Company in fiscal 1987 and was promoted to Vice President in
fiscal 1993. He is responsible for the financial management of the Company and
financial, tax and management reporting and budgeting. Mr. Sinclair previously
36
<PAGE>
served as Controller and was responsible for coordinating and controlling all
financial reporting and tax activities. He graduated from the University of
North Texas with a Bachelor of Science degree in Accounting. He is a Certified
Public Accountant, Certified Management Accountant, Certified Financial Planner,
Certified Cash Manager and a Certified Fund Specialist. He is a General
Securities Principal, Registered Options Principal, Municipal Securities
Principal and Financial and Operations Principal.
R. Bredt Norwood, General Counsel and Corporate Secretary. Mr. Norwood was
employed by the Company in fiscal 1994. Mr. Norwood advises the firm on
corporate legal matters and litigation, manages the Company's in-house and
outside counsel, and oversees the Company's involvement in government and
regulatory affairs. He holds an undergraduate degree in government from the
University of Texas at Austin and a juris doctor degree from Southern Methodist
University School of Law.
37
<PAGE>
Item 11. Executive Compensation
The following table sets forth all remuneration earned in salary and bonus
in the current year to the Chief Executive Officer, the highest paid
members of the Board of Directors, Officers and key Senior Managers each
receiving in excess of $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
Restricted Stock
Name & Principal Fiscal Stock Options All Other
Position Year Salary Bonus Awards (1) Compensation
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Herb D. Vest 2000 675,000 - - - 53,700
Chairman of the Board of 1999 900,000 2,315,412 - - 53,700
Directors and Chief 1998 900,000 2,340,148 - - 53,700
Executive Officer(2)
Barbara Hancock 2000 354,615 242,713 - - 29,500
Director and Director 1999 325,000 20,000 - - 29,500
Of Representative 1998 325,000 27,283 - - 29,500
Relations
Roger Ochs 2000 300,000 404,521 - - -
President 1999 209,615 289,641 - - -
1998 150,000 194,898 - - -
W. Ted Sinclair 2000 172,700 117,985 - - -
Vice President and Chief 1999 160,000 102,984 - - -
Financial Officer 1998 145,000 90,952 - - -
R. Bredt Norwood 2000 136,923 70,117 - - -
General Counsel and 1999 130,000 66,846 - - -
Corporate Secretary 1998 115,808 57,170 - - -
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1) All officers are covered under a bonus stock plan (see Management - Stock
Options and Certain Transactions - Stock Options). No goals have been set to
issue common stock options for fiscal years ending September 30, 2000, 1999, or
1998. No awards were earned in 2000, 1999, or 1998.
2) See Management Agreements for a description of the terms of Mr. Vest's
current management agreement.
38
<PAGE>
Executive Officer Compensation Plan
During April 1994, the Board of Directors of the Company adopted an Executive
Officer's Compensation Plan. The purpose of the Executive Officers Compensation
Plan is to provide additional compensation to a select group of management
employees of the Company in order to motivate and retain them, as well as to
provide them an incentive to guide the Company in attaining higher revenue
goals. The Company will provide this additional compensation under the Executive
Officer's Compensation Plan in the form of salary, restricted stock, incentive
cash and restricted stock bonuses, as well as severance and change-in-control
benefits.
As an unfunded plan of deferred compensation, it is administered by the Chief
Executive Officer of the Company, who is presently Herb D. Vest. Eligibility to
participate in the Executive Officers Compensation Plan is determined in the
sole and absolute discretion of the Company, which establishes eligibility
provisions of the executive officer compensation plan that it may change at any
time in its sole and absolute discretion.
Currently, to be eligible to participate in the Executive Officer's Compensation
Plan, an individual must be an executive employee of the Company, have completed
at least two full years of Company service, and be part of a select group of
management employees designated by the Company's Board of Directors. The
individual employee must also sign an Officer's Deferred Compensation Agreement
and an Officer Agreement as a condition precedent to becoming a participant in
the Executive Officer's Compensation Plan.
