ND Holdings, Inc.
1 North Main
Minot, North Dakota
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 9, 1997
To the Shareholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Shareholders
of ND Holdings, Inc. (the "Company"), will be held on Friday, May
9, 1997, at 10:00 a.m. at the offices of the Company at 1 North
Main, Minot, North Dakota, for the following purposes:
1. To elect a Board of Directors for the ensuing year;
2. To approve the appointment of the accounting firm of
Brady, Martz & Associates, P.C., Certified Public
Accountants as the Independent Auditors for the Company;
and
3. To transact any other business which may properly come
before the Meeting or any adjournments thereof.
Only Shareholders of record on the close of business on March 31,
1997, are entitled to vote at the Meeting or any adjournments
thereof.
Enclosed are a copy of the Company's Annual Report to Shareholders
for the year ended December 31, 1996, your proxy and the Company's
Proxy Statement.
If you are unable to be present at the meeting in person, please
mark, date, sign, and return the enclosed proxy in the stamped,
self-addressed envelope.
Thank you.
Robert E. Walstad
President
Minot, North Dakota
April 19, 1996
IMPORTANT
Your proxy and return envelope are enclosed with this notice. In
order to assure a quorum for the transaction of business at the
meeting, each shareholder is asked to sign and return his or her
proxy in the enclosed envelope. Every proxy is important, whether
you own few or many shares. PLEASE DO IT TODAY!
<PAGE>
ND HOLDINGS, INC.
1 North Main
Minot, ND 58701
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
This Proxy Statement is furnished to the Shareholders of ND
Holdings, Inc. (respectively, the "Shareholders" and the "Company")
in connection with the solicitation by the Company of proxies to be
used at the Annual Meeting of Shareholders on May 9, 1997 (the
"Meeting"), at the time, place and for the purposes set forth in
the accompanying Notice of Annual Meeting of Shareholders and at
any adjournment thereof. When the accompanying proxy is properly
executed and returned, the shares of common stock it represents
will be voted at the Meeting and, where a choice has been specified
on a proxy, will be voted in accordance with such specification.
If no choice is specified on a proxy, the shares it represents will
be voted FOR the election of seven (7) Directors of the Company,
FOR the approval of Brady, Martz and Associates, P.C. as the
Company's Independent Auditors for the next fiscal year and
according to the judgment of the persons named in the enclosed
proxies as to any other action which may properly come before the
Meeting or any adjournment thereof.
ANY PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS VOTED BY
WRITTEN NOTICE MAILED OR DELIVERED TO THE SECRETARY, BY A RECEIPT
OF A PROXY PROPERLY SIGNED AND DATED SUBSEQUENT TO AN EARLIER
PROXY, AND BY REVOCATION OF A WRITTEN PROXY BY REQUEST IN PERSON AT
THE ANNUAL MEETING OF SHAREHOLDERS. IF NOT SO REVOKED, THE SHARES
REPRESENTED BY THE PROXY WILL BE VOTED IN ACCORDANCE WITH THE
INSTRUCTIONS ON THE PROXY FORM.
This Statement is being mailed on or about April 19, 1997, to
Shareholders eligible to vote at the Meeting. Concurrently, with
the mailing of this Statement, the Company is furnishing to
Shareholders its Annual Report for its fiscal year ended December
31, 1996.
The Company is bearing all costs of soliciting proxies, and
expressly reserves the right to solicit proxies otherwise than by
mail. The solicitation of proxies by mail may be followed by
telephone, telegraph, facsimile or other personal solicitations of
certain Shareholders and brokers by one or more of the Directors,
by Officers or by employees of the Company. The Company may make
requests to trusts, banks and brokers or other similar agents or
fiduciaries for the voting instructions of beneficial owners and
reimburse the expenses incurred by such agents or fiduciaries in
obtaining such instructions. As of the date of this mailing,
however, the Company has not made any contracts or arrangements for
such solicitations, hence it cannot identify any parties or
estimate the cost of such solicitation.
Only Shareholders of record as of the close of business on
March 31, 1997 (the "Record Date"), will be entitled to vote at the
Meeting. Representation of a majority of the Company's shares of
common stock outstanding on such date, either in person or by
proxy, constitutes a quorum for the Meeting. When a quorum is
present, the vote by the holders of a majority of the shares
represented at the Meeting shall decide the proposals to be voted
upon at the Meeting. As of March 31, 1997, the Company had
outstanding 8,123,586 shares of common stock ("shares"), with each
share being entitled to one vote.
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the date of this Proxy
Statement the stock ownership of each person known by the Company
to be the beneficial owner of five (5%) percent or more of the
Company's common stock, all Directors and Executive Officers
individually and all Directors and Officers of the Company as a
group. The Company believes that each person has sole voting and
investment power with respect to the shares shown, except as noted.
Percentage
Shares of Shares
Executive Officers Beneficially Beneficially
and Directors: Owned Owned
___________________________ ____________ ____________
Richard J. Backes
201 5th Ave.
Glenburn, ND 58740 23,100(8) *
Vance A. Castleman
#7 Country Club Acres
Minot, ND 58703 150,000(2) 1.8%
Daniel L. Feist
1111 Robert Street
Minot, ND 58703 23,100(8) *
Lyle E. McLain
R.R. 1 Box 36
Mohall, ND 58761 19,488(3) *
Peter A. Quist
1821 S. Grandview Lake, #8
Bismarck, ND 58501 67,100(9) *
Robert E. Walstad
2512 Bel Air Drive
Minot, ND 58703 823,420(4) 10.0%
Richard H. Walstad
2822 27th Street S.
Fargo, ND 58103 32,697(5) *
Jacqueline L. Picken
1311 33rd Ave SW
Minot, ND 58701 45,184(7) *
Dan Korgel
1212 7th St NE
Minot, ND 58703 19,909(10) *
All directors and officers
of the Company as a group
(9 persons named above) 1,203,998 14.7%
_____________________________
* Less than 1%
(1) Calculated pursuant to Rule 13d-3(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Under
Rule 13d-3(d), shares not outstanding which are subject to
options, warrants, rights or conversion privileges exercisable
within 60 days are deemed outstanding for the purpose of
calculating the number and
<PAGE>
percentage owned by such person,
but not deemed outstanding for the purpose of calculating the
percentage owned by each other person listed.
(2) Includes 5,075 shares held in Vance A. Castleman's IRA account
and 4,550 shares held in Arlene Castleman's IRA account.
(3) Includes 3,210 shares held in the name of Lyle E. and Cynthia
L. McLain, 2,509 shares in Lyle E. McLain's IRA account and
2,509 shares in Cynthia L. McLain's IRA account, as well as
160 Shares controlled by Cynthia L. McLain under the UGMA.
Also includes 10,100 warrants exercisable at a price of
approximately $1.62 per share.
(4) Includes 101,000 shares held by Robert E. Walstad, 10,000
shares held by his son Mark A. Walstad, and 2,420 shares held
by his wife, Shirley J. Walstad, in which he disclaims any
beneficial interest. Also includes 710,000 warrants
exercisable at a price of approximately $1.62 per share.
(5) Includes 3,630 shares held by Richard H. Walstad and 12,100
shares held by Cook Sign Co. of Fargo of which Richard H.
Walstad is owner and president, and 6,667 shares owned by
Richard H. Walstad's wife, Jaynee Walstad. Also includes
10,300 warrants exercisable at a price of approximately $1.62
per share.
(6) Includes 8,811 shares held in Jacqueline L. Picken's husband's
IRA account (Jeff Case).
(7) Includes 16,598 warrants exercisable at a price of
approximately $1.62 per share held in Jacqueline L. Picken's
husband's IRA account (Jeff Case).
(8) Includes 11,000 warrants exercisable at a price of
approximately $1.62 per share.
(9) Includes 55,000 warrants exercisable at a price of
approximately $1.62 per share.
(10) Includes 15,420 warrants exercisable at a price of
approximately $1.62 per share.
DIRECTORS & EXECUTIVE OFFICERS
Election of Directors
The Directors have voted to nominate seven (7) Directors for
election to hold office until the next Annual Meeting of
Shareholders and until their successors are elected and qualified.
Each of the following nominees has consented to be nominated to
serve as a Director of the Company. All of the nominees are
currently Directors of the Company.
Terms of Office Positions and
with the Offices with
Name Age Company the Company
__________________ ___ __________________ ______________________
Richard J. Backes 71 5-04-88 to Present Director
Vance A. Castleman 53 3-25-94 to Present Director
Daniel L. Feist 64 5-04-88 to Present Director
Lyle E. McLain 63 5-04-88 to Present Director
Peter A. Quist 63 5-04-88 to Present Vice President and
Director
Robert E. Walstad 52 9-22-87 to Present President and Director
Richard H. Walstad 58 5-04-88 to Present Director
The Company's Articles of Incorporation allow cumulative
voting only under the following procedure:
Each Shareholder entitled to vote for Directors has the right
to cumulate those votes in the election of Directors by giving
written notice of such intent to any officer of the
Corporation before the Annual Meeting or the presiding officer
at the Annual Meeting at any time before the election of
Directors, in which case:
<PAGE>
1. The presiding officer at the Meeting shall announce,
before the election of Directors, that Shareholders may
cumulate their votes; and
2. Each shareholder shall cumulate those votes either by
casting for one candidate the number of votes equal to
the number of Directors to be elected multiplied by the
number of votes represented by the shares entitled to
vote, or by distributing all of those votes on the same
principle as applied to any number of candidates.
Therefore, unless the above described procedure is
implemented, the holders of a majority of the Company's shares
could elect all of the Directors. It is expected that the proxies
received by the Directors' nominees will be voted, except to the
extent that authority is withheld on any proxy as to all of one or
more individuals, to elect as Directors the following nominees,
whose principal occupations during the past five (5) years,
Directorships and certain other affiliations and information are
set forth below:
Richard J. Backes - Farmer (1950-Present); Former North Dakota
State Highway Commissioner (1989-1993), Former North Dakota State
Representative (Majority Floor Leader);
Vance A. Castleman - Real Estate Developer (1986-Present); Former
Director Minot Area Development Corporation; Commissioner, Ward
County Planning Commission (past five years);
Daniel L. Feist - Contractor (1955-Present); Real Estate Broker
(1963-Present); Director, First Bank, Minot (past five years);
Director, Investors Real Estate Trust (past five years);
Lyle E. McLain - Farmer (1950-Present); Director, Former Chairman,
Farm Credit Banks, 7th Dist., St. Paul, Minnesota; Director, Excel
Manufacturing Co. (1986-Present);
Peter A. Quist - Vice President and Director of ND Holdings, Inc.
(1988-Present); ND Tax-Free Fund, Inc. (1988-Present), Montana Tax-
Free Fund, Inc. (1993-Present), and Integrity Fund of Funds, Inc.
(1994-Present); Vice President, Secretary, and Director of ND Money
Management, Inc., ND Capital, Inc. (1988-Present), and ND
Resources, Inc. (1989-Present); Vice President, Secretary, and
Director of ND Insured Income Fund, Inc. (1990-Present); Vice
President and Secretary of South Dakota Tax-Free Fund, Inc. (1993-
Present); Currently a licensed North Dakota attorney; Former North
Dakota Securities Commissioner (1983-1988);
Robert E. Walstad - President and Director of ND Holdings, Inc.
(1987-Present); President, Treasurer, and Director of ND Tax-Free
Fund, Inc. (1988-Present), ND Money Management, Inc. (1988-
Present), ND Resources, Inc. (1989-Present), ND Insured Income
Fund, Inc. (1990-Present), Montana Tax-Free Fund, Inc. (1993-
Present), South Dakota Tax-Free Fund, Inc. (1993-Present), and
Integrity Fund of Funds, Inc. (1994-Present); Formerly Vice
President and Branch Manager of Dean Witter Reynolds; Associated
with Securities Industry as an NASD licensed registered
representative from 1972-Present;
Richard H. Walstad - President/Owner, Cook Sign Co. of Fargo (1978-
Present); Past Chairman, Fargo Cass County Economic Development
Corp., Fargo;
Family Relationships.
Richard H. Walstad, a Director of the Company, is the brother
of Robert E. Walstad the President and a Director of the Company.
There are no other family relationships among executive officers,
directors or persons nominated to such positions nor any
arrangements or understandings between any Director and any other
person pursuant to which any Director was elected as such..
Each Director will be elected to serve until the next Annual
Meeting of Shareholders in 1997 or until a successor is duly
elected and qualified.
<PAGE>
During the fiscal year ended December 31, 1996, four (4)
regular meetings of the Board of Directors were held. All
Directors attended at least 75% of the meetings. Directors (other
than employees who are also directors) received cash compensation
of $300 per meeting for their services as such, in addition they
were reimbursed their expenses associated with attendance at
meetings or otherwise incurred in connection with the discharge of
their duties as Directors of the Company.
During the fiscal year ended December 31, 1996, the Company
did not have standing Audit, Compensation and Nominating Committees
of the Board of Directors. However, during fiscal 1997, the
Company plans to form an Audit Committee. No member of the Audit
Committee will receive any additional compensation for his service
as a member of that Committee. The Audit Committee will be
responsible for providing assurance that financial disclosures made
by Management reasonably portray the Company's financial condition,
results of operations, plan and long-term commitments. To
accomplish this, the Audit Committee will oversee the external
audit coverage, including the annual nomination of the independent
public accountants, review accounting policies and policy
decisions, review the financial statements, including interim
financial statements and annual financial statements, together with
auditor's opinions, inquire about the existence and substance of
any significant accounting accruals, reserves or estimates made by
Management, review with Management the Management's Discussion and
Analysis section of the Annual Report, review the letter of
Management representations give to the independent public
accountants, meet privately with the independent public accountants
to discuss all pertinent matters, and report regularly to the Board
of Directors regarding its activities.
Executive Officers
The Executive Officers of the Company include each of the
director Nominees set forth as well as two additional individuals
whose age, principal occupation during the past five (5) years, and
certain other affiliations and information are set forth below:
Terms of Office Positions and
with the Offices with
Name Age Company the Company
__________________ ___ __________________ ______________________
Richard J. Backes 71 5-04-88 to Present Director
Vance A. Castleman 53 3-25-94 to Present Director
Daniel L. Feist 64 5-04-88 to Present Director
Lyle E. McLain 63 5-04-88 to Present Director
Peter A. Quist 63 5-04-88 to Present Vice President and
Director
Robert E. Walstad 52 9-22-87 to Present President and Director
Richard H. Walstad 58 5-04-88 to Present Director
Other Executive Officers
Terms of Office Positions and
with the Offices with
Name Age Company the Company
__________________ ___ __________________ ______________________
Jacqueline L. Picken 49 5-04-88 to Present Secretary
Dan Korgel 49 5-04-88 to Present Treasurer
Jacqueline L. Picken - Secretary of ND Holdings, Inc. (1988-
Present); Executive Assistant to Robert E. Walstad, President of ND
Holdings, Inc. (1988-Present);
<PAGE>
Dan Korgel - Treasurer of ND Holdings, Inc. (1988-Present);
Portfolio manager of the ND Tax-Free Fund, Inc. (1988-Present), ND
Insured Income Fund, Inc. (1990-Present), SD Tax-Free Fund, Inc.
(1993-Present), Montana Tax-Free Fund, Inc. (1993-Present), and
Integrity Fund of Funds, Inc. (1994-Present);
During the past five (5) years, none of the foregoing
Directors or Executive Officers has:
(a) had any bankruptcy petition filed by or against any
business of which such person was a general partner or
executive officer either at the time of bankruptcy or
within two (2) years prior to that time;
(b) been convicted in a criminal proceeding or subject to a
pending criminal proceeding;
(c) been subject to any order, judgment, or decree, not
subsequently reversed, suspended or vacated, of any
court of competent jurisdiction, permanently or
temporarily enjoining, barring, suspending or otherwise
limiting his involvement in any type of business,
securities, futures, commodities or banking activities;
and
(d) been found by a court of competent jurisdiction (in a
civil action), the Commission or the Commodity Futures
Trading Commission to have violated a federal or state
securities or commodities law, and the judgment has not
been reversed, suspended or vacated.
Executive Compensation
The following table and discussion set forth information with
respect to all plan and non-plan compensation awarded to, earned by
or paid to the Chief Executive Officer ("CEO"), and the Company's
four (4) most highly compensated Executive Officers other than the
CEO, for all services rendered in all capacities to the Company and
its subsidiaries for each of the Company's last three (3) completed
fiscal years; provided, however, that no disclosure has been made
for any executive officer, other than the CEO, whose total annual
salary and bonus does not exceed $100,000.
<TABLE>
TABLE 1
SUMMARY COMPENSATION TABLE
<CAPTION>
Long Term Compensation
___________________________________
Annual Compensation Awards Payouts
___________________________ ___________________ _______
Other All
Annual Restricted Other
Name and Commi- Compen- Stock LTIP Compen-
Principal Salary sions sation Awards Options/ Payouts sation
Position Year $) ($) ($) ($) SARs ($) ($)
_________ ____ ______ ______ _______ __________ ________ _______ _______
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert E.
Walstad,
Chairman, 1994 48,000 37,608 0 0 0 0 0
President 1995 52,000 27,991 0 0 0 0 0
and CEO 60,000 10,836 0 0 0 0 0
</TABLE>
All officers and Directors of the Corporation received total
remuneration of $201,220, including salaries and commissions paid
to officers, for the fiscal year ended December 31, 1996. No
executive officer or Director of the Corporation received total
remuneration exceeding $100,000.
Transactions With Management and Others
No director or officer of the Company is or has been at any
time since January 1, 1996 (beginning of the Company's last fiscal
year), indebted to the Company in excess of $60,000.
<PAGE>
Compliance With Section 16(a) of the Exchange Act
The Company first became subject to the reporting requirements
of the Securities and Exchange Act of 1934 during fiscal 1995.
