<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________________
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): August 21, 1998
UNIFIED FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-22629 35-1797759
(State or other (Commission File (I.R.S. Employer
jurisdiction of Number) Identification
organization) Number)
431 NORTH PENNSYLVANIA STREET
INDIANAPOLIS, INDIANA 46204-1873
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (317) 634-3301
===================================================================
<PAGE>
<PAGE>
ITEM 2. ACQUISITION OF ASSETS
Reference is made to the Current Report on Form 8-K filed by the
Registrant on August 28, 1998 announcing the closing of the merger of
Fiduciary Counsel, Inc. into a wholly owned subsidiary of the Registrant,
and the consummation of the sale of assets by EMCO Estate Management
Company, Inc. to a wholly owned subsidiary of the Registrant. Both
transactions became effective as of August 21, 1998.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired
(i) Independent Auditors' Report
(ii) Balance Sheets (Audited) as of December 31, 1997
and December 31, 1996
(iii) Statement of Cash Flows (Audited) for the years ended
December 31, 1997 and December 31, 1996
(iv) Statement of Operations and Retained Earnings
(Deficit) (Audited) for the years ended December 31,
1997 and December 31, 1996
(v) Notes to Audited Financial Statements
(vi) Balance Sheet (Unaudited) as of June 30, 1998
(vii) Statement of Income and Retained Earnings (Deficit)
(Unaudited) for the six months ended June 30, 1998 and
June 30, 1997
(viii) Comparative Statement of Cash Flows (Unaudited) for
the six months ended June 30, 1998 and June 30, 1997
(ix) Notes to Unaudited Financial Statements
(b) Pro Forma Financial Information
(i) Pro Forma Condensed Consolidated Balance Sheet
(Unaudited) as of June 30, 1998
(ii) Pro Forma Condensed Consolidated Income Statement
(Unaudited) for the six months ended June 30, 1998
(iii) Pro Forma Condensed Consolidated Income Statement
(Unaudited) for the year ended December 31, 1997
(iv) Notes to Pro Forma Condensed Consolidated Financial
Statements (Unaudited)
(c) Exhibits
See Exhibit Index.
- 2 -
<PAGE>
<PAGE>
To the Board of Directors and
Stockholders of Fiduciary Counsel, Inc.
New York, New York
INDEPENDENT AUDITORS' REPORT
----------------------------
We have audited the accompanying statements of financial condition of
Fiduciary Counsel, Inc. as of December 31, 1997 and 1996, and the related
statements of operations and retained earnings (deficit), and cash flows
for the years then ended. The financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion
on these financial statements based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Fiduciary Counsel, Inc. at December 31,
1997 and 1996, and the results of operations and cash flows for the years
then ended in conformity with generally accepted accounting principles.
/s/ Larry E. Nunn & Associates, L.L.C.
Columbus, Indiana
October 6, 1998
- 3 -
<PAGE>
<PAGE>
<TABLE>
FIDUCIARY COUNSEL, INC.
BALANCE SHEETS
December 31, 1997 and 1996
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
ASSETS
------
Current Assets:
Cash and cash equivalents $191,476 $ 219,775
Accounts receivable, net of allowance for
doubtful accounts of $-0- 57,602 32,955
Loans receivable - affiliated companies 184,852 177,484
Other receivables 18,080 11,727
Other current assets 31,205 21,169
-------- ---------
Total current assets 483,215 463,110
-------- ---------
Fixed Assets:
Furniture and equipment 164,942 232,660
Leasehold improvements 11,561 290,168
-------- ---------
176,503 522,828
Less: Accumulated depreciation (46,549) (486,908)
-------- ---------
Net Fixed Assets 129,954 35,920
-------- ---------
Other Assets:
Security deposits 23,530 5,315
Marketable equity securities 13,782 6,984
-------- ---------
Total Other Assets 37,312 12,299
-------- ---------
Total Assets $650,481 $ 511,329
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Capital lease obligations, current portion $ 31,768 $ 11,222
Accrued compensation 8,059 6,944
Accounts payable and accrued expenses 76,336 120,692
Unearned fee income 183,039 218,151
Income taxes payable - 7,395
-------- ---------
Total Current Liabilities 299,202 364,404
-------- ---------
Capital lease obligation, less current portion 70,062 -
-------- ---------
Total Liabilities 369,264 364,404
-------- ---------
Stockholders' Equity:
Common stock, no par value, 50,000 shares
shares authorized, issue and outstanding
including 50 shares held in treasury 52,809 52,809
Capital contributed in excess of stated value 168,243 168,243
Retained earnings 60,415 (73,877)
-------- ---------
281,467 147,175
Less: Treasury stock, at cost, 50 shares (250) (250)
-------- ---------
Total Stockholders' Equity 281,217 146,925
-------- ---------
Total Liabilities & Stockholders' Equity $650,481 $ 511,329
======== =========
See independent auditor's report and notes to financial statements.
</TABLE>
- 4 -<PAGE>
<PAGE>
<TABLE>
FIDUCIARY COUNSEL, INC.
