<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
Quarterly report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1997
Commission file number: 0-22629
UNIFIED HOLDINGS, 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 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 December 31, 1997, the registrant had 1,027,776 outstanding 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
Item 1. Financial Statements:
Consolidated Balance Sheets 3
Consolidated Statements of Income 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations:
Overview 14
Results of Operations 15
Liquidity and Capital Resources 16
PART II. OTHER INFORMATION
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
</TABLE>
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<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS:
UNIFIED HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(unaudited)
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 603,689 $ 426,215
Investments in affiliated mutual funds 643,232 203,040
Investments in non-affiliated mutual funds 188,234 177,915
Note receivable - affiliated company 50,000 50,000
Note receivable - non-affiliated company 5,361 30,113
Accounts receivable:
Accounts receivable, gross 1,227,296 922,253
Less: doubtful accounts 2,041 2,041
----------- -----------
Net receivable 1,225,255 920,212
----------- -----------
Prepaid and sundry assets 124,605 127,430
----------- -----------
Total current assets 2,840,376 1,934,925
----------- -----------
NON-CURRENT ASSETS
Equity in and advances to affiliate 377,756 445,293
Notes receivable, net of current maturity 8,090 11,262
FIXED ASSETS, at cost:
Property, equipment and furniture, net 258,223 411,390
Capitalized leased equipment, net 148,538 99,876
----------- -----------
Total fixed assets 406,761 511,266
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Total assets $ 3,632,983 $ 2,902,746
=========== ===========
See notes to consolidated financial statements.
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<CAPTION>
September 30, December 31,
1997 1996
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<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES:
Current portion of capitalized leases $ 86,320 $ 38,651
Accounts payable and accrued liabilities 359,626 358,371
Accrued compensation and benefits 238,690 139,730
Payable to broker/dealers 247,998 124,489
Other liabilities 724,435 308,172
----------- -----------
Total current liabilities 1,657,069 969,413
----------- -----------
LONG-TERM LIABILITIES:
Long-term capitalized leases, net of current portion 41,581 32,695
----------- -----------
Total liabilities 1,698,650 1,002,108
----------- -----------
Commitments and contingencies
Stockholders' equity:
Common Stock, $.01 par value - shares
outstanding, 622,768 and 25,179,
respectively 10,728 1,599
Preferred Stock Series A - shares
outstanding, 8,486 8,486 8,486
Preferred Stock Series B - shares
outstanding, 8,583 8,583 8,583
Subscribed shares to be issued in
connection with acquisition of Health
Financial, Inc. 3,250 3,250
Additional paid-in capital 1,148,588 1,076,598
Retained earnings 635,101 761,329
Net unrealized appreciation on securities
available-for-sale 119,597 40,793
----------- -----------
Total stockholders' equity 1,934,333 1,900,638
----------- -----------
Total liabilities and stockholders' equity $ 3,632,983 $ 2,902,746
=========== ===========
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
UNIFIED HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- -------------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE:
Revenue from broker/dealer operations $ 402,111 $ 406,639 $ 1,136,368 $ 1,463,228
Investment advisors fees 609,935 369,637 1,510,491 1,207,793
Revenue from fund services operations 386,582 839,918 1,015,451 1,509,636
Trail commission 247,807 233,899 720,107 759,034
Custody and retirement fees 5,536 45,849 255,217 206,273
Software and program fees 31,879 48,008 126,687 143,178
Net investment and other income (5,404) (15,601) 107,097 23,095
----------- ----------- ----------- -----------
Total gross revenue 1,678,446 1,928,349 4,871,418 5,312,237
----------- ----------- ----------- -----------
COST OF SALES:
Brokerage revenue charges 256,630 261,723 724,449 916,776
Trail commission charges 169,193 155,041 502,909 491,977
