U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File No.: 0-25958
ND HOLDINGS, INC.
(exact name of Registrant as specified in its charter)
North Dakota 45-0404061
(State or other jurisdiction of (IRS Employer
incorporation or organization Identification Number)
1 North Main
Minot, North Dakota 58703
(Address of principal executive offices)
Registrant's telephone number, including area code: (701) 852-5292
Securities registered pursuant to Section 12(d) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common
Stock, no par value
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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The issuer's revenues for the year ended December 31, 2001 were $8,167,724.
On February 15, 2002, there were 6,694,740 shares of the Registrant's common
stock outstanding.
Aggregate market value of voting stock held by nonaffiliates of the registrant
as of February 15, 2002: $4,936,444.
Documents Incorporated by Reference
Portions of the Company's definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on May 31, 2002 are incorporated by reference in
certain sections of Part III.
Transitional Small Business Disclosure Format: YES _____ NO __X__
PART I
Item 1. Description of Business
DEVELOPMENT OF BUSINESS
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 five (5) open-end
investment companies including ND Tax-Free Fund, Inc.("ND Tax-Free Fund"),
Montana Tax-Free Fund, Inc.("Montana Tax-Free Fund"), South Dakota Tax-Free
Fund, Inc. ("South Dakota Tax-Free Fund"), Integrity Fund of Funds, Inc.
("Integrity Fund of Funds") and Integrity Small-Cap Fund of Funds, Inc.
("Integrity Small-Cap Fund of Funds"). Ranson Managed Portfolios consists
of one open-end investment company containing four (4) separate portfolios
including The Kansas Municipal Fund, The Kansas Insured Intermediate Fund,
The Nebraska Municipal Fund, and The Oklahoma Municipal Fund. Sales of Fund
shares are marketed principally in Montana, Kansas, Oklahoma, North Dakota,
Nebraska and South Dakota. The Company also sells mutual funds and insurance
products through another wholly-owned subsidiary, ARM Securities Corporation
("ARM Securities"), and prospectively through Capital Financial Services, Inc.
("CFS"), which the Company acquired in January of 2002. The Company has also
become involved as an internet provider with a majority ownership in Magic
Internet Services, Inc. ("Magic Internet"). The Company continues to review
acquisition opportunities in other industries involving management services and
information processing.
As of December 31, 2001, total assets under management/service in the Funds was
approximately $318.3 million, compared to approximately $336.9 million as of
December 31, 2000 and approximately $364.1 million as of December 31, 1999.
The Company has been engaged in the financial services business since 1987. The
Company was incorporated September 22, 1987 as a North Dakota corporation by
Robert E. Walstad, Chief Executive Officer of the Company. The Company's
offices are at 1 North Main Street, Minot, North Dakota 58703. As of December
31, 2001, the Company had 36 full-time employees and 7 part-time employees,
consisting of officers, investment management, securities distribution,
shareholder services, data processing, law, accounting and clerical support
staff.
On January 5, 1996, the Company consummated the acquisition (the "Ranson
Acquisition") of substantially all of the assets and liabilities of The Ranson
Company, Inc., a corporation organized under the laws of the state of Kansas
and based in Wichita, Kansas. The Ranson Company, Inc. provided investment
management and related services to the Ranson Managed Portfolios through its
subsidiary, Ranson Capital Corporation ("Ranson"), a registered investment
advisor and registered broker-dealer. Ranson Managed Portfolios is an open-
end investment company registered with the Securities and Exchange Commission
(the "SEC"). At the time of the Ranson Acquisition, Ranson Managed Portfolios
consisted of three funds: The Kansas Municipal Fund, The Kansas Insured
Intermediate Fund and The Nebraska Municipal Fund, totaling approximately
$184 million in assets under management. Subsequent to the Ranson Acquisition,
the Company has managed Ranson Managed Portfolios on a unified basis with its
other business. The purchase price paid at the closing of the Ranson
Acquisition was $6.2 million and was funded through a combination of existing
cash on hand and bank debt in the amount of approximately $1.5 million. The
bank debt was paid in full as of March 1998.
On December 6, 1996, the Company acquired the accounts of the Heartland
Nebraska Tax-Free Fund for cash and merged them into the Ranson Managed
Portfolios, The Nebraska Municipal Fund, through an exchange of shares. The
Heartland Portfolio was $10,299,543 in size at the time of the transaction.
On May 21, 1999, the Company acquired the accounts of the Lancaster Nebraska
Tax-Free Fund for cash and merged them into the Ranson Managed Portfolios, The
Nebraska Municipal Fund, through an exchange of shares. The Lancaster Portfolio
was $12,877,367 in size at the time of the transaction.
On October 1, 1999, the Company acquired for cash and common stock 51% control
of Magic Internet Services, Inc. Magic Internet operates as an internet
service provider to individuals and businesses in the local calling area.
On May 25, 2000, the Company acquired for cash, ARM Securities Corporation, a
broker-dealer engaged primarily in the sale of mutual funds and insurance
products. The broker-dealer supports approximately 60 registered
representatives operating as independent contractors with 23 representatives in
a single office in Fresno, CA and the remainder in scattered locations in
Minnesota, Iowa and South Dakota.
On September 14, 2001, the Company acquired for common stock, North Dakota
Investment Advisors, Inc., a registered investment advisor authorized to
provide investment advisory services in the state of North Dakota for a fee.
On January 15, 2002, the Company acquired all the assets of Capital Financial
Services, Inc., a full-service brokerage firm based in Madison, Wisconsin. The
broker-dealer specializes in providing investment products and services to
independent investment representatives, financial planners, and investment
advisors and currently supports approximately 90 investment representatives and
investment advisors.
THE COMPANY'S SUBSIDIARIES
The Company derives most of its income from two lines of business, one being
the providing of investment management, distribution, shareholder services,
accounting and related services to the Funds and other clients. The other
provides order processing, regulatory oversight, concession processing, and
other related services to registered securities representatives transacting
securities business for their clients. As a result, the Company is economically
dependent on the Funds, the representatives and others for substantially all of
its revenue and income. These businesses are conducted through the wholly-owned
subsidiary companies described below. Revenues generated by the subsidiaries
supporting activities surrounding the Funds are derived primarily from fees
based on the level of assets under management. Revenues generated by the
support of securities sales are derived primarily through a sharing of sales
concessions paid by the products being sold to clients. Other business
opportunities have been considered.
ND Money Management, Inc.
ND Money Management, Inc. ("ND Money Management") is registered as an
investment advisor with the SEC under the Investment Advisers Act of 1940
(the "Advisers Act"). ND Money Management provides investment advisory
services under investment advisory agreements with ND Tax-Free Fund, Montana
Tax-Free Fund, South Dakota Tax-Free Fund, Integrity Fund of Funds, and
Integrity Small-Cap Fund of Funds. As of December 31, 2001, ND Money
Management managed approximately $135.1 million, representing approximately
42% of the Company's total assets under management/service.
ND Capital, Inc.
ND Capital, Inc. ("ND Capital") is registered with the SEC as a broker-dealer
and is a member of the National Association of Securities Dealers, Inc. (the
"NASD") and serves as principal underwriter and distributor for ND Tax-Free
Fund, Montana Tax-Free Fund, South Dakota Tax-Free Fund, and Integrity Small-
Cap Fund of Funds. ND Capital earns Rule 12b-1 fees pursuant to Rule 12b-1
plans adopted by each such Fund and contingent deferred sales charges ("CDSCs")
from shareholders of such Funds if they redeem their shares within 5 years
after their purchase. ND Capital began as principal underwriter for Investors
Research Fund of Santa Barbara, California on December 1, 1998. ND Capital
earned underwriting fees in connection with sale of such Investors Research
Fund shares effected by ND Capital's sales representatives and the
underwriter's portion of front-end sales load ("FESLs") in connection with
sales of such shares effected by other broker-dealers. ND Capital earned Rule
12b-1 fees pursuant to Rule 12b-1 plans adopted by Investors Research Fund.
On December 31, 1999, ND Capital terminated the underwriting agreement with
Investors Research Fund due to significant changes in the Fund's structure. As
principal underwriter for Integrity Fund of Funds, ND Capital earns CDSCs from
shareholders of the Fund if they redeem their shares within 5 years after their
purchase. ND Capital also earns commission revenue in connection with sales of
shares of outside mutual funds and in connection with effecting other
securities transactions.
Ranson Capital Corporation
Ranson Capital Corporation ("Ranson") is registered with the SEC as an
investment advisor and a broker-dealer. It is also a member of the NASD.
Ranson provides investment advisory services to the Ranson Managed Portfolios
under an investment advisory agreement. As of December 31, 2001, Ranson
managed approximately $183.2 million in assets, representing approximately 58%
of the Company's total assets under management/service. Ranson also serves as
principal underwriter for the Ranson Managed Portfolios and earns Rule 12b-1
fees pursuant to Rule 12b-1 plans adopted by certain of the Ranson Managed
Portfolios and the underwriter's portion of FESLs in connection with sales of
shares of the Ranson Managed Portfolios effected by other broker-dealers.
ND Resources, Inc.
ND Resources, Inc. ("ND Resources") is registered with the SEC as a transfer
agent under the Securities Exchange Act of 1934. ND Resources provides
shareholder recordkeeping services and acts as transfer agent and dividend-
paying agent for the Funds. ND Resources also provides business management
services, including fund accounting, compliance and other related
administrative activities for the Funds. ND Resources is compensated for
providing these services under agreements with each Fund, and is reimbursed
for out-of-pocket expenses. ND Resources has provided services to one other
fund group. As of February 16, 2001, that relationship was terminated due to
a reorganization of the fund group.
Magic Internet Services, Inc.
Magic Internet Services, Inc. ("Magic Internet") operates as an internet
service provider to individuals and businesses in the local calling area.
Magic Internet provides subscribers with full support including servicing
hardware and technical support for software problems. Magic Internet also
provides DSL, wireless, satellite, and website building and hosting services.
ARM Securities Corporation
ARM Securities Corporation ("ARM Securities") is registered with the SEC as a
broker-dealer and is registered with the NASD. Acquired from ARM Financial
Group, Inc., a Louisville, Kentucky corporation in May of 2000, the broker-
dealer offers mutual funds and insurance products to the public through
approximately 60 registered representatives. ARM Securities earns commission
revenue in connection with sales of these products and also 12b-1 fees paid
by the distributors of these products.
Integrity Investment Advisors, Inc.
Integrity Investment Advisors, Inc. ("Integrity Investment Advisors") is
registered with the SEC and the state of North Dakota as a registered
investment advisor. Acquired in September of 2001, Integrity Investment
Advisors is authorized to provide investment advisory services to individuals
or other entities. The registered investment advisor earns fee revenue in
connection with providing these services.