STATEMENT OF CASH FLOWS
December 31, 1997 and 1996
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net Income $134,292 $ 74,588
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 55,276 43,977
Gain on sale of marketable equity securities (6,540) (666)
Gain on sale of furniture and equipment (1,700) -
(Increase) Decrease in:
Accounts receivable (24,647) 113,762
Loans receivable - affiliated companies (6,449) (3,933)
Loans receivable (7,273) (18,654)
Other current assets (10,036) (1,569)
Increase (Decrease) in:
Accrued compensation 2,785 (387)
Accounts payable and accrued expenses (46,121) (149,954)
Unearned fee income (35,112) 25,868
Income taxes payable (7,395) (2,855)
-------- ---------
Net cash provided by operating activities 47,080 80,177
-------- ---------
Cash flows from investing activities:
Purchase of equipment (22,009) (6,678)
Purchase of leasehold improvements (11,561) -
Proceeds from sale of furniture and equipment 1,700 -
Increase in security deposits (18,215) -
Purchase of marketable securities, net of due (8,789) (5,723)
Proceeds from sale of marketable securities 8,625 5,559
-------- ---------
Net cash used by investing activities (50,249) (6,842)
-------- ---------
Cash flows from financing activities:
Payments made on capital lease obligation (25,130) (16,710)
-------- ---------
Net cash provided (used) in financing activities (25,130) (16,710)
-------- ---------
Net increase in cash (28,299) 56,625
Cash and cash equivalents, beginning of year 219,775 163,150
-------- ---------
Cash and cash equivalents, end of year $191,476 $ 219,775
======== =========
Supplemental disclosure of cash flow information
- ------------------------------------------------
Cash paid for interest $ 6,378 $ 3,106
Cash paid for income taxes $ 20,574 $ 22,796
See independent auditor's report and notes to financial statements.
</TABLE>
- 5 -
<PAGE>
<PAGE>
<TABLE>
FIDUCIARY COUNSEL, INC.
Statements of Operations and Retained Earnings (Deficit)
December 31, 1997 and 1996
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Income:
Fee income - investment advisory $1,277,954 $1,532,481
Investment income 3,498 3,346
Gain on sale of furniture and equipment 1,700 -
Realized gain on sale of securities 6,540 666
---------- ----------
Total income 1,289,692 1,536,493
---------- ----------
Expenses:
Compensation and benefits 482,873 837,073
Commissions 48,794 13,920
Retirement pay 61,400 70,610
Consulting fees 115,856 62,600
Occupancy 100,096 148,137
Computer services 66,474 49,486
Professional fees 25,046 18,867
Insurance 6,282 9,319
Telephone 13,724 17,847
Postage and stationary 18,220 16,801
Depreciation and amortization 55,276 43,977
Interest 6,378 3,109
Travel and entertainment 100,951 107,016
Dues and subscriptions 19,413 14,323
All other 27,926 29,014
---------- ----------
Total Expenses 1,148,709 1,442,099
---------- ----------
Income before income taxes 140,983 94,394
Provision for income taxes 6,691 19,806
---------- ----------
Net income 134,292 74,588
Retained earnings (deficit) beginning of year (73,877) (125,638)
Prior period adjustment - (22,827)
---------- ----------
Retained earnings (deficit) beginning of year -- Restated (73,877) (148,465)
---------- ----------
Retained earnings (deficit) end of year $ 60,415 $ (73,877)
========== ==========
See independent auditor's report and notes to financial statements.
</TABLE>
- 6 -<PAGE>
<PAGE>
FIDUCIARY COUNSEL, INC.
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1997 and 1996
NOTE 1 - ORGANIZATION
Fiduciary Counsel, Inc. (the "Company") was organized under
the laws of the State of Delaware on April 30, 1931, and is
in the investment advisory business. The Company's
headquarters is located in New York, but also had operations
in Illinois, New Jersey and Virginia during 1997 and 1996.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fees and commissions - The Company records revenue on the
--------------------
accrual basis of accounting and records the commission
expense to subadvisors and commissioned employees, which
are generally based upon established fee schedules and
contracts.
Marketable equity securities - Marketable equity securities
----------------------------
are carried at the lower of cost or market.
Furniture, equipment and leasehold improvements - Furniture,
-----------------------------------------------
equipment and leasehold improvements are recorded at cost.
Depreciation is provided by the accelerated cost recovery
method for furniture and equipment over five to seven years
and the straight-line method for leasehold improvements over
five years and ten years for the years ended December 31,
1997 and 1996, respectively.
Income taxes - The Company has adopted Statement of
------------
Financial Accounting Standards No. 109 (SFAS 109) accounting
for income taxes. The Statement requires use of the
liability method of accounting for deferred income taxes.
Deferred taxes are provided on temporary differences in
reporting certain transactions for financial accounting and
tax purposes. The items treated in this manner are
difference in recording depreciation expense, the unrealized
market value loss on investments and the resulting
difference on the sale of property and investments when sold
or retired. Due to the loss carry forwards there has not
deferred tax liability or asset recorded. During 1997, the
Company used a depreciation difference on leasehold
improvements abandoned with its move to eliminate Federal
income taxes. During 1996 the Company used net operating
loss carryforwards to eliminate Federal income taxes. The
statement of operations and retained earnings for 1997 and
1996 report the income tax expense net of these benefits.