Under the Securities Laws of the Untied States, the Company's
Directors, its Executive (and certain other) Officers, and any
persons holding more than ten percent (10%) of the Company's common
stock (collectively the "Reporting Persons") are required to report
their ownership of the Company's common stock and any changes in
that ownership to the Securities and Exchange Commission. Specific
due dates for these reports have been established and the Company
is required to report in this Proxy Statement any failure to file
by these dates during fiscal 1996. No reports were filed during
1996 by any officer, director or 10% or greater Shareholder.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
A proposal to approve the appointment of the accounting firm
of Brady, Martz & Associates, P.C., to audit the Company and
Subsidiaries financial statements for the fiscal year of January 1,
1997 through December 31, 1997, will be presented at the Annual
Meeting.
Brady, Martz & Associates, P.C., has served as the
Corporation's Certified Public Accountant since its inception.
There has not been any disagreement with the Company's independent
auditors on any matter of accounting principles, practices or
financial statement disclosures.
OTHER MATTERS
The Company's management is not aware of the other matters
which may come before the Meeting. The Directors' designees or
other persons named in the accompanying form of proxy will vote
said proxy in accordance with their judgment if any other matter
does properly come before the Meeting. A majority of those votes
present at the Meeting cast in favor of any such matter will result
in the passage of such matter.
A copy of the Annual Report to shareholders is enclosed with
this Proxy Statement. Copies of the Company's 10-KSB Annual Report
are available (after filing) upon request from the Company at 1
North Main, Minot, ND 58701.
1997 ANNUAL MEETING
Qualifying Shareholders may submit proposals that are
consistent with the Company's Bylaws and federal securities laws to
the Company for inclusion in the Company's proxy material relating
to the 1998 Annual Meeting. The Company must receive such
proposals at its business address (set forth at the beginning of
this Proxy Statement) no later than October 31, 1997.
BY THE BOARD OF DIRECTORS OF ND HOLDINGS, INC.
By: s/Jacqueline L. Picken
Jacqueline L. Picken, Secretary
Dated: April 19, 1997
<PAGE>
ND HOLDINGS, INC.
PROXY SOLICITED ON BEHALF OF THE COMPANY
The undersigned hereby constitutes and appoints Robert E.
Walstad or Peter A. Quist or either of them acting in the absence
of the other, with full power of substitution the true and lawful
attorneys or attorney and proxies of the undersigned to attend the
Annual Meeting of the Shareholders of ND Holdings, Inc. (the
"Company") to be held May 9, 1997, at the offices of the Company at
1 North Main, Minot, ND, or any adjournment or adjournments
thereof, and vote all the shares of the Company standing in the
name of the undersigned with all the powers the undersigned would
possess if present at said Meeting.
ITEM 1. Election of Directors - until the next annual meeting
FOR ___ WITHHOLD AUTHORITY ___
To elect all of the nominees for Directors of the Company listed
below:
Term of office Positions and offices
Name Age with the Company with the Company
_________________ ___ _________________ _______________________
Richard J. Backes 71 5-4-88 to present Director
Vance A Castleman 53 3-25-94 to present Director
Daniel L. Feist 64 5-4-88 to present Director
Lyle E. McLain 63 5-4-88 to present Director
Peter A. Quist 63 5-4-88 to present Vice President and
Director
Robert E. Walstad 52 9-22-87 to present President and Director
Richard H. Walstad 58 5-4-88 to present Director
INSTRUCTION: To withhold authority to vote for any individual
nominee(s), write that nominee's name below)
________________________________________________________________
ITEM 2. To approve Brady, Martz & Associates, P.C., Certified
Public Accountants as the Company's Independent Auditors
for the next fiscal year.
FOR ___ AGAINST ___ ABSTAIN ___
ITEM 3. Upon such other matters as may properly come before the
Meeting.
UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR ITEM 1,
ITEM 2 AND ITEM 3 AND IN THE DISCRETION OF THE PERSON HOLDING THE
PROXY FOR ANY OTHER BUSINESS.
(PLEASE DATE, SIGN AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED
ENVELOPE.)
Receipt is acknowledged of: (1) Annual Report to Shareholders, (2)
Notice of Annual Meeting and (3) Proxy Statement for the Annual
Meeting.
Date __________________, 1997 X_____________________________
Signature
X_____________________________
Signature, if held jointly
Please sign exactly as name
appears to the left. When
shares are held by joint
tenants, both should sign. When
signing as executor,
administrator, attorney,
trustee, or guardian, please
give full title as such. If a
corporation, please sign in full
corporation name by President or
other authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
<PAGE>
1996
Annual Report to Shareholders
of
ND Holdings, Inc.
<PAGE>
ND Holdings, Inc.
LETTER TO THE SHAREHOLDERS
The management of ND Holdings, Inc. is pleased and excited to
present this Annual Report to Shareholders to you, the owners of ND
Holdings, Inc.
The staff of ND Holdings, Inc. is proud of the growth and
accomplishments of this unique North Dakota business venture. ND
Holdings, Inc. has completed the acquisitions of The Ranson
Company, Inc. and Ranson Capital Corporation. Your Company is now
the manager of nine Funds totaling in excess of $330 million in
assets (ND Tax-Free Fund, Inc., ND Insured Income Fund, Inc.,
Montana Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc.,
Integrity Fund of Funds, Inc., Kansas Insured Intermediate Fund,
Kansas Municipal Fund, the Nebraska Municipal Fund, and the
Oklahoma Municipal Fund.
Through the last six years the Corporation developed a definitive
Corporate plan which emphasized rapid growth in funds under its
management and servicing contracts. The most significant
development for ND Holdings, Inc. in this area during 1996 was the
acquisition of the management and administration rights of the
Ranson Managed Portfolios. These funds, now part of Integrity
Mutual Funds, cover Kansas and Nebraska, giving the company
municipal funds in five separate states and a total of nine mutual
fund offerings. Assets under management increased from $120
million at the year end of 1995 to $334 million at December 31,
1996. Revenues are projected to increase substantially in 1997 and
thereafter as a result.
During the year, a lease for a new headquarters location for the
Company and its subsidiaries has been negotiated for #1 North Main
Street in Minot, and the Company made its move in June of 1996.
The Corporation's annual report for the year 1996 contains a number
of highlights which speak rather strongly for the substantial
growth of the Company. ND Holdings, Inc. had record revenues from
operation of $3,417,614 in 1996. These fees were generated from
services provided to the nine mutual funds managed by the Company.
In addition, "other income" was reported at a net amount of
$160,595. The financial statements report the Company's first net
income after tax charges of $44,371. Income before income tax
expense was $260,400. Actual cash flow from operations was
$447,856 in 1996
The major factor reducing the reported net income to date has been
the amortization of capitalized deferred sales costs to expense.
These costs represent commissions paid to brokers for investments
made in the Funds under management by the Company that don't have
a "front end" load. A majority of the unamortized costs will be
amortized to expense in the next few years. Additionally, the
acquisition of The Ranson Company, Inc. is anticipated to generate
substantial earnings. It is also management's belief that
significant cost savings have been realized by the combination of
management for all Funds as compared to costs of separately
managing the Ranson Funds and the ND Holdings Funds. This is
especially true in the administrative and general overhead expense
areas since they are indirect costs that were being duplicated by
both entities in their operating results prior to the acquisition.
These factors should continue to provide positive net results in
the future.
As we progress into the new year and beyond, the Company will
continue to search and review possibilities for further expansion
through the acquisition of existing fund managers or fund advisory
contracts, particularly those compatible enterprises that will
utilize existing management resources, contribute to profits and
cash flow, improve market penetration, or enhance our long-range
potential.
<PAGE>
Much effort and management time in the past year has been dedicated
to the work of making ND Holdings, Inc. a true public company. The
Company is currently (through an underwriting managed by an
unaffiliated brokerage firm, Financial Advantage Brokerage Service,
Inc.) in the selling stage of a registered best efforts offering of
its Common Stock. This offering was declared effective February 4,
1997 by the U.S. Securities and Exchange Commission. A previous
registration of shares issued after September 1, 1992 was completed
in October 1996 to open the door to the public market we are now
entering.
Thanks goes to our highly distinguished Board of Directors and
innovative management team for the oversight they have provided
during the Corporate planning and development process and in
determining the future direction of the Company. Most importantly,
our sincere gratitude is extended to our shareholders for the
continuing and overwhelming confidence and support demonstrated in
our Company in the past year.
Sincerely,
Robert E. Walstad
Chairman of the Board and
Chief Executive Officer
<PAGE>
The Company's Business
History
The Company, through its subsidiaries, acts as a mutual fund
administrator and management firm. The Company's revenues are
derived (through its subsidiaries) as fees from operating, managing
and investing the assets of mutual funds and to a lessor extent
from brokerage commissions related to transactions within the
mutual funds as well as on the purchase by or sale of mutual funds
by individuals. The Company currently manages the assets of nine
mutual funds, six of which were initiated, sponsored and organized
by the Company. As a result of the acquisition of The Ranson
Company, Inc. completed on January 5, 1996, the Company is the
manager of three funds, called the "Ranson Managed Portfolios".
Ranson Capital Corporation, a NASD member broker/dealer and the
investment advisor and manager for the three "Ranson Managed
Portfolios": the Kansas Municipal Fund, Kansas Insured
Intermediate Fund and the Nebraska Municipal Fund, is a subsidiary
of The Ranson Company (and now the Company). On September 25,
1996, a new fund, the Oklahoma Municipal Fund, was established by
the Company as a part of the Ranson Managed Portfolios.
The Company, ND Holdings, Inc., was incorporated September 22,
1987, as a North Dakota corporation and officially organized on
October 27, 1987, in Minot, North Dakota by Robert Walstad, current
President of the Company. The primary intent of this corporation
was to provide a vehicle for investment in North Dakota by North
Dakota residents all pursuant to Chapter 10-30.1 of the North
Dakota Century Code, as amended.
The major accomplishment of the Company until 1996 had been the
establishment, management and distribution of five mutual funds: ND
Tax-Free Fund, Inc., ND Insured Income Fund, Inc., Montana Tax-Free
Fund, Inc., South Dakota Tax-Free Fund, Inc. and Integrity Fund of
Funds (the "Funds"). The Funds have grown to over $144,000,000 in
assets as of December 31, 1996. With the acquisition of The Ranson
Company, Inc. completed on January 5, 1996, Ranson Capital
Corporation, as a wholly owned subsidiary of the Company, continues
to act as the investment adviser and manager for the Ranson Managed
Portfolios. The Ranson Managed Portfolios provided additional
managed asset base of approximately $184,000,000. As a result,
total assets managed by the Company now total in excess of
$334,000,000. Investment advisory, asset management, underwriting
and transfer agent services are provided to mutual funds managed
and administered by the Company's wholly-owned subsidiaries.
Currently, through its three wholly-owned subsidiaries, ND Money
Management, Inc., ND Capital, Inc. and ND Resources, Inc., the
Company acts as advisor to five mutual funds: ND Tax-Free Fund,
Inc., ND Insured Income Fund, Inc., Montana Tax-Free Fund, Inc.,
South Dakota Tax-Free Fund, Inc. and Integrity Fund of Funds, Inc.
Ranson Capital Corporation is the investment adviser and manager
for the Ranson Managed Portfolios, including the newly established
Oklahoma Municipal Fund. The Company also provides administrative
and stock transfer services to the Ranson Managed Portfolios.
Revenue is received for the management of the Funds along with
commissions for investments sold to individuals in sponsored funds
as well as in other unaffiliated mutual funds. Fees are also
generated for stock transfer and clerical services provided to the
affiliated mutual funds.
The Company and its subsidiaries are still in developmental stages.
The areas in which they do business or intend to do business are
highly competitive and place them in direct competition with other
mutual fund firms, some of which have substantially greater
resources, proven management, and established markets.
The Company's Subsidiaries and Operations
The Company has five wholly-owned subsidiaries through which it
conducts its operations. Three of the subsidiaries, all North
Dakota corporations, are ND Money Management, Inc., a Registered
Investment Advisor; ND Capital, Inc., an NASD member broker/dealer;
and ND Resources, Inc., a Registered Stock Transfer Agent.
Pursuant to terms of an acquisition agreement described in "Certain
Transactions - The Ranson Acquisition" the Company acquired two
additional wholly-owned subsidiaries in the year ended December 31,
1996, The Ranson Company, Inc., a Kansas corporation, and its
subsidiary, Ranson Capital Corporation, a Kansas corporation. The
Ranson Company, Inc. has no independent operations. Ranson Capital
Corporation is an NASD Registered broker/dealer and SEC registered
investment advisor.
<PAGE>
ND Money Management, Inc. (a North Dakota corporation) was
organized to manage investment portfolios, particularly, but not
limited to, the Funds.
ND Capital, Inc. (a North Dakota corporation), an NASD and SIPC
member broker/dealer was organized as an entity to raise funds for
investing in, and providing financing to, qualified entities while
encouraging capital investment in North Dakota.
ND Resources, Inc. (a North Dakota corporation) was originally
organized to purchase and/or manage mineral properties. ND
Resources, Inc. thereafter became a registered stock transfer agent
and now acts as transfer agent for the Funds.
ND Money Management, Inc., a registered investment advisor, was
organized as an entity to provide fund management services to
mutual funds. ND Money Management, Inc.'s primary operations are
as fund manager and advisor for the ND Tax-Free Fund, Inc., Montana
Tax-Free Fund, Inc., ND Insured Fund, Inc., South Dakota Tax-Free
Fund, Inc. and Integrity Fund of Funds, Inc. The Company receives
management fees from the Funds. As fund manager and advisor for
these funds, ND Money Management, Inc. is economically dependent on
the Funds for the majority of its revenue.
ND Money Management, Inc. has an affiliation with the ND Tax-Free
Fund, Inc., Montana Tax-Free Fund, Inc., South Dakota Tax Free-
Fund, Inc. the ND Insured Fund, Inc., and the Integrity Fund of
Funds, Inc.
ND Capital's primary operations are as broker/dealer for
distribution of shares of the ND Tax-Free Fund, Inc., Montana Tax-
Free Fund, Inc., ND Insured Income Fund, Inc., South Dakota Tax-
Free Fund, Inc. and Integrity Fund of Funds, Inc. The Company
receives fees from the funds as underwriter as well as commission
income for investments sold to customers in other unaffiliated
mutual funds.
ND Capital, Inc. has an affiliation with the ND Tax-Free Fund,
Inc., Montana Tax-Free Fund, Inc., South Dakota Tax-Free Fund,
Inc., the ND Insured Income Fund, Inc. and the Integrity Fund of
Funds, Inc. As underwriter for these funds, ND Capital, Inc. is
economically dependent on them for a majority of its revenue.
ND Capital, Inc. is subject to the Securities and Exchange
Commission Uniform Net Capital Rule (SEC 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 (and the rule of the "applicable"
exchange also provides that equity capital may not be withdrawn or
cash dividends paid if the resulting net capital ratio would exceed
10 to 1). At December 31, 1996, ND Capital had net capital well in
excess of its minimum required net capital of $25,000.
ND Resources, Inc. is a Registered Transfer Agent. ND Resources,
Inc.'s primary operations are as transfer agent of shares of the ND
Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., ND Insured Income
Fund, Inc., South Dakota Tax-Free Fund, Inc. and Integrity Fund of
Funds, Inc. ND Resources, Inc. receives fees from the Funds for
stock transfer, administrative and clerical services. As transfer
agent for these funds, ND Resources, Inc. is economically dependent
on them for a majority of its revenue.
ND Resources, Inc. has an affiliation with the ND Tax-Free Fund,
Inc., Montana Tax-Free Fund, Inc., South Dakota Tax-Free Fund,
Inc., the ND Insured Income Fund, Inc., and the recently opened
Integrity Fund of Funds, Inc.
In 1996, the Company completed an agreement which allowed the
Company to acquire management of the Ranson Managed Portfolios (the
"Ranson Funds"), through acquisition of their advisor, Ranson
Capital Corporation and its parent, The Ranson Company, Inc. This
acquisition was complete as of January 5, 1996.
Ranson Capital Corporation, ("Ranson Capital") a Kansas
corporation, is the investment adviser and manager for each Series
of the Ranson Managed Portfolios. Ranson Capital is a broker/dealer
registered with the Securities and Exchange Commission and is a
wholly-owned subsidiary of The Ranson Company, Inc., a Kansas
<PAGE>
corporation. Ranson Capital was formed in 1990 and acts as
investment advisor and fund manager for the Ranson Managed
Portfolios, consisting of the Kansas Insured Intermediate Fund,
Kansas Municipal Fund, the Nebraska Municipal Fund and the Oklahoma
Municipal Fund. John A. Ranson, Alex R. Meitzner, Mark J. Kneedy,
John J. Hass, Robin K. Pinkerton, Stephen E. Shorgren and Douglas
K. Rogers (the "Selling Ranson Stockholders") previously owned all
the outstanding Common Stock of The Ranson Company, Inc. The
Selling Ranson Stockholders of The Ranson Company, Inc., the parent
of Ranson Capital, entered into a contract dated as of September
15, 1995 (the "Agreement") whereby the Company acquired all
outstanding shares of The Ranson Company, Inc., and therefore
acquired all business related to the Ranson Managed Portfolios
through the indirect acquisition of Ranson Capital (the
"Acquisition"). Ranson Capital, which is now wholly-owned by the
Company continues to operate by that name and continues to act as
investment adviser and manager for each Series of the Ranson
Managed Portfolios.
The contractual division of responsibilities between the Company
and its affiliated funds track the three main functions of any
mutual fund. Contracts for portfolio management performed by the
Company's subsidiary, ND Money Management, Inc., in the case of the
five original Funds and by Ranson Capital Corporation in the case
of the Ranson Managed Portfolios are awarded annually by review and
approval of the independent Boards of Directors of the various
Funds (the "Boards"). The Board of Directors of each Fund consists
of five directors, three of whom are independent and two (Robert E.
