<PAGE>
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1998
Commission file number: 0-22629
UNIFIED FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 35-1797759
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
429-431 North Pennsylvania Street
Indianapolis, Indiana 46204-1873
(Address of principal executive offices) (Zip code)
Issuer's telephone number, including area code: (317) 634-3301
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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 [ ]
On November 13, 1998, the registrant had 1,593,404 shares of Common
Stock, $.01 par value, outstanding.
<PAGE>
<PAGE>
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements: (unaudited) 3
Consolidated Balance Sheets 3
Consolidated Statements of Income 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management Discussion and Analysis of Financial Condition and
Results of Operation 18
Overview 18
Comparison of Results for the Nine Months Ended September 30, 1998
and 1997 19
Comparison of Results for the Quarters Ended September 30, 1998 and
1997 20
Liquidity and Capital Resources 21
Year 2000 Compliance 22
PART II. OTHER INFORMATION 25
Item 1. Legal Proceedings 25
Item 2. Changes in Securities and Use of Proceeds 25
Item 3. Defaults Upon Senior Securities 25
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 26
SIGNATURES 28
EXHIBIT INDEX 29
</TABLE>
-2-
<PAGE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
UNIFIED FINANCIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
Sept. 30, 1998 Dec. 31, 1997
-------------- -------------
(unaudited)
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 9,367,300 $ 605,654
Investment in securities 14,556 -
Investments in affiliated mutual funds 375,134 520,334
Investments in non-affiliated mutual funds 184,619 187,603
Note receivable, affiliated company - 50,000
Note receivable - 4,502
Accounts receivable (net of allowance for doubtful
accounts of $2,041 for 1998 and 1997, respectively) 1,865,849 1,505,600
Prepaid and sundry assets 91,598 141,042
----------- ----------
Total current assets 11,899,056 3,014,735
----------- ----------
FIXED ASSETS, AT COST:
Equipment and furniture (net of accumulated
depreciation of $889,404 and $822,293, respectively) 592,021 590,059
Capitalized leased equipment (net of accumulated
depreciation of $74,937 and $68,058, respectively) 113,165 74,762
----------- ----------
Total fixed assets 705,186 664,821
----------- ----------
NON-CURRENT ASSETS:
Investments in debt securities 994,170 958,604
Deferred cost (net of accumulated amortization
of $233,594 and $6,900, respectively) 355,851 2,100
Notes receivable, net of current maturity - 8,090
Goodwill (net of accumulated amortization
of $8,693 and $0, respectively) 1,556,109 -
Equity and investment in affiliate - 284,994
Other non-current assets 23,531 -
----------- ----------
Total non-current assets 2,929,661 1,253,788
----------- ----------
TOTAL ASSETS $15,533,903 $4,933,344
=========== ==========
See notes to consolidated financial statements.
</TABLE>
-3-
<PAGE>
<PAGE>
<TABLE>
UNIFIED FINANCIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
Sept. 30, 1998 Dec. 31, 1997
-------------- -------------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Current portion of capitalized leases $ 50,928 $ 30,090
Current portion of bank line-of-credit 30,719 30,719
Accounts payable and accrued expenses 1,024,578 617,697
Accrued compensation and benefits 570,855 162,273
Payable to broker/dealers 247,017 274,046
Income taxes payable 4,648 14,355
Deferred income taxes 59,918 24,700
Other liabilities 818,658 740,055
----------- ----------
Total current liabilities 2,807,317 1,893,875
----------- ----------
LONG-TERM LIABILITIES:
Long-term capitalized lease obligations, net of
current portion 51,386 21,374
Bank line-of-credit, net of current portion 298,537 92,158
Deferred income taxes 800 800
----------- ----------
Total long-term liabilities 350,723 114,332
----------- ----------
TOTAL LIABILITIES 3,158,040 2,008,207
----------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock, par value $.01 per share, authorized -
10,000,000 shares; outstanding 1,585,004 shares
and 1,027,778 shares, respectively 20,350 14,778
Preferred Stock Series A, par value $.01 per share,
authorized - 0 and 10,000 shares, respectively;
outstanding 0 and 8,486 shares, respectively - 8,486
Preferred Stock Series B, par value $.01 per share,
authorized - 0 and 10,000 shares, respectively;
outstanding 0 and 8,583 shares, respectively - 8,583
Preferred Stock Series C, par value $.01 per share,
authorized - 2,100 shares; outstanding 1,672
and 0 shares, respectively 1,672 -
Additional paid-in capital 11,385,171 1,977,766
Retained earnings 968,670 915,502
----------- ----------
TOTAL STOCKHOLDERS' EQUITY 12,375,863 2,925,137
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $15,533,903 $4,933,344
=========== ==========
See notes to consolidated financial statements.
</TABLE>
-4-
<PAGE>
<PAGE>
<TABLE>
UNIFIED FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
<CAPTION>
Nine Months Ended Sept. 30, Three Months Ended Sept. 30,
--------------------------- ----------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUE:
Brokerage $2,541,340 $1,856,475 $ 937,163 $ 649,918
Fund services 1,074,505 1,015,451 528,729 387,882
Investment advisory 2,486,627 1,510,491 1,142,912 609,935
Trust and administration services 900,046 490,396 338,457 105,244
Software and programming services 24,153 126,687 7,651 31,879
Other income 375,923 90,447 198,517 (18,642)
---------- ---------- ---------- ----------
Total revenue 7,402,594 5,089,947 3,153,429 1,766,216
---------- ---------- ---------- ----------
COST OF SALES:
Brokerage revenue charges 1,180,369 982,886 846,959 343,351
Fund services revenue charges 374,410 244,472 125,410 82,472
Investment fees 103,121 63,299 36,848 26,606
Administration fees 59,692 31,745 15,863 6,455
---------- ---------- ---------- ----------
Total cost of sales 1,717,592 1,322,402 1,025,080 458,884
---------- ---------- ---------- ----------
Gross profit 5,685,002 3,767,545 2,128,349 1,307,332
---------- ---------- ---------- ----------
EXPENSES:
Employee compensation and benefits 2,263,440 2,182,180 922,362 654,533
Brokerage operating charges 345,704 221,534 158,558 87,340
Fund services operating charges 428,080 189,403 116,364 57,275
Mail and courier 72,842 37,673 23,815 16,289
Telephone 102,339 81,482 44,640 23,688
Equipment rental and maintenance 99,369 65,395 26,668 34,860
Occupancy 218,421 104,538 74,958 7,094
Depreciation and amortization 268,198 156,006 126,496 71,164
All other 828,921 419,348 321,386 141,129
---------- ---------- ---------- ----------
Total expenses 4,627,314 3,457,559 1,815,247 1,093,372
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS 1,057,688 309,986 313,102 213,960
---------- ---------- ---------- ----------
OTHER INCOME (LOSS):
Unrealized gain or (loss) on securities (27,028) 1,098 (57,147) (42,952)
Realized gain on securities 6,451 23,898 201 -
Results of loss (gain) of affiliate (39,945) 54,722 - (25,208)
Gain on sale/disposal of fixed assets 5,141 1 -
---------- ---------- ---------- ----------
Total other income (loss) (55,381) 79,718 (56,945) (68,160)
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 1,002,307 389,704 256,157 145,800
INCOME TAXES:
Current 1,935 - 31 (3,458)
Deferred (6,080) 16,000 - 14,373
---------- ---------- ---------- ----------
NET INCOME $1,006,452 $ 373,704 $ 256,126 $ 134,885
========== ========== ========== ==========
Preferred dividends $ 65,844 $ 101,854 $ - $ 34,324
---------- ---------- ---------- ----------
Income available to common stockholders $ 940,608 $ 271,850 $ 256,126 $ 100,561
========== ========== ========== ==========
Weighted average common shares outstanding:
Basic 1,274,761 608,558 1,513,603 616,558
Diluted 1,817,524 1,027,776 1,817,524 1,027,776
Earnings per share of common stock:
Basic $ 0.74 $ 0.45 $ 0.17 $ 0.16
========== ========== ========== ==========
Diluted $ 0.52 $ 0.26 $ 0.14 $ 0.10
========== ========== ========== ==========
See notes to consolidated financial statements.
</TABLE>
-5-
<PAGE>
<PAGE>
<TABLE>
UNIFIED FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
<CAPTION>
Nine Months Ended Sept. 30, Three Months Ended Sept. 30,
--------------------------- ----------------------------
1998 1997 1998 1997
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,006,452 $ 373,704 $ 256,126 $ 134,885
Adjustments to reconcile net income to net
cash provided (used) in operating activities:
Deferred income taxes (6,080) 4,210 - 4,210
Provision for depreciation and amortization 268,198 156,006 105,747 71,164
Amortization of bond discount (450) - (2) -
Unrealized gain/(loss) on investments (27,028) 1,098 (21,888) 1,098
Results of affiliated company 39,945 (54,722) - 25,207
Loss (gain) on sale/disposal of fixed assets (5,141) - 24,978 44,050
Excess of net assets of United Investment
Advisers, Inc. (814,347) - - -
(Increase) decrease in operating assets:
Receivables (97,202) (335,321) (197,337) (277,849)
Prepaid and sundry assets 49,444 (651) 54,109 (14,570)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 125,090 134,084 95,968 249,947
Accrued compensation and benefits 396,376 98,960 278,557 27,423
Payable to broker/dealers (27,029) 511 (90,642) 26,885
Accrued income taxes (8,718) 12,205 89 21,405
Other liabilities (3,546) 412,504 (296,820) (323,993)
----------- --------- ----------- ---------
Net cash from/(used) in operating activities 895,964 802,588 172,146 (10,138)
----------- --------- ----------- ---------
INVESTING ACTIVITIES:
Purchase of fixed assets (195,500) (125,971) (130,846) (68,584)
Proceeds from sale of fixed assets 12,379 128,851 - -
Proceeds from note receivable - 24,752 - (2,744)
Goodwill re: acquisition of Fiduciary Counsel, Inc. (1,564,802) - (1,564,802) -
Excess of net assets of Fiduciary Counsel, Inc. 960,359 - 960,359 -
Resource Benefit Planners, Inc. and EMCO Estate
Management Company, Inc. acquisitions (345) - 1,241 -
Investment in mutual funds 133,628 (424,561) 74,570 (105,784)
Investment in debt securities (35,116) (154,801) (129,993) (39,159)
----------- --------- ----------- ---------
Net cash used in investing activities (689,397) (551,730) (789,471) (218,271)
----------- --------- ----------- ---------
FINANCING ACTIVITIES:
Dividends to preferred stockholders (65,844) (101,854) - (34,324)
Dividends to Health Financial, Inc. common stockholder - (157,007) - -
Net proceeds from issuance of common stock 9,941,634 77,815 1,317,525 75,262
Issuance of Preferred Stock Series C 210,000 - - -
Redemption of Preferred Stock Series A and Series B (1,706,900) - - -
Repayment of borrowing (17,920) - (7,680) -
Borrowing under bank line-of-credit 224,299 - - -
Borrowing of capitalized leases - 93,320 - 69,130
Repayment of capitalized lease obligations (30,190) (36,785) (8,332) (11,373)
----------- --------- ----------- ---------
Net cash provided(used) in financing activities 8,555,079 (124,491) 1,301,513 98,695
----------- --------- ----------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS 8,781,546 126,367 720,927 (127,714)
CASH AND CASH EQUIVALENTS
Beginning of period 605,554 538,030 8,646,373 792,111
----------- --------- ----------- ---------
End of Period $ 9,367,300 $ 664,397 $ 9,367,300 $ 664,397
=========== ========= =========== =========
SUPPLEMENTARY INFORMATION
Interest paid $ 34,988 $ 6,232 $ 16,274 $ 2,274
=========== ========= =========== =========
Income taxes paid $ 10,712 $ 17,085 $ - $ 300
=========== ========= =========== =========
See notes to consolidated financial statements.
