FORM 10-QSB
Securities and Exchange Commission
Washington, D.C. 20549
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
U.S. SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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 November 10 , 1998, there were 8,079,687 shares of common stock of
the registrant outstanding.
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, 1998 and December 31, 1997 3
Condensed Consolidated Statements of Operations-
Three months ended September 30, 1998 and 1997 4
Condensed Consolidated Statements of Operations-
Nine months ended September 30, 1998 and 1997 5
Condensed Consolidated Statements of Cash Flows-
Nine months ended September 30, 1998 and 1997 6
Notes to Condensed Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis or Plan of Operation
Part II OTHER INFORMATION
Item 4 Submission of matters to a vote of security holders 11
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,
1998 1997
-----------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 836,632 $ 351,603
Securities available-for-sale 1,000 101,329
Accounts receivable 320,722 342,134
Prepaids 22,639 27,825
Deferred tax benefit 94,878 405,343
-----------------------------
Total current assets $ 1,275,871 $ 1,228,234
-----------------------------
EQUIPMENT
Equipment $ 586,365 $ 562,776
Less accumulated depreciation (270,876) (239,337)
-----------------------------
Net equipment $ 315,489 $ 323,439
-----------------------------
OTHER ASSETS
Deferred sales commissions $ 3,484,072 $ 3,341,858
Covenant not to compete (net of
amortization of $275,000 and $200,000) 25,000 100,000
Investment advisor's agreements (net of
amortization of $769,856 and $554,668) 4,968,483 5,183,671
Other assets 238,624 128,958
------------------------------
Total other assets $ 8,716,180 $ 8,754,487
-----------------------------
TOTAL ASSETS $ 10,307,540 $ 10,306,160
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Service fees payable $ 97,303 $ 101,486
Accounts payable 38,146 16,208
Investment certificates 40,000 0
Current portion of long-term debt 28,805 78,192
Other current liabilities 18,754 36,714
-----------------------------
Total current liabilities $ 223,007 $ 232,600
-----------------------------
LONG-TERM LIABILITIES
Note payable $ 28,805 $ 430,970
Investment certificates 0 105,100
Debenture certificates 950,000 552,000
Less current portion (28,805) (78,192)
-----------------------------
Total long-term liabilities $ 950,000 $ 1,009,878
-----------------------------
TOTAL LIABILITIES $ 1,173,007 $ 1,242,478
-----------------------------
STOCKHOLDERS' EQUITY
Common stock - 20,000,000 shares
authorized, no par value; 8,083,187 and
8,153,187 shares issued and outstanding,
respectively $ 10,358,337 $ 10,460,130
Accumulated deficit (1,221,681) (1,397,777)
Unrealized gain (loss)on securities
available for sale (2,123) 1,329
-----------------------------
Total stockholders' equity $ 9,134,533 $ 9,063,682
-----------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 10,307,540 $ 10,306,160
=============================
<FN>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
3
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<TABLE>
ND HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
(Unaudited)
Three Months Ended
September 30,
-------------------------
1998 1997
-------------------------
<S> <C> <C>
OPERATING REVENUES
Fee income $ 874,316 $ 904,950
Commissions 101,312 101,752
-------------------------
Total revenue $ 975,628 $ 1,006,702
-------------------------
OPERATING EXPENSES
Compensation and benefits $ 211,045 $ 187,321
Commission expense 57,827 36,123
General and administrative expenses 246,210 331,012
Sales commissions amortized 103,423 139,646
Depreciation and amortization 108,467 107,470
-------------------------
Total operating expenses $ 726,973 $ 801,572
-------------------------
OPERATING INCOME $ 248,655 $ 205,130
-------------------------
OTHER INCOME (EXPENSES)
Investment and other income $ 11,701 $ 5,603
Interest expense (25,641) (27,090)
-------------------------
