FORM 10-QSB
U. S. 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 March 31, 1999
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 May 7, 1999, there were 7,661,617 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-
March 31, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Operations-
Three months ended March 31, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows-
Three months ended March 31, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis or Plan
Of Operations 7
Part II OTHER INFORMATION
Item 5 Other Information 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)
March 31, December 31,
1999 1998
-----------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 767,384 $ 1,042,179
Securities available-for-sale 103,232 101,000
Accounts receivable 387,875 324,075
Prepaids 53,588 48,808
Deferred tax benefit 151,421 138
-----------------------------
Total current assets $ 1,463,501 $ 1,516,200
-----------------------------
PROPERTY AND EQUIPMENT $ 1,322,912 $ 1,295,904
Less accumulated depreciation (304,574) (284,606)
-----------------------------
Net equipment $ 1,018,338 $ 1,011,298
-----------------------------
OTHER ASSETS
Deferred sales commissions $ 2,760,286 $ 3,328,634
Investment advisor's agreements (net of
amortization of $913,314 and $841,585) 4,825,025 4,896,754
Other assets 143,120 138,174
------------------------------
Total other assets $ 7,728,431 $ 8,363,562
-----------------------------
TOTAL ASSETS $ 10,210,269 $ 10,891,060
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Service fees payable $ 112,149 $ 99,245
Accounts payable 11,494 8,656
Other current liabilities 91,123 42,221
Short-term borrowings 0 350,000
Current portion of long-term debt 501,942 57,750
-----------------------------
Total current liabilities $ 716,708 $ 557,872
-----------------------------
LONG-TERM LIABILITIES
Note payable $ 501,942 $ 327,750
Investment certificates 0 30,000
Debenture certificates 950,000 950,000
Less current portion (501,942) (57,750)
-----------------------------
Total long-term liabilities $ 950,000 $ 1,250,000
-----------------------------
TOTAL LIABILITIES $ 1,666,708 $ 1,807,872
-----------------------------
STOCKHOLDERS' EQUITY
Common stock - 20,000,000 shares
authorized, no par value; 7,697,117 and
7,951,187 shares issued and outstanding,
respectively $ 10,020,202 $ 10,253,246
Accumulated deficit (1,476,641) (1,170,058)
-----------------------------
Total stockholders' equity $ 8,543,561 $ 9,038,188
-----------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 10,210,269 $ 10,891,060
=============================
<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
March 31,
-------------------------
1999 1998
-------------------------
<S> <C> <C>
OPERATING REVENUES
Fee income $ 911,436 $ 873,870
Commissions 241,285 257,991
-------------------------
Total revenue $ 1,152,721 $ 1,131,861
-------------------------
OPERATING EXPENSES
Compensation and benefits $ 243,388 $ 211,863
Commission expense 207,674 163,182
General and administrative expenses 295,796 246,746
Sales commissions amortized 145,364 151,368
Depreciation and amortization 98,325 108,059
-------------------------
Total operating expenses $ 990,548 $ 881,218
-------------------------
OPERATING INCOME $ 162,173 $ 250,643
-------------------------
OTHER INCOME (EXPENSES)
Investment and other income $ 28,124 $ 11,158
Interest expense (33,768) (29,617)
-------------------------
Total other income $ (5,644) $ (18,459)
-------------------------
INCOME BEFORE INCOME TAX EXPENSE $ 156,529 $ 232,184
DEFERRED INCOME TAX EXPENSE $ (89,660) (123,404)
-------------------------
NET INCOME BEFORE CUMULATIVE EFFECT $ 66,869 $ 108,780
CUMULATIVE EFFECT OF AN ACCOUNTING CHANGE
(net of tax effect) (373,455) 0
NET INCOME AFTER CUMULATIVE EFFECT $ (306,586) $ 108,780
=========================
NET INCOME PER SHARE: $ (0.04) $ 0.01
AVERAGE COMMON SHARES OUTSTANDING 7,845,473 8,147,353
<FN>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATMENTS
</TABLE>
4
<PAGE>
<TABLE>
ND HOLDINGS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
(Unaudited)
Three Months Ended
March 31
-------------------------
1999 1998
-------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by operating activities $ 203,732 $ 262,407
-------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (32,498) (3,150)
Other asset (increases) decreases (7,177) (19,810)
--------------------------
Net cash used by investing activities $ (39,675) $ (22,960)
--------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on short-term borrowings $ (350,000) $ (425,881)
Proceeds from long-term debt 200,000 398,000
Payments on long-term debt (25,808) 0
Redemption of common stock (233,044) (41,614)
Investment certificates redeemed (30,000) (54,000)
-------------------------
Net cash provided (used) by financing activities $ (438,852) $ (123,495)