Walstad and Peter A. Quist) of whom are affiliated with the
Company. These Boards are also responsible for awarding the
Company's subsidiary, ND Capital the underwriting agreements for
the Funds, which contracts are referred to as "contracts for
distribution" by the Funds (mutual fund regulations limit
underwriting agreements to one year) as well as contracting with
the Company's subsidiary, ND Resources, Inc., for all
administrative services. (which are typically one to three year
contracts). Distribution and administrative services contracts are
generally terminable by a Fund's Board for "cause" (as defined in
the contract).
Administration.
A Fund's administrator generally is responsible for all of the
Fund's business activities other than distribution and investment
decisions. The Company believes that administration is an
extension of distribution, that high quality servicing is critical
to retaining shareholder accounts, and that quality of service
directly impacts the growth of mutual fund assets. Therefore, the
Company strives to create an error-free operating environment based
on stringent standards established for all service provider
subsidiaries of the Company.
The Company's administrative responsibilities may be divided into
three major services:
- shareholder recordkeeping - encompasses all mutual fund
shareholders' transactions, including taking purchase
and redemption orders, entering orders into the transfer
agent system and forwarding information regarding trade
activity to the portfolio manager and to fund
accountants as specified.
- fund accounting - provides the daily recordkeeping for
each fund, including calculations of net asset value per
share, dividend rates per share, and the maintenance of
all books, records and financial reports required by the
SEC and other regulatory agencies. This service also
includes preparation of quarterly financial statements,
shareholder reports and Board reports for each
portfolio, participation in the periodic updating of
prospectuses, preparation of federal, state and local
tax returns, payment of all costs and expenses of each
fund, and the maintenance of the official books and
records of each fund.
- cash management - ensures timely receipts and
disbursements on shareholder activity for effective
asset management.
Overview of Managed Mutual Fund Industry
Since the 1980's, the mutual fund business has been one of the
fastest growing areas of the financial services industry. Total
assets in mutual funds grew from approximately $100 billion in 1980
to approximately $2
<PAGE>
trillion in total assets by 1994. According to the Investment
Company Institute Special Analysis for the 1990's Study, mutual
fund assets are projected to continue to grow at an average of 12%
annually, to approximately $3.4 trillion in total assets by the
year 2000.
Company Growth Strategy
The Company's historical strategy has been to establish localized
mutual funds, in a niche area of rural states, which funds invest
in bond and/or equity instruments of local interest. The Company
targets the residents of the same localized areas to achieve its
investor base. The Company has established mutual funds in North
Dakota, Montana, Oklahoma and South Dakota, all rural, low
population states where competition from other mutual funds as well
as larger and more diversified competitors in the securities
industry is less intense.
The Company has acquired management of the Ranson Managed
Portfolios (the "Ranson Funds"), through acquisition of their
advisor, Ranson Capital Corporation and its parent, The Ranson
Company, Inc. This acquisition was completed January 5, 1996.
Ranson Capital Corporation, which is now wholly-owned by the
Company, continues by that name and acts as investment adviser and
manager for each of the Ranson Funds. The Ranson Funds added
approximately $184,000,000 to the Company's assets under
management, bringing total assets currently under management to
approximately $334,000,000. Please see "Certain Transactions-The
Ranson Acquisition", "Management's Discussion and Analysis" and
"Business".
The Company will in the future seek to locate compatible existing
mutual funds and seek to acquire money management firms with mutual
funds under management, thereby immediately increasing the
Company's base of assets under management.
Finder Agreement with KPMG Peat Marwick LLP
The Company has retained KPMG Peat Marwick LLP financial service
division to perform certain services with respect to the Company's
interest in expanding its base of funds under management by
acquiring other investment fund managers. Services to be provided
to the Company include: development of an acquisition strategy;
identification of target companies; contact with target companies;
and preliminary financial analysis on the target companies.
Competition
Since its inception, the Company has directly competed primarily
with a number of larger, more established mutual fund service
organizations and securities firms. Competition is influenced by
various factors, including breadth, quality of service and price.
All aspects of Company's business are competitive, including
competition for mutual fund assets to manage. Large national firms
have much greater marketing capabilities, offer a broader range of
financial services and compete not only with the Company and among
themselves but also with commercial banks, insurance companies and
others for retail and institutional clients. The Company's
affiliated mutual funds, although localized in nature, are subject
to competition from nationally and regionally distributed funds
offering equivalent financial products with returns equal to or
greater than those offered by the Funds.
The Company is focused on the niche area of rural states and
localized investment where competition from major investment
institutions is lower than in population centers. To the knowledge
of the Company it is the only mutual fund sponsor consisting of
affiliated investment advisor, broker/dealer and transfer agent
entities based in North Dakota, South Dakota or Montana. However,
competition for assets under management is intense from both
national and regional based firms. Access to local investment and
the population of the region by modern communication systems is so
efficient that the Company's geographical position cannot be deemed
a significant advantage.
The Company's investment management operations compete with a large
number of other investment management firms, commercial banks,
insurance companies, broker/dealers and other financial service
firms.
<PAGE>
Most of these firms are larger and have access to greater resources
than the Company. The investment advisory industry is
characterized by relatively low cost of entry and the formation of
new investment advisory entities which may compete directly with
the Company is a frequent occurrence. The Company directly
competes with as many as several hundred firms which are of similar
or larger size. The Company's ability to increase and retain
clients' assets could be materially adversely affected if client
accounts under-perform the market. The ability of the Company's
investment management subsidiary to complete with other investment
management firms also is dependent, in part, on the relative
attractiveness of their investment philosophies and methods under
prevailing market conditions.
A large number of mutual funds are sold to the public by investment
management firms, broker/dealers, insurance companies and banks in
competition with the Company's affiliated funds. Many of the
Company's competitors apply substantial resources to advertising
and marketing their mutual funds which may adversely affect the
ability of the Company's affiliated funds to attract new assets.
The Company expects that there will be increasing pressures among
mutual fund sponsors to obtain and hold market shares.
Regulation of the Company's Business
Under the Investment Company Act, the distribution agreements
between the Funds and the Company's subsidiary terminate
automatically upon their assignment. The term "assignment"
includes direct assignments as well as assignments which may be
deemed to occur, under certain circumstances, upon the transfer,
directly or indirectly, of a controlling block of the Company's
voting securities. The Investment Company Act presumes that any
transfer of more than 25% of the voting securities of any person
represents a transfer of a controlling block of voting securities.
The Company does not believe that the transactions contemplated by
this offering will result in an "assignment" of the distribution or
administration agreements.
The securities industry, including broker/dealer, investment
advisory, and transfer agency firms in the United States, are
subject to extensive regulation under federal and state laws. Much
of the regulation of broker/dealers has been delegated to self-
regulatory organizations, principally the National Association of
Securities Dealers (NASD). The regulations to which broker/dealers
are subject cover all aspects of the securities business, including
sales methods, trade practices, capital structure of securities
firms, record keeping and the conduct of directors, officers and
employees. Additional state and federal legislation, changes in
rules promulgated by the United States Securities and Exchange
Commission (SEC) and by self-regulatory organizations, or changes
in the interpretation or enforcement of existing laws and rules
often directly affect the methods of operation and profitability of
money managers, broker/dealers and transfer agents. Investment
related firms are also subject to regulation and licensing by state
securities commissions in the states in which they transact
business. The SEC, state securities administrators and the self-
regulatory organizations may conduct administrative proceedings
which can result in censure, fine, suspension or expulsion of a
broker/dealer, its officers or employees. The principal purpose of
regulation and discipline of broker/dealers, investment advisors,
and stock transfer agents is the protection of customers and the
securities markets rather than protection of creditors and
stockholders of such firms.
Industry Regulations
The Company is subject to extensive regulation as to its duties,
affiliations, conduct and limitations on fees. Section 22(b) of
the Investment Company Act of 1940 provides that a securities
association registered under Section 15A of the Securities Exchange
Act of 1934 may adopt rules prohibiting its members from receiving
a commission, discount, spread or fees except in accordance with a
method or methods, and within such limitations as to the relation
thereof to said public offering price, as such rules may prescribe
in order that the price at which such security is offered or sold
to the public shall not include an excessive sales load but shall
allow for reasonable compensation for sales personnel,
broker/dealers, and underwriters, and for reasonable sales loads to
investors. Section 22(c) of the Investment Company Act of 1940
further states that the commission may make rules and regulations
applicable to registered investment companies and to principal
underwriters of, and dealers in, the redeemable securities of any
registered investment company, whether or not members of any
securities association. Any rules and regulations so made by the
Commission, to the
<PAGE>
extent that they may be inconsistent with the rules of any
securities association, shall, so long as they remain in force,
supersede the rules of the association and be binding upon its
members as well as all other underwriters and dealers to whom they
may be applicable.
The Company's wholly-owned broker/dealer subsidiaries, ND Capital,
Inc. and Ranson Capital Corporation are NASD members. The NASD, a
securities association registered under Section 15 A of the
Securities and Exchange Act of 1934 has prescribed rules (Section
26 of the NASD Rules of Fair Practice) with respect to maximum
commissions, charges and fees related to investment in any open-end
investment company registered under the Investment Company Act of
1940.
Additionally, under Section 206 of the Investment Advisers Act of
1940 it is unlawful for any investment adviser to (1) employ any
device, scheme, or artifice to defraud any client or prospective
client; (2) engage in any transaction, practice, or course of
business which operates as a fraud or deceit upon any client or
prospective client; or (3) engage in any act, practice, or course
of business which is fraudulent, deceptive, or manipulative.
An investment adviser can transfer control of an investment company
only under the provision that for three years at least seventy-five
(75%) percent of the directors of the investment company are
independent of the new and old investment adviser, and provided no
unfair burden is imposed on the investment company as a result of
the sale. The effect of such transfer is to terminate the old
investment adviser agreement and to require the new agreement to be
approved by both the board and shareholders. Directors and the
investment adviser are fiduciaries, accordingly, the SEC is
authorized to initiate an action to enjoin a breach of fiduciary
duties involving personal misconduct by officers, directors,
investment advisers, and principal underwriters. Shareholders or
the SEC may also bring an action against the officers, directors,
and investment adviser for breach of fiduciary duty in establishing
the compensation paid the investment adviser.
An investment adviser to a fund, its principals, and its employees
may also be subject to proceedings initiated by the SEC to impose
remedial sanctions for violation of any provision of the federal
securities laws and the regulations adopted thereunder, and the SEC
may preclude such investment adviser to an investment company from
continuing to act in the capacity.
Investment companies such as the Funds are subject to considerable
substantive regulation. Such companies must comply with periodic
reporting requirements. Proxy solicitations are subject to the
general proxy rules as well as to special proxy rules applicable
only to investment companies. Shares of investment companies can
only be offered at a uniform public offering price based on the
current share net asset value plus the sales load. No more than 60
percent of the directors can be interested persons, defined to
include, among others, persons affiliated with the management
company or underwriter, and a majority of the directors must not be
affiliated with the underwriter. The management agreement must
have initially been approved by a majority of the outstanding
shares and, after two years, must be annually approved, either by
the board or by the outstanding voting shares. The management
agreement must automatically terminate in the event of assignment
and must be subject to termination upon 60 days notice by the board
or by a vote of the majority of the outstanding voting shares. The
underwriting agreement must be annually approved by the board or by
a vote of a majority of the outstanding voting shares, and must
provide for automatic termination in event of assignment.
Transactions between the investment company and an affiliate can be
entered into only if approved by the SEC, after notice and
opportunity for hearing, as fair and equitable.
Net Capital Requirements
As a broker/dealer, and as a member firm of the NASD, the Company's
subsidiary, ND Capital and its new subsidiary, Ranson Capital
Corporation are subject to the Uniform Net Capital Rule (Rule 15c3-
1) promulgated by the SEC which provides that a broker/dealer doing
business with the public must maintain certain net minimum capital
and shall not permit its aggregate indebtedness to exceed certain
specified limitations. The Rule is designed to measure a firm's
financial integrity and liquidity. A broker/dealer may be required
to reduce its business and restrict withdrawal of subordinated
capital if its net capital drops
<PAGE>
below specified levels, and also may be prohibited from expanding
its business or declaring cash dividends. In addition, failure to
maintain the required net capital may subject a broker/dealer to
disciplinary actions by the SEC, the NASD and state securities
administrators, including fines, censure, suspension or expulsion.
The Uniform Net Capital Rule may limit the uses ND Capital and
Ranson Capital may make of its capital.
At December 31, 1996, ND Capital, Inc.'s required net capital was
$25,000. Ranson Capital Corporation's required net capital was
$100,000. At December 31, 1996 and the date of this report, both
subsidiaries' net capital was in excess of required net capital.
Factors which affect ND Capital and Ranson Capital's net capital
include the general investment climate as well as the ability of
the Company to obtain any liquid assets necessary to contribute
equity capital to its wholly-owned subsidiaries. Although ND
Capital and Ranson Capital currently have sufficient net capital,
should the Company's liquidity be impaired substantially as a
result of any factor, including potential demands for cash created
by the rescission offer, and additional net capital become
necessary, the continued operation of ND Capital and/or Ranson
Capital could be restricted or suspended.
The Uniform Net Capital Rule requires the ratio of aggregate
indebtedness, as defined, to net capital not exceed 15 to 1, and
imposes certain restrictions on operations. In computing net
capital, various adjustments to net worth are made with a view to
excluding assets which are not readily convertible into cash and
with a view to a conservative statement of other assets, such as a
firm's position in securities. The two Broker Dealer subsidiaries
of the Company may not allow withdrawal of subordinated capital if
minimum net capital would thereafter be less than 5% of aggregate
debit items as defined under the SEC Uniform Net Capital Rule.
Further, no Broker Dealer may permit equity capital to be withdrawn
whether by payment of dividends, repurchase of stock or other
means, if its net capital would thereafter be less than 5% of
aggregate debit items as defined under the SEC Uniform Net Capital
Rule. Compliance with the Uniform Net Capital Rule may limit those
operations of a firm which may require the use of its capital.
Employees
At December 31, 1996, the Company had 18 full-time employees,
including eight (8) registered representatives, licensed by the
NASD, who are associated with ND Capital, Inc. The acquisition of
The Ranson Company, Inc. added three additional employees (retained
employees of Ranson Capital Company) in early 1996. Registered
Representatives earn commissions through ND Capital, Inc. but
receive their paychecks from the Company. ND Capital, Inc.
reimburses the Company (its parent) through intercompany transfers
for such commission payments. Salaried and hourly employees are
paid directly by ND Holdings, Inc. (the Company). State and
federal wage and tax reporting is done by the Company. The
employees of the Company perform various services in all necessary
capacities for each of the subsidiaries as well as the Holding
Company (the Company). Technically, except for Registered
Representatives associated with ND Capital, Inc., the subsidiaries
of Company have no employees. The Company and its subsidiaries are
currently developing a plan to restructure its employee arrangement
so that specific persons will become employees in form and
substance in each subsidiary where operations actually occur.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Prior to acquisition of The Ranson Company, Inc. and Ranson Capital
Corporation, which occurred on January 5, 1996, the Company had
three wholly-owned subsidiaries through which it conducted its
operation. The three subsidiaries, all North Dakota corporations,
are ND Money Management, Inc., ND Capital, Inc., and ND Resources,
Inc. The Company (through its subsidiaries) markets, manages and
acts as transfer agent
<PAGE>
for the investment portfolios of mutual fund entities affiliated
with the Company. Percentage fees are based on total assets of
each fund managed.
The Company had eighteen full time employees as of December 31,
1996. The acquisition of The Ranson Company, Inc. on January 5,
1996 added three additional employees (retained employees of Ranson
Capital Corporation) included in the employee total.
The Company and its subsidiaries have an affiliation with the ND
Tax-Free Fund, Inc., the ND Insured Income Fund, Inc., the Montana
Tax-Free Fund, Inc., the South Dakota Tax-Free Fund, Inc., the
Integrity Fund of Funds, Inc., the Oklahoma Municipal Fund, the
Kansas Municipal Fund, the Kansas Intermediate Fund and the
Nebraska Municipal Fund. Revenues derived from services provided
to the affiliated mutual funds were $3,114,995 in 1996, $1,327,302
in 1995, and $1,077,089 in 1994. These revenues represent 100% of
the fee revenue of the Company. The Company, as well as various
subsidiaries, holds an investment in one or more of the Funds.
These investments produced $59,244 and $3,007 in dividend income
for 1995 and 1996, respectively. Because of the nature of these
relationships, the Company and its Subsidiaries are economically
dependent on the Funds for a majority of its current revenue.
Since the Company's inception in 1987, revenues and assets under
administration have grown in each year. The Company's revenues
(exclusive of "other income") grew from $61,927 in fiscal 1990 to
$1,405,316 in fiscal 1995. Average assets under administration
grew from $15 million during fiscal 1990 to $120 million during
fiscal 1995. With the acquisition of The Ranson Company, the
Company's revenues reached $3,417,614 in 1996.
As a result of the acquisition of The Ranson Company, Inc.
completed on January 5, 1996, the Company is also the manager of
three additional funds, called the "Ranson Managed Portfolios".
Ranson Capital Corporation, a NASD member broker/dealer and the
investment advisor and manager for the three "Ranson Managed
Portfolios": the Kansas Municipal Fund, Kansas Insured
Intermediate Fund and the Nebraska Municipal Fund, is a subsidiary
of The Ranson Company (and now the Company). Ranson Capital
Corporation, as a wholly-owned subsidiary of the Company, continues
to act as the investment adviser and manager for the Ranson Managed
Portfolios. The Ranson Managed Portfolios provided an additional
managed asset base of approximately $184,000,000. As a result,
total assets managed by the Company now total in excess of
$334,000,000. The Company's largest expense category is
compensation and benefits. Included within this category are all
compensation-related costs (payroll, benefits, bonuses) for the
Company's entire staff as well as commissions paid to its sales
group. Although this expense has increased in the past due to the
establishment and expansion of the Company's marketing efforts, the
Company believes compensation expense should decrease over time as
a percentage of revenues, as the Company's asset base and revenues
derived therefrom expand to more efficiently utilize the Company's
capacity. Other operating expenses include facilities, legal and
accounting, consulting, communication expenses, registration
expenses and others. Other operating expenses are more fixed in
nature and should decrease, over time, as a percentage of revenues.
