FORM 10-QSB
-----------
Securities and Exchange Commission
Washington, D.C. 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
U.S. SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-25958
INTEGRITY MUTUAL FUNDS, INC.
(Exact name of small business issuer as specified in its charter)
North Dakota 45-0404061
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
1 North Main, Minot, North Dakota, 58703
(Address of principal executive offices)
(701) 852-5292
(Issuer's telephone number)
ND HOLDINGS, INC.
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
As of July 26, 2002, there were 12,970,480 shares of common stock of
the registrant outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
1
FORM 10-QSB
INTEGRITY MUTUAL FUNDS, INC.
INDEX
Part I FINANCIAL INFORMATION Page No.
Item 1 Financial Statements
Condensed Consolidated Balance Sheets-
June 30, 2002 and December 31, 2001 3
Condensed Consolidated Statements of Operations-
Three months ended June 30, 2002 and 2001 4
Condensed Consolidated Statements of Operations-
Six months ended June 30, 2002 and 2001 5
Condensed Consolidated Statements of Cash Flows-
Six months ended June 30, 2002 and 2001 6
Notes to Condensed Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis or
Plan of Operation 11
Part II OTHER INFORMATION
Item 2 Material Changes in Instruments Defining the Rights
of Shareholders 18
Item 4 Submission of Matters to a Vote of Security Holders 19
Item 5 Other Information 20
Item 6 Exhibits and Reports on Form 8-K 20
Signatures 21
2
Part I. FINANCIAL INFORMATION
Item 1. INTEGRITY MUTUAL FUNDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
2002 2001
-----------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 530,302 $ 1,834,683
Cash segregated for the exclusive benefit
of customers 342,991 298,536
Securities available-for-sale 123,413 128,556
Accounts receivable 965,630 509,490
Prepaids 73,217 111,678
-----------------------------
Total current assets $ 2,035,553 $ 2,882,943
-----------------------------
PROPERTY AND EQUIPMENT $ 2,104,145 $ 2,049,236
Less accumulated depreciation (669,340) (607,597)
-----------------------------
Net property and equipment $ 1,434,805 $ 1,441,639
-----------------------------
OTHER ASSETS
Deferred sales commissions $ 1,347,769 $ 1,459,536
Covenant not to compete (net of accumulated
amortization of $149,874 for 2002 and
$122,624 for 2001) 68,126 95,376
Goodwill 7,234,317 5,177,073
Other assets (net of amortization of $76,189 for 2002
and $64,382 for 2001) 180,843 158,225
-----------------------------
Total other assets $ 8,831,055 $ 6,890,210
-----------------------------
TOTAL ASSETS $ 12,301,413 $ 11,214,792
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Service fees payable $ 85,947 $ 89,525
Accounts payable 21,843 65,836
Other current liabilities 843,838 464,756
Deferred tax liability 286,930 273,434
Current portion of long-term debt 953,075 952,773
-----------------------------
Total current liabilities $ 2,191,633 $ 1,846,324
-----------------------------
LONG-TERM LIABILITIES
Notes payable $ 717,967 $ 474,375
Subordinate debentures 595,000 645,000
Debentures 940,000 940,000
Corporate notes 962,000 962,000
Less current portion (953,075) (952,773)
-----------------------------
Total long-term liabilities $ 2,261,892 $ 2,068,602
-----------------------------
TOTAL LIABILITIES $ 4,453,525 $ 3,914,926
-----------------------------
MINORITY INTEREST IN SUBSIDIARY 403,470 411,029
-----------------------------
STOCKHOLDERS' EQUITY
Common stock - 1,000,000,000 shares authorized, $.0001 par value;
12,970,480 and 12,924,480 shares issued and outstanding,
respectively, after the 2:1 forward split effective July 1, 2002 $ 8,583,265 $ 8,550,178
Committed common stock 500,000 -
Receivable - unearned ESOP shares (92,191) (97,093)
Gain on allocation of ESOP shares 37,486 38,615
Accumulated deficit (1,572,471) (1,596,862)
Accumulated other comprehensive loss (11,671) (6,001)
-----------------------------
Total stockholders' equity $ 7,444,418 $ 6,888,837
-----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 12,301,413 $ 11,214,792
=============================
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
INTEGRITY MUTUAL FUNDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
June 30,
-------------------------
2002 2001
-------------------------
OPERATING REVENUES
Fee income $ 797,560 $ 723,144
Commissions 2,929,376 1,149,594
Internet revenues 134,935 170,786
-------------------------
Total revenue $ 3,861,871 $ 2,043,524
-------------------------
OPERATING EXPENSES
Compensation and benefits $ 517,105 $ 473,603
Commission expense 2,580,844 914,348
General and administrative expenses 569,606 401,756
Sales commissions amortized 116,037 152,495
Depreciation and amortization 50,664 142,854
-------------------------
Total operating expenses $ 3,834,256 $ 2,085,056
-------------------------
OPERATING INCOME (LOSS) $ 27,615 $ (41,532)
-------------------------
OTHER INCOME (EXPENSES)
Investment and other income $ 35,889 $ 60,720
Interest expense (75,792) (86,574)
-------------------------
Net other income (expense) $ (39,903) $ (25,854)
-------------------------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE $ (12,288) $ (67,386)
DEFERRED INCOME TAX BENEFIT (EXPENSE) $ 12,255 (2,852)
-------------------------
NET INCOME (LOSS) BEFORE MINORTIY INTEREST $ (33) $ (70,238)
MINORITY INTEREST IN SUBSIDIARY $ 3,131 4,474
-------------------------
NET INCOME (LOSS) AFTER MINORITY INTEREST $ 3,098 $ (65,764)