-------------------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS $ (274,795) $ 115,952
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 1,042,179 351,603
-------------------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 767,384 $ 467,555
=========================
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATMENTS
</TABLE>
5
<PAGE>
ND HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 1999 and 1998
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. These unaudited condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
the footnotes thereto contained in the Annual Report on Form 10-KSB for the
year ended December 31, 1998 of ND Holdings, Inc., as filed with the Securities
and Exchange Commission. The Condensed Consolidated Balance Sheet at December
31, 1998, contained herein, was derived from audited financial statements,
but does not include all disclosures included in the Form 10-KSB 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.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (which are of a
normal recurring nature) necessary for a fair presentation of the financial
statements. The results of operations for the three months ended March 31,
1999 are not necessarily indicative of operating results for the entire year.
NOTE 2 - INCOME TAXES
The Company's effective tax rate differs from the U. S. Statutory rate
primarily due to nondeductible amortization expenses incurred as a result
of the Ranson acquisition. The Company's effective tax rates for 1998, 1997
and 1996 were 62%, 64% and 83%, respectively. The effective rate will continue
to reflect the nondeductible amortization associated with the investment
adviser's agreement acquired in the Ranson acquisition, which has a remaining
life of 16 years. Amortization of the non-compete agreement was complete at
December 31, 1998. Accordingly, the effective tax rate for 1999 and forward
will potentially decrease because amortization of the non-compete agreement was
nondeductible for income tax purposes.
Effective for 1999 and 1998, the Company is expensing deferred sales
commissions as incurred for income tax purposes. The Company will continue
to capitalize and amortize the commissions for financial reporting purposes
(exception Integrity Fund of Funds). The effects of the change will create
timing differences between when the commissions are deducted for income tax
purposes and expensed as amortization for financial reporting purposes.
Deferred tax assets or deferred tax liabilities will result from these timing
differences.
NOTE 3 - RECLASSIFICATION
Certain amounts in the 1998 condensed consolidated financial statements have
been reclassified to conform with the 1999 presentation. These
reclassifications had no effect on the Company's net income.
6
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
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 including 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. 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 ND Resources, Inc.
("ND Resources") to fund groups in the United States. As of May 7, 1999,
ND Resources was providing services to one outside fund group.
ASSETS UNDER MANAGEMENT/SERVICE
By Investment Objective
In Millions
As of March 31, 1999 1998 % Change
- --------------------------------------------------------------------------
FIXED INCOME Tax-Free $ 332.2 $ 327.7 1.4%
EQUITY Fund of Funds $ 20.8 $ 21.4 (2.8)%
- --------------------------------------------------------------------------
TOTAL SPONSORED MUTUAL FUNDS-end of period $ 353.0 $ 349.1 1.1%
- --------------------------------------------------------------------------
Investors Research Fund $ 21.8 $ 0.0 N/A
- --------------------------------------------------------------------------
TOTAL ASSETS UNDER MANAGEMENT/SERVICE $ 374.8 $ 349.1 7.4%
==========================================================================
Average for the period $ 376.3 $ 349.9 7.5%
==========================================================================
The Company's revenues depend primarily upon the amount of assets under its
management. Assets under management/service can be affected by the addition of
new funds to the group, the acquisition of another investment management
company, purchases and redemptions of mutual fund shares and investment
performance, which may depend on general market conditions. Assets under the
Company's management/service were $374.8 million at March 31, 1999, an increase
of $.1 million from December 31, 1998 and an increase of $25.7 million (7.4%)
from March 31, 1998. March 1999's increase in assets under management/service
compared to March 1998 was primarily the result of adding Investors Research
Fund in November 1998, and compared to December 1998 was the result of an
increase in the net asset value (share price) of the fixed income funds.