Investment advisor fees 12,994 13,238 46,741 42,562
Administration fees 2,705 935 4,455 3,060
----------- ----------- ----------- -----------
Total cost of sales 441,522 430,937 1,278,554 1,454,375
----------- ----------- ----------- -----------
Gross profit 1,236,924 1,497,412 3,592,864 3,857,562
----------- ----------- ----------- -----------
EXPENSES:
Compensation and benefits 654,533 698,181 2,182,180 2,122,910
Brokerage operating charges 87,340 86,663 221,534 264,885
Fund services operating charges 57,275 50,988 189,403 185,803
Telephone 21,354 (9,787) 77,528 45,478
Mail and courier service 14,556 11,094 35,940 43,034
Equipment rental and maintenance 32,031 31,184 61,610 62,734
Professional fees 40,866 12,839 90,402 37,015
Occupancy 56,062 50,902 153,506 149,156
Depreciation and amortization 43,739 57,948 123,581 137,664
Office supplies 21,728 15,142 42,691 45,932
Travel and entertainment 23,065 14,212 68,115 38,516
Interest 2,274 521 6,232 3,364
Other operating expenses 18,840 47,456 145,664 147,135
----------- ----------- ----------- -----------
Total expenses 1,073,772 1,067,343 3,398,386 3,283,626
----------- ----------- ----------- -----------
Income from operations before gain on securities 163,152 430,068 194,478 574,236
Gain on securities 1,098 1,857 24,996 39,929
Results of affiliate (147,467) (52,801) (67,537) (69,399)
----------- ----------- ----------- -----------
Income before income taxes 16,783 408,063 151,937 544,766
Provision for income taxes 16,000 -- 16,000 --
----------- ----------- ----------- -----------
Net income 783 408,063 135,937 544,766
Dividend on preferred stock 34,324 34,324 101,854 102,309
----------- ----------- ----------- -----------
Results after preferred stock dividend $ (33,641) $ 373,739 $ 34,083 $ 442,457
=========== =========== =========== ===========
Per share data:
Basic: Weighted average primary
Common shares outstanding 536,550 528,747 511,729 511,729
Net income $ (0.06) $ 0.30 $ 0.06 $ 0.86
Fully diluted: Weighted average fully diluted
Common shares outstanding 947,768 947,768 947,768 947,768
Net income $ (0.04) $ 0.39 $ 0.04 $ 0.47
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
UNIFIED HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
<CAPTION>
Nine Months Ended
September 30,
----------------------------
1997 1996
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<S> <C> <C>
OPERATING ACTIVITIES:
- --------------------
Net income $ 135,937 $ 544,765
Adjustments to reconcile net income to
Net cash provided by operating activities:
Depreciation and amortization 123,581 137,664
Results from affiliates 67,537 69,399
Book value of fixed assets disposed 128,851 41,859
Changes in assets and liabilities:
Receivables (305,043) (488,912)
Prepaid and sundry assets 2,825 12,386
Accounts payable and accrued expenses 1,255 (29,820)
Accrued compensation and benefits 98,960 14,090
Payable to broker/dealers 123,509 (4,971)
Other liabilities 416,263 71,805
---------- ----------
Cash provided (used in) by operating activities 793,675 368,265
---------- ----------
INVESTING ACTIVITIES:
- --------------------
Additions to premises and equipment (147,927) (29,124)
Unrealized gain (loss) on securities 78,804 (4,592)
Notes receivable 27,924 (41,375)
Investment in non-affiliated mutual funds (10,319) 28,706
Investment in affiliated mutual funds (440,192) (219,988)
---------- ----------
Cash provided by (used in) investing activities (491,710) (266,373)
---------- ----------
FINANCING ACTIVITIES:
- --------------------
Dividends to preferred stockholders (101,854) (102,309)
Dividends to Health Financial, Inc.
common stockholder (157,007) --
Proceeds from issuance of common stock 77,815 8,448
Reclassification of note receivable
from affiliated company -- (65,888)
Payment received on note from affiliated company -- 15,888
Borrowings of capitalized leases 93,320 35,063
Repayment of capitalized lease obligations (36,765) (73,744)
---------- ----------
Cash provided by (used in) financing activities (124,491) (182,542)
---------- ----------
Net (decrease) increase in cash and cash equivalents 177,474 (80,650)
Cash and cash equivalents, beginning of period 426,215 423,986
---------- ----------
Cash and cash equivalents, end of period $ 603,689 $ 343,336
========== ==========
See notes to consolidated financial statements.
