Avantax (AVTA) 8-K/A Completion of Acquisition or Disposition of Assets

Exhibit 99.4

HDV HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Financial Statements

December 31, 2013 and 2012

(With Independent Auditors’ Report Thereon)

HDV HOLDINGS, INC. AND SUBSIDIARIES

Table of Contents

	Page
Independent Auditors’ Report	1
Consolidated Statements of Financial Condition	2
Consolidated Statements of Operations	3
Consolidated Statements of Shareholder’s Investment	4
Consolidated Statements of Cash Flows	5
Notes to Consolidated Financial Statements	6

Independent Auditors’ Report

The Shareholder and Directors
HDV Holdings, Inc.:

We have audited the accompanying consolidated financial statements of HDV Holdings, Inc. and its subsidiaries, which comprise the consolidated statements of financial condition as of December 31, 2013 and 2012, and the related consolidated statements of operations and comprehensive income, shareholder’s investment, and cash flows for the years then ended, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

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 from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly in all material respects, the financial position of HDV Holdings, Inc. and its subsidiaries as of December 31, 2013 and 2012, and the results of their operations and their cash flows for the years then ended in accordance with U.S. generally accepted accounting principles.

/s/KPMG LLP

April 30, 2014

1

HDV HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Financial Condition

December 31, 2013 and 2012

Assets	2013			2012
Assets:
Current assets:
Cash and cash equivalents	$	28,580,343		$	40,714,735
Cash required to be segregated under federal or other regulations	1,856,321			3,148,347
Accrued commissions and advisory fees receivable	14,869,552			13,353,361
Accounts receivable	4,411,709			4,419,449
Prepaids, deposits and other	3,031,261			2,867,441
Total current assets:	52,749,186			64,503,333
Noncurrent assets:
Deferred financing costs, net	3,367,898			4,049,140
Property, equipment and leasehold improvements, net	4,296,563			3,343,465
Goodwill and intangible assets, net	184,213,538			191,669,697
Other noncurrent assets	525,900			533,370
Total noncurrent assets:	192,403,899			199,595,672
Total assets	$	245,153,085		$	264,099,005
Liabilities and Shareholder's Investment
Liabilities:
Current liabilities:
Accrued commissions and advisory fees payable	$	14,560,333		$	12,995,836
Unearned income	3,056,230			3,049,215
Amounts due on clearing transactions	1,856,321			3,148,347
Accounts payable and accrued liabilities	6,682,730			4,858,290
Taxes payable	250,094			1,266,655
Current portion of long term debt	3,025,000			3,850,000
Total current liabilities:	29,430,708			29,168,343
Noncurrent liabilities:
Deferred tax liability, net	21,175,838			25,409,304
Debt	170,462,500			119,492,720
Other noncurrent liabilities	2,571,074			1,179,576
Total noncurrent liabilities:	194,209,412			146,081,600
Total liabilities	223,640,120			175,249,943
Shareholder's investment:
Common stock, $0.01 par value. Authorized 1,000 shares; issued and outstanding 999 shares in 2013 and 1,000 shares in 2012	10			10
Additional paid-in capital	94,400,714			94,528,740
Accumulated deficit	(72,887,759		)	(5,679,688		)
Total shareholder's investment	21,512,965			88,849,062
Total liabilities and shareholder's investment	$	245,153,085		$	264,099,005

See accompanying notes to consolidated financial statements.

2

HDV HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

Years ended December 31, 2013 and 2012

	2013		2012
Revenue:
Commissions	$	143,968,264	$	132,998,791
Portfolio management fees	100,085,326		87,015,503
Asset based fees	17,260,780		16,821,134
Advisor fees	8,177,448		8,053,933
Client fees	3,531,155		3,169,135
Other revenue	129,325		289,400
Total revenue	273,152,298		248,347,896
Expenses:
Commissions and portfolio management fees	185,053,915		165,937,660
Salaries and benefits	29,485,599		27,130,869
Clearing and brokerage fees	5,411,637		6,019,487
Regulatory fees	3,553,490		3,398,771
Professional fees, contract and temporary labor	4,065,389		8,775,533
Occupancy and equipment	4,011,888		4,171,030
Data and processing fees	1,290,381		3,125,682
General and administrative	6,210,270		5,653,581
Claims, litigation and other losses, net of recoveries	1,341,959		365,886
Depreciation and amortization	8,955,827		9,175,868
Interest expense	13,088,547		13,325,944
Other expenses	9,406,088		1,777,738
Total expenses	271,874,990		248,858,049
Net income (loss) before income taxes	1,277,308		(510,153		)
Income tax expense (benefit)	685,379		(448,967		)
Net income (loss)	$	591,929	$	(61,186	)