- 7 -<PAGE>
<PAGE>
FIDUCIARY COUNSEL, INC.
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1997 and 1996
The Company has available for federal income tax purposes an
investment tax credit and capital loss carry-forwards expiring
as follows:
<TABLE>
<CAPTION>
Net
operating Investment Capital
loss tax credit loss
--------- ---------- -------
For the year ended December 31, 1997
------------------------------------
<S> <C> <C> <C>
1998 $ - $ - $1,544
2000 - 4,076 -
2012 66,177 - -
------- ------ ------
Total $66,177 $4,076 $1,544
======= ====== ======
<CAPTION>
For the year ended December 31, 1996
------------------------------------
<S> <C> <C> <C>
1997 $ - $ - $4,723
1998 - - 3,361
1999 - 4,076 -
------- ------ ------
Total $ - $4,076 $8,084
======= ====== ======
</TABLE>
Employee benefits - The Company has established a 401(k)
-----------------
plan that enables employees on a salary reduction basis to
contribute from 1% to 15% of compensation up to a maximum
dollar limitation. The plan provides for no employer match.
Bonus and incentive plans - The Company has a bonus and
-------------------------
incentive plan covering all employees and members of
management. Bonus and incentive plan expense is at the
discretion of the Board of Directors.
Use of estimates - The preparation of financial statements
----------------
in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect certain reported amounts and disclosures.
Accordingly, actual results could differ form those
estimates.
Statement of cash flows - For the purposes of the statement
-----------------------
of cash flows, the Company considers highly liquid
investments purchased with a maturity of three months or
less to be cash equivalents.
NOTE 3 - MARKETABLE EQUITY SECURITIES
Marketable Equity Securities included in non-current assets
had a cost of $13,782 and $6,984 and a market value of
$14,577 and $8,695 as of December 31, 1997 and 1996,
respectively. Gross unrealized gains and gross unrealized
losses pertaining to the non-current marketable equity
securities were as follows:
- 8 -<PAGE>
<PAGE>
FIDUCIARY COUNSEL, INC.
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Gross unrealized gains $2,964 $3,604
Gross unrealized losses 2,169 1,893
------ ------
Net unrealized gain $ 795 $1,711
====== ======
</TABLE>
NOTE 4 - CAPITAL LEASE OBLIGATION
The Company leased both computer and office equipment under
capital leases during 1997 and computer equipment during
1996. The economic substance of the leases is that the
Company is financing the acquisition of the equipment
through the leases and, accordingly, they are recorded in
the Company's assets and liabilities.
The following are schedules by years of the future minimum
payments required under the leases together with their
present value as of December 31, 1997 and 1996,
respectively:
<TABLE>
<CAPTION>
For the year ended December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
1997 $ 11,632
1998 $ 39,216
1999 39,216
2000 28,145
2001 7,632 -
-------- --------
Total lease payments 114,209 11,632
Less amount representing interest 12,379 410
-------- --------
Present value of net future
payments 101,830 11,222
Less current portion (31,768) (11,222)
-------- --------
Long-term portion $ 70,062 $ -
======== ========
</TABLE>
The leases are each secured by the underlying equipment and
the total capitalized cost of the capitalized leases was
$115,739 in 1997 and $65,838 in 1996. The capitalized lease
property acquired in 1997 totaling $115,239 was a non cash
investing and financing transaction, therefore not included
in the statement of cash flow.
NOTE 5 - LEASE COMMITMENTS
The Company leases offices space under a non-cancelable
operating leases expiring at July 31, 2002 and July 31, 1997
for the years ended December 31, 1997 and 1996,
respectively. Such leases contain a provision for increasing
rental due to increased expenses, taxes and cost of living. The
office space is subleased under non-cancelable operating leases.
The Company moved its New York location during 1997 when the lease
expired in July 31, 1997.
- 9 -
<PAGE>
<PAGE>
FIDUCIARY COUNSEL, INC.
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1997 and 1996
The total rent expense was $302,412 which was reduced by the
sublease rent of $154,275 during the year ended December 31,
1996. The total rent expense was $174,001, which was
reduced by the sublease rent of $81,410 during the year
ended December 31, 1997.
The following are schedules by years of future minimum lease
payments required under the non-cancelable operating lease.
<TABLE>
<CAPTION>
For the year ended December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
1997 - $164,807
1998 $ 92,084 -
1999 93,430 -
2000 96,661 -
2001 98,546 -
2002 57,483 -
-------- --------
Totals $438,204 $164,807
======== ========
</TABLE>
All rental payments are charged to operations as they are made.
Rental income is netted against rental expense.