Capital Financial Services, Inc.
On January 15, 2002 the Company acquired all the assets of Capital Financial
Services, Inc. ("CFS"), a full-service brokerage firm based in Madison,
Wisconsin. CFS is registered with the SEC as an investment advisor and broker-
dealer and also with the NASD as a broker-dealer. The broker-dealer and
investment advisor specializes in providing investment products and services
to independent investment representatives, financial planners, and investment
advisors and currently supports approximately 90 investment representatives
and investment advisors.
DESCRIPTION OF BUSINESS
Investment Advisory Services
ND Money Management and Ranson act as the investment advisor to the Integrity
Mutual Funds and Ranson Managed Portfolios, respectively, pursuant to
investment advisory agreements with such Funds. ND Money Management and
Ranson generally supervise and implement the Funds' investment activities,
including deciding which securities to buy and sell. They also decide which
broker-dealers through, or with which, to effect Fund securities transactions.
Generally, each Fund pays ND Money Management or Ranson an investment advisory
fee payable monthly based on the Fund's net assets. Annual investment advisory
fees under the various investment advisory agreements are 0.50% of assets under
management in the case of Ranson Managed Portfolios, 0.90% of assets under
management in the case of Integrity Fund of Funds and Integrity Small-Cap Fund
of Funds and 0.60% of assets under management for the remaining Funds managed
by ND Money Management. Investment advisory fees are generally voluntarily
waived or reduced, and other Fund expenses may be absorbed by the investment
advisor for a period of time to ensure that the Funds have competitive fee
structures.
The investment advisory agreements pursuant to which ND Money Management and
Ranson provide investment advisory services continue in effect for successive
annual periods as long as such continuance is approved annually by (a) either
(i) a majority vote cast in person at a meeting of the relevant Fund's Board of
Directors or Trustees called for that purpose, or (ii) a vote of the holders
of a majority of the relevant Fund's outstanding voting securities, and (b) a
majority of the relevant Fund's directors or trustees who are not parties to
the investment advisory agreement or interested persons of the Funds or the
Company within the meaning of the Advisers Act.
Either party may terminate the investment advisory agreement without penalty
after specified written notice. Each investment advisory agreement also
automatically terminates in the event of its "assignment" as defined in the
Advisers Act. The termination of one or more investment advisory agreements
between ND Money Management or Ranson and the Funds would have a material
adverse impact on the Company. To date, no such investment advisory agreements
have been terminated.
Investment advisory fees constituted 20% of the Company's consolidated
revenues in 2001.
Transfer Agency, Dividend Disbursement and Administrative Services
Transfer agency, dividend disbursement and other shareholder administrative
services are provided to the Funds and other clients by ND Resources. ND
Resources receives fees from the Funds and others for providing such services.
As of December 31, 2001 such fees ranged from 0.09% to 0.16% per annum of
assets under management/service, depending on the size of the Fund. In
addition, ND Resources provides accounting services to the Funds for which it
charges a base fee and an asset based charge ranging from 0.01% to 0.05% per
annum of assets under management/service depending on the size of the Fund.
Transfer agency, dividend disbursement, and administrative services fees
constituted 9% of the Company's consolidated revenues in 2001.
Distribution of Fund Shares
ND Capital acts as the principal underwriter and distributor of shares of ND
Tax-Free Fund, Montana Tax-Free Fund, South Dakota Tax-Free Fund, Integrity
Fund of Funds, and Integrity Small-Cap Fund of Funds pursuant to distribution
agreements with such Funds. Pursuant to distribution agreements, Ranson acts
as the principal underwriter and distributor of shares of the Ranson Managed
Portfolios. The distribution agreements generally provide that ND Capital and
Ranson shall distribute Fund shares and pay the expenses thereof. Fund shares
are sold primarily by broker-dealers with whom ND Capital and Ranson have
entered into dealer sales agreements. ND Capital also sells a limited number
of Fund shares directly to investors. The Company markets its Funds primarily
to the residents of the rural states in which the Company's Funds invest in
local bond issues.
Shares of Ranson Managed Portfolios are sold subject to FESLs ranging from
maximums of 2.75% (with respect to Kansas Insured Intermediate Fund) to 4.25%
(with respect to each of the other Ranson Managed Portfolios) of the public
offering price. The applicable FESL is reduced as the amount invested
increases and is waived for certain categories of investors. ND Capital or
Ranson (as applicable) earns the underwriter's portion of the FESL in
connection with sales of such Funds' shares effected by other broker-dealers.
Shares of ND Tax-Free Fund, Montana Tax-Free Fund, and South Dakota Tax-Free
Fund purchased as Class A shares, which were introduced in January 2000, are
subject to a maximum FESL of 4.25% of the public offering price. Shares of ND
Tax-Free Fund, Montana Tax-Free Fund, South Dakota Tax-Free Fund, Integrity
Fund of Funds, and Integrity Small-Cap Fund of Funds purchased as Class B
shares are not subject to a FESL at the time of purchase but are subject to a
maximum CDSC of 4%, with respect to all of such Funds (except for Integrity
Fund of Funds and Integrity Small-Cap Fund of Funds) and 1.5%, with respect to
Integrity Fund of Funds and Integrity Small-Cap Fund of Funds, of the amount
redeemed if shares are redeemed within 5 years after their purchase. The CDSC
is not imposed on shares redeemed after such 5 year period. The CDSC imposed
by ND Tax-Free Fund, Montana Tax-Free Fund and South Dakota Tax-Free Fund
ranges in steps from 4% during the first 2 years to 1% during the 5th year
after the purchase date. The entire CDSC is earned by ND Capital in connection
with redemptions subject to the CDSC.
Shares subject to the CDSC (Class B shares) would automatically convert to
Class A shares (and would no longer be subject to the higher Rule 12b-1 fees)
approximately 8 years after the date on which such Class B shares were
purchased. The conversion would be made based on the relative net asset values
of Class A and Class B shares, without imposing any load, fee or other charge.
The fact that the new shares earn a lower 12b-1 fee could have an adverse
effect on revenues.
Each of the Funds (other than Kansas Insured Intermediate Fund and Integrity
Fund of Funds) has adopted a Rule 12b-1 plan pursuant to which ND Capital or
Ranson (as applicable) earns Rule 12b-1 fees in connection with its
distribution of Fund shares. Rule 12b-1 fees are .25% per annum of the Fund's
average net assets (with respect to the applicable Ranson Managed Portfolios),
and .75% per annum of the Fund's average net assets (with respect to ND Tax-
Free Fund, Montana Tax-Free Fund, South Dakota Tax-Free Fund and Integrity
Small-Cap Fund of Funds.). ND Capital previously through 2000 waived Rule
12b-1 fees for ND Tax-Free Fund, Montana Tax-Free Fund and South Dakota Tax-
Free Fund in excess of .50% per annum. ND Capital and Ranson (as applicable)
currently pay other broker-dealers 12b-1 shareholder servicing fees of between
..10% and .20% per annum on shareholder accounts of such broker-dealers. ND
Capital retains Rule 12b-1 fees in excess of such amounts.
The 12b-1 Plans are established for an initial term of one year. Thereafter,
they must be approved annually by the Board of Directors or trustees, including
a majority of the disinterested directors or trustees of each Fund. Each Plan
is subject to termination at any time by a majority of the Fund's disinterested
directors or trustees or by the Fund's shareholders.
FESL, CDSC and Rule 12b-1 plan revenues constituted 14% of the Company's
consolidated revenues in 2001.
Brokerage Commissions
ARM Securities' primary source of revenue is commission revenue in connection
with sales of shares of mutual funds and insurance products.
ND Capital and Ranson also earn commission revenue in connection with sales of
shares of outside mutual funds and when acting as a broker in effecting other
securities transactions. Commission revenues constituted 49% of the Company's
consolidated revenues in 2001.
Internet Revenues
Magic Internet operates as an internet service provider to individuals and
businesses in the local calling area. Magic Internet provides subscribers with
full support including servicing hardware and technical support for software
problems. Magic Internet also provides DSL, wireless, satellite, and website
building and hosting services. Internet revenues constituted 8% of the
Company's consolidated revenues in 2001.
REGULATION
Virtually all aspects of the Company's businesses are subject to various
complex and extensive federal and state laws and regulations. Regulated areas
include, but are not limited to, the effecting of securities transactions, the
financial condition of the Company's subsidiaries, recordkeeping and reporting
procedures, relationships with clients, and experience and training
requirements for certain employees. The Company's subsidiaries are registered
with various federal and state government agencies, including the Securities
and Exchange Commission (the "SEC"), as well as the National Association of
Securities Dealers (the "NASD"), a self-regulatory industry organization.
ND Capital, Ranson and ARM Securities are registered broker-dealers, subject to
extensive regulation by the SEC, the NASD and state agencies in those states in
which ND Capital, Ranson and ARM Securities conduct business. As broker-
dealers, ND Capital, Ranson and ARM Securities are subject to the Uniform Net
Capital Rule promulgated by the SEC under the Securities Exchange Act of 1934.
This rule requires that a broker-dealer must maintain certain minimum net
capital and that its aggregate indebtedness may not exceed specified
limitations. ND Money Management and Ranson are registered with the SEC as
investment advisors under the Investment Advisers Act of 1940 and are subject
to regulation thereunder and certain state laws. The Funds are also subject
to extensive regulation under the Investment Company Act of 1940 and, along
with ND Money Management, ND Capital, Ranson and ARM Securities, are subject
to periodic examinations by the SEC and NASD.
Federal and state laws and regulations, and the rules of the NASD, grant broad
powers to such regulatory agencies and organizations. These include the power
to limit, restrict or prevent the Company from carrying on its business if it
fails to comply with such laws, regulations and rules. Other possible
sanctions that may be imposed include the suspension of individual employees,
restrictions on the Company expanding its business or paying cash dividends,
the revocation of the investment advisor, broker dealer or transfer agent
registrations, expulsions, censures and/or fines.
Following routine books and records examinations by the SEC in 1997, ND Money
Management, Ranson, and the Funds received deficiency letters from the SEC
staff that outlined various compliance issues. ND Money Management, Ranson, and
the Funds responded to the letters and have implemented additional procedures
designed to ensure future compliance with applicable laws and regulations. In
late 1999, ND Money Management, Ranson, and the Funds were notified that the
Central Regional Office of the SEC had commenced a formal investigation
regarding the few remaining issues raised in the aforementioned letters.