</TABLE>
-6-
<PAGE>
<PAGE>
UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. NATURE OF OPERATIONS
The accompanying consolidated financial statements include
the accounts of Unified Financial Services, Inc., a Delaware
corporation ("Unified" or the "Company") and its subsidiaries:
Unified Management Corporation; Unified Fund Services, Inc.;
Health Financial, Inc.; First Lexington Trust Company; Resource
Benefit Planners, Inc.; Unified Investment Advisers, Inc.;
Unified Internet Services, Inc.; EMCO Estate Management Company,
Inc.; and Fiduciary Counsel, Inc. Unless the context otherwise
indicates, references to "Unified" or the "Company" include
Unified and its subsidiaries.
Unified Management Corporation, an Indiana corporation
("Management"), is a registered broker dealer under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and is a
member of the National Association of Securities Dealers, Inc.
("NASD"). Management specializes in mutual fund distribution and
shareholder servicing liaison providing such services as: mutual
fund distribution, distribution services and support; mutual fund
conversion support for broker-dealer requirements; mutual fund
trades; individual retirement account ("IRA") custodial services;
12b-1 maintenance, accounting and marketing support; securities
(stock and bond) brokerage; brokerage clearing and execution
services; consolidated brokerage statement processing; mutual fund
and brokerage software development; asset allocation and
performance measurement services and statement processing; and
retirement account record keeping. Management, as the Company's
broker-dealer subsidiary, functions as the distributor of the
Unified Funds, a family of four no-load mutual funds sponsored by
Unified Investment Advisers, Inc., and also provides specialty
services for certain customers of the Unified Funds in addition to
its discount brokerage activities. The brokerage subsidiary
clears, on a fully-disclosed basis, through U.S. Clearing, a
division of Fleet Securities, Inc., and Pershing, a division of
Donaldson, Lufkin & Jenrette Securities Corporation.
Unified Fund Services, Inc., an Indiana corporation
("Services"), is a registered transfer agent and mutual fund
services company, and provides transfer agency, fund accounting,
administrative and start-up services for mutual funds. Services'
primary services include: mutual fund transfer agency and
shareholder recordkeeping; shareholder services support; mutual
fund start-up services; administration; fund accounting;
compliance; asset allocation services; statement processing;
retirement plan services; and fulfillment. Services also provides
all of the mutual fund services for the Unified Funds portfolios,
and performs other clerical functions for the Unified Funds in
addition to typical mutual fund services.
Health Financial, Inc., a Kentucky corporation ("Health"),
is a registered investment adviser formed in 1986, and manages
approximately $375 million in assets for both individuals and
institutions, principally private pension plans and foundations.
Health specializes in an investment management philosophy that
features a balanced discipline of asset allocation utilizing no-
load index funds over seven asset classes, including an S&P 500
index, a large cap U.S. stock index, a small cap U.S. bond index,
an international stock index, a REIT index and cash.
First Lexington Trust Company, a Kentucky corporation
("Lexington"), is a non-bank trust company specializing in
retirement plans and currently maintains approximately $65
-7-
<PAGE>
<PAGE>
million in assets under management. Directed by its trust
investment committee, the Lexington-based Kentucky trust company
provides the same investment philosophy as its sister company,
Health, while providing full trust powers and retirement plan
services to its customer base. Chartered in 1994, Lexington is
regulated by the Kentucky Commissioner of Banking under the
Department of Financial Institutions, Commonwealth of Kentucky.
On March 10, 1998, the Company acquired Resource Benefit
Planners, Inc. ("Benefit Planners"). Benefit Planners, a Kentucky
corporation, is a professional services firm that provides
consulting, recordkeeping and trust accounting services for
qualified retirement and cafeteria plans. In connection with such
acquisition, the Company issued 12,000 shares of common stock,
$0.01 par value, of the Company (the "Common Stock") in exchange
for all the outstanding capital stock of Benefit Planners. As of
March 10, 1998, Benefit Planners reported total assets of $282,724
and shareholder's equity of $37,543.
On March 31, 1998, Unified Investment Advisers, Inc., a
Delaware corporation ("Advisers"), became a wholly owned
subsidiary of the Company upon surrender to Advisers by all
stockholders of Advisers (other than the Company) of their capital
stock of Advisers. The stock surrender occurred upon approval of
the shareholders of the Unified family of mutual funds and upon
receipt of the required regulatory approval. Advisers, formerly
known as Vintage Advisers, Inc., provides mutual fund advisory
services for the Unified Funds, the Company's no-load mutual fund
family, and is an important component in the tax-free
reorganization strategy for consolidating small mutual fund
assets. Advisers also retains the exclusive rights to the
proprietary V.O.I.C.E. product (Vision for Ongoing Investment in
- - -
Charity and Education), which Unified believes is a significant
- -
and valuable asset for the future gathering of mutual fund assets.
As of March 31, 1998, Advisers reported total assets of $617,773
and shareholders' equity of $(469,548).
During February 1998, the Company formed Unified Internet
Services, Inc., an Indiana corporation ("Unified Internet
Services"), to develop the Company's website, website television
programming and its proprietary search engine for the financial
services industry. It currently is anticipated that Unified
Internet Services will develop the Company's other industry-
related internet products, including an interactive "switch" that
will allow consumers access to the Company's products via their
television, cable and satellite stations. The Company anticipates
development of such products to be completed by the end of 1999.
On August 21, 1998, the Company acquired Fiduciary Counsel,
Inc. ("Fiduciary Counsel"). Fiduciary Counsel, a Delaware
corporation that is based in New York City, was founded in 1931
and provides professional investment management to individuals and
institutions on a customized basis. This acquisition will be
accounted for under the purchase method of accounting. In
connection with the acquisition, the Company issued 36,110 shares
of Common Stock and paid $800,835 in cash in exchange for all the
capital stock of Fiduciary Counsel. The excess of cost over fair
value of net assets acquired was $1,564,802. Goodwill will be
amortized on a straight-line method over 15 years. As of
August 21, 1998, Fiduciary Counsel reported total assets of
$738,157 and total stockholders' equity of $234,783.
On August 21, 1998, the Company completed the acquisition of
all of the assets and certain of the liabilities of EMCO Estate
Management Company, Inc. ("EMCO"). Such assets and liabilities
were acquired by a wholly owned subsidiary of the Company that,
upon consummation of the transaction, was renamed EMCO Estate
Management Company, Inc.
-8-
<PAGE>
<PAGE>
EMCO, a Delaware corporation, is a wealth management firm based in
New York City. Since 1921, EMCO has been providing fee only
services to individuals, families and fiduciaries. EMCO
professionals assist clients in a variety of disciplines,
including the following: financial, tax and estate planning;
family office services such as budgeting, bill paying and payroll
administration; trust administration; and income tax return
preparation and filing for individuals, trusts, partnerships and
small businesses. The acquisition will be accounted for under the
pooling-of-interests method of accounting. In connection with such
transaction, the Company issued 11,000 shares of Common Stock in
exchange for all of the assets and certain of the liabilities of
EMCO. As of August 21, 1998, EMCO reported total assets of
$67,230 and stockholder's equity of $(110,212).
The unaudited interim financial statements of the Company
have been prepared in accordance with generally accepted
accounting principles and with the instructions to Form 10-QSB and
Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments considered necessary
for a fair presentation of the unaudited interim consolidated
financial statements have been included herein and are of a normal
recurring nature. The 1998 unaudited consolidated financial
statements of the Company give effect to the acquisition by the
Company of Benefit Planners on March 10, 1998 and EMCO on
August 21, 1998, which transactions were accounted for under the
pooling-of-interests method of accounting. Due to the
immateriality of the financial condition and results of operations
of Benefit Planners and EMCO to the Company, the consolidated
financial statements of the Company as of and for the three years
ended December 31, 1997 have not been restated to give effect to
the acquisitions of Benefit Planners and EMCO. The results of
operations of Benefit Planners and EMCO have been included in the
Company's consolidated financial statements since January 1, 1998.
The results of operations for the nine months ended September 30,
1998 are not necessarily indicative of the results that may be
obtained for the full year ending December 31, 1998.
2. PROPOSED ACQUISITIONS
On October 12, 1998, Unified executed a letter of intent
with Fully Armed Productions, Inc., a Kentucky corporation ("Fully
Armed Productions"), to acquire all of the capital stock of Fully
Armed Productions in exchange for 18,182 shares of Common Stock.
The proposed transaction will be governed by a definitive
agreement to be negotiated and executed by the parties by
December 31, 1998, unless otherwise agreed. Fully Armed
Productions provides creative and technological services for the
television, radio and Internet industries through its specialty
production capabilities. The acquisition is intended to be
accounted for under the pooling-of-interests method of accounting.
As of September 30, 1998, Fully Armed Productions reported total
assets of $37,458 and shareholders' equity of $19,065.
On October 16, 1998, Unified entered into an agreement to
acquire AmeriPrime Financial Services, Inc. ("AmeriPrime") and its
subsidiary, AmeriPrime Financial Securities, Inc. ("AFSI"), each a
Texas corporation headquartered in Southlake, Texas. AmeriPrime
provides administrative, regulatory, compliance and start-up
support services to investment advisors, banks and other money
managers in their proprietary mutual fund efforts. AmeriPrime
provides mutual fund distribution through AFSI, a NASD broker-
dealer registered in all 50 states. AmeriPrime currently supports
28 mutual funds consisting of over $500 million in assets under
management. In connection with the acquisition, Unified will
issue 410,000 shares of
-9-
<PAGE>
<PAGE>
Common Stock in exchange for all of the capital stock of AmeriPrime.
