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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997 Commission file number 0-22629
UNIFIED FINANCIAL SERVICES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 35-1797759
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
431 North Pennsylvania Street, Indianapolis, Indiana 46204-1873
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (317) 634-3301
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Preferred Stock, $.01 par value
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 .
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
For the fiscal year ended December 31, 1997, revenues totaled:
$6,767,208.
As of February 28, 1998, the aggregate market value of the voting stock
held by non-affiliates of the Registrant was approximately $1,276,825.
As of February 28, 1998, there were 1,027,776 shares of the
Registrant's Common Stock, $.01 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The following document is incorporated by reference into the indicated
Part of this Report:
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Document Part of Form 10-KSB
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<S> <C>
Proxy Statement for the 1998
Annual Meeting of Shareholders III
</TABLE>
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<TABLE>
UNIFIED FINANCIAL SERVICES, INC.
FORM 10-KSB
TABLE OF CONTENTS
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PAGE
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<S> <C>
PART I
Item 1--Description of Business 1
Item 2--Description of Properties 13
Item 3--Legal Proceedings 13
Item 4--Submission of Matters to a Vote of Security Holders 13
Item 4A--Executive Officers of the Registrant 13
PART II
Item 5--Market for Registrant's Common Equity and Related Shareholder Matters 14
Item 6--Management's Discussion and Analysis of Financial Condition and Results of
Operations 15
Item 7--Financial Statements 17
Item 8--Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure 35
PART III
Item 9--Directors, Executive Officers, Promoters and Control Persons; Compliance with
Section 16(a) of the Exchange Act 35
Item 10--Executive Compensation 35
Item 11--Security Ownership of Certain Beneficial Owners and Management 35
Item 12--Certain Relationships and Related Transactions 35
Item 13--Exhibits and Reports on Form 8-K 36
Signatures 37
</TABLE>
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Annual Report on Form 10-KSB are
or may constitute forward-looking statements (as such term is defined in the
Private Securities Litigation Reform Act of 1995). These forward-looking
statements involve certain risks and uncertainties. For example, a down turn
in economic conditions generally and in particular those affecting bond and
securities markets could lead to an exit of investors from mutual funds.
Similarly, an increase in federal and state regulations of the mutual fund
industry or the imposition of regulatory penalties could have an effect on
operating results of the Company. These uncertainties, as well as others,
are present in the financial services industry and stockholders are cautioned
that management's view of the future on which it prices its products and
estimates costs of operations and regulations may prove to be other than as
anticipated.
GENERAL
Unified Financial Services, Inc., a Delaware corporation ("Unified" or
the "Company"), was organized December 7, 1989. As of March 15, 1998,
Unified owned all of the capital stock of Unified Management Corporation
("UMC"), Indianapolis, Indiana, a licensed National Association of Securities
Dealers, Inc. ("NASD") broker-dealer, Unified Fund Services, Inc. ("Unified
Fund Services"), Indianapolis, Indiana, a registered investment adviser and
transfer agent, Health Financial, Inc. ("Health Financial"), Lexington,
Kentucky, a registered investment adviser, First Lexington Trust Company
("First Lexington"), Lexington, Kentucky, a non-bank affiliated trust company
that is regulated by the Department of Financial Institutions, Commonwealth
of Kentucky, Unified Internet Services, Inc. ("Unified Internet Services"),
Indianapolis, Indiana, an internet services company, Resource Benefit
Planners, Inc. ("Resource Benefit Planners"), Lexington, Kentucky, a
professional services firm, HFI Acquisition Corporation, a Kentucky
corporation ("HFAC"), and VAI Acquisition Corporation, a Delaware corporation
("VAC"). Each of HFAC and VAC currently do not conduct any operations.
Reference in this filing to the "Company" or "Unified" include Unified and
its wholly owned subsidiaries.
The Company is a Delaware holding company that 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
advisery 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
planning services. Through its subsidiaries, these services are provided
primarily to third party financial services institutions, predominantly
mutual funds. As a result of Unified's one-third stock ownership in and
affiliation with Vintage Advisers, Inc., which changed its name to Unified
Investment Services, Inc. effective January 21, 1998 ("Vintage Advisers"), a
Delaware corporation, the Company's subsidiaries
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provide services for the affiliated Vintage Funds, a family of four no-load
mutual funds sponsored by Vintage Advisers (hereinafter referred to as the
"Vintage Funds").
The Company intends to capitalize on what it believes are its principal
competitive strengths to take advantage of and benefit from what it perceives
to be a need, opportunity and trend toward consolidation in the financial
services industry, especially within the small mutual fund and registered
investment adviser sectors.
The Company believes that its strategic plan is unique and that the
plan will allow the Company to continue its earnings growth, expand assets
under management, build long-term share value and attain vertical integration
in the financial services industry.
There can be no assurances that the Company will achieve these
objectives.
Currently, the Company serves as transfer agent, administrative
services agent, distributor, fund accountant and/or shareholder services
agent for ten mutual fund families consisting of approximately 36
different portfolios, including the four Vintage Funds portfolios, and
performs other clerical functions for the Vintage Funds in addition to
typical mutual fund services. The Company receives revenues for the
management of the Vintage Funds along with certain commissions attributable
to distribution of fund shares as well as mutual fund and clerical services
fees. Since October 1995, the Vintage Funds have grown to over $60 million
in combined assets as of December 31, 1997, of which, as of such date,
approximately 70% of such assets were from UMC's brokerage sweep accounts.
Of the approximately $750 million of Unified's clients' assets under management,
invested in mutual funds, nearly eight percent of those assets are invested
in the affiliated Vintage Funds. As of December 31, 1997, the Vintage Funds
portfolios included the following: The Vintage Starwood Strategic
Fund--$1,155,320; The Vintage Laidlaw Fund--$2,760,108; The Vintage First
Lexington Balanced Fund--$6,214,850; and The Vintage Taxable Money Market
Fund--$49,996,037.
UMC, the Company's broker-dealer subsidiary, functions as the
distributor of the Vintage Funds and also provides specialty services for
certain customers of the Vintage Funds in addition to its discount brokerage
activities. The brokerage subsidiary clears, on a fully-disclosed basis,
through Pershing, a division of Donaldson, Lufkin & Jenrette Securities
Corporation ("Pershing").
As of March 15, 1998, Unified had outstanding (i) 1,039,776 shares of
its common stock, $.01 par value (the "Common Stock"), and (ii) 17,069 shares
of its preferred stock, $.01 par value (the "Preferred Stock"), of which
8,486 of such shares are designated as "Series A 8% Cumulative Preferred
Stock" and 8,583 of such shares are designed as "Series B 8% Cumulative
Preferred Stock." As of December 31, 1997, the Company reported, on a
consolidated basis, total assets of $4,933,344 and stockholders' equity of
$2,925,137.
As of 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 number of shares of Common Stock that was
equal to a fraction, the numerator of which was 50,000 and the denominator of
which was the number of issued and outstanding shares of Common Stock
immediately prior to such division of shares. Upon payment of such stock
dividend, the Company had 50,000 shares of Common Stock issued and
outstanding.
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Effective as of July 25, 1997, the Company terminated the Unified
Holdings, Inc. Management and Employee Retention Plan (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 antidilution 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.
As of December 31, 1997, 50,000 shares of Common Stock were owned by
the Unified Regional Prototype 401(k) Profit Sharing Plan ("401(k) Plan").
Mr. Lynn E. Wood, the Company's Chief Operating Officer and a Director, votes
the shares held by the 401(k) Plan.
As of the date hereof, the total number of shares of Preferred Stock
that were authorized was 1,000,000, of which 22,100 shares have been
designated as follows:
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SHARES
SHARES ISSUED AND STATED PAR
DESIGNATED OUTSTANDING VALUE VALUE
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<S> <C> <C> <C> <C>
Series A 8% Cumulative Preferred Stock 10,000 8,486 $100 $.01
Series B 8% Cumulative Preferred Stock 10,000 8,583 100 .01
Series C 6.75% Cumulative Convertible Preferred Stock 2,100 -- 100 .01
</TABLE>
Dividend payments on the Series A and Series B Preferred Stock are
cumulative at 8% per annum of the stated value. Without the consent of the
holders of not less than a majority of the then outstanding shares of
Preferred Stock, 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
holders of Preferred Stock are entitled to vote on all matters presented to
the stockholders of the Company, as provided in the Amended and Restated
Certificate of Incorporation, as amended, of the Company (the "Certificate of
Incorporation").
Unified's principal executive offices are located at 431 North
Pennsylvania Street, Indianapolis, Indiana 46204, and its telephone number is
(317) 634-3301.
RECENT DEVELOPMENTS
On May 8, 1997, the Company entered into an agreement to acquire
Vintage Advisers, located in Indianapolis, Indiana. Vintage Advisers is a
registered investment adviser under the Investment Advisers Act of 1940, as
amended, and is the adviser to the Vintage Funds. Fees received by Vintage
Advisers for services are based upon net assets under management for each
portfolio in the Vintage Funds. Management of Vintage Advisers believes that
as the assets under management of the Vintage Funds increase and the expenses
of the Vintage Funds become less than the regulatory or prospectus imposed
expense limitations, Vintage Advisers will have to reimburse less of the
expenses of the Vintage Funds because the expenses will be less than the
regulatory and prospectus imposed expense limitations.
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Management of the Company believes that Vintage Advisers would become profitable
with a $65 million increase in assets under management for the Vintage Funds.
The definitive agreement between the Company and Vintage Advisers was
terminated effective as of December 1, 1997. By separate agreement dated
December 1, 1997, the stockholders of Vintage Advisers, other than the
Company, have agreed to surrender to Vintage Advisers their shares of capital
stock of Vintage Advisers. Upon consummation of such stock surrender, which
is anticipated to be consummated on March 31, 1998, the Company will own all
of the outstanding capital stock of Vintage Advisers. As of December 31,
1997, Vintage Advisers reported total assets of $524,808 and stockholders'
equity of $(348,502).
On June 1, 1997, the Company completed the acquisition of Health
Financial, located in Lexington, Kentucky. This acquisition was accounted
for under the pooling-of-interests method of accounting and, in connection
therewith, on November 19, 1997 the Company issued 325,000 shares of Common
Stock. Health Financial is an investment adviser providing services to
trusts, retirement plans, businesses and individuals primarily located in
Kentucky. As of June 1, 1997, Health Financial reported total assets of
$710,196 and shareholders' equity of $380,986.
On December 31, 1997, the Company completed the acquisition of First
Lexington, located in Lexington, Kentucky. This acquisition was accounted
for under the pooling-of-interests method of accounting and, in connection
therewith, the Company issued 80,008 shares of Common Stock. First Lexington
is a non-bank affiliated trust company that provides full trust powers and
retirement plan services to its customer base. As of December 31, 1997,
First Lexington reported total assets of $1,128,342 and shareholders' equity
of $1,064,701.
On March 10, 1998, the Company completed the acquisition of Resource
Benefit Planners, Inc. ("Resource Benefit Planners"), located in Lexington,
Kentucky. This acquisition was accounted for under the pooling-of-interests
method of accounting and, in connection therewith, the Company issued 12,000
shares of Common Stock. Resource Benefit Planners is a professional services
firm that provides consulting, recordkeeping and trust accounting services
for qualified retirement and cafeteria plans. As of March 10, 1998, Resource
Benefit Planners reported total assets of $277,252 and shareholders'
equity of $32,571.
In connection with the acquisition of Health Financial, the Company
restated its consolidated financial statements as of and for the years ended
December 31, 1996 and 1995 and as of and for the three months ended March 31,
1997 and 1996. The Company filed supplemental consolidated financial
statements as of and for the years ended December 31, 1996 and 1995 and as of
and for the three months ended March 31,1997 and 1996 in Amendment No. 1 to
the Company's Registration Statement on Form 10-SB (the "Form 10-SB").
In connection with the acquisition of First Lexington, the Company
restated its consolidated financial statements as of and for the years ended
December 31, 1996 and 1995. The supplemental consolidated financial
statements as of and for the year ended December 31, 1996 are included in
this Annual Report on Form 10-KSB. The consolidated financial statements of
the Company as of and for the year ended December 31, 1997 have been prepared
giving effect to the acquisition of First Lexington, which transaction was
accounted for under the pooling-of-interests method of accounting. Due to
the immateriality of the results of operations of Resource Benefit Planners
to that of the Company, the
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consolidated financial statements of the Company have not been restated to give
effect to the acquisition of Resource Benefit Planners.
THE COMPANY'S SUBSIDIARIES AND OPERATIONS
The Company has six wholly-owned subsidiaries through which it conducts
its operations: Unified Fund Services, a registered investment adviser and
transfer agent organized on February 1, 1990; UMC, a NASD and SIPC member
broker-dealer organized on November 20, 1952 as Unified Underwriters, Inc.
and which commenced operations as UMC effective February 25, 1976; Health
Financial, a registered investment adviser organized on October 3, 1986 and
acquired by the Company on June 1, 1997; First Lexington Trust Company, a
non-bank affiliated trust company organized on March 14, 1994 and acquired by
the Company in December 1997; Unified Internet Services, an internet services
company organized by the Company on February 12, 1998; and Resource Benefit
Planners, a professional services firm organized on December 5, 1986 and
acquired by the Company on March 10, 1998.
UNIFIED FUND SERVICES, INC. Unified Fund Services is a mutual
fund financial services company specializing in the development, support,
maintenance, shareholder servicing and management of and in providing
investment advise to mutual funds.