</TABLE>
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UNIFIED HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the
accounts of Unified Holdings, Inc. and its subsidiaries: Unified
Management Corp., Unified Advisers, Inc and Health Financial Inc.
Unless the context otherwise indicates, references to the "Company"
include Unified Holdings, Inc. and its subsidiaries.
Unified Management Corp. ("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 Advisers, Inc. ("Advisers"), 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.
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-Q 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 consolidated financial
statements of the Company have been restated to give effect to the
acquisition by the Company of Health on June 1, 1997, which transaction
was accounted for under the pooling-of-interests method of accounting.
The shares to be issued in connection with the Health acquisition have
been reported on the financial statements of the Company as "Subscribed
shares to be issued in connection with acquisition of Health Financial,
Inc.," pending completion of corporate due diligence. The results of
operations for the nine months ended September 30, 1997 are not
necessarily indicative of the results that may be obtained for the full
year ending December 31, 1997.
2. PROPOSED ACQUISITIONS
On April 25, 1997, the Company entered into an agreement to
acquire First Lexington Trust Company ("Lexington") located in
Lexington, Kentucky. Lexington is a non-bank-affiliated trust company
that is regulated by the Kentucky Department of Financial Institutions,
which has approved the proposed merger. This acquisition will be
accounted for under the pooling-of-interests method of accounting. In
connection with the acquisition, the Company will issue 80,008 shares of
common stock, $0.01 par value, of the Company ("Common Stock"), based
upon an exchange ratio of 9.644 shares of Common Stock for each
outstanding share of Lexington common stock. The acquisition is
anticipated to be completed during the fourth quarter of 1997 and is
subject to, among other things, regulatory approval and the approval of
the stockholders of Lexington. As of September 30, 1997, Lexington
reported total assets of $1,125,358 and stockholders' equity of
$1,059,526.
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On May 8, 1997, the Company entered into an agreement to acquire
Vintage Advisers, Inc. ("VAI"). VAI was incorporated in Delaware on
December 12, 1994 and is registered to do business in Indiana for the
purpose of being the advisor to the Vintage Mutual Funds. VAI is a
registered advisor under the Investment Advisers Act of 1940, as
amended. Effective as of December 1, 1997, the Company and VAI
terminated the definitive agreement dated May 8, 1997. By separate
agreement dated December 1, 1997, the stockholders of VAI (other than
the Company) have agreed to surrender to VAI their shares of capital
stock of VAI. Upon consummation of such surrender, the Company will
own all of the outstanding capital stock of VAI. As of September 30,
1997, VAI reported total assets of $549,237 and stockholders' equity
of ($290,599).
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of the
Company, Advisers, Management and Health. All intercompany transactions
and balances between the Company and its subsidiaries have been
eliminated.
Fees and Commissions
The mutual funds and trust administration services operations
provide administrative and investment services to investment companies
and separate accounts. The Company records revenue on the accrual basis
of accounting.
For the brokerage line of business, 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
advisory 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.
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.
Income Taxes
The Company files consolidated federal and state income tax
returns with its subsidiaries. Health, 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 stockholder.
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Subsequent to its acquisition by the Company, Health 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"). The
Statement requires use of the liability method of accounting for
deferred income taxes.
The Company has recorded a $16,000 tax liability related to
alternate minimum tax because of the pooling-of-interests acquisition of
Health. Health elected accelerated tax depreciation methods on fixed
assets prior to the pooling-of-interests. The Company may not have
sufficient net operating loss related to alternative minimum tax
depreciation carryforward. This liability was recorded based upon
management's estimate and could be modified based upon future operations
of the Company.
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.
Statement of Cash Flows
For purposes of the statement of cash flows, the Company considers
all liquid investments with an original maturity of three months or less
to be cash equivalents. Cash and cash equivalents included money market
investments at September 30, 1997 of $547,293 that are not insured by
the Federal Deposit Insurance Corporation.
4. OPTIONS
The Company applies APB Opinion No. 25 and related interpretations
in accounting for the Unified Holdings, Inc. Management and Employee
Retention Plan (the "M.E.R.P."). Effective as of July 25, 1997, the
Company terminated the M.E.R.P. and the Unified Holdings, Inc.