See accompanying notes to consolidated financial statements.

3

HDV HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Shareholder's Investment

Years ended December 31, 2013 and 2012

	Shares of common stock issued and outstanding		Common stock		Additional paid-in capital			Accumulated deficit			Total
Balance, December 31, 2011	1,000		$	10	$	94,528,740		$	(5,618,502	)	$	88,910,248
Net loss	—		—		—			(61,186		)	(61,186		)
Balance, December 31, 2012	1,000		10		94,528,740			(5,679,688		)	88,849,062
Net income	—		—		—			591,929			591,929
Purchase of treasury stock	(1	)	—		(128,026		)	—			(128,026		)
Dividends Paid	—		—		—			(67,800,000		)	(67,800,000		)
Balance, December 31, 2013	999		$	10	$	94,400,714		$	(72,887,759	)	$	21,512,965

See accompanying notes to consolidated financial statements.

4

HDV HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years ended December 31, 2013 and 2012

	2013			2012
Cash flows from operating activities:
Net income (loss)	$	591,929		$	(61,186	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation expense	1,499,668			1,224,472
Amortization of intangibles	7,456,159			7,951,396
Amortization of deferred financing costs	697,076			827,937
Paid-in-kind interest on borrowings	414,374			989,942
Loss on write-off of deferred finance charges	3,704,166			—
Loss on retirement of equipment	25,717			—
Deferred income taxes	(4,233,466		)	(4,090,470		)
(Increase) decrease in operating assets:
Cash required to be segregated under federal or other regulations	1,292,026			(1,678,492		)
Accrued commissions and advisory fees receivable	(1,516,191		)	(1,249,743		)
Accounts receivable	7,740			(484,725		)
Prepaids, deposits and other	(163,820		)	44,937
Other noncurrent assets	7,470			(1,508		)
Increase (decrease) in operating liabilities:
Accrued commissions and advisory fees payable	1,564,497			1,158,791
Unearned income	7,015			135,446
Amounts due on clearing transactions	(1,292,026		)	1,678,502
Accounts payable and accrued liabilities	1,824,440			(3,811,421		)
Taxes payable	(1,016,561		)	423,158
Other noncurrent liabilities	1,391,498			1,128,143
Total adjustments	11,669,782			4,246,365
Net cash provided by operating activities	12,261,711			4,185,179
Cash flows from investing activity:
Capital expenditures	(2,478,483		)	(3,223,911		)
Net cash used in investing activity	(2,478,483		)	(3,223,911		)
Cash flows from financing activity:
Repayments on debt	(125,269,594		)	(2,406,250		)
Issuance of debt	175,000,000			—
Payment of financing costs	(3,720,000		)	—
Dividend paid	(67,800,000		)	—
Purchase of treasury stock	(128,026		)	—
Net cash used in financing activity	(21,917,620		)	(2,406,250		)
Net change in cash and cash equivalents	(12,134,392		)	(1,444,982		)
Cash and cash equivalents, beginning of year	40,714,735			42,159,717
Cash and cash equivalents, end of year	$	28,580,343		$	40,714,735

See accompanying notes to consolidated financial statements.

5

HDV HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(1) Organization and Basis of Presentation

HDV Holdings, Inc. (the Company), located in Irving, Texas, was formed on June 17, 2011 as a Delaware corporation. Effective October 1, 2011 (date of commencement of operations), the Company purchased all of the outstanding shares of common stock of H.D. Vest, Inc. and subsidiaries from Wells Fargo & Company. The Company is a wholly owned subsidiary of HDV Holdings, LLC.