Unified Fund Services was formed in 1990 as a sister company to UMC in
a move to separate and segregate the brokerage services employees (and
brokerage account activities) from the mutual fund services employees (and
mutual fund account activities).
Unified Fund Services 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 $647 million in mutual fund assets, 36 portfolios
and approximately 29,000 accounts. Additionally, as a registered
investment adviser, Unified Fund Services, as of December 31, 1997, had
approximately $106 million of assets under management, all of which are
invested in mutual funds, with approximately $18 million of the $60 million
invested in the Vintage Funds.
Unified Fund Services' 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.
Through its systems group and its link to a brokerage affiliate,
Unified Fund Services has the capability of converting assets on a tax-free
basis from existing funds into Unified's affiliated mutual fund family, the
Vintage Funds. Additionally, Unified Fund Services has the capability and
flexibility to create or modify funds that are individualized to the client
and the transaction.
As a mutual fund service provider for third party mutual funds, Unified
Fund Services generally is responsible for all of a fund's business
activities, including distribution (through UMC) and investment management.
The Company believes that these services are an extension of distribution,
that high quality servicing is critical to retaining shareholder accounts and
that quality of service directly impacts the growth of mutual fund assets.
Therefore, Unified Fund Services strives to create an error-free operating
environment based on stringent standards established by the Company.
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Unified Fund Services' service responsibilities may be divided into
five major services:
* shareholder recordkeeping - encompasses all mutual fund
shareholders' transactions, including taking purchase and redemption
orders, entering orders into the transfer agency system and forwarding
information regarding trade activity to the portfolio managers and fund
accountants;
* fund accounting - provides daily recordkeeping for each
fund, including calculations of net asset value per share, dividend
rates per share and the maintenance of all books, records and financial
reports required by the Securities and Exchange Commission (the "SEC")
and other regulatory agencies. This service also includes preparation
of quarterly financial statements, shareholder reports and board
reports for each portfolio, participation in the periodic updating of
prospectuses, preparation of federal, state and local tax returns,
payment of all costs and expenses of the fund and the maintenance of
the official books and records of each fund;
* cash management - ensures timely receipts and disbursements
on shareholders activity for effective asset management, including cash
availability for investment, reconciliation of accounts, cash movement
and activity, processing of fees and tax withholding and reporting;
* fund administration and legal compliance; and
* investment advisory services.
Unified Fund Services, as the primary servicing agent for various
mutual funds, including the Vintage Funds, receives fees from the funds for
providing such services. As such, Unified Fund Services is economically
dependent on these funds and their respective contracts (and renewals) for a
substantial portion of its revenue.
UNIFIED MANAGEMENT CORPORATION. UMC was formed in 1952 as Unified
Underwriters, Inc. and is a regional discount brokerage firm with a link to
mutual fund assets via its brokerage account services. A licensed NASD
broker-dealer since 1976, UMC specializes in mutual fund distribution and
shareholder servicing liaison providing such services as: mutual fund
distribution, distribution services and support; mutual fund conversion
support for broker-dealer requirements; mutual fund trades; individual
retirement account ("IRA") custodial services; 12b-1 maintenance, accounting
and marketing support; securities (stock and bond) brokerage; brokerage
clearing and execution services; consolidated brokerage statement processing;
mutual fund and brokerage software development; asset allocation and
performance measurement services and statement processing; and retirement
account record keeping.
UMC, as a fund distributor and broker-dealer of record, has created a
beneficial synergy by linking brokerage accounts with funds and providing a
proprietary brokerage sweep relationship through the Vintage Funds. UMC's
arrangement with its brokerage clearing firm allows UMC to sweep monies from
the brokerage clearing firm to the Vintage Funds as part of the transaction
instead of leaving the money at the brokerage clearing firm. UMC also
utilizes its brokerage services as an important component in the tax-free
conversion (re-organization) of mutual fund assets from small third-party
mutual funds into the Vintage Funds. UMC clears through Pershing and
provides a full range of brokerage products.
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HEALTH FINANCIAL, INC. Health Financial, an SEC registered
investment adviser formed in 1986, manages approximately $375,000,000 in
assets for both individuals and institutions, principally private pension
plans and foundations. Health Financial specializes in an investment
management philosophy that features a balanced discipline of asset allocation
utilizing no-load index funds over seven asset classes, including an S&P 500
index, a large cap U.S. stock index, a small cap U.S. bond index, an
international stock index, a REIT index and cash. Health Financial offers
its investment philosophy through three products: a balanced "managed"
program; an identical balanced program through its First Lexington Balanced
mutual fund, which opened March 13, 1997; and an identical balanced program
through its collective trust fund. Health Financial's 10-year performance
averages place it in the upper 10% of balanced managers for the period.
FIRST LEXINGTON TRUST COMPANY. First Lexington is a non-bank
trust company specializing in retirement plans and currently maintains
approximately $50 million in assets under management. Directed by its trust
investment committee, the Lexington-based Kentucky trust company provides the
same investment philosophy as its sister company, Health Financial, while
providing full trust powers and retirement plan services to its customer
base. Chartered in 1994, First Lexington is regulated by the Kentucky
Commissioner of Banking under the Department of Financial Institutions,
Commonwealth of Kentucky.
UNIFIED INTERNET SERVICES, INC. In March 1998, the Company
formed Unified Internet Services to produce the Company's website and to
develop the Company's proprietary search engine for the financial services
industry along with other internet products such as an interactive "switch"
to allow access to the Company's website, search engine and
television/cable/satellite station via their television, cable or satellite
stations even if they are non-computer owners or non-internet users. The
Company believes that the internet services company will expand the Company's
mutual fund services subsidiary, Unified Fund Services, which provides
transfer agency, fund accounting, administration and distribution for third
party mutual funds, by designing and providing websites and branding its
search engine for third party mutual fund services clients.
RESOURCE BENEFIT PLANNERS, INC. Resource Benefit Planners is a
Lexington-based Kentucky professional services firm specializing in qualified
retirement plans. Resource Benefit Planners provides the following specific
services to the retirement industry and to the Company's customer base:
retirement plan consulting; recordkeeping; trust accounting services; plan
participant education; feasibility studies; originations; terminations;
implementations; installations; employee communications; and administration.
THE COMPANY'S AFFILIATED MUTUAL FUNDS
The Company currently owns a one-third interest in Vintage Advisers, a
registered investment adviser that manages and sponsors the Vintage Funds, a
no-load family of mutual funds consisting of four portfolios. As of
December 31, 1997, the Vintage Funds maintained approximately $60 million in
total net assets, predominantly in its one money market portfolio, and
features its proprietary property, V.O.I.C.E. (Vision for Ongoing Investment
- - -
in Charity and Education).(sm)
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The Vintage Funds' mission, largely due to its relationship with
Vintage Advisers and Unified, is to capture existing small fund assets via:
tax-free reorganizations; acquisitions; asset mergers; construction of
Unified portfolios for certain registered investment advisers; and the
marketing of its V.O.I.C.E.(sm) concept.
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The Vintage Funds were established by Vintage Advisers as a platform
for five primary visions:
(i) As a proving ground for the V.O.I.C.E.(sm) program, and
establishing V.O.I.C.E.(sm) as a niche in the industry, highlighting its
philanthropic nature and its contributions to not-for-profit
organizations, especially in the area of education;
(ii) To provide a home for small, third party mutual funds
thereby growing the Vintage Funds' assets by tax-free reorganizations
due to its affiliation with Unified, the attraction of the V.O.I.C.E.(sm)
program and stock-for-stock acquisitions;
(iii) To create an efficient, no-load investment environment,
with industry mid-point expense ratios and free exchange privileges;
(iv) To provide the opportunities and diversity attributable to
selected fund-of-funds; and
(v) To create a complete mutual fund service environment with a
special focus on the gathering and maintenance of retirement plans.
One of the three Unified Fund's equity portfolios is a fund-of-funds.
THE PHILANTHROPIC V.O.I.C.E.(SM) (VISION FOR ONGOING INVESTMENT
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IN CHARITY AND EDUCATION)(SM) PROGRAM.
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The Company oversees and manages the V.O.I.C.E.(sm) program for Vintage
Advisers, exclusively for the Vintage Funds. V.O.I.C.E.(sm) is a unique and
innovative philanthropic program through which individuals and institutions
can cause contributions to be made to educational, charitable and
philanthropic "not-for-profit" organizations at no expense to the Unified
Fund or to the shareholder. Vintage Advisers makes the contributions from
its own revenue to certain accredited college or university endowments or
general scholarship funds designated by qualifying shareholders.
The Vintage Funds, since their formation in December 1994, have
licensed the V.O.I.C.E.(sm) program from Vintage Advisers and, pursuant to the
licensing agreement, Vintage Advisers is required to make a contribution each
quarter on behalf of each qualifying Unified Fund shareholder participating
in the V.O.I.C.E.(sm) program. All shareholders in all Vintage Funds
maintaining an average annualized aggregate net asset value of $25,000 or
more over the period of an entire calendar quarter will be qualified to
designate an eligible institution to receive a donation under the program for
that quarterly period. Vintage Advisers will contribute, on a quarterly
basis, an amount equal to that quarter's portion of 0.25% of the average
annualized aggregate net asset value, as long as the average annualized
aggregate net assets remain above $25,000 for the quarterly period. Although
the contributions will be made in the shareholder's name and behalf, there
are no tax deductions or tax advantages to the shareholders, since Vintage
Advisers is making the contributions on behalf of the shareholders and
neither the shareholders' nor the Funds' assets are reduced. The
contributions made by Vintage Advisers during fiscal years 1997 and 1996 were
$11,789 and $8,612, respectively.
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Philanthropic institutions outside the area of education may be
accepted, at the discretion of Vintage Advisers. The V.O.I.C.E.(sm) program
is the proprietary property of Vintage Advisers.
REGULATION OF THE COMPANY'S BUSINESS
Under the Investment Company Act of 1940, as amended (the "1940 Act"),
the advisory, subadvisory shareholder servicing and distribution agreements
between the Company's subsidiaries and various mutual funds are subject to
annual review by each fund's board of directors and the agreements must be
approved annually to remain in effect. There are no assurances that the
funds' boards of directors will renew each agreement with these funds. The
non-renewal of those agreements by a fund's board of directors could have a
material adverse effect on the Company's business. The Company has no reason
to believe that such approvals will not be granted and that the various
mutual fund agreements will not be renewed.
The securities industry, including broker-dealer, investment advisory
and transfer agency firms in the United States, are subject to extensive
regulation under federal and state laws. The regulations to which these
firms are subject cover all aspects of the securities business, including
sales methods, trade practices, capital structure, recordkeeping and the
conduct of directors, officers and employees. Additional state legislation,
changes in rules promulgated by the SEC and by self-regulatory organizations,
or changes in the interpretation or enforcement of existing laws and rules
often directly affect the methods of operation and profitability of money
managers, broker-dealers and transfer agents. The SEC, state securities
administrators and various self-regulatory organizations may conduct
administrative proceedings that can result in censure, fine, suspension or
expulsion of an investment adviser or broker-dealer, its officers or
employees. The principal purpose of regulation and discipline of
broker-dealers, investment advisers and transfer agents is the protection of
customers and the securities markets and not the protection of creditors and
shareholders of such firms.
INDUSTRY REGULATIONS
The Company's wholly-owned, broker-dealer subsidiary, UMC, is a NASD
member. The NASD is a self-regulatory organization that has prescribed rules
with respect to maximum commissions, charges and fees related to sales of
shares in any open-end investment company registered under the 1940 Act.
Vintage Advisers, of which the Company owns one-third of the
outstanding capital stock, is an investment adviser registered with the SEC
under the Investment Advisers Act of 1940, as amended (the "Advisers Act"),
that serves as the adviser to the Vintage Funds. Under the Advisers Act, it
is unlawful for any investment adviser to: (1) employ any device, scheme or
artifice to defraud any client or prospective client; (2) engage in any
transaction, practice or course of business that operates as a fraud or
deceit upon any client or prospective client; or (3) engage in any act,
practice or course of business that is fraudulent, deceptive or manipulative.
The Company aggressively pursues a strategy of acquiring investment
advisers to mutual funds. Once an investment adviser is acquired, its
advisery agreement is assigned to the Company and automatically terminates
under the 1940 Act. Vintage Adviser's assumption of an advisery agreement
must be approved by a majority of the fund's board of directors and a
majority of its outstanding voting securities. An investment adviser
purchased by the Company may not benefit from the sale of its advisery
business to Vintage Advisers which results in the assignment of an advisery
contract with a mutual fund
-9-
<PAGE> 12
unless, for a period of three years after the sale, at least 75% of the board of
directors of the fund are not interested persons of the new adviser or the
predecessor adviser, and no unfair burden is imposed on the fund as a result of
the sale. This 75% requirement is stricter than the general requirement that
only two-thirds of mutual fund's board of directors must be "disinterested"
under the 1940 Act. The effect of such transfer results in the assignment of
the old investment advisery agreement, which requires the new agreement to be
approved by the Boards of Trustees and the acquired fund's shareholders. There
can be no assurances that a fund's board or its shareholders will approve an
advisery agreement with Vintage Advisers after Vintage Advisers has acquired the
former adviser to the fund. In addition, Vintage Advisers may be required to
assume an advisery contract previously entered into under disadvantageous terms
in order to convince fund's board or its shareholders to approve Vintage
Adviser's assumption of the agreement.