Recently, following further document production and correspondence with the
SEC, ND Money Management, Ranson, and the Funds have been notified that the SEC
has completed their investigation. ND Money Management, Ranson, and
the Funds are now in the process of reaching a suitable resolution with the
SEC. The Company has incurred and anticipates that it will continue to incur
additional legal and other expenses in the future to ensure compliance. The
extent of such expenses, however, is not presently determinable.
To the extent that existing or future regulations affecting the sale of Fund
shares or their investment strategies cause or contribute to reduced sales of
Fund shares or impair the investment performance of the Funds, the Company's
aggregate assets under management and its revenues might be adversely affected.
Since 1993, the NASD rules have limited the amount of aggregate sales charges
which may be paid in connection with the purchase and holding of investment
company shares sold through broker-dealers. The effect of the rule might be to
limit the amount of fees that could be paid pursuant to a Fund's 12b-1 Plan in
a situation where a Fund has no, or limited, new sales for a prolonged period
of time.
The officers, directors and employees of the Company may from time to time own
securities that are also owned by one or more of the Funds. The Company's
internal policies with respect to individual investments by employees,
including officers and directors who are employed by the Company, require
prior clearance and reporting of some transactions and restrict certain
transactions so as to reduce the possibility of conflicts of interest.
COMPETITION
The financial services industry is highly competitive. Industry sources
indicate that there are approximately 8,000 open-end investment companies of
varying sizes, investment objectives and policies which offer their shares to
the investing public in the United States. Since its inception, the Company
has competed with numerous larger, more established mutual fund management
organizations. The Company is also in competition with the financial services
and investment alternatives offered by stock brokerage firms, insurance
companies, banks, savings and loans associations and other financial
institutions, as well as investment advisory firms. 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 Company also participates in two other highly competitive related sectors
of the financial services industry, retail brokerage and investment advisory
services. The Company competes directly with full-service stock brokerage
firms, registered investment advisors, banks, regional broker-dealers and other
independent broker-dealers. Each of these competitors offer to the public many
of the same investment products and services offered by the Company. Further,
other broker-dealers providing the same services heavily recruit the
representatives and advisors transacting business through the Company. This
competition forces the Company to maintain high levels of support services and
commission payouts for these representatives and advisors. These high levels of
services and payouts could have a material adverse effect on the Company's
earnings.
OTHER MATTERS
The Company's board of directors has approved an employee stock ownership plan
("ESOP") whereby up to 800,000 shares of the Company's stock would be granted.
The ESOP was effective January 1, 1999. Refer to Employee Benefit Plans in
Note 10 of the Audited Statements. In March of 2001, the Company loaned the
ESOP $100,000 to purchase future shares for distribution by the ESOP.
ITEM 2 DESCRIPTION OF PROPERTY
The Company operates all of its business, except ARM Securities, out of its
location at 1 North Main, Minot, North Dakota in which it occupies
approximately 14,200 square feet of office space in a 28,000 square foot
building with an adjacent 100'x140' parking lot. The Company had leased the
office space until December 31, 1998 when it purchased the office building for
$700,000. As of December 31, 2001 the Company owed $474,375 on the 5 year loan.
The Company also leases two locations, 1,110 square feet at One South
Minnesota, New Ulm, Minnesota and 5,292 square feet at 1550 East Shaw Avenue,
Suite 120, Fresno, California for the ARM Securities broker-dealer operations.
ITEM 3 LEGAL PROCEEDINGS
None.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter ended December 31, 2001.
PART II
ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information About the Company's Common Stock
The Company's Common Stock is traded on the OTC Bulletin Board under the symbol
NDHI. The Company's stock began trading on the OTC Bulletin Board on
November 7, 1997. On December 31, 2001, the closing price of the Company's
Common Stock on the OTC Bulletin Board was $.89 per share. At February 15,
2002, there were approximately 787 shareholders of record. In addition, the
Company estimates that there are approximately 359 beneficial shareholders
whose shares are held in street name and 428 registered shareholders.
The following table sets forth the high and low bid prices for the Company's
Common Stock provided by The NASDAQ Stock Market, Inc.
2001 2000
Fiscal Year Fiscal Year
-------------------------------------
Quarter High Low High Low
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First Quarter 1.188 .656 .812 .438
Second Quarter .930 .625 .938 .594
Third Quarter .920 .770 .938 .656
Fourth Quarter .960 .700 .875 .512
The quotations reflect interdealer prices, without retail mark-up, mark-down or
commission, and may not represent actual transactions. The Company has not
paid a dividend with respect to its Common Stock nor does the Company
anticipate paying dividends in the foreseeable future.
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
ND Holdings derives the majority of its revenues and net income from providing
investment management, distribution, shareholder services, accounting and
related services to the Funds and others. ARM Securities provides another
substantial portion of revenue through its sales of mutual fund, variable
insurance products and fixed insurance products. The majority of the Company's
assets under management consist of single-state municipal bond funds for the
states of North Dakota, South Dakota, Montana, Kansas, Nebraska, and Oklahoma.
ND Holdings, Inc. is a holding company which operates in three business
segments, 1) as an investment advisor, distributor and provider of
administrative service to sponsored and non-proprietary mutual funds, 2) as an
internet service provider for Minot and surrounding areas and 3) as a broker-
dealer. Refer to Segment Information in Note 12 of the Audited Statements.
ASSETS UNDER MANAGEMENT/SERVICE
By Investment Objective
In Millions
As of December 31, 2001 2000 1999
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FIXED-INCOME
Tax-Free $ 303.0 $ 301.0 $ 319.2
Taxable (Corporate/Government) 0.0 0.0 0.0
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TOTAL FIXED-INCOME $ 303.0 $ 301.0 $ 319.2
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EQUITY
Fund of Funds $ 15.3 $ 19.6 $ 22.1
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TOTAL SPONSORED MUTUAL FUNDS $ 318.3 $ 320.6 $ 341.3
----------------------------------------------------------------------
Investors Research Fund $ 0.0 $ 16.3 $ 22.8
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TOTAL ASSETS UNDER MANAGEMENT/SERVICE $ 318.3 $ 336.9 $ 364.1
======================================================================
A substantial portion of the Company's revenues depend upon the amount of
assets under its management/service. 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 decreased by $18.6 million (5.5%)
in 2001 and decreased by $27.2 million (7.5%) in 2000. Fixed income assets
increased by 0.7% in 2001 compared to the 2000 decrease of 5.7%. Fixed income
assets account for 95.2% of the total assets under management/service in 2001
and 89.3% in 2000. Equity assets decreased by 21.9% in 2001 compared to the
2000 decrease of 11.3%. Equity assets account for 4.8% of total assets under
management/service in 2001 and 5.8% in 2000. Investors Research Fund
represents 0.0% of total assets under management/service in 2001 and 4.8% in
2000.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, amounts included in
the Consolidated Statements of Operations of ND Holdings, Inc. and the
percentage change in those amounts from period to period.
Variance Variance
2001 to 2000 to
2001 2000 1999 2000 1999
----------------------------------------------------------------------
OPERATING REVENUES
Fee income $ 2,970,581 $ 3,144,428 $ 3,610,959 (5.5)% (12.9)%
Commissions 4,554,559 3,515,600 991,063 29.6% 254.7%
Internet revenues 642,584 668,980 159,037 (3.9)% 320.6%
----------------------------------------------------------------------
Total revenue $ 8,167,724 $ 7,329,008 $ 4,761,059 11.4% 53.9%
----------------------------------------------------------------------
OPERATING EXPENSES
Compensation and benefits $ 1,833,715 $ 1,464,483 $ 1,159,985 25.2% 26.3%
Commission Expense 3,583,310 2,796,545 817,055 28.1% 242.3%
General and administration 1,751,487 1,592,669 1,120,331 10.0% 42.2%
Sales commissions amortized 613,738 587,740 599,263 4.4% (1.9)%
Depreciation and amortization 578,534 601,824 477,967 (3.9)% 25.9%
----------------------------------------------------------------------
Total operating expenses $ 8,360,784 $ 7,043,261 $ 4,174,601 18.7% 68.7%
----------------------------------------------------------------------
OPERATING INCOME (LOSS) $ (193,060) $ 285,747 $ 586,458 (167.6)% (51.3)%
----------------------------------------------------------------------
OPERATING INCOME (EXPENSES)
Interest and other income $ 164,641 $ 206,888 $ 127,983 (20.4)% 61.7%
Interest expense (317,924) (251,068) (192,862) 26.6% 30.2%
----------------------------------------------------------------------
Net other income(expense) $ (153,283) $ (44,180) $ (64,879) 246.9% (31.9)%
INCOME (LOSS) BEFORE INCOME
TAX BENEFIT (EXPENSE) $ (346,343) $ 241,567 $ 521,579 (243.4)% (53.7)%
INCOME TAX BENEFIT (EXPENSE) 20,148 (232,830) (326,833) (108.7)% (28.8)%
----------------------------------------------------------------------
NET INCOME (LOSS) BEFORE MINORITY
INTEREST AND CUMULATIVE EFFECT
OF AN ACCOUNTING CHANGE $ (326,195) $ 8,737 $ 194,746 (3,833.5)% (95.5)%
MINORITY INTEREST, NET OF TAX 26,367 31,667 11,329 (16.7)% 179.5%
CUMULATIVE EFFECT OF AN ACCOUNTING
CHANGE, NET OF TAX 0 0 (373,455)
----------------------------------------------------------------------
NET INCOME (LOSS) AFTER MINORITY
INTEREST AND CUMULATIVE EFFECT
OF AN ACCOUNTING CHANGE $ (299,828) $ 40,404 $ (167,380) (842.1)% 124.1%
======================================================================
Earnings (Loss) per share (.05) .01 (.02)
OPERATING REVENUES
Total operating revenues for 2001 were $8.2 million, an increase of 11.4% from
$7.3 million for 2000. The increase in commission revenues is primarily
attributable to a full year of commissions in 2001 from ARM Securities, which
was acquired effective May 1, 2000.
Total operating revenues for 2000 were $7.3 million, an increase of 53.9% from
$4.8 million for 1999. The increase in operating revenues is primarily
attributable to the commission revenues of $3.0 million from ARM Securities,
which was acquired effective May 1, 2000.