H.D. Vest, Inc. serves as a holding company for various financial services subsidiaries. Through these wholly owned subsidiaries, the Company provides financial services that are designed to assist in making independent tax and accounting professionals financial service centers for their clients.

H.D. Vest Investment Securities, Inc. (HDVIS), a wholly owned subsidiary of H.D. Vest, Inc., was incorporated in April 1983 as a Texas corporation. HDVIS is a securities broker‑dealer firm registered with the Securities and Exchange Commission (SEC). HDVIS is a member of the Financial Industry Regulatory Authority (FINRA), the Securities Industry and Financial Markets Association, and the Securities Investor Protection Corporation. HDVIS clears security transactions through First Clearing LLC (FCLLC), on a fully disclosed basis. Accordingly, HDVIS operates under the exemptive provisions of SEC Rules 15c3‑3(k)(2)(i) and 3(k)(2)(ii).

H.D. Vest Advisory Services, Inc. (HDVAS), a wholly owned subsidiary of H.D. Vest, Inc., was incorporated in 1987 as a Texas corporation. HDVAS is registered as an investment advisor with the SEC.

For the year ended December 31, 2013, HDVIS and HDVAS comprise 59% and 37%, respectively, of total revenues and 62% and 25%, respectively, of total assets of the Company. For the year ended December 31, 2012, HDVIS and HDVAS comprise 60% and 35%, respectively, of total revenues and 61% and 25%, respectively, of total assets of the Company.

(2) Summary of Significant Accounting Policies

(a) Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles 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.

(b) Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

(c) Cash and Cash Equivalents

Included in cash and cash equivalents are cash balances and highly liquid investments with an original maturity of three months or less.

(d) Cash Required to be Segregated under Federal or Other Regulations

Cash segregated in a special bank account for the exclusive benefit of customers under Rule 15c3‑3 of the SEC was $1,856,321 and $3,148,347 as of December 31, 2013 and 2012, respectively.

6

HDV HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(e) Fair Values of Assets and Liabilities

The Company applies the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures (ASC 820), for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements on a recurring basis. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC 820 requires the disclosure of the inputs used to develop the fair value of all nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis.

ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that most observable inputs be used when available. Observable inputs are used by the market participants in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflects the Company’s assumptions that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In instances where the determination of the fair value measurement is based on inputs from more than one level of the fair value hierarchy, the entire fair value measurement is classified based on the lowest level input that is significant to the fair value measurement in its entirety.

The hierarchy is measured in three levels based on the reliability of inputs:

Level 1 – Valuations based on quoted prices in active markets for identical assets as of the reporting date.

Level 2 – Valuations based on pricing inputs that are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date.

Level 3 – Valuations derived from other valuation methodologies, including pricing models, discounted cash flow models and similar techniques. Level 3 valuations incorporate certain assumptions and projections that are not observable in the market and significant professional judgment in determining the fair value assigned to such assets or liabilities.

The carrying amounts of the Company’s financial instruments approximate fair value as of December 31, 2013 and 2012 because of the short maturity of these instruments. Also see note 10 regarding the Company’s debt and its fair value.

(f) Deferred Financing Costs and Amortization

Legal fees and other costs incurred to obtain debt financing are capitalized and amortized over the terms of the related debt using the straight‑line method, which approximates the effective interest method. Deferred financing costs are recorded net of accumulated amortization. The accumulated amortization was $352,102 and $1,034,921 as of December 31, 2013 and 2012, respectively. The prior year deferred financing costs were written off as a result of the retirement of the related debt resulting in a loss of $3,704,166 which is included in other expense in the consolidated statement of operations. See note 10.

(g) Property, Equipment and Leasehold Improvements

Property, equipment and leasehold improvements are recorded at cost, net of accumulated depreciation and amortization. Depreciation of property and equipment is recognized on a straight‑line basis using

7

HDV HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

estimated useful lives, which generally range from 3 to 10 years. Leasehold improvements are amortized over the lesser of the estimated useful life of the improvement or the remaining term of the lease. See note 3.

