FORM 10-QSB
Securities and Exchange Commission
Washington, D.C. 20549
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-25958
ND HOLDINGS, INC.
(Exact name of small business issuer as specified in its charter)
North Dakota 45-0404061
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
1 North Main, Minot, North Dakota, 58703
(Address of principal executive offices)
(701) 852-5292
(Issuer's telephone number)
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
As of September 30, 1997, there were 8,163,687 shares of common stock of
the registrant.
Transitional Small Business Disclosure Format (check one):
Yes No X
<PAGE>
FORM 10-QSB
ND HOLDINGS, INC.
INDEX
Part I: FINANCIAL INFORMATION Page No.
Item 1 Financial Statements
Condensed Consolidated Balance Sheets-
September 30, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Operations-
Three months ended September 30, 1997 and 1996 4
Condensed Consolidated Statements of Operations-
Nine months ended September 30, 1997 and 1996 5
Condensed Consolidated Statements of Cash Flows-
Nine months ended September 30, 1997 and 1996 6
Notes to Condensed Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 11
Signatures 12
Exhibit Index 13
2
<PAGE>
<TABLE>
ND HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
(Unaudited)
September 30, December 31,
1997 1996
-----------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 273,546 $ 167,912
Accounts receivable 425,481 332,649
Prepaids 28,199 22,655
Deferred tax benefit 453,468 440,000
-----------------------------
Total current assets $ 1,180,694 $ 963,216
-----------------------------
EQUIPMENT
Equipment $ 553,861 $ 517,316
Less accumulated depreciation (208,354) (175,981)
-----------------------------
Net equipment $ 345,507 $ 341,335
-----------------------------
OTHER ASSETS
Deferred sales commissions $ 3,306,901 $ 3,059,344
Deferred tax benefit 58,606 363,142
Covenant not to compete (net of
amortization of $175,000 and $100,000) 125,000 200,000
Investment advisor's agreements (net of
amortization of $482,788 and $267,751) 5,255,551 5,466,559
Other assets 87,983 330,689
------------------------------
Total other assets $ 8,834,041 $ 9,419,734
-----------------------------
TOTAL ASSETS $ 10,360,242 $ 10,724,285
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Service fees payable $ 103,739 $ 108,556
Accounts payable 105,760 184,642
Note payable 623,722 0
Current portion of long-term debt 144,100 132,881
Other current liabilities 36,842 16,835
-----------------------------
Total current liabilities $ 1,014,163 $ 442,914
-----------------------------
LONG-TERM LIABILITIES
Note payable $ 0 $ 1,172,962
Investment certificates 184,100 235,100
Debenture certificates 300,000 0
Less current portion (144,100) (132,881)
-----------------------------
Total long-term liabilities $ 340,000 $ 1,275,181
-----------------------------
TOTAL LIABILITIES $ 1,354,163 $ 1,718,095
-----------------------------
STOCKHOLDERS' EQUITY
Common stock - 20,000,000 shares
authorized, no par value; 8,163,687 and
8,123,586 shares issued and outstanding,
respectively $ 10,472,696 $ 10,633,367
Accumulated deficit (1,466,617) (1,627,177)
-----------------------------
Total stockholders' equity $ 9,006,079 $ 9,006,190
-----------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 10,360,242 $ 10,724,285
=============================
<FN>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
3
<PAGE>
<TABLE>
ND HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
(Unaudited)
Three Months Ended
September 30,
-------------------------
(Restated)
1997 1996
-------------------------
<S> <C> <C>
REVENUES
Fee income $ 1,121,251 $ 840,485
Commissions 101,752 61,669
-------------------------
Total revenue $ 1,223,003 $ 902,154
-------------------------
OPERATING EXPENSES
Compensation and benefits $ 230,862 $ 212,552
General and administrative expenses 539,895 332,411
Deferred sales costs recognized 139,646 255,393
Depreciation and amortization 107,470 94,601
Interest 27,090 46,268
-------------------------
Total operating expenses $ 1,044,963 $ 941,225
-------------------------
OPERATING INCOME (LOSS) $ 178,040 $ (39,071)
-------------------------
OTHER INCOME
Interest and dividends $ 5,428 $ 8,266
Trading securities gains - net 0 0
Miscellaneous income 175 900
-------------------------
Total other income 5,603 $ 9,166
-------------------------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE $ 183,643 $ (29,905)
DEFERRED INCOME TAX EXPENSE $ (108,016) (12,991)
-------------------------
NET INCOME (LOSS) $ 75,627 $ (42,896)
=========================
NET INCOME(LOSS) PER SHARE: $ 0.01 $ (0.01)
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 8,153,838 8,168,166
<FN>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATMENTS
</TABLE>
4
<PAGE>
<TABLE>
ND HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
(Unaudited)
Nine Months Ended
September 30,
-------------------------
(Restated)
1997 1996
-------------------------