Mutual fund directors and investment advisers to mutual funds are
deemed to be "fiduciaries" of the fund. The SEC is authorized to initiate an
action to enjoin a breach of fiduciary duties involving personal misconduct
by any officers, directors, investment advisers and principal underwriters of
a fund. Shareholders or the SEC also may bring an action against the
officers, directors, investment adviser or principal underwriters for breach
of fiduciary duty in establishing the compensation paid to the investment
adviser or underwriter. An investment adviser or underwriter to a fund, its
principals and its employees, also may be subject to proceedings initiated by
the SEC to impose remedial sanctions for violation of any provision of the
federal securities laws and the regulations adopted thereunder, and the SEC
may preclude a firm that has been sanctioned from continuing to act in such
capacity. Investment companies such as the Vintage Funds are subject to
considerable substantive regulation under the 1940 Act. Such companies must
comply with periodic reporting requirements. Proxy solicitations are subject
to the general proxy rules as well as to special proxy rules applicable only
to investment companies. Shares of investment companies can only be offered
at the next-determined net asset value plus any sales load. A fund's
management agreement initially must be approved by the fund's board of
directors and a majority of the outstanding shares and, after two years, must
be annually approved, either by the board or by the outstanding voting
shares. A fund's management agreement must automatically terminate in the
event of assignment and typically is subject to termination upon 60-days
notice by the board or by a vote of the majority of the outstanding voting
shares. The underwriting or distribution agreement also must be annually
approved by the board or by a vote of a majority of the outstanding voting
shares, and must provide for automatic termination in event of assignment.
Transactions between the investment company and an affiliate are prohibited.
REGULATORY PENALTIES FOR FAILURE TO MAINTAIN MINIMUM NET CAPITAL REQUIREMENTS
The Securities Exchange Act of 1934, as amended (the "1934 Act"),
imposes minimum net capital requirements for broker-dealer firms. A decrease
below the minimum level of net capital required to be maintained by UMC under
the 1934 Act could force UMC to suspend activities pending recovery of net
capital. Factors that may affect UMC's net capital include the general
investment climate as well as the ability of the Company to obtain any assets
necessary to contribute equity capital to UMC.
RISKS OF BUSINESS
The Company's investment advisery, transfer agent, shareholder
servicing and broker-dealer businesses are subject to various risks and
contingencies, many of which are beyond the ability of the Company to
control. These risks include: economic conditions generally and, in
particular, those affecting the bond and securities markets; fluctuations in
interest rates; discretionary income available for investment;
-10-
<PAGE> 13
customer inability to meet payment or delivery commitments; customer fraud; and
employee fraud, misconduct and error.
COMPLIANCE REQUIREMENTS AND REGULATORY PENALTIES FOR NONCOMPLIANCE
Various aspects of the Company's business are subject to federal and
state regulation as well as to oversight by "self regulatory" organizations
that, depending on the nature of any failure to comply with an applicable
entity's rules, may result in the suspension or revocation of licenses or
registration, including broker-dealer, investment adviser and transfer agent
licenses and registrations, as well as the imposition of civil fines and
criminal penalties. Failure by the Company or any of its employees to comply
with such regulations or with any of the laws, rules or regulations of
federal, state or industry authorities (principally the NASD and SEC) could
result in censure, imposition of fines or other sanctions, including
revocation of the Company's right to do business or in suspension or
expulsion from the NASD. Any of the foregoing could have a material adverse
effect upon the Company. Such regulations are designed primarily for the
protection of the investing customers of securities firms and not the
Company's stockholders. Finally, there is no assurance that the Company,
along with other fund distributors, administrators and managers will not be
subjected to additional stringent regulation and publicity that may adversely
affect their business.
COMPETITION
Since its inception, the Company has directly competed with a number of
larger, more established mutual fund service organizations and securities
firms. Competition is influenced by various factors, including breadth,
quality of service and price. All aspects of the Company's business are
competitive, including competition for mutual fund assets to manage. Large
national firms have much greater marketing capabilities, offer a broader
range of financial services and compete not only with the Company and among
themselves but also with commercial banks, insurance companies and others for
retail and institutional clients. The Company's affiliated mutual funds are
subject to competition from nationally and regionally distributed funds
offering equivalent financial products with returns equal to or greater than
those offered by the Vintage Funds. The Company is focused on the niche area
of tax-free reorganizations and consolidations of small mutual funds into the
Vintage Funds family and its proprietary products, such as V.O.I.C.E.(sm)
Competition for assets under management is intense from both national and
regional based firms. Access to local investment and the population of the
region by modern communication systems is so efficient that the Company's
geographical position cannot be deemed an advantage. The Company's
investment management operations compete with a large number of other
investment management firms, commercial banks, insurance companies,
broker-dealers and other financial service firms. Most of these firms are
larger and have access to greater resources than the Company. The investment
advisory industry is characterized by relatively low cost of entry and the
formation of new investment advisory entities that may compete directly with
the Company is a frequent occurrence. The Company directly competes with as
many as several hundred firms that are of similar or larger size. The
Company's ability to increase and retain clients' assets could be materially
adversely affected if client accounts under-perform the market. The ability
of the Company's investment management subsidiary to compete with other
investment management firms also is dependent, in part, on the relative
attractiveness of their investment philosophies and methods under prevailing
market conditions. A large number of mutual funds are sold to the public by
investment management firms, broker-dealers, insurance companies and banks in
competition with the Vintage Funds. Many of the Company's competitors apply
substantial resources to advertising and marketing their mutual funds, which
may adversely affect the ability of the Vintage Funds to attract new assets.
The Company expects that there will be increasing pressures among mutual fund
sponsors to obtain
-11-
<PAGE> 14
and hold market share. Although the Company may expand the financial services
it can provide to its customers, it does not now offer as broad a range of
financial services as national stock exchange member firms, commercial banks,
insurance companies and others.
DEPENDENCE ON KEY CLIENTS
The Company presently provides mutual fund services, transfer agency,
fund accounting, administration and distribution services to ten mutual
fund families consisting of 36 portfolios. Four of those portfolios, the
Vintage Funds, originally were organized and are sponsored by Vintage
Advisers. The Vintage Funds and those of the remaining parties, have entered
into contracts with the Company that typically expire within one to three
years. No assurance can be given that any of these third party funds or the
Vintage Funds will remain clients of the Company upon expiration or
termination of the various administration and distribution agreements. The
loss by the Company of such mutual fund clients could have a material adverse
effect on the Company.
Additionally, UMC has entered into clearing agreements with its
introduced broker-dealer clients that represent a substantial portion of the
assets in the Vintage Funds through the use of the Unified Taxable Money
Market Funds as their brokerage sweep facility. The introduced broker-dealer
relationships also represent a significant portion of UMC's revenues from
trading commissions. The loss of clearing clients could have a material
adverse effect on the Vintage Funds and the Company.
Vintage Advisers receives management fees from the Vintage Funds. As
the Vintage Funds' manager and adviser, Vintage Advisers, and, therefore, the
Company, are economically dependent on the Vintage Funds for a substantial
portion of their revenue.
Contacts for portfolio management performed by Vintage Advisers in the
case of the Vintage Funds are awarded annually by review and approval of the
independent Boards of Trustee of the various Vintage Funds. The Boards of
Trustee consist of four trustees, three of whom are independent, and Timothy
L. Ashburn who is affiliated with the Company. These Boards also are
responsible for awarding the Company's subsidiaries the various service
agreements for the Vintage Funds.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent in a large part on Timothy L. Ashburn, the
President, Chief Executive Officer and Chairman of the Board, as well as a
group of senior management personnel. The loss or unavailability of any of
these persons could have a material adverse effect on the Company. The
Company's success also will depend on its ability to attract and retain
highly skilled personnel in all areas of its business. There can be no
assurance that the Company will be able to attract and retain personnel on
acceptable terms in the future. Other than a $1 million policy on the life
of each of Timothy L. Ashburn, the President of the Company, and Dr. Gregory
W. Kasten, the President of Health Financial and First Lexington, each a
wholly owned subsidiary of the Company, the Company does not presently own
insurance covering the lives of the senior management of the Company.
EMPLOYEES
As of December 31, 1997, the Company and its subsidiaries had 37
employees, of which 35 were full-time employees. None of the employees of
the Company and its subsidiaries are subject to a collective bargaining
agreement. The Company considers its relationships with its employees and
those of the subsidiaries to be good.
-12-
<PAGE> 15
ITEM 2. DESCRIPTION OF PROPERTY
-----------------------
The Company, through its subsidiary, UMC, leases its corporate
headquarters and administrative office facilities located at 429-431 North
Pennsylvania Street, Indianapolis, Indiana. This facility is comprised of
approximately 10,820 square feet and is subject to a lease expiring in 2007.
Health Financial's, First Lexington's and Resource Benefit Planners'
administrative offices are located at 2353 Alexandria Avenue, Lexington,
Kentucky. The operating lease for Health Financial's and First Lexington's
offices expires in 2002 and such offices have approximately 2,554 square feet.
The operating lease for Resource Benefit Planners' offices expires in 2002
and such offices have approximately 2,180 square feet. The Company also
leases a portion of such property for corporate offices. The Company's
current administrative offices are considered adequate to serve the Company's
foreseeable needs. Other than the administrative offices leases, the Company
has no other significant property holdings.
ITEM 3. LEGAL PROCEEDINGS
-----------------
Various claims and lawsuits, incidental to its ordinary course of
business, are pending against the Company and its subsidiaries. In the
opinion of management, after consultation with legal counsel, resolution of
these matters is not expected to have a material effect on the Company's
financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
There were no matters submitted during the quarter ended December 31,
1997 to a vote of the Company's shareholders, through the solicitation of
proxies or otherwise.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------
The name, age and position with respect to each of the executive
officers of the Company are set forth below:
TIMOTHY L. ASHBURN: (Age 47) Chairman since 1989; Chief Executive
Officer 1989-1992 and 1994-present; President since November 1997; 401(k)
Plan Committee since 1994; executive committee member since 1989; operating
committee member since 1989. Mr. Ashburn was employed by the Vine Street
Trust Company, Lexington, Kentucky, a wholly owned subsidiary of Cardinal
Bancshares, a Kentucky bank holding company for the two-year period from
April 1992 through March 1994, and was responsible for the operations of the
bank's trust department and for investment management. Mr. Ashburn has been
Chairman of the Board and Chief Executive Officer of Vintage Advisers since
December of 1994 and is Chairman of the Board of Trustees, President and
Chief Executive Officer of the Vintage Funds.
THOMAS G. NAPURANO: (Age 56) Director of the Company since 1989; Chief
Financial Officer since 1989; Executive Vice President since 1989; executive
committee member since 1989; and operating committee member since 1989. Mr.
Napurano is also a director and the chief financial officer for Vintage
Advisers and is the treasurer for the Vintage Funds.
LYNN E. WOOD: (Age 51) Director of the Company since 1992; President of
UMC since 1992; Chief Operating Officer and President from 1993 through
November 1997; Trustee for 401(k) Plan; executive committee member since 1992;
and operating committee member since 1992. Mr. Wood also is a director and
the president and chief operating officer for Vintage Advisers and is the
assistant secretary to the Vintage Funds.
-13-
<PAGE> 16
DAVID A. BOGAERT: (Age 33) Executive Vice President and Executive
Committee member since 1995; President of Unified Fund Services since November
1997; operating committee member since 1992; national sales and marketing
director since 1995; and telephone service representative, brokerage services
supervisor, institutional sales representative and Assistant Vice President
1986-1992.
DR. GREGORY W. KASTEN: (Age 42) President and Chief Executive Officer
of Health Financial since 1986; President and Chief Executive Officer of
First Lexington since 1994; Director of the Company since 1997. Dr. Kasten
has been awarded Certified Financial Planner and Certified Pension Consultant
designations and received a Master of Business Administration degree with an
emphasis on Finance and Investment Management. Dr. Kasten also received a
medical degree but has retired from active medical practice.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
---------------------------------------------------------------------
There currently is no established public trading market for the Common
Stock. In February 1996 and 1997, 5,501.891 and 24,821.118, respectively,
shares of Common Stock were issued by the Company to the 401(k) Plan. In
addition, in March 1996, February 1997 and September 1997, the Company
purchased 5172.42, 3296.991 and 889.990, respectively, shares from
participants in such plan upon termination of their employment. Such shares
were reallocated to the remaining employees in the 401(k) Plan. Management
of the Company is not aware of any other transfers of Common Stock. The
Company has not paid any dividends with respect to the Common Stock during
the disclosed time periods. All share and price information has been
adjusted to reflect all stock splits and stock dividends paid by the Company
since January 1, 1996.
<TABLE>
<CAPTION>
SALES PRICE
------------------------
HIGH LOW
------ ------
<S> <C> <C>
1996
----
First Quarter 1.5360 1.5354
Second Quarter -- --
Third Quarter -- --
Fourth Quarter -- --
1997
----
First Quarter 0.1028 0.0935
Second Quarter -- --
Third Quarter 1.2312 1.2312
Fourth Quarter -- --
</TABLE>
Because of the closely held nature of the Company, no representation is
made that the foregoing prices are or are not reflective of a "market price."
As of March 15, 1998, the Company reported 13 stockholders of record holding
the Common Stock.
For the year ended December 31, 1997, the only sales of the Company's
securities were: (i) 24,821.118 shares of Common Stock to the 401(k) Plan;
(ii) in July 1997, the Company issued 572,768 shares of Common Stock upon the
exercise of options granted pursuant to the terms of the M.E.R.P. at an
exercise price of $0.1314 per share; (iii) 325,000 shares of Common Stock
issued in connection with the acquisition of Health Financial; and (iv)
80,008 shares of Common Stock issued in connection with the acquisition of
First Lexington. All shares of stock issued by the Company during such
period were issued pursuant to the exemption provided by Rules 506 and 701,
as the case may be, as promulgated by the Commission.