NOTE 6 - RELATED PARTY TRANSACTIONS
The Company leases office space to a related party, Estate
Management Company, Inc. ("EMCO") which amounted to $13,750 in
1997 and $22,575 in 1996. As of December 31, 1997 and 1996,
EMCO owed the Company $20,241 and $21,622, respectively.
The Company leases office space to a related party, Starwood
Corporation ("SWC") which amounted to $9,700 in 1997 and
$13,200 in 1996. As of December 31, 1997 and 1996, SWC owed
the Company $7,898 and $13,648 respectively.
NOTE 7 - CONTINGENCIES & COMMITMENTS
The Company maintains bank accounts that periodically exceed
the FDIC guarantee limit during a year. At December 31,
1996, the Company had a bank account, which was in excess of
the FDIC limit by approximately $54,610. Additionally, the
Company maintains money market funds, which are not FDIC
guaranteed and therefore involve risk to principal. The
balance in money market funds at December 31, 1997 and
December 31, 1996 was $85,256 and $101,591, respectively.
The Company entered into a retirement pay plan with two of
its former employees, wherein the Company agreed to pay each
of them a ten percent (10%) commission on fees billed to
clients retained by the Company, which had been managed by
each individual during his or her employment. The plan and
payments for each individual will cease upon the death of the
former employee. During the years
- 10 -
<PAGE>
<PAGE>
FIDUCIARY COUNSEL, INC.
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1997 and 1996
ended December 31, 1997 and December 31, 1996 the commissions
under this plan amounted to $61,401 and $70,610, respectively.
NOTE 8 - RESTATEMENT
The financial statements have been restated to adjust for
settlement expense of $22,827, which had been reported in
previously issued financial statements as an expense during
the year, ended December 31, 1996. The settlement was the
result of business operations prior to 1996 and the amount of
the settlement was probable and the settlement cost was known
as of December 31, 1995. The effect on the financial
statements was to reduce the expense in 1996 and reduce the
retained earnings (deficit) as of December 31, 1995 by the
settlement amount.
NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments including cash,
accounts receivable, accrued compensation and accounts
payable approximated fair value as of December 31, 1997 and
1996 because of the relatively short-term maturity of these
instruments.
- 11 -<PAGE>
<PAGE>
<TABLE>
FIDUCIARY COUNSEL, INC.
Balance Sheet UNAUDITED
June 30, 1998
ASSETS
------
<S> <C>
CURRENT ASSETS
- --------------
Cash $302,465
Accounts receivable, net of doubtful accounts of $0 40,186
Loan receivable - affiliated company 156,079
Loans receivable 10,691
Other current assets 28,416
--------
Total current assets 537,837
--------
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
- -----------------------------------------------
Furniture and equipment 157,191
Leasehold improvements 11,561
--------
168,752
Less: Accumulated depreciation and amortization 57,289
--------
Net furniture, equipment and leasehold improvements 111,463
--------
OTHER ASSETS
- ------------
Security deposits 23,530
Marketable equity securities 13,614
--------
Total other assets 37,144
--------
Total assets $686,444
========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
- -------------------
Capital lease obligations, current portion $ 30,694
Accrued compensation 172,000
Accounts payable and accrued expenses 53,074
Unearned fee income 120,325
Income taxes payable -
--------
Total current liabilities 376,093
Capital lease obligations, less current portion 55,686
--------
Total liabilities 431,779
--------
STOCKHOLDERS' EQUITY
- --------------------
Common stock, no par value:
50,000 shares authorized and issued 52,809
Capital contributed in excess of stated value 168,243
Retained earnings 33,863
--------
254,915
Less: Treasury stock, at cost, 50 shares 250
--------
Total stockholders' equity 254,665
--------
Total liabilities and stockholders' equity $686,444
========
The accompanying notes are an integral part of these
financial statements.