Net other income (expense) $ (13,940) $ (21,487)
-------------------------
INCOME BEFORE INCOME TAX EXPENSE $ 234,716 $ 183,643
DEFERRED INCOME TAX EXPENSE $ (143,719) (108,016)
-------------------------
NET INCOME $ 90,997 $ 75,627
=========================
NET INCOME PER SHARE: $ .01 $ .01
AVERAGE COMMON SHARES OUTSTANDING 8,089,020 8,153,838
<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,
-------------------------
1998 1997
-------------------------
<S> <C> <C>
OPERATING REVENUES
Fee income $ 2,621,592 $ 2,685,030
Commissions 347,720 253,659
-------------------------
Total revenue $ 2,969,312 $ 2,938,689
-------------------------
OPERATING EXPENSES
Compensation and benefits $ 622,363 $ 568,474
Commission expense 166,448 93,648
General and administrative expenses 915,613 1,030,368
Sales commissions amortized 373,359 400,923
Depreciation and amortization 325,402 322,410
-------------------------
Total operating expenses $ 2,403,186 $ 2,415,823
-------------------------
OPERATING INCOME $ 566,126 $ 522,866
-------------------------
OTHER INCOME (EXPENSES)
Investment and other income $ 35,227 $ 18,631
Interest expense (80,280) (85,196)
-------------------------
Net other income (expense) $ (45,053) $ (66,565)
-------------------------
INCOME BEFORE INCOME TAX EXPENSE $ 521,073 $ 456,301
DEFERRED INCOME TAX EXPENSE $ (319,981) (295,741)
-------------------------
NET INCOME $ 201,092 $ 160,560
=========================
NET INCOME PER SHARE: $ 0.03 $ 0.02
AVERAGE COMMON SHARES OUTSTANDING 8,114,687 8,129,544
<FN>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATMENTS
</TABLE>
5
<PAGE>
<TABLE>
ND HOLDINGS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
(Unaudited)
Nine Months Ended
September 30
-------------------------
1998 1997
-------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by operating activities $ 717,0464 $ 360,383
-------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment $ (23,589) $ (36,546)
Redemption of investment 96,877 0
Other asset (increases) decreases (109,666) (42,751)
--------------------------
Net cash used by investing activities $ (36,378) $ (79,297)
--------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term debt $ (427,165) $ (549,240)
Proceeds from long-term debt 398,000 300,000
Proceeds from issuing common stock (net of
issue cost) 11,870 124,788
Redemption of common stock (113,663) 0
Investment certificates redeemed (65,100) (51,000)
-------------------------
Net cash provided (used) by financing activities $ (196,058) $ (175,452)
-------------------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS $ 485,028 $ 105,634
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 351,603 167,912
-------------------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 836,631 $ 273,546
=========================
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATMENTS
</TABLE>
6
<PAGE>
ND HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998 and 1997
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 (SEC). 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, 1998 and results of operations and cash flows for the
stated periods have been included. The Condensed Consolidated
Balance Sheet at December 31, 1997, contained herein, was derived
from audited financial statements, but does not include all
disclosures included in the Form 10-K 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, 1998 are not necessarily indicative of
operating results for the entire year. The information included in the
Form 10-QSB should be read in conjunction with Management's Discussion
and Analysis and financial statements and notes thereto included in the
ND Holdings, Inc. 1997 Annual Report on Form 10-KSB.
NOTE 2 - INCOME TAXES
Estimated effective annual income tax rates differ from statutory
rates, primarily due to nondeductible amortization expenses.
NOTE 3 - RECLASSIFICATION
Certain amounts in the 1997 consolidated financial statements have
been reclassified to conform with the 1998 presentation. These
reclassifications had no effect on the Company's net income.