-14-
<PAGE> 17
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
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 Annual Report on
Form 10-KSB, including the Company's audited, consolidated financial
statements and the accompanying notes thereto.
COMPARISON OF RESULTS FOR CALENDAR YEARS ENDED DECEMBER 31, 1997
AND 1996
Net income for the calendar year ended December 31, 1997 of $259,225
compares to net income of $831,198 for the prior year. Net income for the
year ended December 31, 1997 includes an after tax loss of approximately
$387,000 related to the acquisition of Health Financial, coupled with a
special bonus to the employees of the Company of approximately $125,000 and
the higher legal, accounting and counsel fees related to the filing by the
Company of the Form 10-SB with the SEC during 1997, a one-time expense
related to conversion of the Company's fund service system provider,
increased travel cost related to acquisition activities and a provision for
income taxes related to alternative minimum tax depreciation carryforwards.
During 1997, the Company results reflect a charge of $160,298 for losses
incurred by the adviser of the Vintage Funds.
Gross revenues of $6,767,208 in the calendar year ended December 31,
1997 compare to $7,266,652 for the same period in 1996. For the current
year, assets under management increased significantly. This increase
principally accounted for the $170,838 increase in investment adviser
revenues. Reduced brokerage charges partially offset reduced revenue from
broker/dealer operations. Mutual fund services reduction was partially
offset by an increase in trust and administration and other income.
The gross profit of $4,904,880 for the twelve months ended December 31,
1997 compares to $5,387,551 for the same period in 1996. Overall, percentage
of gross profit to total revenue decreased to 72.48% in 1997 from 74.14% in
1996 due to a higher cost of sales related to trail commission charges of the
brokerage operation.
Operating expenses in 1997 increased by $39,410 over the prior year
from $4,384,729 to $4,424,139 in 1997 primarily due to higher legal,
accounting and counsel fees related to the filing of the Form 10-SB with the
SEC during 1997 coupled with higher travel costs related to the completion of
acquisitions, a one-time charge related to a change of the Company's fund
system service provider. Employee compensation included a one-time special
bonus paid during 1997 approximating $125,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity historically has been and
continues to be cash flow from operating activities and available borrowing
capacity from capitalized leases and a revolving credit line from a regional
bank. At December 31, 1997 and 1996, the Company reported working capital of
$1,120,858, and $1,098,989, respectively, or a working capital ratio of 1.59
and 2.09, respectively, to 1.
-15-
<PAGE> 18
Significant portions of the Company's computer and communication
equipment and software are purchased through capitalized leases and the
revolving credit line. The Company expects to be able to repay its
borrowings over the respective lease and loan periods.
Capital expenditures for 1997 included the purchase of telephone and
computer equipment and software to further support the Company's mutual fund
and brokerage services businesses. The recent change in equipment and
software vendors should improve operating efficiencies and resolve any
potential exposure to the year 2000 problems that most companies anticipate.
During 1998, such expenditures are not expected to exceed $5,000. The
Company currently 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 currently is attempting to raise approximately $15.5
million of additional capital through a private placement of equity
securities. Upon completion of the proposed private placement, approximately
$1.7 million of the net proceeds will be used to retire the outstanding
Series A and Series B Preferred Stock. The remaining net proceeds from the
offering will be used for general corporate purposes, including: working
capital; furthering the development, marketing, expansion and support of its
products and services some of which are proprietary; an aggressive
advertising and publicity program for its niche products and services,
especially the V.O.I.C.E.(sm) program, and the Company's vision for the
financial services industry; and expansion of its internet investment
activities, including banking activities if successful in its acquisition of
a unitary thrift. Pending such uses, the Company may invest the net proceeds
in its own no-load mutual fund portfolios.
Historically, cash expended in investing activities has supported the
Company's affiliated mutual funds and brokerage services business through
investments in Vintage Advisers, of which the Company owns 33% of the
outstanding capital stock, and the Vintage 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 effect on the Company's liquidity
and working capital.
-16-
<PAGE> 19
ITEM 7. FINANCIAL STATEMENTS
--------------------
To the Board of Directors and
Stockholders of Unified Financial Services, Inc.
INDEPENDENT AUDITORS' REPORT
----------------------------
We have audited the accompanying consolidated statements of financial
condition of Unified Financial Services, Inc. and subsidiaries, which include
the 1997 mergers of Health Financial, Inc. and First Lexington Trust Company
as of December 31, 1997 and 1996 and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on 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 consolidated 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 consolidated financial statements present fairly, in all
material respects, the financial position of Unified Financial Services, Inc.
and subsidiaries at December 31, 1997 and 1996, and the results of their
operations, and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Larry E. Nunn & Associates, LLC
Columbus, Indiana
February 19, 1998
-17-
<PAGE> 20
<TABLE>
UNIFIED FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, 1997 and 1996
--------------------------
<CAPTION>
ASSETS
------
1997 1996
---------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 605,654 $ 538,030
Investment in affiliated mutual funds 520,334 203,040
Investment in non-affiliated mutual funds 187,603 177,915
Note receivable, affiliated company 50,000 50,000
Note receivable 4,502 30,113
Accounts receivable (net of allowance for
doubtful accounts of $2,041 for 1997 and 1996) 1,505,600 979,408
Prepaid assets and deposit 141,042 130,854
---------- ----------
Total current assets 3,014,735 2,109,360
---------- ----------
NON-CURRENT ASSETS
Investment in debt securities 958,604 802,970
Equity in and investment in affiliate 284,994 445,293
Notes receivable, net of current maturity 8,090 11,262
Organization cost, net 2,100 9,000
FIXED ASSETS, AT COST
Equipment and furniture (net of accumulated
depreciation of $590,887 and $822,293) 590,059 449,348
Capitalized leased equipment (net of accumulated
depreciation of $55,465 and $68,058) 74,762 99,876
---------- ----------
Total fixed assets 664,821 549,224
---------- ----------
Total non-current assets 1,918,609 1,817,749
---------- ----------
TOTAL ASSETS $4,933,344 $3,927,109
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
1997 1996
---------- ----------
CURRENT LIABILITIES
Current portion of capital lease obligations $ 30,090 $ 38,651
Current portion of bank line-of-credit 30,719 -
Accounts payable and accrued expenses 617,637 495,717
Accrued compensation and benefits 162,273 139,730
Payable to broker/dealers 274,046 124,489
Income taxes payable, current 14,355 9,200
Income taxes payable, deferred 24,700 15,653
Other liabilities 740,055 186,931
---------- ----------
Total current liabilities 1,893,875 1,010,371
---------- ----------
LONG-TERM LIABILITIES
Long-term capitalized lease obligations,
net of current portion 21,374 32,695
Bank line-of-credit, net of current portion 92,158 -
Deferred income taxes 800 2,387
---------- ----------
Total long-term liabilities 114,332 35,082
---------- ----------
TOTAL LIABILITIES 2,008,207 1,045,453
---------- ----------
COMMITMENTS AND CONTINGINCIES
STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share 14,778 5,649
Preferred stock Series A 8,486 8,486
Preferred stock Series B 8,583 8,583
Preferred stock Series C - -
Additional paid-in capital 1,977,788 1,905,798
Retained earnings 915,502 953,140
---------- ----------
Total stockholders' equity 2,925,137 2,881,656
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $4,933,344 $3,927,109
========== ==========
See accompanying notes and independent auditors' report.
</TABLE>
-19-
<PAGE> 21
<TABLE>
UNIFIED FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1997 and 1996
--------------------------------------
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
REVENUE:
Brokerage $2,542,130 $2,841,519
Fund service 1,624,395 2,214,523
Investment advisory 1,859,566 1,679,728
Trust and administration services 367,555 191,166
Software and programming services 131,787 194,626
Other income 241,775 145,090
---------- ----------
Total revenue 6,767,208 7,266,652
---------- ----------
COST OF SALES:
Brokerage revenue charges 1,712,545 1,794,886
Investment fees 90,768 67,624
Administration fees 59,015 16,591
---------- ----------
Total cost of sales 1,862,328 1,879,101
---------- ----------
Gross profit 4,904,880 5,387,551
---------- ----------
EXPENSES:
Employee compensation and benefits 2,623,443 2,742,595
Brokerage operating charges 317,381 332,508
Fund services operating charges 235,561 233,500
Mail and courier service 50,518 63,511
Telephone 104,068 74,969
Equipment rental and maintenance 90,404 111,540
Occupancy 216,618 203,651
Depreciation 189,752 195,064
All other 596,394 427,391
---------- ----------
Total expenses 4,424,139 4,384,729
---------- ----------
Income from operations 480,741 1,002,822
OTHER INCOME (LOSS)
Unrealized gain or (loss) on securities 28,855 1,659
Realized gain or (loss) on securities 15,647 49,684
Equity (deficit) in results of affiliate (160,298) (151,108)
(Loss) on sale/disposal of fixed assets (52,720) (41,859)
---------- ----------
Total other income (loss) (168,516) (141,624)
---------- ----------
INCOME BEFORE INCOME TAXES 312,225 861,198
---------- ----------
INCOME TAXES:
Current 45,500 20,400
Deferred 7,500 9,600
---------- ----------
NET INCOME $ 259,225 $ 831,198
========== ==========
Per share earnings
Net income - basic $ 0.17 $ 1.02
========== ==========
Weighted average basic common shares outstanding 706,084 681,263
========== ==========
Net income - fully diluted $ 0.12 $ 0.68
========== ==========
Weighted average fully diluted common shares
outstanding 1,027,776 1,027,776
========== ==========
See accompanying notes and independent auditors' report.
</TABLE>
-20-
<PAGE> 22
<TABLE>
UNIFIED FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1997 and 1996
--------------------------------------
<CAPTION>
Preferred Preferred Preferred Additional
Common Class A Class B Class C Paid-in Retained
Stock Stock Stock Stock Capital Earnings Total
------- --------- --------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
December 31, 1995 $ 5,627 $8,486 $8,583 - $1,896,372 $ 258,576 $2,177,644
1996 Net Income - - - - - 831,198 831,198
Common stock issued 22 - - - 9,426 - 9,448
Dividends on
preferred stock - - - - - (136,634) (136,634)
------- ------ ------ ------ ---------- --------- ----------
BALANCE,
December 31, 1996 5,649 8,486 8,583 - 1,905,798 953,140 2,881,656
1997 Net Income - - - - - 259,225 259,225
Common stock issued 97 - - - 2,456 - 2,553
Common stock
issued-MERP 5,728 - - - 69,534 - 75,262
Adjustment to stated
capital 3,304 - - - - (3,304) -
Dividend to Health
stockholder - - - - - (157,007) (157,007)
Dividends on
preferred stock - - - - - (136,552) (136,552)
------- ------ ------ ------ ---------- --------- ----------
BALANCE,
December 31, 1997 $14,778 $8,486 $8,583 - $1,977,788 $ 915,502 $2,925,137
======= ====== ====== ====== ========== ========= ==========
See accompanying notes and independent auditors' report.
</TABLE>
-21-
<PAGE> 23
<TABLE>
UNIFIED FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997 and 1996
--------------------------------------
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 259,225 $ 831,198
Adjustments to reconcile net income to net cash
provided (used) in operating activities:
Deferred income taxes 7,460 9,600
Provision for depreciation and amortization 189,752 195,064
Amortization of bond discount (833) (954)
Unrealized gain on investments (28,855) (1,659)
Results of affiliated company 160,299 151,108
Loss on fixed assets disposed or sold 52,720 41,859
(Increase) decrease in operating assets:
Receivables (526,192) (253,960)
Prepaid and sundry assets (10,188) (766)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 121,920 (120,788)
Accrued compensation and benefits 22,543 (4,535)
Payable to broker/dealers 149,557 (16,416)
Other liabilities 553,124 72,761
Accrued income taxes 5,155 (4,341)
--------- ---------
Net cash provided by operating activities 955,687 898,171
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (479,870) (73,493)
Proceeds from sale of fixed assets 128,701 -
Equity in affiliate - (400,000)
Note receivable from affiliate - 15,888
Proceeds of note receivable - (41,375)
Repayment of note receivable 28,783 -
Investments in mutual funds (298,127) (222,675)
Investment in debt securities (154,801) 39,646
--------- ---------
Net cash used by investing activities (775,314) (682,009)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Return of capital to preferred stockholders (136,552) (136,634)
Dividends to Health common stockholder (157,007) -
Proceeds from issuance of common stock 2,553 9,448
Borrowings of capitalized leases 24,190 35,063
Repayment of capitalized lease obligations (44,072) (49,618)
Proceeds from issuance of common stock - MERP 75,262 -
Proceeds from bank line-of-credit 122,877 -
--------- ---------
Net cash used by financing activities (112,749) (141,741)
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 67,624 74,421
CASH AND CASH EQUIVALENTS
Beginning of year 538,030 463,609
--------- ---------
End of year $ 605,654 $ 538,030
========= =========
SUPPLEMENTARY INFORMATION
Interest paid $ 9,963 $ 4,993
========= =========
Income taxes paid $ 24,385 $ 24,741
========= =========
See accompanying notes and independent auditors' report.
