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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1999
Commission file number: 0-22629
UNIFIED FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 35-1797759
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
431 North Pennsylvania Street
Indianapolis, Indiana 46204-1873
(Address of principal executive offices) (Zip code)
Issuer's telephone number, including area code: (317) 634-3301
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
As of May 6, 1999, the registrant had outstanding 2,281,890 shares of
Common Stock, $.01 par value.
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<TABLE>
TABLE OF CONTENTS
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Page
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PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements 3
Consolidated Balance Sheets (unaudited) 3
Consolidated Statements of Income (unaudited) 5
Consolidated Statements of Comprehensive Income (unaudited) 6
Consolidated Statements of Cash Flows (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 21
Comparison of Results for the Three Months Ended March 31, 1999
and 1998 23
Liquidity and Capital Resources 25
Year 2000 Compliance 25
PART II. OTHER INFORMATION 27
Item 3. Changes in Securities and Use of Proceeds 27
Item 4. Submission of Matters to a Vote of Securityholders 27
Item 5. Exhibits and Reports on Form 8-K 27
SIGNATURE PAGE 28
EXHIBIT INDEX 29
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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
<TABLE>
UNIFIED FINANCIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, December 31,
1999 1998
----------- ------------
(unaudited)
<S> <C> <C>
ASSETS
------
Current Assets
Cash and cash equivalents $ 8,036,645 $10,342,501
Investments in affiliated mutual funds 451,306 231,728
Investments in securities and non-affiliated
mutual funds 224,505 494,403
Accounts receivable (net of allowance for doubtful
accounts of $38,326 for 1999 and $38,326 for 1998) 10,136,432 8,873,903
Prepaid and sundry assets 215,302 230,006
----------- -----------
Total current assets 19,064,190 20,172,541
----------- -----------
Fixed assets, at cost
Equipment and furniture (net of accumulated
depreciation of $3,059,960 for 1999 and
$2,913,498 for 1998) 2,164,516 1,542,251
----------- -----------
Total fixed assets 2,164,516 1,542,251
----------- -----------
Non-Current Assets
Investment in debt securities 994,211 994,211
Equity investment in affiliates 572,407 565,566
Organization cost (net of accumulated amortization of
$294,295 for 1999 and $254,230 for 1998) 957,962 898,027
Goodwill (net of accumulated amortization
of $116,752 for 1999 and $34,773 for 1998) 1,820,712 1,902,691
Other non-current assets 621,432 620,649
----------- -----------
Total non-current assets 4,966,724 4,981,144
----------- -----------
TOTAL ASSETS $26,195,430 $26,695,936
=========== ===========
See accompanying notes.
</TABLE>
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<TABLE>
UNIFIED FINANCIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEET
<CAPTION>
March 31, December 31,
1999 1998
----------- -----------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Current portion of capital lease obligations $ 50,260 $ 52,735
Current portion of borrowings 3,105,214 3,886,612
Accounts payable and accrued expenses 1,852,836 1,860,544
Accrued compensation and benefits 654,455 338,779
Payable to insurance companies 6,289,167 6,456,511
Payable to broker-dealer 588,175 596,509
Income taxes payable, current 407 1,857
Income taxes payables, deferred 23,710 90,318
Other liabilities 1,293,096 1,218,855
----------- -----------
Total current liabilities 13,857,320 14,502,720
----------- -----------
Long-term Liabilities
Long-term portion of capital leases obligations 25,918 37,122
Long-term portion of borrowings 1,910,870 2,024,579
Other long-term liabilities 325,828 385,886
Deferred income taxes - 33,361
----------- -----------
Total long-term liabilities 2,262,616 2,480,948
----------- -----------
Total liabilities 16,119,936 16,983,668
----------- -----------
Commitments and Contingencies - -
----------- -----------
Stockholders' Equity
Common Stock, par value $.01 per share 27,255 27,174
Preferred Stock Series C 1,672 1,672
Preferred Stock Series D - -
Additional paid-in capital 8,413,842 8,234,123
Retained earnings 1,632,725 1,449,299
Accumulated other comprehensive income - -
----------- -----------
Total stockholders' equity 10,075,494 9,712,268
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $26,195,430 $26,695,936
=========== ===========
See accompanying notes.