Under the Restricted Stock portion of the Executive Officer's Compensation Plan,
a number of shares of restricted stock are determined by the Chief Executive
Officer of the Company as allocable to a particular participant. This restricted
stock is credited to the participant's account and will be vested and
distributable upon the first to occur of the following events: (1) long-term
disability, death of the participant or attaining the preselected Deferral Date;
or (2) the date of a "change-in-control" of the Company (as that term is defined
in the executive officer's deferred compensation plan). No stock was earned
under the Executive Officer's Compensation Plan for the fiscal year ended
September 30, 2000.
39
<PAGE>
The Board of Directors annually sets goals, which, if attained, will generate a
cash bonus for the participant payable unless certain losses are also incurred.
In addition, bonus stock will be credited to participants' accounts in the form
of restricted stock on the basis of the Company's attaining three-year
cumulative revenue goals. Each year, these goals are set by the Board of
Directors for the upcoming three years and are based in part on the previous
year's goals that consist of a threshold, a target and a maximum cumulative
revenue goal. Upon attaining one of these goals, bonus stock credited in the
form of restricted stock to the participant's plan vests and will become
distributable only upon retirement, long term disability or death of the
participant, or the date of a "change-in-control" of the Company (as that term
is defined in the Executive Officer's Compensation Plan). No goals have been set
to issue common stock options for fiscal years ending September 30, 2000, 1999,
or 1998. No awards were earned in 2000, 1999, or 1998.
STOCK OPTIONS
The Board of Directors of the Company adopted a Stock Option Plan as of October
1, 1987, in order to attract, retain, motivate and encourage stock ownership by
employees, officers and directors of the Company and its subsidiaries. The Stock
Option Plan is administered by a stock option committee (Committee), appointed
by the Chief Executive Officer, consisting of one to three members. The members
of the Committee shall be eligible to receive options under the Stock Option
Plan.
The Committee currently consists of one member, Herb D. Vest. Options granted
under the Stock Option Plan are not intended to qualify as Incentive Stock
Options under Section 422(a) of the Internal Revenue Code of 1986, as amended
from time to time. The Company has reserved up to 800,000 shares of its common
stock for options under the Stock Option Plan. The options must be paid in cash,
unless otherwise permitted by the Committee. The exercise price of any options
granted in the future will not be less than 100% of the fair market value of the
common stock on the date of grant.
The Committee, at the direction of the Chief Executive Officer, may amend,
modify or terminate the Stock Option Plan, provided however, no action of the
Committee, without approval of the Chief Executive Officer and the shareholders
of the Company may:
40
<PAGE>
(a) Increase the total number of shares of Common Stock subject to the Plan.
(b) Withdraw the administration of the Plan from the Committee; and provided
further, that no termination, amendment or modification of the Plan shall
in any manner affect and option theretofore granted under the Plan without
the consent of the optionee or permitted transferee of or successor to the
option.
Anti-dilution provisions in the Stock Option Plan provide for adjustment of the
Option exercise price and the number of shares of common stock issuable upon
exercise to prevent dilution of their value upon the occurrence of certain
events.
Options covering 191,497 shares were granted at an option price of $8.50 per
share as of October 1, 1987 to employees; 49,948 of these options remain
outstanding as of September 30, 2000.
As of September 30, 2000, options covering 599,948 shares issued from the Stock
Option Plan are outstanding. In March 1997, Herb D. Vest, principal common
shareholder, purchased 150,000 of such options from two former employees of the
Company in a private transaction.
In addition to the Stock Option Plan, the Board of Directors has from time to
time approved the issuance of options to employees, independent directors, and
advisors to the Company. In November 1992, the Board of Directors resolved that
independent directors elected to the Board be granted options for the purchase
of 2,000 shares of the Company's common stock each quarter (a total of 8,000
shares for the year elected). The Board resolved to discontinue issuing such
options in June 1998. Options covering 64,000 shares of stock were issued to
independent directors. During fiscal year 1998, Herb D. Vest purchased these
options from the independent directors in private transactions. These 64,000
options remain outstanding as of September 30, 2000.