=========================
NET INCOME (LOSS) PER SHARE $ .00 $ (.01)
AVERAGE COMMON SHARES OUTSTANDING, AFTER 2:1
FORWARD STOCK SPLIT EFFECTIVE JULY 1, 2002 13,930,252 13,076,146
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
INTEGRITY MUTUAL FUNDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended
June 30,
-------------------------
2002 2001
-------------------------
OPERATING REVENUES
Fee income $ 1,581,878 $ 1,484,621
Commissions 5,649,116 2,369,775
Internet revenues 280,723 338,251
-------------------------
Total revenue $ 7,511,717 $ 4,192,647
-------------------------
OPERATING EXPENSES
Compensation and benefits $ 971,282 $ 945,602
Commission expense 4,982,842 1,859,385
General and administrative expenses 1,079,384 839,577
Sales commissions amortized 230,507 303,716
Depreciation and amortization 101,021 288,852
-------------------------
Total operating expenses $ 7,365,036 $ 4,237,132
-------------------------
OPERATING INCOME (LOSS) $ 146,681 $ (44,485)
-------------------------
OTHER INCOME (EXPENSES)
Investment and other income $ 52,330 $ 108,298
Interest expense (151,535) (165,356)
-------------------------
Net other income (expense) $ (99,205) $ (57,058)
-------------------------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE $ 47,476 $ (101,543)
DEFERRED INCOME TAX BENEFIT (EXPENSE) $ (13,496) (19,153)
-------------------------
NET INCOME (LOSS) BEFORE MINORTIY INTEREST $ 33,980 $ (120,696)
MINORITY INTEREST IN SUBSIDIARY $ 7,559 8,028
-------------------------
NET INCOME (LOSS) AFTER MINORITY INTEREST $ 41,539 $ (112,668)
=========================
NET INCOME (LOSS) PER SHARE $ .00 $ (.01)
AVERAGE COMMON SHARES OUTSTANDING, AFTER 2:1
FORWARD STOCK SPLIT EFFECTIVE JULY 1, 2002 14,056,676 13,156,980
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
INTEGRITY MUTUAL FUNDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
-------------------------
2002 2001
-------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 41,539 $ (112,668)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 100,901 288,852
Sales commissions amortized/charged off 230,507 303,716
Loss on sale of assets - (28)
Minority interest (7,559) (8,028)
(Increase) decrease in:
Cash segregated for customers (44,455) 123,032
Accounts receivable (456,140) 43,186
Prepaids 38,461 16,647
Deferred sales commissions capitalized,
net of CDSC collected (118,741) (81,694)
Other assets (34,425) (5,442)
Increase (decrease) in:
Service fees payable (3,578) 3,861
Accounts payable (43,993) (35,245)
Deferred tax 13,496 (5,847)
Other liabilities 379,082 (54,238)
---------------------------------
Net cash provided by operating activities $ 95,095 $ 476,104
---------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment $ (57,796) $ (65,391)
Purchase of available-for-sale securities (527) (1,062)
Purchase of goodwill (1,117,711) (118)
---------------------------------
Net cash used by investing activities $ (1,176,034) $ (66,571)
---------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Redemption of common stock (153,658) (111,079)
Purchase of treasury stock - (1,030,526)
Subordinated debenture issue - 120,000
Reduction of notes payable (6,409) (75,436)
ESOP loan - (100,000)
Repayments from ESOP 4,902 952
Gain on allocation of ESOP shares (1,127) 38,451
Redemption of subordinated debenture (50,000) -
Dividends paid (17,150) -
---------------------------------
Net cash used by financing activities $ (223,442) $(1,157,638)
---------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS $(1,304,381) $ (748,105)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 1,834,683 2,600,157
---------------------------------
CASH AND CASH EQUIVALENTS
AT END OF QUARTER $ 530,302 $ 1,852,052
=================================
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Change in unrealized gain (loss) on
securities available-for-sale (5,670) 2,686
Gain on allocation of ESOP shares (1,127) 38,451
Reduction of notes payable - 4,988
Purchase of goodwill with common stock 250,000 -
Purchase of goodwill with committed common stock 500,000 -
Purchase of goodwill with long-term liability 250,000 -
Reduction in other assets (63,254) -
Reduction in common stock (63,254) -
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6
INTEGRITY MUTUAL FUNDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2002 and 2001
NOTE 1 - BASIS OF PRESENTATION
On May 31, 2002, the shareholders of the Company approved a change in the
Company name from ND Holdings, Inc. to Integrity Mutual Funds, Inc.
On May 31, 2002, the shareholders of the Company approved a 2 for 1 (2:1)
forward stock split of the Company's common shares, effective July 1, 2002.
The 2 for 1 (2:1) forward stock split is reflected in the condensed
consolidated financial statements presented. Per share amounts have been
adjusted as a result of the stock split.
The shareholders of the Company also approved on May 31, 2002, to change the
capitalization of the Company by increasing the number of authorized common
shares from the currently authorized 20,000,000 shares of no par value to
1,000,000,000 common shares of $.0001 par value, and to change the
capitalization of the Company by authorizing 100,000,000 preferred shares of
$.0001 par value, of which the Board of Directors may establish a class or
series, setting forth the designation of the class or series, and fixing the
relative rights and preferences of the class or series of the preferred shares.