The acquisition is intended to be accounted for under the pooling-
of-interests method of accounting. As of September 30, 1998,
AmeriPrime reported total assets of $267,173 and shareholder's
equity of $203,739.
On October 16, 1998, Unified entered into an agreement to
acquire Equity Underwriting Group, Inc., a Kentucky corporation
headquartered in Lexington, Kentucky ("Equity Underwriting").
Equity Underwriting, a holding company for Equity Insurance
Managers, Inc., Equity Insurance Managers of Illinois, LLC, 21st
Century Claims Service, Inc., Equity Insurance Administrators,
Inc. and Z-Net Communications, Inc., provides, through its
subsidiaries, specialty insurance products as a general agent or
as a broker and currently provides services in the States of
Kentucky, Tennessee, West Virginia, Ohio, Indiana and Illinois.
Equity Underwriting writes insurance products for primarily niche
areas in the insurance marketplace that are considered more "non-
standard," representing a higher risk of insured. In connection
with the acquisition, Unified will issue 241,745 shares of Common
Stock in exchange for all of the capital stock of Equity
Underwriting. The acquisition is intended to be accounted for
under the pooling-of-interests method of accounting. As of
September 30, 1998, Equity Underwriting reported, on a
consolidated basis, total assets of $8,279,190 and shareholders'
equity of $(3,571,576).
On October 16, 1998, Unified entered into an agreement to
acquire Commonwealth Premium Finance Corporation, a Kentucky
corporation headquartered in Lexington, Kentucky ("CPFC"). CPFC
provides financing for the payment of premiums on insurance
coverage placed by Equity Underwriting. In connection with the
acquisition, Unified will issue 12,800 shares of Common Stock in
exchange for all of the capital stock of CPFC. The acquisition is
intended to be accounted for under the pooling-of-interests method
of accounting. As of September 30, 1998, CPFC reported total
assets of $1,716,787 and shareholders' equity of $139,162.
On October 16, 1998, Unified entered into an agreement to
acquire Commonwealth Investment Services, Inc., a Kentucky
corporation headquartered in Lexington, Kentucky ("Commonwealth
Investment"). Commonwealth Investment provides investment
services to individuals, businesses and institutions throughout
the State of Kentucky and surrounding areas through its network of
independent agents, primarily certified public accountants. In
connection with the acquisition, Unified will issue 27,500 shares
of Common Stock in exchange for all of the capital stock of
Commonwealth Investment. The acquisition is intended to be
accounted for under the pooling-of-interests method of accounting.
As of September 30, 1998, Commonwealth Investment reported total
assets of $34,130 and shareholder's equity of $34,130.
On October 16, 1998, Unified entered into an agreement to
acquire Strategic Fund Services, Inc., a Delaware corporation
headquartered in New York, New York ("Strategic"). Strategic
provides mutual fund administration services to smaller mutual
funds and fund complexes, utilizing a proprietary database. In
connection with the acquisition, Unified will issue 7,500 shares
of Common Stock in exchange for all of the capital stock of
Strategic. The acquisition is intended to be accounted for under
the pooling-of-interests method of accounting. As of
September 30, 1998, Strategic reported total assets of $10,507 and
shareholder's equity of $(16,020).
On October 31, 1998, Unified executed a letter of intent
with SBX Inc., a New Jersey corporation ("SBX"), to acquire all of
the capital stock of SBX in exchange for 363,636 shares of Common
Stock. The proposed transaction will be governed by a definitive
agreement to be
-10-
<PAGE>
<PAGE>
negotiated and executed by the parties by January 31, 1999, unless
otherwise agreed. SBX was founded in 1997 and is a member of the
NASD. Once operative, the primary business of SBX will be to
provide NanoCap(TM) securities order matching services through the
SBX system. NanoCap(TM) securities are securities issued by SEC-
reporting companies under the Exchange Act that are not listed on the
Nasdaq or an exchange. Once operational, SBX will make systems and
collect information that will allow its subscribers to post firm
orders and to match existing orders for NanoCap(TM) securities.
The acquisition is intended to be accounted for under the pooling-
of-interests method of accounting. As of September 30, 1998, SBX
reported total assets of $231,207 and shareholders' equity of
$170,471.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
---------------------
The consolidated financial statements include the accounts
of the Company, Management, Services, Health, Lexington, Benefit
Planners, Advisers, Unified Internet Services, EMCO and Fiduciary.
All intercompany transactions and balances between the Company and
its subsidiaries have been eliminated.
Effective March 10, 1998, the Company acquired Benefit
Planners in a transaction accounted for under the pooling-of-
interests method of accounting. Due to the immateriality of the
financial condition and results of operations of Benefit Planners
to the Company, the consolidated financial statements of the
Company as of and for the three years ended December 31, 1997 have
not been restated to give effect to the acquisition of Benefit
Planners. The results of operations of Benefit Planners have been
included in the Company's consolidated financial statements since
January 1, 1998. In connection with such acquisition, the Company
issued 12,000 shares of Common Stock.
Effective March 31, 1998, Advisers became a wholly owned
subsidiary of the Company upon surrender to Advisers of all the
capital stock of Advisers by all stockholders of Advisers (other
than the Company). Prior to the surrender of the capital stock to
Advisers, the Company accounted for its 33.3% ownership in
Advisers on the equity method of accounting. Advisers reported
gross revenue for the four months (Advisers' fiscal year end was
November 30 prior to its acquisition by the Company) ended
March 31, 1998 of $146,519 and loss for the period of $195,967.
As of March 31, 1998, Advisers reported total assets of $617,773
and shareholders' equity of $(469,548).
Effective August 21, 1998, the Company acquired EMCO in a
transaction accounted for under the pooling-of-interests method of
accounting. Due to the immateriality of the financial condition
and results of operations of EMCO to the Company, the consolidated
financial statements of the Company as of and for the three years
ended December 31, 1997 have not been restated to give effect to
the acquisition of EMCO. The results of operations of EMCO have
been included in the Company's consolidated financial statements
since January 1, 1998. In connection with such acquisition, the
Company issued 11,000 shares of Common Stock.
Effective August 21, 1998, the Company acquired Fiduciary
Counsel in a transaction accounted for under the purchase method
of accounting. The results of operations of Fiduciary Counsel have
been included in the Company's consolidated financial statements
since its date of
-11-
<PAGE>
<PAGE>
acquisition. In connection with such acquisition, the Company
issued 36,110 shares of Common Stock and paid $800,835 in cash.
Fees and Commissions
--------------------
The Company records revenue on the accrual basis of
accounting. For the brokerage operations, commissions and
clearing revenue are recorded on the settlement date of the
related security transactions. This does not materially differ
from recording commissions based upon trade date. The investment
advisory business revenue, as well as the investment adviser fees
earned by third party advisers, is recorded on the accrual basis.
The fees earned by the operations and paid to the sub-advisers are
based on established fee schedules and contracts. Generally, fees
may be collected from the invested assets. Thus, collection of
the fees is reasonably certain. The fund services operations
provide administrative and investment services to investment
companies and separate accounts. Revenue is recorded as it is
earned per month based upon accounts and account balances. In
connection with this, the Company earns income on the accounts
established to transfer these funds for customers.
Property and Equipment
----------------------
Property and equipment is stated at cost. Depreciation,
including the depreciation of capital leased equipment, is provided
on a straight-line or accelerated methods over the estimated
useful life of the assets for financial statement purposes.
Investments and Investment in Debt Securities
---------------------------------------------
Investments, which consists primarily of an investment in a
mutual fund (affiliated or non-affiliated), are recorded and
adjusted to the fair market value as of the date of the financial
statements and reported on the statement of operations as
unrealized gain or loss on securities. Investment in debt
securities are recorded at cost and amortized over the period to
maturity for the premium or discount from par value under
generally accepted accounting principles. Lexington is required
by the Kentucky Department of Financial Institutions to maintain a
minimum of $800,000 capital as long as trust assets under
management do not exceed $100,000,000. When trust assets under
management exceed $100,000,000, the capital requirement will be
increased by $350,000. Currently, Lexington has approximately
$65,000,000 of trust assets under management.
Income Taxes
------------
The Company files consolidated federal and state income tax
returns with its subsidiaries. Benefit Planners, prior to its
acquisition by the Company, filed as an S-corporation on the cash
basis of accounting. As a result, federal and state taxable
income and losses were passed through to its sole stockholder.
Subsequent to its acquisition by the Company, Benefit Planners
will be included in the consolidated tax returns of the Company,
which uses the accrual method of tax and accounting reporting.
The Company has adopted Statement of Financial Accounting
Standards No. 109 accounting for income taxes ("SFAS 109"). SFAS
109 requires use of the liability method of accounting for
deferred income taxes.
-12-
<PAGE>
<PAGE>
Use of Estimates
----------------
The presentation of financial statements in conformity with
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 financial statements and the
reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Statement of Cash Flows
-----------------------
For purposes of the statements of cash flows, the Company
considers all liquid investments with an original maturity of
three months or less to be cash equivalents. The Company
maintains money market investments that are not insured by the
Federal Deposit Insurance Corporation (the "FDIC") and bank
accounts that periodically exceed the FDIC insurance limit during
the year.
Financial Statement Presentation
--------------------------------
Certain amounts in the 1997 financial statements have been
reclassified to conform to the 1998 presentation.
4. OPTIONS
-------
On May 20, 1998, the stockholders of the Company adopted the
Unified Financial Services, Inc. 1998 Stock Incentive Plan (the
"Plan") which provides for the granting of stock options and other
stock-based awards. The total number of shares of Common Stock
issuable under the Plan is not to exceed 1,500,000 shares, subject
to adjustment in the event of any change in the outstanding shares
of such stock by reason of a stock dividend, stock split,
capitalization, merger, consolidation or other similar change
generally affecting stockholders of the Company. Of these
1,500,000 shares of stock, no more than 250,000 shares may be
issued to participants in the Plan in any plan year.
Under the terms of the Plan, employees, directors, advisors
and consultants of the Company and its subsidiaries will be
eligible to receive the following: (a) Incentive Stock Options;
(b) Nonqualified Stock Options; (c) Stock Appreciation Rights;
(d) Restricted Stock; (e) Restricted Stock Units; and (f)
Performance Awards.
As of October 15, 1998, the Board of Directors of the
Company had granted options to acquire 19,781 shares of Common
Stock to certain employees, directors and advisers of the Company.
Such options were fully vested on the date of the grant and have
an exercise price as follows:
a) 6,800 shares at $25.00 per share.
b) 12,981 shares at $27.50 per share.
Of such options, 6,500 are intended to qualify as Incentive
Stock Options pursuant to Section 422 of the Internal Revenue Code
of 1986, as amended.