</TABLE>
- 12 -<PAGE>
<PAGE>
<TABLE>
FIDUCIARY COUNSEL, INC. UNAUDITED
Statement of Income and Retained Earnings (Deficit)
For the six months ended June 30, 1998 and 1997
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
INCOME
- ------
Fee income - Investment advisory $658,854 $665,452
Investment income 2,680 2,104
Loss on disposition of furniture and equipment (1,223) -
Other income 1,352 1,700
-------- --------
Total income 661,663 669,256
-------- --------
EXPENSES
- --------
Compensation and benefits 412,247 261,668
Commissions 21,666 7,087
Retirement pay 33,916 35,481
Consulting fees 26,395 31,806
Occupancy 42,876 75,422
Computer services 28,585 25,656
Professional fees 21,886 14,047
Insurance 3,060 4,769
Telephone 8,633 6,176
Postage and stationery 9,572 7,779
Depreciation and amortization 22,707 22,712
Interest 4,984 617
Travel and entertainment 39,553 58,684
Dues and subscriptions 9,082 6,443
All other 5,900 12,897
-------- --------
Total expenses 691,062 571,244
Income before income taxes (29,399) 98,012
Provision for income taxes (benefit) (2,847) 9,800
-------- --------
Net income (26,552) 88,212
Retained earnings (deficit), beginning of year 60,415 (73,877)
-------- --------
Retained earnings, end of year $ 33,863 $ 14,335
======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
- 13 -<PAGE>
<PAGE>
<TABLE>
FIDUCIARY COUNSEL, INC. UNAUDITED
Comparative Statement of Cash Flows
For the six months ended June 30, 1998 and 1997
<CAPTION>
1998 1997
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
Net income $(26,552) $ 88,212
Adjustments to reconcile net income
to net provided by operating activities:
Depreciation and amortization 22,707 22,712
Book value of furniture and equipment 1,223 (1,700)
Unrealized gain in securities 168 -
(Increase) decrease in:
Accounts receivable 17,416 (15,758)
Loan receivable - affiliated companies 28,678 (28,374)
Loan receivable 7,485 3,916
Other current assets 2,789 (598)
Increase (decrease) in:
Accrued compensation 160,000 (9,215)
Accounts payable and accrued expenses (19,146) 26,521
Unearned fee income (62,714) (103,056)
Income taxes payable - 2,405
-------- ---------
Net cash provided (used) by operating activities 132,054 (14,935)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Purchase of equipment (5,439) (25,764)
Proceeds from sale of furniture and equipment - 1,700
Increase in security deposits - (21,405)
-------- ---------
Net cash used by investing activities (5,439) (45,469)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Reduction of capital lease obligations (15,451) (9,051)
-------- ---------
Net cash used in financing activities (15,451) (9,051)
-------- ---------
Net increase (decrease) in cash 111,164 (69,455)
Cash, beginning of year 191,301 219,694
-------- ---------
Cash, end of year $302,465 $ 150,239
======== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
- -------------------------------------------------
Cash paid for interest $ 4,984 $ 617
Cash paid for income taxes $ 125 $ 16,224
The accompanying notes are an integral part of these financial statements.
</TABLE>
- 14 -<PAGE>
<PAGE>
FIDUCIARY COUNSEL, INC.
NOTES TO FINANCIAL STATEMENTS
For the six months ended June 30, 1998
Note 1 - Summary of Significant Accounting Policies
------------------------------------------
Organization - Fiduciary Counsel, Inc. (the "Company") was organized
------------
under the laws of the State of Delaware, on April 30, 1931, and is in
the investment advisory business.
Marketable equity securities - Marketable equity securities are
----------------------------
carried at the lower of cost or market.
Furniture, equipment and leasehold improvements - Furniture,
-----------------------------------------------
equipment and leasehold improvements are recorded at cost.
Depreciation is provided by the accelerated cost recovery method for
furniture and equipment over five to seven years and the straight-
line method for leasehold improvements over the life of the lease.
Income taxes - The Company has available for federal income tax
------------
purposes an investment tax credit and capital loss carry-forwards
expiring as follows:
<TABLE>
<CAPTION>
Net
operating Investment Capital
loss tax credit loss
--------- ---------- -------
For the year ended December 31, 1997
------------------------------------
<S> <C> <C> <C>
1998 $ - 0 - $- 0 - $1,544
2000 - 0 - 4,076 - 0 -
2012 66,177 - 0 - - 0 -
------- ------ ------
Total $66,177 $4,076 $1,544
======= ====== ======
</TABLE>
Employee benefits - The Company has established a 401 (k) plan that
-----------------
enables employees on a salary reduction basis to contribute from 1%
to 15% of compensation up to a maximum dollar limitation. The plan
provides for no employer match.
Bonus and incentive plans - The Company has a bonus and incentive
-------------------------
plan covering all employees and members of management. Bonus and
incentive plan expense is at the discretion of the Board of
Directors.
Use of estimates - The preparation of financial statements in
----------------
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect certain
reported amounts and disclosures. Accordingly, actual results could
differ from those estimates.
Note 2 - Marketable Equity Securities
----------------------------
Marketable equity securities included in non-current assets had a
cost of $13,782 and a market value of $14,577 as of June 30, 1998.
Gross unrealized gains and gross unrealized losses pertaining to the
non-current marketable equity securities were as follows:
- 15 -<PAGE>
<PAGE>
<TABLE>
<S> <C>
Gross unrealized gains $2,964
Gross unrealized losses 2,169
------
Net unrealized gain $ 795
======
</TABLE>
Note 3 - Capital Lease Obligation
------------------------
The Company leased both computer and office equipment under
capital leases during 1997 and only computer equipment during 1996.
The economic substance of the leases is that the Company is
financing the acquisition of the equipment through the leases and,
accordingly, they are recorded in the Company's assets and
liabilities.
The following are schedules by years of the future minimum payments
required under the leases together with their present value as of
June 30, 1998:
<TABLE>
<CAPTION>
For the twelve months ended June 30, 1998
-------------
<S> <C>
1999 $41,372
2000 34,477
2001 22,591
-------
Total lease payments 98,440
Less: Amount representing interest 12,060
-------
Present value of net lease payments 86,380
Less: Current portion 30,394
-------
Long-term portion $55,986
=======
</TABLE>
The leases are each secured by the underlying equipment.
