<PAGE> 1
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 March 31, 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.)
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 [ ]
As of May 7, 1998, the registrant had outstanding 1,276,100 shares of Common
Stock, $.01 par value.
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<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
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<S> <C>
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements 3
Consolidated Balance Sheets 3
Consolidated Statements of Income 5
Consolidated Statements of Cash Flows 7
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Overview 15
Comparison of Results for the Three Months Ended
March 31, 1998 and 1997 16
Liquidity and Capital Resources 17
PART II. OTHER INFORMATION 17
Item 3. Changes in Securities and Use of Proceeds 17
Item 4. Submission of Matters to a Vote of Securityholders 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURE PAGE 18
EXHIBIT INDEX 19
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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS:
<TABLE>
UNIFIED FINANCIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, December 31,
1998 1997
----------- ------------
(unaudited)
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $1,142,926 $ 605,654
Investments in affiliated mutual funds 481,658 520,334
Investments in non-affiliated mutual funds 205,940 187,603
Note receivable - affiliated company -- 50,000
Note receivable - non-affiliated company -- 4,502
Accounts receivable (net of allowance for
doubtful accounts of $2,041) 1,322,052 1,505,600
Prepaid and sundry assets 173,195 141,042
---------- ----------
Total current assets 3,325,771 3,014,735
---------- ----------
NON-CURRENT ASSETS:
Investment in debt securities 888,525 958,604
Organization cost of net accumulated
amortization of $192,995 and
$6,900, respectively 396,449 2,100
Equity in and advances to affiliate -- 284,994
Notes receivable, net of current maturity -- 8,090
FIXED ASSETS, at cost:
Equipment and furniture (net of accumulated
depreciation of $651,709 and $590,887,
respectively) 580,466 590,059
Capitalized leased equipment (net of accumulated
depreciation of $61,976 and $55,465,
respectively) 68,251 74,762
---------- ----------
Total non-current and fixed assets $1,933,691 $1,918,609
Total assets $5,259,462 $4,933,344
========== ==========
See notes to consolidated financial statements.
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<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Current portion of capitalized leases $ 22,200 $ 30,090
Current portion of bank, line-of-credit 86,154 30,719
Accounts payable and accrued liabilities 851,793 617,637
Accrued compensation and benefits 268,908 162,273
Payable to broker/dealers 293,889 274,046
Income taxes payable 5,548 14,355
Deferred income taxes 59,918 24,700
Other liabilities 724,449 740,055
---------- ----------
Total current liabilities 2,312,859 1,893,875
---------- ----------
LONG-TERM LIABILITIES:
Long-term capitalized leases, net of current portion 15,480 21,374
Bank line of credit, net of current portion 258,462 92,158
Deferred income taxes 800 800
---------- ----------
Total long-term liabilities 274,742 114,332
---------- ----------
Total liabilities 2,587,601 2,008,207
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Commitments and contingencies
Stockholders' equity:
Common Stock, par value $.01 per share, authorized
10,000,000 shares; outstanding 1,046,976 and
1,027,776 shares, respectively 14,970 14,778
Preferred Stock Series A, par value $.01 per share,
authorized 10,000 shares; outstanding 8,486 shares 8,486 8,486
Preferred Stock Series B, par value $.01 per share,
authorized 10,000 shares; outstanding 8,583 shares 8,583 8,583
Preferred Stock Series C, par value $.01 per share,
authorized 2,100 shares; outstanding 0 shares -- --
Additional paid-in capital 2,157,716 1,977,788
Retained earnings 482,106 915,502
---------- ----------
Total stockholders' equity 2,671,861 2,925,137
---------- ----------
Total liabilities and stockholders' equity $5,259,462 $4,933,344
========== ==========
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
UNIFIED FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
<CAPTION>
Three Months Ended
---------------------------------
March 31, March 31,
1998 1997
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<S> <C> <C>
REVENUE:
Brokerage $ 747,824 $ 659,966
Fund services 237,482 400,530
Investment advisory 678,169 352,879
Trust and administration services 306,791 71,703
Software and programming 8,851 47,198
Other income 63,445 40,039
---------- ----------
Total gross revenue 2,042,562 1,572,315
---------- ----------
COST OF SALES:
Brokerage revenue charges 513,208 435,895
Investment fees 36,967 17,828
Administration fees 17,986 15,349
---------- ----------
Total cost of sales 568,161 469,072
---------- ----------
Gross profit 1,474,401 1,103,243
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EXPENSES:
Employee compensation and benefits 666,283 748,626
Brokerage operating charges 80,884 69,957
Fund services operating charges 17,928 56,999
Mail and courier service 21,714 10,387
Telephone 24,049 32,286
Equipment rental and maintenance 32,373 19,810
Occupancy 70,019 48,351
Depreciation 72,755 48,298
Other operating expenses 222,141 119,786
---------- ----------
Total expenses 1,208,146 1,154,500
---------- ----------
Income from operations 266,255 (51,257)
---------- ----------
OTHER INCOME (LOSS):
Unrealized gain or (loss) on securities 36,397 (5,192)
Realized gain on securities 5,336 --
Results of loss of affiliate (39,945) (14,414)
Gain on sale/disposal or fixed assets 5,283 --
---------- ----------
Total other income (loss) 7,071 (19,606)
---------- ----------
INCOME BEFORE INCOME TAXES 273,326 (70,863)
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<S> <C> <C>
INCOME TAXES:
Current $ 600 $ 600
Deferred (5,886) 3,675
---------- ----------
NET INCOME $ 278,612 $ (75,138)
========== ==========
Preferred dividends $ 34,418 $ 34,325
Income available to common stockholders 244,194 (109,463)
========== ==========
Per share data:
Weighted average common shares outstanding:
Basic 1,040,416 455,008
Diluted 1,046,976 1,027,776
Earnings per share of common stock:
Basic $ 0.23 $ (0.24)
========== ==========
Diluted 0.23 (0.11)
========== ==========
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
UNIFIED FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
<CAPTION>
Three Months Ended
March 31,
----------------------------------
1998 1997
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<S> <C> <C>
OPERATING ACTIVITIES:
- --------------------
Net income $ 278,552 $ (75,138)
Adjustments to reconcile net income to
Net cash provided by operating activities:
Deferred income taxes (6,080) (1,154)
Depreciation and amortization 72,755 48,298
Amortization of bond discount (222) --
Unrealized gain (loss) on investments (36,397) 5,192
Results from affiliates 39,945 14,414
Gain (loss) on sale/disposal of fixed assets (5,283) --
Excess of net assets of Unified Investment
Advisors, Inc. (814,347) --
Changes in assets and liabilities:
Receivables 409,608 96,149
Prepaid and sundry assets (32,153) 6,501
Accounts payable and accrued expenses 152,305 (132,462)
Accrued compensation and benefits 94,686 (30,078)
Payable to broker/dealers 19,843 46,392
Accrued income taxes (8,807) (6,735)
Other liabilities (97,753) 109,742
---------- ---------
Net cash from operating activities 66,652 81,121
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INVESTING ACTIVITIES:
- --------------------
Purchase of equipment (18,336) (34,873)
Proceeds from sale of fixed assets 9,968 --
Proceeds from notes receivable -- 1,262
Investments in mutual funds 56,736 --
Investments in debt securities 70,301 --
---------- ---------
Net cash from investing activities 118,669 (33,611)
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FINANCING ACTIVITIES:
- --------------------
Dividends to preferred stockholders (34,418) (34,873)
Proceeds from issuance of common stock 180,000 2,553
Repayment of borrowing (7,680) --
Borrowings bank line-of-credit 229,419 --
Repayment of capitalized lease obligations (13,784) 10,787
---------- ---------
Net cash from financing activities 353,537 (42,559)
---------- ---------
Net increase in cash and cash equivalents 538,858 4,951
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<S> <C> <C>
Cash and cash equivalents, beginning of period 604,068 538,030
---------- ---------
Cash and cash equivalents, end of period $1,142,926 $ 542,981
========== =========
Supplementary information
Interest paid $ 8,923 $ 1,317
========== =========
Income taxes paid $ 8,807 $ 4,500
========== =========
See notes to consolidated financial statements.
</TABLE>
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UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. BASIS OF PRESENTATION
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 Funds Services, Inc., Health Financial, Inc.,
First Lexington Trust Company, Resource Benefit Planners, Inc., Unified
Investment Advisers, Inc. and Unified Internet Services, Inc. Unless
the context otherwise indicates, references to "Unified" or the
"Company" include Unified and its subsidiaries.
Unified Management Corporation ("Management"), an Indiana
corporation, is a registered broker dealer under the Securities
Exchange Act of 1934, as amended, and is a member of the National
Association of Securities Dealers, Inc.