-13-
<PAGE>
<PAGE>
5. FINANCING
---------
The Company has obtained a line of credit totaling a maximum
borrowing capacity of Five Hundred Thousand Dollars ($500,000) for
the purpose of purchasing various communication and computer
hardware and software to support future operating needs. As of
September 30, 1998, the amount outstanding under this credit
facility was $329,256. The financing converts to a four-year term
loan payable in equal monthly principal payments plus interest at
0.5% above bank prime rate. Property, supplies, inventory and
intangible assets of the Company are security for this financing.
6. COMMITMENTS AND CONTINGENCIES
-----------------------------
The Company, through its subsidiary, Management, leases its
corporate headquarters and administrative office facilities
located at 429-431 N. Pennsylvania Street, Indianapolis, Indiana,
which facility has approximately 10,820 square feet, and is leased
pursuant to an operating lease expiring in 2007 for office
facilities and equipment. The lease includes provisions for
adjustment of operating costs and real estate taxes. Such
obligations are allocated between the Company and Management based
on estimated usage. The Company also maintains administrative
offices at 2353 Alexandria Drive, Suite 100, Lexington, Kentucky;
36 East Fourth Street, The Bartlett Building, Cincinnati, Ohio;
and at 36 West 44th Street, The Bar Association Building, Suite
1310, New York, New York.
The aggregate minimum rental commitments required under
operating leases for office space and equipment at September 30,
1998 were as follows:
For the Twelve Months Ended
September 30 Lease Commitments
------------ -----------------
1999 $ 442,014
2000 448,656
2001 451,349
2002 429,112
Thereafter 1,199,291
----------
Total $2,970,422
==========
The total rental expense was $218,421 and $104,538 for the
nine months ended September 30, 1998 and 1997, respectively.
-14-
<PAGE>
<PAGE>
7. CAPITALIZED LEASE OBLIGATIONS
-----------------------------
The Company's capitalized lease obligations are payable over
a 36-month period. The following is a summary of future minimum
lease payments under capitalized lease obligations as of
September 30, 1998:
For the Twelve Months Ended
September 30 Amount
------------ --------
1999 $ 63,531
2000 43,105
2001 8,741
--------
Subtotal 115,337
Less: amount representing interest 13,063
--------
Net present value $102,314
========
The Company acquired equipment through capital lease
obligations in the amount of $0 and $24,190 during the nine months
ended September 30, 1998 and 1997, respectively.
8. CASH SEGREGATED UNDER FEDERAL REGULATION and NET CAPITAL
--------------------------------------------------------
REQUIREMENTS FOR MANAGEMENT
---------------------------
Management is subject to the Securities and Exchange
Commission (the "SEC") Uniform Net Capital Rule ("Rule 15c3-1"),
which requires the maintenance of minimum net capital, as defined
in Rule 15c3-1, of 6-2/3% of aggregate indebtedness of $50,000,
whichever is greater, and a ratio of aggregate indebtedness to net
capital of not more than 15 to 1. At September 30, 1998,
Management had net capital of $614,450, which was in excess of its
required net capital of $50,000, and a net capital ratio of 0.39
to 1.
Pursuant to Rule 15c3-3, as promulgated by the SEC,
Management calculates its reserve requirement and segregates cash
and/or securities for the exclusive benefit of its customers on a
periodic basis. The reserve requirement calculated by Management
was $0 at September 30, 1998. Balances segregated in excess of
reserve requirements are not restricted.
9. COMMON AND PREFERRED STOCK
--------------------------
Common Stock:
Acquisitions
The Company has 10,000,000 shares of Common Stock
authorized. In connection with the acquisitions described in Note
1, the Company issued the following number of shares of Common
Stock:
Company acquired Date Shares issued
---------------- --------------- -------------
Benefit Planners March 10, 1998 12,000
EMCO August 21, 1998 11,000
Fiduciary Counsel August 21, 1998 36,110
-15-
<PAGE>
<PAGE>
Private Placement Offering
On January 22, 1998, the Company commenced a private
placement offering to sell a maximum of 600,000 shares of Common
Stock. The first 400,000 shares offered were offered at a price
of $25.00 per share and, upon acceptance by the Company of
subscriptions for such 400,000 shares, the remaining 200,000
shares in the private placement were offered at a price of $27.50
for share. All of the shares of Common Stock offered by the
Company were sold on a best efforts basis. There is no public
market for any securities of the Company and there can be no
assurance that a market will develop in the future. The offering
terminated on June 30, 1998.
As of September 30, 1998, the Company had issued 437,338
shares of Common Stock pursuant to the private placement and had
reserved an additional 2,400 shares of Common Stock to be issued
pursuant to subscriptions accepted in such offering.
Preferred Stock:
As of September 30, 1998, the total preferred shares
authorized for the Company was 1,000,000 shares, par value $.01
per share, of which 102,100 shares were designated at September
30, 1998 as follows:
<TABLE>
<CAPTION>
Shares Shares Stated Par
Designated outstanding value value
---------- ----------- ----- -----
<S> <C> <C> <C> <C>
Series C Preferred Stock 2,100 1,672 $100 $0.01
Series D Preferred Stock 100,000 -0- $200 $0.01
</TABLE>
Series C Preferred Stock Issuance
In May 1998, the Company issued 2,100 shares of Series C
6.75% Cumulative Convertible Preferred Stock to certain directors,
executive officers and agents of the Company for total
consideration of $210,000. Each share of Series C Preferred Stock
is convertible, at any time at the option of the holder thereof
and without the payment of any additional consideration with
respect thereto, into 135 shares of Common Stock. As of
September 30, 1998, 428 shares of Series C Preferred Stock had
been converted into 57,780 shares of Common Stock.
Series D Preferred Stock Authorized
In July 1998, the Company authorized 100,000 shares of
Series D Junior Participating Preferred Stock. The Company has
reserved all of the shares of Series D Preferred Stock for
issuance under a Rights Agreement dated August 26, 1998 between
the Company and Services, as rights agent. On August 26, 1998,
the Board of Directors of Unified declared a dividend distribution
of one Preferred Stock Purchase Right (collectively, the "Rights")
for each outstanding share of Common Stock. The dividend
distribution was payable to the stockholders of record at the
close of business on August 26, 1998. Generally, each Right, when
exercisable, entitles the registered holder to purchase from the
Company one one-hundredth of a share of Series D Preferred Stock
at a price of $200.00 per one one-hundredth of a share.
-16-
<PAGE>
<PAGE>
Series A and Series B Preferred Stock Redemption
On April 25, 1998, the Company redeemed the outstanding
Series A and Series B Preferred Stock of the Company. Total
consideration of $1,738,326, consisting of principal and accrued
interest, was paid to the holders of the Series A and Series B
Preferred Stock in connection with the redemption of such shares.
-17-
<PAGE>
<PAGE>
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
OVERVIEW
The Company, a Delaware holding company, was organized December
7, 1989 and conducts substantially all of its operations through its
wholly owned subsidiaries. The Company's principal business is to
provide and maintain vertical integration in the financial services
industry for its subsidiaries, a "platform" that creates synergy and
revenues among its subsidiaries from the fees associated with gathering,
managing, maintaining and servicing assets under management. The
Company currently maintains approximately $1.5 billion of assets under
management and approximately $5 billion of assets under service. The
vertically integrated "platform," a subsidiary "home" for managing and
servicing virtually every kind of wealth-building asset, is primarily
accomplished through three strategies: (1) consolidating financial
services companies that expand or deepen the integration by means of
tax-free, stock-for-stock pooling-of-interest transactions (this
particular consolidation strategy is driven by the Company's goal to
protect, maintain, nurture and advance the entrepreneurial spirit of
small businesses by providing capital, synergy and vertical integration
in an "autonomous" subsidiary environment); (2) consolidating small
mutual funds into Unified's mutual fund families by means of tax-free
reorganizations (the mutual fund consolidation strategy is assisted by
Unified's systems capabilities and highly qualified systems staff which
provides innovative and flexible programming options, alternatives and
solutions required by small mutual funds to compete against the larger,
more capitalized mutual fund families); and (3) the formation of new
subsidiaries to develop proprietary products and services that deepen
the integration and enhance and advance the synergy and revenues among
its subsidiaries.
Once a component of Unified's vertically integrated network,
each subsidiary then implements its individual business plan in an
autonomous environment and achieves its growth and thereby increases
earnings and share value predominantly by: (1) leveraging the existing
infrastructure and utilizing the vertically integrated platform to
realize fully and effect the synergy and the related earnings impact to
the Company's earnings; (2) consolidations by the subsidiary, using
the Company's stock and/or capital, to acquire important and critical
business components along its horizontal business plane; (3) utilizing
the Company's capital for necessary expansion; (4) traditional
advertising, marketing and selling of the subsidiary's products and
services; and (5) networking with the Company's subsidiaries.
As of September 30, 1998, Unified owned all of the capital
stock of Management, Indianapolis, Indiana, a licensed NASD broker-
dealer; Services, Indianapolis, Indiana, a registered transfer agent and
mutual fund services company; Advisers, Indianapolis, Indiana, a
registered investment adviser under the Investment Advisers Act of 1940,
as amended; Health, Lexington, Kentucky, a registered investment
adviser; Lexington, Lexington, Kentucky, a non-bank affiliated trust
company that is regulated by the Department of Financial Institutions,
Commonwealth of Kentucky; Unified Internet Services, Indianapolis,
Indiana, a technology and Internet services company; Benefit Planners,
Lexington, Kentucky, a professional services firm specializing in back-
office recordkeeping for qualified plans; EMCO, New York, New York, an
estate, tax and wealth management firm; and Fiduciary Counsel, New York,
New York, an investment management firm. As a result of the Company's
ownership of Advisers, the Company's subsidiaries provide services for
the affiliated Unified Funds, a family of four no-load mutual funds
sponsored by Advisers (hereinafter referred to as the "Unified Funds").
The Company provides management services, working capital,
systems support and development and equipment for its wholly owned
financial services subsidiaries. The Company's subsidiaries concentrate
their services over the following lines of business in the financial
services industry: mutual
-18-
<PAGE>
<PAGE>
fund services, including transfer agency, shareholder and administrative
services, fund accounting, compliance and distribution; brokerage and
securities services, including third-party introduced clearing services;
investment advisory and asset management services for various asset
management categories and objectives; tax-free reorganizations and
consolidations of financial services companies and small mutual funds;
certain non-bank custodial services; trust and retirement services;
qualified plan services, including plan participant education; internal
and external proprietary product and systems development for financial
services institutions, predominately mutual funds, including the Unified
Funds; asset allocation services; investment advisory services;
financial planning services; and Internet technology and services.
The following presents management's discussion and analysis of
the Company's consolidated financial condition and results of operations
as of the dates and for the periods indicated. This discussion should
be read in conjunction with the other information set forth in this
Quarterly Report on Form 10-QSB, including the Company's unaudited,
consolidated financial statements and the accompanying notes thereto.