7
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
ND Holdings, Inc. ("the Company") is a holding company primarily engaged,
through various subsidiaries, in providing investment management,
distribution, shareholder services, fund accounting and other related
administrative services to the open-end investment companies known as
"Integrity Mutual Funds" and "Ranson Managed Portfolios," hereinafter
collectively referred to as "the Funds." Integrity Mutual Funds currently
consists of four (4) open-end investment companies: ND Tax-Free Fund, Inc.,
Montana Tax-Free Fund, Inc., South Dakota Tax-Free Fund and Integrity Fund
of Funds, Inc. Ranson Managed Portfolios consists of one open-end
investment company containing five (5) separate portfolios including
The Kansas Municipal Fund, The Kansas Insured Intermediate Fund,
The Nebraska Municipal Fund, The Oklahoma Municipal Fund and The Illinois
Municipal Fund. Currently, ND Holdings is the only shareholder of The Illinois
Municipal Fund. Sales of Fund shares are marketed principally in Montana,
Kansas, Oklahoma, North Dakota, Nebraska and South Dakota. In addition,
the Company has commenced marketing shareholder services, fund
accounting and other administrative services offered by its subsidiary,
ND Resources, Inc.("ND Resources") to fund groups in the United States.
ASSETS UNDER MANAGEMENT
By Investment Objective
In Millions
As of September 30, 1998 1997 % Change
- --------------------------------------------------------------------------
FIXED INCOME
Tax-Free $ 329.0 $ 328.4 .2%
Taxable (Corporate/Government) 0.0 2.2 (100.0)%
- --------------------------------------------------------------------------
TOTAL FIXED INCOME $ 329.0 $ 330.6 (0.5)%
- --------------------------------------------------------------------------
EQUITY
Fund of Funds $ 18.7 $ 17.8 5.1%
- --------------------------------------------------------------------------
TOTAL EQUITY $ 18.7 $ 17.8 5.1%
- --------------------------------------------------------------------------
TOTAL ALL MUTUAL FUNDS-end of period $ 347.7 $ 348.4 (0.2)%
==========================================================================
Average for the period $ 347.2 $ 337.6 2.8%
==========================================================================
The Company's revenues depend primarily upon the amount of assets under its
management. Assets under management can be affected by the addition of new
funds to the group, the acquisition of another investment management company,
purchase and redemption of mutual fund shares and investment performance,
which may depend on general market conditions. Assets under the Company's
management were $347.7 million at September 30, 1998, a decrease of
$2.2 million (0.6%) from December 31, 1997 and a decrease of
$0.7 million (0.7%) from September 30, 1997. The decrease in assets under
management during the nine month period ended September 30, 1998, was the
result of a decline in the net asset value(share price) of the certain
funds and net redemption of fixed income funds.
RESULTS OF OPERATIONS
Three Months Ended Nine months ended
September 30 % September 30 %
1998 1997 Change 1998 1997 Change
- -------------------------------------------------------------------------------
Net Income $90,997 $75,627 20% $201,093 $160,560 25%
Earnings per share
Primary $ 0.01 $ 0.01 $ 0.03 $ 0.02 50%
Fully-diluted $ 0.01 $ 0.01 $ 0.03 $ 0.02 50%
Operating margin 25% 20% 19% 18%
- -------------------------------------------------------------------------------
Net income during the nine months ended and third quarter, September 30, 1998
increased as compared to the same period in the previous fiscal year and third
quarter primarily due to an increase in investment management fees as a result
of an increase in fee rates charged to certain funds and, to a lesser extent a
2.8% increase in average assets under management.
For the nine months ended September 30, 1997, the Company waived or reimbursed
fund fees and expenses (including transfer agent fees, accounting service fees
custodian fees, professional services fees and directors/trustees fees)
pursuant to voluntary fee waiver and expense reimbursement arrangements. The
Company incurred and paid each Fund's expenses (with such expenses being
reflected as general and administrative expenses on the Company's consolidated
income statement). Each fund's expenses were periodically paid by the
applicable fund in an amount equal to the fund's gross expenses net of
expenses voluntarily absorbed by the Company (with the net payments being
reflected as fee income on the Company's consolidated income statement).
Commencing in 1998, Fund expenses are incurred and paid directly by the Funds.