As a result of the foregoing, options covering 733,948 shares of common stock,
with exercise prices ranging from $2.38 to $20.00 per share, have been issued to
officers, directors and employees of the Company, and remain outstanding at
September 30, 2000. The following table provides information with respect to
options issued to officers and directors that remain outstanding as of September
30, 2000:
41
<PAGE>
_______________________________________________________________________________
Aggregated Option Exercises in Last Fiscal Year End
and Fiscal Year End Option Values
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised, In-
Shares Options Held At The-Money Options at Fiscal
Acquired Fiscal Year End Year End
Through --------------- --------
Name Options Value Exercisable Unexercisable Exercisable Unexercisable
Exercised Realized (1) (2)
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Herb D. Vest - - 579,148 - $250,695 -
Roger Ochs - - 40,000 - - -
W. Ted Sinclair - - 1,456 - - -
R. Bredt Norwood - - 10,000 - - -
</TABLE>
(1) Represents the difference between the closing price of the
Company's common stock on September 30, 2000 and the exercise
price of the options.
(2) The current fair market value of the stock at September 30, 2000
was below the option exercise price.
COMPENSATION OF DIRECTORS
The Company's Board of Directors holds formal and informal meetings
throughout the year with management and shareholders to discuss Company
affairs.
The Company's Board of Directors has an Audit Committee. The function of
the Audit Committee is (i)to oversee the Company's system of internal
control and the financial reporting process; (ii)to review the internal
audit function; (iii)to approve the selection of the Company's independent
accountants; and (iv)to review audit reports. The members of the Audit
Committee during fiscal 2000 were Jerry Prater, Jack Strong and Phillip
Mayer.
The Company's Board of Directors has a Compensation Committee. The Function
of the Compensation Committee is to review, discuss and advise management
and officers of the Company regarding compensation and other employment
benefits afforded officers and employees of the Company. As of September
30, 2000, the Compensation Committee includes the members of the Board of
Directors: Herb D. Vest, Barbara Hancock, Kenneth R. Petree, Jack Strong,
Kenneth Reynolds, Jerry Prater and Phillip Mayer.
42
<PAGE>
Directors are reimbursed for travel and other expenses related to attendance at
Board and committee meetings. Total compensation to the Directors for the year
ended September 30, 2000 is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Name Title Compensation
---- ----- -----------
Herb D. Vest Chairman of the Board of Directors $53,700
Barbara Hancock Director 29,500
Jack Strong Director and Member-Audit Committee 38,500
Kenneth Reynolds Director 29,500
Jerry Prater Director and Chairman of the Audit Committee 35,500
Phillip Mayer Director and Member-Audit Committee 33,500
Kenneth Petree Director 29,500
</TABLE>
Mr. Strong and Strongworth, Inc., an entity with which Mr. Strong is affiliated,
received approximately $30,000 in professional fees for services performed for
the Company in fiscal 1999.
Effective November 1999, Jack Strong submitted and the Company accepted Mr.
Strong's resignation as a consultant to the Company pursuant to which the
Company's contract with Mr. Strong was terminated. Subsequent to November 1999,
Mr. Strong is an independent member of the Company's Board of Directors.
On November 9, 1999, the Board created a Project Oversight Committee which will
be responsible for assisting the Board to oversee special projects of the
Company. Jack Strong was appointed a member and chairman of the committee. The
Board of Directors approved payment of $6,000 annually to the chairman of the
Project Oversight Committee.
43
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following information is furnished as of September 30, 2000, to indicate
beneficial ownership of more than 5% of the Company's Common Stock, as well as
beneficial ownership by each director and certain executives, individually and
directors of the Company, as a group, of shares of the Company's Common stock.
<TABLE>
<CAPTION>
# OF SHARES
-----------
OWNER BENEFICIALLY OWNED % OF SHARES
----- ------------------------------ -----------
<S> <C> <C>
Herb D. Vest 4,390,181 (1) 69%
Roger C. Ochs 43,406 (2) *
Barbara Hancock 300 *
Kenneth E. Reynolds 550 *
Jack B. Strong 100 *
Kenneth R. Petree 1,265 *
W. Ted Sinclair 1,481 (3) *
R. Bredt Norwood 10,746 (4) *
-------------------------------------------------------------------------------------------------------------------
Officers and Directors as a Group 4,448,029 69%
===================================================================================================================
Matthew W. Vest 308,968 (5) 5%
Daniel M. Vest 308,967 (5) 5%
</TABLE>
*Less than one percent
(1) Includes 3,560,966 of Outstanding Common Stock, 314,000 Common Stock Options
with an exercise price ranging from $2.38 to $7.63, 45,148 Common Stock Options
with an exercise price of $8.50, 220,000 Common Stock Options with an exercise
price of $20, and 250,067 Exercisable Convertible Series A Preferred Stock with
a conversion rate of one preferred share for one share of common stock.