COMPARISON OF RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND
1997
Total revenue for the nine months ended September 30, 1998 as
compared to the nine months ended September 30, 1997 increased
$2,312,647, or 45.4%, from $5,089,947 to $7,402,594. For such periods,
brokerage revenues increased $684,865, or 36.9%, investment advisory
revenues increased $976,136, or 64.6%, trust and administration services
revenues increased $409,650, or 83.5% and other income increased
$285,476, or 315.6%. The increase in brokerage revenues was due to the
commissions received by Management from the sale of Common Stock in
connection with the Company's recently completed private placement (the
"Private Placement"). Investment advisory revenues increased due to
growth in assets under management at both Health and Lexington and due
to the acquisitions by the Company in March 1998 and August 1998 of
Advisers and Fiduciary Counsel, respectively. Trust and administrative
revenues primarily increased due to the acquisitions by the Company in
March 1998 and August 1998 of Benefit Planners and EMCO, respectively.
Other income for the first nine months of 1998 increased as a result of
additional interest income earned on cash and cash equivalents received
in connection with the Private Placement.
Gross profit for the nine months ended September 30, 1998 as
compared to the nine months ended September 30, 1997 increased
$1,917,457, or 50.9%, from $3,767,545. For such periods, gross profit
as a percentage of revenue increased to 76.8% from 74.0%. Brokerage
gross profit increased to $1,360,971, or 53.6%, for the nine months
ended September 30, 1998 from $873,589, or 47.1%, for the same period of
the prior year, reflecting the increased brokerage revenues received by
Management in connection with the Private Placement. The increase in
the percentage of fund services revenue charges to fund services
revenues from 24.1% for the nine months ended September 30, 1997 to
34.8% for the nine months ended September 30, 1998, relates to higher
trail commissions. Investment advisory gross profit of $2,383,506 for
the nine months ended September 30, 1998 compared to $1,447,192 for the
nine months ended September 30, 1997. The increase in the investment
fees paid during the nine months ended September 30, 1998 as compared to
the nine months ended September 30, 1997 was due to increased fees due
to the growth in assets under management at both Health and Lexington
and increased fees related to the business activities of Advisers and
Fiduciary Counsel, which were acquired by the Company in 1998. The
revenues and cost of sales of each of Advisers and Fiduciary Counsel are
not included in the Company's results of operations for 1997. Trust and
administration gross profit increased from $458,651 for the nine months
ended September 30, 1997 to $840,354 for the nine months
-19-
<PAGE>
<PAGE>
ended September 30, 1998. This increase was principally due to the
acquisitions in 1998 of Benefit Planners and EMCO.
Income from operations for the nine months ended September 30,
1998 as compared to the nine months ended September 30, 1997 increased
$747,702 from $309,986, or 6.1% of total revenue, to $1,057,688, or
14.3% of total revenue. Total expenses for the nine months ended
September 30, 1998 was $4,627,314, or 62.5% of total revenue, as
compared to $3,457,559, or 67.9% of total revenue, for the nine months
ended September 30, 1997. The increase in each expense item for the
nine months ended September 30, 1998 as compared to the nine months
ended September 30, 1997 was principally due to the acquisitions by the
Company in 1998 of Benefit Planners, Advisers, Fiduciary Counsel and
EMCO. The totals for the nine months ended September 30, 1998 also
include a fund service expense adjustment related to prior year periods
and increased legal and professional fees related to the Company's
acquisitions of Benefit Planners, Advisers, Fiduciary Counsel and EMCO
and the pending acquisitions of AmeriPrime, Equity, CPFC, Strategic and
Commonwealth. As a percentage of total revenue, employee compensation
and benefits declined from 42.9% for the nine months ended September 30,
1997 to 30.6% for the nine months ended September 30, 1998. During the
nine months ended September 30, 1997, employee compensation and benefits
included a one-time bonus payment to employees in the amount of
$125,000. In comparing the nine months ended September 30, 1998 to the
nine months ended September 30, 1997, total expenses increased by 33.8%,
but, as a percentage of total revenue, decreased by 5.4%, reflecting the
improved income from operations.
For the nine months ended September 30, 1998, Unified's portion
of the loss of Advisers (prior to Unified's acquisition of 100% of the
capital stock of Advisors on March 31, 1998) was $39,945 as compared to
a $54,722 profit for the nine months ended September 30, 1997. A
general decline in the stock market lead to a $17,447 decline in the
realized gain on securities and an increase of $28,126 in the unrealized
loss on securities in comparing the nine months ended September 30, 1998
to the same period of 1997.
Net income for the nine months ended September 30, 1998
increased $632,748, or 169.3%, as compared to net income for the nine
months ended September 30, 1997. Increased revenues for the nine months
ended September 30, 1998 more than offset the increased expenses during
such period as compared to the nine months ended September 30, 1997.
For the nine months ended September 30, 1998, net income as a percentage
of total revenues increased to 13.6% from 7.3% for the nine months ended
September 30, 1997.
COMPARISON OF RESULTS FOR THE QUARTERS ENDED SEPTEMBER 30, 1998 AND 1997
Total revenue for the quarter ended September 30, 1998 as
compared to the quarter ended September 30, 1997 increased $1,387,213,
or 78.5%, from $1,766,216 to $3,153,429. For such periods, brokerage
revenues increased $287,245, or 44.2%, due to increased commissions at
Management. Investment advisory revenues increased significantly from
$609,935 during the quarter ended September 30, 1997 to $1,142,912
during the quarter ended September 30, 1998, principally due to a growth
in assets under management at both Health and Lexington and due to the
acquisitions by the Company in 1998 of Advisers and Fiduciary Counsel.
For the quarter ended September 30, 1998, fund services revenues
increased $140,847, or 36.3%, as compared to the quarter ended September
30, 1997. Such increase was primarily due to an increase in the number
of funds serviced by Services and an increase in the amount of assets
under management in the Unified Funds. For the quarter ended September
30, 1998 as compared to the quarter ended September 30, 1997, trust and
administrative revenues increased $233,213, or 221.6%, principally due
to the acquisitions in 1998 of Benefit Planners and EMCO. The
-20-
<PAGE>
<PAGE>
increase in other income for the quarter ended September 30, 1998 as
compared to the quarter ended September 30, 1997 was due to additional
interest income earned on cash and cash equivalents received in
connection with the Private Placement.
Gross profit for the quarter ended September 30, 1998 as
compared to the quarter ended September 30, 1997 increased $821,017, or
62.8%, from $1,307,332. For such periods, gross profit as a percentage
of revenue decreased from 74.0% to 67.5%. The decrease in the gross
profit percentage for the quarter ended September 30, 1998 as compared
to the quarter ended September 30, 1997 was due to higher trail
commission charges. Investment advisory gross profit increased from
$583,329, or 95.6%, for the quarter ended September 30, 1997 to
$1,106,064, or 96.8%, for the quarter ended September 30, 1998. Such
increase was primarily due to increased investment advisory revenues
related to increased assets under management at both Health and
Lexington and due to the acquisitions in 1998 of Advisers and Fiduciary
Counsel. The revenues and cost of sales of each of Advisers and
Fiduciary Counsel are not included in the Company's results of
operations for 1997. Trust and administration gross profit improved to
$322,594, or 95.3%, for the quarter ended September 30, 1998 as compared
to $98,789, or 93.9% for the quarter ended September 30, 1997. This
increase was principally due to the acquisitions in 1998 of Benefit
Planners and EMCO.
Income from operations for the quarter ended September 30, 1998
as compared to the quarter ended September 30, 1997 increased $99,142
from $213,960, or 12.1% of total revenue, to $313,102, or 9.9% of total
revenue. Total expenses for the quarter ended September 30, 1998 were
$1,815,247, or 57.6% of total revenue, as compared to $1,093,372, or
61.9% of total revenue, for the quarter ended September 30, 1997. The
increase in each expense item for the quarter ended September 30, 1998
as compared to the quarter ended September 30, 1997 was principally due
to the acquisitions by the Company in 1998 of Fiduciary Counsel and
EMCO. Total expenses for the quarter ended September 30, 1998 also
includes increased legal and professional fees related to the Company's
acquisitions of Fiduciary Counsel and EMCO and the pending acquisitions
of AmeriPrime, Equity, CPFC, Strategic and Commonwealth. As a
percentage of total revenue, employee compensation and benefits declined
from 37.1% for the quarter ended September 30, 1997 to 29.2% for the
quarter ended September 30, 1998. During the quarter ended September
30, 1997, employee compensation and benefits included a one-time bonus
payment to employees in the amount of $125,000. In comparing the
quarter ended September 30, 1998 to the quarter ended September 30,
1997, total expenses increased by 66.0%, but, as a percentage of total
revenue, decreased by 4.3%, reflecting the improved income from
operations.
For the quarter ended September 30, 1997, Unified's portion of
the loss of Advisers was $25,208 (no loss was recorded for the three
months ended September 30, 1998 due to Unified's 100% ownership of
Advisers since March 31, 1998). The Company also experienced a $14,195
increase in unrealized losses on securities in the third quarter of 1998
as compared to the third quarter of 1997.
Net income for the quarter ended September 30, 1998 increased
$121,241, or 89.9%, as compared to net income for the quarter ended
September 30, 1997. For the quarter ended September 30, 1998, net
income as a percentage of total revenues increased to 8.1% from 7.6% for
the quarter ended September 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The assets and liabilities of each of Benefit Planners,
Advisers, EMCO and Fiduciary Counsel are included in the Company's
balance sheet as of September 30, 1998. The inclusion of these
companies and the receipt of funds pursuant to the Private Placement are
the principal reasons for the
-21-
<PAGE>
<PAGE>
increase from December 31, 1997 to September 30, 1998 of most balance
sheet items. The Company's primary source of liquidity historically has
been and continues to be cash flow from operating activities, available
borrowing capacity from capitalized leases and a loan from a regional
bank to finance capital equipment. The net increase in cash and cash
equivalents during the first nine months of 1998 from year-end 1997 was
$8,781,546. The principal increase reflects net proceeds from the
private placement of $9,941,634 and bank borrowing for equipment of
$224,299, which proceeds offset the $1,706,900 utilized to redeem the
Series A and Series B Preferred Stock. For the nine months ended
September 30, 1998, the Company issued 437,338 shares of Common Stock.
In addition, during May 1998, the Company issued 2,100 shares of Series
C Preferred Stock to certain directors, executive officers and agents of
the Company for total consideration of $210,000. On August 21, 1998,
the Company acquired Fiduciary Counsel for cash in the amount of
$800,835 plus 36,110 shares of Common Stock, creating goodwill of
$1,564,801.