<S> <C> <C>
REVENUES
Fee income $ 2,685,030 $ 2,507,603
Commissions 253,659 188,785
-------------------------
Total revenue $ 2,938,689 $ 2,696,388
-------------------------
OPERATING EXPENSES
Compensation and benefits $ 685,652 $ 610,166
General and administrative expenses 1,006,838 1,097,936
Deferred sales costs recognized 400,923 751,908
Depreciation and amortization 322,410 282,242
Interest 85,196 119,467
-------------------------
Total operating expenses $ 2,501,019 $ 2,861,719
-------------------------
OPERATING INCOME (LOSS) $ 437,670 $ (165,331)
-------------------------
OTHER INCOME
Interest and dividends $ 17,716 $ 55,034
Trading securities gains - net 0 23,688
Miscellaneous income 915 8,013
-------------------------
Total other income $ 18,631 $ 86,735
-------------------------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE $ 456,301 $ (78,596)
DEFERRED INCOME TAX EXPENSE (295,741) (64,181)
-------------------------
NET INCOME (LOSS) $ 160,560 $ (142,777)
=========================
NET INCOME(LOSS) PER SHARE: $ 0.02 $ (0.02)
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 8,129,544 8,177,298
<FN>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
5
<PAGE>
<TABLE>
ND HOLDINGS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
(Unaudited)
Nine Months Ended
September 30,
-------------------------
1997 1996
-------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided (used) by operating activities $ 360,383 $ 153,565
-------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investment adviser's agreement $ 0 $(5,422,455)
Purchase of covenant not to compete 0 (300,000)
Purchase of available-for-sale securities 0 (5,662)
Proceeds from sale of available-for-sale
securities 0 324,688
Purchase of equipment (36,546) (186,892)
Other asset (increases) decreases (42,751) (58,750)
--------------------------
Net cash used by investing activities $ (79,297) $(5,649,071)
--------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term debt $ 0 $ 1,500,000
Payments on short-term debt (549,240) (400,000)
Proceeds from long-term debt 300,000 25,000
Proceeds from issuing common stock (net of
issue costs) 124,788 0
Redemption of common stock 0 (54,600)
Investment certificates redeemed (51,000) (35,000)
-------------------------
Net cash provided (used) by financing activities $ (175,452) $ 1,035,400
-------------------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS $ 105,634 $(4,460,106)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 167,912 4,894,838
-------------------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 273,546 $ 434,732
=========================
<FN>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATMENTS
</TABLE>
6
<PAGE>
ND HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
NOTE 1 - BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of ND
Holdings, Inc., a North Dakota corporation, and its subsidiaries
(collectively, the "Company"), included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. In the opinion of
management, all adjustments necessary (of a normal recurring nature
only) to present fairly the financial position of the Company as of
September 30, 1997 and results of operations and cash flows for the
stated periods have been included. The Condensed Consolidated
Balance Sheet at December 31, 1996, contained herein, was derived
from audited financial statements, but does not include all
disclosures included in the 1996 Annual Report and applicable under
generally accepted accounting principles. Certain information and
footnote disclosures normally included in interim financial
statements prepared in accordance with generally accepted accounting
principles have been omitted. The results of operations for the nine
months ended September 30, 1997 are not necessarily indicative of
operating results for the entire year.
NOTE 2 - CHANGE IN ACCOUNTING ESTIMATE
Subsequent to September 30, 1996, the Company 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' in the Company's sponsored
mutual funds. Contingent deferred sales charges received by the
Company will directly reduce the value of the deferred sales
commissions asset.
NOTE 3 - INCOME TAXES
Estimated effective annual income tax rates differ from statutory
rates, primarily due to nondeductible amortization expenses.
NOTE 4 - RECLASSIFICATION
Certain amounts in the 1996 consolidated financial statements have
been reclassified to conform with the 1997 presentation. These
reclassifications had no effect on the Company's net income.
NOTE 5 - RESTATEMENT OF NET INCOME
Net income for the nine month period ended September 30,1996 has been
restated from a loss of $91,943 to a loss of $142,777. Net income
for the three month period ended September 30, 1996 has been
restated from a loss of $30,028 to a loss of $42,896. These
restatements have been made to include additional expenses not
originally reported, net of corresponding reductions in deferred
income tax expense.