Fee income for 2001 was $3.0 million a 5.5% decrease from $3.1 million for
2000. The decrease in fee income is due to the decrease in assets under
management/service and to a lesser extent from the reduction in fees charged
to Class A shares converted from Class B shares. Beginning January 2000, ND
Tax-Free Fund, Inc., Montana Tax-Free Fund, Inc., and South Dakota Tax-Free
Fund, Inc. issued another class of shares, Class A shares with FESLs. These
shares are subject to a maximum front-end sales load of 4.25% scaled down to
..75% minimum as the investment amount increases. Shares subject to the CDSC
(Class B shares) automatically convert to Class A shares (and would no longer
be subject to the higher Rule 12b-1 fees) approximately 8 years after the date
on which such Class B shares were purchased. The conversion would be made based
on the relative net asset values of Class A and Class B shares, without
imposing any load, fee or other charge. This trend will continue as more
Class B shares are converted to Class A shares. Fee income for 2000 was
$3.1 million, a 12.9% decrease from $3.6 million for 1999.
Commission income includes ARM Securities commissions and 12b-1 fees associated
with the sale of mutual funds and insurance products, ND Capital and Ranson
underwriting fees associated with sales of the FESL funds, commissions earned
by registered representatives of ND Capital, and commissions earned by ND
Capital acting as agent to the Funds for the purchase of certain investment
securities. Commission income for December 31, 2001 was $4.6 million, a 29.6%
increase over the $3.5 million for 2000. Commission income earned by ARM
Securities, which was acquired effective May 1, 2000, was up 27.8% from 2000
due primarily to a full year of commissions earned in 2001. Commission income
earned by ND Capital and Ranson Capital was up 40.0% for 2001 compared to
2000. This increase is related to an increase in sales in the municipal bond
funds and an increase in commissions earned by ND Capital. 2000 commission
income was a 254.7% increase over 1999 due to the acquisition of ARM Securities
in May of 2000.
Internet revenues decreased 3.9% for 2001 compared to 2000 due to a decreased
customer base. Revenues increased 320.6% for 2000 compared to 1999. On
October 1, 1999, the Company formed a corporation called Magic Internet
Services, Inc. At the same time, the newly formed subsidiary of the Company
acquired all the assets of Magic Internet Services (a North Dakota
partnership). The corporation provides internet services to several businesses
as well as the general public for a fee. The acquisition of Magic Internet
allows for additional revenues, provides another source for internet service
in case of disruption of service (redundancy), assists in providing information
over the internet and provides a potential new delivery system of mutual fund
shares.
OPERATING EXPENSES
Total operating expenses increased 18.7% for 2001 compared to 2000. Total
operating expenses increased 68.7% for 2000 compared to 1999. The variances
relate to several of the major expense categories as described in the
paragraphs that follow.
Compensation and benefits increased 25.2% in 2001 compared to 2000.
Compensation and benefits related to ARM Securities made up 59.0% of the
increase, due primarily to a full year of expenses recorded in 2001. The
balance of the compensation and benefits increase relates to budgeted
compensation and benefit increase, and the recruitment of two key employees to
grow ARM Securities.
Compensation and benefits increased 26.3% in 2000 compared to 1999.
Compensation and benefits related to the ARM Securities acquisition are 72.1%
of the increase. The balance of the increase relates to Magic Internet
Services, acquired October 1, 1999, having a complete year of expense.
Commission expense for December 31, 2001 was a 28.1% increase over 2000.
Commission expense for December 31, 2000 was a 242.3% increase over 1999. The
commission expense increases for 2001 and 2000 are directly related to the
increase in commission income.
General and administrative expense for 2001 increased 10.0% over 2000. This is
due primarily to a full year of expenses recorded in 2001 for ARM Securities,
which was acquired in May of 2000. Total general and administrative expenses
for 2000 increased 42.2% compared to 1999. Expenses related to the ARM
Securities acquisition made up 36.3% of the increase, with the balance
relating to Magic Internet Services, acquired October 1, 1999, having a
complete year of expense.
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 eight 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. Contingent deferred sales charges ("CDSC")
received by the Company are recorded as a reduction of unamortized deferred
sales commissions. Amortization of deferred sales commissions increased 4.4%
in 2001 and decreased 1.9% in 2000. The 2001 increase is related to an
accounting estimate change in 2001 that changed the maximum amortization
period for sales commissions sold without a FESL from nine years to eight
years. The 2000 decrease is related to a reduction of new sales charges to
amortize for 2000.
Depreciation and amortization decreased 3.9% in 2001 and increased 25.9% in
2000. The decrease for 2001 is the result of certain assets being fully
depreciated in 2000 and 2001. The 2000 increase is due to the ARM Securities
acquisition and is also the result of management's commitment to technology and
systems to better serve its funds.
OTHER INCOME (EXPENSES)
2001 interest and other income decreased 20.4% from 2000 due to decreased
interest income earned from cash on hand.
2000 interest and other income increased 61.7% over 1999 due to increased
interest earned from cash on hand and the ARM Securities acquisition.
Interest expense for 2001 is a 26.6% increase over 2000 due to interest owed
on Subordinate Debentures sold July 2000 through April 2001.
Interest expense for 2000 is a 30.2% increase over 1999 due to interest owed
on Corporate Notes sold April through November 1999 and Subordinate Debentures
sold July through December 2000.
INCOME TAX (EXPENSE) BENEFIT
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 2001, 2000 and 1999 were 0%,
96% and 63% respectively. The effective rate will continue to reflect the
nondeductible amortization associated with the investment adviser's agreement
acquired in the Ranson acquisition.
Effective for 1998, the Company is expensing deferred sales commissions as
incurred for income tax purposes. For 2001, they are amortized over five years
for tax purposes. The Company will continue to capitalize and amortize the
commissions for financial reporting purposes. The effect 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.
FINANCIAL CONDITION
On December 31, 2001, the Company's assets aggregated $11.2 million, an
decrease of 12.1% from $12.8 million in 2000, due to a decrease in cash and
cash equivalents, securities available-for-sale, accounts receivable, and
property and equipment. Stockholders equity decreased to $6.9 million on
December 31, 2001 compared to $8.4 million on December 31, 2000, primarily the
result of the net loss of $299,828, the purchase of $999,934 of the company
stock through a tender offer purchase, and the repurchase of $221,472 of the
company stock through a stock buyback program.
Cash provided by operating activities was $620,361 in 2001, a 47.9% decrease
from $1,189,867 in 2000. During the year ended December 31, 2001, the Company
used net cash of $114,063 for investing activities. $9,315 was related to the
purchases of ARM Securities and Integrity Investment Advisors, $50,554 for the
remodeling of the second floor of the building for additional office space,
and $74,947 for the purchase of equipment, offset by cash received for the
redemption of an investment in Class A shares of the Montana Tax-Free Fund.
Net cash flow used by financing activities during the year was $1,271,772 the
net effect of $120,000 in proceeds received from a subordinated debenture
offering, offset by $81,296 for repayment of debt, $97,093 net cash loaned to
the ESOP, and $1,251,997 for the net purchase of the Company's common stock,
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 and also through a tender offer purchase.
On December 31, 2000, the Company's assets aggregated $12.8 million, an
increase of 5.6% from $12.1 million in 1999, due to an increase in cash and
cash equivalents, cash segregated for the exclusive benefit of customers,
securities available-for-sale, accounts receivable, prepaids and property and
equipment. Stockholders equity was relatively unchanged from December 31, 2000
compared to December 31, 1999.
Cash provided by operating activities was $1,189,867 in 2000, an 18.8% decrease
from $1,465,030 in 1999. During the year ended December 31, 2000, the Company
used net cash of $785,496 for investing activities. $364,761 was for the
purchase of ARM Securities, $232,605 for remodeling of the second floor of the
building for Magic Internet, $132,820 for purchases of equipment, and $55,310
for investment in Class A shares of the Montana Tax-Free Fund and the South
Dakota Tax-Free Fund and investment in Integrity Small-Cap Fund of Funds. Net
cash flow provided by financing activities during the year was $261,047, the
net effect of $525,000 in proceeds received from a subordinate debenture
offering and $100,890 in proceeds received from repayment of an ESOP
receivable, less $223,488 for repayment of debt and $141,355 for the purchase
of the Company's common stock, 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.
LIQUIDITY AND CAPITAL RESOURCES
On December 31, 2001, the Company's liquid assets totaled $1,963,239, including
$1,834,683 of cash and cash equivalents, as compared to $2,744,999 of which
$2,600,157 represented cash and cash equivalents, on December 31, 2000. On
January 29, 2001 the Company paid out $999,934 for 799,947 shares of the
Company's common stock, pursuant to its self tender offer that commenced on
December 21, 2000.
On December 31, 2000, the Company's liquid assets totaled $2,744,999, including
$2,600,157 of cash and cash equivalents, as compared to $2,034,739 of which
$1,934,739 represented cash and cash equivalents, on December 31, 1999.
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 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 will be to advance sales commissions on Funds
subject to CDSCs, acquire additional investment management firms, repurchase
shares of the Company's Common Stock and service debt. The Company is required
under the terms of its debentures, which mature September 1, 2002, to make
semi-annual interest payments of approximately $47,000 in March and September.
The Company also is required under the terms of its corporate notes, which
mature June 30, 2004, to make annual interest payments of approximately
$96,200 in July. In addition, the Company is required under the terms of its
subordinate debentures, which mature June 30, 2005, to make semi-annual
interest payments of approximately $38,700 in January and July.
FORWARD-LOOKING STATEMENTS
When used herein, 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," "estimates"
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 two sources,
commission revenue earned in connection with sales of shares of mutual funds,
variable insurance products and fixed insurance products, and fees relating to
the management of, and provision of services to, the Funds and other clients.
The fees earned by the Company are generally calculated as a percentage of
assets under management/service. If the Company's assets under management/
service decline, or do not grow in accordance with the Company's plans, fee
revenues and earnings would be materially adversely affected. Assets under
management/service 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 loan 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 materially 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 and Integrity Small-Cap 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 and Integrity Small-Cap 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 eight 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 7 FINANCIAL STATEMENTS
ND HOLDINGS, INC. AND SUBSIDIARIES
MINOT, NORTH DAKOTA
CONSOLIDATED FINANCIAL STATEMENTS
AS OF
DECEMBER 31, 2001, 2000 AND 1999
AND
INDEPENDENT AUDITOR'S REPORT
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 8-18
ADDITIONAL INFORMATION
Independent Auditor's Report on Additional Information 19
Selected Financial Data 20
Quarterly Results of Consolidated Operations (Unaudited) 21
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, 2001 and
2000 and the related consolidated statements of operations, stockholders'
equity and cash flows for the years ended December 31, 2001, 2000 and 1999.
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 auditing standards generally
accepted in the United States of America. 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 consolidated financial position of ND
Holdings, Inc. and Subsidiaries as of December 31, 2001 and 2000, and the
consolidated results of their operations and their cash flows for the years
ended December 31, 2001, 2000 and 1999 in conformity with accounting principles
generally accepted in the United States of America.