The Company is fulfilling its voluntary waiver and reimbursement arrangements
through voluntary waivers of investment advisory and/or Rule 12b-1 fees and
reimbursement of expenses. While this change in procedure will not
have any impact on the Company's consolidated net income, it has caused
consolidated revenues and expenses to be lower for the nine months ended
September 30, 1998 than they otherwise would have been in the absence of such
procedural change. Had this change been adopted on January 1, 1997,
fee income for the nine months ended September 30, 1997 would have been
$2,447,441, a decrease of $491,248 and general and administrative expenses
would have been $539,120, a decrease of $491,248.
Operating revenues
Total operating revenues for the nine months ended September 30, 1998 were
$2,969,312, an increase of 21% from September 30, 1997 after giving effect to
the procedural change. Third quarter ended operating revenues were a 3%
decrease from the same period 1997. The increase for the nine months ended
resulted primarily from commission income.
Commission income includes underwriting fees associated with sales of the
front-end sales load funds, ("FESL's") commissions earned by registered
representatives of ND Capital, the Company's broker-dealer subsidiary, and
commissions earned by ND Capital acting as agent to the Funds for the purchase
of certain investment securities. Commission income increased 37% from $253,659
for the first nine months of 1997 to $347,720 for the same period this year,
while third quarter was unchanged from the same period 1997. The year to date
increase is attributable primarily to an increase in the commissions earned by
registered representatives of ND Capital and to a lesser extent from
commissions earned by ND Capital acting as agent for the purchase or sale of
certain investment securities. ND Capital has temporarily ceased acting as
agent to the fixed-income funds for the purchase of investment securities in
1998.
Operating expenses
Total operating expenses for the nine months ended September 30, 1998 reported
were $2,403,186, an increase of 25% from September 30, 1997 after giving effect
to the procedural change. Third quarter operating expenses are a 9% decrease
from the same period 1997. The variances relate to several of the major
expense categories as described in the paragraphs that follow.
Compensation and benefits.
Total compensation and benefits for the nine months ended September 30, 1998
were $622,363, an increase of 9% from September 30, 1997. Third quarter
expenses were up 9% compared to the same period 1997. The increase resulted
primarily from an increase in employees in preparation of offering
Transfer Agent and accounting services to outside fund groups
and normal increases in compensation and benefits for cost of living
adjustments.
Commission Expense
Total commission expense for the nine months ended September 30, 1998 was
$166,448, an increase of 78% from September 30, 1997. Third quarter commission
expense is up 60% compared to the same period 1997. The increase is directly
related to the increase in commission income.
8
<PAGE>
Total general and administrative expenses for the nine months ended September
30, 1998 were $915,613, an increase of 70% from September 30, 1997 after giving
effect to the procedural change. Third quarter general and administrative
expenses were down 26% for the same period 1997. The majority of the year to
date increase is a result of additional legal and accounting expenses related
to a routine SEC examination. Additional marketing costs in an effort to
increase Fund growth, and normal increases in operating costs were additional
factors.
Sales commissions paid to brokers and dealers in connection with the sale of
shares of the Funds sold without a FESL 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 Funds and management's estimate of the average life of investors'
accounts in the Integrity Mutual Funds. Amortization of deferred sales
commissions increased 1% in the first nine months and third quarter of 1998
over the same period 1997.
Depreciation and amortization remained relatively unchanged in the first nine
months and third quarter of 1998 compared with the same period 1997. A
covenant not to compete, accounting for $100,000 of annual amortization will be
fully amortized at December 31, 1998.
Other income (expenses)
Total other income net of other expenses was ($45,053) in the first nine
months of 1998 compared with ($66,565) for the same period 1997. Third quarter
income net of expenses was ($13,940) compared with ($21,487) for the same
period 1997. Investment income increased to $35,227 for the first nine months
of 1998 compared to $18,631 for the same period 1997. Third quarter investment
income increased to $11,701 compared to $5,603 for the same period 1997. The
increases are due to a higher level of cash and cash equivalents. Interest
expense was $80,820 for the first nine months of 1998 compared to $85,196 for
the same period 1997. Third quarter interest expense was $25,641 compared to
$27,090 for the same period 1997. The decrease in interest expense is a result
of reductions in debt from the prior years level.