Note 4 - Lease Commitments
-----------------
The Company leases office space under non-cancelable operating
leases expiring at July 31, 2002. Such leases contain a provision
for increasing rental due to increased expenses, taxes and cost
of living.
The following are schedules by years of future minimum lease
payments required under the non-cancelable operating lease.
<TABLE>
<CAPTION>
For the twelve months ended June 30, 1998
-------------
<S> <C>
1999 $ 92,084
2000 94,776
2001 98,546
2002 106,756
--------
Total $392,162
========
</TABLE>
All rental payments are charged to operations as they are made.
Rental income is netted against rental expense.
Note 5 - Related Party Transactions
--------------------------
The Company leases office space to a related party, EMCO Estate
Management Company, Inc. ("EMCO") which amounted to $0 for the six
months ended June 30, 1998. As of June 30,1998, the Company owed EMCO
$5,711.
- 16 -<PAGE>
<PAGE>
The Company leases office space to a related party, Starwood
Corporation ("SWC") which amounted to $2,400 for the six months ended
June 30, 1998. As of June 30, 1998, SWC owed the Company $5,172.
Note 6 - Fair Value of Financial Instruments
-----------------------------------
The carrying amounts of financial instruments including cash, accounts
receivable, accrued compensation and accounts payable approximated
fair value as of June 30, 1998 because of the relatively short-term
maturity of these instruments.
- 17 -<PAGE>
<PAGE>
Pro Forma Financial Information
-------------------------------
The following unaudited pro forma combined consolidated balance
sheet gives effect to the acquisition of Fiduciary Counsel as if it were
consummated on June 30, 1998.
The following pro forma unaudited combined consolidated income
statements for the year ended December 31, 1997 and for the six-month
period ended June 30, 1998 set forth the results of operations of the
Company combined with the results of operations of Fiduciary Counsel as if
the acquisition had occurred as of January 1, 1997.
The unaudited pro forma combined consolidated financial
statements should be read in conjunction with the accompanying Notes to
the Pro Forma Combined Financial Statements (Unaudited) and with the
historical financial statements of the Company and Fiduciary Counsel.
These pro forma combined consolidated financial statements may not be
indicative of the results of operations that actually would have
occurred if the acquisition had been consummated on the dates assumed
above or of the results of operations that may be achieved in the
future.
- 18 -<PAGE>
<PAGE>
<TABLE>
UNIFIED FINANCIAL SERVICES, INC. AND SUBSIDIARIES
Pro Forma Condensed Consolidated Balance Sheet (unaudited)
As at June 30, 1998
<CAPTION>
Adjustments and Eliminations
----------------------------
Unified
Financial Fiduciary
Services Counsel, Inc. Debit Credit Combined
----------- ------------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 8,646,373 $302,465 $ - $800,835 $ 8,148,003
Investment in affiliated mutual funds 474,168 474,168
Investment in non-affiliated mutual funds 204,830 204,830
Notes receivable, affiliated company - -
Loan receivable - 166,770 166,770
Accounts receivable (net of allowance for -
doubtful accounts of $2,041) 1,631,525 40,186 1,671,711
Prepaid and sundry assets 145,707 28,416 174,123
----------- -------- ---------- -------- -----------
Total current assets 11,102,603 537,837 - 800,835 10,839,605
----------- -------- ---------- -------- -----------
FIXED ASSETS, AT COST:
Equipment and furniture (net of accumulated
depreciation) 582,621 582,621
Capitalized leased equipment and leasehold
improvements (net of accumulated depreciation
and amortization) 40,464 111,463 151,927
----------- -------- ---------- -------- -----------
Total fixed assets 623,085 111,463 - - 734,548
----------- -------- ---------- -------- -----------
NON-CURRENT ASSETS:
Investment in debt securities 864,175 864,175
Organization cost net of accumulated
amortization of $213,295 376,150 376,150
Equity in and advances in affiliates -
Goodwill 1,500,920 1,500,920
Notes receivable, net of current maturity -
Other assets 37,144 37,144
----------- -------- ---------- -------- -----------
Total non-current assets 1,240,325 37,144 1,500,920 - 2,778,389
----------- -------- ---------- -------- -----------
Total fixed and non-current assets 1,863,410 148,607 1,500,920 - 3,512,937
----------- -------- ---------- -------- -----------
Total assets $12,966,013 $686,444 $1,500,920 $800,835 $14,352,542
=========== ======== ========== ======== ===========
<CAPTION>
See notes to consolidated financial statements.