The accompanying condensed consolidated financial statements of Integrity
Mutual Funds, Inc., a North Dakota corporation, and its subsidiaries
(collectively, the "Company"), included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission ("SEC"). These unaudited condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and the footnotes thereto contained in the Annual Report
on Form 10-KSB for the year ended December 31, 2001 of Integrity Mutual Funds,
Inc., as filed with the SEC. The condensed consolidated balance sheet at
December 31, 2001, contained herein, was derived from audited financial
statements, but does not include all disclosures included in the Form 10-KSB
and applicable under accounting principles generally accepted in the United
States of America. Certain information and footnote disclosures normally
included in interim financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
omitted.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (which are of a
normal recurring nature) necessary for a fair presentation of the financial
statements. The results of operations for the six months ended June 30, 2002
are not necessarily indicative of operating results for the entire year.
NOTE 2 - INCOME TAXES
The Company's effective tax rate differs from the U. S. Statutory rate
primarily due to nondeductible amortization expenses incurred as a result of
the Ranson acquisition. The Company's effective tax rates for 2001 and 2000
were 0% and 96%, respectively.
Effective for 2001, the Company is amortizing deferred sales commissions over 5
years for income tax purposes. Previously, the Company was expensing deferred
sales commissions as incurred. The Company will continue to capitalize and
amortize the commissions for financial reporting purposes over 8 years
(exception Integrity Fund of Funds, which are expensed). The effects of the
change will create timing differences between when the commissions are deducted
for income tax purposes and expensed as amortization for financial reporting
purposes. Deferred tax assets or deferred tax liabilities may result from these
timing differences.
7
NOTE 3 - RECLASSIFICATION
Certain amounts in the 2001 condensed consolidated financial statements have
been reclassified to conform with the 2002 presentation. These
reclassifications had no effect on the Company's net income.
NOTE 4 - BUSINESS ACQUISITIONS
On January 15, 2002, the Company acquired 100% of the equity stock 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. 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.
The purchase consideration, as executed prior to the 2 for 1 (2:1) forward
stock split effective July 1, 2002, was composed of $1,140,000 in cash, 750,000
shares of the Company common stock to be issued in three (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 at an option strike price of
$1.00 per share. Because there is no market for the Company's options and
the strike price is above the market price, the options have been determined
to have negligible value.
Pursuant to the terms of the purchase agreement whereby CFS was acquired,
750,000 shares of no par value common stock of the Company will be issued in
three (3) annual installments beginning at the date of purchase. The shares
will have a put right, whereby the installment shares may be put back to the
Company at the rate of up to 250,000 shares per year for three (3) consecutive
years at a price of $1.00 per share. The put right may be exercised at any
time within the ninety (90) day period following the first, second, and third
anniversaries of the purchase. The put rights are non-accumulative and each
installment will expire if not exercised during the scheduled redemption
period.
Also pursuant to the terms of the purchase agreement whereby CFS was acquired,
on January 15, 2003, the Company will issue convertible debentures divided
among the prior shareholders of CFS in the total amount of $250,000, subject
to certain provisions of the Stock Purchase Agreement dated January 15, 2002,
which may increase or decrease the amount of the debenture to reflect
undisclosed or unknown liabilities of CFS, loss of producing broker revenue
base, recovery from third parties, and the costs of such recovery. The
debenture principal will be payable January 15, 2006 and will pay interest on
the principal sum from January 15, 2003 at the rate of four percent (4%) per
annum on a semi-annual basis beginning on July 15, 2003 and thereafter on
January 15th and July 15th of each year until the principal balance is paid.
All payments will be applied first to interest and any remainder to reduction
of principal. The debenture will be convertible as follows: beginning on the
date of issuance and until the principal is paid in accordance with the terms
of this agreement, the holder of this convertible debenture shall have the
option to convert all or any portion of this convertible debenture to no par
value common stock of the Company at the rate of one share for each one dollar
of convertible debenture (1 share per $1.00 converted) issued by the debenture
holder.
The primary reasons for the acquisition were to acquire a full-service retail
brokerage distribution system as well as to acquire the investment advisory
service operations of CFS. The primary factors contributing to the purchase
price were the presence of an established group of approximately 90 investment
representatives and investment advisors, the existing relationship with a
reputable clearing firm, the fact that approximately 95% of the business of
CFS is processed as packaged products, i.e. mutual funds and insurance
products, and to capture the revenue stream of approximately $6.4 million. The
estimated fair value of the equity of CFS was recorded at $78,392. The excess
purchase price over the estimated fair value of the equity of CFS was
$2,117,711, which has been recorded as goodwill.
8
The operations and financial position of CFS were accounted for in the
condensed consolidated financial statements of the Company beginning January 1,
2002.
INTEGRITY MUTUAL FUNDS, INC. AND SUBSIDIARIES AND CAPITAL FINANCIAL SERVICES,
INC. CONSOLIDATED PRO-FORMA FINANCIAL INFORMATION (UNAUDITED)
The following unaudited proforma summary presents the consolidation results of
operations of the Company as if the business combination had occurred on
January 1, 2001.