</TABLE>
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UNIFIED FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<CAPTION>
Three Months Ended
March 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
REVENUE:
Gross revenue (see note 11) $6,512,054 $5,088,714
----------- -----------
Total gross revenue 6,512,054 5,088,714
----------- -----------
COST OF SALES:
Cost of sales 1,640,216 1,852,974
----------- -----------
Total cost of sales 1,640,216 1,852,974
----------- -----------
Gross profit (see note 11) 4,871,838 3,235,740
----------- -----------
EXPENSES:
Employee compensation and benefits 2,383,042 1,498,804
Brokerage operating expenses 129,337 80,884
Fund services operating expenses 41,327 19,188
Mail and courier 121,257 95,612
Telephone 70,621 48,008
Equipment rental and maintenance 101,810 51,889
Occupancy 206,374 72,169
Depreciation and amortization 207,975 146,603
Professional fees 539,685 128,754
Business development cost 162,816 142,824
Other operating expenses 695,508 538,206
----------- -----------
Total expenses 4,659,752 2,822,941
----------- -----------
Income from operations 212,086 412,799
----------- -----------
OTHER INCOME (LOSS)
Unrealized gain (loss) on securities (30,126) 36,397
Realized gain (loss) on securities (813) 5,336
Equity in results of affiliates 6,841 (53,104)
Gain on sale/disposal of fixed assets - 5,278
----------- -----------
Total other income (loss) (24,098) (6,093)
----------- -----------
Income before income taxes 187,988 406,706
Income taxes 4,562 22,949
----------- -----------
Net income $ 183,426 $ 383,757
=========== ===========
Per share earnings
Basic common shares outstanding 2,275,580 1,722,821
Net income - basic $ 0.08 $ 0.20
Fully diluted common shares outstanding 2,540,151 1,729,621
Net income fully diluted $ 0.07 $ 0.20
See accompanying notes.
</TABLE>
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UNIFIED FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
<CAPTION>
Three Months Ended
March 31,
----------------------
1999 1998
-------- --------
<S> <C> <C>
Net income $183,426 $383,757
Other comprehensive income, net of tax
Unrealized gain (loss) on securities, net of
reclassification adjustment - (7,331)
-------- --------
Comprehensive income $183,426 $376,426
======== ========
See accompanying notes.
</TABLE>
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<TABLE>
UNIFIED FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
Three Months Ended
March 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 183,426 $ 383,757
Adjustments to reconcile net income to cash
provided by (used) in operating activities
Deferred income taxes (99,969) 34,436
Provision for depreciation and amortization 218,818 147,390
Unrealized gain (loss) on investments - (43,728)
(Gain) loss on disposal of fixed assets - (5,283)
Results of affiliate/minority interest (6,841) 53,104
Deferred start-up costs (100,000) -
(Increase) decrease in operating assets
Receivables (1,262,529) (2,797,220)
Prepaid and sundry assets 63,609 (58,633)
Increase (decrease) in operating liabilities
Accounts payable and accrued expenses (7,708) 3,167,184
Accrued compensation and benefits 315,676 94,573
Other liabilities (161,495) (46,351)
Accrued income taxes (1,450) (8,807)
----------- -----------
Net cash provided (used) in operating activities (858,463) 920,422
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of equipment (768,727) (196,326)
Proceeds from sale of fixed assets - 9,968
Investments in securities and mutual funds 50,320 116,506
----------- -----------
Net cash provided (used) in investing activities (718,407) (69,852)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 179,800 180,000
Proceeds from borrowings 373,700 2,821,407
Dividends on preferred stock - (34,418)
Dividends on AmeriPrime common stock - (125,000)
Purchase of common stock at Equity Underwriting
Group, Inc. - (2,922,024)
Acquisition of Unified Investment Advisers, Inc. - (814,347)
Repayment of borrowings (1,268,807) (7,680)
Repayment of capital lease obligations (13,679) (13,784)
----------- -----------
Net cash provided (used) in financing activities (728,986) (915,846)
----------- -----------
Net increase (decrease) in cash and cash equivalents (2,305,856) (65,276)
Cash and cash equivalents, beginning of year 10,342,501 2,564,024
----------- -----------
Cash and cash equivalents, end of period $ 8,036,645 $ 2,498,748
=========== ===========
See accompanying notes.