- 19 -<PAGE>
<PAGE>
UNIFIED FINANCIAL SERVICES, INC. AND SUBSIDIARIES
Pro Forma Condensed Consolidated Balance Sheet (unaudited)
As at June 30, 1998
Adjustments and Eliminations
----------------------------
Unified
Financial Fiduciary
Services Counsel, Inc. Debit Credit Combined
----------- ------------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Current portion of capitalized leases $ 18,746 $ 30,694 $ - $ - $ 49,440
Current portion of bank loan 30,719 - 30,719
Accounts payable and accrued expenses 728,610 53,074 22,000 803,684
Accrued compensation and benefits 292,041 172,000 464,041
Payable to broker/dealers 337,659 - 337,659
Income taxes payable 5,548 - 5,548
Deferred income taxes 59,918 - 59,918
Other liabilities 1,115,477 120,325 1,235,802
----------- -------- ---------- -------- -----------
Total current liabilities 2,588,718 376,093 - 22,000 2,986,811
----------- -------- ---------- -------- -----------
LONG-TERM LIABILITIES:
Long-term capitalized lease
obligations, net of current portion 10,860 55,686 66,546
Bank loan, net of current portion 306,217 - 306,217
Other long-term liabilities 30,000 30,000
Deferred income taxes 800 - 800
----------- -------- ---------- -------- -----------
Total long-term liabilities 317,877 55,686 - 30,000 403,563
----------- -------- ---------- -------- -----------
Total liabilities 2,906,595 431,779 - 52,000 3,390,374
----------- -------- ---------- -------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per share 18,748 52,809 52,809 36,110 54,858
Preferred stock Series A - -
Preferred stock Series B - -
Preferred stock Series C 2,100 2,100
Additional paid-in capital 9,116,116 168,243 168,243 866,640 9,982,756
Retained earnings 922,454 33,863 33,863 922,454
Less: Treasury stock - (250) 250 -
----------- -------- ---------- -------- -----------
Total stockholders' equity 10,059,418 254,665 254,915 903,000 10,962,168
----------- -------- ---------- -------- -----------
Total liabilities and stockholders' equity $12,966,013 $686,444 $ 254,915 $955,000 $14,352,542
=========== ======== ========== ======== ===========
See notes to consolidated financial statements.
</TABLE>
- 20 -<PAGE>
<PAGE>
<TABLE>
UNIFIED FINANCIAL SERVICES, INC. AND SUBSIDIARIES
Pro Forma Condensed Consolidated Statement of Income (unaudited)
For the six months ended June 30, 1998
<CAPTION>
Adjustments and Eliminations
----------------------------
Unified
Financial Fiduciary
Services Counsel, Inc. Debit Credit Combined
----------- ------------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
REVENUE
Brokerage $ 1,604,177 $658,854 $ - $ - $ 2,263,031
Fund services 545,776 545,776
Investment advisory 1,343,715 1,343,715
Trust and administration services 561,589 561,589
Software and programming services 16,502 16,502
Other income 177,406 4,032 181,438
----------- -------- ---------- -------- -----------
Total revenue 4,249,165 662,886 - - 4,912,051
----------- -------- ---------- -------- -----------
COST OF SALES:
Brokerage revenue charges 582,410 582,410
Investment fees 66,273 66,273
Administration fees 43,829 43,829
----------- -------- ---------- -------- -----------
Total cost of sales 692,512 - - - 692,512
----------- -------- ---------- -------- -----------
Gross profit 3,556,653 662,886 - - 4,219,539
----------- -------- ---------- -------- -----------
EXPENSES:
Employee compensation and benefits 1,341,078 412,247 1,753,325
Brokerage operating charges 187,146 187,146
Fund services operating charges 311,716 311,716
Mail and courier service 49,027 9,572 58,599
Telephone 57,699 8,633 66,332
Equipment rental and maintenance 72,701 28,585 101,286
Occupancy 143,463 42,876 186,339
Depreciation and amortization 141,702 22,707 164,409
All other 507,535 166,442 673,977
----------- -------- ---------- -------- -----------
Total expenses 2,812,067 691,062 - - 3,503,129
----------- -------- ---------- -------- -----------
Income from operations 744,586 (28,176) - - 716,410
----------- -------- ---------- -------- -----------
OTHER INCOME (LOSS):
Unrealized gain or (loss) on securities 30,119 30,119
Realized gain or (loss) on securities 6,250 6,250
Results of affiliate (loss) or gain (39,945) (39,945)
Gain or (loss) on sale/disposal of fixed assets 5,140 (1,223) 3,917
----------- -------- ---------- -------- -----------
Total other income (loss) 1,564 (1,223) - - 341
----------- -------- ---------- -------- -----------
Income before income taxes 746,150 (29,399) - - 716,751
----------- -------- ---------- -------- -----------
INCOME TAXES:
Current 1,904 1,904
Deferred (6,080) (2,847) (6,080)
----------- -------- ---------- -------- -----------
Total income taxes (4,176) (2,847) - - (4,176)
----------- -------- ---------- -------- -----------
Net income $ 750,326 $(26,552) $ - $ - $ 720,927
=========== ======== ========== ======== ===========
See notes to consolidated financial statements.