</TABLE>
-22-
<PAGE> 24
UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
--------------------------
Note 1 - NATURE OF OPERATIONS
The consolidated financial statements include the accounts of
Unified Financial Services, Inc. (the "Company"), a Delaware
corporation, and its wholly owned subsidiaries, Unified Management
Corp. ("Management"), Unified Fund Services, Inc. ("Services"),
Health Financial, Inc. ("Health") and First Lexington Trust Company
("Lexington").
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.
Services is incorporated in Indiana and is a registered investment
adviser under the Investment Advisers Act of 1940, as amended, and
provides investment advisery, transfer agent, dividend disbursing,
transfer agency system software licensing and fund accounting
services to investment companies.
Health is incorporated in Kentucky and provides investment advisery
services to trusts, retirement plans, businesses and individuals
located primarily in Kentucky.
Lexington, is a non-bank trust company regulated by the Department
of Financial Institutions, Commonwealth of Kentucky. The company
received its trust charter in March 1994. The majority of trust
assets as of December 31, 1997 and 1996, totaling approximately $45
million and $21.5 million, respectively, are invested in no-load
mutual funds under the direction of the trust investment committee.
Effective in January 1998, Unified Holding, Inc.'s name was changed
to Unified Financial Services, Inc., and Unified Adviser, Inc.'s
name was changed to Unified Fund Services, Inc.
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
---------------------
The consolidated financial statements include the accounts of the
Company, Management, Services, Health and First Lexington. All
intercompany transactions and balances between the Company and its
subsidiaries have been eliminated.
Effective June 1, 1997, the Company acquired Health in a
transaction accounted for under the pooling-of-interest method of
accounting. In connection with the acquisition, the Company issued
325,000 shares of common stock, $.01 par value, of the Company (the
"Common Stock").
Effective December 31, 1997, the Company acquired Lexington in a
transaction accounted for under the pooling-of-interests method of
accounting. In connection with the acquisition, Unified issued
80,008 shares of Common Stock, based upon an exchange ratio of
9.645 shares of Common Stock for each of Lexington's outstanding
shares.
-23-
<PAGE> 25
UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
--------------------------
The Consolidated Financial Statements give retroactive effect to
the pooling-of-interest transactions and, as a result, the
Consolidated Statements of Financial Condition, Statements of
Operations and Statements of Cash Flows are presented as if the
combining companies have been consolidated for all periods
presented. As required by generally accepted accounting
principles, the Consolidated Financial Statements become the
historical consolidated financial statements upon issuance of the
financial statements for the period that includes the date of the
transaction. The Consolidated Statements of Changes in
Stockholders' Equity reflects the accounts for the Company as if
the Common Stock issued in the Health and Lexington acquisitions
had been outstanding during all periods presented. The
Consolidated Financial Statements, including the notes thereto,
should be read in conjunction with the historical consolidated
financial statements of the Company.
Fees and Commissions
--------------------
The Company records revenue on the accrual basis of accounting.
For the brokerage operations, commissions and clearing revenue are
recorded on the settlement date of the related security
transactions. This does not materially differ from recording
commissions based upon trade date. The investment advisery
business revenue, as well as the investment advisery fees earned by
third party advisers, is recorded on the accrual basis. The fees
earned by the operation and paid to the sub-advisers are based on
established fee schedules and contracts. Generally, fees may be
collected from the invested assets. Thus, collection of the fees
is reasonably certain. The fund service operation provides
administrative and investment services to investment companies and
separate accounts. Revenue is recorded as it is earned per month
based on accounts and account balances. In connection with this,
the Company earns income on the accounts established to transfer
these funds for customers.
Property and Equipment
----------------------
Property and equipment is stated at cost. Depreciation, including
the depreciation of capital leased equipment, is provided on the
straight-line or accelerated methods over the estimated useful
lives of the assets for financial statement purposes.
Investments and Investment in Debt Securities
---------------------------------------------
Investments, which consist 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.
Income Taxes
------------
The Company files a consolidated federal and state income tax
return with its subsidiaries. Each of Health and Lexington, prior
to its acquisition by the Company, filed as an S-corporation.
Therefore, federal and state taxable income and losses were passed
through to their stockholders. Subsequent to their acquisition by
the Company, Health and Lexington will be included in the
consolidated tax returns of the Company, which uses the accrual
method of tax and accounting reporting.
-24-
<PAGE> 26
UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
--------------------------
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.
Organizational Costs
--------------------
Costs relating to the organization of Lexington have been
capitalized and are being amortized over a sixty-month period on a
straight-line basis.
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. 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 limit during the year.
Financial Statement Presentation
--------------------------------
Certain amounts in the 1996 financial statements have been
reclassified to conform to the 1997 presentation.
Note 3 - OPTIONS
The Company applies Accounting Principles Board ("APB") Opinion 25 and
related interpretations in accounting for Unified's 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
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 antidilution 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.
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
-25-
<PAGE> 27
UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
--------------------------
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.
Note 4 - FINANCING
The Company has obtained 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 December 31, 1997, the amount outstanding under this credit
facility was $122,877. The financing converts to a four-year term
loan payable in equal monthly principal payments plus interest at
.5% above bank prime rate. Property, supplies, inventory and
intangible assets of Unified are securities for this financing.
Note 5 - COMMITMENTS AND CONTINGENCIES
The Company through its subsidiary, Management, leases its
corporate headquarters and administrative office facilities located
at 429-431 North Pennsylvania Street, Indianapolis, Indiana, which
facilities has approximately 10,820 square feet, and is leased
pursuant to an operating lease expiring in 2007 for office
facilities and equipment. The leases include provisions for
adjustment of operating costs and real estate taxes. Such
obligations are allocated between Services and Management based on
estimated usage.
The aggregate minimum rental commitments required under operating
leases for office space and equipment at December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
Lease
Year Ended December 31 Commitments
---------------------- -----------
<S> <C>
1998 $ 267,499
1999 250,897
2000 225,693
2001 220,757
2002 and Thereafter 1,314,585
----------
Total $2,279,431
==========
</TABLE>
Total rental expense was $216,618 and $198,651 for the years ended
December 31, 1997 and 1996, respectively.
Lexington maintains a Trust Cash Fund with a no load mutual fund
for the deposit of funds for customer investments and disbursement
with the mutual fund. The following represents the account as of
December 31, 1997 and 1996.
-26-
<PAGE> 28
UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
--------------------------
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Total account balance $29,758 $837,102
Due to customers or investment 20,114 822,068
------- --------
Mutual fund trust account $ 9,644 $ 15,034
======= ========
</TABLE>
Note 6 - TRANSACTIONS WITH RELATED PARTIES
The Company provided administrative services to Vintage Advisers,
Inc. ("Adviser") during the year. The revenue for these services
was $355,092 and $500,313 for 1997 and 1996, respectively. At
December 31, 1997 and 1996, the receivable from this affiliated
company was $667,328 and $100,592 respectively.
The Company had a note receivable from Adviser for $50,000 at
December 31, 1997. The promissory note is due on demand with
interest payable at prime plus two percent per annum. Interest
received during the year ended December 31, 1997 was $5,640.
Health leased part of its office to Lexington and other entities
under a renewable one-year agreement, which amounted to $9,177 for
1997 and $15,500 for 1996. Health was reimbursed by Lexington for
the use of supplies, equipment and employees costs and benefits
expended in connection with Lexington's operations, which amounted
to $141,000 and $66,000 for the years ended December 31, 1997 and
1996, respectively.
Note 7 - EMPLOYEE BENEFIT PLANS
Unified and subsidiaries provide a defined contribution retirement
plan which covers substantially all employees. Contributions to the
plan are determined by the Board of Directors. During 1997 and
1996, expense of $-0- and $14,356, respectively, were provided in
anticipation of contributions to be paid in 1998 and 1997.
The Company also maintains a 401(k) plan to include matching
for funds contributed into the Unified family of Mutual Funds
or Series B Preferred Stock of the Company. The Company
will match the employee's contribution up to fifty percent
of the first six percent of the employee's pre-tax
contribution. During 1997 and 1996, a consolidated expense
for matching the 401(k) was $26,309 and $14,718,
respectively.
Note 8 - INCOME TAXES
Consolidated net operating loss carryforwards at December 31, 1997
amounted to approximately $13,300,000 expiring through 2008.
Consolidated state of Indiana net operating loss carryforwards at
December 31, 1997 amounted to approximately $12,100,000 and expire
through 2008.
-27-
<PAGE> 29
UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
--------------------------
The Company utilized approximately $790,000 and $515,000 of net
operating loss carryforwards during 1997 and 1996, respectively, to
reduce current consolidated income tax expense of approximately
$269,000 and $175,000, respectively, to zero.
The Company records deferred income taxes in accordance with
Statement of Financial Accounting Standards No. 109. The deferred
tax liability in the financial statements as of December 31, 1997
and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred tax asset $ 7,930 $ 1,040
Deferred tax liability (33,430) (19,080)
-------- --------
Net deferred tax liability $(25,500) $(18,040)
-------- --------
</TABLE>
The components of income tax expense for the year ended December 31
is as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Current Income Tax
Federal $35,708 $14,925
State and Local 9,792 5,475
------- -------
Total current 45,500 20,400
------- -------
Deferred Income Tax
Federal 4,800 7,025
State and Local 2,700 2,575
------- -------
Total deferred 7,500 9,600
------- -------
Total Income Tax $53,000 $30,000
======= =======
</TABLE>
Note 9 - CAPITALIZED LEASE OBLIGATIONS
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 December 31, 1997:
<TABLE>
<CAPTION>
Year Ending December 31, Amount
------------------------ ------
<S> <C>
1998 $35,447
1999 19,919
2000 2,461
-------
Total 57,827
Less amount
representing interest 6,363
-------
Net present value $51,464
=======
</TABLE>
-28-
<PAGE> 30
UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
--------------------------
The Company acquired equipment through capital lease obligations in
the amount of $24,190 and $35,063 during 1997 and 1996,
respectively.
Note 10 - CASH SEGREGATED UNDER FEDERAL REGULATION
Pursuant to Rule 15c3-3 as promulgated by the Securities
and Exchange Commission, 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 December 31, 1997 and 1996. Balances segregated in
excess of reserve requirements are not restricted.
Note 11 - NET CAPITAL REQUIREMENTS
Management is subject to the Securities and Exchange Commission'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 and $50,000 at
December 31, 1997 and 1996, respectively, whichever is
greater, and a ratio of aggregate indebtedness to net
capital of not more than 15 to 1. At December 31, 1997,
Management had net capital of $382,441, which was $132,441
in excess of its required net capital of $250,000, and a
net capital ratio of .547 to 1. At December 31, 1996,
Management had net capital of $137,894, which was $87,894
in excess of its required net capital of $50,000, and a net
capital ratio of 2.28 to 1.
Note 12 - MAJOR CLIENTS
The individual subsidiaries and segments of the Company have major
customers, which are not material to the consolidated operations
and balance sheet.
Note 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated
fair values of the Company's financial instruments at December 31,
1997 and 1996. Financial Accounting Standards Board ("FASB")
Statement No. 107, "Disclosures About Fair Value of Financial
Instruments," defines the fair value of a financial instrument as the
amount at which the instrument could be exchanged in a current
transaction between willing parties.
-29-
<PAGE> 31
UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
--------------------------
<TABLE>
<CAPTION>
1997 1996
----------------------- -------------------
Carrying Fair Carrying Fair
($ in thousands) Amount Value Amount Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Financial assets
Cash and
cash equivalents $ 605.7 $ 605.7 $ 538.0 $ 538.0
Investment in
debt securities 958.6 975.2 803.0 790.3
Investment in
mutual funds 707.9 707.9 380.9 380.9
Notes receivable 54.5 54.5 80.1 80.1
Receivables
(trade) 1,505.6 1,505.6 979.4 979.4
Investment in
affiliates 285.0 285.0 445.3 445.3
Prepaid and
sundry assets 141.0 141.0 130.9 130.9
Financial liabilities
Current
liabilities 1,893.9 1,893.9 1,010.4 1,010.4
Long-term
capitalized
lease obligations 21.4 21.4 32.7 32.7
</TABLE>
The carrying amounts shown in the above table are included in the
statement of financial position under the indicated captions.
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments:
Cash and cash equivalents, receivables, and current liabilities:
---------------------------------------------------------------
The carrying amounts approximate fair value because of the short
maturity of those instruments. Investment in money market mutual
funds are treated as cash equivalents with maturities under 90
days.
Long-term capitalized lease obligations:
---------------------------------------
The fair value of the Company's long-term capitalized lease
obligations is estimated based on the quoted market prices for
similar issues.
Investment in Affiliated Mutual Funds:
-------------------------------------
The carrying amount is determined by the net asset value daily
pricing sheets (fair market value) as of the close of the markets on
December 31.
-30-
<PAGE> 32
UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
--------------------------
Debt securities:
---------------
The fair value of the Company's investments are estimated based on
the quoted market price for similar issues. Long-term debt
obligation is the estimate of borrowing required for planned
purchases by the Company.
Note 14 - EQUITY IN AND INVESTMENT IN AFFILIATE
The Company invested $598,000 for 10,000 shares (a 1/3 interest) of
common stock of Vintage Advisers, Inc. (f/k/a Vintage Advisers,
Inc.), a registered investment advisor under the Investment
Advisers Act of 1940, as amended.
The Company's share of equity investment in affiliate was $91,102
and $32,575 at December 31, 1997 and 1996, respectively. The
Company used the equity method of accounting for its investment in
affiliate for the years ended December 31, 1997 and 1996.