7
RESULTS OF OPERATIONS
Three months ended
March 31 %
1999 1998 Change
Net Income Before
Cumulative Effect $ 66,869 $ 108,780 (39)%
Earnings per share
Primary $ 0.01 $ 0.01 0%
Fully-diluted $ 0.01 $ 0.01 0%
Operating margin 14% 22%
- ---------------------------------------------------------------------
Net Income After
Cumulative Effect $ (306,586) $ 108,780 (382)%
Earnings per share
Primary $ (0.04) $ 0.01 (500)%
Fully-diluted $ (0.04) $ 0.01 (500)%
Operating margin 14% 22%
- ---------------------------------------------------------------------
Net income before cumulative effect during the quarter ended March 31, 1999
decreased as compared to the same quarter in the previous fiscal year primarily
due to a 12% increase in operating expenses despite the 2% increase in
revenues.
Operating revenues
Total operating revenues for the three months ended March 31, 1999 were
$1,152,721, an increase of 2% from March 31, 1998. The increase resulted
primarily from increased assets under management/service.
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 and Ranson Capital, the Company's two broker-
dealer subsidiaries, Integrity Fund of Funds contingent deferred sales charges
("CDSC")and commissions earned by ND Capital acting as agent to the Funds for
the purchase of certain investment securities. Commission income decreased 6%
from $257,991 for the first three months of 1998 to $241,285 for the same
period this year. Commission income from underwriting fees, broker-
dealer and CDSC were an increase of 10% over last year, while a 16% decrease
was attributable to the absence of 1999 securities meeting the criteria for ND
Capital to act as agent for the purchase or sale of the securities.
Operating expenses
Total operating expenses for the three months ended March 31, 1999 reported
were $990,548, an increase of 12% from March 31, 1999. The 12% increase is a
result of increases in several of the major expense categories as described in
the paragraphs that follow.
Compensation and benefits.
Total compensation and benefits for the three months ended March 31, 1999
were $243,388, an increase of 15% from March 31, 1998. The increase resulted
in part from an increase in employees and normal increases in compensation and
to a lesser extent health insurance expense whereby the Company is incurring
half the cost of a single health benefit per participating employee in 1999.
Commission expense
Total commission expense for the three months ended March 31, 1999 was
$207,674, an increase of 27% from March 31, 1998. The majority of the increase
is related to the expensing of the costs incurred by an investment advisor in
connection with the distribution of shares of a fund absent both 12b-1 and CDSC
charges (Integrity Fund of Funds only), effective July 23, 1998 and to a lesser
extent, an increase related to the 10% increase in commission income from
broker-dealers.
8
General and administrative expenses
Total general and administrative expenses for the three months ended March 31,
1999 were $295,796, an increase of 20% from March 31, 1998. The increase is
attributable to increased service fee expense relative to the increased assets
under management/service, advertising, supplies and travel expenses increased
as a result of additional marketing costs in an effort to increase Fund growth,
and normal increases in operating costs.
Sales commissions amortized
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 decreased 4% in the first three months of 1999 over the same
period in 1998. The decrease in 1999 is due to the Integrity Fund of Funds
discontinuing amortization of their sales commissions and expensing them
as incurred.
Depreciation and amortization
Depreciation and amortization decreased 9% from 1998 primarily due to a
covenant not to compete, accounting for $100,000 of annual amortization,
that was fully amortized at December 31, 1998.