Expenses and losses recognized as a percentage of operating
revenues and other income have decreased for each full fiscal year
since the Company's inception. The Company has benefitted from its
growth in that expenses have not increased at the same rate as
revenues due to economics of scale. Because the Company has
increased its personnel to meet the growth of its funds, the
Company's largest expense category has been employee compensation
and benefits. The Company started with two employees in 1987 and
had 18 employees as of December 31, 1996. Management of the Ranson
Managed Portfolios, acquired through the purchase of The Ranson
Company, Inc., which more than doubled the assets managed by the
Company, required retaining only three of Ranson Capital Company's
employees. All other duties relating to management of the Ranson
Managed Portfolios were assumed by existing Company employees. The
Company expects its pre-tax margins to increase over time as its
revenues and assets under administration grow more rapidly than
expenses. Despite increases in compensation and marketing expenses
in each period, the fixed components of total operating expenses
remained relatively constant.
<PAGE>
The Company's basic source of income is from investment advisory
and management services provided to affiliated mutual funds. Fees
are based upon a percentage of total funds under management.
Management's plans for generating operating profits in the future
include continued growth and expansion of the existing Funds to
bring affiliated mutual fund assets under its management and
seeking through acquisition or contract to obtain management of
additional funds.
As a method of attracting investment in the three tax-free funds
mentioned above, the Company does not charge a front-end commission
to purchasers of the mutual funds. To bring funds under its
management, commission fees must be paid to brokers who sell the
"deferred load" mutual funds. These fees are the Company's cost of
bringing assets under its management. Since there is no front-end
sales charge on investments in these funds, the commissions paid to
brokers for selling the funds are recorded as deferred costs and
carried in the "Other Assets" section of the balance sheet. As of
December 31, 1996 these costs are carried as an asset on the books
of the Company in the amount of $3,059,344. These costs of
bringing assets under management are amortized to expense based on
the established deferred sales charge rates for redemption of
investments in these funds.
Because the Company absorbs the cost of paying the current cost of
brokerage fees, during periods of expansion of the deferred load
mutual funds (such as occurred during the past three years)
substantially more cash is expended in paying the brokerage costs
to distribute the deferred load funds than is reported as expense
from amortization of the "deferred sales costs" account to which
such costs are capitalized. In the year ended 1996, $683,155 of
such brokerage fees were incurred and capitalized as "deferred
sales costs." In the same period, $454,050 of "deferred sales
costs recognized" was reported as an expense for 1996. This
expense resulted from the amortization of deferred sales costs
capitalized in previous years. Expensing, through amortization, of
deferred sales costs in any given year will not normally equal the
amount actually spent and capitalized to deferred sales costs in
that same year. In 1995, $826,131 of deferred sales costs was
capitalized while only $808,286 in amortization of deferred sales
costs were recognized as expense. As a result of this method of
reporting brokerage fees paid by the Company related to the
deferred load funds, reported financial information may not be
necessarily indicative of future operating results or of future
financial condition.
Operating Data
Revenues By Source
The nine Funds managed by the Company constitutes a material part
of Company's consolidated revenues.
The following table sets forth the amount and percentage of
revenues and other income from each principal source in the periods
indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
______________________________________________________
1996 1995 1994
Amount Percent Amount Percent Amount Percent
__________ _______ __________ _______ __________ _______
<S> <C> <C> <C> <C> <C> <C>
Interest and dividends $ 58,286 2% $ 314,253 20% $ 195,130 15%
Fee Income 3,114,995 90% 1,327,302 84% 1,077,089 85%
Commissions 302,619 9% 78,014 5% 53,062 4%
</TABLE>
<PAGE>
The following table sets forth, for the periods indicated, selected
financial information expressed as a percentage of total revenues
and other income:
<TABLE>
<CAPTION>
Year Ended December 31,
_______________________
1994 1995 1996
____ ____ ____
<S> <C> <C> <C>
Revenues and other Income 100% 100% 100%
Expenses and Losses Recognized
Compensation and benefits 47% 46% 21%
General and Administrative 34% 33% 42%
Other 55% 55% 29%
____ ____ ____
Total expenses 136% 134% 92%
____ ____ ____
Income (loss) before income
tax benefit (36%) (34%) (7%)
Deferred income tax benefit
(expense) 16% 10% 6%
____ ____ ____
Net Income (20%) (24%) 1%
==== ==== ====
</TABLE>
The following table sets forth, for the periods indicated, certain
operating data and the percentage change in such period of such
operating data derived from "Selected Consolidated Financial Data"
compared to the same period in the prior year period. There can be
no assurances that these trends will continue in the future.
<TABLE>
<CAPTION>
Percentage Increase
Year Ended December 31, Year Ended December 31,
_________________________________ _______________________
1994 1995 1996
over over over
1994 1995 1996 1993 1994 1995
__________ __________ __________ ____ ____ ____
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues $1,130,151 $1,405,316 $3,417,614 30% 24% 143%
Average assets under
administration
(in millions) $110 $120 $330 18% 9% 175%
Number of Funds 5 5 5
</TABLE>
Results of Operations
Twelve Months ended December 31, 1996 compared to twelve months
ended December 31, 1995.
1996 marked a year of dramatically increased revenues and, for the
first time in the Company's history, operating profits and positive
earnings. Total operating revenues for the twelve months ended
December 31, 1996 were $3,417,614 representing a 143% increase from
the $1,405,316 for the comparable period of 1995. Fee revenues
were $3,114,995 in January through December of 1996; (91% of
operating revenues) as compared to $1,327,302 for the twelve months
of 1995 (94% of operating revenue), representing a 135% increase
over the previous period. Commission income totaled $302,619 and
$78,014 for the years ended December 31, 1996 and 1995
respectively, an $224,605 increase (288%) between periods.
The increase in management fee revenues in the year ended December
31, 1996 from the same period in 1995 can be directly attributed to
the substantial increase in the funds under management resulting
from the acquisition of The Ranson Company, Inc. in January of
1996. Approximately $180,000,000 of assets managed by The Ranson
Company were brought under the Company's management on January 6,
1996. The Company's fees income is based upon assets under
management.
In spite of dramatic increases in revenues, expenses for year ended
December 31, 1996 increased only 57% from the same period of 1995
from $2,117,446 to $3,317,809. Compensation and benefits at
$589,399 and $758,864 respectively, comprise 28% and 23% of total
expenses for the 1995 and 1996 twelve month periods. Compensation
and benefits expenses increased 29% as compared to the same period
of 1995. The expansion
<PAGE>
of the family of Funds and amortization of costs related to past
accumulations of funds under management also resulted in other
expenses increasing over the previous year. General and
administrative expenses increased sharply as a result of The Ranson
Company acquisition and amortization related thereto as well as
activities of the Company related to registration of its Common
Stock. General and Administrative expenses increased 128% from
$664,084 in 1995 to $1,514,300 in 1996. Another significant
expense item is "deferred sales costs recognized." During the year
ended December 31, 1996 this amortization expense was $464,050
compared to $808,286 for the same period of 1995, a substantial
decrease. This decrease is a result of a change in the
amortization period from five years to nine years used to calculate
deferred sales costs recognized which reduced the amount of the
asset expensed each year. Interest expense increased substantially
from $27,948 to $161,197 as a result of debt incurred to purchase
The Ranson Company, Inc.
The Company's recorded "other income" income from interests and
dividends was reduced to $58,286 in the twelve month period ended
December 31, 1996 compared to $314,253 in the same period of 1995
because the Company's liquid assets were substantially reduced by
the purchase of The Ranson Company, Inc.
As a result of these factors, the Registrant reported net income
before income tax expense of $260,400 for the year ended December
31, 1996 versus a net loss of $535,461 for the comparable period of
1995.
The Company places available cash in interest bearing demand money
market accounts, US Treasury Bonds, local government bonds and
mutual fund investments. As of December 31, 1996, the Company's
cash and cash equivalents totaled $167,912 ($2,820 in checking,
$165,092 in Dean Witter Money Market Accounts.)
The mutual fund securities and management advisory business is
subject to various inherent risks and contingencies, many of which
are beyond the Company's ability to control. The Company's
revenues, like those of other firms in the securities fund
management industry, are directly related to the amount and
stability of funds under management. Variations in amounts of
investment assets under management are the result of local,
regional, national and international economic, regulatory and
political conditions; broad trends in business and finance; and
interest rate fluctuations.
Twelve Months ended December 31, 1995 compared to twelve months
ended December 31, 1994.
1995 provided substantial growth in revenues and continuing
maturity of the Company. 1995 also marked a renewed emphasis upon
the acquisition in the Company's growth strategy.
Total operating revenues for the twelve months ended December 31,
1995 were $1,405,316 representing a 24% increase from the
$1,130,151 for the comparable period of 1994. Fee revenues were
$1,327,302 in January through September of 1995; (94% of operating
revenues) as compared to $1,077,089 for the twelve months of 1994
(94% of operating revenue), representing a 24% increase over the
previous period. Commission income totaled $78,014 and $53,052 for
the twelve months ended December 31, 1995 and 1994, respectively,
a $24,952 (47%) increase between periods. The increase in
management fee revenues in the calendar year of 1995 from the same
period in 1994 can be directly attributed to the growth of the
Funds upon which the fees are based.
Operating expenses for the year ended December 31, 1995 increased
24% from the same period of 1994 from $1,704,251 to $2,117,446.
Compensation and benefits at $616,773 and $725,902, respectively,
comprise 36% and 34%, of total expenses for the 1994 and 1995
twelve month periods. Compensation and benefits expenses increased
18% as compared to the same period of 1994. The expansion of the
family of Funds and past accumulations of funds under management
also resulted in other expenses increasing over the previous year.
The most significant expense item is "deferred sales costs
recognized." During the year ended December 31, 1995 the expense
was $808,286 compared to $549,835 for the same period of 1994.
This "non-cash" expense is a result of commissions on sales of
mutual funds paid by the Company in prior years in order to offer
no front-end load funds to mutual fund customers. Sales
commissions paid to brokers by ND Capital, Inc. (a subsidiary) in
connection with the sale of shares in the Funds (ND Tax-Free Fund,
Inc., Montana Tax-Free Fund, Inc., South Dakota Tax-Free Fund, Inc.
and Integrity Fund of Funds, Inc.,) are capitalized and
<PAGE>
amortized over five years. This approximates the period of time
during which deferred sales commissions may be recovered from
contingent deferred sales charges collected from redemptions by
shareholders of the deferred load funds.
The maximum contingent deferred sales charge ("charge") which may
be assessed upon redemptions of shares is 4%. A charge is assessed
against shares which are redeemed within the first five years of
their purchase. The charge varies from a maximum of 4% for shares
which are redeemed within the first two years, down to 1% for
shares redeemed within the fifth year, after which no further
charge is assessed, in accordance with the following schedule:
Year of Purchase 1 2 3 4 5 6 & Following
________________________________ __ __ __ __ __ _____________
Contingent Deferred Sales Charge 4% 4% 3% 2% 1% 0
These redemption fee calculations are based upon the lesser of the
original purchase price of the customer's shares or the value of
the shares on the day of redemption. In the event a redeeming
customer's investment has increased in value at the time of
redemption, the redemption fee will be based upon the original
purchase price. If a redeeming customer's investment has decreased
in value, the redemption fee will be based upon the current value
of the customer's investment on the day of redemption. In the
event that a redeeming customer's investment has declined in value
from the original purchase price, the Registrant's redemption fee,
which, is in such instance, based upon the current value, will be
proportionally less than the Registrant would have received if the
value of the customers investment had remained constant or
increased in value.
Redemption fees earned by the Registrant were $42,436 in 1993,
$61,346 in 1994 and $122,018 in 1995.
To best match the contingent deferred sales charge schedule,
deferred sales costs are amortized to expense using the following
schedule:
After year Rate
__________ ____
1 0%
2 25%
3 25%
4 25%
5 25%
____
100%
Registrant recorded "other income" income from interest and
dividends of $314,253 in the year ended December 31, 1995 compared
to $195,130 in the same period of 1994. Investment related losses
reduced the 1995 period's "other income" to $176,669 compared to
$96,724 in 1994.
As a result of these factors, the Registrant reported a net loss
before income tax benefit and cumulative effect adjustment of
$535,461 for the year ended December 31, 1995 versus a net loss of
$477,346 for the comparable period of 1994.
Effect of Acquisition of The Ranson Company, Inc.
Based upon pro forma information compiled to relate back the effect
of the acquisition of The Ranson Company, Inc. on January 5, 1996,
to the twelve month period ended December 31, 1995, revenues for
the twelve month period would increase approximately $771,657 while
operating expenses would increase approximately $512,803 before
amortization expense related to the acquisition, which amortization
expense would have increased $363,300, all directly as a result of
the acquisition of The Ranson Company, Inc. Additionally, deferred
income tax benefit is reduced by approximately $100,000.
<PAGE>
Twelve Months ended December 31, 1994 compared to twelve months
ended December 31, 1993.
1994 was a year of positive growth and development as the Company
greatly expanded its invested equity base and matured as an
operating entity. Assets under management increased $17,000,000,
reaching $110,000,000 by July 1, 1994.
Total operating revenues for the 12 months ended December 31, 1994
were $1,130,151 representing a 31% increase from the $865,755 for
the comparable period of 1993. Fee revenues were $1,077,089 in
1994; (95% of operating revenues) as compared to $813,402 for the
12 months of 1993 (94% of operating revenue), representing an 32%
increase over the previous year. Commission income totaled $53,062
and $52,353 for the 12 months ended December 31, 1994 and 1993,
respectively, an insignificant 1% increase between periods.
The increase in management fee revenues from 1993 can be directly
attributed to the growth of the Funds together with management's
policy of continuing expansion of Company's mutual fund family. In
early 1994, the South Dakota Tax-Free Fund was introduced and by
year's end a new fund, Integrity Fund of Funds, Inc., was ready for
market. A three-fold benefit can be realized on organization of
new mutual funds; first, in certain conditions, initial fees and
commissions can be generated upon the successful organization and
distribution of an offering by the Company's broker/dealer
subsidiary; second and more important, there are substantial
management fees generated from operation and management of the fund
assets by the Company's Investment Advisor subsidiary.
Additionally, transfer fees and clerical fees are generated in the
transfer agent subsidiary.
Operating expenses for the 12 months ended December 31, 1994
increased 38% from the same period of 1993 from $1,239,151 to
$1,704,251. Compensation and benefits at $444,248 and $616,773
respectively, comprise 36%, of total expenses for both the 1993 and
1994 periods. Compensation and benefits expenses increased 39% as
compared to the same period of 1993, consistent with a similar
increase in management fees revenue.
Compensation and benefits include salaries and wages as well as
commissions paid to associated registered representatives. In
order to accommodate the increase in operational activities, two
additional employees were added in 1994, increasing the number of
employees from 13 to 15. Total salaries increased $117,466. This
increase was attributable to the two additional employees and
raises for existing employees in compensation of increased
responsibility and workload. Commissions paid to registered
representatives increased $55,059, this expense partially relates
to annual commission payments to registered representatives based
upon average net asset values of funds under management. Total
remuneration to Officers and Directors of the Company dropped
slightly from $235,764 in 1993 to $233,911 in 1994. As management
fee income increases as a result of volume increases in funds under
management, compensation and benefits expense increase in order to
provide services to the higher volume of funds.
The expansion of the family of Funds and past accumulations of
funds under management also resulted in other expenses increasing
over the previous year. The most significant expense item is
"deferred sales costs recognized." The 1994 expense was $549,835
compared to $318,425 for 1993.
As a result of the large increase in invested equity by the
Company's shareholders, the Company recorded "other income" from
interests and dividends of $195,130 in 1994 compared to $41,317 in
1993. Investment related losses reduced 1994's "other income" to
$96,724 compared to $34,741 in 1993.
As a result of these factors, the Company reported a net loss
before income tax benefit and cumulative effect adjustment of
$477,376 for the 12 months ended December 31, 1994 versus a net
loss of $338,655 for the comparable period of 1993.
Financial Condition
As of December 31, 1996, the Company's current assets represented
approximately 9% of total assets. Stockholders' equity as of
December 31, 1996 was approximately $9,006,190 million, a decrease
of $104,236
<PAGE>
or 1% since December 31, 1995. Such decrease was due to repurchase
of the Company's Common Stock from investors electing rescission
during the fourth quarter of 1996.
A number of significant changes are noted in the financial
information accompanying this prospectus, substantially all of
which are as a result of the purchase of The Ranson Company, Inc.
From December 31, 1995 to December 31, 1996, total current assets
decreased approximately $4,416,429. Net equipment increased
$294,286. New intangible assets consisting of capitalized
investment advisor's agreements of $5,734,310 and $300,000
attributable to non complete covenants (before amortization) are
recognized. With respect to liabilities, current liabilities
increased by $342,854 and long term liabilities increased by
$1,015,081 from 1995 to 1996, also as a result of the purchase of
The Ranson Company.
Liquidity and Capital Resources
The Company's most liquid assets are cash and cash equivalents.
The levels of these assets are dependent on the Company's
operating, financing and investing activities during any given
period.
Cash and cash equivalents at September 30, 1996 totaled $434,732.
The Ranson Company, Inc. Acquisition Effect Upon Liquidity and
Capital Resources
The cost to the Company of the acquisition of The Ranson Company,
Inc. on January 5, 1996 was approximately $6,196,403. $5,083,274
was paid directly to The Ranson Company, Inc. shareholders on
January 5, 1996 and $1,113,129 was placed in escrow until July 3,
1996. $4,696,403 of the $6,196,403 purchase price came from cash
and cash equivalents held by the Company. $1,500,000 of the
purchase price was borrowed on a short term note obtained January
5, 1996.