Unified Funds Services, Inc. ("Services"), an Indiana
corporation, is a registered investment adviser under the Investment
Advisers Act of 1940, as amended, and provides investment advisory,
transfer agent, dividend disbursing, transfer agency system software
licensing and fund accounting services to investment companies.
Health Financial, Inc. ("Health"), a Kentucky corporation, is an
investment advisory business providing services to trusts, retirement
plans, business and individuals located primarily in Kentucky.
First Lexington Trust Company ("Lexington"), a Kentucky
corporation, is a non-bank affiliated trust company that is regulated
by the Department of Financial Institutions, Commonwealth of Kentucky.
Lexington received its trust charter in March of 1994.
On March 10, 1998, the Company acquired Resource Benefit
Planners, Inc. ("Resource Benefit Planners"). Resource Benefit
Planners, a Kentucky corporation, is a professional services firm that
provides consulting, recordkeeping and trust accounting services for
qualified retirement and cafeteria plans. The Company issued 12,000
shares of common stock, $0.01 par value, of the Company ("Common
Stock") in exchange for all the outstanding common stock of Resource
Benefit Planners. As of March 10, 1998, Resource Benefit Planners
reported total assets of $282,724 and shareholder's equity of $37,543.
On March 31, 1998, Unified Investment Advisers, Inc. ("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 by the stockholders of the Unified family of mutual funds and
upon receipt of the required regulatory approval. As of March 31,
1998, Advisers reported total assets of $617,773 and shareholders'
equity of $(469,548).
In March 1998, the Company formed Unified Internet Services, Inc.
("Unified Internet Services"), an Indiana corporation, 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
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<PAGE> 10
internet products, including an interactive "switch" that will allow
consumers access to the Company's products via their television, cable
and satellite stations. The anticipated development is expected to be
completed by the end of 1999.
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 consolidated financial statements of the Company give effect to
the acquisition by the Company of Resource Benefit Planners on March
10, 1998, which transaction was accounted for under the pooling-of-
interest method of accounting. Due to the immateriality of the
financial condition and results of operations of Resource 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 Resource Benefit
Planners. The results of operations of Resource Benefit Planners have
been included in the Company's consolidated financial statements since
January 1, 1998. The results of operations for the three months ended
March 31, 1998 are not necessarily indicative of the results that may
be obtained for the full year ending December 31, 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of the
Company, Management, Services, Health, Lexington, Resource Benefit
Planners, Advisers and Unified Internet Services. All intercompany
transactions and balances between the Company and its subsidiaries have
been eliminated.
Effective March 10, 1998, the Company acquired Resource 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 Resource 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 Resource Benefit Planners. The
results of operations of Resource 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 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 is November 30) ended March 31, 1998
of $146,519 and loss for the period of $195,967. Advisers reported
total assets as of March 31, 1998 of $617,773 and shareholders' equity
of $(469,548).
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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
the trade date. The investment advisory business revenue, as well as
the investment adviser fees earned by third party advisors, is recorded
on the accrual basis. The fees earned by the operation and paid to the
sub-advisors 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
operation provides 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
The property and equipment is stated at cost. Depreciation,
including the depreciation of capital leased equipment, is computed on
the straight-line or using accelerated methods over the estimated
useful lives 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
$55,000,000 of trust assets under management.
Income Taxes
The Company files consolidated federal and state income tax
returns with its subsidiaries. Resource Benefit Planners, prior to its
acquisition by the Company, filed as an S-corporation. Therefore,
federal and state taxable income and losses were passed through to its
stockholders. Subsequent to its acquisition by the Company, Resource
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.
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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
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Statements 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.
3. OPTIONS
On February 25, 1998, the Company adopted, subject to approval by
the stockholders of the Company, 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: (a) Incentive Stock Options; (b) Nonqualified Stock Options;
(c) Stock appreciation Rights ("SAR"); (d) Restricted Stock; (e)
Restricted Stock Units; and/or (f) Performance Awards. As of March 31,
1998, no awards had been made pursuant to the Plan.
4. FINANCING
The Company obtained a line of credit financing 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 March
31, 1998, the amount outstanding under this credit financing was
$344,616. 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.