BRADY, MARTZ & ASSOCIATES, P.C.
Minot, North Dakota USA
February 26, 2002
1
ND HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
ASSETS
2001 2000
---- ----
CURRENT ASSETS
Cash and cash equivalents $ 1,834,683 $ 2,600,157
Cash segregated for the exclusive
benefit of customers 298,536 215,570
Securities available-for-sale 128,556 144,842
Accounts receivable 509,490 584,822
Prepaids 111,678 72,468
------------ ------------
Total current assets $ 2,882,943 $ 3,617,859
------------ ------------
PROPERTY AND EQUIPMENT $ 2,049,236 $ 2,055,612
Less accumulated depreciation 607,597 597,185
------------ ------------
Net property and equipment $ 1,441,639 $ 1,458,427
------------ ------------
OTHER ASSETS
Deferred sales commissions $ 1,459,536 $ 1,887,684
Covenant not to compete (net of accumulated
amortization of $122,624 for 2001 and
of $368,124 for 2000) 95,376 149,876
Investment adviser's agreements (net of
accumulated amortization of $1,754,816 for
2001 and $1,449,689 for 2000) 4,350,657 4,660,772
Other 984,641 978,741
------------ ------------
Total other assets $ 6,890,210 $ 7,677,073
------------ ------------
TOTAL ASSETS $ 11,214,792 $ 12,753,359
============ ============
2
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
2001 2000
---- ----
CURRENT LIABILITIES
Service fees payable $ 89,525 $ 87,087
Accounts payable 65,836 36,375
Other current liabilities 464,756 476,804
Deferred tax liability 273,434 318,582
Current portion of long-term debt 952,773 89,948
------------ ------------
Total current liabilities $ 1,846,324 $ 1,008,796
------------ -------------
LONG-TERM LIABILITIES
Note payable $ 474,375 $ 560,661
Subordinate debentures 645,000 525,000
Debentures 940,000 940,000
Corporate notes 962,000 962,000
Less current portion shown above (952,773) (89,948)
------------ ------------
Total long-term liabilities $ 2,068,602 $ 2,897,713
------------ ------------
TOTAL LIABILITIES $ 3,914,926 $ 3,906,509
------------ ------------
MINORITY INTEREST IN SUBSIDIARY $ 411,029 $ 437,396
------------ ------------
STOCKHOLDERS' EQUITY
Common stock - 20,000,000 shares
authorized, no par value; 6,462,240 and
7,444,687 shares issued and
outstanding, respectively $ 8,588,793 $ 9,716,956
Receivable - unearned ESOP shares (97,093) 0
Accumulated deficit (1,596,862) (1,297,034)
Accumulated other comprehensive income (loss) (6,001) (10,468)
------------ ------------
Total stockholders' equity $ 6,888,837 $ 8,409,454
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 11,214,792 $ 12,753,359
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS
3
ND HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
2001 2000 1999
---- ---- ----
REVENUES
Fee income $ 2,970,581 $ 3,144,428 $ 3,610,959
Commissions 4,554,559 3,515,600 991,063
Internet revenues 642,584 668,980 159,037
----------- ----------- -----------
Total revenue $ 8,167,724 $ 7,329,008 $ 4,761,059
----------- ----------- -----------
OPERATING EXPENSES
Compensation and benefits $ 1,833,715 $ 1,464,483 $ 1,159,985
General and administrative expenses 1,751,487 1,592,669 1,120,331
Commission expense 3,583,310 2,796,545 817,055
Sales commissions amortized 613,738 587,740 599,263
Depreciation and amortization 578,534 601,824 477,967
----------- ----------- -----------
Total operating expenses $ 8,360,784 $ 7,043,261 $ 4,174,601
----------- ----------- -----------
OPERATING INCOME (LOSS) $ (193,060) $ 285,747 $ 586,458
----------- ----------- ----------
OTHER INCOME (EXPENSES)
Interest and other income $ 164,641 $ 206,888 $ 127,983
Interest expense (317,924) (251,068) (192,862)
----------- ----------- -----------
Net other expense $ (153,283) $ (44,180) $ (64,879)
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME
TAX EXPENSE $ (346,343) $ 241,567 $ 521,579
INCOME TAX BENEFIT (EXPENSE) 20,148 (232,830) (326,833)
----------- ----------- -----------
INCOME (LOSS) BEFORE MINORITY
INTEREST AND CUMULATIVE EFFECT
OF AN ACCOUNTING CHANGE $ (326,195) $ 8,737 $ 194,746
Minority interest, net of income taxes 26,367 31,667 11,329
Cumulative effect of an
accounting change, net of income taxes 0 0 (373,455)
----------- ----------- -----------
NET INCOME (LOSS) AFTER
MINORITY INTEREST AND
CUMULATIVE EFFECT OF AN
ACCOUNTING CHANGE $ (299,828) $ 40,404 $ (167,380)
=========== =========== ===========
EARNINGS (LOSS) PER COMMON SHARE:
Basic $ (.05) $ .01 $ (.02)
Diluted $ (.05) $ .01 $ (.02)
SHARES USED IN COMPUTING
EARNINGS (LOSS) PER COMMON SHARE:
Basic 6,469,025 7,507,145 7,571,062
Diluted 6,469,025 7,507,145 7,571,062
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS
4
ND HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
Accumulated
Number of Common From Other
Common Stock Accumulated ESOP Comprehensive
Shares Amount Deficit Receivable Income Total
--------- ------ ----------- ---------- -------------- -----
BALANCE
JANUARY 1, 1999 7,951,187 $ 10,253,246 $ (1,170,058) $ 0 $ 0 $ 9,083,188
Net loss 0 0 (167,380) 0 0 (167,380)
Change in unrealized gain
(loss) on securities
available-for-sale 0 0 0 0 0 0
------------
Comprehensive loss $ (167,380)
------------
Common stock issued 358,000 262,498 0 0 0 262,498
Purchase of common stock 694,000) (657,435) 0 0 0 (657,435)
Receivable - unearned
ESOP shares 0 0 0 (100,890) 0 (100,890)
------------------------------------------------------------------------------------------
BALANCE,
DECEMBER 31, 1999 7,615,187 $ 9,858,309 $ (1,337,438) $ (100,890) $ 0 $ 8,419,981
Net income 0 0 40,404 0 0 40,404
Change in unrealized gain
(loss) on securities
available-for-sale 0 0 0 0 (10,468) (10,468)
------------
Comprehensive income $ 29,936
------------
Purchase of common stock (170,500) (141,353) 0 0 0 (141,353)
Repayments from ESOP 0 0 0 100,890 0 100,890
------------------------------------------------------------------------------------------
BALANCE,
DECEMBER 31, 2000 7,444,687 $ 9,716,956 $ (1,297,034) $ 0 $ (10,468) $ 8,409,454
Net loss 0 0 (299,828) 0 0 (299,828)
Change in unrealized gain
(loss) on securities
available-for-sale 0 0 0 0 4,467 4,467
------------
Comprehensive income (loss) $ (295,361)
------------
Common stock issued 100,000 123,834 0 0 0 123,834
Purchase of common stock (1,082,447) (1,251,997) 0 0 0 (1,251,997)
Receivable - unearned
ESOP shares 0 0 0 (100,000) 0 (100,000)
Repayments from ESOP 0 0 0 2,907 0 2,907
------------------------------------------------------------------------------------------
BALANCE,
DECEMBER 31, 2001 6,462,240 $ 8,588,793 $(1,596,862) $ (97,093) $ (6,001) $ 6,888,837
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS
5
ND HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
2001 2000 1999
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (299,828) $ 40,404 $ (167,380)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 578,534 601,824 477,967
Sales commissions amortized/charged off 613,738 587,740 1,177,911
ESOP contribution 0 0 61,608
Consulting expense 28,270 0 0
Minority interest (26,367) (31,667) (11,329)
Loss on sale of assets (28) 0 0
Effects on operating cash flows due to changes in:
Cash segregated for customers (82,966) (215,570) 0
Accounts receivable 75,332 (234,556) 13,450
Prepaids (39,210) (26,342) 2,681
Deferred sales commissions capitalized (185,589) 25,192 (349,894)
Deferred tax (45,148) 232,830 85,890
Other assets (16,227) (17,127) (48,881)
Service fees payable 2,439 (18,861) 6,703
Accounts payable 29,461 (11,546) 39,265
Other liabilities (12,050) 257,546 177,039
--------------- ------------ ------------
Net cash provided by operating activities $ 620,361 $ 1,189,867 $ 1,465,030
--------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment $ (125,501) $ (365,425) $ (172,091)
Purchase of available-for-sale securities (1,730) (55,310) 0
Proceeds from sale of
available-for-sale securities 22,483 0 1,000
Business acquisitions (net of cash acquired) (9,315) (364,761) (494,533)
--------------- ------------ ------------
Net cash used by investing activities $ (114,063) $ (785,496) $ (665,624)
--------------- ------------ ------------
6
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
2001 2000 1999
CASH FLOWS FROM FINANCING ACTIVITIES
Reduction of short term debt $ 0 $ (200,000) $ 0
Redemption of common stock (1,251,997) (141,355) (657,435)
Issuance of common stock 38,614 0 0
Subordinate debentures issued 120,000 525,000 0
Increase in notes payable 0 0 500,000
Reduction of notes payable (81,296) (13,488) (681,411)
Redemption of investment certificates 0 0 (30,000)
Redemption of debentures 0 (10,000) 0
ESOP loan (100,000) 0 0
Corporate notes issued 0 0 962,000
Repayments from ESOP 2,907 100,890 0
------------ ------------- -------------
Net cash provided (used) by financing
activities $ 1,271,772) $ 261,047 $ 93,154
------------ ------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS $ (765,474) $ 665,418 $ 892,560
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 2,600,157 1,934,739 1,042,179
------------- ------------- -------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 1,834,683 $ 2,600,157 $ 1,934,739
============= ============= =============
SUPPLEMENTARY DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 307,534 $ 217,273 $ 151,872
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Change in unrealized gain (loss) on
securities available-for-sale $ 4,467 $ (10,468) $ 0
Business acquisitions with debt and stock $ 56,950 $ 0 $ 455,369
Shares transferred to ESOP $ 0 $ 0 $ 100,890
Minority interest in property and equipment
and other assets $ 0 $ 0 $ 480,392
Shares exchanged for services $ 28,270 $ 0 $ 0
Reduction of investment advisory agreement
and notes payable $ 4,988 38,899 $ 0
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS
7
ND HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 AND 1999
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
The nature of operations and significant accounting policies of ND
Holdings, Inc. and Subsidiaries are 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, and commissions earned as
distributor for various mutual funds and insurance products.