The Rescission Offer Effect on Liquidity and Capital Resources
With a registration statement effective August 29, 1996 the
Company, registered Common Stock for re-offer and re-sale pursuant
to the US Securities Act of 1933 in connection with rescission of
the unregistered Common Stock sold between September 1, 1992 and
March 9, 1995. Purchasers who purchased between September 1, 1992
and March 9, 1995 (Common Stock totaling 4,859,207 shares) were
offered the option of electing to revoke their ownership of the
Company and receive from the Company such purchaser's cash paid for
the unregistered Common Stock, plus accrued interest at the legal
rate in the state of purchase, or rescind the original purchase and
receive registered Common Stock offered hereby on a one share for
one share basis.
The rescission offer period ended October 12, 1996.
Only five (5) persons offered the cash rescission option accepted
such offer, a total of $139,737 in cash was paid to such rescinding
shareholders for a total of 66,165 common shares. 4,793,042 shares
of registered Common Stock were exchanged for the equivalent
4,793,042 shares of unregistered Common Stock.
Cash and cash equivalents at December 31, 1996, 1995, and 1994
consist of the following:
<TABLE>
<CAPTION>
Amount
_________________________________
Current
Current Interest
Maturity Rate 1996 1995 1994
________ ________ _________ __________ __________
<S> <C> <C> <C> <C> <C>
Cash in checking Demand - $ 2,820 $ 4,199 $ 3,934
Dean Witter Money
Market Accounts Demand 4 to 5% 165,092 4,890,639 1,156,129
_________ __________ __________
$ 167,912 $4,894,838 $1,160,063
</TABLE>
The Company had no investments on its balance sheet on December 31,
1996.
<PAGE>
Investments and their balance sheet classification at December 31,
1995 are as follows:
<TABLE>
<CAPTION>
Investment Securities Gross Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gain Loss Value
_________ __________ __________ _________
<S> <C> <C> <C> <C>
Securities available-
for-sale:
Mutual fund
investments $301,000 $21,900 $- $322,900
======== ======= == ========
</TABLE>
Investments and their balance sheet classification at December 31,
1994 are as follows:
<TABLE>
<CAPTION>
Investment Securities Gross Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gain Loss Value
__________ __________ __________ __________
<S> <C> <C> <C> <C>
Securities avail-
able-for-sale:
South Dakota
municipal bond $ 100,000 $ - $ 16,000 $ 84,000
Mutual fund
investments 1,492,870 - 109,272 1,383,598
__________ __________ __________ __________
$1,592,870 $ - $ 125,272 $1,467,598
</TABLE>
The Company's statements of financial condition reflect a
sufficiently liquid financial position as cash and assets readily
convertible to cash represent over 57%, 57% and 5% of total assets
at December 31, 1994, 1994, and 1996, respectively.
As of December 31, 1996, the Company had no trading securities.
Since its inception until the first quarter of 1995, the Company
financed its growth in operations and costs related to expansion of
assets under its management primarily with funds generated from
sales of stock in the Company and to a much lessor extent, long-
term debt in the form of investment certificates. Sale of the
Company's stock and investment certificates ceased in the first
quarter of 1995.
As a registered broker/dealer, ND Capital, Inc. and Ranson Capital
Corporation, subsidiaries of the Company, are subject to the
Uniform Net Capital Rule of the Securities and Exchange Commission
(the "SEC"), which requires the maintenance of minimum net capital,
as defined in Rule 15c3-1 of the Exchange Act. The Company's
wholly-owned broker/dealer subsidiaries had net capital which
exceeded their net capital requirements on December 31, 1995.
Management believes that existing capital when combined with the
additional funds generated from operations will provide the Company
with sufficient resources to meet present cash and short term
capital needs.
Analysis of Consolidated Cash Flows
The Company's growth in assets over its lifetime has been the
result of cash provided by the sale of the Company's Common Stock.
The Company has generated cash from financing activities in the
fiscal years 1994 and 1995 of $4,074,392 and $426,687,
respectively. The Company ceased sales of Common Stock in the
first quarter of 1995. In each period, the Company invested a
portion of its cash flow in capitalized "Deferred Sales Cost," the
Company's cost of commissions "fronted" to bring mutual fund assets
under its management.
For fiscal 1994, the Company generated $697,167 in positive cash
flow. Operating activities required cash totaling $3,457,919,
largely the result of a net increase in trading securities of
$2,679,507. Investing activities resulted in positive of cash flow
totaling $80,694. Financing activities raised $4,074,392 in cash
for the Company.
<PAGE>
For fiscal 1995, the Company's activities generated an increase of
$3,734,775 in cash and cash equivalents. Operating activities
generated net cash of $2,138,401, principally as a result of a
$2,674,000 decrease in trading securities. Investing activities
generated an additional $1,169,687 in cash, principally as a result
of sales of available-for-sale securities. $426,687 was raised
from financing activities. Financing activities ceased in the
first quarter of 1995.
For fiscal 1996, the Company utilized $4,726,926 of available cash.
Operating activities generated cash totaling $447,856 principally
as a result of substantially increased revenues. Investing
activities resulted in a use of cash totaling $6,026,116
principally from purchase of The Ranson Company. Financing
activities resulted in cash totaling $851,334, principally due to
increase in notes payable.
The substantial build up of cash and cash equivalents at the year
ended December 31, 1995 was for the purpose of funding the
acquisition of The Ranson Company, Inc. which acquisition took
place on January 6, 1996.
Although the Company has relied upon sales of its Common Stock for
its past liquidity, management believes that its current liquid
position will be sufficient to meet the short and intermediate term
financing needs of the Company based on its present and anticipated
future operations.
Impact of Inflation and Changing Prices
The financial statement and accompanying notes appearing elsewhere
herein have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial
position and operating results in terms of historical dollars
without considering the changes in the relative purchasing power of
money over time due to inflation. Significant assets of the
Company are monetary in nature. As a result, interest rates may
have a greater impact on the Company's performance than do the
effects of the general level of inflation. Interest rates do not
necessarily move in the same direction or to the same extent as the
prices of goods and services.
The Company's assets are primarily intangible in nature (investment
advisor's agreements) and therefore not significantly affected by
inflation. The Company's management believes that the cost of
replacing furniture, equipment and leasehold improvements would not
have a material effect on operations. However, the rate of
inflation may have a significant effect on employee, communications
and occupancy costs, which may not be readily recoverable in the
price of services offered by the Company.
The Company is not subject to significant seasonal fluctuations.
Impact of New Accounting Standards
Accounting for Investments
In 1994, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 115 for valuing its investment securities. At
December 31, 1996, investment securities that were held for short-
term resale are classified as trading securities and carried at
fair value. Other marketable securities are classified as
available-for-sale and are carried at fair value. Realized and
unrealized gains and losses on trading securities are included in
net income. Unrealized gains and losses on securities available-
for-sale are recognized as direct increases or decreases in
stockholders' equity. Cost of securities sold is recognized using
the specific identification method.
As a result of the adoption of SFAS No. 115, the stockholders
equity section of the Company's balance sheet was reduced by a
total of $125,272, in the added category of "Unrealized loss on
securities available-for-sale" at December 31, 1994 and increased
by $21,900 a calculation of unrealized gain on securities
available-for-sale at the year end December 31, 1995.
<PAGE>
Pursuant to the requirements of SFAS No. 115 stockholders equity
was reduced by $16,532, to account for the cumulative effect on
prior years of the initial application of SFAS No. 115 and an
additional $108,740 reduction in stockholders equity for the year
ended December 31, 1994.
Accounting for Income Tax
The Company files a consolidated income tax return with its wholly-
owned subsidiaries. In 1994, the Company adopted the Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for
Income Taxes, and has retroactively applied the change in its
method of accounting for income taxes to the 1993 financial
statements.
Effective January 1, 1993, the Company retroactively changed its
method of accounting for income taxes to conform with the
requirements of Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes. Under the provisions of SFAS No.
109, an entity recognizes deferred tax assets and liabilities for
future tax consequences of events that have already been recognized
in the Company's financial statements or tax returns. The
measurement of deferred tax assets and liabilities is based on
provisions of the enacted tax law; the effects of future changes in
tax laws or rates are not anticipated. The 1993 financial
statements have been restated to reflect this change. The effect
of the change increased the deferred tax benefit and increased net
income by $674,500 for the year ended December 31, 1993 as follows:
Cumulative effect on years prior
to January 1, 1993 $ 539,500
Effect of the 1993 net operating loss 135,000
Total increase to net income reported for
the year ended December 31, 1993 $ 674,500
The increase in the deferred tax benefit for the year ended
December 31, 1994 has been calculated on that year's net operating
loss for tax purposes of approximately $530,000 ($530,000 x 39% =
$205,500).
The increase in the deferred tax benefit for the year ended
December 31, 1995 has been calculated on that year's net operating
loss for tax purposes of approximately $416,000 ($416,000 x 39% =
$162,400).
The deferred tax benefit totaling $803,142 has been calculated on
approximately $2,063,000 of net operating losses due to expire
between the years 2005 through 2010.
Realization of the deferred tax benefit is dependent upon the
Company recognizing sufficient future taxable income (taxable at an
effective rate of approximately 35%) prior to the expiration of the
net operating losses. The Company's Net Operating Losses are
scheduled to expire between 2005 and 2010.
Recognition of this deferred tax asset requires an assumption that
the Company will, in the future, achieve taxable income sufficient
to realize the stated potential of this contingent offset against
future income. Since its inception until the current year ended
December 31, 1996, the Company has not achieved any taxable income.
The realization of this deferred tax asset is dependent upon
substantial improvements over the present level of pre-tax income.
No valuation adjustment has been made to the deferred tax asset.
Management's forecast of operating results contained in their
internal business plan indicates positive future earnings adequate
to absorb the net operating loss carryforwards within the
expiration periods. The major factor generating the net operating
losses to date has been the amortization of capitalized deferred
sales costs to expense. These costs represent commissions paid to
brokers for investments made in the Funds under management by the
Company that don't have a "front end" load. A majority of the
unamortized costs will be amortized to expense in the next few
years. This coupled with the slowdown in Fund growth (thereby
reducing amortization amounts on new commissions paid)
<PAGE>
should create positive net results in the near future. It is
management's belief that significant cost savings will be realized
by the combination of management for all Funds as compared to costs
of separately managing the Ranson Funds and the ND Holdings Funds.
This will be especially true in the administrative and general
overhead expense areas since they are indirect costs that are being
duplicated by both entities in their operating results prior to the
acquisition. Furthermore, since the acquisition of The Ranson
Company, Inc. by the Company is a stock purchase, the portion of
the purchase price allocated to intangibles is not deductible or
amortizable for income tax purposes. Consequently, the Company
will report significantly greater operating results for income tax
purposes than for financial reporting purposes. Based on the
preceding factors, it is management's belief that, more likely than
not, the Company's net operating loss carryforwards will be
realized before their corresponding expiration periods and that no
adjustment should be made to the value of the net deferred tax
asset.
Change in Accounting Estimate
The Company has changed its period for amortizing deferred sales
commissions from the contingent deferred sales charge period of
five years to nine years. The change in the amortizable life of
the deferred sales commissions is based on the period of time
during which deferred sales commissions are expected to be
recovered from distribution plan payments and management's estimate
of the average life of investors' accounts in the Company's
sponsored mutual funds. Contingent deferred sales charges received
by the Company directly reduce the value of the deferred sales
commissions asset. The net affect of the change on the net income
for the year ended December 31, 1996 before income tax is an
increase of $356,243, which will decrease future earnings by the
same amount.
Market Prices
There is no public market for the Company's Common Stock. The
Company's Common Stock is not yet traded on any Exchange, NASDAQ,
Electronic Bulletin Board or quoted on any interdealer system.
Dividends
The Company has not paid dividends on earnings since its inception.
The Company does not anticipate paying any dividends on its Common
Stock in the foreseeable future. The Company intends to retain its
earnings to provide funds for the expansion of its business. The
Company's future policy with respect to dividends on the Common
Stock will be determined by the Board of Directors based upon
conditions then existing, including the Company's earnings and
financial condition, capital requirements and other relevant
factors.
Stockholders
As of March 31, 1997, the approximate number of common stockholders
of record was 785 (including the number of individual participants
in security position listings). There were a total of 8,123,586
common shares outstanding.
Annual Meeting
The Company's Annual Meeting of Stockholders will be held at 10:00
a.m. on May 9, 1997, at the Company's offices at 1 North Main,
Minot, North Dakota.
Management Information
Identification of Executive Officers and Directors.
The following is a list of the names and ages of all executive
officers and directors of the Company. All positions and offices
with the Company held by each such person, and each person's term
of office as director is also provided.
<PAGE>
Term of office Positions and
with the offices with
Name Age Company the Company
___________________ ___ _________________ __________________
Richard J. Backes 71 5-4-88 to present Director
Vance A Castleman 53 3-25-94 to present Director
Daniel L. Feist 64 5-4-88 to present Director
Lyle E. McLain 63 5-4-88 to present Director
Peter A. Quist 63 5-4-88 to present Vice President and
Director
Robert E. Walstad 52 9-22-87 to present President and
Director
Richard H. Walstad 58 5-4-88 to present Director
Jacqueline L. Picken 48 5-4-88 to present Secretary
Dan Korgel 49 5-4-88 to present Treasurer
All directors were re-elected on March 24, 1995 for one-year terms.
The Company has no standing audit, nominating, or compensation
committees of the Board of Directors or any committees which
perform similar functions.
Family Relationships.
Richard H. Walstad, a Director of the Company, is the brother of
Robert E. Walstad the President and a Director of the Company.
There are no other family relationships among executive officers,
directors or persons nominated to such positions.
Business Experience.
The current employment, background and business experience of each
director, and executive officer follows:
Richard J. Backes - Farmer (1950-Present); Former North Dakota
State Highway Commissioner (1989-1993), Former North Dakota State
Representative (Majority Floor Leader);
Vance A. Castleman - Real Estate Developer (1986-Present); Former
Director Minot Area Development Corporation; Commissioner, Ward
County Planning Commission (past five years);
Daniel L. Feist - Contractor (1955-Present); Real Estate Broker
(1963-Present); Director, First Bank, Minot (past five years);
Director, Investors Real Estate Trust (past five years);
Lyle E. McLain - Farmer (1950-Present); Director, Former Chairman,
Farm Credit Banks, 7th Dist., St. Paul, Minnesota; Director, Excel
Manufacturing Co. (1986-Present);
Peter A. Quist - Vice President and Director of ND Holdings, Inc.
(1988-Present); ND Tax-Free Fund, Inc. (1988-Present), Montana Tax-
Free Fund, Inc. (1993-Present), and Integrity Fund of Funds, Inc.
(1994-Present); Vice President, Secretary, and Director of ND Money
Management, Inc., ND Capital, Inc. (1988-Present), and ND
Resources, Inc. (1989-Present); Vice President, Secretary, and
Director of ND Insured Income Fund, Inc. (1990-Present); Vice
President and Secretary of South Dakota Tax-Free Fund, Inc. (1993-
Present); Currently a licensed North Dakota attorney; Former North
Dakota Securities Commissioner (1983-1988);
Robert E. Walstad - President and Director of ND Holdings, Inc.
(1987-Present); President, Treasurer, and Director of ND Tax-Free
Fund, Inc. (1988-Present), ND Money Management, Inc. (1988-
Present), ND
<PAGE>
Resources, Inc. (1989-Present), ND Insured Income Fund, Inc. (1990-
Present), Montana Tax-Free Fund, Inc. (1993-Present), South Dakota
Tax-Free Fund, Inc. (1993-Present), and Integrity Fund of Funds,
Inc. (1994-Present); Formerly Vice President and Branch Manager of
Dean Witter Reynolds; Associated with Securities Industry as an
NASD licensed registered representative from 1972-Present;
Richard H. Walstad - President/Owner, Cook Sign Co. of Fargo (1978-
Present); Past Chairman, Fargo Cass County Economic Development
Corp., Fargo;
Jacqueline L. Picken - Secretary of ND Holdings, Inc. (1988-
Present); Executive Assistant to Robert E. Walstad, President of ND
Holdings, Inc. (1988-Present);
Dan Korgel - Treasurer of ND Holdings, Inc. (1988-Present);
Portfolio manager of the ND Tax-Free Fund, Inc. (1988-Present), ND
Insured Income Fund, Inc. (1990-Present), SD Tax-Free Fund, Inc.
(1993-Present), Montana Tax-Free Fund, Inc. (1993-Present), and
Integrity Fund of Funds, Inc. (1994-Present);
Form 10 - KSB
A copy of the Company's Annual Report on Form 10-KSB for fiscal
year 1996 as filed with the Securities and Exchange Commission may
be obtained without charge by sending a written request to Investor
Relations, ND Holdings, Inc., 1 North Main, Minot, North Dakota,
58701.
Transfer Agent
The Company's Transfer Agent is ND Resources, Inc., a wholly-owned
subsidiary of the Company. The registered transfer agent's address
is ND Resources, Inc., 1 North Main, Minot, North Dakota 58701
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
ND HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (HISTORICAL)
INDEPENDENT AUDITOR'S REPORT - BRADY, MARTZ & ASSOC., P.C.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996, 1995 AND 1994
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements for Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
ADDITIONAL INFORMATION
Independent Auditor's Report on Additional Information
Schedule X - Supplemental Income Statement Information
Selected Financial Data
Quarterly Results of Consolidated Operations (Unaudited)
BUSINESS COMPONENTS OF
THE RANSON COMPANY, INC. AND SUBSIDIARY ACQUIRED
STATEMENTS OF ASSETS AND LIABILITIES AND DIRECT REVENUES, DIRECT
EXPENSES AND ALLOCATED INDIRECT EXPENSES
INDEPENDENT AUDITOR'S REPORT - ALLEN, GIBBS & HOULIK, L.C.