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5. COMMITMENTS AND CONTINGENCY
The Company, through its subsidiary, Management, leases its
corporate headquarters and administrative office facilities located at
431 North Pennsylvania Street, Indianapolis, Indiana, which facility
has approximately 10,820 square feet, and is leased pursuant to an
operating lease expiring in 2007. 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 the
corporate offices of Lexington, Health and Resource Benefit Planners,
each of which is located at 2353 Alexandria Drive, Suite 100,
Lexington, Kentucky.
The aggregate minimum rental commitments required under operating
leases for office space and equipment at March 31, 1998 were as
follows:
<TABLE>
<CAPTION>
For the Twelve Months Ended
March 31 Amount
--------------------------- ----------
<C> <C>
1999 $ 297,270
2000 254,551
2001 254,551
2002 216,322
Thereafter 1,281,629
----------
Total $2,304,323
==========
</TABLE>
Total rental expense was $70,019 and $49,358 for the three months
ended March 31, 1998 and 1997, respectively.
6. 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 March 31, 1998:
<TABLE>
<CAPTION>
For the Twelve Months Ended
March 31 Amount
--------------------------- -------
<C> <C>
1999 $25,618
2000 16,559
-------
Total 42,177
Less amount representing interest 4,497
-------
Net present value $37,680
=======
</TABLE>
The Company did not acquire any capital lease obligations during
the three months ended March 31, 1998 and 1997.
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7. CASH SEGREGATED UNDER FEDERAL REGULATION AND NET CAPITAL REQUIREMENTS
FOR UNIFIED MANAGEMENT CORPORATION
Pursuant to Rule 15c3-3 as promulgated by the Securities and
Exchange Commission (the "SEC"), the Company 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 the Company was $0 at March 31, 1998. Balances
segregated in excess of reserve requirements are not restricted.
The Company is subject to the SEC's Uniform Net Capital Rule
("Rule 15c3-1"), which requires the maintenance of minimum net capital,
as defined, of 6-2/3% of aggregate indebtedness or $50,000, whichever
is greater, and a ratio of aggregate indebtedness to net capital of not
more than 15 to 1. At March 31, 1998, the Company had net capital of
$304,585, which was in excess of its required net capital of $50,000,
and a net capital ratio of 1.09 to 1 at March 31, 1998.
8. COMMON AND PREFERRED STOCK
Common Stock:
Acquisition of Resource Benefit Planners, Inc.
The Company has 10,000,000 authorized shares of Common Stock. In
connection with the acquisition of Resource Benefit Planners on March
10, 1998, the Company issued 12,000 shares of Common Stock as reflected
in Note 1 of the notes to the financial statements.
Private Placement Offering
Effective 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 are 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 will be offered at a price
of $27.50 per share. All of the shares of Common Stock offered in the
private placement are being sold by the Company on a best efforts
basis. There is no public market for any securities of the Company.
There can be no assurance that a market will develop in the future.
The offering will terminate on the earlier occurrence of: (i)
subscriptions of 600,000 shares of Common Stock having been accepted;
or (ii) June 30, 1998.
As of March 31, 1998, the Company had accepted subscriptions for
7,200 shares of Common Stock pursuant to the private placement.
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Preferred Stock:
As of March 31, 1998, the total preferred shares authorized for
the Company was 1,000,000 with a par value of $0.01 per share of which
22,100 shares were designated as follows:
<TABLE>
<CAPTION>
Shares
Shares issued and Stated Par
Designated outstanding value value
---------- ----------- ----- -----
<S> <C> <C> <C> <C>
Preferred Stock Series A 10,000 8,486 $100 $0.01
Preferred Stock Series B 10,000 8,583 100 0.01
Preferred Stock Series C 2,100 -- 100 0.01
</TABLE>
On August 1, 1997, the Board designated 2,100 shares of the
Preferred Stock of the Company as Series C 6.75% Cumulative Convertible
Preferred Stock.
9. SUBSEQUENT EVENT
Series A and Series B Preferred Stock Redemption:
On February 20, 1998, the Board of Directors approved the
redemption of the outstanding Series A and Series B Preferred Stock of
the Company, effective as of April 25, 1998. 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.