</TABLE>
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UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1999 AND 1998
-----------------------
Note 1 - NATURE OF OPERATIONS
The consolidated financial statements include the accounts
of Unified Financial Services, Inc. (the "Company" or
"Unified"), a Delaware corporation, and its wholly owned
subsidiaries, Unified Management Corporation ("Management"),
Unified Fund Services, Inc. ("Services"), Health Financial,
Inc. ("Health Financial"), First Lexington Trust Company
("Lexington"), Resource Benefit Planners, Inc. ("Benefit
Planners"), Unified Investment Advisers, Inc. ("Advisors"),
Unified Internet Services, Inc. ("Unified Internet
Services"), EMCO Estate Management Company, Inc. ("EMCO"),
Fiduciary Counsel, Inc. ("Fiduciary Counsel"), Equity
Underwriting Group, Inc. ("Equity Insurance"), Commonwealth
Premium Finance Corporation ("CPFC"), Strategic Fund
Services, Inc. ("Strategic"), AmeriPrime Financial Services,
Inc. ("AmeriPrime"), M. Wilson & Associates, Inc. ("M.
Wilson"), Unified Aviation, Inc. ("Unified Aviation"), VSX
Technologies, Inc. ("VSX"), Unified Capital Resources, Inc.
("Unified Capital") and Archer Trading, Inc. ("Archer").
The Company, through its subsidiaries, concentrates its
services over the following lines of business in the
financial services and insurance industries: (i) mutual fund
services, including transfer agency, shareholder and
administrative services, fund accounting, compliance and
distribution; (ii) brokerage and securities services,
including third-party introduced clearing services;
(iii) investment advisory and asset management services for
various asset management categories and objectives; (iv) tax-
free reorganizations and consolidations of financial
services companies and small mutual funds; (v) certain non-
bank custodial services; (vi) trust and retirement services;
(vii) qualified plan services, including plan participant
education; (viii) internal and external proprietary product
and systems development for financial services institutions,
predominantly mutual funds, including the Unified Funds, a
family of no-load mutual funds sponsored by Advisers;
(ix) asset allocation services; (x) investment advisory
services; (xi) financial planning services; (xii) Internet
technology and services; (xiii) specialty insurance general
agent and brokerage services; (xiv) adjusting services;
(xv) third-party claim administration services;
(xvi) financing for the payment of insurance premiums; and
(xvii) claim processing and management.
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
---------------------
The consolidated financial statements include the accounts
of the Company and its subsidiaries (collectively, the
"Company," unless the context requires otherwise). The
accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information and
with the instructions to Form 10-QSB. Accordingly, they do
not include all of the information and footnotes required by
generally accepted accounting principles for complete
financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation
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UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1999 AND 1998
-----------------------
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
have been included. Operating results for the three months
ended March 31, 1999 are not necessarily indicative of the
results that may be expected for the year ending December
31, 1999. All significant intercompany transactions and
balances between the Company and its subsidiaries have been
eliminated. For further information, refer to the financial
statements and the notes thereto included in the Company's
Annual Report on Form 10-KSB for the year ended December 31,
1998.
Where appropriate, prior years' financial information has
been reclassified to conform with the current year
presentation.
Effective March 31, 1998, Advisers became a wholly owned
subsidiary of the Company upon surrender to Advisers of all
the capital stock of Advisers by all stockholders of
Advisers (other than the Company). Prior to the surrender
of the capital stock to Advisers, the Company accounted for
its 33.3% ownership in Advisers pursuant to the equity
method of accounting. Advisers reported gross revenue for
the four months (Advisers' fiscal year end was November 30)
ended March 31, 1998 of $146,519 and loss for the period of
$195,967. Advisers reported total assets as of March 31,
1998 of $617,773 and shareholders' equity of $(469,548).
Effective August 21, 1998, the Company acquired Fiduciary
Counsel in a transaction accounted for under the purchase
method of accounting. In connection with such acquisition,
the Company issued 36,110 shares of common stock, $0.01 par
value, of the Company ("Common Stock") and paid $800,835 in
cash. The results of operations of Fiduciary Counsel have
been included in the Company's consolidated financial
statements since its date of acquisition.