Statements of Assets and Liabilities of Business Acquired
Statements of Direct Revenues, Direct Expenses and
Allocated Indirect Expenses of Business Acquired
Notes to Statements of Assets and Liabilities
and Direct Revenues, Direct Expenses
and Allocated Indirect Expenses
FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
AS OF DECEMBER 31, 1995 AND 1994
Statement of Assets and Liabilities of Business Acquired
Statements of Direct Revenues and Expenses of Business
Acquired
Notes to Unaudited Financial Statements of Business Acquired
<PAGE>
ND HOLDINGS, INC. AND SUBSIDIARIES
MINOT, NORTH DAKOTA
CONSOLIDATED FINANCIAL STATEMENTS
AS OF
DECEMBER 31, 1996, 1995 AND 1994
AND
INDEPENDENT AUDITOR'S REPORT
<PAGE>
ND HOLDINGS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Pages
INDEPENDENT AUDITOR'S REPORT 1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets 2-3
Consolidated Statements of Operations 4
Consolidated Statements of Stockholders' Equity 5
Consolidated Statements of Cash Flows 6-7
Notes to Consolidated Financial Statements 8-14
ADDITIONAL INFORMATION
Independent Auditor's Report on Additional Information 15
Schedule X - Supplemental Income Statement Information 16
Schedules other than the one listed above are omitted
since they are not required or are not applicable, or
the required information is shown in the financial
statements or notes thereon.
Selected Financial Data 17
Quarterly Results of Consolidated Operations (Unaudited) 18
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Directors of
ND Holdings, Inc. and Subsidiaries
Minot, North Dakota 58701
We have audited the accompanying consolidated balance sheets of ND
Holdings, Inc. and Subsidiaries (a North Dakota Corporation) as of
December 31, 1996 and 1995 and the related consolidated statements
of operations, stockholders' equity and cash flows for the years
ended December 31, 1996, 1995 and 1994. These consolidated
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of ND Holdings, Inc. and Subsidiaries as of December 31,
1996 and 1995, and the results of its operations and its cash flows
for the years ended December 31, 1996, 1995 and 1994 in conformity
with generally accepted accounting principles.
As discussed in Note 10 to the consolidated financial statements,
in 1996, the Company changed its period for amortizing deferred
sales commissions. The change in the amortizable life of the
deferred sales commission is based on the period of time during
which deferred sales commissions are expected to be recovered from
distribution plan payments and management's estimate of the average
life of investors' accounts in sponsored mutual funds.
BRADY, MARTZ & ASSOCIATES, P.C.
February 14,1997
-1-
<PAGE>
<TABLE>
ND HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
<CAPTION>
1996 1995
___________ ___________
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 167,912 $ 4,894,838
Securities available-for-sale - 322,900
Accounts receivable
- Fees from sponsored mutual funds 316,740 161,907
- Other 15,909 -
Prepaids 22,655 -
Deferred tax benefit 440,000 -
___________ ___________
Total current assets $ 963,216 $ 5,379,645
___________ ___________
PROPERTY AND EQUIPMENT $ 517,316 $ 100,680
Less accumulated depreciation 175,981 53,631
___________ ___________
Net property and equipment $ 341,335 $ 47,049
___________ ___________
OTHER ASSETS
Deferred sales commissions $ 3,059,344 $ 2,840,238
Deferred tax benefit 363,142 1,042,400
Covenant not to compete (net of
amortization of $ 100,000 for 1996) 200,000 -
Investment adviser's agreements (net of
amortization of $267,751 for 1996) 5,466,559 29,090
Public registration costs 241,664 81,743
Other assets 89,025 50,421
___________ ___________
Total other assets $ 9,419,734 $ 4,043,892
___________ ___________
TOTAL ASSETS $10,724,285 $ 9,470,586
=========== ===========
</TABLE>
-2-
<PAGE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
1996 1995
___________ ___________
<S> <C> <C>
CURRENT LIABILITIES
Service fees payable $ 108,556 $ -
Accounts payable 184,642 64,069
Other current liabilities 16,835 25,991
Current portion of long-term debt 132,881 10,000
___________ ___________
Total current liabilities $ 442,914 $ 100,060
___________ ___________
LONG-TERM LIABILITIES
Note payable $ 1,172,962 $ -
Investment certificates 235,100 270,100
Less current portion shown above (132,881) (10,000)
___________ ___________
Total long-term liabilities $ 1,275,181 $ 260,100
___________ ___________
TOTAL LIABILITIES $ 1,718,095 $ 360,160
___________ ___________
STOCKHOLDERS' EQUITY
Common stock - 20,000,000 shares
authorized, no par value; 8,123,586
and 8,191,751 shares issued and
outstanding, respectively $10,633,367 $10,760,074
Accumulated deficit (1,627,177) (1,671,548)
Unrealized gain on securities
available-for-sale - 21,900
___________ ___________
Total stockholders' equity $ 9,006,190 $ 9,110,426
___________ ___________
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $10,724,285 $ 9,470,586
=========== ===========
<FN>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
-3-
<PAGE>
<TABLE>
ND HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
1996 1995 1994
___________ ___________ ___________
<S> <C> <C> <C>
REVENUES
Fee income $ 3,114,995 $ 1,327,302 $ 1,077,089
Commissions 302,619 78,014 53,062
___________ ___________ ___________
Total revenue $ 3,417,614 $ 1,405,316 $ 1,130,151
___________ ___________ ___________
OPERATING EXPENSES
Compensation and benefits $ 758,864 $ 589,399 $ 504,154
General and administrative
expenses 1,514,300 664,084 564,134
Sales commissions
amortized 464,050 808,286 549,835
Depreciation and
amortization 419,398 27,729 58,316
Interest 161,197 27,948 27,812
___________ ___________ ___________
Total operating expenses $ 3,317,809 $ 2,117,446 $ 1,704,251
___________ ___________ ___________
OPERATING INCOME (LOSS) $ 99,805 $ (712,130) $ (574,100)
OTHER INCOME (EXPENSES)
Interest and dividends $ 58,286 $ 314,253 $ 195,130
Miscellaneous income 77,911 - 92
Loss on bond sales, net - - (25,576)
Net realized gain (loss)
on securities available-
for-sale 23,801 (90,084) -
Trading securities losses,
net - (47,774) (42,898)
Loss on debentures - - (26,000)
Partnership income (losses) 597 274 (4,024)
___________ ___________ ___________
Total other income $ 160,595 $ 176,669 $ 96,724
___________ ___________ ___________
INCOME (LOSS) BEFORE INCOME
TAX BENEFIT (EXPENSE) $ 260,400 $ (535,461) $ (477,376)
DEFERRED INCOME TAX BENEFIT
(EXPENSE) (216,029) 162,400 205,500
___________ ___________ ___________
NET INCOME (LOSS) $ 44,371 $ (373,061) $ (271,876)
=========== =========== ===========
NET INCOME (LOSS) PER SHARE $ .01 $ (.05) $ (.04)
<FN>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
-4-
<PAGE>
<TABLE>
ND HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
Unrealized
Gain (Loss)
on Securities
Common Stock Accumulated Available
Shares Amount Deficit For-Sale Total
_________ ___________ ___________ __________ __________
<S> <C> <C> <C> <C> <C>
BALANCE,
JANUARY 1, 1994 5,816,192 $ 6,277,995 $(1,043,143) $ - $5,234,852
Common stock
issued 2,345,328 4,370,742 - - 4,370,742
Purchase of
common stock (164,207) (326,350) - - (326,350)
Cumulative effect
on prior years
for initial
application of
SFAS No. 115 - - 16,532 (16,532) -
Net loss - - (271,876) - (271,876)
Change in
unrealized loss
on securities
available-
for-sale - - - (108,740) (108,740)
__________ ___________ ___________ __________ __________
BALANCE
DECEMBER 31,1994 7,997,313 $10,322,387 $(1,298,487) $ (125,272) $8,898,628
Common stock
issued 302,085 663,746 - - 663,746
Purchase of
common stock (107,647) (226,059) - - (226,059)
Net loss - - (373,061) - (373,061)
Change in
unrealized gain
(loss) on
securities
available-
for-sale - - - 147,172 147,172
__________ ___________ ___________ __________ __________
BALANCE,
DECEMBER 31,1995 8,191,751 $10,760,074 $(1,671,548) $ 21,900 $9,110,426
Purchase of
common stock (68,165) (126,707) - - (126,707)
Net income - - 44,371 - 44,371
Change in
unrealized gain
(loss) on
securities
available-
for-sale - - - (21,900) (21,900)
__________ ___________ ___________ __________ __________
BALANCE,
DECEMBER 31, 1996 8,123,586 $10,633,367 $(1,627,177) $ - $9,006,190
========== =========== =========== ========== ==========
<FN>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
-5-
<PAGE>
<TABLE>
ND HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
1996 1995 1994
___________ __________ ___________
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 44,371 $ (373,061) $ (271,876)
Adjustments to reconcile net income
(loss) to net cash provided (used)
by operating activities:
Depreciation and amortization 419,398 27,729 58,316
Sales commissions amortized 464,050 808,286 549,835
Loss on sale of bonds - - 25,576
Net realized (gain) loss on
securities available-for-sale (23,801) 90,084 -
Loss on sale of equipment 230 - -
Net unrealized loss on trading
securities - - 5,505
Net decrease (increase) in
trading securities - 2,674,000 (2,679,507)
Loss on debenture - - 26,000
(Increase) decrease in:
Accounts receivable (170,742) (58,880) (23,663)
Accrued interest receivable - 76,052 (70,654)
Prepaids (22,655) - -
Deferred sales commissions
capitalized (683,155) (826,131) (874,673)
Deferred tax benefit 239,258 (162,400) (205,500)
Other assets (39,071) (44,235) -
Increase (decrease) in:
Service fees payable 108,556 - -
Accounts payable 120,573 29,438 21,435
Other liabilities (9,156) 8,352 (18,713)
___________ __________ ___________
Net cash provided (used)
by operating activities $ 447,856 $2,249,234 $(3,457,919)
___________ __________ ___________
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment $ (347,727) $ (33,035) $ (17,205)
Proceeds from sale of equipment 800 - -
Purchase of available-for-sale
securities - (1,421,000) (261,842)
Proceeds from sale of available-
for-sale securities 325,564 2,622,786 337,863
Purchase of covenant not to compete (300,000) - -
Purchase of investment adviser's
agreements (5,705,220) (29,090) -
Return of capital from limited
partnership unit 467 936 17,878
Proceeds from CFH Corporation
debenture - - 4,000
___________ __________ ___________
Net cash provided (used)
by investing activities $(6,026,116) $1,140,597 $ 80,694
___________ __________ ___________
-6-
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
1996 1995 1994
___________ __________ ___________
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuing common stock
(net of stock issue costs of $-0-,
$46,183 and $303,326, respectively) $ - $ 663,746 $4,370,742
Redemption of common stock (126,707) (226,059) (326,350)
Public registration costs (159,921) (81,743) -
Increase in notes payable 1,748,975 - -
Reduction of notes payable (576,013) - -
Investment certificates issued - - 30,000
Redemption of investment certificates (35,000) (11,000) -
___________ __________ __________
Net cash provided by financing
activities $ 851,334 $ 344,944 $4,074,392
___________ __________ __________
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $(4,726,926) $3,734,775 $ 697,167
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 4,894,838 1,160,063 462,896
___________ __________ __________
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 167,912 $4,894,838 $1,160,063
=========== ========== ==========
SUPPLEMENTARY DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 161,578 $ 25,235 $ 24,067
<FN>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
-7-
<PAGE>
ND HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
The nature of operations and significant accounting policies of ND
Holdings, Inc. and Subsidiaries is presented to assist in
understanding the Company's consolidated financial statements.
Nature of operations - ND Holdings, Inc. and Subsidiaries (the
Company) was established in September 1987 as a North Dakota
corporation. The Company derives its revenue primarily from
investment advisory, asset management, underwriting, and transfer
agent services to sponsored mutual funds. Located in Minot, North
Dakota, the Company is marketing its services throughout the
Midwestern United States.
Principles of consolidation - The consolidated financial statements
include the accounts of ND Holdings, Inc. and its wholly-owned
subsidiaries, ND Money Management, Inc., ND Capital, Inc., ND
Resources, Inc., and Ranson Capital Corporation. The acquired Ranson
Capital Corporation's operations are included from the acquisition
date, January 6, 1996. All significant intercompany transactions and
balances have been eliminated in the accompanying consolidated
financial statements.
Concentrations - The Company derives its revenue primarily from
investment advisory and administrative services provided to sponsored
mutual funds, a majority of which are state-specific municipal bond
funds. Company revenues are largely dependent on the total value and
composition of assets under management, which include state-specific
municipal bonds. Accordingly, fluctuations in financial markets and
the composition of assets under management impact revenues and
results of operations.
Use of estimates - The preparation of consolidated financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Revenue recognition - Investment advisory fees, transfer agent fees,
service fees, and commissions are recorded as revenues as the related
services are provided by the Company to sponsored mutual funds.
Commission income is also received for the sale of investments in
other mutual funds.
Cash and cash equivalents - The Company's policy is to record all
liquid investments with original maturities of three months or less as
cash equivalents. Liquid investments with maturities greater than
three months are recorded as investments.
-8-
<PAGE>
NOTE 1 - (CONTINUED)
Investments - Investment securities that are held for short-term
resale are classified as trading securities and carried at fair
value. All other marketable securities are classified as
available-for-sale and are carried at fair value. Realized and
unrealized gains and losses on trading securities are included in
net income. Unrealized gains and losses on securities
available-for-sale are recognized as direct increases or decreases
in stockholders' equity. Cost of securities sold is recognized
using the specific identification method.
Property and equipment is stated at cost less accumulated depreciation
computed on the straight-line and accelerated methods over estimated
useful lives as follows:
Equipment 5-7 years
Leasehold improvements 40 years
Deferred sales commissions - Sales commissions paid to brokers and
dealers in connection with the sale of shares of the sponsored mutual
funds sold without a front-end sales charge, are capitalized and
amortized on a straight line basis over a period not exceeding nine
years, which approximates the period of time during which deferred
sales commissions are expected to be recovered from distribution plan
payments received from various sponsored mutual funds and potential
contingent deferred sales charges received from shareholders of the
various sponsored mutual funds. Contingent deferred sales charges
received by the Company are recorded as a reduction of unamortized
deferred sales commissions.
Advertising - Costs of advertising and promotion of sponsored mutual
funds are expensed the first time that the advertising takes place.
Earnings per share is computed on the weighted average number of
common shares outstanding, including share equivalents arising from
unexercised stock warrants. The aggregate weighted average shares
outstanding used in computing earnings per share was 8,486,583 in
1996, 8,094,532 in 1995, and 6,906,752 in 1994. Fully diluted per
share amounts are substantially the same as primary per share
amounts for the periods presented.
Covenant not to compete is carried on the books at cost less
accumulated amortization computed using the straight-line method over
the life of the covenant, which is three years.
Investment adviser's agreements are amortized using the straight-line
method over a period of twenty years. The Company has evaluated
potential impairments on the basis of the expected future operating
cash flows to be derived from these intangible assets in relation to
the Company's carrying value and has determined that there is no
impairment.
Public registration costs - The Company's cost of its S-1 registration
is being capitalized until the initial public offering commences. At
that time, the costs will reduce the net proceeds received from the
sale of the Company's shares.
-9-
<PAGE>
NOTE 1 - (CONTINUED)
Income taxes - The Company files a consolidated income tax return with
its wholly-owned subsidiaries. The amount of deferred tax benefit or
expense is recognized as of the date of the consolidated financial
statements, utilizing currently enacted tax laws and rates. Deferred
tax benefits are recognized in the financial statements for the
changes in deferred tax assets between years.
Reclassification - Certain amounts from 1995 and 1994 have been
reclassified to conform with the 1996 presentation.
NOTE 2 - CASH AND CASH EQUIVALENTS
Cash and cash equivalents at December 31, 1996 and 1995 consist of the
following:
Amount
_________________________
Current
Current Interest
Maturity Rate 1996 1995
________ ________ __________ ___________
Cash in checking Demand - $ 2,820 $ 4,199
Dean Witter Money
Market Accounts Demand 4.78% 165,092 4,890,639
__________ ___________
$ 167,912 $ 4,894,838
========== ===========
NOTE 3 - INVESTMENTS IN AND TRANSACTIONS WITH SPONSORED MUTUAL FUNDS
The Company's investments in sponsored mutual funds held as
available-for-sale at December 31, 1995 include:
Gross
Aggregate Unrealized Aggregate Fair
1995 Cost Holding Gains Value
____ _________ _____________ ______________
Bond funds $ 301,000 $ 21,900 $ 322,900
========= ======== =========
Dividends earned on the Company's investments in sponsored mutual
funds aggregated $3,007 in 1996, $59,244 in 1995, and $71,708 in
1994. The Company recognized a net gain of $23,801 in 1996, and a
net loss of $90,084 in 1995 from dispositions and write-downs of
fund investments.
The Company provides investment advisory and administrative services
to the Integrity Mutual Funds family of funds which had aggregate net
assets under management at December 31, 1996 of approximately $334
million. All services rendered by the Company are provided under
contracts that set forth the services to be provided and the fees to
be charged. These contracts are subject to periodic review and
approval by each of the funds' board of directors and, with respect to
investment advisory contracts, also by the funds' shareholders.
Revenues derived from services rendered to the sponsored mutual funds
were $3,114,995 in 1996, $ 1,327,302 in 1995, and $ 1,077,089 in 1994.
Accounts receivable from the sponsored mutual funds aggregate
$316,740 and $ 161,907 at December 31, 1996 and 1995, respectively.