Series C Preferred Stock Issuance:
In May 1998, the Company issued 2,100 shares of Series C 6.75%
Cumulative 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.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The Company was organized December 7, 1989. As of March 31, 1998,
Unified owned all of the capital stock of Management, Indianapolis, Indiana,
a licensed National Association of Securities Dealers, Inc. and registered
broker-dealer, Services, Indianapolis, Indiana, a registered investment
adviser and transfer agent, 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,
an internet services company, Resource Benefit Planners, Lexington, Kentucky,
a professional services firm, Advisers, a mutual fund advisory firm, HFI
Acquisition Corporation, a Kentucky corporation ("HFAC"), and VAI Acquisition
Corporation, a Delaware corporation ("VAC"). Each of HFAC and VAC currently
does not conduct any operations. Reference in this filing to the "Company"
or "Unified" includes Unified and its wholly owned subsidiaries.
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<PAGE> 16
The Company provides management services, working capital and equipment
for its wholly owned financial services subsidiaries. The Company's
principal business is providing for its subsidiaries a platform for attaining
and maintaining vertical integration in the financial services industry by
means of an aggressive merger and acquisition program featuring stock-for-stock
pooling of interests transactions and providing management services and
equipment for its wholly owned subsidiaries, which, in turn, concentrate
their services over the following lines of business in the financial services
industry: mutual 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, consolidations
and start-ups of 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
the mutual fund industry; asset allocation services; and financial services
institutions, predominately mutual funds, including the Unified Funds, a family
of four no-loan mutual funds sponsored by Advisers.
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 accompanying notes thereto.
Comparison of Results for the Three Months Ended March 31, 1998 and 1997
Total revenue for the three months ended March 31, 1998 increased
$470,247, or 29.9%, as compared to the same period of 1997. For such
periods, revenue from investment advisory and trust and administration
services increased 132% from $424,582 to $984,960. The increase in these
revenues was due to the growth in assets under management. Software and
programming and fund services revenue were partially offset by the increase
in brokerage revenue.
Gross profit of $1,474,401 for the three months ended March 31, 1998
increased $371,158, or 33.6%, as compared to the same period of 1997. For
such periods, gross profit as a percentage of revenue increased to 72.2% from
70.2%. Investment advisory and trust and administration gross profit
percentage improvements more than offset the slightly higher increase in
brokerage revenue charges.
Expenses for the three months ended March 31, 1998 as compared to the
same period of 1997 increased 4.6% from $1,154,500 to $1,208,146, respectively.
For such periods, as a percentage of total revenue, expenses decreased from
73.4% to 59.1%, primarily due to the increase in revenue coupled with lower
employee compensation expense and fund services operating charges, which were
partially offset by an increase in other expenses.
The increase in the securities market is reflected in the improvement
of other income from the gain on unrealized and realized security transactions
more than offsetting Unified's portion of the loss at Advisers through March 31,
1998.
Net income for the first quarter of 1998 was $278,612, which compares
favorably to the loss of $75,138 during the first quarter of 1997. Such
improvement was a result of the increased assets under management which
resulted in higher revenue, lower cost of sales, expenses, which are relatively
fixed, and the growth in the stock market during the first quarter of 1998.
- 16 -
<PAGE> 17
Liquidity and Capital Resources
The Company's primary sources 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 quarter of 1998 from year end 1997 was $538,858. The principal
increase reflects bank borrowing for equipment of $229,419 and private
placement proceeds received as of March 31, 1998 of $180,000.
The Company is attempting to raise approximately $15.5 million of
additional capital through a private placement offering. On April 25, 1998,
the Company utilized approximately $1.7 million of such proceeds from the
private placement to redeem the outstanding shares of Series A and Series B
Preferred Stock. Pending usage, the Company may invest the net proceeds in
its own no-load mutual fund portfolios. As of May 7, 1998, the Company had
accepted subscriptions for 236,324 shares of Common Stock, for total
consideration of $5,908,100.
* * *
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.
PART II. OTHER INFORMATION
Item 3. Changes in Securities and Use of Proceeds
For the three months ended March 31, 1998, the only sales of the
Company's securities were: (i) 12,000 shares of Common Stock issued in
connection with the acquisition of Resource Benefit Planners (such shares
were issued in exchange for all the outstanding capital stock of Resource
Benefit Planners); and (ii) 7,200 shares of Common Stock issued by the
Company in connection with a private offering of up to 600,000 shares of
Common Stock, at an offering price of $25.00 per share. 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 Commission.
Item 4. Submission of Matters to a Vote of Securityholders
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: See Exhibit Index on page 19 hereof.
--------
(b) Reports on Form 8-K: On January 14, 1998 and January 29, 1998, the
-------------------
Company filed Current Reports on Form 8-K to report the acquisition by
the Company of Lexington and the name change of the Company to "Unified
Financial Services, Inc." from "Unified Holdings, Inc.," respectively.