Effective January 1, 1999, the Company acquired M. Wilson in
a transaction accounted for under the pooling-of-interests
method of accounting. In connection with such acquisition,
the Company issued 3,636 shares of Common Stock in exchange
for all the capital stock of M. Wilson. Due to the
immateriality of the results of operations of M. Wilson to
that of the Company, the consolidated financial statements
of the Company contained herein do not reflect the
acquisition of M. Wilson prior to the acquisition date of
such entity.
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 administration business revenue, as well as
the investment adviser fees earned by third party advisers,
is recorded on the accrual basis. The fees earned by the
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 financial services
portion of the investment administration operation provides
administrative services to
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UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1999 AND 1998
-----------------------
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
investment companies and separate accounts. Revenue is
recorded as it is earned each month based upon accounts and
account balances. In connection with this, the Company
earns income on the accounts established to transfer these
funds for customers. For the insurance operations,
commission income and expense are recorded on the effective
date of each policy; return commissions are recorded when a
policy cancellation occurs. All other revenue is recorded
as earned.
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 life of the assets for financial
statement purposes.
Investments and Investment in Debt Securities
---------------------------------------------
Investments, which consists primarily of an investment in
mutual funds (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 Statements of
Operations as unrealized gain or loss on securities.
Investment in debt securities are recorded at cost and
amortized over the period to maturity for the premium or
discount from par value under generally accepted accounting
principles. Lexington is required by the Kentucky
Department of Financial Institutions to maintain a minimum
of $1,150,000 of capital as long as trust assets under
management exceed $100,000,000.
Income Taxes
------------
The Company files consolidated federal and state income tax
returns with its subsidiaries. Subsequent to its
acquisition by the Company, each of Benefit Planners, EMCO,
Strategic, Equity Insurance, CPFC, AmeriPrime and M. Wilson
will be included in the consolidated tax returns of the
Company, which uses the accrual method of tax and accounting
reporting.
The Company has adopted Statement of Financial Accounting
Standards No. 109 accounting for income taxes ("SFAS 109").
SFAS 109 requires use of the liability method of accounting
for deferred income taxes.
Other Non-Current Assets
------------------------
Included in other non-current assets are intangible assets
for non-compete covenants, the value of acquired companies'
names and the present value of building leases below fair
market value. For financial reporting basis, these assets
are amortized on a straight-line basis over a three-, eight-
or fifteen-year period.
Goodwill
--------
The Company in acquiring certain businesses acquired
goodwill. The Company has determined the value of the
goodwill. The value of the goodwill is amortized over the
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UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1999 AND 1998
-----------------------
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
estimated economic lives on a straight-line basis over a
period of 10 to 15 years for financial reporting basis.
For tax purposes, goodwill is amortized on a straight-line
basis over 15 years.
Organization Cost
-----------------
Cost related to the organization of the various operations
have been capitalized and 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 revenue and
expenses during the reporting period. Actual results could
differ from those estimates.
Statement of Cash Flows
-----------------------
For purposes of the Statements of Cash Flows, the Company
considers all liquid investments with an original maturity
of three months or less to be cash equivalents. The Company
maintains money market investments that are not insured by
the Federal Deposit Insurance Corporation (the "FDIC") and
bank accounts that periodically exceed the FDIC insurance
limit during the year.
Financial Statement Presentation
--------------------------------
Certain amounts in the 1998 financial statements have been
reclassified to conform to the 1999 presentation.
Note 3 - PROPOSED AND COMPLETED ACQUISITIONS
On October 16, 1998, Unified entered into an agreement to
acquire Commonwealth Investment Services, Inc., a Kentucky
corporation that is headquartered in Lexington, Kentucky
("Commonwealth Investment"). Commonwealth Investment
provides investment services to individuals, businesses and
institutions throughout the State of Kentucky and
surrounding areas through its network of independent agents,
primarily certified public accountants ("CPAs"). In
connection with the acquisition, Unified will issue 27,500
shares of Common Stock in exchange for all of the capital
stock of Commonwealth Investment. The acquisition is
intended to be accounted for under the pooling-of-interests
method of accounting.