Headquartered in Minot, North Dakota, the Company is marketing its
services throughout the Midwestern United States and California.
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., Ranson Capital Corporation, ARM Securities
Corporation, Integrity Investment Advisors, Inc., and its majority
owned subsidiary Magic Internet Services, Inc. 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 as well as revenues derived from retail brokerage activities.
Company revenues are largely dependent on the total value and
composition of assets under management, which include state-specific
municipal bonds, as well as the sales activity of registered brokers
operating as independent contractors. 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 accounting principles generally accepted
in the United States of America 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
and service fees 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 and
for variable annuities. Internet fees are recorded as revenues as the
related services are provided.
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.
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.
8
NOTE 1 - (CONTINUED)
Property and equipment is stated at cost less accumulated depreciation
computed on straight-line and accelerated methods over estimated
useful lives as follows:
Equipment 5-7 years
Building 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(B shares), are
capitalized and amortized on a straight line basis over a period not
exceeding eight 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. In accordance
with Statement of Position 98-5, the commissions paid for the sale of
Integrity Fund of Funds, Inc.'s shares since July 1998, have been
expensed as incurred. In 1999, the remaining unamortized cost of the
Integrity Fund of Funds, Inc. capitalized prior to July 1998, was
charged off as a cumulative effect adjustment for a change in an
accounting principle. The contingent deferred sales charges received
since this date from early redemption's from Integrity Fund of Funds,
Inc. have been recorded as revenue. Effective January 1, 2001 the
Company is amortizing sales commissions over 5 years for tax purposes.
Advertising - Costs of advertising and promotion of sponsored mutual
funds are expensed as incurred.
Earnings per common share - Basic earnings per common share was
computed using the weighted average number of shares outstanding of
6,469,025 in 2001, 7,507,145 in 2000 and 7,571,062 in 1999. Diluted
earnings per common share is computed using the weighted average
number of shares outstanding adjusted for share equivalents arising
from unexercised stock warrants and stock options. The weighted
average shares outstanding used in computing diluted earnings per
common share was 6,469,025 in 2001, 7,507,145 in 2000 and 7,571,062
in 1999.
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 four 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.
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 2000 and 1999 have been
reclassified to conform with the 2001 presentation.
9
NOTE 2 - CASH AND CASH EQUIVALENTS
Cash and cash equivalents at December 31, 2001 and 2000 consist of
the following:
Current
Current Interest Amount
Maturity Rate 2001 2000
-------- ------- ---- ----
Cash in checking Demand - $ 42,871 $ 17,975
Dean Witter Money
Market Accounts Demand 1.69% 2,090,348 2,797,752
Less cash segregated for
the exclusive benefit
of customers (298,536) (215,570)
----------- ------------
$ 1,834,683 $ 2,600,157
=========== ============
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, 2001 and 2000:
Gross
Aggregate Unrealized Aggregate Fair
Cost Holding Losses Value
----------- -------------- --------------
2001 - Mutual Funds $ 134,557 $ (6,001) $ 128,556
=========== ========== ===========
2000 - Mutual Funds $ 155,310 $ (10,468) $ 144,842
=========== ========== ===========
Dividends earned on the Company's investments in sponsored mutual
funds aggregated $1,730 in 2001, $8,310 in 2000 and $0 in 1999.
The Company provides services to the Integrity Mutual Funds and Ranson
Managed Portfolios which had aggregate net assets under management at
December 31, 2001 of approximately $318 million. All services
rendered by the Company are provided under contracts that definitively
set forth the services to be provided and the fees to be charged. The
majority of these contracts are subject to periodic review and
approval by each of the fund's Board of Directors, Trustees and
Shareholders. Revenues derived from services rendered to the
sponsored mutual funds were $2,963,300 in 2001, $3,088,928 in 2000
and $3,511,983 in 1999.
Accounts receivable from the sponsored mutual funds aggregated
$255,000 and $258,000 at December 31, 2001 and 2000, respectively.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment at December 31 consists of:
2001 2000
Office furniture and equipment $ 826,692 $ 890,930
Building and land 1,222,544 1,164,682
------------ ------------
$ 2,049,236 $ 2,055,612
Accumulated depreciation and
Amortization 607,597 597,185
------------ ------------
$ 1,441,639 $ 1,458,427
============ ============
Depreciation expense totaled $142,317, $175,332 and $142,455 in
2001, 2000 and 1999, respectively.
10
NOTE 5 - BUSINESS ACQUISITIONS
PURCHASE COMBINATIONS - On September 14, 2001, the Company acquired
all the assets of North Dakota Investment Advisors, Inc. in exchange
for 67,000 shares of the Company's common stock. The consolidated
financial statements include the operating results of the business
from the date of acquisition. Pro forma results of operations have
not been presented because the effects of this acquisition were not
significant to operations.
On May 25, 2000, the company acquired all the assets of ARM Securities
Corporation (ARM). The purchase price was $896,000, of which $566,000
was for cash, and the remaining $330,000 was for goodwill which is
being amortized on a straight line basis over 20 years. The
consolidated financial statements include the operating results of the
business from May 1, 2000.
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, 1999.
(Unaudited) (Unaudited)
Year Ended Year Ended
December 31, 2000 December 31, 1999
Revenues $ 8,621,103 $ 9,105,920
Net income (loss) 20,443 (180,687)
Income (loss)
per share .00 (.02)
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.
October 1, 1999, the Company formed a corporation called Magic
Internet Services, Inc. At the same time, the newly formed subsidiary
of the Company acquired all the assets of Magic Internet Services (a
North Dakota partnership). The purchase price was $980,392, of which
$260,000 was allocated to equipment, $218,000 was for a covenant not
to compete, which is being amortized over 4 years, and the remaining
balance of $502,392 was for goodwill, which is being amortized over
15 years. The purchase price was funded by issuing a 49% ownership
of the newly formed subsidiary to the partners of the acquired
partnership (hereinafter referred to as the Minority Interest). The
parent received 51% of the stock of the newly formed corporation for
its $500,000 payment to the partners of Magic Internet Services. The
$500,000 consisted of $400,000 cash and 100,000 shares of ND Holdings,
Inc. stock at $1 share price. The consolidated financial statements
include the operating results of the business from the date of
acquisition. Pro forma results of operations have not been presented
because the effects of this acquisition were not significant to
operations.
OTHER ACQUISITIONS - In May, 1999, the Company acquired the rights to
the investment advisors agreement to manage the "Lancaster Nebraska
Fund". The costs associated with this acquisition totaling $404,202,
are amortized using the straight-line method over a period of 20
years.
11
NOTE 6 - LONG-TERM DEBT
Long-term debt at December 31, 2001 and 2000 was as follows:
Current
Rate Portion 2001 2000
----- ------- ---- ----
Long-term debt:
Smith Hayes Financial
Services 0.00% $ 0 $ 0 $ 77,810
Debentures 10.00% 940,000 940,000 940,000
Corporate notes 10.00% 0 962,000 962,000
First Western Bank 7.75% 12,773 474,375 482,851
Subordinate debentures 12.00% 0 645,000 525,000
----------- ---------- ----------
Totals $ 952,773 $3,021,375 $2,987,661
=========== ========== ==========
A summary of the terms of the current long-term debt agreements
follow:
Smith Hayes Financial Services - As part of the acquisition of the
investment advisors agreement of the Lancaster Nebraska Funds (See
Note 5) the Company was allowed to hold back a portion of the total
purchase price. This is to provide relief to the Company in the event
there is a reduction of fund investors' assets which were acquired.
This liability was reduced proportionately for the investors who
liquidate their shares in the fund prior to May 2001. At that date,
the remaining liability was paid in full.
DEBENTURES - The Company approved a $1 million intra-state debenture
offering limiting the sale in North Dakota to North Dakota residents
only. The debentures do not represent ownership in the Company. As
of December 31, 2001, $940,000 in debentures are outstanding. The
debentures carry an interest rate of 10% per annum, payable semi-
annually, and mature September 1, 2002. The Company can call the
debentures at 2% over par.
CORPORATE NOTES - The Company had an intra-state offering of corporate
notes limiting the sale to North Dakota residents only. The notes do
not represent ownership of the Company. As of December 31, 2001,
$962,000 in notes are outstanding. The notes carry an interest rate
of 10% per annum, payable annually, and mature June 30, 2004. The
Company can call the notes at par anytime after January 1, 2001.
FIRST WESTERN BANK - In June of 1999, the Company converted its
outstanding balance of $500,000 borrowed on its bank line-of-credit
to long-term debt. The debt carries an interest rate of 7.75%, with
monthly payments of $4,105. On July 1, 2004, the remaining balance
will be due in full.
SUBORDINATE DEBENTURES - The company approved a $1 million intra-state
subordinated debenture offering limiting the sale in North Dakota to
North Dakota residents only. The subordinated debentures do not
represent ownership in the Company. As of December 31, 2001,
$645,000 in subordinate debentures are outstanding. The subordinate
debentures carry an interest rate of 12% per annum, payable semi-
annually, and mature June 30, 2005. The company can call the
subordinate debentures at par anytime after July 1, 2001.
12
NOTE 6 - (CONTINUED)
The aggregate amount of required future payments on the above long-
term debt at December 31, 2001, is as follows:
Year ending December 31,
2002 $ 952,773
2003 13,999
2004 1,409,603
2005 645,000
-------------
Total due $ 3,021,375
=============
NOTE 7 - INCOME TAXES
The current and deferred portions of the income tax (benefit) expense
included in the statements of operations as determined in accordance
with FASB Statement No. 109, Accounting for Income Taxes, are as
follows:
2001 2000 1999
---- ---- ----
Current income taxes
Federal $ 0 $ 0 $ 0
State 0 0 0
Deferred income
Taxes (20,148) 232,830 326,833
----------- ---------- ----------
$ (20,148) $ 232,830 $ 326,833
=========== ========== ==========
Deferred income taxes reflect the impact of temporary differences
between the amount of assets and liabilities recognized for financial
reporting purposes and such amounts recognized for tax purposes,
measured by applying currently enacted tax rates. Such taxes relate
principally to the recording of sales commissions paid to brokers and
dealers, and the benefits associated with the Company's net operating
loss carry forwards. The treatment of sales commissions for tax and
financial purposes is explained fully in Note 1. As a result of this
treatment of sales commissions, a deferred tax liability has been
created as well as a deferred tax benefit from the net operating loss
for tax purposes. For financial statement presentation, they have
been netted as a current deferred tax benefit or liability. The net
operating loss carry forward of approximately $1,200,000 may be used
to offset taxable income through the year 2016.