Restricted Stock Option Plan (the "Stock Option Plan"). Prior to the
termination of the M.E.R.P., the Company and each participant who held
an option granted pursuant to the M.E.R.P. executed an amendment to
their respective agreement to provide for immediate vesting, waive
certain anti-dilution protection and clarify certain other terms. All
such options were exercised as of July 25, 1997 and, in connection
therewith, the Company issued 572,768 shares of Common Stock. Also
effective as of July 25, 1997, the Company and each participant who held
an award issued pursuant to the Stock Option Plan executed a Release and
Surrender Agreement whereby such participants surrendered their awards
to the Company.
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In connection with the exercise of the outstanding M.E.R.P.
options, each optionee executed a demand promissory note payable to the
Company in an amount equal to such optionee's aggregate exercise price
for the shares subject to the option. The aggregate amount of the
promissory notes was approximately $75,300 and such notes did not bear
interest. On July 25, 1997, the Company paid to each optionee a bonus
in an amount sufficient to extinguish the debt represented by their
promissory note. Such bonuses also were adjusted upward to reflect the
income tax effect of the bonus payment to the participant. The exercise
of the options had no material financial impact on the Company; however,
the payment of the bonuses had an after-tax cost to the Company of
approximately $50,200.
5. TRANSACTIONS WITH RELATED PARTIES
The Company provides administrative services to VAI, an affiliated
company, for the use of supplies, equipment, employees' costs and
benefits, space and other services. The revenue for these services was
$254,372 for the nine months ended September 30, 1997. The receivable
from VAI to the Company was $304,819 at September 30, 1997.
In 1995, the Company loaned VAI $65,888 to reimburse the Vintage
Mutual Funds for an outstanding obligation. The promissory note is due
on demand with interest payable at prime plus two percent per annum.
The note receivable at September 30, 1997 was $50,000.
6. COMMITMENTS AND CONTINGENCY
The Company entered into a line of credit agreement with a bank
during August of 1997. The maximum borrowing capacity is Five Hundred
Thousand Dollars ($500,000) for the purpose of purchasing various
communication and computer hardware and software equipment to support
future operating needs. As of September 30, 1997, the amount
outstanding under this credit facility was $69,481.
The Company, through its subsidiary, Management, leases its
corporate headquarters and administrative office facilities located at
429 North Pennsylvania Street, Indianapolis, Indiana, which facility has
approximately 11,086 square feet, and is leased pursuant to an operating
lease expiring in 2001. During August 1997, Health signed a lease for
office and administrative office facilities located 2353 Alexandria
Drive, Lexington, Kentucky. The operating lease expires in 2002 and the
facility has approximately 2,554 square feet. The Company's current
administrative offices are considered adequate to serve the Company's
foreseeable needs. Other than the administrative office leases and the
equipment and capital leases listed herein, the Company has no other
significant property holdings.
Lease obligations are allocated between the Company and its
subsidiaries based upon estimated usage. The leases include clauses
for adjustment of operating costs and real estate taxes that are not
reflected as part of the minimum obligations. The aggregate minimum
rental commitments required under operating leases and noncancelable
subleases for office space and equipment at September 30, 1997 were as
follows:
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<TABLE>
<CAPTION>
FOR THE TWELVE MONTHS
ENDED SEPTEMBER 30, LEASE COMMITMENTS
--------------------- -----------------
<S> <C>
1998 $ 258,935
1999 254,649
2000 229,444
2001 224,508
Thereafter 1,073,677
-----------
Total $ 2,041,213
===========
</TABLE>
The total rental expense was $153,506 and $149,156 for the nine
months ended September 30, 1997 and 1996, respectively.
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, 1997:
<TABLE>
<CAPTION>
FOR THE TWELVE MONTHS
ENDED SEPTEMBER 30, AMOUNT
--------------------- ------
<S> <C>
1998 $ 52,410
1999 41,018
2000 22,661
2001 17,749
2002 1,478
----------
Total 135,316
Less amount representing interest 7,415
----------
Net present value $ 127,901
==========
</TABLE>
The Company acquired equipment through a capital lease obligation
in the amount of $93,320 and $35,063 during the nine-month period ended
September 30, 1997 and 1996, respectively.