For the three months ended June 30, 2001
(In Thousands)
Integrity Mutual Capital
Funds, Inc. and Financial Pro-Forma Pro-Forma
Subsidiaries Services, Inc. Adjustments Consolidated
------------------------------------------------------------
Revenues $ 2,044 $ 1,565 - $ 3,609
Expenses $ 2,114 $ 1,564 - $ 3,678
------------------------------------------------------------
Net $ (70) $ 1 - $ (69)
============================================================
For the six months ended June 30, 2001
(In Thousands)
Integrity Mutual Capital
Funds, Inc. and Financial Pro-Forma Pro-Forma
Subsidiaries Services, Inc. Adjustments Consolidated
------------------------------------------------------------
Revenues $ 4,193 $ 3,162 - $ 7,355
Expenses $ 4,313 $ 3,171 - $ 7,484
------------------------------------------------------------
Net $ (120) $ (9) - $ (129)
============================================================
NOTE 5 - ACQUIRED INTANGIBLE ASSETS
Acquired intangible assets consisted of the following as of:
June 30, 2002 December 31, 2001
------------- -----------------
Amortized Intangible Assets
---------------------------
Carrying amount
Covenant not to compete $ 218,000 $ 218,000
--------------------------------------
Accumulated amortization 149,874 122,624
--------------------------------------
Aggregate Amortization Expense
------------------------------
For the six month period ended
June 30, 2002 $ 27,250
For the year ended
December 31, 2001 $ 54,500
Estimated Amortization Expense
------------------------------
For the years ended
December 31, 2002 $ 54,500
December 31, 2003 $ 40,876
December 31, 2004 $ 0
December 31, 2005 $ 0
December 31, 2006 $ 0
9
NOTE 6 - GOODWILL
The changes in the carrying amount of goodwill for the six month period ended
June 30, 2002 are as follows:
Balance as of January 1, 2002 $ 4,411,123 $ 427,034 $ 338,916 $ 5,177,073
Goodwill acquired during the period - - 2,117,711 2,117,711
Impairment losses - - - -
Removal of goodwill based on
cancellation of prior purchase (60,467) - - (60,467)
Balance as of June 30, 2002 $ 4,350,656 $ 427,034 $ 2,456,627 $ 7,234,317
-----------------------------------------------------------------------------------------
The above segments are tested for impairment on an annual basis in the second
quarter and any impairment adjustments are reflected at that time. The initial
application of SFAS No. 142 and the transitional impairment test was completed
in the second quarter of 2002 and resulted in no impairment adjustment for all
segments.
NOTE 7 - GOODWILL AND OTHER INTANGIBLE ASSETS - ADOPTION OF STATEMENT 142
As of January 1, 2002, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 142 - Goodwill and Other Intangible Assets. In the
following tables, net income, basic earnings per share, and diluted earnings
per share are shown as if SFAS No. 142 had been applied to those periods.
NET INCOME:
For the three months For the three months
ended June 30, 2002 ended June 30, 2001
-------------------- --------------------
Reported net income (loss) $ 3,098 $ (65,764)
Add back: goodwill amortization - 89,042
Adjusted net income (loss) $ 3,098 $ 23,278
For the six months For the six months
ended June 30, 2002 ended June 30, 2001
-------------------- --------------------
Reported net income (loss) $ 41,539 $ (112,668)
Add back: goodwill amortization - 178,356
Adjusted net income (loss) $ 41,539 $ 65,688
BASIC EARNINGS PER SHARE:
For the three months For the three months
ended June 30, 2002 ended June 30, 2001
-------------------- --------------------
Reported net income (loss) $ .00 $ (.01)
Add back: goodwill amortization - .01
Adjusted net income (loss) $ .00 $ .00
For the six months For the six months
ended June 30, 2002 ended June 30, 2001
-------------------- --------------------
Reported net income (loss) $ .00 $ (.01)
Add back: goodwill amortization - .01
Adjusted net income (loss) $ .00 $ .00
10
DILUTED EARNINGS PER SHARE:
For the three months For the three months
ended June 30, 2002 ended June 30, 2001
-------------------- --------------------
Reported net income (loss) $ .00 $ (.01)
Add back: goodwill amortization - .01
Adjusted net income (loss) $ .00 $ .00
For the six months For the six months
ended June 30, 2002 ended June 30, 2001
-------------------- --------------------
Reported net income (loss) $ .00 $ (.01)
Add back: goodwill amortization - .01
Adjusted net income (loss) $ .00 $ .00
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
GENERAL
Integrity Mutual Funds, Inc. derives a substantial portion of its revenues and
net income from providing investment management, distribution, shareholder
services, accounting and related services to the Funds and others from its
subsidiaries. ARM Securities Corporation (ARM Securities), acquired effective
May 1, 2000, and Capital Financial Services, Inc. (CFS), acquired effective
January 1, 2002, provide another substantial portion of revenues through sales
of mutual funds and variable and fixed insurance products.
The Company 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 Minot and the
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
acquisitions were retained.