Other income (expenses)
Total other income, net of other expenses is a 69% increase in the first three
months of 1999 compared with the same period in 1998. This is due primarily to
net rental income obtained from the purchase of the office building in December
1998.
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
At March 31, 1999, the Company's assets aggregated $10,210,269, a decrease
of 6.25% from $10,891,060, at December 31, 1998. Stockholders' equity
totaled $8,543,561 compared to $9,083,191 at December 31, 1998. The decrease
in assets and stockholders' equity was due in part to the repurchase of
$233,044 of the Company's own Common Stock. The Company's repurchase activity
is pursuant to a program approved by its Board of Directors in November 1997 to
repurchase up to $2,000,000 of its Common Stock from time to time in the open
market. Additionally, an announcement made by the Financial Accounting
Standards Board (FASB) required the expensing of the costs incurred by an
investment advisor in connection with the distribution of shares of a fund
absent both 12b-1 fees and CDSC charges. This announcement resulted in the
Company's cumulative effect adjustment of $373,455,(Integrity Fund of Funds
only) expensing capitalized costs net of the deferred tax adjustment,
decreasing assets and stockholders' equity.
Cash provided by operating activities decreased 22% from $262,407 in the three
months ended March 31, 1998 to $203,732 in the three months ended March 31,
1999. For the three months ended March 31, 1999, the Company used net cash of
$39,675 for the purchase of equipment and other assets. Net cash used by
financing activities during the first three months of 1999 was $438,852 as the
Company paid down short-term debt ($350,000), long-term debt ($25,808),
redemption of investment certificates ($30,000) and repurchased 254,070 shares
of its Common Stock for an aggregate consideration of $233,044, offset by
proceeds from a line of credit ($200,000).
Liquidity and Capital Resources
At March 31, 1999, the Company held $767,384 in cash and cash equivalents, as
compared to $1,042,179 at December 31, 1998. Liquid assets, which consist of
cash and cash equivalents, securities available-for-sale and current
receivables decreased to $1,258,491 at March 31, 1999 from $1,467,254 at
December 31, 1998, primarily the result of paying short-term debt and the
repurchase of the Company's Common Stock.
Net cash from operating activities was $203,732 during the three month period
ended March 31, 1999, a decrease of 22% from $262,407 during the three month
period ended March 31, 1998. The decrease was attributable to both the
increase in accounts receivable and deferred tax benefit net of the increase
in accounts payable.
Net cash used by investing activities for the three months ended March 31,
1999 increased by 73% to $39,675 from $22,960 for the three months ended March
31, 1998, primarily for the purchase of equipment.
Net cash used by financing activities during the three months ended March 31,
1999 was $438,852. The primary financing activities for the period were drawing
$200,000 from a line of credit while paying short-term debt of $350,000,
long-term debt of $25,808, payments on investment certificates of $30,000
and the redemption of $233,044 of Company Common Stock.
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 May 7, 1999 had $1,500,000 in available borrowings, will provide
the Company with sufficient resources to meet its cash requirements during
the next twelve 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,
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 8,000 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,
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, amongst 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.
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 5: Other Information
On March 26, 1999 the Company's board of directors appointed a Vice-President
of Operations.
On April 6, 1999 the Company introduced an offering of corporate notes,
strictly limited to bona fide North Dakota residents, maximum of $1,000,000.
As of May 7, 1999 the Company had issued $698,000 in corporate notes.
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 May 7, 1999
- -----------------------------------
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 March 31, 1999
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 ENDED MARCH 31, 1999, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 767
<SECURITIES> 103
<RECEIVABLES> 388
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1464
<PP&E> 1018
<DEPRECIATION> 305
<TOTAL-ASSETS> 10210
<CURRENT-LIABILITIES> 717
<BONDS> 0
0
0
<COMMON> 10020
<OTHER-SE> (1477)
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<EXTRAORDINARY> (373)
<CHANGES> 0
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<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