8. CASH SEGREGATED UNDER FEDERAL REGULATION
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 the customers on a periodic basis. The reserve requirement
calculated by the Company was $0 at September 30, 1997. Balances
segregated in excess of reserve requirements are not restricted.
9. NET CAPITAL REQUIREMENTS
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 $250,000, whichever
is greater, and a ratio of aggregate indebtedness to net capital of not
more than 15 to 1. At September 30, 1997, the Company had net capital
of $404,168, which was in excess of its required net capital of
$250,000, and a net capital ratio of 0.40 to 1 at September 30, 1997.
10. EMPLOYEE BENEFIT PLANS
The Company sponsors a profit-sharing and Section 401(k) defined
contribution retirement plan that covers substantially all employees.
The Board of Directors of the Company
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determines contributions to the plan. The plan covers the Company,
Advisers, Management and Health. During the nine months ended September
30, 1997, an expense of $1,096 was incurred.
In 1996, the Company amended its Section 401(k) plan to include
matching of funds contributed into the Vintage Mutual Funds or used to
purchase Class B Preferred Stock of the Company in the Section 401(k)
Plan. The Company will match an employee's contribution up to fifty
percent of the first six percent of the employee's before-tax
contribution. The expense to the Company for such matching contribution
was $18,643 and $7,359 for the nine-month period ended September 30, 1997
and 1996, respectively.
11. COMMON AND PREFERRED STOCK
Common Stock:
At a meeting of the stockholders of the Company on February 6,
1997, the Company's stockholders approved an amendment to its
Certificate of Incorporation, as amended, which increased the par value
of the Company's Common Stock from no par value per share to $0.01 per
share and increased the authorized number of shares to 25,000,000.
On July 15, 1997, the Company declared and paid a stock dividend
with respect to the Common Stock such that each issued share of Common
Stock on such date was divided into a greater number of shares of Common
Stock immediately prior to such division of shares. Upon payment of
such stock dividend, the Company had 50,000 shares of its Common Stock
outstanding.
By a unanimous written consent of the stockholders of the Company
dated August 1, 1997, the Company's stockholders approved an Amended and
Restated Certificate of Incorporation of the Company, which decreased
the number of authorized shares of Common Stock to 10,000,000.
In connection with the acquisition of Health on June 1, 1997, the
Company will issue 325,000 shares of its Common Stock as reflected in
Note 2 of the notes to the financial statements.
Preferred Stock:
The total preferred shares authorized for the Company is 1,000,000
with a par value of $0.01 per share of which 22,100 shares have been
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>
Required dividend payments on the Series A and Series B Preferred
Stock are cumulative at 8% per annum of the stated value. The Company
may not create any additional class or series of stock ranking or having
a parity as to payment of dividends or as to liquidation preference,
over or with the Series A or Series B Preferred Stock. In the event of
non-payment of the cumulative preferred dividends, the preferred
stockholders shall be entitled to vote on all
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<PAGE> 13
matters presented to the stockholders of the Company, as provided in the
Amended and Restated Certificate of Incorporation of the Company.
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.
12. SUBSEQUENT EVENT
By unanimous written consent of the Board of Directors of the
Company dated November 7, 1997, the Board approved the payment of a
dividend with respect to Series A and Series B Preferred Stock of the
Company, payable to stockholders of record of the Company on October 31,
1997. The dividend payments aggregated approximately $34,700 and were
paid on November 11, 1997.
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<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company has three wholly owned subsidiaries through which it
conducts its operations: Advisers, a registered investment advisor and
transfer agent that was organized on February 1, 1990; Management, a National
Association of Securities Dealers ("NASD") and a SIPC member broker-dealer
that was organized on November 20, 1952 as Unified Underwriters and commenced
operations as Unified Management Corporation effective February 25, 1976; and
Health, a registered investment adviser that was organized on October 3, 1986
and acquired by the Company on June 1, 1997.
Advisers primary services include: mutual fund transfer agency and
shareholder recordkeeping; shareholder services plan support; mutual fund
start-up services; administration; fund accounting; compliance; asset
allocation services; statement processing; retirement plan services, including
support and constructs; fulfillment; and investment advisory services.