</TABLE>
- 21 -
<PAGE>
<PAGE>
<TABLE>
UNIFIED FINANCIAL SERVICES, INC. AND SUBSIDIARIES
Pro Forma Condensed Consolidated Statement of Income (unaudited)
For the year ended December 31, 1997
<CAPTION>
Adjustments and Eliminations
----------------------------
Unified
Financial Fiduciary
Services Counsel, Inc. Debit Credit Combined
---------- ------------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
REVENUE
Brokerage $2,542,130 $ $ - $ - $2,542,130
Fund services 1,624,395 1,624,395
Investment advisory 1,859,566 1,277,954 3,137,520
Trust and administration services 367,555 367,555
Software and programming services 131,787 131,787
Other income 189,055 3,498 192,553
---------- ---------- -------- -------- ----------
Total revenue 6,714,488 1,281,452 - - 7,995,940
---------- ---------- -------- -------- ----------
COST OF SALES:
Brokerage revenue charges 1,712,545 1,712,545
Investment fees 90,768 90,768
Administration fees 59,015 59,015
---------- ---------- -------- -------- ----------
Total cost of sales 1,862,328 - - - 1,862,328
---------- ---------- -------- -------- ----------
Gross profit 4,852,160 1,281,452 - - 6,133,612
---------- ---------- -------- -------- ----------
EXPENSES:
Employee compensation and benefits 2,623,443 482,873 3,106,316
Brokerage operating charges 317,381 317,381
Fund services operating charges 235,561 235,561
Mail and courier service 50,518 13,724 64,242
Telephone 104,068 6,283 110,351
Equipment rental and maintenance 90,404 - 90,404
Occupancy 216,618 115,856 332,474
Depreciation and amortization 189,752 55,276 245,028
All other 596,394 477,648 1,074,042
---------- ---------- -------- -------- ----------
Total expenses 4,424,139 1,151,660 - - 5,575,799
---------- ---------- -------- -------- ----------
Income from operations 428,021 129,792 - - 557,813
---------- ---------- -------- -------- ----------
OTHER INCOME (LOSS):
Unrealized gain or (loss) on securities 28,855 28,855
Realized gain or (loss) on securities 15,647 6,540 22,187
Results of affiliate (loss) or gain (160,298) (160,298)
Gain or (loss) on sale/disposal of fixed assets - 1,700 1,700
---------- ---------- -------- -------- ----------
Total other income (loss) (115,796) 8,240 - - (107,556)
---------- ---------- -------- -------- ----------
Income before income taxes 312,225 138,032 - - 450,257
---------- ---------- -------- -------- ----------
INCOME TAXES:
Current 45,500 3,740 1,904
Deferred 7,500 (6,080)
---------- ---------- -------- -------- ----------
Total income taxes 53,000 3,740 - - (4,176)
---------- ---------- -------- -------- ----------
Net income $ 259,225 $ 134,292 $ - $ - $ 454,433
========== ========== ======== ======== ==========
See notes to consolidated financial statements.
</TABLE>
- 22 -<PAGE>
<PAGE>
UNIFIED FINANCIAL SERVICES, INC. AND SUBSIDIARIES
Notes to Pro Forma Condensed Consolidated Financial Statements
(Unaudited)
Acquisition of Fiduciary Counsel, Inc.
Effective August 21, 1998, the Company acquired Fiduciary Counsel, Inc. in
a transaction to 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 of the
outstanding shares of capital stock of Fiduciary Counsel, Inc.
The pro forma excess of cost over fair values of net assets acquired was
$1,500,920 for Fiduciary Counsel, Inc. as of June 30, 1998. Such goodwill
will be amortized.
- 23 -<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 hereunto duly authorized.
UNIFIED FINANCIAL SERVICES, INC.
Dated: October 20, 1998 By: /s/ Timothy L. Ashburn
-----------------------------
Timothy L. Ashburn
Chairman, President and Chief
Executive Officer
- 24 -<PAGE>
<PAGE>
<TABLE>
EXHIBIT INDEX
<CAPTION>
Exhibit No. Description
- ----------- -----------
<C> <S>
2 Agreement and Plan of Merger, dated July 10, 1998, by and
among Unified Financial Services, Inc., Fiduciary
Acquisition Corporation, Fiduciary Counsel, Inc.,
Associated Family Services, Inc., Intellectronic
Management Systems, Inc., Jack R. Orben, Andrew E.
Beer and Charles C. Hickox<F*>
23 Consent of Larry E. Nunn & Associates, L.L.C. with respect
to its report dated October 6, 1998 regarding the
financial statements of Fiduciary Counsel, Inc.
<FN>
- -------------
<F*> Previously filed.
</TABLE>
- 25 -
<PAGE>
Exhibit 23
----------
[Letterhead of Larry E. Nunn & Associates, L.L.C.]
CONSENT OF LARRY E. NUNN & ASSOCIATES, L.L.C.
---------------------------------------------
We consent to the incorporation by reference in the Registration
Statement and in the related Prospectus listed below of Unified
Financial Services, Inc. of our report dated October 6, 1998, with
respect to the financial statements of Fiduciary Counsel, Inc. for
the year ended December 31, 1997, incorporated by reference in this
Current Report on Form 8-K/A.
Form Registration Number
---- -------------------
S-8 333-53863
/s/ Larry E. Nunn & Associates, L.L.C.
Larry E. Nunn & Associates, L.L.C.
Certified Public Accountants
Columbus, Indiana
October 20, 1998