On April 25, 1998, the Company utilized $1,706,900 of the
Private Placement proceeds to redeem the outstanding shares of Series A
and Series B Preferred Stock. Pending usage, the Company may invest the
remaining net proceeds from the Private Placement in its own no-load
mutual fund portfolios. The Private Placement should have a positive
effect on the Company assisting further development, marketing,
expansion and support of the Company's products and services, some of
which are proprietary, promoting aggressive advertising and publicity
program for our niche products and services, especially the V.O.I.C.E.(TM)
program and the Company's vision for the financial services industry and
expanding of the Company's internet investment activities, including
banking activities.
Changes in balance sheet items related to the acquisitions of
Benefit Planners, Advisers, EMCO and Fiduciary Counsel were the
following as of September 30, 1998:
Item Amount
---- ------
Cash and cash equivalents $554,397
Investments in securities 14,556
Investments in affiliated mutual funds 64,996
Accounts receivable 536,858
Prepaid and sundry assets 50,575
Fixed assets, net 138,501
Deferred cost, net 355,101
Other non-current assets 23,531
Capitalized leases 78,333
Accounts payable and accrued expenses 607,461
Accrued compensation and benefits 274,240
Deferred income taxes 35,218
Other liabilities 143,493
YEAR 2000 COMPLIANCE
The year 2000 issue is the result of computer programs being
written using two digits rather than four digits to define the
applicable year. These programs treat years as occurring between 1900
and the end of 1999 and do not self-convert to reflect the upcoming
change in the century. If not corrected, computer applications could
create erroneous results by or at the Year 2000.
-22-
<PAGE>
<PAGE>
The Company has undertaken a program to understand the nature
and extent of the work required to make its systems Year 2000 compliant.
This program encompasses operating, information and facilities systems,
the Company's products and the readiness of the Company's vendors. The
program includes the following phases: awareness and inventory; triage;
detailed assessment and resolution; testing; deployment; and contingency
plan development for all areas.
The Company's objective is to become Year 2000 compliant with
its critical systems by the end of the fourth quarter of 1998, allowing
substantial time for further testing, verification and conversion of
less important activities and systems. The Company has determined that
it has no exposure to contingencies related to the Year 2000 for
services it sells and that its technology systems are substantially Year
2000 compliant. The Company also is requesting assurance, by no later
than December 31, 1998, from its significant vendors that they are
addressing this issue to ensure that there will be no major disruptions
to the Company's business.
Plan Definitions
- ----------------
Awareness - Making employees and management aware of Y2K
problem and how it affects the Company. Inform employees and management
of Y2K project and give routine updates.
Inventory - A complete inventory that will identify products
that are not Year 2000 compliant.
Triage - Decide what systems to keep based on reviews of
technical risk and business risk. Systems critical to the business are
placed in the detail assessment phase and are corrected.
Detailed Assessment - Period in which efforts are focused on:
(a) identification of year 2000 problems within a specific system; and
(b) identification to appropriate solutions to those problems.
Resolution - Period when efforts are focused in repair,
replacement or retirement of systems in the Company's organization that
incorporate Year 2000 problems.
Testing - Deploy fixes and test resolutions.
Deployment - Make Year 2000 systems operational.
Critical Systems Plan Progress:
- ------------------------------
Awareness Plan: Ongoing through 01/2000 Present Status: 100%
Inventory Plan: 100% Complete by 9/1998 Present Status: 100%
Triage Plan: 100% Completed by 9/1998 Present Status: 100%
Assessment Plan: 100% Completed by 10/1998 Present Status: 100%
Resolution Plan: 100% Completed by 12/1998 Present Status: 75%
Testing Plan: 100% Completed by 12/1999 Present Status: 75%
Deployment Plan: 100% Completed by 12/1999 Present Status: 75%
-23-
<PAGE>
<PAGE>
The total cost of the Year 2000 project to date has not been
material. Based on the program to date, the Company does not expect
that future costs of modifications will have a material adverse effect
on the Company's financial position or results of operations. An
estimated $65,000 will be spent on hardware and software to complete the
Year 2000 project over the next year. Because the Company expects that
its internal systems will become Year 2000 in a timely manner, the
Company believes that the most likely worst case scenario would result
from vendors or other third parties failing to achieve Year 2000
compliance. Depending upon the number of third parties, their identity
and the nature of the non-compliance, the Year 2000 issue could have a
material adverse effect on the Company's financial position or results
of operations. However, the Company is developing contingency plans,
which should be completed in early 1999, should any critical problems
occur in any of the assessment areas noted above. Accordingly, the
Company does not expect Year 2000 problems to result in any material
adverse effect on the Company's financial position or results of
operation.
** ** **
The forward-looking statements contained in this report are
inherently subject to risks and uncertainties. The Company's actual
results could differ materially from those in the forward-looking
statements. Potential risks and uncertainties include a number of
factors, including the Company's ability to manage rapid growth,
economic conditions generally and in particular those affecting bond and
securities markets. An increase in federal and state regulation of the
mutual fund industry or the imposition of regulatory penalties also
could have an effect on operating results of the Company.
-24-
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
For the three months ended September 30, 1998, the only sales
of the Company's securities were the following: (i) 55,344 shares of
Common Stock issued in connection with a private offering of up to
600,000 shares of Common Stock pursuant to subscriptions accepted on or
before the termination of the offering on June 30, 1998, 40,600 shares
at a price of $25.00 per share and 14,744 shares at a price of $27.50
per share; (ii) 57,780 shares of Common Stock issued upon the conversion
of 428 shares of Series C Preferred Stock (no consideration was paid by
the stockholder in connection with such conversion); (iii) 36,110 shares
of Common Stock issued in connection with the acquisition by the Company
of Fiduciary Counsel (such shares were issued in exchange for the
outstanding capital stock of Fiduciary Counsel); and (iv) 11,000 shares
of Common Stock issued in connection with the acquisition by the Company
of all of the assets and certain of the liabilities of EMCO. All shares
of stock issued by the Company during such period were issued pursuant
to the exemption provided by Rule 506, as promulgated by the SEC.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Under applicable regulations of the Securities and Exchange
Commission, all proposals of stockholders to be considered for inclusion
in the proxy statement for the 1999 Annual Meeting of Stockholders must
be received by the Company by December 30, 1998. The By-Laws of the
Company provide that stockholder proposals, including nominations of
directors, that do not appear in the proxy statement may be considered
at a meeting of stockholders only if written notice of the proposal is
received by the Secretary of the Company not less than 60 days and not
more than 90 days prior to the anniversary of the preceding year's
annual meeting; provided, however, that in the event that the date of
the annual meeting is more than 30 days before or more than 60 days
after such anniversary date, notice by the stockholder must be delivered
not earlier than the 10th day prior to such annual meeting and not later
than the 60th day prior to such annual meeting or the 10th day following
the day on which public announcement of the date of such meeting is
first made by the Company. Under the By-Laws of the Company, the date
by which written notice of a proposal must be received by the Company to
be considered at the 1999 Annual Meeting of Stockholders is
March 21, 1999.
At the 1999 Annual Meeting of Stockholders, the individuals
named in the proxy relating to such meeting will exercise discretionary
authority to vote on any matter brought before the meeting with respect
to which the Company was provided with notice after December 30, 1998
and before March 21,
-25-
<PAGE>
<PAGE>
1999. In addition, the Company will include in the proxy statement
advice on the nature of the matter and how the individuals named in the
proxy relating to such meeting intend to exercise their discretion to
vote on each matter. Notwithstanding the above, the individuals named
in the proxy relating to such meeting shall not exercise discretionary
authority over a matter if: (i) the Company receives notice of such
matter by March 21, 1999; (ii) by March 21, 1999, the proponent of such
matter (the "Proponent") provides the Company with a written statement
that the Proponent intends to deliver a proxy statement and form of
proxy to holders of at least the percentage of the Company's voting
shares required under Delaware law to carry the proposal; (iii) the
Proponent includes the same statement in its proxy materials filed under
Rule 14a-6 of the Securities Exchange Act of 1934, as amended; and (iv)
immediately after soliciting the percentage of stockholders required to
carry the proposal, the Proponent provides the Company with a statement
from any solicitor or other person with knowledge that the necessary
steps have been taken to deliver a proxy statement and form of proxy to
holders of at least the percentage of the Company's voting shares
required under Delaware law to carry the proposal.
Any written notice of a stockholder proposal must include the
following information: (a) as to each person whom the stockholder
proposes to nominate for election or reelection as a director, all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (including such person's written
consent to being named in the proxy statement as a nominee and to
serving as a director if elected); (b) as to any other business that
the stockholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting,
the reasons for conducting such business at the meeting and any material
interest in such business of such stockholder and the beneficial owner,
if any, on whose behalf the proposal is made; and (c) as to the
stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made, (i) the name and address of
such stockholder, as they appear on the Company's books, and of such
beneficial owner, and (ii) the class and number of shares of the Company
which are owned beneficially and of record by such stockholder and such
beneficial owner.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
See Exhibit Index attached hereto.
(b) Reports on Form 8-K:
On August 28, 1998, the Company filed a Current Report on
Form 8-K, as amended by Current Report on Form 8-K/A, to report the
acquisitions by the Company of Fiduciary Counsel and certain of the
assets and liabilities of EMCO. In connection with the acquisition of
Fiduciary Counsel on August 21, 1998, the Company issued 36,110 shares
of Common Stock in exchange for all of the outstanding capital stock of
Fiduciary Counsel. In connection with the acquisition of all of the
assets and certain of the liabilities of EMCO on August 21, 1998, the
Company issued 11,000 shares of Common Stock in exchange for such assets
and liabilities.
On September 8, 1998, the Company filed a Current Report on
Form 8-K to report the declaration on August 26, 1998 of a dividend
distribution of one Preferred Stock Purchase Right (collectively, the
"Rights") for each outstanding share of Common Stock. The dividend
distribution was payable to the stockholders of record of the Company at
the close of business on August 26, 1998. Generally, each Right, when
exercisable, entitles the registered holder to purchase from the Company
-26-
<PAGE>
<PAGE>
one one-hundredth of a share of a new series of voting preferred stock,
designated as Series D Junior Participating Preferred Stock, $.01 par
value, at a price of $200.00 per one one-hundredth of a share, subject
to adjustment. The description and terms of the Rights are set forth in
a Rights Agreement between the Company and Services, as Rights Agent.
-27-
<PAGE>
<PAGE>
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.
UNIFIED FINANCIAL SERVICES, INC.
(Registrant)
November 20, 1998 By: /s/ Timothy L. Ashburn
----------------------------------------
Timothy L. Ashburn, Chairman, President
and Chief Executive Officer
-28-
<PAGE>
<PAGE>
EXHIBIT INDEX
Ex. No. Description
------- -----------
3.1 Amended and Restated Certificate of Incorporation of the
Company, filed as Exhibit 4.1(a) to the Company's Quarterly
Report on Form 10-QSB for the quarter ended September 30,
1997, is incorporated herein by reference.