Following routine books and records examinations by the SEC in 1997, ND Money
Management Inc. (ND Money Management), Ranson Capital Corporation (Ranson
Capital), the company's portfolio management subsidiaries, and the Funds
received comment letters from the SEC staff that outlined various compliance
issues. ND Money Management, Ranson and the Funds, responded to the SEC's
comments June 1, 1998, and on September 3, 1998, the SEC's response was one of
advisory content only. The Company's compliance department has put procedures
in place to ensure future compliance. The Company has incurred and
anticipates that it will continue to incur, additional costs in the
future to ensure ongoing compliance with applicable regulatory
requirements,
although the extent of such additional costs is not presently
determinable.
Description of the Year 2000 (Y2K) Problem
The Y2K problem refers to a flaw in the way dates have traditionally been
entered into computer systems. Some computer systems and software have
accepted entry of two digit years with the expectation that the year "00"
refers to the year 1900, not the year 2000. This prevents the computer from
properly recognizing dates after the year 1999. Y2K compliance indicates that
procedures have been adopted to assure all dates entered, stored, calculated and
reported by computer systems are valid.
Company action addressing the Y2K problem
The information and data processing systems used by ND Holdings, Inc. and its
subsidiaries are managed and maintained by ND Resources, Inc. ND Resources has
the responsibility to assure that data processing performed for its parent
company and subsidiaries, as well as data processing performed for and between
outside clients, will not be adversely affected by the Y2K problem.
ND Resources has completed an inventory and assessment of all systems
potentially affected by the Y2K problem. Remediation and testing of individual
system components is scheduled to be completed by the second quarter of 1999.
Outside vendors have been identified and contacted regarding Y2K compliance.
Impact of the Y2K problem on the company
ND Holdings, Inc. does not anticipate a material impact on the company's
financial condition due to Y2K compliance issues. The company's information
systems have been designed to be Y2K compliant. Internal company staff and
resources are being utilized to address Y2K remediation and testing. ND
Resources is in close contact with outside vendors and service providers, to
assure that a third party's failure to provide service does not disrupt normal
business operations.
Contingency planning
A formal contingency plan for failure to adequately address Y2K compliance
issues will be developed by ND Resources, Inc. The scheduled completion
timeframe is second quarter of 1999.
Financial Condition, Liquidity and Capital Resources
At September 30, 1998, the Company's assets aggregated $10,307,540, a slight
increase from $10,306,160, at December 31, 1997. Stockholders' equity
totaled $9,134,533 compared to $9,063,682 at December 31, 1997.
The Company held $836,632 in cash and cash equivalents at September 30, 1998,
as compared to $351,603 at December 31, 1997. Liquid assets, which consist of
cash and cash equivalents, securities available-for-sale and current
receivables increased to $1,158,354 at September 30, 1998 from $795,066 at
December 31, 1997, primarily the result of current year's income before income
taxes and the remaining debenture offering proceeds not used to payoff bank
loans, pay commissions or retire company stock.
Net cash from operating activities was $717,464 during the nine month period
ended September 30, 1998, an increase of 99% from $357,081 during the nine month
period ended September 30, 1997. The increase was attributable to the increase
in income before income taxes and a decrease in accounts receivable and accounts
payable of approximately $215,000 for the nine months ended September 30, 1998
as compared to September 30, 1997.
Net cash used by investing activities for the nine months ended September 30,
1998 was down $43,000 for the same period September 30, 1997. The decrease is
primarily due to the cost of registering common stock and those costs
associated with the companies initial public offering paid in 1997.