Segment Information
-------------------
As of, Mutual Fund Internet Broker-Dealer
Second Quarter Ended Services Services Services Total
----------------------------------------------------------------------------------------------
June 30, 2002
Revenues from
external customers $ 1,102,104 $ 134,935 $ 2,624,832 $ 3,861,871
Intersegment
Revenues 57,647 522 - 58,169
Interest expense 75,792 - - 75,792
Depreciation and
Amortization 23,882 25,671 1,111 50,664
Segment profit (loss) (6,226) (6,390) * 12,583 3,098
* Before minority interest adjustment of $3,131
----------------------------------------------------------------------------------------------
11
June 30, 2001
Revenues from
external customers $ 863,908 $ 170,785 $ 1,008,831 $ 2,043,524
Intersegment
Revenues - 445 - 445
Interest expense 86,507 67 - 86,574
Depreciation and
Amortization 105,065 37,789 - 142,854
Segment profit (loss) (51,220) (9,130)* (9,888) (65,764)
* Before minority interest adjustment of $4,474
----------------------------------------------------------------------------------------------
As of Six Months Ended
June 30, 2002
Revenues from
external customers $ 2,030,405 $ 280,724 $ 5,200,588 $ 7,511,717
Intersegment
Revenues 115,673 1,037 - 116,710
Interest expense 151,535 - - 151,535
Depreciation and
Amortization 47,503 51,291 2,227 101,021
Segment profit (loss) 55,931 (15,425) * (6,526) 41,539
Segment assets 11,324,904 765,878 1,351,126 13,441,908
Expenditures for
segment assets 54,105 3,431 260 57,796
* Before minority interest adjustment of $7,559
----------------------------------------------------------------------------------------------
June 30, 2001
Revenues from
external customers $ 1,779,671 $ 338,251 $ 2,074,725 $ 4,192,647
Intersegment
Revenues 1,800 900 - 2,700
Interest expense 165,289 67 - 165,356
Depreciation and
Amortization 213,488 75,364 - 288,852
Segment profit (loss) (146,775) (16,383) * 42,462 (112,668)
Segment assets 10,354,467 900,495 1,221,870 12,476,832
Expenditures for
segment assets 22,489 26,870 16,032 65,391
* Before minority interest adjustment of $8,028
----------------------------------------------------------------------------------------------
Reconciliation of Segment Information
As of Three Months
Ended June 30, 2002 June 30, 2001
Revenues
Total revenues for reportable segments $ 3,920,040 $ 2,043,969
Elimination of intersegment revenues (58,169) (445)
Consolidated total revenue $ 3,861,871 $ 2,043,524
==================== ===================
Profit
Total reportable segment profit $ 3,098 $ (65,764)
==================== ===================
13
As of Six Months
Ended June 30, 2002 June 30, 2001
Revenues
Total revenues for reportable segments $ 7,628,427 $ 4,195,347
Elimination of intersegment revenues (116,710) (2,700)
Consolidated total revenue $ 7,511,717 $ 4,192,647
==================== ===================
Profit
Total reportable segment profit $ 41,539 $ (112,668)
==================== ===================
Assets
Total assets for reportable segments $ 13,441,908 $ 12,476,832
Elimination of intercompany receivables (1,140,495) (1,095,579)
-------------------- -------------------
Consolidated assets $ 12,301,413 $ 11,381,253
==================== ===================
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. The
Company provides 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., Montana Tax-Free Fund, Inc., South Dakota
Tax-Free Fund, Inc., Integrity Fund of Funds, Inc. and Integrity Small-Cap
Fund of Funds, Inc. 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.
ASSETS UNDER MANAGEMENT/SERVICE
By Investment Objective
In Millions
As of June 30, 2002 2001 % Change
--------------------------------------------------------------------------
FIXED INCOME Tax-Free Funds $ 299.4 $ 295.4 1.4%
EQUITY Fund of Funds $ 13.4 $ 17.1 (21.6)%
--------------------------------------------------------------------------
TOTAL SPONSORED MUTUAL FUNDS - end of period $ 312.8 $ 312.5 0.1%
--------------------------------------------------------------------------
TOTAL ASSETS UNDER MANAGEMENT/SERVICE $ 312.8 $ 312.5 0.1%
==========================================================================
Average for the six-month period $ 318.3 $ 317.0 0.4%
==========================================================================
Assets under the Company's management/service were $312.8 million at June 30,
2002, a decrease of $5.5 million (-1.7%) from December 31, 2001 and an
increase of $0.3 million (0.1%) from June 30, 2001.
13
RESULTS OF OPERATIONS
Three months ended Six months ended
June 30, June 30,
------------------ ----------------
2002 2001 2002 2001
-------------------------------------------------------
Net income (loss) after
minority interest $ 3,098 $ (65,764) $ 41,539 $ (112,668)
Earnings per share
Primary $ 0.00 $ (0.01) $ 0.00 (0.01)
Fully-diluted $ 0.00 $ (0.01) 0.00 (0.01)
-------------------------------------------------------
Net income (loss) after minority interest for the second quarter ended June 30,
2002 was net income of $3,098 compared to a $65,764 net loss for the same
quarter in the previous fiscal year.
Net income (loss) after minority interest for the six months ended June 30,
2002 was net income of $41,539 compared to a $112,668 net loss for the same
quarter in the previous fiscal year.
OPERATING REVENUES
Total operating revenues for the second quarter ended June 30, 2002 were
$3,861,871, an increase of 89.0% from June 30, 2001. The increase is primarily
attributable to revenues of $1,681,212 relating to CFS, acquired effective
January 1, 2002.
Total operating revenues for the six months ended June 30, 2002 were
$7,511,717, an increase of 79.2% from June 30, 2001. The increase is the net
result of revenues of $3,404,490 relating to CFS, acquired effective January 1,
2002, and increased revenues from Mutual Fund Services of 14.1% or $250,735
offset by decreased revenues from Internet Services of 17.0% or $57,527.