Ownership percentage excluding Common Stock Options and the Convertible Series A
Preferred Stock is 66%.
(2) Includes 40,000 Common Stock Options with an exercise price of $6.00.
(3) Includes 1,456 Common Stock Options with an exercise price of $8.00.
(4) Includes 10,000 Common Stock Options with an exercise price of $6.00.
(5) Includes 211,633 of 423,266 shares held in a shared voting and investment
trust.
44
<PAGE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT AGREEMENTS
The Company has an agreement with Herb D. Vest (principal common shareholder)
for management services to the Company. The agreement with Herb D. Vest provides
for a management fee per year including an annual bonus based on the Company's
performance related to revenue and net income goals, additions of Company
affiliates and Fee Based Assets under Management, as established by the Board of
Directors. The Company paid a bonus of $2,315,412, and $2,340,148 in fiscal
1999, and 1998, respectively. Management fees, including bonus, under these
agreements were $3,215,412, and $3,240,148 for the years ended September 30,
1999, and 1998, respectively.
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. In addition, in September, 2000, Mr. Vest and the Company
agreed to reduce Mr. Vest's base compensation from $900,000 to $675,000 for
fiscal year 2000. Pursuant to his management agreement, Mr. Vest is entitled to
receive his full base salary and bonus during fiscal year 2001. The agreement
also provides that Mr. Vest is permitted to request and receive advances on
future management fees based on estimated future operations. At September 30,
2000, Mr. Vest had received $675,000 under this agreement, consisting entirely
of management fees related to fiscal year 2000.
H.D. VEST INSURANCE AGENCY
H.D. Vest Insurance Agency (f/k/a H.D. Vest Insurance Services) (HDVIns) is
owned by Herb D. Vest. HDVIns general insurance agency appoints Representatives
with various insurance companies to enable them to sell insurance products to
their clients. The Company, in accordance with the terms of a facilities and
services agreement, provides certain management and other services to HDVIns and
is paid a fee for these services. The value of these services for fiscal year
ended 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. The
45
<PAGE>
services provided to HDVIns by the Company are summarized as follows:
management, accounting, referral data base, client tracking services,
solicitation, tracking of renewal policies of insurance, collection of premiums
and commissions, processing of insurance transactions, payment of salaries and
other expenses, cost of recruiting, training and reporting to agents and other
services as deemed appropriate by the Company. The Company receives all variable
commissions through HDVIS. Variable commission revenue was $26,159,813,
$17,850,301, and $13,785,487 for the years ended September 30, 2000, 1999, and
1998, respectively. In accordance with this agreement the Company has charged
HDVIns $485,355, $404,315, and $493,604 for the years ended September 30, 2000,
1999, and 1998, respectively, for facilities and management services rendered.
As of September 30, 2000, the Company had a receivable of $505,395 from HDVIns
for these services.
LINES OF CREDIT
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 unrestricted
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. The terms of the
agreement require an annual payment to be made on November 30 of each year equal
to one-seventh of the then outstanding principal plus accrued interest. The
final payment of all outstanding principal and accrued interest shall be due and
payable on or before November 30, 2001. Under the agreement interest accrues on
unpaid principal balances at a rate of 11%. At September 30, 2000, Mr. Vest had
no outstanding principal or accrued interest on this line.