Net cash used by financing activities during the nine months ended September 30,
1998 was $196,058. The primary financing activities for the period were the
completion of the intra-state debenture offering resulting in proceeds of
$398,000 during the nine months ended September 30, 1998, payoff of the
Company's bank loan for $427,165, payments on investment certificates of
$65,100 and the redemption of $113,663 of Company stock. The debenture
offering was closed effective February 22.
Although the Company has historically relied upon sales of its Common Stock
and debt instruments for liquidity and growth, management believes that the
Company's existing liquid assets, together with the expected continuing cash
flow from operations and its borrowing capacity under its line of credit,
which at November 10, 1998 had $2,000,000 in available borrowings, will provide
the Company with sufficient resources to meet its cash requirements during
the next several months. Management expects that the principal needs for
cash may be to advance sales commissions on Funds subject to contingent
deferred sales charges, acquire additional investment management firms,
purchase property currently being leased, repurchase shares of the Company's
Common Stock and service debt.
FORWARD-LOOKING STATEMENTS
When used in this Form 10-QSB, in future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases and in
other Company-authorized written or oral statements, the words and phrases
"can be", "expects," "anticipates," "may affect," "may depend," "believes,"
"estimate" or similar expressions are intended to identify "forward-looking
- -statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. The Company cautions readers not to place undue reliance on any
such forward-looking statements, which speak only as of the date made. Such
statements are subject to certain risks and uncertainties, including those set
forth in this "Forward-Looking Statements" section, that could cause actual
results for future periods to differ materially from those presently
anticipated or projected. The Company does not undertake and specifically
disclaims any obligation to update any forward-looking statement to reflect
events or circumstances after the date of such statements.
The Company derives substantially all of its revenues from fees relating to
the management of, and provision of services to, the Funds. The fees earned
by the Company are generally calculated as a percentage of assets under
management. If the Company's assets under management decline, or do not
grow in accordance with the Company's plans, fee revenues and earnings would
be materially adversely affected. Assets under management may decline because
redemptions of Fund shares exceed sales of Fund shares, or because of a
decline in the market value of securities held by the Funds, or a combination
of both.
In seeking to sell Fund shares, and market its other services, the Company
operates in the highly competitive financial services industry. The Company
competes with approximately 6,800 open-end investment companies which offer
their shares to the investing public in the United States. In addition, the
Company also competes with the financial services and other investment
alternatives offered by stock brokerage and investment banking firms,
insurance companies, banks, savings and loans associations and other financial
institutions, as well as investment advisory firms. Most of these competitors
have substantially greater resources than the Company. The Company sells Fund
shares principally through third party broker-dealers. The Company competes
for the services of such third party broker-dealers with other sponsors of
mutual funds who generally have substantially greater resources than the
Company. Banks in particular have increased, and continue to increase, their
sponsorship of proprietary mutual funds distributed through third party
distributors. Many broker-dealer firms also sponsor their own proprietary
mutual funds which may limit the Company's ability to secure the distribution
services of such broker-dealer firms. In seeking to sell Fund shares, the
Company also competes with increasing numbers of mutual funds which sell
their shares without the imposition of sales loads. No-load mutual funds
are attractive to investors because they do not have to pay sales charges on
the purchase or redemption of such mutual funds' shares. This competition
may place pressure on the Company to reduce the FESLs and CDSCs charged upon
the sale or redemption of Fund shares. However, reduced sales loads would
make the sale of Fund shares less attractive to the broker-dealers upon whom
the Company depends for the distribution of Fund shares. In the alternative,
10
<PAGE>
the Company might itself be required to pay additional fees, expenses,
commissions or charges in connection with the distribution of Fund shares
which could have a material adverse effect on the Company's earnings. The
ability of the Company to sell Fund shares may also be affected by general
economic conditions including, among other factors, changes in interest
rates and the inflation rate. Interest and inflation rate changes may
particularly impact the flow of money into mutual funds which invest in
fixed-income securities. Each of the Funds except Integrity Fund of Funds
invests substantially all of its assets in fixed-income securities.