-10-
<PAGE>
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment at December 31 consists of:
1996 1995
_________ _________
Office furniture and equipment $ 340,355 $ 100,680
Leased equipment 9,735 -
Leasehold improvements 167,225 -
_________ _________
$ 517,316 $ 100,680
Accumulated depreciation and
amortization 175,981 53,631
_________ _________
$ 341,335 $ 47,049
========= =========
NOTE 5 - ACQUISITIONS
On January 5,1996, the Company completed its acquisition of Ranson
Company, Inc. and its subsidiary (Ranson Capital Corporation), an
investment adviser and distributor for Ranson Managed Portfolios. The
offices of Ranson Company, Inc. and its subsidiary has been closed and
the operations have been integrated into the Company's subsidiaries.
Because Ranson Company, Inc. was strictly a holding company for its
subsidiary with no material assets, liabilities, or operations, other
than those involving its investment in its subsidiary, it was
dissolved in November, 1996 leaving its subsidiary, Ranson Capital
Corporation, wholly-owned by the Company. The acquisition was
accounted for as a purchase in which the Company paid $4,696,403 in
cash and $1,500,000 from bank borrowings. The operations and
financial position of Ranson Company, Inc. and subsidiary were
accounted for in the consolidated financial statements of the
Company beginning January 6, 1996. The excess purchase price over
the estimated fair value of the assets was $5,329,887 of which
$300,000 is for a covenant not to complete, being amortized using
the straight-line method over 3 years. The remaining balance
represents the value of the investment adviser's agreement, and
is being amortized using the straight-line method over 20 years.
The following unaudited pro forma summary presents the consolidated
results of operations of the Company as if the business combination
had occurred on January 1, 1995. Pro forma results for the year ended
December 31, 1996, as if the acquisition had been made in January 1,
1996, are not presented as they would not be materially different from
the reported results which include the operations of Ranson Company,
Inc. and subsidiary for the period from January 6, 1996 to December
31, 1996.
(Unaudited)
Year ended
December 31, 1995
_________________
Revenues $ 2,176,973
Net loss (575,707)
___________
Loss per share $ (.07)
===========
-11-
<PAGE>
NOTE 5 - (CONTINUED)
The above amounts are based upon certain assumptions and estimates
which the Company believes are reasonable. The pro forma results do
not necessarily represent results which would have occurred if the
business combination had taken place at the date indicated or what
the results of operations may be in any future period.
During December, 1996, the Company acquired the rights to the
investment adviser's agreement to manage the "Heartland Nebraska Tax
Free Fund".
The costs associated with this acquisition, totaling $289,914, will be
amortized using the straight-line method over a period of twenty
years, commencing in 1997.
NOTE 6 - LONG-TERM DEBT
Debt at December 31, 1996 and 1995 was as follows:
Current
Rate Portion 1996 1995
______ ________ __________ _________
Long-term debt:
Revolving loan 9.25% $ - $1,164,240 $ -
Investment certificates 10.00% 130,000 235,100 270,100
Capital lease obligations 7.11% 2,881 8,722 -
________ __________ _________
Totals $132,881 $1,408,062 $ 270,100
======== ========== =========
A summary of the terms of the current long-term debt agreements
follow:
Revolving loan - Effective January 5, 1996, the Company obtained a
$1.5 million line of credit from First Western Bank and Trust.
Interest is charged on outstanding amounts at the prime rate
(8.25% at December 31, 1996) plus 1 % per year, payable monthly.
The principal is due in full on January 27, 1998.
Investment certificates - The Company had a private offering of
investment certificates. The certificates are debt obligations and do
not represent ownership in the Company. The total offering was
$500,000 of which only $281,100 in certificates were issued. As of
December 31,1996, $235,100 in certificates are still outstanding. The
certificates bear interest at a rate of 10% per annum, payable
semi-annually, and mature 5 years from the date of issuance. The
Company has the option of redeeming the certificates early, but has no
obligation to do so except in the case of death of the registered
holder.
Capital lease obligations - In October 1996, the Company entered into
a capital lease obligation for office equipment. The term of the lease
is for 3 years with monthly payments of $284 at an interest rate of
7.11%.
The aggregate amount of required future payments on the above
long-term debt at December 31, 1996, is as follows:
Year ending December 31,
1997 $ 280,344
1998 1,258,969
1999 34,340
__________
Total $1,573,653
Less amount representing
interest 165,591
__________
Total due $1,408,062
==========
-12-
<PAGE>
NOTE 7 - INCOME TAXES
The provision for income taxes consists of:
1996 1995 1994
________ _________ _________
Current income taxes
Federal $ - $ - $ -
State - - -
Deferred income
taxes (tax benefit) 216,029 (162,400) (205,500)
________ _________ _________
$216,029 $(162,400) $(205,500)
======== ========= =========
Deferred income taxes arise from temporary differences between taxable
income for financial statement and income tax return purposes. The
only significant differences the Company has are net operating loss
carryforwards totaling $2,063,000 that expire between 2005 and 2010.
Each year's deferred income taxes (tax benefit) above is based on that
year's decrease or increase in the net operating loss carryforwards
multiplied by the applicable statutory tax rates.
The current and noncurrent deferred tax asset totaling $803,142 is
made up entirely of the unused net operating loss carryforwards
described above multiplied by the applicable statutory tax rates.
The measurement of the deferred tax asset is based on provisions of
the enacted tax law.
The effects of future changes in tax laws or rates are not
anticipated.
The deferred tax expense (benefit) reconciled to the amount computed
by applying the statutory federal rate of 35% to income before taxes
as follows:
1996 1995 1994
_________ _________ __________
Federal taxes (benefits) at
statutory rates $ 91,140 $(187,411) $(167,081)
State taxes (benefits), net of
federal tax effect 16,100 (34,880) (30,915)
Taxes on nondeductible amort-
ization at federal statutory
rates 128,712 - -
Other (19,923) 59,891 (7,054)
_________ _________ _________
Actual tax expense (benefit) $ 216,029 $(162,400) $(205,500)
========= ========= =========
-13-
<PAGE>
NOTE 8 - STOCK WARRANTS AND SPLITS
The Company has authorized 1,050,000 perpetual warrants as incentives
to the organizers, directors, officers and employees of the Company.
All warrants have been issued and outstanding since 1990. These
warrants, at the date of issue, allowed for the purchase of shares of
stock at $2.00 per share. The exercise price of the warrants will be
adjusted to reflect stock splits of 11 for 10 in 1990 and 1989. No
warrants have been exercised at December 31, 1996.
NOTE 9 - EMPLOYEE RETIREMENT PLAN
The Company sponsors a 401 (K) plan for all its employees. This plan
is solely funded by employee contributions. The only expenses of the
plan paid for by the Company are the trustees fees, which were
insignificant in 1996, 1995 and 1994.
NOTE 10 - CHANGE IN ACCOUNTING ESTIMATE
The Company has changed its period for amortizing deferred sales
commissions from the contingent deferred sales charge period of five
years to nine years. The change in the amortizable life of the
deferred sales commissions is based on the period of time during
which deferred sales commissions are expected to be recovered from
distribution plan payments and management's estimate of the average
life of investors' accounts in the Company's sponsored mutual
funds. Contingent deferred sales charges received by the Company
directly reduce the value of the deferred sales commissions asset.
The net affect of the change on the net income for the year ended
December 31, 1996 before income tax is an increase of $356,243,
which will decrease future earnings by the same amount.
NOTE 11 - COMMITMENTS
The Company leases office space under a five year lease agreement
which commenced on June 1, 1996. Lease payments are $3,000 per
month for the term of the lease. The lease carries an option to
renew for an additional five years after expiration of the initial
term. In addition, a provision of the lease allows the Company to
purchase the building, in which its offices are located, at any
time during the term of the lease. Rent expense for 1996 was $21,000.
At December 31, 1996, remaining operating lease commitments are as
follows:
Year ending December 31,
1997 $ 36,000
1998 36,000
1999 36,000
2000 36,000
2001 15,000
________
$159,000
========
-14-
<PAGE>
ADDITIONAL INFORMATION
<PAGE>
INDEPENDENT AUDITOR'S REPORT ON ADDITIONAL INFORMATION
To the Stockholders and Directors of
ND Holdings, Inc. and Subsidiaries
Minot. North Dakota
Our report on our audit of the basic consolidated financial
statements of ND Holdings, Inc. and Subsidiaries for the years
ended December 31, 1996, 1995 and 1994, appears on page 1. Those
audits were made for the purpose of forming an opinion on such
consolidated financial statements taken as a whole. The information
on pages 16 through 18 related to the 1996, 1995 and 1994
consolidated financial statements is presented for purposes of
additional analysis and is not a required part of the basic
consolidated financial statements. Such information, except for
that portion marked "unaudited," on which we express no opinion,
has been subjected to the auditing procedures applied in the audits
of the basic consolidated financial statements, and, in our
opinion, the information is fairly stated in all material respects
in relation to the basic consolidated financial statements for the
years ended December 31, 1996,1995 and 1994, taken as a whole.
We also have previously audited, in accordance with generally
accepted auditing standards, the consolidated balance sheets of ND
Holdings, Inc. and Subsidiaries as of December 31, 1993, and 1992,
and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the two years in
the period ended December 31, 1993, none of which is presented
herein, and we expressed unqualified opinions on those consolidated
financial statements. In our opinion, the information on page 17
relating to the 1993 and 1992 consolidated financial statements is
fairly stated in all material respects in relation to the basic
consolidated financial statements from which it has been derived.
BRADY. MARTZ & ASSOCIATES, P. C.
February 14, 1997
- 15 -
<PAGE>
<TABLE>
ND HOLDINGS, INC. AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
1996 1995 1994
__________ __________ __________
<S> <C> <C> <C>
COMPENSATION AND BENEFITS
Salaries and wages $ 584,310* $ 450,552* $ 378,844*
Employee benefits 97,071* 73,549* 62,556*
Commissions 25,060 19,911* 23,123*
Payroll taxes 52,423* 45,387* 39,631*
__________ __________ __________
$ 758,864 $ 589,399 $ 504,154
========== ========== ==========
GENERAL AND ADMINISTRATIVE
EXPENSES
Directors fees $ 38,830* $ 35,800* $ 37,000*
Promotion of funds 138,670* 81,088* 87,645*
Account service fees 539,470* 136,503* 112,619*
Office rent 28,380 11,800 7,950
Office expense and
supplies 40,677* 23,972* 12,174*
Telephone 28,788 20,221* 13,640*
Travel 54,013* 56,188* 37,644*
Meals and entertainment 19,535 15,948* 11,356*
Education and seminars 7,666 3,509* 2,824
Insurance and bonds 28,961 30,950* 28,514*
License, fees and
registrations 72,260* 37,981* 27,841*
Equipment rent and lease 7,498 4,348 2,414
Legal and accounting 85,903* 52,955* 34,561*
Dues, subscriptions and
memberships 25,785 22,225* 12,663*
Printing 104,116* 55,148* 63,156*
Postage 51,385* 28,916* 17,841*
Transfer agency fees 133,919* 14,329 17,004*
Custodial fees 85,049* 23,887* 27,663*
Bank charges 6,152 2,189 1,244
Utilities 6,811 - -
Miscellaneous 10,432 6,127 8,381
__________ __________ __________
$1,514,300 $ 664,084 $ 564,134
========== ========== ==========
<FN>
* Indicates items which exceed 1 % of total revenue.
</TABLE>
-16-
<PAGE>
<TABLE>
ND HOLDINGS, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
FOR THE YEARS ENDED DECEMBER 31, AS INDICATED
<CAPTION>
1996 1995 1994 1993 1992
___________ ___________ ___________ ___________ ___________
<S> <C> <C> <C> <C>
Operating revenue $ 3,417,614 $ 1,405,316 $ 1,130,151 $ 865,755 $ 520,520
Income (loss) from
operations $ 99,805 $ (712,130) $ (574,100) $ (373,396) $ (379,651)
Deferred income
tax benefit (expense)$ (216,029) $ 162,400 $ 205,500 $ 135,000 $ -
Cumulative effect on
prior year of
accounting change $ - $ - $ - $ 539,500 $ -
Income (loss)
per share $ .01 $ (.05) $ (.04) $ .07 $ (.11)
Total assets $10,724,285 $ 9,470,586 $ 9,231,998 $ 5,535,500 $ 2,394,581
Long-term obligations $ 1,408,062 $ 270,100 $ 281,100 $ 251,100 $ 181,000
Shareholders' equity $ 9,006,190 $ 9,110,426 $ 8,898,628 $ 5,234,852 $ 2,161,724
Dividends paid $ - $ - $ - $ - $ -
</TABLE>
-17-
<PAGE>
<TABLE>
ND HOLDINGS, INC. AND SUBSIDIARIES
QUARTERLY RESULTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
<CAPTION>
QUARTER ENDED
___________________________________________
3-31-96 6-30-96 9-30-96 12-31-96
_________ _________ _________ __________
<S> <C> <C> <C> <C>
Revenues $ 870,413 $ 715,404 $ 819,153 $1,012,644
Operating income
(loss) 67,203 (130,817) (17,623) 180,412
Other income 25,348 52,221 9,166 73,860
Deferred income tax
benefit (expense) 92,551 (16,800) (21,571) (270,209)
Net income (loss) 32,851 (94,766) (30,028) 136,314
Per Share
Operating income
(loss) .01 (.02) - .02
Other income - .01 - .01
Deferred income tax
benefit (expense) .01 - - (.03)
QUARTER ENDED
___________________________________________
3-31-95 6-30-95 9-30-95 12-31-95
_________ _________ _________ __________
Revenues $ 323,101 $ 423,243 $ 393,157 $ 265,815
Operating loss (226,344) (78,891) (217,123) (189,772)
Other income (loss) 97,591 2,136 86,955 (10,013)
Deferred income tax
benefit 39,050 23,280 39,480 60,590
Net loss (89,703) (53,475) (90,688) (139,195)
Per Share
Operating loss (.03) (.01) (.03) (.02)
Other income .01 - .01 -
Deferred income tax
benefit - - .01 .01
QUARTER ENDED
___________________________________________
3-31-94 6-30-94 9-30-94 12-31-94
_________ _________ _________ __________
Revenues $ 245,667 $ 252,968 $ 261,034 $ 370,482
Operating loss (90,917) (123,519) (67,327) (292,337)
Other income 21,991 8,525 5,415 60,793
Deferred income tax
benefit 27,500 46,000 27,000 105,000
Net loss (41,426) (68,994) (34,912) (126,544)
Per Share
Operating loss (.01) (.02) (.01) (.04)
Other income - - - .01
Deferred income tax
benefit - .01 - .02
</TABLE>
The above financial information is unaudited. In the opinion of
management, all adjustments (which are of a normal recurring nature)
have been included for a fair presentation.
-18-
<PAGE>
BUSINESS COMPONENTS OF
THE RANSON COMPANY, INC. AND SUBSIDIARY ACQUIRED
STATEMENTS OF ASSETS AND LIABILITIES AND
DIRECT REVENUES, DIRECT EXPENSES
AND ALLOCATED INDIRECT EXPENSES
YEARS ENDED MARCH 31, 1995, 1994 AND 1993
with
INDEPENDENT AUDITORS' REPORT
<PAGE>
BUSINESS COMPONENTS OF
THE RANSON COMPANY, INC. AND SUBSIDIARY ACQUIRED
STATEMENTS OF ASSETS AND LIABILITIES AND
DIRECT REVENUES, DIRECT EXPENSES
AND ALLOCATED INDIRECT EXPENSES
Years Ended March 31, 1995, 1994 and 1993
TABLE OF CONTENTS
Page
Independent Auditors' Report 1
Statements of Assets and Liabilities of Business Acquired 2
Statements of Direct Revenues, Direct Expenses and
Allocated Indirect Expenses of Business Acquired 3
Notes to Statements of Assets and Liabilities
and Direct Revenues, Direct Expenses
and Allocated Indirect Expenses 4 - 12
<PAGE>
Independent Auditors' Report
The Board of Directors
The Ranson Company, Inc. and Subsidiary
We have audited the accompanying statements of assets and
liabilities of the Business Acquired of The Ranson Company, Inc.
and Subsidiary as of March 31, 1995 and 1994 and the statements of
direct revenues, direct expenses and allocated indirect expenses of
the Business Acquired for each of the three years in the period
ended March 31, 1995. These statements are the responsibility of
The Ranson Company, Inc. and Subsidiary management. Our
responsibility is to express an opinion on the statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the
statements. We believe that our audits provide a reasonable basis
for our opinion.
As more fully described in Note 1, the Business Acquired is a
component of a larger consolidated business enterprise, The Ranson
Company, Inc. and Subsidiary (the "Company") and shares certain
revenue and expense transactions with the Company. The
accompanying statements of Business Acquired were prepared for the
purpose of complying with the rules and regulations of the
Securities and Exchange Commission (for inclusion in the
registration statement on Form S-1 of ND Holdings, Inc.) as
described in Note 2 and are not intended to be a complete
presentation of the consolidated financial position or results of
operations of the Company.
In our opinion, the statements referred to above present fairly, in
all material respects, the assets and liabilities of the Business
Acquired of The Ranson Company, Inc. and Subsidiary as of March 31,
1995 and 1994 and the direct revenues, direct expenses and
allocated indirect expenses of the Business Acquired for each of
the three years in the period ended March 31, 1995, in conformity
with generally accepted accounting principles.
ALLEN, GIBBS & HOULIK, L.C.