13
A reconciliation of the difference between the expected income tax
expense (benefit) is computed at the U.S. Statutory income tax rate of
35% and the Company's income tax expense is shown in the following
table:
2001 2000 1999
---- ---- ----
Federal taxes (benefit)
at statutory rates $ (113,000) $ 111,000 $ 200,000
State taxes (benefit),
net of federal tax effect (18,000) 17,500 31,500
Taxes on nondeductible amort-
ization at federal
statutory rates 95,000 106,000 95,000
Net tax benefit on cumulative effect
of accounting change, and on
minority interest 0 0 (237,000)
Other 15,852 (1,670) 333
----------- ----------- ----------
Actual tax (benefit) expense $ (20,148) $ 232,830 $ 89,833
=========== =========== ==========
Included in "other" are amounts separately allocated to stockholders'
equity to recognize the related tax effect of the change in net
unrealized gain or loss on securities available for sale and the ESOP
plan activity for the years ended December 31, 2001, 2000 and 1999.
In each of these years the amounts were insignificant.
NOTE 8 - STOCK WARRANTS, STOCK SPLITS, AND STOCK OPTIONS
The Company has authorized 1,050,000 perpetual warrants to certain
organizers, directors, officers, employees and shareholders of the
Company. All warrants were issued between 1987 and 1990 and were
accounted for in accordance with the provisions of Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued
to Employees. No compensation expense was recorded for these warrants
as the exercise price exceeded the market price of the stock at the
date of issue. The Company plans to continue to apply APB Opinion
No. 25 in accounting for its warrants. In the event additional
warrants are issued, appropriate results will be disclosed in
accordance with the provisions of Statement of Financial Accounting
Standard, No. 123. 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. 1,000 warrants were exercised in 1997
leaving an outstanding balance of 1,049,000 warrants as of December
31, 2001.
The Company has entered into employment agreements with several key
employees of the company during 2001. As part of these employment
agreements, on October 1, 2001, 400,000 options were granted with a
strike price of $.85. These options become fully vested upon the
granting date and have a perpetual life. The number of shares
authorized for granting of options under these employment agreements
is limited only by continued employment and the ability to reach
established performance goals.
14
NOTE 8 - (CONTINUED)
Information with respect to the stock option activity under the
Company's employment agreements for the year ended December 31, 2001
is as follows:
2001
Weighted Average
Options Exercise Price
------- ---------------
Outstanding, beginning of year 0 $ .00
Granted 400,000 .85
Forfeited 0 .00
Exercised 0 .00
------- -------------
Outstanding, end of year 400,000 $ .85
------- -------------
Exercisable at year end 400,000
-------
All options granted in 2001 were at a strike price of $.85.
The warrants and options outstanding at year end were excluded from
the computation of diluted EPS because the exercise price was greater
than the average market price of the company's common stock.
NOTE 9 - EMPLOYEE BENEFIT PLANS
The Company sponsors a 401(K) plan for all its employees. This plan
is solely funded by employee elective deferrals. The only expenses of
the plan paid for by the Company are the trustees fees, which were
insignificant in 2001, 2000 and 1999.
The Company established an employee stock ownership plan ("ESOP")
effective January 1, 1999. Pursuant to the ESOP, each year the
Company will determine the amount to contribute to the plan.
Contributions are made at the discretion of the Board of Directors.
To be eligible to participate in the plan, an employee must have
completed one year of service and have attained age 21.
During 2001, the ESOP purchased 104,000 shares of the Company's common
stock, at a weighted average price of $.96 per share. The purchase
was funded with a loan of $100,000 from the Company, which is
collateralized by the unallocated Company shares owned by the ESOP.
The loan will be repaid primarily from contributions by the company.
The outstanding principal balance of the loan as of December 31, 2001
was $97,000 and the interest rate is 7% over a 15 year life. All
previous loans to the ESOP have been paid in full and shares purchased
by those loans have been allocated to employees.
The shares owned by the ESOP are held by a third party trustee and
released for allocation to participants as repayments of the loan are
made. The number of shares released for allocation in any year is
based upon the ratio of current year principal and interest payments
to the total current year and projected future year's principal and
interest payments. Shares of common stock are allocated to each
employee based on the relationship of their total compensation to
the total compensation of all participants.
At December 31, 2001 and 2000, cumulative allocated shares remaining
in the trust were 258,000 and 68,000 respectively, and unallocated
shares were 104,000 and 190,000 respectively, of which 4,648 and
190,000 respectively, were committed-to-be allocated. Total ESOP
contribution expense recognized was $33,958, $25,427 and $138,608 for
the years ended December 31, 2001, 2000, and 1999 respectively.
15
NOTE 10 -NET CAPITAL REQUIREMENTS
The Company's broker-dealer subsidiaries (ND Capital, Inc., Ranson
Capital Corporation and ARM Securities Corporation) are member firms
of the National Association of Securities Dealers, Inc. and are
registered with the Securities and Exchange Commission (SEC) as
broker-dealers. Under the Uniform Net Capital Rule (Rule 15c3-1
under the Securities Exchange Act of 1934), the subsidiaries are
required to maintain a minimum net capital and a ratio of aggregate
indebtedness to net capital, as defined, of not more than 15 to 1.
At December 31, 2001, these subsidiaries had net capital of $162,581,
$179,528 and $641,951; minimum net capital requirements of $25,000,
$5,000, and $29,801; excess net capital of $137,581, $174,528 and
$612,150 and ratios of aggregate indebtedness to net capital of
.15 to 1, .40 to 1 and .70 to 1, respectively. The subsidiaries are
exempt from the reserve requirements of Rule 15c3-3.
NOTE 11 -OPERATING SEGMENTS
ND Holdings and Subsidiaries, Inc., organizes its business units into
three reportable segments: mutual fund services, internet services,
and broker-dealer services. The mutual fund services segment acts as
investment adviser, distributor and provider of administrative service
to sponsored and nonproprietary mutual funds. The internet services
segment provides internet service for the Minot and surrounding area.
The broker-dealer segment distributes shares of nonproprietary mutual
funds, and insurance products.
The company's reportable segments are strategic business units that
offer different products and services. They are managed separately
because each business requires different technology and marketing
strategies. Most of the businesses were acquired as a unit, and the
management at the time of the acquisition was retained. The
accounting policies are the same as those described in the summary
of significant accounting policies.
As of, and for the year ended, December 31, 2001
Mutual Fund Internet Broker-Dealer
Services Services Services Total
----------- -------- --------------- -----
Revenue from
external customers $ 3,666,483 $ 642,584 $ 3,858,657 $ 8,167,724
Intersegment revenues 1,800 2,773 0 4,573
Interest revenue 121 0 0 121
Interest expense 317,857 67 0 317,924
Depreciation and
Amortization 426,302 151,688 544 578,534
Segment profit (loss) (345,550) (27,444) 73,166 (299,828)
Segment assets 10,162,935 840,988 1,272,972 12,276,895
Expenditure for
segment assets 76,556 30,123 18,822 125,501
RECONCILIATION OF SEGMENT INFORMATION
REVENUES
Total revenues for reportable segments $ 8,172,297
Elimination of intersegment revenues (4,573)
---------------
Consolidated total revenue $ 8,167,724
===============
PROFIT
Total reportable segment profit $ (299,828)
===============
ASSETS
Total assets for reportable segments $ 12,276,895
Elimination of intercompany receivables (1,062,103)
--------------
Consolidated Assets $ 11,214,792
==============
16
NOTE 12 -COMMITMENTS AND CONTINGENCIES
The company entered into leases for office space as a result of
purchasing ARM Securities Corporation (Note 5) in Minnesota and
California. The monthly lease payments are $900 and $7,409,
respectively. The leases will expire March 31, 2003 and January 31,
2004, respectively. Total rent expense for the two leases was
$99,708 and $59,725 for the years ended December 31, 2001 and 2000,
respectively.
The company has several leases for various office equipment that
expire over the next several years through 2005. The total rent
expense for these leases was $33,000, $22,000, and $11,500 for
December 31, 2001, 2000, and 1999 respectively.
The following is a schedule by years of future minimum rental
payments on operating leases as of December 31, 2001.
Years ending December 31,
2002 $ 128,588
2003 106,570
2004 19,814
2005 1,464
-----------
Total minimum future rentals $ 256,436
===========
NOTE 13 -SUBSEQUENT EVENTS
On January 15, 2002, the Company acquired all the assets of Capital
Financial Services, Inc. ("CFS"), a full-service brokerage firm
based in Madison, Wisconsin. CFS is registered with the SEC as an
investment advisor and broker-dealer and also with the NASD as a
broker-dealer. The purchase consideration was composed of $ 1,140,000
in cash, 750,000 shares of Company stock to be issued in 3 annual
installments beginning at the date of purchase, a $250,000 convertible
debenture to be issued one year from the purchase date, as well as
250,000 options to purchase common stock of the Company. CFS
specializes in providing investment products and services to
independent investment representatives, financial planners, and
investment advisors and currently supports approximately 90 investment
representatives and investment advisors.
NOTE 14 -NEW PRONOUNCEMENTS
Effective January 1, 2002, the Company will adopt Statements of
Financial Accounting Standards (SFAS) No. 141 - Business Combinations,
and No. 142 - Goodwill and Other Intangible Assets. Under SFAS
No.141, the Company will use the purchase method to account for
all future business combinations, beginning with the January 15, 2002
acquisition of Capital Financial Services, Inc. as described in
Note 13. The effect on future financial statements can not be
determined at this time.
Under SFAS 142, the Company will no longer amortize its goodwill,
investment advisory agreements and other intangibles over their
estimated useful life. Rather, they will be subject to at least an
annual assessment for impairment by applying a fair value based test.
Amortization pertaining to the above assets was approximately
$435,000, $425,000, and $335,000 in 2001, 2000, and 1999 respectively.
Effects of the impairment of these assets on future financial
statements can not be determined at this time.
17
ADDITIONAL INFORMATION
18
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, 2001,
2000 and 1999, 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 20 and 21, related to the 2001, 2000 and 1999
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, 2001, 2000 and 1999, taken as a whole.
We also have previously audited, in accordance with auditing standards
generally accepted in the United States of America, the consolidated balance
sheets of ND Holdings, Inc. and Subsidiaries as of December 31, 1998 and 1997,
and the related consolidated statements of operations, stockholders' equity,
and cash flows for each of the two years in the period ended December 31, 1998,
none of which is presented herein, and we expressed unqualified opinions on
those consolidated financial statements. In our opinion, the information on
page 20 relating to the 1998 and 1997 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.