Advisers is a highly automated, registered stock transfer agent that
presently provides transfer agency, fund accounting, administrative and/or
compliance services for ten mutual fund families consisting of nearly $650
million in mutual fund assets, 36 portfolios and approximately 29,000
accounts. Additionally, as a registered investment adviser, Advisers has
approximately $117.5 million of assets under management, all of which are
investments in mutual funds, with approximately $57 million of the $117.5
million invested in the Vintage Mutual Funds.
Through its systems group and its link to a brokerage affiliate,
Advisers has the capability of converting assets on a tax-free basis
from existing funds into the Company's affiliated mutual fund family,
the Vintage Mutual Funds.
Management, a fund distributor and broker-dealer of record, links
brokerage accounts with funds and provides a proprietary brokerage sweep
relationship through the Vintage money market funds. Management's arrangement
with its brokerage clearing firm allows Management to sweep monies from the
brokerage clearing firm to the Vintage Mutual Funds as part of the transaction
instead of leaving the money at the brokerage clearing firm.
Management founded the first mutual fund based in the state of Indiana
in 1963 and specializes in mutual fund distribution and shareholder servicing
liaison providing such services as: mutual fund distribution, distribution
services and support; mutual fund conversion support; mutual fund trades;
individual retirement ("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 recordkeeping. Management clears through Pershing and provides a
full range of brokerage products.
Health is a registered investment adviser that was formed in 1986 and
registered with the SEC since 1987. As of September 30, 1997, Health managed
over $340 million in assets for both individual and institutions. The main
management style of Health is a balance portfolio of no-load index funds in
multi asset classes consisting of the S&P 500 large cap US stock, small cap US
stocks, US bonds, real estate, cash and international stocks.
- 14 -
<PAGE> 15
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 Company's audited and unaudited consolidated financial
statements and the accompanying notes thereto.
COMPARISON OF RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AND 1996
Year-to-date net income at September 30, 1997 of $135,937 compares to a
net profit of $544,766 for the same period last year. Net profit for the nine
months ended September 30, 1997 includes an after-tax loss of approximately
$387,000 related to the acquisition of Health, coupled with a special bonus to
the employees of the Company of approximately $125,000, higher legal,
accounting and counsel fees related to the filing by the Company of the
Company's Registration Statement on Form 10-SB (the "Form 10-SB") with the
SEC during 1997, a charge for losses at an affiliate and a provision for income
taxes related to alternative minimum tax depreciation carryforwards, which could
be modified based upon future operations of the Company. Fund services operating
charges included a one-time conversion cost of approximately $25,000 related to
a change of the Company's fund system service provider.
Gross revenues of $4,871,418 in the nine-month period ended September 30,
1997 compare to $5,312,237 for the same period in 1996. For the current year,
assets under management increased significantly. This increase accounted for the
$302,698 increase in investment advisors revenues. Reduced brokerage charges
significantly reduced revenue from broker/dealer operations. Mutual fund
service and trailing commissions were partially offset by an increase in
retirement and other income.
The gross profit of $3,592,864 for the nine months ended September 30,
1997 compares to $3,857,562 for the same period in 1996. The percentage of
gross profit to total revenue increased to 73.8% during the nine-month period
ended September 30, 1997 from 72.6% from the same prior year period. This
improvement reflects better investment advisor margins.
Operating expenses increased by $114,760 over the same prior year period
from $3,283,626 to $3,398,386 primarily due to increased employee compensation
and benefits and professional fees. Employee compensation was higher due to a
one-time bonus paid during July 1997 and higher legal, accounting and
counsel fees related on the filing of the Form 10-SB. In addition, travel
costs increased related to the completed and pending acquisitions and a
one-time charge related to a change of the Company's fund system service
provider.
COMPARISON OF RESULTS FOR THE QUARTER ENDED SEPTEMBER 30, 1997 AND
1996
For the quarter ended September 30, 1997, net profit of $783
compares to a net profit of $408,063 for the same period last year. The
third quarter of 1997 includes a special bonus to employees of the Company
aggregating approximately $125,000, higher legal, accounting and counsel
fees related on the filing of Form 10-SB with the SEC during 1997 and an
adjustment for the Company's investment in an affiliate resulted in a
$147,467 charge as compared to a 1996 third quarter charge of $52,801. The
current year quarter also includes a one-time expense of approximately $25,000
related to conversion of the Company's fund service system provider, and
increased travel costs related to acquisition activities. The quarter ended
September 30, 1996 included a credit from the Company's communication service
provider. Increased assets under management accounted for the increase in
investment advisor revenues, which partially offset the decline in fund
services revenues. The quarter ended September 30, 1997 also includes a
provision for income taxes related to alternate minimum tax, which could be
modified based upon future operations of the Company.