Fee income for the second quarter ended June 30, 2002 was an increase of 10.3%
compared to June 30, 2001. The increase is the result of an increase in fee
revenue due to the increase in assets under management/service offset by 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 an additional class of shares,
Class A shares subject to Front End Sales Loads (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)
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.
Fee income for the six months ended June 30, 2002 was an increase of 6.6%
compared to June 30, 2001. The increase is the result of an increase in fee
revenue due to the increase in assets under management/service offset by the
reduction in fees charged to Class A shares converted from Class B shares.
Commission income increased 154.8%, to $2,929,376 for the second quarter ended
June 30, 2002 from $1,149,594 for the same period in 2001. The increase is
the result of an increase in commission revenues from Broker-Dealer Services
of $1,553,609 (CFS acquired effective January 1, 2002) and from Mutual Fund
Services of $226,173.
Commission income increased 138.4%, to $5,649,116 for the six months ended June
30, 2002 from $2,369,775 for the same period in 2001. The increase is a
result of increased commission revenues from Broker-Dealer Services of
$3,013,025 (CFS acquired effective January 1, 2002) and from Mutual Fund
Services of $266,316.
14
Internet revenues were $134,935 for the second quarter ended June 30, 2002, a
21.0% decrease from June 30, 2001. Internet Revenues were $280,723 for the six
months ended June 30, 2002, a 17.0% decrease from the six months ended
June 30, 2001. Magic Internet Services, Inc. was added to the consolidated
group October 1, 1999. The Company owns a 51% interest in the corporation.
OPERATING EXPENSES
Total operating expenses for the second quarter and six months ended June 30,
2002 were $3,834,256 and $7,365,036 respectively, an increase of 83.9% and
73.8% from the same periods ended June 30, 2001. The 83.9% and 73.8% increases
are a result of the net activity in the major expense categories as described
in the paragraphs that follow.
COMPENSATION AND BENEFITS
Total compensation and benefits for the second quarter ended June 30, 2002 were
$517,105, an increase of 9.2% from June 30, 2001. The increase is primarily
the net effect of an increase in Mutual Fund Services employee compensation and
benefits of $101,963 offset by a decrease in Broker-Dealer Services employee
compensation and benefits of $61,065.
Total compensation and benefits for the six months ended June 30, 2002 were
$971,282, an increase of 2.7% from June 30, 2001. The increase is primarily
the net effect of an increase in Mutual Fund Services employee compensation
and benefits of $54,746 offset by a decrease in Broker-Dealer Services employee
compensation and benefits of $35,815.
COMMISSION EXPENSE
Total commission expense for the second quarter ended June 30, 2002 was
$2,580,844, an increase of 182.3% from June 30, 2001. The increase primarily
attributable to commission expense of $1,529,903 related to CFS, acquired
effective January 1, 2002.
Total commission expense for the six months ended June 30, 2002 was
$4,982,842,an increase of 168.0% from June 30, 2001. The increase is primarily
attributable to commission expense of $3,098,086 related to CFS, acquired
effective January 1, 2002.
GENERAL AND ADMINISTRATIVE EXPENSES
Total general and administrative expenses for the second quarter ended June 30,
2002 were $569,606, an increase of 41.8% from June 30, 2001. The increase is
primarily attributable to general and administrative expenses of $93,662 r
elating to CFS, acquired effective January 1, 2002, and an increase for Mutual
Fund Services of $89,333.
Total general and administrative expenses for the six months ended June 30,
2002 were $1,079,384, an increase of 28.6% from June 30, 2001. The increase is
the net effect of general and administrative expenses of $190,731 relating to
CFS, acquired effective January 1, 2002 and increased Mutual Funds services
general and administrative expenses of $55,159 offset by a decrease in Internet
Services general and administrative expenses of $31,200.
SALES COMMISSIONS AMORTIZED
Amortization of deferred sales commissions for the second quarter ended June
30, 2002 decreased 23.9% from June 30, 2001. Amortization of deferred sales
commission for the six months ended June 30, 2002 decreased 24.1% from June 30,
2001. 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. Effective January 1, 2001, the Company accelerated the
amortization life to eight years from nine years which best approximates
management's estimate of the average life of investor's accounts in the
Integrity Mutual Funds and Ranson Managed Portfolios and coincides with
conversion of Class B shares to Class A shares as previously stated.
15
DEPRECIATION AND AMORTIZATION
Depreciation and amortization decreased 64.5% for the second quarter ended June
30, 2002 and 65.0% for the six months ended June 30, 2002 compared to the same
periods in 2001. The primary reason for the decrease was that effective
January 1, 2002, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 142 - Goodwill and Other Intangible Assets. Under SFAS
142, the Company no longer amortizes its goodwill and certain 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. There
were no impairment adjustments made during the quarter ended June 30, 2002.
OTHER INCOME (EXPENSES)
Interest and other income was 40.9% and 51.7% lower for the second quarter
ended and six months ended June 30, 2002 compared to the same period in 2001
due to reduced interest income earned on cash invested. Interest Expense was
12.5% and 8.4% lower for the second quarter ended and six months ended June 30,
2002 compared to the same period in 2001.