3.2 By-laws of the Company, filed as Exhibit 4.2 to the
Company's Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1997, is incorporated herein by
reference.
4.1 Certificate of Designations, Preferences, and Relative
Rights, Qualifications and Restrictions of the Series C
6.75% Cumulative Convertible Preferred Stock of the Company,
filed as Exhibit 4.1(d) to the Company's Quarterly Report on
From 10-QSB for the quarter ended September 30, 1997, is
incorporated herein by reference.
4.2 Certificate of Designations, Preferences and Rights of
Series D Junior Participating Preferred Stock of the
Company.
4.3 Rights Agreement, dated as of August 26, 1998, between the
Company and Unified Fund Services, Inc., filed as Exhibit 1
to the Company's Registration Statement on Form 8-A dated
September 3, 1998, is incorporated herein by reference.
10.1 Agreement and Plan of Merger dated April 25, 1997 by and
among the Company, HFI Acquisition Corporation, Health
Financial, Inc. and Dr. Gregory W. Kasten, filed as
Exhibit 2.1 to the Company's Registration Statement on Form
10-SB, is incorporated herein by reference.
10.2 Amended and Restated Agreement and Plan of Merger dated as
of April 25, 1997 by and among the Company, FLTC Acquisition
Corporation, First Lexington Trust Company and Dr. Gregory
W. Kasten, filed as Exhibit 2.2 to the Company's
Registration Statement on Form 10-SB, is incorporated herein
by reference.
10.3 Agreement and Plan of Merger dated as of May 8, 1997 by and
among the Company, VAI Acquisition Corporation, Vintage
Advisers, Inc. and Timothy L. Ashburn, filed as Exhibit 2.3
to the Company's Registration Statement on Form 10-SB, is
incorporated herein by reference.
10.4 First Amendment to Agreement and Plan of Merger dated as of
May 31, 1997 by and among the Company, HFI Acquisition
Corporation, Health Financial, Inc. and Dr. Gregory W.
Kasten, filed as Exhibit 2.4 to Amendment No. 1 to the
Company's Registration Statement on Form 10-SB, is
incorporated herein by reference.
-29-
<PAGE>
<PAGE>
10.5 Agreement and Plan of Merger, dated July 10, 1998, by and
among the Company, Fiduciary Acquisition Corporation,
Fiduciary Counsel, Inc., Associated Family Services, Inc.,
Intellectronic Management Systems, Inc., Jack R. Orben,
Andrew E. Beer and Charles C. Hickox, filed as Exhibit 2 to
the Company's Current Report on Form 8-K dated August 28,
1998, is incorporated herein by reference.
10.6 Agreement and Plan of Merger, dated October 16, 1998, by and
among the Company, AmeriPrime Acquisition Corporation,
AmeriPrime Financial Services, Inc. and Kenneth D.
Trumpfheller, filed as Exhibit 2.1 to the Company's Current
Report on Form 8-K dated November 5, 1998, is incorporated
herein by reference.
10.7 Agreement and Plan of Merger, dated October 16, 1998, by and
among the Company, Equity Acquisition Corporation, Equity
Underwriting Group, Inc., John R. Owens and D. Richard
Meyer, filed as Exhibit 2.2 to the Company's Current Report
on Form 8-K dated November 5, 1998, is incorporated herein
by reference.
10.8 Termination Agreement dated as of December 1, 1997 by and
among the Company, VAI Acquisition Corporation, Vintage
Advisers, Inc. and Timothy L. Ashburn, filed as Exhibit 2.5
to Amendment No. 1 to the Company's Registration Statement
on Form 10-SB, is incorporated herein by reference.
10.9 Release and Surrender Agreement dated as of December 1, 1997
by and among the Company, Vintage Advisers, Inc., Timothy L.
Ashburn and Jack R. Orben, filed as Exhibit 2.6 to Amendment
No. 1 to the Company's Registration Statement on Form 10-SB,
is incorporated herein by reference.
10.10 Employment Agreement dated as of June 1, 1997 by and between
Health Financial, Inc. and Dr. Gregory W. Kasten, filed as
Exhibit 10.1 to Amendment No. 1 to the Company's
Registration Statement on Form 10-SB, is incorporated herein
by reference.
10.11 Business Loan Agreement dated as of September 10, 1997 by
and between the Company and Bank One, Indiana, N.A., filed
as Exhibit 10.2 to Amendment No. 1 to the Company's
Registration Statement on Form 10-SB, is incorporated herein
by reference.
10.12 Commercial Security Agreement dated as of September 10, 1997
by and between the Company and Bank One, Indiana, N.A.,
filed as Exhibit 10.3 to Amendment No. 1 to the Company's
Registration Statement on Form 10-SB, is incorporated herein
by reference.
10.13 Promissory Note dated as of September 10, 1997 issued by the
Company in favor of Bank One, Indiana, N.A., filed as
Exhibit 10.4 to Amendment No. 1 to the Company's
Registration Statement on Form 10-SB, is incorporated herein
by reference.
-30-
<PAGE>
<PAGE>
10.14 Unified Financial Services, Inc. 1998 Stock Incentive Plan,
filed as Annex A to the Company's Proxy Statement for the
Company's 1998 Annual Meeting, is incorporated herein by
reference.
11.1 Computation of Per Share Earnings.
27.1 Financial Data Schedule (September 30, 1998).
-31-
<PAGE>
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND
RIGHTS OF SERIES D JUNIOR PARTICIPATING PREFERRED STOCK
OF
UNIFIED FINANCIAL SERVICES, INC.
I, Timothy L. Ashburn, the Chairman, President and Chief Executive
Officer of Unified Financial Services, Inc. (the "Company"), a
corporation organized and existing under the General Corporation Law of
the State of Delaware, in accordance with the provisions of Section 151
thereof, DO HEREBY CERTIFY:
That, pursuant to the authority conferred upon the Board of
Directors by the Certificate of Incorporation, as amended, of the
Company, the said Board of Directors on August 26, 1998 adopted the
following resolution creating a series of One Hundred Thousand (100,000)
shares of voting Preferred Stock designated as Series D Junior
Participating Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Company in accordance with the provisions of its
Certificate of Incorporation, as amended, a series of voting Preferred
Stock of the Company be and is hereby created, and that the designation
and amount thereof and the powers, preferences and relative,
participating, optional and other special rights of the shares of such
series, and the qualifications, limitations or restrictions thereof are
as follows:
Section 1. Designation and Amount.
----------------------
There shall be a series of the voting preferred stock of the
Company which shall be designated as the "Series D Junior Participating
Preferred Stock," $0.01 par value, and the number of shares constituting
such series shall be One Hundred Thousand (100,000). Such number of
shares may be increased or decreased by resolution of the Board of
Directors; provided, however, that no decrease shall reduce the number
of shares of Series D Junior Participating Preferred Stock to a number
less than that of the shares then outstanding plus the number of shares
issuable upon exercise of outstanding rights, options or warrants or
upon conversion of outstanding securities issued by the Company.
Section 2. Dividends and Distributions.
---------------------------
(A) Subject to the rights of the holders of any shares of any
series of preferred stock of the Company ranking prior and superior to
the Series D Junior Participating Preferred Stock with respect to
dividends, the holders of shares of Series D Junior Participating
Preferred Stock, in preference to the holders of shares of Common Stock,
$.01 par value, of the Company (the "Common Stock") and of any other
junior stock, shall be entitled to receive, when, as and if declared by
the Board of Directors out of funds legally available for the purpose,
quarterly dividends payable in cash on or about the first day of
January, April, July and October in each year (each such date being
referred to herein as a "Quarterly Dividend Payment Date"), commencing
on the first Quarterly Dividend Payment Date after the first issuance of
a share or fraction of a share of Series D Junior Participating
Preferred Stock, in an amount per share (rounded to the nearest cent)
equal to the greater of (a) $1.00 or (b) subject to the provision for
adjustment hereinafter set forth, 100 times the aggregate per share
amount of all cash dividends and 100 times the aggregate per share
amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Common Stock
or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock
<PAGE>
<PAGE>
since the immediately preceding Quarterly Dividend Payment Date or, with
respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series D Junior
Participating Preferred Stock. In the event the Company shall at any
time after August 26, 1998 (the "Rights Declaration Date") declare or
pay any dividend on the Common Stock payable in shares of Common Stock,
or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise
than by payment of a dividend in shares of Common Stock) into a greater
or lesser number of shares of Common Stock, then in each such case the
amount to which holders of shares of Series D Junior Participating
Preferred Stock were entitled immediately prior to such event under
clause (b) of the preceding sentence shall be adjusted by multiplying
such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Company shall declare a dividend or distribution on the
Series D Junior Participating Preferred Stock as provided in
paragraph (A) of this Section immediately after it declares a dividend
or distribution on the Common Stock (other than a dividend payable in
shares of Common Stock); provided, however, that in the event no
dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the
next subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per
share on the Series D Junior Participating Preferred Stock shall
nevertheless be payable on such subsequent Quarterly Dividend Payment
Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series D Junior Participating Preferred Stock from
the Quarterly Dividend Payment Date next preceding the date of issue of
such shares, unless the date of issue of such shares is prior to the
record date for the first Quarterly Dividend Payment Date, in which case
dividends on such shares shall begin to accrue from the date of issue of
such shares, or unless the date of issue is a Quarterly Dividend Payment
Date or is a date after the record date for the determination of holders
of shares of Series D Junior Participating Preferred Stock entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment
Date, in either of which events such dividends shall begin to accrue and
be cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall not bear interest. Dividends paid on the shares
of Series D Junior Participating Preferred Stock in an amount less than
the total amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share basis among
all such shares at the time outstanding. The Board of Directors may fix
a record date for the determination of holders of shares of Series D
Junior Participating Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be
not more than 60 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights.
-------------
The holders of shares of Series D Junior Participating Preferred
Stock shall have the following voting rights:
(A) Each share of Series D Junior Participating Preferred Stock
shall entitle the holder thereof to 100 votes on all matters submitted
to a vote of the stockholders of the Company.
(B) Except as otherwise provided herein, in the Company's
Certificate of Incorporation or by law, the holders of shares of Series
D Junior Participating Preferred Stock, the holders of shares of Common
Stock, and the holders of shares of any other capital stock of the
Company
-2-
<PAGE>
<PAGE>
having general voting rights shall vote together as one class on all
matters submitted to a vote of stockholders of the Company.