WICHITA, KANSAS
January 18, 1996
(Except for Notes 1 and 2,
as to which the date is July 3, 1996)
<PAGE>
BUSINESS COMPONENTS OF
THE RANSON COMPANY, INC. AND SUBSIDIARY ACQUIRED
STATEMENTS OF ASSETS AND LIABILITIES OF BUSINESS ACQUIRED
March 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
ASSETS ACQUIRED:
Cash $ 188,434 $ 489,617
Broker-dealer receivables 3,611 36,553
Securities owned, trading accounts 1,516,068 3,065,768
Investments 246,780 265,683
Trading securities 22,238 --
Securities available-for-sale 31,519 --
Property assets, net of accumulated
depreciation of $75,048 and $49,275 61,059 57,721
Other assets:
Employees' advances and
related party notes receivable 19,101 114,106
Miscellaneous 37,992 81,072
Prepaid expenses 45,899 9,897
Cash surrender value of life insurance 17,047 10,937
Refundable income tax 19,307 --
----------- -----------
2,209,055 4,131,354
----------- -----------
LIABILITIES ACQUIRED:
Broker-dealer payables -- (102,708)
Notes payable, bank (1,257,841) (2,968,675)
Notes payable, other (75,000) (16,670)
Accounts payable (13,559) (146,249)
Accrued liabilities (62,388) (144,067)
Income tax payable (7,034) --
----------- -----------
(1,415,822) (3,378,369)
----------- -----------
NET ASSETS ACQUIRED $ 793,233 $ 752,985
=========== ===========
<FN>
The accompanying notes are an integral
part of these financial statements.
</TABLE>
<PAGE>
BUSINESS COMPONENTS OF
THE RANSON COMPANY, INC. AND SUBSIDIARY ACQUIRED
STATEMENTS OF DIRECT REVENUES, DIRECT EXPENSES
AND ALLOCATED INDIRECT EXPENSES OF BUSINESS ACQUIRED
Years Ended March 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Direct revenues:
Gross margin, fiscal agent fees
and security transactions $ 2,094,362 $ 3,564,287 $ 2,723,275
Interest 20,185 38,623 6,818
Compliance agent fees 11,793 16,405 16,116
Net change in unrealized gains
and losses of:
Securities owned,
trading accounts 161,423 -- 1,941
Investments 9,451 6,318 14,055
----------- ----------- -----------
$ 2,297,214 $ 3,625,633 $ 2,762,205
=========== =========== ===========
Direct expenses:
General, selling and
administrative expenses:
Holding company $ 5,347 $ 9,188 $ 8,564
Public finance 1,087,652 1,980,374 1,664,544
Purchases and sales 232,427 213,726 191,708
Mutual funds 384,868 544,425 343,361
Interest expense 31,091 57,384 22,905
Net change in unrealized gains
and losses of securities
owned, trading accounts -- 155,805 --
Allocated indirect overhead expense 422,371 500,060 466,370
----------- ----------- -----------
$ 2,163,756 $ 3,460,962 $ 2,697,452
=========== =========== ===========
<FN>
The accompanying notes are an integral
part of these financial statements.
</TABLE>
<PAGE>
BUSINESS COMPONENTS OF
THE RANSON COMPANY, INC. AND SUBSIDIARY ACQUIRED
NOTES TO STATEMENTS OF ASSETS AND LIABILITIES AND DIRECT REVENUES,
DIRECT EXPENSES AND ALLOCATED INDIRECT EXPENSES
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Operations - On January 5, 1996, the stockholders of
The Ranson Company, Inc. (the Company) effected the sale of
all of the common stock of the Company to an unrelated third
party, ND Holdings, Inc. Prior to the sale, certain business
operations and assets were disposed of, liquidated, or
otherwise transferred and not acquired by ND holdings, Inc.
Accordingly, the Business Acquired of The Ranson Company, Inc.
(the Business Acquired) was a component of a larger
consolidated business enterprise, the Company. The Business
Acquired included the stock of The Ranson Company, Inc. (the
Parent) and its wholly-owned subsidiary, Ranson Capital
Corporation (the Subsidiary).
The Business Acquired operates as an investment advisor and
distributor for Ranson Managed Portfolios, which includes the
Kansas Municipal Fund, the Kansas Insured Municipal
Fund-Limited Maturity and the Nebraska Municipal Fund (the
"Mutual Funds"). These three mutual funds have a combined net
asset value of approximately $171,000,000 as of March 31,
1995. The Business Acquired also offers investment banking
services, which include services related to originating,
underwriting and distributing initial issues of securities to
customers in the state of Kansas ("Public Finance").
Additionally, the Business Acquired also purchases and sells
securities in the secondary market ("Purchases and Sales").
The Subsidiary is registered with and is a member of the
National Association of Securities Dealers, Inc. (NASD). This
is a self-regulating body formed by the industry to protect
its members and the investing public. In accordance with
regulations under The Securities Exchange Act of 1934, the
Subsidiary is also registered with the Securities and Exchange
Commission.
Basis of Presentation - The accompanying statements of the Business
Acquired have been prepared from the books and records maintained by the
Company and include the accounts of The Ranson Company, Inc. and the
certain operations of its wholly-owned subsidiary, Ranson
Capital Corporation relating to the Mutual Funds, Public
Finance and Purchases and Sales. All material intercompany
accounts and transactions have been eliminated. The
statements of direct revenues, direct expenses and allocated
indirect expenses of the Business Acquired may not necessarily
be indicative of the results of operations that would have
been obtained if the Business Acquired had been operated as an
independent entity.
The Business Acquired is a component of a larger consolidated
business enterprise, the Company. The larger consolidated
business enterprise also operated another component which was
not a part of the Business Acquired. Certain financial
information related to the component not acquired, including
direct revenues and expenses, has been excluded from these
statements.
<PAGE>
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
It is impracticable to prepare statements for the Business
Acquired in accordance with generally accepted accounting
principles due to the existence of indirect revenues and
indirect overhead expenses not specifically identifiable with
the separate components of the Company.
Direct Expenses and Indirect Overhead Expenses - The Business
Acquired accounts for direct general selling and
administrative expenses based on actual expenditures incurred
by its various components when specifically identifiable. The
entire Company also incurs expenses not directly attributable
to any specific component. Such expenses are accounted for as
indirect overhead expenses, are allocated to the various
components and consist of the following:
<TABLE>
<CAPTION>
Year Ending March 31,
---------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Salaries, commissions and bonuses $ 215,375 $ 264,991 $ 228,445
Employee benefits and taxes 38,569 44,600 46,446
Communications 40,761 46,258 46,131
Rents 101,859 119,040 143,403
Maintenance 13,609 18,452 17,902
Professional fees 33,473 19,283 22,231
Office supplies 12,801 28,644 23,869
Depreciation 16,997 13,317 7,855
Insurance 33,795 37,919 22,532
Other 7,756 11,938 5,735
--------- --------- ---------
514,995 604,442 564,549
Less estimated amount allocated to
component of the Company not acquired
(approximately 17% - 18% of total) (92,624) (104,382) (98,179)
--------- --------- ---------
Indirect overhead expenses allocated
to the Business Acquired $ 422,371 $ 500,060 $ 466,370
========= ========= =========
</TABLE>
The Company's management allocated indirect overhead expenses
to the various components based on the approximate percentage
of direct expenses of the various business components in
relationship to the direct expenses of the Company as a whole.
Management believes the allocations are reasonable when using
such relationships.
<PAGE>
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Income tax expenses are not reflected in the accompanying
statements of direct revenues, direct expenses and allocated
indirect expenses. It is impracticable to calculate income
taxes separately for the Business Acquired from that of the
Company due to the indirect overhead expenses allocations
discussed previously. The Company as a whole recorded current
income tax expense in the amounts of $68,592, $107,814 and
$156,735 for 1995, 1994 and 1993, respectively. These amounts
were calculated on a consolidated return basis.
Investments - The Parent elected to adopt the provisions of
FASB Statement No. 115, Accounting for Certain Investments in
Debt and Equity Securities, as of March 31, 1995. Statement
No. 115 requires that management determine the appropriate
classification of securities at the date of adoption, and
thereafter at the date individual investment securities are
acquired, and that the appropriateness of such classification
be reassessed at each balance sheet date.
Trading securities are held for resale in anticipation of
short-term (generally 90 days or less) fluctuations in market
prices. Trading securities, consisting primarily of actively
traded Kansas and Nebraska municipal bonds, are stated at fair
value. Realized and unrealized gains and losses are included
in income.
Available-for-sale securities consist of investments in mutual
funds and unit investment trusts managed by the Subsidiary and
are stated at fair value. Any unrealized holding gains and
losses, net of the related deferred tax effect, would be
reported as a separate component of stockholders' equity. As
cost approximates fair value there is no such separate
component of stockholders' equity.
Prior to the adoption of Statement No. 115, the Parent stated
its debt securities at the lower of amortized cost or fair
value. The Subsidiary, a broker and dealer in securities,
previously stated its debt securities at fair value; the
provisions of Statement No. 115 are not applicable to the
Subsidiary. The adoption of Statement No. 115 by the Parent
had no material impact on the accompanying statements.
Revenue Recognition - Securities transactions are recorded on
the settlement date. The effect on income of transactions
executed but not yet settled is not material to the
statements.
<PAGE>
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Property Assets - Property assets are carried at cost.
Depreciation is computed using the straight-line and
declining-balance methods. When assets are retired or
otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts, and any resulting
gain or loss is recognized in income for the period. The cost
of maintenance and repairs is charged to income as incurred,
whereas significant renewals and betterments are capitalized.
Deduction is made for retirements resulting from the renewals
or betterments.
Income Taxes - The Parent files consolidated income tax
returns with its Subsidiary. Effective April 1, 1993, the
Company adopted FASB Statement No. 109, Accounting for Income
Taxes. Statement No. 109 requires that deferred taxes be
recorded on a liability method and adjusted when new tax rates
are enacted. The adoption of Statement No. 109 had no impact
on the accompanying statements.
The Business Acquired has no material deferred income tax
items.
2. SECURITIES AND EXCHANGE COMMISSION REQUIREMENTS AND
SUBSEQUENT PURCHASE
The accompanying statements were prepared for the purpose of
complying with Rule 3-05 of Regulation S-X of the Securities
and Exchange Commission which requires separate statements of
a business acquired by a Registrant.
On January 5, 1996, the stockholders of the Company completed
the sale of all of their common stock to an unrelated third
party, ND Holdings, Inc. for an estimated aggregate purchase
price of $6,196,403. Approximately 80% of the total aggregate
purchase price (or $5,083,274) was paid directly to the
stockholders of the Company on January 5, 1996 and the
remaining $1,113,129 was placed in escrow pending final
determination of the purchase price on July 3, 1996.
Prior to the sale, the Company liquidated many of its assets,
including certain securities owned, trading accounts, certain
investments and certain other assets. The Company did not
realize any material losses upon the liquidation of such
assets. Upon purchase of the Company, ND Holdings, Inc.
liquidated most of the Company's assets remaining at the date
of purchase, including certain trading securities and certain
securities available for sale.
On February 5, 1996, ND Holdings, Inc. filed a registration
statement on Form S-1 with the Securities and Exchange
Commission of which these accompanying statements will be a
part.
<PAGE>
3. SPECIAL RESERVE BANK ACCOUNT FOR THE EXCLUSIVE BENEFIT OF
CUSTOMERS
The Subsidiary operates under the provisions of Paragraph
(k)(2)(i) of Rule 15c3-3 of the Securities and Exchange
Commission and, accordingly, is exempt from the remaining
provisions of that Rule. Pursuant to Rule 15c3-3, no amount
was required to be on deposit in the "Special Reserve Bank
Account for the Benefit of Customers" at March 31, 1995 and
1994.
4. INVESTMENTS
The following is a summary of trading securities as of March 31, 1995:
<TABLE>
<CAPTION>
Gross Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
-------- --------- ---------- --------
<S> <C> <C> <C> <C>
Kansas and Nebraska
municipal bonds $ 22,238 $ -- $ -- $ 22,238
======== ========= ========== ========
</TABLE>
The following is a summary of securities available-for-sale as
of March 31, 1995:
<TABLE>
<CAPTION>
Gross Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
-------- --------- ---------- --------
<S> <C> <C> <C> <C>
Kansas and Nebraska
municipal bond mutual
funds $ 19,115 $ -- $ -- $ 19,115
Kansas and Nebraska unit
investment municipal
trusts 12,404 -- -- 12,404
-------- --------- ---------- --------
$ 31,519 $ -- $ -- $ 31,519
======== ========= ========== ========
</TABLE>
The mutual fund and unit investment trust investments have no
contractual maturity and are due on demand.
<PAGE>
4. INVESTMENTS (Continued)
The carrying value and estimated market values of securities
owned, trading accounts at March 31, 1995 and 1994 consist of
the following:
<TABLE>
<CAPTION>
Unrealized Unrealized Fair
Cost Gain Loss Value
----------- --------- --------- -----------
<S> <C> <C> <C> <C>
1995
Kansas and Nebraska
municipal bonds $ 1,406,443 $ -- $ -- $ 1,406,443
Kansas and Nebraska
unit investment
municipal trusts 109,250 375 -- 109,625
----------- --------- --------- -----------
$ 1,515,693 $ 375 $ -- $ 1,516,068
=========== ========= ========= ===========
1994
Kansas and Nebraska
municipal bonds $ 665,208 $ -- $ 34,900 $ 630,308
Kansas and Nebraska
unit investment
municipal trusts 2,558,482 -- 123,022 2,435,460
----------- --------- --------- -----------
$ 3,223,690 $ -- $ 157,922 $ 3,065,768
=========== ========= ========= ===========
</TABLE>
Investments at March 31, 1995 and 1994 are stated at market
which approximates cost and consist of the following:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Kansas and Nebraska municipal
bond mutual funds $ 246,780 $ 252,603
Kansas and Nebraska unit
investment municipal trusts -- 13,080
--------- ---------
$ 246,780 $ 265,683
========= =========
</TABLE>
5. PROPERTY ASSETS
Property assets consist of the following:
<TABLE>
<CAPTION>
March 31
--------------------- Estimated
1995 1994 Useful Lives
--------- --------- ------------
<S> <C> <C> <C>
Furniture and office equipment $ 136,107 $ 106,996 5 to 7 years
Accumulated depreciation 75,048 49,275
--------- ---------
$ 61,059 $ 57,721
========= =========
</TABLE>
<PAGE>
6. LEASES
The Subsidiary leases office facilities and equipment under
long-term lease agreements which expire in various years
through 1998 and are classified as operating leases. The
following is a schedule of future minimum lease payments for
operating leases (with initial or remaining terms in excess of
one year) as of March 31, 1995:
Year Ending March 31
--------------------
1996 $ 6,660
1997 1,665
1998 228
--------
$ 8,553
========
7. NOTES PAYABLE, BANK
Notes payable, bank with interest rates of 10.75% and 8.0% in
1995 and 1994, respectively, were as follows:
<TABLE>
<CAPTION>
March 31
- -------------------------
1995 1994
----------- -----------
<S> <C> <C>
Demand notes secured by municipal bonds with
a loan value of $1,257,841 and $2,968,675 $ 1,257,841 $ 2,968,675
=========== ===========
</TABLE>
8. NOTES PAYABLE, OTHER
Notes payable, other consist of the following:
<TABLE>
<CAPTION>
March 31
-------------------
1995 1994
-------- --------
<S> <C> <C>
10% unsecured note payable to individual, interest
due monthly with principal due August 1995. $ 75,000 $ --
10% unsecured note payable to individual, interest
due monthly with principal due April 1993. -- 12,500
12.75% note payable to vendor, due in monthly
installments of $721 through September 1994,
secured by equipment. -- 4,170
-------- --------
$ 75,000 $ 16,670
======== ========
</TABLE>
<PAGE>
9. RELATED PARTY TRANSACTIONS
The Business Acquired had the following employees' advances
and notes receivable at March 31, 1995 and 1994:
<TABLE>
<CAPTION>
March 31
-------------------
1995 1994
-------- --------
<S> <C> <C>
Employee advances $ 12,176 $ 2,129
8.5% promissory notes receivable from
stockholders and officers due May 1995 6,514 6,091
8.25% promissory notes receivable from
stockholders and officers due May 1994 -- 55,000
6% note receivable from stockholder
and officer due in 1995 -- 50,500
Accrued interest receivable 411 386
-------- --------
$ 19,101 $114,106
======== ========
</TABLE>
The Subsidiary leases its office space from a partnership in
which one of the Subsidiary's officers is an owner. In 1993,
the Subsidiary also leased certain office equipment from two
partnerships in which two of the Subsidiary's officers owned
various interests.
10. EMPLOYEE BENEFIT PLAN
The Subsidiary established a 401(k) Profit Sharing Plan for
the benefit of its employees. Any full-time employee as of
December 1 is eligible for this Plan. The Plan contribution
is determined annually by the Subsidiary's Board of Directors.
<PAGE>
11. NET CAPITAL REQUIREMENTS
Pursuant to the net capital provisions of Rule 15c3-1 of the
Securities Exchange Act of 1934, the Subsidiary is required to
maintain a minimum net capital, as defined under such
provisions. Net capital and the related net capital ratio may
fluctuate on a daily basis. The Subsidiary had net capital,
net capital requirements and a ratio of aggregate indebtedness
to net capital as follows:
<TABLE>
<CAPTION>
March 31
---------------------
1995 1994
--------- ---------
<S> <C> <C>
Net capital $ 514,682 $ 256,489
Net capital requirements $ 100,000 $ 75,000
Ratio of aggregate indebtedness
to net capital .16 to 1 1.32 to 1
</TABLE>
12. OFF-BALANCE SHEET RISK
The Subsidiary's commission revenue results from customer
transactions introduced solely through its clearing broker.
The clearing broker assumes the responsibility for execution,
clearance, collection and delivery, including all
recordkeeping requirements, in relation to the Subsidiary's
customers' transactions. Off-balance sheet risk exists with
respect to these transactions due to the possibility that such
customers may be unable to fulfill their contractual
commitments wherein the clearing broker may charge any losses
incurred to the Subsidiary. The Subsidiary has in place
controls to minimize this risk through monitoring credit
worthiness of its customers and monitoring the proper
execution of transactions by the clearing broker.