(h) Goodwill

Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Goodwill is reviewed for impairment at least annually, at September 30, and when a triggering event occurs between annual impairment tests. When assessing goodwill and intangible assets with indefinite lives for potential impairment, management considers whether the value of the asset has been impaired, by evaluating if various factors (including current operating results, anticipated future results and cash flows, and relevant market and economic conditions) indicate a possible impairment and, if appropriate, compares the carrying amount of the asset to its fair value.

In September 2011, the FASB issued Accounting Standards Update (ASU) No. 2011‑08 which amended ASC Topic 350. This amendment allows an entity to first assess relevant qualitative factors in order to determine whether it is necessary to perform the two‑step quantitative goodwill impairment test otherwise required under ASC 350. In effect, the amendment eliminates the need to calculate the fair value of a reporting unit in connection with the goodwill impairment test unless the entity determines, based on the qualitative assessment, that it is more likely than not that the reporting unit’s fair value is less than its carrying amount. As permitted, the Company adopted this amendment during 2012 and its adoption did not have a material effect on the Company’s financial position, results of operations or cash flows.

In July 2012, the FASB issued ASU 2012‑02 which amended ASC Topic 350. This amendment allows an entity to make a qualitative assessment to determine whether it is more likely than not that an indefinite‑lived intangible asset, other than goodwill, is impaired. If an entity concludes, based on an evaluation of all relevant qualitative factors, that it is not more likely than not that the fair value of an indefinite‑lived intangible asset is less than its carrying amount, it will not be required to perform the quantitative impairment for that asset. The ASU is effective for impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. As permitted, the Company early adopted this amendment during 2012 and its adoption did not have a material effect on the Company’s financial position, results of operations or cash flows.

No impairment loss was recorded in 2013 and 2012. See note 5.

(i) Amounts Due on Clearing Transactions

The Company remits customer funds on certain clearing transactions on a settlement‑date basis rather than on a trade‑date basis. Under the settlement‑date basis of the remittance, the Company holds customer funds from the trade date until the time at which the trades are cleared by the product sponsor (not to exceed three business days).

(j) Income Taxes

The Company files a consolidated federal income tax return for its subsidiaries. The Company also files combined state income tax returns in certain states. The Company accounts for income taxes in accordance with ASC 740, Accounting for Income Taxes, resulting in two components of income tax expense: current and deferred. Current income tax expense approximates taxes to be paid or refunded for the current period and includes income tax expense related to the Company’s uncertain tax positions, if any. The Company determines deferred income taxes using the balance sheets method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the

8

HDV HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

book and tax bases of assets and liabilities, and recognizes enacted changes in tax rates and laws in the period in which they occur. Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are recognized subject to management’s judgment that realization is more likely than not. A tax position that meets the “more‑likely than‑not” recognition threshold is measured to determine the amount of benefit to recognize. The tax position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon settlement. Interest and penalties are recognized as a component of other expense.

(k) Commitments and Contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.

(l) Revenue Recognition

Commission revenue and related commission expense are recognized on a trade‑date basis. Trailers (12b‑1 funds) are earned on investments held, on a continuous basis, with product sponsors. Each month, trailers are accrued on investments held within the month.

Portfolio management fees are generally received quarterly based on total assets managed in accordance with the investment advisory agreement but are recognized as earned on a pro rata basis over the term of the contract. All related portfolio management fees payable are recognized on the same basis.

Revenue and related expense from annual regulatory license renewal fees is deferred and recognized on a straight line basis over the course of the license year. Deferred expenses and unearned income are recorded in the consolidated statements of financial condition.

(m) Reclassifications

Certain reclassifications have been made to the prior period’s, financial statements to conform to the current period’s presentation.

(n) Other Comprehensive Income

For the period ended December 31, 2013, the Company had no items of other comprehensive income.

(o) Recent Accounting Pronouncements

In February 2013, the FASB issued ASU No. 2013‑02, Comprehensive Income (Topic 220), that requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. An entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For nonpublic entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2013. Early adoption is permitted. The Company adopted ASU 2013‑02 on January 1, 2013. As the amended guidance only clarified the presentation of such items but did not change their nature, recognition, measurement or reclassification requirements, the adoption did not have an impact on the Company’s financial condition, results of operations and cash flows.