Minot, North Dakota USA
February 26, 2002
19
ND HOLDINGS, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
FOR THE YEARS ENDED DECEMBER 31, AS INDICATED
1997
(Restated)
2001 2000 1999 1998 (a)(b)
---- ---- ---- ---- ---------
Operating revenue $ 8,167,724 $ 7,329,008 $ 4,761,059 $ 4,438,908 $ 4,590,716
Income (loss) from
Operations $ (193,060) $ 285,747 $ 586,458 $ 683,443 $ 738,890
Income tax (expense) benefit $ 20,148 $ (232,830) $ (326,833) $ (405,240) $ (415,042)
Earnings (loss) per share $ (.05) $ .01 $ (.02) $ .03 $ .03
Total assets $ 11,214,792 $ 12,753,359 $ 12,072,973 $ 10,891,060 $ 10,306,160
Long-term obligations $ 3,021,375 $ 2,987,661 $ 2,525,047 $ 1,307,750 $ 1,113,070
Shareholders' equity $ 6,888,837 $ 8,409,454 $ 8,419,984 $ 9,083,188 $ 9,038,682
Dividends paid $ 0 $ 0 $ 0 $ 0 $ 0
(a) The 1997 statement of operations has been restated to reflect the
Company's current practice of recording commission income and commission
expense separately. Prior to 1998 these amounts were reported as net
commission income. The 1997 commission income and general and
administrative expenses have been increased by approximately $544,000
so as to conform with the subsequent years' presentation.
(b) During the audit of the 1998 financial statements, an error was discovered
that resulted in an understatement of reported liabilities and overstated
net income as of December 31, 1995. All balances affected by this
$25,000 error have been restated.
(1) The Company adopted FAS 128 in 1997. For calculating per share amounts,
basic and diluted earnings per common share are not materially different.
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.
21
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
Part II
ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Incorporated herein by reference is the information under the heading
"Directors and Executive Officers", in the Registrant's Proxy Statement
to be filed on or about April 15, 2002.
ITEM 10 EXECUTIVE COMPENSATION
Incorporated herein by reference is the information appearing in the
Registrant's Proxy Statement which the Registrant anticipates filing on or
about April 15, 2002 under the headings "Directors and Executive Officers."
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Incorporated herein by reference is the information appearing under the heading
"Security Ownership of Principal Shareholders and Management", in the
Registrant's Proxy Statement which the Registrant anticipates filing on or
about April 15, 2002.
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference is the information appearing under the
heading "Directors and Executive Officers", in the Registrant's Proxy
Statement which the Registrant anticipates filing on or about April 15, 2002.
ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith or incorporated herein by
reference as set forth below:
3.1 Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 contained in the Company's
Registration Statement on Form S-1, as amended (File No. 33-
96824), filed with the Commission on September 12, 1995).
3.2 Bylaws of the Company (incorporated by reference to Exhibit
3.2 contained in the Company's Registration Statement on Form
S-1, as amended (File No. 33-96824), filed with the Commission
on September 12, 1995).
4.1 Specimen form of Common Stock Certificate (incorporated by
reference to Exhibit 4.1 contained in the Company's
Registration Statement on Form S-1, as amended (File
No.33-96824), filed with the Commission on September 12, 1995).
4.2 Instruments defining rights of holders of securities: See
Exhibit 3.1
10.1 Management Advisory Contract - ND Tax-Free Fund, Inc.
(incorporated by reference to Exhibit 10.1 contained in the
Registration Statement on Form N-1A, as amended on Post-
Effective Amendment 11 (File No. 33-63306), filed with the
Commission on February 28, 1997).
10.2 Management Advisory Contract - Montana Tax-Free Fund, Inc.
(incorporated by reference to Exhibit 10.2 contained in the
Registration Statement on Form N-1A, as amended on Post-
Effective Amendment 6 (File No. 33-63306), filed with the
Commission on February 28, 1997).
10.3 Management Advisory Contract - South Dakota Tax-Free Fund,
Inc. (incorporated by reference to Exhibit 10.3 contained in
the Registration Statement on Form N-1A, as amended on Post-
Effective Amendment 5 (File No. 33-63306), filed with the
Commission on February 28, 1997).
10.4 Management Advisory Contract - Integrity Fund of Funds, Inc.
(incorporated by reference to Exhibit 10.4 contained in the
Registration Statement on Form N-1A, as amended on Post-
Effective Amendment 4 (File No. 33-85332), filed with the
Commission on February 28, 1997).
10.5 Transfer Agency Agreement - ND Tax-Free Fund, Inc.
(incorporated by reference to Exhibit 10.5 contained in the
Registration Statement on Form N-1A, as amended on Post-
Effective Amendment 11 (File No. 33-63306), filed with the
Commission on February 28, 1997).
10.6 Transfer Agency Agreement - Montana Tax-Free Fund, Inc.
(incorporated by reference to Exhibit 10.6 contained in the
Registration Statement on Form N-1A, as amended on Post-
Effective Amendment 6 (File No. 33-63306), filed with the
Commission on February 28, 1997).
10.7 Transfer Agency Agreement - South Dakota Tax-Free Fund, Inc.
(incorporated by reference to Exhibit 10.7 contained in the
Registration Statement on Form N-1A, as amended on Post-
Effective Amendment 5 (File No. 33-63306), filed with the
Commission on February 28, 1997).
10.8 Transfer Agency Agreement - Integrity Fund of Funds, Inc.
(incorporated by reference to Exhibit 10.8 contained in the
Registration Statement on Form N-1A, as amended on Post-
Effective Amendment 4 (File No. 33-85332), filed with the
Commission on February 28, 1997).
10.9 Distribution Agreement - ND Tax-Free Fund, Inc.
(incorporated by reference to Exhibit 10.9 contained in the
Registration Statement on Form N-1A, as amended on Post-
Effective Amendment 11 (File No. 33-63306), filed with the
Commission on February 28, 1997).
10.10 Distribution Agreement - Montana Tax-Free Fund, Inc.
(incorporated by reference to Exhibit 10.10 contained in the
Registration Statement on Form N-1A, as amended on Post-
Effective Amendment 6 (File No. 33-63306), filed with the
Commission on February 28, 1997).
10.11 Distribution Agreement - South Dakota Tax-Free Fund, Inc.
(incorporated by reference to Exhibit 10.11 contained in the
Registration Statement on Form N-1A, as amended on Post-
Effective Amendment 5 (File No. 33-63306), filed with the
Commission on February 28, 1997).
10.12 Distribution Agreement - Integrity Fund of Funds, Inc.
(incorporated by reference to Exhibit 10.12 contained in the
Registration Statement on Form N-1A, as amended on Post-
Effective Amendment 4 (File No. 33-85332), filed with the
Commission on February 28, 1997).
10.13 Stock Purchase Agreement - ND Holdings, Inc. and
Shareholders of Ranson Company, Inc. (incorporated by
reference to Exhibit 10.13 contained in the Company's
Registration Statement on Form S-1, as amended
(File No. 33-96824), filed with the Commission on September
12, 1995).
10.14 Transfer Agency Agreement - Ranson Managed Portfolios
(incorporated by reference in the Company's form 10KSB/A
as amended(Commission File No. 0-25958), filed with the
Commission on May 20, 1998).
10.15 Transfer Agent Agreement - Investors Research Fund
(incorporated by reference to Exhibit 10.15 contained in the
Company's Registration Statement Form N-1A as amended
(File No. 2-14675) filed with the Commission on January 22
1999).
10.16 Distribution Agreement - Investors Research Fund
(incorporated by reference to Exhibit 10.16 contained in the
Company's Registration Statement Form N-1A as amended
(File No. 2-14675) filed with the Commission on January 22
1999).
10.17 Accounting Services Agreement - Investors Research Fund
(incorporated by reference to Exhibit 10.17 contained in the
Company's Registration Statement Form N-1A as amended
(File No. 2-14675) filed with the Commission on January 22
1999).
10.18 Management and Investment Advisory Agreement - Ranson Managed
Portfolios (incorporated by reference to Exhibit 10.18 contained
in the Portfolios' Registration Statement on Form N-1A, as
amended on Post-Effective Amendment 43 (File No. 33-36324),
filed with the Commission on November 30, 1999).
10.19 Distribution and Services Agreement - Ranson Managed
Portfolios (incorporated by reference to Exhibit 10.19 contained
in the Portfolios' Registration Statement on Form N-1A, as
amended on Post-Effective Amendment 43 (File No. 33-36324),
filed with the Commission on November 30, 1999).
10.20 Management Advisory Contract - Integrity Small-Cap Fund of
Funds, Inc. (incorporated by reference to Exhibit 10.20
contained in the Registration Statement on Form N-1A,
(File No. 333-64917), filed with the Commission on
September 30, 1998).
10.21 Transfer Agency Agreement - Integrity Small-Cap Fund of Funds,
Inc. (incorporated by reference to Exhibit 10.21 contained in
the Registration Statement on Form N-1A (File No. 333-64917),
filed with the Commission on September 30, 1998).
10.22 Distribution Agreement - Integrity Small-Cap Fund of Funds,
Inc. (incorporated by reference to Exhibit 10.22 contained in
the Registration Statement on Form N-1A, as amended on Post-
Effective Amendment 3 (File No. 333-64917), filed with the
Commission on June 14, 2000).
21.1 Subsidiaries of the Company: (incorporated by reference to
Exhibit 21.1 contained in the Company's Registration Statement
on Form S-1 as amended (File No. 33-96824), filed with the
Commission on December 7, 1995).
(b) Reports on Form 8-K.
None
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized on this 30th day of March.
ND HOLDINGS, INC.
Date: March 25, 2002 By /s/ Robert E. Walstad
------------------------
Robert E. Walstad
Chief Executive Officer
and Director (Acting
Chief Financial Officer)
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Date: March 25, 2002 By /s/ Robert E. Walstad
------------------------
Robert E. Walstad
Chief Executive Officer
and Director (Principal
Executive Officer)
(Acting Chief Financial
Officer)
Date: March 25, 2002 By /s/ Richard D. Olson
------------------------
Richard D. Olson
President and Director
Date: March 25, 2002 By /s/ Peter A. Quist
------------------------
Peter A. Quist
Vice President and Director
Date: March 25, 2002 By /s/ Vance A. Castleman
------------------------
Vance A. Castleman
Director
Date: March 25, 2002 By /s/ Myron D. Thompson
------------------------
Myron D. Thompson
Director
Date: March 25, 2002 By /s/ Richard H. Walstad
------------------------
Richard H. Walstad
Director