For the three months ended September 30, 1997, gross revenues of
$1,678,446 compared to $1,928,349 during the same quarter last year. Increased
assets under management accounted for the increase in investment advisor
revenues, which partially offset the decline in fund services revenues. Cost
of sales increased $10,585 to $441,522 in the quarter ended September 30,
1997 from $430,937 for the quarter ended September 30, 1996. The lower
brokerage cost of sales partially offset higher trail commission charges
and administration fees.
- 15 -
<PAGE> 16
Quarterly operating expenses increased by $6,429 over the same period
of 1996 to $1,073,772, due to a one-time special bonus to employees of
the Company aggregating approximately $125,000, a one-time expense for
conversion of our fund service system provider, increased travel costs
reated to completed and pending acquisitions and higher legal, accounting
and counsel fees related to the filing of the Form 10-SB. In addition,
operating expenses for the quarter ended September 30, 1996 included a credit
from the Company's communication service provider.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity historically have been and
continues to be cash flow from operating activities and available borrowing
capacity for capitalized leases. At September 30, 1997 and September 30,
1996, the Company reported working capital of $1,183,307 and $965,512,
respectively, or a working capital ratio of 1.71 and 2.00 to 1, respectively.
Significant portions of the Company's computer and communication
equipment and software are purchased through capitalized leases. The Company
expects to be able to repay its borrowings for such capitalized leases over
the respective lease periods.
Capital expenditures for 1997 include the purchase of telephone and
computer equipment and software to support further the Company's mutual fund
and brokerage services businesses. Such expenditures are not expected to
exceed $400,000. The Company currently believes that it can provide its own
sources of funds or lending to sufficiently absorb such expenditures so as to
not endanger the liquidity or financial condition of the Company.
The Company does not expect to need to raise additional capital to
satisfy its cash requirements but will attempt to raise working capital to
expand its business and products, equipment and software purchases, and to
retire its outstanding shares of Class A and Class B Preferred Stock. Except
with respect to the proposed acquisitions of Lexington and Advisers, there are
no expected purchases or sales of plant during the next twelve months.
Historically, cash expended in investing activities has supported the
Company's affiliated mutual funds and brokerage services business through
investments in Advisers, of which the Company owns 10% of the outstanding
capital stock, and the Vintage Mutual Funds, the Company's affiliated mutual
fund family. There can be no assurances that such investments in the future
will continue to produce positive effects on the Company's liquidity or
working capital, and, such investments, or unexpected increases in capitalized
leases, could have a negative affect on the Company's liquidity and working
capital.
* * *
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, incuding 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.
- 16 -
<PAGE> 17
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Securityholders
As of August 1, 1997, the stockholders of the Company, by unanimous
written consent, adopted resolutions that: (i) nullified certain purported
issuances of Common Stock by the Company; (ii) approved and adopted a stock
dividend paid by the Company on July 15, 1997 such that, upon payment of such
stock dividend, the Company had 50,000 shares of Common Stock issued and
outstanding; (iii) amended and restated the Certificate of Incorporation of
the Company; and (iv) approved and ratified the termination of the Unified
Holdings, Inc. Management Retention Plan and the Unified Holdings, Inc.
Restricted Stock Option Plan.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: See Exhibit Index on page 19 hereof.
--------
(b) Reports on Form 8-K: No reports on Form 8-K were filed by the
-------------------
Company during the third quarter of 1997.