General economic conditions, including interest and inflation rate changes,
may also adversely affect the market value of the securities held by the
Funds, thus negatively impacting the value of assets under management, and
hence the fees earned by the Company. The fact that the investments of each
Fund (except Integrity Fund of Funds) are geographically concentrated within
a single state makes the market value of such investments particularly
vulnerable to economic conditions within such state. In addition, the states
in which the investments of the Funds as a group are concentrated are
themselves concentrated in certain regions of the United States. The
Company's fee revenues may therefore be adversely affected by economic
conditions within such regions.
The Company also operates in a heavily-regulated environment. Following
routine books and records examinations by the SEC in 1997, ND Money
Management, Ranson Capital, two of the Company's subsidiaries, and the Funds
received comment letters from the SEC staff that outlined various compliance
issues. ND Money Management, Ranson Capital and the Funds, responded to the
SEC's comments June 1, 1998, and on September 3, 1998 the SEC responded with
Advisory comments. The Company incurred additional costs in order to comply
With existing regulatory requirements. The need to comply with any future
regulatory requirements may place further regulatory burdens on the Company
and require the Company to incur additional costs. These additional costs
may have a material adverse effect on the Company's earnings.
Sales of Fund shares with FESLs provide current distribution revenue to the
Company in the form of the Company's share of the FESLs and distribution
revenue over time in the form of 12b-1 payments. Sales of Fund shares with
CDSCs provide distribution revenue over time in the form of 12b-1 payments
and, if shares are redeemed within 5 years, CDSCs. However, the Company pays
commissions on sales of Fund shares with CDSCs, reflects such commissions as
a deferred expense on its balance sheet and amortizes such commissions over
a period of up to nine years, thereby recognizing distribution expenses.
Therefore, to the extent that sales of Fund shares with CDSCs increases over
time relative to sales of shares with FESLs, current distribution expenses
may increase relative to current distribution revenues in certain periods,
which would negatively impact the Company's earnings in such periods. In
addition, the Company may need to find additional sources of funding if
existing cash flow and debt facilities are insufficient to fund commissions
payable to selling broker-dealers on CDSC shares.
Item 4: Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders held on May 22, 1998, the following
proposals were adopted by the margins indicated:
1. To elect a Board of Directors to hold office until the next annual meeting
of shareholders and until their successors are elected and qualified.
Number of Votes Cast For
Vance A. Castleman 6,111,916
Daniel L. Feist 6,234,492
Lyle E. McLain 6,228,965
Peter A Quist 6,213,147
Myron D. Thompson 6,224,812
Robert E. Walstad 6,190,070
Richard H. Walstad 6,213,147
2. To approve appointment of Brady Martz & Associates, P.C. as independent
auditor for the Company for the fiscal year ending December 31, 1998.
For 5,243,826
Against 10,095
Abstain 3,628
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
EX-27 Financial Data Schedule
(b) Reports on Form 8-K
None
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 13, 1998
- -----------------------------------
Robert E. Walstad Date
President and Chairman of the Board
(CFO and CAO)
12
<PAGE>
ND HOLDINGS, INC. AND SUBSIDIARIES
Exhibit Index to Quarterly Report on Form 10-QSB
For the Quarter Ended September 30, 1998
EXHIBITS
EX-27 Financial Data Schedule
13
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE PERIOD ENDED SEPTEMBER 30, 1998, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 837
<SECURITIES> 1
<RECEIVABLES> 321
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1276
<PP&E> 586
<DEPRECIATION> 271
<TOTAL-ASSETS> 10308
<CURRENT-LIABILITIES> 223
<BONDS> 0
0
0
<COMMON> 10358
<OTHER-SE> (1222)
<TOTAL-LIABILITY-AND-EQUITY> 10308
<SALES> 2622
<TOTAL-REVENUES> 2969
<CGS> 0
<TOTAL-COSTS> 2403
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 80
<INCOME-PRETAX> 521
<INCOME-TAX> 320
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 201
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