(C) Except as otherwise set forth herein or in the Company's
Certificate of Incorporation, and except as otherwise provided by law,
holders of Series D Junior Participating Preferred Stock shall have no
special voting rights and their consent shall not be required (except to
the extent they are entitled to vote with holders of Common Stock as set
forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
--------------------
(A) Whenever dividends or distributions payable on the Series D
Junior Participating Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series D Junior
Participating Preferred Stock outstanding shall have been paid in full,
the Company shall not:
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for
consideration any shares of stock ranking junior (either as to dividends
or upon liquidation, dissolution or winding up) to the Series D Junior
Participating Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series D Junior Participating Preferred Stock, except dividends paid
ratably on the Series D Junior Participating Preferred Stock and all
such parity stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all such shares
are then entitled;
(iii) except as permitted in Section 4(A)(iv) below, redeem
or purchase or otherwise acquire for consideration shares of any stock
ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series D Junior Participating
Preferred Stock; provided, however, that the Company may at any time
redeem, purchase or otherwise acquire shares of any such parity stock in
exchange for shares of any stock of the Company ranking junior (either
as to dividends or upon dissolution, liquidation or winding up) to the
Series D Junior Participating Preferred Stock; and
(iv) purchase or otherwise acquire for consideration any
shares of Series D Junior Participating Preferred Stock, or any shares
of stock ranking on a parity with the Series D Junior Participating
Preferred Stock, except in accordance with a purchase offer made in
writing or by publication (as determined by the Board of Directors) to
all holders of such shares upon such terms as the Board of Directors,
after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes,
shall determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Company shall not permit any subsidiary of the Company
to purchase or otherwise acquire for consideration any shares of stock
of the Company unless the Company could, under paragraph (A) of this
Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
-3-
<PAGE>
<PAGE>
Section 5. Reacquired Shares.
-----------------
Any shares of Series D Junior Participating Preferred Stock
purchased or otherwise acquired by the Company in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof.
The Company shall cause all such shares upon their cancellation to be
authorized but unissued shares of Preferred Stock which may be reissued
as part of a new series of Preferred Stock, subject to the conditions
and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up.
--------------------------------------
(A) Upon any liquidation (voluntary or otherwise), dissolution
or winding up of the Company, no distribution shall be made to the
holders of shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series D Junior
Participating Preferred Stock unless, prior thereto, the holders of
shares of Series D Junior Participating Preferred Stock shall have
received $100.00 per share, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the
date of such payment (the "Series D Liquidation Preference"). Following
the payment of the full amount of the Series D Liquidation Preference,
no additional distributions shall be made to the holders of shares of
Series D Junior Participating Preferred Stock, unless, prior thereto,
the holders of shares of Common Stock shall have received an amount per
share (the "Common Adjustment") equal to the quotient obtained by
dividing (i) the Series D Liquidation Preference by (ii) 100 (as
appropriately adjusted as set forth in paragraph (C) of this Section 6
to reflect such events as stock dividends, and subdivisions,
combinations and consolidations with respect to the Common Stock) (such
number in clause (ii) being referred to as the "Adjustment Number").
Following the payment of the full amount of the Series D Liquidation
Preference and the Common Adjustment in respect of all outstanding
shares of Series D Junior Participating Preferred Stock and Common
Stock, respectively, holders of Series D Junior Participating Preferred
Stock and holders of shares of Common Stock shall receive their ratable
and proportionate share of the remaining assets to be distributed in the
ratio of the Adjustment Number to 1 with respect to such Series D Junior
Participating Preferred Stock and Common Stock, on a per share basis,
respectively.
(B) In the event there are not sufficient assets available to
permit payment in full of the Series D Liquidation Preference and the
liquidation preferences of all other series of preferred stock, if any,
which rank on a parity with the Series D Junior Participating Preferred
Stock, then such remaining assets shall be distributed ratably to the
holders of such parity shares in proportion to their respective
liquidation preferences. In the event there are not sufficient assets
available to permit payment in full of the Common Adjustment, then such
remaining assets shall be distributed ratably to the holders of Common
Stock.
(C) In the event the Company shall at any time after the Rights
Declaration Date declare or pay any dividend on Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of
Common Stock) into a greater or lesser number of shares of Common Stock,
then in each such case the Adjustment Number in effect immediately prior
to such event shall be adjusted by multiplying such Adjustment Number by
a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that are outstanding
immediately prior to such event.
-4-
<PAGE>
<PAGE>
Section 7. Consolidation, Merger, etc.
--------------------------
In case the Company shall enter into any consolidation, merger,
combination or other transaction in which the shares of Common Stock are
exchanged for or changed into other stock or securities, cash and/or any
other property, then in any such case the shares of Series D Junior
Participating Preferred Stock shall at the same time be similarly
exchanged or changed in an amount per share (subject to the provision
for adjustment hereinafter set forth) equal to 100 times the aggregate
amount of stock, securities, cash and/or any other property (payable in
kind), as the case may be, into which or for which each share of Common
Stock is exchanged or changed. In the event the Company shall at any
time after the Rights Declaration Date declare or pay any dividend on
Common Stock payable in shares of Common Stock, or effect a subdivision
or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in
shares of Common Stock) into a greater or lesser number of shares of
Common Stock, then in each such case the amount set forth in the
preceding sentence with respect to the exchange or change of shares of
Series D Junior Participating Preferred Stock shall be adjusted by
multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common
Stock that are outstanding immediately prior to such event.
Section 8. Redemption.
----------
The shares of Series D Junior Participating Preferred Stock shall
not be redeemable.
Section 9. Ranking.
-------
The Series D Junior Participating Preferred Stock shall rank
junior to all other series of the Company's Preferred Stock as to the
payment of dividends and the distribution of assets, unless the terms of
any such series shall provide otherwise.
Section 10. Fractional Shares.
-----------------
Series D Junior Participating Preferred Stock may be issued in
fractions which are integral multiples of one one-hundredth of a share.
Fractions of shares of Series D Junior Participating Preferred Stock
may, at the election of the Company, be evidenced by depositary
receipts, pursuant to an appropriate agreement between the Company and a
depositary selected by the Company. The holders of such depositary
receipts shall have all the rights, privileges and preferences to which
they are entitled as beneficial owners of the Series D Junior
Participating Preferred Stock represented by such depositary receipts.
[Remainder of this page intentionally left blank]
-5-
<PAGE>
<PAGE>
IN WITNESS WHEREOF, I have executed and subscribed this
Certificate and do affirm and acknowledge the foregoing as true under
the penalties of perjury this 9th day of September, 1998.
UNIFIED FINANCIAL SERVICES, INC.
By: /s/ Timothy L. Ashburn
-------------------------------------
Name: Timothy L. Ashburn
Title: Chairman, President and
Chief Executive Officer
State of Missouri )
) ss.
County of St. Louis )
On this 9th day of September, 1998, before me, Denise A. DeRouen,
a Notary Public in and for the State of Missouri, personally appeared
Timothy L. Ashburn, Chairman, President and Chief Executive Officer of
Unified Financial Services, Inc., known to me to be the person who
executed the foregoing Certificate of Designation and acknowledged to me
that he executed the same pursuant to authority given by the Board of
Directors of such corporation as their free and voluntary act, and as
the free and voluntary act and deed of such corporation, for the uses
and purposes therein set forth.
/s/ Denise DeRouen
----------------------------------------
Notary Public
My commission expires:
March 25, 2002
-6-
<PAGE>
EX - 11
Calculation of Earnings Per Share
<TABLE>
UNIFIED FINANCIAL SERVICES, INC.
EARNINGS PER SHARE
<CAPTION>
For the Nine Months Ended Sept. 30, For the Three Months Ended Sept. 30,
----------------------------------- ------------------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income $1,006,452 $ 373,704 $ 219,387 $ 134,885
Dividends on preferred stock 85,844 67,530 - 34,324
---------- ---------- ---------- ----------
Results after preferred dividend $ 940,608 $ 306,174 $ 219,387 $ 100,581
========== ========== ========== ==========
Basic:
Weighted average number of common shares outstanding 1,027,776 608,558 1,027,776 616,558
Weighted average number of common shares related
to acquisition of Resource Benefit Planners, Inc. 8,967 12,000
Weighted average number of common shares related
to private placement 220,293 421,228
Weighted average number of common shares related
to acquisition of EMCO Estate Management Company, Inc. 1,692 5,022
Weighted average number of common shares related
to acquisition of Fiduciary Counsel, Inc. 5,558 18,485
Weighted average number of common shares received upon
conversion of Series C Preferred Stock 36,159 30,146
Weighted average number of common shares issued 319 946
---------- ---------- ---------- ----------
Total weighted average shares 1,274,761 608,558 1,513,603 816,558
========== ========== ========== ==========
Basic earnings per share $ 0.74 $ 0.50 $ 0.14 $ 0.16
========== ========== ========== ==========
Diluted:
Weighted average number of common shares outstanding 1,027,776 1,027,776 1,027,776 1,027,776
Weighted average number of common shares related
to acquisition of Resource Benefit Planners, Inc. 12,000 12,000
Weighted average number of common shares related
to private placement 437,338 437,338
Weighted average number of common shares related
to acquisition of EMCO Estate Management Company, Inc. 11,000 11,000
Weighted average number of common shares related
to acquisition of Fiduciary Counsel, Inc. 36,110 36,110
Weighted average number of common shares received upon
conversion of Series C Preferred Stock 57,780 57,780
Weighted average number of common shares issued 3,000 3,000
Weighted average number of common shares to be received
upon the conversion of Series C Preferred Stock 225,720 225,720
Weighted average of common stock equivalent shares
related to vested options 6,800 - 6,800 -
---------- ---------- ---------- ----------
Total shares 1,817,524 1,027,776 1,817,524 1,027,776
========== ========== ========== ==========
Diluted earnings per share $ 0.52 $ 0.30 $ 0.12 $ 0.10
========== ========== ========== ==========
</TABLE>
-32-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited consolidated statements of financial condition and the consolidated
statements of operation of Unified Financial Services, Inc. filed as a part of
the Company's quarterly report on Form 10-QSB and is qualified in its entirety
by reference to such report.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 9,367,300
<SECURITIES> 574,309
<RECEIVABLES> 1,867,890
<ALLOWANCES> 2,041
<INVENTORY> 0
<CURRENT-ASSETS> 11,899,056
<PP&E> 1,669,527
<DEPRECIATION> 964,341
<TOTAL-ASSETS> 15,533,903
<CURRENT-LIABILITIES> 2,807,317
<BONDS> 0
<COMMON> 20,350
0
1,672
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 15,533,903
<SALES> 0
<TOTAL-REVENUES> 7,402,594
<CGS> 0
<TOTAL-COSTS> 1,717,592
<OTHER-EXPENSES> 4,627,314
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,988
<INCOME-PRETAX> 1,002,307
<INCOME-TAX> (4,145)
<INCOME-CONTINUING> 1,006,452
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,006,452
<EPS-PRIMARY> 0.74
<EPS-DILUTED> 0.52
</TABLE>