LIQUIDITY AND CAPITAL RESOURCES
Net cash from operating activities was $95,095 during the six month period June
30, 2002, a decrease of 80.0% from $476,104 during the six month period ended
June 30, 2001. A significant factor contributing to this variance is the
commission accrual relating to the CFS acquisition, effective January 1,
2002. These receivables are expected to be collected within 30 days.
Depreciation and amortization decreased 65.1% for the six months ended June 30,
2002 from the same period in 2001.
Net cash used by investing activities for the six months ended June 30, 2002
increased to $1,176,034 from $66,571 for the six months ended June 30, 2001.
The 2002 activity included remodeling of the second floor of the company's
office building, investment in disaster recovery computer systems, and
goodwill related to the acquisition of CFS.
Net cash used by financing activities during the six months ended June 30,
2002 was $223,442. The major financing activities for the period were the
purchase of 172,500 shares from the Company shareholders for $153,658,
pursuant to a repurchase program approved by its Board of Directors, and the
redemption of $50,000 of subordinated debentures.
At June 30, 2002, the Company held $530,302 in cash and cash equivalents, as
compared to $1,834,683 at December 31, 2001. Liquid assets, which consist of
cash and cash equivalents, securities available-for-sale and current
receivables decreased to $1,619,345 at June 30, 2002 from $2,472,729 at
December 31, 2001, primarily the result of the acquisition of CFS, effective
January 1, 2002.
Although the Company has historically relied upon sales of its common stock
and debt instruments for liquidity and growth, management believes that the
Company's existing liquid assets, together with the expected continuing cash
flow from operations and the issuance of a long-term subordinated commercial
note, will provide the Company with sufficient resources to meet its cash
requirements during the next twelve months. Management expects that the
principal need for cash will be the maturity of $940,000 of debentures on
September 1, 2002. This cash requirement will be met by utilizing existing
cash, sales of the new long-term subordinated commercial note, and a short-term
bank loan, if necessary. The effects on the Company's liquidity are expected
to be minimal. Additional needs for cash may be to advance sales commissions
on Funds subject to contingent deferred sales charges, acquire additional
investment management or financial services firms, repurchase shares of the
Company's common stock, and service debt.
16
At June 30, 2002, total current liabilities exceeded current assets by
$156,000. Current liabilities include $940,000 of debentures that mature
September 1, 2002. This cash requirement will be met by utilizing existing
cash, sales of the new long-term subordinated commercial note, and a short-
term bank loan, if necessary. The new long-term subordinated commercial notes
will replace the current debentures, thus reducing current liabilities and
increasing long-term liabilities.
FORWARD-LOOKING STATEMENTS
When used in this Form 10-QSB, in future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases and in
other Company-authorized written or oral statements, the words and phrases
"can be", "expects," "anticipates," "may affect," "may depend," "believes,"
"estimate" or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. The Company cautions readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. Such
statements are subject to certain risks and uncertainties, including those set
forth in this "Forward-Looking Statements" section, that could cause actual
results for future periods to differ materially from those presently
anticipated or projected. The Company does not undertake and specifically
disclaims any obligation to update any forward-looking statement to reflect
events or circumstances after the date of such statements.
Prior to the acquisition of ARM and CFS, the Company derived substantially all
of its revenues from fees relating to the management of, and provision of
services to, the Funds. The fees earned by the Company are generally
calculated as a percentage of assets under management/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.
ARM and CFS revenues are generated from commissions (FESLs) and regular service
fees received from various mutual fund and insurance companies. If sales of
mutual funds or annuities decline, commission revenues and earnings would be
adversely affected. If ARM or CFS's assets under service decline, service fee
revenues and earnings would be adversely affected. Lower securities market
levels may reduce sales of mutual funds or annuities, and assets under service
may contract thus reducing service fee revenues and earnings.
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
17
a material adverse effect on the Company's earnings. The ability of the
Company to sell fund shares may also be affected by general economic
conditions including, amongst other factors, changes in interest rates and the
inflation rate. Interest and inflation rate changes may particularly impact
the flow of money into mutual funds which invest in fixed-income securities.
Each of the Funds except Integrity Fund of Funds, Inc. and Integrity Small-Cap
Fund of Funds, Inc. 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, Inc. and Integrity Small-Cap Fund of Funds, Inc.) 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.
PART II. OTHER INFORMATION
ITEM 2: MATERIAL CHANGES IN INSTRUMENTS DEFINING THE RIGHTS OF SHAREHOLDERS
On May 31, 2002, the shareholders of the Company approved an amendment of the
Company's Articles of Incorporation which increased the authorized common
shares of the Company from 20,000,000 shares of no par common stock to
1,000,000,000 shares of $.0001 par value common stock. On May 31, 2002, the
shareholders also approved an amendment of the Company's Articles of
Incorporation which authorized 100,000,000 shares of $.0001 par value preferred
stock. Preferred shares have a preference over the common shares with respect
to future dividends, voting rights, and liquidation in the event of
dissolution. The Board of Directors may establish a class or series, setting
forth the designation of the class or series and fixing the relative rights
and preferences of the class or series of the preferred shares. The increase
in the authorized shares of common stock and the authorization for preferred
stock will not have any immediate effect on the rights of existing
shareholders, however, the Board of Directors will have the authority to issue
authorized shares of common stock and create classes of preferred stock within
the authorized limits of preferred stock without requiring future shareholder
approval of such issuances, except as may be required by applicable law or
regulations, the Company's governing documents or the rules of any stock
exchange, Nasdaq or any automated inter-dealer quotation system on which the
Company's common stock may then be traded. The Company's shareholders can,
therefore, experience a reduction in their ownership interest in the Company
with respect to earnings per share (if any), voting, liquidation value, and
book and market value if the additional authorized shares are issued. The
holders of the Company's common stock have no preemptive rights, which means
that current shareholders do not have a prior right to purchase any new issue
of common stock in order to maintain their proportionate ownership in the
Company.