On October 12, 1998, Unified executed a letter of intent
with Fully Armed Productions, Inc. a Kentucky corporation
("Fully Armed Productions"), to acquire all of the capital
stock of Fully Armed Productions in exchange for 18,182
shares of Common Stock. Fully Armed Productions provides
creative and technological services for the television,
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UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1999 AND 1998
-----------------------
Note 3 - PROPOSED AND COMPLETED ACQUISITIONS (continued)
radio and internet industries through its specialty
production capabilities. Fully Armed Productions performs
videography, programming and production services for NBC,
ESPN and numerous cable, satellite and television stations,
including services for the past two Olympic games. The
acquisition is intended to be accounted for pursuant to the
pooling-of-interests method of accounting.
On January 1, 1999, Unified acquired M. Wilson. M. Wilson,
a Kentucky corporation, is a claim processing and
management company that has experience in handling
liability, property and workers compensation claims for a
self-insured trust fund. M. Wilson also processes claims
for an occupational accident program for independent
truckers and does statewide property adjusting for the
Kentucky Risk and Insurance Service Division and property
adjusting for the Fair Plan of Louisville, Kentucky. The
acquisition is accounted for pursuant to the pooling-of-
interests method of accounting. In connection with such
acquisition, the Company issued 3,636 shares of Common
Stock. As of December 31, 1998, M. Wilson reported total
assets of $3,308 and shareholder's equity of $3,308.
On May 6, 1999, the Company, through its wholly owned
subsidiary, Archer, completed the acquisition of certain of
the assets and certain of the liabilities of First Insight
Securities, Inc. Archer, a Delaware corporation, currently
provides stock trading services to individuals from one
office located in Cincinnati, Ohio. In connection with such
acquisition, the Company assumed liabilities of
approximately $22,000 and paid an additional $51,700 in
cash. Such transaction was accounted for under the purchase
method of accounting.
The Company has filed the required applications with the
Office of Thrift Supervision with respect to the
organization by the Company of a federal savings bank (the
"Savings Bank") which would be headquartered in Lexington,
Kentucky. The Company expects to commence operations of the
Savings Bank during the third or fourth quarter of 1999,
subject to the receipt of the required regulatory approvals
and the issuance of a charter.
Note 4 - OPTIONS
On March 25, 1999, the Board of Directors of the Company
adopted, subject to stockholder approval, the Unified
Financial Services, Inc. Amended and Restated 1998 Stock
Incentive Plan (the "Plan") which provides for the granting
of stock options and other cash and stock-based awards. The
total number of shares of Common Stock issuable under the
Plan is not to exceed 500,000 shares, subject to adjustment
in the event of any change in the outstanding shares of such
stock by reason of a stock dividend, stock split,
capitalization, merger, consolidation or other similar
changes generally affecting stockholders of the Company.
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UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1999 AND 1998
-----------------------
Note 4 - OPTIONS (continued)
Under the terms of the Plan, employees, directors, advisors
and consultants of the Company and its subsidiaries will be
eligible to receive the following: (a) Incentive Stock
Options; (b) Nonqualified Stock Options; (c) Stock
Appreciation Rights ("SAR"); (d) Restricted Stock; (e)
Restricted Stock Units; and (f) Performance Awards.
As of March 31, 1999, options to acquire 36,851 shares of
Common Stock were outstanding to certain employees,
directors and advisers of the Company. Such options were
fully vested on the date of the grant and have an exercise
price as follows:
(a) 6,400 shares at $25 per share
(b) 19,776 shares at $27.50 per share
(c) 10,675 shares at $40 per share
Of such options, 35,551 are intended to qualify as incentive
stock options pursuant to Section 422 of the Internal
Revenue Code of 1986, as amended.
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UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1999 AND 1998
-----------------------
Note 5 - FINANCING AND CAPITAL LEASES OBLIGATIONS
Unified and subsidiaries have obtained financing from banks
and former owners of companies acquired via lines of credit
and asset-based financing including capitalized lease
obligations.