Note 15 - COMMON AND PREFERRED 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, that increased the par
value of the 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 number of shares of
Common Stock that was equal to a fraction, the numerator of which
was 50,000 and the denominator of which was the number of issued
and outstanding 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 unanimous written consent dated August 1, 1997, the stockholders
of the Company approved an Amended and Restated Certificate of
Incorporation of the Company that 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 issued 325,000 shares of its Common Stock as reflected in
Note 2 of the notes to the financial statements.
In connection with the acquisition of Lexington on December 31,
1997, the Company issued 80,008 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:
-31-
<PAGE> 33
UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
--------------------------
<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 $.01
Preferred Stock Series B 10,000 8,583 $100 $.01
Preferred Stock Series C 2,100 - $100 $.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
matters presented to the stockholders of the Company, as provided
for 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.
Note 16 - INVESTMENTS IN DEBT SECURITIES
Lexington is required by the Kentucky Department of Financial
Institutions to maintain a minimum of $800,000 capital while 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. Lexington's intention
is to hold the investments in debt securities to conform to this
requirement.
The marketable investments in debt securities and the amortized
cost and fair market value of the investments as of December 31,
1997 and 1996 were as follows:
-32-
<PAGE> 34
UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
--------------------------
<TABLE>
<CAPTION>
Maturity
Date Amortized Unrealized Market
Debt Security MO DY YR Face Value Cost Gain (loss) Value
--------- ---------- ---- ----------- -----
<S> <C> <C> <C> <C> <C>
Federal Home Loan Mortgage Corporation
REMIC 1675-P 10 15 2023 $100,000 $ 94,390 $ (3,272) $ 91,118
REMIC 1646-N 03 15 2023 200,000 189,498 6,884 196,382
REMIC 1681-B 11 15 2023 220,000 211,574 7,856 219,430
REMIC 1663-L 07 01 2073 40,000 39,163 494 39,657
Federal National Mortgage Association
REMIC 94-23-0 10 25 2007 97,000 89,208 4,119 93,327
Note 03 06 2006 70,000 70,306 (322) 69,984
Federal Home Loan Bank
Note 12 29 2003 25,000 24,544 230 24,774
U.S. Treasury
Note 02 28 1999 100,000 99,329 484 99,813
Tennessee Valley Authority
Subordinated Debenture 04 24 2002 25,000 25,000 1,125 26,125
Cleveland Electric
Illumination Company 07 01 2013 60,000 65,101 496 65,597
Wells Fargo Capital Bonds 12 01 2026 50,491 50,491 (1,493) 48,998
-------- -------- -------- --------
Totals at December 31, 1997 $987,491 $958,604 $ 16,601 $975,205
======== ======== ======== ========
Federal Home Loan Mortgage
REMIC 1675-P 10 15 2023 $100,000 $ 94,313 $ (6,652) $ 87,661
REMIC 1646-N 03 15 2023 200,000 189,355 (2,697) 186,658
REMIC 1681-B 10 15 2023 220,000 211,465 (2,551) 208,914
Federal National Mortgage Association
REMIC 94-23-0 10 25 2007 97,000 89,005 490 89,495
Note 03 06 2006 70,000 70,325 (1,225) 69,100
Federal Home Loan Bank
Note 12 23 2003 25,000 24,487 (167) 24,320
U.S. Treasury
Note 02 28 1999 100,000 99,020 105 99,125
Tennessee Valley Authority
Subordinated Debenture 04 24 2002 25,000 25,000 - 25,000
-------- -------- -------- --------
Totals at December 31, 1996 $837,000 $802,970 $(12,697) $790,273
======== ======== ======== ========
</TABLE>
-33-
<PAGE> 35
UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
--------------------------
Note 17 - SUBSEQUENT EVENTS
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 common shares offered 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 for 600,000 shares having
been accepted; or (ii) April 30, 1998; provided, however,
the Company reserves the right either to extend the
offering or to terminate it at any time, without notice,
but in no event may the term of the offering be extended
beyond June 30, 1998.
Unified Investment Advisers, Inc.
Unified Investment Advisers, Inc. ("Advisers") will become 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 proposed stock
surrender will occur upon approval of the proposed
surrender by the shareholders of the Unified family of
funds and upon receipt of required regulatory approval. It
currently is anticipated that the transaction will occur by
the end of the first quarter of 1998. Upon consummation of
the stock surrender, the Company will own 100% of capital
stock of Advisers.
Resources Benefit Planners, Inc.
On February 11, 1998, the Company entered into an agreement to
acquire Resource Benefit Planners, Inc. ("RBP") located in
Lexington, Kentucky. RBP is a professional services firm
which provides consulting, recordkeeping and trust
accounting services for qualified retirement and cafeteria
plans. In connection with the acquisition, the Company
will issue 12,000 shares of Common Stock in exchange for
all the outstanding common stock of RBP. This acquisition
will be accounted for under the pooling-of-interest method
of accounting. At December 31, 1997, RBP had estimated total
assets of approximately $295,000 and shareholder's equity of
approximately $39,000.
Preferred Stock-Series C
The Company anticipates that, during the second quarter of 1998,
Unified will issue approximately 2,100 shares of Series C
6.75% Cumulative Preferred Stock to certain directors,
executive officers and agents of the Company. The Company
has received, but not yet accepted, subscriptions for all
such shares. Each share of Series C Preferred Stock will
be 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.
-34-
<PAGE> 36
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
-------------------------------------------------------------
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
-------------------------------------------------
Information regarding the Company's directors is contained in the
Company's Proxy Statement for the 1998 Annual Meeting of Stockholders under
the caption "Item 1. Election of Directors" and is incorporated herein by
reference. Information regarding the Company's executive officers is
contained in this report under Item 4A--"Executive Officers of the
Registrant" and is incorporated herein by reference.
Information regarding compliance with Section 16(a) of the
Securities Exchange Act of 1934 is included in the Company's Proxy Statement
for the 1998 Annual Meeting of Stockholders under the caption "Compliance
with Section 16(a) of the Securities Exchange Act of 1934," and is
incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
----------------------
Information regarding executive compensation is contained in the
Company's Proxy Statement for the 1998 Annual Meeting of Stockholders under
the captions "Board of Directors and Committees," "Directors' Fees" and
"Compensation of Executive Officers," and is incorporated herein by
reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
Information regarding security ownership of certain beneficial
owners and management is contained in the Company's Proxy Statement for the
1998 Annual Meeting of Stockholders under the caption "Security Ownership of
Certain Beneficial Owners and Management," and is incorporated herein by
reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Information regarding certain relationships and related
transactions is contained in Company's Proxy Statement for the 1998 Annual
Meeting of Stockholders under the captions "Certain Relationships and Related
Transactions" and "Board of Directors and Committees," and is incorporated
herein by reference.
-35-
<PAGE> 37
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits:
See Exhibit Index on page 39 hereto.
(b) Reports on Form 8-K.
The Company did not file any reports on Form 10-K during the quarter
ended December 31, 1997.
-36-
<PAGE> 38
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, as amended, the Registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized as of the 25th day of
March 1998.
UNIFIED FINANCIAL SERVICES, INC.
(Registrant)
By /s/ Timothy L. Ashburn
------------------------------------------
Timothy L. Ashburn, Chairman of the Board,
President and Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned officers and directors of Unified Financial
Services, Inc., hereby severally and individually constitute and appoint
Timothy L. Ashburn and Thomas G. Napurano, and each of them, the true and
lawful attorneys and agents of each of us to execute in the name, place and
stead of each of us (individually and in any capacity stated below) any and
all amendments to this Annual Report on Form 10-KSB and all instruments
necessary or advisable in connection therewith and to file the same with the
Securities and Exchange Commission, each of said attorneys and agents to have
the power to act with or without the others and to have full power and
authority to do and perform in the name and on behalf of each of the
undersigned every act whatsoever necessary or advisable to be done in the
premises as fully and to all intents and purposes as any of the undersigned
might or could do in person, and we hereby ratify and confirm our signatures
as they may be signed by our said attorneys and agents or each of them to any
and all such amendments and instruments.
In accordance with the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Timothy L. Ashburn Chairman of the Board, President March 25, 1998
- ------------------------- and Chief Executive Officer
Timothy L. Ashburn
/s/ Lynn E. Wood Director March 25, 1998
- -------------------------
Lynn E. Wood
-37-
<PAGE> 39
/s/ Thomas G. Napurano Executive Vice President, March 25, 1998
- ------------------------- Chief Financial Officer
Thomas G. Napurano and Director
/s/ Weaver H. Gaines Director March 25, 1998
- -------------------------
Weaver H. Gaines
/s/ Jack R. Orben Director March 25, 1998
- -------------------------
Jack R. Orben
/s/ Dr. Gregory W. Kasten Director March 25, 1998
- -------------------------
Dr. Gregory W. Kasten
</TABLE>
-38-
<PAGE> 40
<TABLE>
EXHIBIT INDEX
<CAPTION>
Ex. No. Description
- ------- -----------
<C> <S>
3.1(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.
3.1(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.
3.1(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.
3.1(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.
9.1 Unified Financial Services, Inc. Voting Trust dated October 10, 1997.
3.2 By-laws of the Company, filed as Exhibit 4.2 to the Company's Quarterly Report on
Form 10-QSB for the quarter ended September 30, 1997, is incorporated herein by
reference.
10.1 Agreement and Plan of Merger dated April 25, 1997 by and among the Company, HFI
Acquisition Corporation, Health Financial, Inc. and Dr. Gregory W. Kasten, filed as
Exhibit 2.1 to the Company's Registration Statement on Form 10-SB, is incorporated
herein by reference.
10.2 Amended and Restated Agreement and Plan of Merger dated as of April 25, 1997 by and
among the Company, FLTC Acquisition Corporation, First Lexington Trust Company and
Dr. Gregory W. Kasten, filed as Exhibit 2.2 to the Company's Registration Statement
on Form 10-SB, is incorporated herein by reference.
10.3 Agreement and Plan of Merger dated as of May 8, 1997 by and among the Company, VAI
Acquisition Corporation, Vintage Advisers, Inc. and Timothy L. Ashburn, filed as
Exhibit 2.3 to the Company's Registration Statement on Form 10-SB, is incorporated
herein by reference.
-39-
<PAGE> 41
10.4 First Amendment to Agreement and Plan of Merger dated as of May 31, 1997 by and
among the Company, HFI Acquisition Corporation, Health Financial, Inc. and Dr.
Gregory W. Kasten, filed as Exhibit 2.4 to Amendment No. 1 to the Company's
Registration Statement on Form 10-SB, is incorporated herein by reference.
10.5 Termination Agreement dated as of December 1, 1997 by and among the Company, VAI
Acquisition Corporation, Vintage Advisers, Inc. and Timothy L. Ashburn, filed as
Exhibit 2.5 to Amendment No. 1 to the Company's Registration Statement on Form
10 SB, is incorporated herein by reference.
10.6 Release and Surrender Agreement dated as of December 1, 1997 by and among the
Company, Vintage Advisers, Inc., Timothy L. Ashburn and Jack R. Orben, filed as
Exhibit 2.6 to Amendment No. 1 to the Company's Registration Statement on Form
10-SB, is incorporated herein by reference.
10.7 Employment Agreement dated as of June 1, 1997 by and between Health Financial, Inc.
and Dr. Gregory W. Kasten, filed as Exhibit 10.1 to Amendment No. 1 to the
Company's Registration Statement on Form 10-SB, is incorporated herein by
reference.<F*>
10.8 Business Loan Agreement dated as of September 10, 1997 by and between the Company
and Bank One, Indiana, N.A., filed as Exhibit 10.2 to Amendment No. 1 to the
Company's Registration Statement on Form 10-SB, is incorporated herein by
reference.
10.9 Commercial Security Agreement dated as of September 10, 1997 by and between the
Company and Bank One, Indiana, N.A., filed as Exhibit 10.3 to Amendment No. 1 to
the Company's Registration Statement on Form 10-SB, is incorporated herein by
reference.
10.10 Promissory Note dated as of September 10, 1997 issued by the Company in favor of
Bank One, Indiana, N.A., filed as Exhibit 10.4 to Amendment No. 1 to the Company's
Registration Statement on Form 10-SB, is incorporated herein by reference.
11.1 Computation of Per Share Earnings.
21.1 List of Subsidiaries.
24.1 Power of Attorney (included on signature page hereto).
27.1 Financial Data Schedule (December 31, 1997)
27.2 Restated Financial Data Schedule (September 30, 1997)<F**>
-40-
<PAGE> 42
27.3 Restated Financial Data Schedule (June 30, 1997)<F**>
27.4 Restated Financial Data Schedule (March 31, 1997)<F**>
27.5 Restated Financial Data Schedule (December 31, 1996)<F**>
27.6 Restated Financial Data Schedule (September 30, 1996)<F**>
27.7 Restated Financial Data Schedule (June 30, 1996)<F**>
27.8 Restated Financial Data Schedule (March 31, 1996)<F**>
27.9 Restated Financial Data Schedule (December 31, 1995)<F**>
<FN>
- --------------------
<F*> Management contract or compensatory plan or arrangement.
<F**> Exhibits 27.2 through 27.9 represent previously filed Financial
Data Schedules that have been restated to give effect to the acquisition
by the Company of First Lexington Trust Company, which acquisition was
consummated on December 31, 1997 and accounted for under the
pooling-of-interests method of accounting.
</TABLE>
-41-
<PAGE> 1
UNIFIED HOLDINGS, INC.