18
On May 31, 2002, the shareholders of the Company approved a two for one (2:1)
forward stock split of the issued and outstanding common stock of the Company
which took effect on July 1, 2002. The forward stock split increased the
number of issued and outstanding shares of common stock of the Company as of
July 1, 2002 from approximately 6,700,000 to approximately 13,400,000. Except
for changes in the number of shares of stock issued and outstanding, the rights
and privileges of holders of shares of common stock remain the same, both
before and after the forward stock split. Commencing on July 1, 2002, each
currently outstanding common stock certificate was deemed for all corporate
purposes to evidence ownership of the increased number of shares resulting
from the forward stock split. New stock certificates reflecting the number
of shares resulting from the stock split will be issued only as currently
outstanding certificates are transferred or upon request of individual
shareholders.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders held on May 31, 2002, the following
proposals were adopted by the margins indicated:
1. To elect a Board of Directors to hold office until the next annual meeting
of shareholders and until their successors are elected and qualified.
Number of Votes Cast for:
Vance A. Castleman 5,065,397
Richard D. Olson 5,197,628
Peter A. Quist 5,197,628
Myron D. Thompson 5,197,628
Robert E. Walstad 5,167,698
Richard H. Walstad 5,173,457
2. To approve appointment of Brady Martz & Associates, P.C. as independent
auditor for the Company for the fiscal year ending December 31, 2002.
For 5,275,948
Against 8,957
Abstain 9,177
3. To approve a change in the name of the Company from ND Holdings, Inc. to
Integrity Mutual Funds, Inc.
For 5,146,875
Against 72,710
Abstain 76,483
4. To approve a change in the capitalization of the Company by increasing the
number of authorized common shares from the currently authorized 20,000,000
shares of no par value to 1,000,000,000 common shares of $0.0001 par value.
For 5,008,324
Against 190,351
Abstain 128,013
5. To approve a change in the capitalization of the Company by authorizing
100,000,000 preferred shares of $0.0001 par value of which the Board of
Directors may establish a class or series, setting forth the designation of
the class or series and fixing the relative rights and preferences of the
class or series of the preferred shares.
For 4,945,055
Against 258,683
Abstain 136,328
19
6. To approve to effect a 2 for 1 forward split of the Company's common shares.
For 5,000,249
Against 226,927
Abstain 134,835
ITEM 5: OTHER INFORMATION
On September 14, 2001, the Company acquired all the equity shares of North
Dakota Investment Advisors, Inc. in exchange for 67,000 of the Company's common
shares. As a result of failure of certain conditions of the purchase
agreement, on June 24, 2002, the Company rescinded the purchase dated
September 14, 2001, and obtained return and cancellation of 67,000 of the
Company's common shares.
On April 12, 2002, an Offer of Settlement previously submitted by ND Money
Management, Inc. and Ranson Capital Corporation, wholly owned investment
advisor subsidiaries of the Company, together with Robert Walstad and Monte
Avery (the "Respondents") with respect to pending SEC issues arising from a
routine 1997 SEC books and records audit, was accepted by the SEC. Pursuant
to the terms of the order issued by the SEC in accordance with the settlement,
without admitting or denying liability, the Respondents agreed to pay civil
money penalties totaling $40,000, to accept censure, to cease and desist from
any current or future violations of certain provisions of the Advisors Act and
the Investment Company Act and undertake remedial practices, including the
retaining of an independent consultant to provide a review and recommendations
regarding the Respondent's regulatory compliance procedures.
On July 11, 2002, the Company introduced an offering of subordinated commercial
notes, strictly limited to bona fide North Dakota residents, with a maximum of
$1,000,000. As of July 26, 2002, the Company had issued $215,000 in
subordinated commercial notes.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See Index to Exhibits on page 22 for a descriptive response to this
item.
(b) Reports on Form 8-K
None
20
INTEGRITY MUTUAL FUNDS, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
/s/ Robert E. Walstad August 13, 2002
-----------------------------------
Robert E. Walstad Date
CEO and Chairman of the Board
(CFO and CAO)
21
INTEGRITY MUTUAL FUNDS, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
The following documents are filed as part of this Report:
Exhibit
-------
99.1 CEO/CFO Certification of Periodic Financial Reports
22
INTEGRITY MUTUAL FUNDS, INC. AND SUBSIDIARIES
CEO/CFO CERTIFICATION OF PERIODIC FINANCIAL REPORTS
The undersigned hereby certifies that this Quarterly Report on Form 10-QSB for
the quarter ended June 30, 2002 fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the
information contained in this report fairly presents, in all material respects,
the financial conditions and results of operations of Integrity Mutual Funds,
Inc.
Date: August 13, 2002 /s/ Robert E. Walstad
-----------------------------
Robert E. Walstad
CEO and Chairman of the Board
(Acting Chief Financial Officer)
1