9

HDV HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(3) Property, Equipment and Leasehold Improvements

Property, equipment and leasehold improvements consisted of the following at December 31, 2013 and 2012:

				2013		2012
Property and leasehold improvements			$	1,863,573	$	300,030
Furniture and equipment				5,149,797		4,417,912
				7,013,370		4,717,942
Accumulated depreciation and
	amortization			(2,716,807)		(1,374,477)
		Total	$	4,296,563	$	3,343,465

(4) Related‑Party Transaction

H.D. Vest, Inc. has a professional services agreement for financial and management consulting services with an equityholder of HDV Holdings, LLC. Fees due under the agreement are payable on a quarterly basis in advance and are based on a percentage of the amount invested by the equityholder. Total fees and expenses paid under this agreement during 2013 and 2012 were $619,773 and $637,928, respectively.

(5) Goodwill and Intangible Assets

The purchase of the outstanding shares of common stock of H.D. Vest, Inc. generated goodwill and intangible assets of $90,841,706 and $108,388,907, respectively. The goodwill consists largely of intangible assets that do not qualify for separate recognition. During 2012, a remeasurement of deferred tax liabilities resulted in additional goodwill of $2,378,328.

At December 31, 2013 and 2012, the acquired intangible assets are as follows:

			2013
			Weighted
			average		Gross
			amortization		carrying		Accumulated		Net carrying
			period (years)		amount		amortization		amount
Amortizing intangible assets:
	Advisor relationships		12	$	41,287,866	$	7,741,474	$	33,546,392
	Sponsor relationships		13		4,562,456		789,656		3,772,800
	Proprietary software		8		12,000,000		3,375,000		8,625,000
	Other assets		8		9,882,511		5,489,273		4,393,238
		Total			67,732,833		17,395,403		50,337,430
Non amortizing intangible assets:
	Trade name/trademarks								40,656,074
		Grand total						$	90,993,504

10

HDV HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

			2012
			Weighted
			average		Gross
			amortization		carrying		Accumulated		Net carrying
			period (years)		amount		amortization		amount
Amortizing intangible assets:
	Advisor relationships		12	$	41,287,866	$	4,300,819	$	36,987,047
	Sponsor relationships		13		4,562,456		438,698		4,123,758
	Proprietary software		8		12,000,000		1,875,000		10,125,000
	Other assets		8		9,882,511		3,324,727		6,557,784
		Total			67,732,833		9,939,244		57,793,589
Non amortizing intangible assets:
	Trade name/trademarks								40,656,074
		Grand total						$	98,449,663

Aggregate amortization expense for amortizing intangible assets was $7,456,159 and $7,951,396 for the years ended December 31, 2013 and 2012, respectively. Estimated amortization expense for the next five years is: $5,970,447 in 2014, $5,692,498 in 2015, $5,599,848 in 2016 in $5,599,848 in 2017 and $5,599,848 in 2018.

None of the goodwill recognized is expected to be deductible for income tax purposes.

(6) Dividends

For the year ended December 31, 2013, the Company paid dividends totaling $67,800,000. For the year ended December 31, 2012, the Company did not declare or pay any dividends.

(7) Treasury Stock

For the year ended December 31, 2013, the Company purchased 1 share of common stock for $128,026. The treasury stock is held at cost and the balance is reflected in additional paid-in capital in the accompanying statement of financial condition.