7
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Nine months ended September 30, 1997 compared to nine months ended September
30, 1996. (Management's Unaudited Statements of Operations)
Total operating revenues for the nine months ended September 30, 1997 were
$2,938,689 representing a 9% increase from the $2,696,388 recorded for the
comparable period of 1996. Fee revenues were $2,685,030 in January through
September of 1997; (91% of operating revenues) as compared to $2,507,603 for
the first nine months of 1996 (93% of operating revenues), representing a 7%
increase over the previous period. Commission income totaled $253,659 and
$188,785 for the nine months ended September 30, 1997 and 1996 respectively,
a $64,874 increase between periods. The increase in fee revenues in the nine
months of 1997 from the same period in 1996 can be attributed to a combination
of modest growth in the funds under the Company's management due to marketing
efforts by the Company and increases in fee rates charged to the funds.
With an anticipated increase in marketing efforts for the Ranson Managed
Portfolios (front load fund group) including the introduction of The Illinois
Municipal Fund this October, the anticipates a greater rise in fund growth
and a corresponding increase in fee revenues and underwriting commissions
moving forward. Additional fee rate increases also are expected to contribute
to rising operating revenues of a greater magnitude in the next twelve months.
Over a longer time period, another source of revenue growth could come from ND
Resources, Inc., a wholly-owned subsidiary and registered transfer agent.
Currently, ND Resources, Inc. serves as transfer agent and accounting services
agent for the nine mutual funds managed by ND Holdings, Inc. ND Resources,
Inc. will expand its offering of services to outside fund groups. While ND
Resources, Inc. will begin aggressively promoting its services in 1998, it is
unlikely ND Holdings, Inc. will see a material impact on revenues in the next
twelve months.
Operating expenses for the nine months ended September 30, 1997 decreased
13% from the same period of 1996 from $2,861,719 to $2,501,019. Compensation
and benefits at $610,166 and $685,652, respectively, comprise 21% and 27%,
of total operating expenses for the 1996 and 1997 nine month periods.
Considering the additional assets now being managed, the addition of The
Oklahoma Municipal Fund, and preparation and promotion of ND Resources, Inc.'s
services, compensation and benefit expenses increased reasonably from the same
period of 1996. General and administrative expenses decreased $91,098 from
$1,097,936 in the first nine months of 1996 to $1,006,838 in the nine months
ended September 30, 1997. The decrease can be attributed to the fact that
during part of the period ended September 30, 1996, transfer agent services
for the Ranson Managed Portfolios were being provided by an external agent.
The cost of these services during the period amounted to $134,000 and were
paid by ND Holdings, Inc. on behalf of the funds. Prior to the end of the
period, the services were brought in house, resulting in considerable
savings in the current period.
A significant expense item is "deferred sales costs recognized." During the
nine month period ended September 30, 1997, the expense was $400,923 compared
to $751,908 for the same period of 1996, representing a decrease of 47%. The
decrease is accounted for by a change in accounting estimate. Subsequent to
8
<PAGE>
September 30, 1996, the Company changed its period for amortizing capitalized
sales commissions paid on back load funds 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' in the
Company's sponsored mutual funds. Contingent deferred sales charges received
by the Company will directly reduce the value of the deferred sales
commissions asset.
Interest expense declined $34,271 from $119,467 in the first nine months of
1996 to $85,196 in the nine months ended September 30, 1997. This decrease is
the result of a paydown of existing debt using cash flows from operating
activities.
Operating expenses will likely begin to rise at a moderate pace. In addition
to the normal trend of higher operating expenses associated with inflation and
normal growth, deferred sales costs recognized will probably see a slight
increase due to additional amortization of newly capitalized sales
commissions.
Interest expense will likely increase as a result of a current intrastate
offering of up to $10,000,000 in 10% debenture certificates. The proceeds of
the certificates may be used for developing mutual fund assets under the
company's management, potential acquisitions of related businesses, potential
repayment of existing bank debt, stock buyback at the board of directors
discretion in an amount up to $2,000,000, and to exercise an option to
purchase the office building currently being leased. The above uses of the
debenture proceeds should result in either increased revenues or reduced
expenses. To date the company has closed on $300,000 of the intrastate
offering. There can be no assurance that the maximum amount will be sold.
Compensation and benefits and general and administrative expenses will
increase as a result of the increase in marketing efforts for the Ranson
Managed Portfolios and the introduction of The Illinois Municipal Fund.
Additionally, as ND Resources, Inc. is preparing to attract outside fund
business as transfer and accounting services agent, additional operating
expenses will be incurred.