In connection with the acquisition of Lexington on December 31, 1998, the
Company issued 80,008 shares of Common Stock in exchange for all
the outstanding capital stock of First Lexington. The name change of
the Company was effective January 23, 1998.
- 17 -
<PAGE> 18
SIGNATURE
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
UNIFIED FINANCIAL SERVICES, INC
(Registrant)
Dated: May 11, 1998 By: /s/ Timothy L. Ashburn
----------------------------------------
Timothy L. Ashburn
Chairman, President and Chief Executive
Officer
- 18 -
<PAGE> 19
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
11.1 Computation of Net Income Per Common Share.
27.1 Financial Data Schedule (March 31, 1998).
27.2 Restated Financial Data Schedule (March 31, 1997).
- 19 -
<PAGE> 1
<TABLE>
UNIFIED FINANCIAL SERVICES, INC.
EARNINGS PER SHARE
<CAPTION>
3/31/98 3/31/97
------- -------
<S> <C> <C>
Net income $ 278,551 $ (75,138)
Dividends on preferred stock 34,418 34,325
----------- -----------
Results after preferred dividend $ 244,133 $ (109,483)
=========== ===========
BASIC
- -----
Weighted average number of common shares outstanding 1,027,776 50,000
Common stock shares - private placement 640 -
Common stock equivalent shares related to Health Financial 325,000
Common stock equivalent shares related to First Lexington 80,008
Common stock equivalent shares related to Resource Benefit Planners 12,000 -
----------- -----------
Total weighted average shares 1,040,418 455,008
=========== ===========
Basic earnings per share $ 0.23 $ (0.24)
=========== ===========
Fully diluted
- -------------
Weighted average number of common shares outstanding 1,027,776 50,000
Common stock equivalent shares related to M.E.R.P. 572,768
Common stock shares - private placement 7,200 -
Common stock equivalent shares related to Health Financial 325,000
Common stock equivalent shares related to First Lexington 80,008
Common stock equivalent shares related to Resource Benefit Planners 12,000 -
----------- -----------
Total weighted average shares 1,046,976 1,027,776
=========== ===========
Fully diluted earnings per share $ 0.23 $ (0.11)
=========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated statements of financial condition and the consolidated
statements of operation of Unified Financial Services, Inc., filed by the
Company with the Commission, in its quarterly report on Form 10-QSB for
the quarter ended March 31, 1998 and is qualified in its entirety by reference
to such filing.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,142,926
<SECURITIES> 687,598
<RECEIVABLES> 1,324,093
<ALLOWANCES> 2,041
<INVENTORY> 0
<CURRENT-ASSETS> 3,325,771
<PP&E> 1,382,402
<DEPRECIATION> 713,685
<TOTAL-ASSETS> 5,259,462
<CURRENT-LIABILITIES> 2,313,859
<BONDS> 0
<COMMON> 14,970
17,089
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,259,482
<SALES> 0
<TOTAL-REVENUES> 2,042,562
<CGS> 0
<TOTAL-COSTS> 568,161
<OTHER-EXPENSES> 1,192,152
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,923
<INCOME-PRETAX> 273,326
<INCOME-TAX> (5,226)
<INCOME-CONTINUING> 278,552
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 278,552
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated statements of financial condition and the consolidated
statements of operation of Unified Financial Services, Inc., previously
filed by the Company with the Commission, and is qualified in its
entirety by reference to such filing.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 542,981
<SECURITIES> 375,763
<RECEIVABLES> 975,413
<ALLOWANCES> 2,041
<INVENTORY> 0
<CURRENT-ASSETS> 2,016,469
<PP&E> 1,474,449
<DEPRECIATION> 938,650
<TOTAL-ASSETS> 3,795,117
<CURRENT-LIABILITIES> 994,207
<BONDS> 0
<COMMON> 9,050
17,069
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,795,117
<SALES> 0
<TOTAL-REVENUES> 1,572,315
<CGS> 0
<TOTAL-COSTS> 469,072
<OTHER-EXPENSES> 1,172,789
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,317
<INCOME-PRETAX> (70,883)
<INCOME-TAX> 4,275
<INCOME-CONTINUING> (75,138)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (75,138)
<EPS-PRIMARY> (0.24)
<EPS-DILUTED> (0.11)
</TABLE>