(8) Income Taxes

Components of income tax expense (benefit) are as follows for the years ended December 31, 2013 and 2012:

		2013		2012
Current	$	4,918,845	$	3,641,503
Deferred		(4,233,466)		(4,090,470)
	$	685,379	$	(448,967)

11

HDV HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

A reconciliation between the amount of the reported provision for income taxes and expected income tax, (computed by multiplying the statutory federal income tax rate (35%) times loss before income taxes) is as follows for the years ended December 31, 2013 and 2012:

		2013		2012
Expected provision for federal income taxes	$	447,057	$	(178,554)
State income taxes, net of federal benefits		618,400		(936,722)
Other		(380,078)		666,309
	$	685,379	$	(448,967)

The tax effects of temporary differences that give rise to deferred tax assets and liabilities at December 31, 2013 and 2012 are as follows:

				2013		2012
Deferred tax assets:
	Deferred compensation		$	10,308,821	$	11,235,027
	Other			2,728,806		79,415
		Total deferred tax assets		13,037,627		11,314,442
Deferred tax liabilities:
	Intangible assets			(33,469,639)		(36,027,330)
	Other			(743,826)		(696,416)
		Total deferred tax liabilities		(34,213,465)		(36,723,746)
		Net deferred tax liability	$	(21,175,838)	$	(25,409,304)

The Company has determined that it is not required to establish a valuation allowance for deferred tax assets, as management believes it is more likely than not that the deferred tax assets will be realized based on the Company’s prospects for generation of future taxable income.

The Company does not have any uncertain tax positions at December 31, 2013 and 2012.

12

HDV HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(9) Commitments and Contingent Liabilities

(a) Lease Obligations

The Company leases office space and other equipment under capital and operating leases expiring at various dates through 2023. Minimum future rental payments required under such leases that have initial or remaining noncancelable lease terms in excess of one year at December 31, 2013 are as follows:

					Operating		Capital
					leases		leases
Years ending December 31:
	2014			$	1,656,442	$	39,612
	2015				1,703,488		39,612
	2016				1,740,025		39,612
	2017				1,776,562		10,824
	2018 and thereafter				11,179,567		0
				$	18,056,084		129,660
	Less amount representing interest						22,035
		Present value of minimum capital
			lease payments			$	107,625

Total rental expense under operating leases was $1,757,965 and $1,909,690 for the years ended December 31, 2013 and 2012, respectively, is included in occupancy expense and equipment expense in the consolidated statements of operations. The office space operating leases contain escalation clauses. Rent is recognized on a straight-line basis over the term of each lease including any periods of free rent. These leases contain renewals for one additional period for five years.

The gross and net of accumulated amortization amounts of equipment recorded under capital leases in 2013 were $151,707 and $107,625, respectively.

The gross and net of accumulated amortization amounts of equipment recorded under capital leases in 2012 were $151,707 and $129,245, respectively.

The amortization of assets held under capital leases is included with depreciation expense.

(b) Litigation

In the normal course of business, there are various lawsuits, claims, and contingencies pending against the Company, including governmental and self‑regulatory organization inquiries, investigations and proceedings. In accordance with ASC 450, Contingencies, the Company has established provisions for estimated losses from pending lawsuits, claims, investigations and proceedings. Although the ultimate outcome of the various matters cannot be ascertained at this point, it is the opinion of management, after consultation with counsel, that the resolution of the foregoing matters will not have a material adverse effect on the financial position of the Company, taken as a whole. Such resolution may, however, have a material effect on the results of operations or cash flows in any future period, depending on the level of income for such period. Claims and litigation costs are presented net of insurance recoveries.

13

HDV HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(c) Other Contingencies

Some contracts that the Company enters into in the normal course of business include indemnification provisions that obligate the Company to make payments to the counterparty or others if certain events occur. These contingencies generally relate to changes in the value of underlying assets, liabilities, or equity securities or upon the occurrence of events, such as an adverse litigation judgment or an adverse interpretation of the tax law. The indemnification clauses are often standard contractual terms and were entered into in the normal course of business based on an assessment that the risk of loss would be remote. Since there are no stated or notional amounts included in the indemnification clauses and the contingencies triggering the obligation to indemnify have not occurred and are not expected to occur, the Company is not able to estimate the maximum potential amount of future payments under these indemnification clauses. There are no amounts reflected in the consolidated statements of financial condition as of December 31, 2013 and 2012 related to these indemnification clauses.