The Registrant recorded "other income" of $18,631 in the nine month period
ended September 30, 1997 compared to $86,735 in the same period of 1996. The
reduction is due to a decline of $37,318 in interest and dividend income as a
result of the use of capital in January, 1996 to purchase The Ranson Company
as well as the absence of any trading securities gains in the current period
as opposed to a gain of $23,688 in the first nine months of 1996.
As a result of the above stated factors, the Registrant reported net income
before income tax expense of $456,301 for the nine months ended September 30,
1997 versus a net loss before income tax expense of $78,596 for the comparable
period of 1996, a $534,897 increase. Deferred income tax expense was
$295,741 for the current nine month period versus $64,181 for the first nine
months of 1996. Estimated effective annual income tax rates differ from
statutory rates, primarily due to nondeductible amortization expenses. Net
9
<PAGE>
income after deferred income tax expense was $160,560 for the period ending
September 30, 1997 compared to a net loss of $142,777 for January 1996 through
September 1996, a $303,337 increase in net income.
Net income per share was $0.02 for the nine months ended September 30, 1997
compared to the $0.02 loss per share recorded in the comparable prior year
period.
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, investing, and
financing activities during any given period.
Net cash flows provided by operating activities increased to $360,383 in the
nine months ended September 30, 1997 versus $153,565 for the same period in
1996. The increase was primarily due to an increase in revenues of $242,301.
Net cash flows used by investing activities were $79,297 in January through
September of 1997 as compared to $5,649,071 for the first nine months of 1996.
In the current period, activities included the purchase of equipment of
$36,546 and an increase in other assets of $42,751, whereas in the comparable
period of 1996 the main component of cash used by investing activities was
$5,722,455 used for the purchase of the investment advisory agreement and
covenant not compete contract in conjunction with the acquisition of The
Ranson Company.
Net cash used by financing activities for the nine months ended September 30,
1997 was $175,452 compared with net cash provided by financing activities in
the prior year period of $1,035,400. In the first nine months of 1996, net
cash flow provided by financing activities was mainly the result of a short-
term note of $1,500,000 used to facilitate the purchase of The Ranson Company,
less payments of $400,000 made on that note. Additional payments totaling
$549,240 on the note were made in the current period from operating cash flows
and proceeds of $300,000 from the current intrastate debenture offering. It
is anticipated the remainder of the short-term debt will be paid off with
proceeds of the debenture offering. The debentures have a maturity of five
years from their respective dates of issue which will result in a replacement
of existing short-term debt with long-term debt and a resulting improvement in
liquidity. Other financing activities in the current period included proceeds
(net of selling shareholders and issue costs) of a best efforts offering of
the Company's common stock totaling $124,788.
As a result of the cash flow provided by operating activities of $360,383
less cash used by investing and financing activities of $79,297 and $175,452,
respectively, the Company generated a net increase in cash and cash
equivalents in the first nine months of 1997 of $105,634 versus a decrease
in the prior year period of $4,460,106.
Cash and cash equivalents at September 30, 1997 totaled $273,546.
Although the Company has historically relied upon sales of its common stock
for liquidity and growth, the Company is currently generating positive cash
flows from operations. Management believes that its current cash flows will
be sufficient to meet the financing needs of the Company's present operations.
10
<PAGE>
ND HOLDINGS, INC. AND SUBSIDIARIES
PART II-OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
EX-27 Financial Data Schedule
11
<PAGE>
ND HOLDINGS, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
/s/ Robert E. Walstad November 14, 1997
Robert E. Walstad Date
President and Chairman of the Board
/s/ Dan Korgel November 14, 1997
Dan Korgel Date
Chief Financial Officer
12
<PAGE>
ND HOLDINGS, INC. AND SUBSIDIARIES
Exhibit Index to Quarterly Report on Form 10-QSB
For the Quarter Ended September 30, 1997
EXHIBITS
EX-27 Financial Data Schedule
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL STATEMENTS FOR THE PERIOD SEPTEMBER 30, 1997, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 274
<SECURITIES> 0
<RECEIVABLES> 425
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,181
<PP&E> 554
<DEPRECIATION> 208
<TOTAL-ASSETS> 10,360
<CURRENT-LIABILITIES> 1,014
<BONDS> 340
0
0
<COMMON> 10,473
<OTHER-SE> (1,467)
<TOTAL-LIABILITY-AND-EQUITY> 10,360
<SALES> 2,939
<TOTAL-REVENUES> 2,957
<CGS> 0
<TOTAL-COSTS> 2,416
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 85
<INCOME-PRETAX> 456
<INCOME-TAX> 295
<INCOME-CONTINUING> 161
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 161
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