VOTING TRUST AGREEMENT
----------------------
THIS VOTING TRUST AGREEMENT (the "Agreement") is made and entered into
this 10th day of October, 1997, by and among TIMOTHY L. ASHBURN, as voting
trustee (in such capacity, the "Voting Trustee"), and each of the undersigned
stockholders of Unified Holdings, Inc. (the "Stockholders") who have
executed this Agreement on the signature pages hereto.
W I T N E S S E T H :
WHEREAS, the Stockholders are holders of certain issued and outstanding
shares of common stock of Unified, par value $0.01 per share ("Common
Stock");
WHEREAS, the Stockholders desire to transfer title to their shares of
Common Stock to the Voting Trustee in return for voting trust certificates as
herein provided;
WHEREAS, the Voting Trustee is willing to serve as voting trustee with
respect to the Common Stock as herein provided;
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements hereinafter set forth, and other good and valuable consideration,
the receipt and sufficiency of which hereby are acknowledged, the parties
hereto agree as follows:
1. Shares to be Held in Trust.
--------------------------
(a) Establishment of Voting Trust. Each of the Stockholders
-----------------------------
and the Voting Trustee hereby establish and constitute a voting trust (the
"Voting Trust") with respect to the shares of Common Stock (such shares of
Common Stock hereinafter are referred to collectively as the "Trust Shares").
Such Voting Trust shall be administered on the terms set forth in this
Agreement.
(b) Actions to be Taken. Upon execution of this Agreement,
-------------------
the following actions shall be taken by each of the parties hereto:
(i) Each of the Stockholders shall instruct Unified in
writing, as soon as practicable after the execution of this agreement,
that all certificates evidencing shares of Common Stock held in their
name, shall be reissued to and in the name of the Voting Trustee
pursuant to this Agreement. The Voting Trustee hereby is authorized to
receive and to hold, in the name of the Voting Trustee for the benefit
of the Stockholders, the Trust Shares. Each Stockholder represents and
warrants that he or she is the sole record and beneficial owner of the
number of shares of Common Stock set forth beneath his or her signature
on the signature pages to this Agreement.
(ii) Immediately following the transfer of the Trust
Shares to the Voting Trustee, the Voting Trustee shall issue to the
Stockholders one or more
<PAGE> 2
voting trust certificates in the form of Exhibit A attached hereto (each
---------
a "Voting Trust Certificate") evidencing the number of Trust Shares held
by the Voting Trustee for his, her or its benefit.
(c) Voting Securities Subsequently Acquired. The parties hereto
---------------------------------------
acknowledge that, if any additional voting securities of Unified are issued
with respect to the Trust Shares, whether by reason of a stock split, stock
dividend, share exchange or similar transaction, or if any additional voting
securities of Unified are acquired by a party hereto in any manner
whatsoever, certificates representing such additional voting securities shall
be delivered to the Voting Trustee, and such additional voting securities
shall constitute "Trust Shares" hereunder. The Voting Trustee shall execute
and deliver one or more Voting Trust Certificates to the Voting Trust
Certificate holder delivering such additional voting securities to represent
his, her, or its interest in such additional voting securities. For purposes
of this Agreement, "voting securities" shall mean any equity securities of
Unified (or any corporate successor) which may be entitled by law to vote at
any time with respect to any matter, whether or not such equity securities
are accorded voting rights under the certificate or articles of incorporation
of Unified (or such successor).
(d) Legend. All certificates representing the Trust Shares, and
------
all warrants and options exercisable for equity securities which shall become
Trust Shares as set forth herein, shall bear a legend substantially to the
effect that "The shares of stock of the corporation [represented
hereby/receivable upon exercise hereof] are subject to the terms of a certain
Voting Trust Agreement dated October 10, 1997, as the same may be amended
and/or restated from time to time, a copy of which is on file with the
corporation."
2. Voting Trust Shares. Subject to the provisions of this
-------------------
Agreement, the Voting Trustee, as such, shall have full power and discretion
to vote the Trust Shares for the election and removal of directors of Unified
and on any and all other matters with respect to which holders of the voting
securities of Unified are entitled to vote (including but not limited to
amendments of Unified's articles of incorporation, by-laws, mergers,
consolidations, share exchanges, dissolution of Unified, or a sale or other
disposition of all or substantially all of the assets or stock of Unified or
any subsidiary thereof), whether such matters are considered in a meeting of
such holders or in a unanimous written consent to be executed by them.
3. Voting Trustee.
--------------
(a) The Voting Trustee shall have the right to resign as
Voting Trustee hereunder during his lifetime at any time by notice to the
Voting Trust Certificate holders, such resignation to be effective at such
time as a successor Voting Trustee accepts this Agreement pursuant to Section
3(c).
(b) In the event of the resignation or inability of the
Voting Trustee to serve for any reason, the successor to the Voting Trustee
shall be the person appointed by the Voting Trustee to serve as successor to
the Voting Trustee. Upon the death of the Voting Trustee without his having
appointed a successor, the holders of Voting Trust Certificates shall hold a
meeting within sixty (60) days after the death of the Voting Trustee for the
purpose of electing a successor, or as soon thereafter as practicable.
Notice of such meeting shall be delivered to each Voting Trust Certificate
Holder not less than ten (10) days prior thereto. The successor to the
Voting Trustee shall be the person appointed by the affirmative vote of the
holders of a majority of the then outstanding Voting Trust Certificates.
- 2 -
<PAGE> 3
(c) Any person appointed as a successor Voting Trustee
hereunder shall become a Voting Trustee only upon written acceptance of this
Agreement and the rights, powers, duties and obligations of the Voting
Trustee hereunder, and the delivery of such acceptance to the preceding
Voting Trustee (if then living) and the Voting Trust Certificate holders.
Each successor Voting Trustee shall have the same rights, powers, duties and
obligations as the Voting Trustee whom such successor succeeds.
4. Dividends; Stockholder Materials. During the term of this
--------------------------------
Agreement, the Voting Trust Certificate holders shall continue to remain
entitled to receive any cash and in kind dividends declared and paid with
respect to the Trust Shares (except in kind dividends of voting securities),
and any informational materials distributed by Unified to all holders of
voting securities of the Unified. The Voting Trustee shall be solely
responsible for the delivery of such informational materials and cash in kind
dividends to, and the division thereof among, the Voting Trust Certificate
holders.
5. Termination. This Agreement and the Voting Trust created
-----------
herein shall terminate upon the first to occur of (a) the execution of an
instrument terminating this Agreement by the holders of not less than seventy
percent (70%) of the then outstanding Voting Trust Certificates, or (b)
October 31, 1998.
6. Transfer and Distribution of Trust Shares.
-----------------------------------------
(a) If any Voting Trust Certificate holder transfers all or
part of the Trust Shares relating to his, her, or its Voting Trust
Certificate to an Affiliate (as defined below) of the transferor, or to a
person who immediately prior to the transfer is a holder of Voting Trust
Certificates, then upon the Voting Trustee's receipt of a duly endorsed
Voting Trust Certificate specifying the number of Trust Shares being
transferred, the Voting Trustee shall issue to such transferee one or more
Voting Trust Certificates representing such transferee's interest in the
transferred Trust Shares, and shall issue to such transferor one or more new
Voting Trust Certificates representing the untransferred Trust Shares. For
purposes of this Agreement, the term "Affiliate" shall mean and include all
of the following:
(i) any family member of a transferor which is described
in Section 267(c)(4) of the Internal Revenue Code of 1986 as presently in
effect ("Family Member");
(ii) any trust of which the transferor or a Family
Member of the transferor is a trustee or a material beneficiary;
(iii) if the transferor is a trust, any beneficiary
thereof; and
(iv) any corporation, partnership, limited partnership,
limited liability company or other entity in which the transferor or any
Family Member of the Transferor has a material financial interest.
(b) In the event any Voting Trust Certificate holder
transfers all or part of the Trust Shares relating to his, her, or its Voting
Trust Certificate in a bona fide transfer to a person who is not an Affiliate
of the transferor, and who immediately prior to the transfer is not a holder
of Voting
- 3 -
<PAGE> 4
Trust Certificates, then upon the Voting Trustee's receipt of a duly endorsed
Voting Trust Certificate specifying the number of Trust Shares being
transferred, the Voting Trustee shall issue to such transferee one or more
certificates representing the Trust Shares so transferred, and shall issue to
such transferor one or more new Voting Trust Certificates representing the
untransferred Trust Shares. Such transferee shall take the transferred Trust
Shares free from the provisions of this Agreement.
(c) Upon termination of this Agreement and the Voting Trust
created herein, each holder of a Voting Trust Certificate shall surrender to
the then acting Voting Trustee all of such holder's Voting Trust Certificates,
duly endorsed for transfer. The Voting Trustee shall as soon as practicable
thereafter distribute to such holder, free from trust, one or more certificates
representing the Trust Shares to which such holder is entitled, which
certificates shall not contain the legend contained in Section 1(d) hereof.
7. Compensation of Voting Trustee. The Voting Trustee shall
------------------------------
receive no compensation for his or her services as Voting Trustee hereunder,
but this provision shall not limit in any way the compensation or benefits
which a Voting Trustee may receive in his or her capacity as an officer,
director or attorney of Unified.
8. Liability of Voting Trustees. It is the intention of the
----------------------------
parties that the Voting Trustee have unfettered discretion to vote the Trust
Shares as he or she deems appropriate. No Voting Trustee shall be liable to
Stockholder or any other person for any loss arising out of or in connection
with his or her voting of any of the Trust Shares or any other action or
inaction as Voting Trustee hereunder, unless such loss was caused by his or
her gross negligence or willful misconduct. The Voting Trustee may consult
with counsel of his or her choice, and shall have full and complete
authorization and protection for any action taken or suffered by the Voting
Trustee under this Agreement in good faith and in accordance with the opinion
of such counsel.
9. Notices. All notices and other communications shall be in
-------
writing and shall be personally delivered or delivered by certified mail,
return receipt requested, addressed to such party at its address hereinafter
set forth, or such other address as such party may hereafter specify by
notice given pursuant to this Section 9. Each such notice or other
communication shall be effective (i) if personally delivered, on the date of
such delivery; and (ii) if given by certified mail, return receipt requested,
48 hours after deposit in the mail with appropriate certified postage
prepaid, addressed as aforesaid.
In the case of the Voting Trustee, to:
Timothy L. Ashburn
1104 Buttonwood Court
Lexington, Kentucky 40515
In the case of any holder of Voting Trust Certificates, to such
person's address specified on the signature page hereof, or such other
address of which such party has given notice in accordance with the
provisions of this Section.
10. Amendment. This Agreement may be amended or modified in whole
---------
or in part only by a document in writing signed by the Voting Trustee and
each other party against whom such amendment or modification is to be
enforced.
- 4 -
<PAGE> 5
11. Counterparts. This Voting Trust Agreement may be executed in
------------
one or more counterparts, each of which shall constitute an original, and all
of which taken together shall constitute one instrument.
12. Severability. If any one or more of the provisions contained
------------
in this Agreement or any application thereof shall be invalid, illegal or
unenforceable in any respect, the validity, legality or enforceability of the
remaining provisions of this Agreement and any other application thereof
shall not in any way be affected or impaired thereby.
13. Headings. The headings in this Agreement are inserted for
--------
convenience only and in no way alter, amend, modify, limit or restrict the
contractual obligations of the parties hereto.
14. Binding Effect. This Agreement shall be binding on, inure to
--------------
the benefit of, and be enforceable by and against the Voting Trustee, the
other parties hereto, and their respective heirs, personal representatives,
distributees, successors and assigns.
15. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws of the State of Delaware.
[THE BALANCE OF THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY]
- 5 -
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
- ---------------------------------------------------
Timothy L. Ashburn, as Voting Trustee
Address:
-------------------------------------------
-------------------------------------------
- ---------------------------------------------------
Timothy L. Ashburn
63,656 Shares
Address:
-------------------------------------------
-------------------------------------------
- ---------------------------------------------------
Caroline M. Bacon
5,967 Shares
Address:
-------------------------------------------
-------------------------------------------
- ---------------------------------------------------
Tina M. Biedenbach
6,490 Shares
Address:
-------------------------------------------
-------------------------------------------
- 6 -
<PAGE> 7
- ---------------------------------------------------
David A. Bogaert
35,070 Shares
Address:
-------------------------------------------
-------------------------------------------
- ---------------------------------------------------
Crystal M. Cherry
2,638 Shares
Address:
-------------------------------------------
-------------------------------------------
- ---------------------------------------------------
Dale R. Cherry
7,809 Shares
Address:
-------------------------------------------
-------------------------------------------
- ---------------------------------------------------
Mary M. Culley
7,950 Shares
Address:
-------------------------------------------
-------------------------------------------
- 7 -
<PAGE> 8
- ---------------------------------------------------
Michael E. Durham
18,305 Shares
Address:
-------------------------------------------
-------------------------------------------
- ---------------------------------------------------
Weaver H. Gaines
18,000 Shares
Address:
-------------------------------------------
-------------------------------------------
- ---------------------------------------------------
Anthony J. Ghoston
30,453 Shares
Address:
-------------------------------------------
-------------------------------------------
- ---------------------------------------------------
Lori Ann Hauber
9,585 Shares
Address:
-------------------------------------------
-------------------------------------------
- 8 -
<PAGE> 9
- ---------------------------------------------------
Carol J. Highsmith
15,354 Shares
Address:
-------------------------------------------
-------------------------------------------
- ---------------------------------------------------
Stephen D. Highsmith, Jr.