(10) Debt

Debt at December 31, 2013 and 2012 consists of the following:

					2013		2012
Term loan commitment ($77,000,000 principal)
	Interest at a base rate plus an applicable margin determined
		by the agreement (7% as of December 31, 2012)
	Payable quarterly
	Guaranteed and secured by certain assets of affiliates
		principal due October 3, 2017		$	—	$	74,112,500
Senior subordinated note ($48,000,000 principal)
	Interest at 14% per annum (12% in cash in arrears and 2%
		in kind)
	Payable quarterly
	Guaranteed and secured by certain assets of affiliates
		principal due April 3, 2018			—		49,230,220
Term loan commitment ($121,000,000 principal)
	Interest at a base rate plus an applicable margin determined
		by the agreement (5.75% as of December 31, 2013)
	Payable quarterly
	Guaranteed and secured by certain assets of affiliates
		principal due December 18, 2018			119,487,500		—
Term loan commitment ($54,000,000 principal)
	Interest at a base rate plus an applicable margin determined
		by the agreement (9.25% as of December 31, 2013)
	Payable quarterly
	Guaranteed and secured by certain assets of affiliates				54,000,000		—
		principal due June 18, 2019
			Total long-term debt		173,487,500		123,342,720
Less current installments					3,025,000		3,850,000
			Debt, excluding current installments	$	170,462,500	$	119,492,720

14

HDV HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

In 2011, the Company entered into a Revolving Credit agreement with a commercial bank that permits the Company to borrow through October 3, 2016 up to $15,000,000, bearing interest at a base rate plus an applicable margin determined by the agreement. The Company must pay an annual commitment fee of 1/2 of 1% on the unused portion of the commitment. This facility was retired during 2013.

In 2013, the Company entered into a Revolving Credit agreement with a third party that permits the Company to borrow through December 18, 2018 up to $15,000,000, bearing interest at a base rate plus an applicable margin determined by the agreement. The Company must pay an annual commitment fee of 1/2 of 1% on the unused portion of the commitment. At December 31, 2013, the Company had $15,000,000 available under this facility.

Proceeds from debt issued during 2013 were used, in part, to retire the debt outstanding at December 31, 2012.

The debt agreements contain various restrictions including those on working capital, assets under management, equity contributions, indebtedness, liens, acquisitions, and dispositions. At December 31, 2013, the Company was in compliance with all debt covenants.

Aggregate scheduled principal maturities of debt for each of the next five years are as follows:

Year ending December 31:
	2014	$	3,025,000
	2015		3,025,000
	2016		3,025,000
	2017		3,025,000
	2018		107,387,500
	2019 and thereafter		54,000,000
		$	173,487,500

Management considers the book value of the Company’s debt to approximate its fair value at December 31, 2013 and 2012 based on market rates available for debt with similar terms and risk.

(11) Employee Benefit Plans

Employees of the Company are eligible to participate in the following plans sponsored by the Company:

(a) 401(k) Plan

The Company maintains a qualified retirement plan commonly referred to as a 401(k) Plan which is a defined contribution tax‑deferred savings plan in which all employees of the Company and its subsidiaries are eligible to participate. Total expense for the 401(k) Plan was $727,197 and $740,955 for the years ended December 31, 2013 and 2012, respectively.

(b) Bonus Plan

Certain employees of the Company and its subsidiaries are eligible to receive incentive compensation. Total incentive compensation expense was $2,985,952 and $2,016,029 for the years ended December 31, 2013 and 2012, respectively.

15

HDV HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(c) Health and Welfare Plans and Other Benefits

The Company and its subsidiaries offers health and welfare plans as well as other benefits in which all employees of the Company are eligible to participate. Total expense for the health and welfare plans and other benefits was $2,498,376 and $2,322,810 for the years ended December 31, 2013 and 2012, respectively.

(12) Statement of Cash Flows

Interest payments for the years ended December 31, 2013 and 2012 were $10,610,387 and $11,455,946, respectively. Income taxes paid for the years ended December 31, 2013 and 2012 were $5,951,908 and $3,233,942, respectively.

(13) Subsequent Event

The Company has evaluated subsequent events from the statement of financial condition date through April 30, 2014, the date at which the financial statements were available to be issued. The Company determined that there were no such items to be disclosed.

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