The Company has an agreement to provide Barbara Hancock a revolving line of
credit in an amount not to exceed $700,000, collateralized by Mrs. Hancock's
unrestricted 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. The terms
of the agreement require an annual payment to be made on November 30 of each
year equal to one-seventh of the then outstanding principal plus accrued
interest. The final payment of all outstanding principal and accrued interest
shall be due and payable on or before November 30, 2001. Under the agreement,
interest accrues on unpaid principal balances at a rate of 11%. In December
1998, Barbara Hancock repaid in full the outstanding principal balance, together
with the accrued interest, of her revolving line of credit from the Company. At
September 30, 2000, Mrs. Hancock had no outstanding principal or accrued
interest on this line.
46
<PAGE>
EDUCATION COSTS
The Company maintains a formal policy for reimbursement of continuing education
expenses incurred by officers and employees. Employees are generally reimbursed
for expenses incurred in the pursuit of professional designations, Microsoft
designations, undergraduate degrees, graduate degrees or specialized training.
The Company promotes personal and professional growth of its employees in order
to provide a qualified staff to its Representatives.
401(k) RETIREMENT PLAN
In March 1993, the Company formed a Salary Savings Plan 401(k)-retirement plan
for eligible employees. Employees are eligible for participation on the
enrollment date following completion of six months of service with the Company
or, if later, the enrollment date after attaining age 21. Employees may
contribute up to 15 percent of their income, up to the annual maximum allowed by
law. On January 1, 1999 the Company began to match contributions made by
employees based upon full years of service; 20 percent match for less than 3
years of service, 40 percent match for 3 to 4 years service, and 60 percent for
5 or more years of service. Previously, the Company matched all employees at a
20 percent rate. The Company modified the plan to reward tenure among employees.
Company contributions to the 401(k) retirement plan for the fiscal years ended
September 30, 2000, 1999, and 1998 were $422,629, $278,068, and $106,042,
respectively.
47
<PAGE>
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
a) 1. Index to Consolidated Financial Statements
Report of Independent Public Accountants
Consolidated Statements of Financial Position
Consolidated Statements of Operations
Consolidated Statements of Shareholders' Investment
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2. Exhibits
Exhibit Number Exhibit
-------------- -------
3.1 Articles of Incorporation and Bylaws *
3.2 Second Articles of Amendment to Articles of
Incorporation +
10.1 Non-Qualified Stock Option Plan *
10.2 Facilities and Service Agreement with H.D. Vest
Insurance Services *
10.3 Registered Representative Sales Agreement +
10.4 Management Agreement with Herb D. Vest +
10.5 Management Agreement with Barbara Hancock *
10.6 Termination Agreement with Barbara Hancock +
10.7 Line of Credit Agreement with Herb D. Vest .
10.8 Line of Credit Agreement with Barbara Hancock .
10.9 Las Colinas Corporate Center Lease
10.10 Premier Suite 100 Lease
10.11 Premier Suite 150 Lease
21.1 Subsidiaries of the Registrant
27.1 Financial Data Schedule
* Incorporated by reference from the annual report
filed on Form 10-K for the fiscal year ended
September 30, 1988.
+ Incorporated by reference from the annual report
filed on Form 10-K for the fiscal year ended
September 30, 1991.
. Incorporated by reference from the annual report
filed on Form 10-K for the fiscal year ended
September 30, 1994.
b) Reports on Form 8-K (None).
48
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
H.D. VEST, INC.
------------------
(Registrant)
Date: December 18, 2000 By:/s/ Herb D. Vest
---------------
Herb D. Vest
Chairman of the Board
and Chief Executive Officer
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.
By:s/ Herb D. Vest By:s/ Barbara Hancock
--------------------------- ------------------------------
Herb D. Vest Barbara Hancock
Chairman of the Board Director
and Chief Executive Officer
By:s/ Phillip W. Mayer By:s/ Kenneth R. Petree
---------------------------- -------------------------
Phillip W. Mayer Kenneth R. Petree
Director Director
By:s/ Wesley Ted Sinclair By:s/ Jerry M. Prater
--------------------------- ---------------------------
Wesley Ted Sinclair Jerry M. Prater
CFO and Vice President Director
(Principal Financial and
Accounting Officer)
By:s/ Kenneth E. Reynolds By:s/ Jack B. Strong
--------------------------- ----------------------------
Kenneth E. Reynolds Jack B. Strong
Director Director
49