- 17 -
<PAGE> 18
SIGNATURES
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 HOLDINGS, INC
(Registrant)
Dated: January 6, 1998 By: /s/ Timothy L. Ashburn
---------------------------------------
Timothy L. Ashburn
Chairman, President and
Chief Executive Officer
Dated: January 6, 1998 By: /s/ Thomas G. Napurano
---------------------------------------
Thomas G. Napurano
Executive Vice President
And Chief Financial Officer
(Principal Financial and Accounting
Officer)
- 18 -
<PAGE> 19
<TABLE>
EXHIBIT INDEX
-------------
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
4.1(a) 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.
4.1(b) Certificate of Designations, Preferences, and
Relative Rights, Qualifications and Restrictions of
the Series A 8% Cumulative Preferred Stock of the
Company filed as Exhibit 4.1(b) to the Company's
Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1997, is incorporated herein
by reference.
4.1(c) Certificate of Designations, Preferences, and
Relative Rights, Qualifications and Restrictions of
the Series B 8% Cumulative Preferred Stock of the
Company filed as Exhibit 4.1(c) to the Company's
Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1997, is incorporated herein
by reference.
4.1(d) 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 Form 10-QSB for the
quarter ended September 30, 1997, is incorporated
herein by reference.
4.2 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.
11.1 Computation of Net Income Per Common Share.
27.1 Financial Data Schedule.
27.2 Financial Data Schedule.
</TABLE>
- 19 -
<PAGE> 1
<TABLE>
EXHIBIT 11.1
<CAPTION>
Three months Ended Nine months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Results after preferred stock dividend $ (33,641) $ 373,739 $ 34,083 $ 442,457
Shares<F*>
Basic:
Weighted-average number of common shares outstanding 50,000 25,179 42,197 25,179
Common stock equivalent shares related to option plans 161,550 161,550 161,550 161,550
Common stock equivalent shares related to acquisition 325,000 325,000 325,000 325,000
of Health Financial, Inc.
Weighted-average number of common and common
equivalent shares outstanding 536,550 511,729 528,747 511,729
Basic Earnings Per Share<F*> $ (0.06) $ 0.73 $ 0.06 $ 0.86
Fully Diluted:
Weighted-average number of common shares outstanding 50,000 50,000 50,000 50,000
Common stock equivalent shares related to option plans 572,768 572,768 572,768 572,768
Common stock equivalent shares related to acquisition 325,000 325,000 325,000 325,000
of Health Financial, Inc.
Weighted-average number of common and common
equivalent shares outstanding 947,768 947,768 947,768 947,768
Fully Diluted Earnings Per Share<F*> $ (0.04) $ 0.39 $ 0.04 $ 0.47
<FN>
<F*>Reflects common stock splits and dividends issued
</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 Holdings, 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> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 426,215
<SECURITIES> 380,955
<RECEIVABLES> 1,002,366
<ALLOWANCES> 2,041
<INVENTORY> 0
<CURRENT-ASSETS> 1,934,925
<PP&E> 1,390,849
<DEPRECIATION> 879,583
<TOTAL-ASSETS> 2,902,746
<CURRENT-LIABILITIES> 969,413
<BONDS> 0
<COMMON> 1,599
17,069
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,902,746
<SALES> 0
<TOTAL-REVENUES> 7,035,722
<CGS> 0
<TOTAL-COSTS> 1,860,694
<OTHER-EXPENSES> 4,320,156
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,993
<INCOME-PRETAX> 748,455
<INCOME-TAX> 0
<INCOME-CONTINUING> 748,455
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 748,455
<EPS-PRIMARY> 1.20
<EPS-DILUTED> 0.65
</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 Holdings, 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 603,689
<SECURITIES> 662,056
<RECEIVABLES> 1,282,657
<ALLOWANCES> 2,041
<INVENTORY> 0
<CURRENT-ASSETS> 2,840,376
<PP&E> 1,397,222
<DEPRECIATION> 990,461
<TOTAL-ASSETS> 3,632,983
<CURRENT-LIABILITIES> 1,657,069
<BONDS> 0
<COMMON> 10,728
17,069
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,632,983
<SALES> 0
<TOTAL-REVENUES> 4,871,418
<CGS> 0
<TOTAL-COSTS> 1,278,554
<OTHER-EXPENSES> 3,392,154
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,232
<INCOME-PRETAX> 151,937
<INCOME-TAX> 16,000
<INCOME-CONTINUING> 135,937
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 135,937
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.04
</TABLE>