28,895 Shares
Address:
-------------------------------------------
-------------------------------------------
- ---------------------------------------------------
Brandy L. Hill
7,574 Shares
Address:
-------------------------------------------
-------------------------------------------
- ---------------------------------------------------
Eric Jean Himes
3,100 Shares
Address:
-------------------------------------------
-------------------------------------------
- 9 -
<PAGE> 10
- ---------------------------------------------------
Linda A. Lawson
25,111 Shares
Address:
-------------------------------------------
-------------------------------------------
- ---------------------------------------------------
Judy K. Lynch
20,610 Shares
Address:
-------------------------------------------
-------------------------------------------
- ---------------------------------------------------
Linda G. Lyon
6,631 Shares
Address:
-------------------------------------------
-------------------------------------------
- ---------------------------------------------------
John D. Metcalfe
4,592 Shares
Address:
-------------------------------------------
-------------------------------------------
- 10 -
<PAGE> 11
- ---------------------------------------------------
Vanessa Mitchell
5,543 Shares
Address:
-------------------------------------------
-------------------------------------------
- ---------------------------------------------------
Amy L. Monroe
5,414 Shares
Address:
-------------------------------------------
-------------------------------------------
- ---------------------------------------------------
Thomas G. Napurano
62,949 Shares
Address:
-------------------------------------------
-------------------------------------------
- ---------------------------------------------------
Jack R. Orben
18,000 Shares
Address:
-------------------------------------------
-------------------------------------------
- 11 -
<PAGE> 12
- ---------------------------------------------------
Allen W. Pence
23,160 Shares
Address:
-------------------------------------------
-------------------------------------------
- ---------------------------------------------------
Keith A. Pence
4,269 Shares
Address:
-------------------------------------------
-------------------------------------------
- ---------------------------------------------------
David M. Sanders
8,512 Shares
Address:
-------------------------------------------
-------------------------------------------
- ---------------------------------------------------
Brent L. Shike
5,857 Shares
Address:
-------------------------------------------
-------------------------------------------
- 12 -
<PAGE> 13
- ---------------------------------------------------
Stacy A. Stone
16,856 Shares
Address:
-------------------------------------------
-------------------------------------------
- ---------------------------------------------------
Mark W. Suesz
7,698 Shares
Address:
-------------------------------------------
-------------------------------------------
- ---------------------------------------------------
Diane M. Weishaar
5,391 Shares
Address:
-------------------------------------------
-------------------------------------------
- ---------------------------------------------------
Robert David Wenzel
7,400 Shares
Address:
-------------------------------------------
-------------------------------------------
- 13 -
<PAGE> 14
- ---------------------------------------------------
Daniel W. Wilson
19,716 Shares
Address:
-------------------------------------------
-------------------------------------------
- ---------------------------------------------------
Lynn E. Wood
64,213 Shares
Address:
-------------------------------------------
-------------------------------------------
- 14 -
<PAGE> 15
Exhibit A
to
Voting Trust Agreement
----------------------
No. Shares
---------------- ---------------------
UNIFIED HOLDINGS, INC.
a Delaware corporation
Voting Trust Certificate
This certifies that:
(1) A certificate representing shares of Common Stock of
----------
UNIFIED HOLDINGS, INC., a Delaware corporation ("Company") has been deposited
with the undersigned, as Voting Trustee under the Voting Trust Agreement (the
"Voting Trust Agreement") dated as of October 10, 1997, between Timothy L.
Ashburn, as Voting Trustee; and the stockholders of the Company identified
therein.
(2)
----------------------------------------------------, or the
registered assigns thereof, is entitled to all of the benefits arising from the
deposit of such shares, subject to the terms and conditions set forth in the
Voting Trust Agreement.
Subject to the limitations set forth in the Voting Trust Agreement, and
subject to limitations imposed by applicable law from time to time (if any),
this certificate and the rights of the registered holder may be transferred
on the records maintained by the Voting Trustee under the Voting Trust
Agreement. In the event of such a transfer, the Voting Trustee shall cause
appropriate evidence thereof to be endorsed hereon or shall, in the
discretion of the Voting Trustee, cause another certificate (or additional
certificates) to be issued in replacement for this certificate to reflect the
transfer appropriately.
IN WITNESS WHEREOF, the undersigned Voting Trustee has executed this
certificate this 10th day of October, 1997.
------------------------------------------------------
Timothy L. Ashburn, Voting Trustee
- 15 -
<PAGE> 1
Exhibit 11.1
------------
<TABLE>
UNIFIED FINANCIAL SERVICES, INC.
EARNINGS PER SHARE
<CAPTION>
December 31,
---------------------------
1997 1996
---------- ----------
<S> <C> <C>
Net Income $ 259,225 $ 831,198
Dividends on preferred stock 136,552 136,634
Results after preferred dividend 122,673 694,564
Basic
- -----
Weighted average number of common shares outstanding 50,000 25,179
Common stock equivalent shares related to option plans 251,076 251,076
Common stock equivalent shares related to Health Financial 325,000 325,000
Common stock equivalent shares related to First Lexington 80,008 80,008
Total weighted average shares 706,084 681,263
Basic earnings per share 0.17 1.02
Fully diluted
- -------------
Weighted average number of common shares outstanding 50,000 50,000
Common stock equivalent shares related to option plans 572,768 572,768
Common stock equivalent shares related to Health Financial 325,000 325,000
Common stock equivalent shares related to First Lexington 80,008 80,008
Total weighted average shares 1,027,776 1,027,776
Fully diluted earnings per share 0.12 0.68
</TABLE>
<PAGE> 1
Exhibit 21.1
LIST OF SUBSIDIARIES
(as of March 15, 1998)
Corporation State
----------- -----
Unified Management Corporation Indiana
Unified Fund Services, Inc. Indiana
First Lexington Trust Company Kentucky
Health Financial, Inc. Kentucky
Resource Benefit Planners, Inc. Kentucky
Unified Internet Services, Inc. Indiana
HFI Acquisition Corporation Kentucky
VAI Acquisition Corporation Delaware
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION AND THE CONSOLIDATED
STATEMENTS OF OPERATION OF UNIFIED FINANCIAL SERVICES, INC. FILED AS A
PART OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 605,654
<SECURITIES> 1,666,541
<RECEIVABLES> 1,562,143
<ALLOWANCES> 2,041
<INVENTORY> 0
<CURRENT-ASSETS> 3,014,738
<PP&E> 1,311,173
<DEPRECIATION> 646,352
<TOTAL-ASSETS> 4,933,344
<CURRENT-LIABILITIES> 1,893,875
<BONDS> 0
<COMMON> 14,778
0
17,069
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,933,344
<SALES> 0
<TOTAL-REVENUES> 6,767,208
<CGS> 1,862,328
<TOTAL-COSTS> 1,862,328
<OTHER-EXPENSES> 4,414,176
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,963
<INCOME-PRETAX> 312,225
<INCOME-TAX> 53,000
<INCOME-CONTINUING> 259,225
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 259,225
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.12
</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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 664,397
<SECURITIES> 1,789,237
<RECEIVABLES> 1,316,770
<ALLOWANCES> 2,041
<INVENTORY> 0
<CURRENT-ASSETS> 3,955,229
<PP&E> 1,410,000
<DEPRECIATION> 995,284
<TOTAL-ASSETS> 4,758,341
<CURRENT-LIABILITIES> 1,685,651
<BONDS> 0
<COMMON> 14,778
0
17,069
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,758,341
<SALES> 0
<TOTAL-REVENUES> 5,089,947
<CGS> 1,322,402
<TOTAL-COSTS> 1,322,402
<OTHER-EXPENSES> 3,492,968
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,232
<INCOME-PRETAX> 268,345
<INCOME-TAX> 16,000
<INCOME-CONTINUING> 252,345
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 252,345
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.15
</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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 792,111
<SECURITIES> 1,662,394
<RECEIVABLES> 1,038,921
<ALLOWANCES> 2,041
<INVENTORY> 0
<CURRENT-ASSETS> 3,672,199
<PP&E> 1,342,266
<DEPRECIATION> 949,348
<TOTAL-ASSETS> 4,599,339
<CURRENT-LIABILITIES> 1,662,902
<BONDS> 0
<COMMON> 9,050
0
17,069
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,599,339
<SALES> 0
<TOTAL-REVENUES> 3,326,231
<CGS> 863,518
<TOTAL-COSTS> 863,518
<OTHER-EXPENSES> 2,214,852
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,958
<INCOME-PRETAX> 243,903
<INCOME-TAX> 0
<INCOME-CONTINUING> 243,903
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 243,903
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0.17
</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> 1,178,733
<RECEIVABLES> 885,300
<ALLOWANCES> 2,041
<INVENTORY> 0
<CURRENT-ASSETS> 2,819,439
<PP&E> 1,474,449
<DEPRECIATION> 938,650
<TOTAL-ASSETS> 3,795,117
<CURRENT-LIABILITIES> 994,207
<BONDS> 0
<COMMON> 9,050
0
17,069
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,795,117
<SALES> 0
<TOTAL-REVENUES> 1,590,690
<CGS> 469,072
<TOTAL-COSTS> 469,072
<OTHER-EXPENSES> 1,172,789
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,317
<INCOME-PRETAX> (70,863)
<INCOME-TAX> 0
<INCOME-CONTINUING> (70,863)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (70,863)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> (0.10)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION AND THE CONSOLIDATED
STATEMENTS OF OPERATION OF UNIFIED FINANCIAL SERVICES, INC. FILED AS A
PART OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 538,030
<SECURITIES> 1,183,925
<RECEIVABLES> 1,061,562
<ALLOWANCES> 2,041
<INVENTORY> 0
<CURRENT-ASSETS> 2,109,360
<PP&E> 1,439,575
<DEPRECIATION> 890,351
<TOTAL-ASSETS> 3,927,109
<CURRENT-LIABILITIES> 1,010,371
<BONDS> 0
<COMMON> 5,649
0
17,069
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,927,109
<SALES> 0
<TOTAL-REVENUES> 7,266,652
<CGS> 1,879,101
<TOTAL-COSTS> 1,879,101
<OTHER-EXPENSES> 4,379,736
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,993
<INCOME-PRETAX> 861,198
<INCOME-TAX> 30,000
<INCOME-CONTINUING> 831,198
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 831,198
<EPS-PRIMARY> 1.02
<EPS-DILUTED> 0.68
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT 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 REPORT.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 393,241
<SECURITIES> 1,190,052
<RECEIVABLES> 1,182,598
<ALLOWANCES> 2,041
<INVENTORY> 0
<CURRENT-ASSETS> 2,959,295
<PP&E> 1,316,436
<DEPRECIATION> 820,091
<TOTAL-ASSETS> 3,702,924
<CURRENT-LIABILITIES> 2,560
<BONDS> 0
<COMMON> 5,649
0
17,069
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,702,924
<SALES> 0
<TOTAL-REVENUES> 5,434,097
<CGS> 1,474,938
<TOTAL-COSTS> 1,474,938
<OTHER-EXPENSES> 3,375,561
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,364
<INCOME-PRETAX> 580,234
<INCOME-TAX> 0
<INCOME-CONTINUING> 580,234
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 580,234
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.05
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT 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 REPORT.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 489,696
<SECURITIES> 1,190,787
<RECEIVABLES> 761,678
<ALLOWANCES> 2,041
<INVENTORY> 0
<CURRENT-ASSETS> 2,606,173
<PP&E> 1,370,285
<DEPRECIATION> 829,392
<TOTAL-ASSETS> 3,426,245
<CURRENT-LIABILITIES> 1,114,787
<BONDS> 0
<COMMON> 5,649
0
17,069
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,426,245
<SALES> 0
<TOTAL-REVENUES> 3,492,787
<CGS> 1,027,924
<TOTAL-COSTS> 1,027,924
<OTHER-EXPENSES> 2,303,591
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,843
<INCOME-PRETAX> 158,429
<INCOME-TAX> 0
<INCOME-CONTINUING> 158,429
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 158,429
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.20
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT 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 REPORT.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 340,263
<SECURITIES> 1,193,216
<RECEIVABLES> 801,983
<ALLOWANCES> 2,041
<INVENTORY> 0
<CURRENT-ASSETS> 2,531,333
<PP&E> 1,463,983
<DEPRECIATION> 793,688
<TOTAL-ASSETS> 3,399,160
<CURRENT-LIABILITIES> 1,150,391
<BONDS> 0
<COMMON> 5,649
0
17,069
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,399,160
<SALES> 0
<TOTAL-REVENUES> 1,658,881
<CGS> 448,651
<TOTAL-COSTS> 448,651
<OTHER-EXPENSES> 1,151,233
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,097
<INCOME-PRETAX> 56,900
<INCOME-TAX> 0
<INCOME-CONTINUING> 56,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 56,900
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</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> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 463,609
<SECURITIES> 998,283
<RECEIVABLES> 727,489
<ALLOWANCES> 2,041
<INVENTORY> 0
<CURRENT-ASSETS> 1,541,654
<PP&E> 1,470,904
<DEPRECIATION> 758,250
<TOTAL-ASSETS> 3,301,371
<CURRENT-LIABILITIES> 1,080,476
<BONDS> 0
<COMMON> 5,627
0
17,069
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,301,371
<SALES> 0
<TOTAL-REVENUES> 6,197,308
<CGS> 1,488,752
<TOTAL-COSTS> 1,488,752
<OTHER-EXPENSES> 4,380,547
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,703
<INCOME-PRETAX> 351,063
<INCOME-TAX> 19,354
<INCOME-CONTINUING> 331,709
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 331,709
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.19
</TABLE>