<TABLE>
<CAPTION>
Balance at March 31, 1999
-------------------------------------
Current Long-Term
Creditor Lender Portion Portion Total Interest rate Date of Maturity Remarks
- -------- ------ ------------------------------------- ------------- ---------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
LOANS:
1) Unified Bank $ 30,720 $ 265,737 $ 296,457 Prime plus .5% December 31, 2001 Monthly installments for
communication and
computer hardware and
software
2) EUG Bank 800,000 800,000 Prime June 20, 1999 Term loan
maximum loan amount
$800,000
3) EUG Bank 312,500 885,417 1,197,917 Prime January 1, 2001 Note due in installments
maximum loan amount
$1,250,000
4) Equity Bank 300,000 300,000 Prime June 20, 1999 Revolving credit line
maximum loan amount
$400,000
5) 21st Century Bank 159,338 153,338 Prime June 20, 1999 Term loan
maximum loan amount
$200,000
6) CPFC Bank 1,335,000 1,335,000 Prime June 18, 1999 Revolving credit line
maximum loan amount
$2,000,000
7) Irland and Rogers Bank 25,000 25,000 Prime plus 1% May 1, 1999 Term loan
8) Irland and Rogers Previous
owner 104,996 429,676 534,676 9.50% January 1, 2003 Due in annual
installments
9) Unified Aviation Bank 43,660 330,040 373,700 8.25% March 31, 2014 Due in monthly
installments for
aircraft
---------- ---------- ----------
Total $3,105,214 $1,910,870 $5,016,084
========== ========== ==========
</TABLE>
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UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1999 AND 1998
-----------------------
Note 5 - FINANCING AND CAPITAL LEASES OBLIGATIONS (continued)
The Company's capitalized lease obligations are payable over
a 36-month period. The following is a summary of future
minimum lease payments under capitalized lease obligations
as of March 31, 1999.
For the twelve months ended March 31, Amount
------------------------------------- ------
2000 $56,292
2001 22,948
2002 4,362
-------
Subtotal 83,602
Less: amount representing interest 7,424
-------
Net present value $76,178
=======
The Company did not acquire equipment through capital lease
obligations during the three month periods ended March 31,
1999 and 1998.
Note 6 - COMMITMENTS AND CONTINGENCIES
The Company through its subsidiary, Management, leases its
corporate headquarters and administrative office facilities
located at 429-431 N. Pennsylvania Street, Indianapolis,
Indiana, which facility has approximately 10,820 square
feet, and is leased pursuant to an operating lease expiring
in 2007 for office facilities and equipment. The lease
includes provisions for adjustment of operating costs and
real estate taxes.
Such obligations are allocated between Services and
Management based on estimated usage. The Company also
maintains administrative offices at the corporate offices of
Lexington, Health Financial and Benefit Planners, each of
which is located at 2353 Alexandria Drive, Suite 100,
Lexington, Kentucky.
The aggregate minimum rental commitments required under
operating leases for office space and equipment at March 31,
1999 for all operations were as follows:
For the twelve months ended March 31, Lease commitments
------------------------------------- -----------------
2000 $ 844,236
2001 822,145
2002 820,904
2003 548,848
Thereafter 552,402
----------
Total $3,588,595
==========
Total rental expense was $206,374 and $72,169 for the three
months ended March 31, 1999 and 1998, respectively.
-15-
<PAGE>
<PAGE>
UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1999 AND 1998
-----------------------
Note 6 - COMMITMENTS AND CONTINGENCIES (continued)
The Company is a party to various lawsuits, claims and other
legal actions arising in the ordinary course of business.
In the opinion of management, all such matters are without
merit or are of such kind, or involve such amounts, that
unfavorable disposition would not have a material adverse
effect on the Company's financial position or results of its
operations.
Note 7 - EMPLOYEE BENEFIT PLANS
Unified and subsidiaries provide a defined contribution
retirement plan which covers substantially all employees.
The Board of Directors determines contributions to the plan.
For the three months ended March 31, 1999, the Board of
Directors made no contributions to the plan.
The Company also maintains a 401(k) plan as part of the
defined contribution retirement plan. The plan includes a
matching for funds contributed into the Unified family of
mutual funds. The Company will match the employee's
contribution up to fifty percent of the first six percent of
the employee's pre-tax contribution.
Note 8 - CASH SEGREGATED UNDER FEDERAL REGULATION AND NET CAPITAL
REQUIREMENTS FOR MANAGEMENT AND AFSI
Management and AmeriPrime Financial Securities, Inc., a
subsidiary of AmeriPrime ("AFSI"), are subject to the
Securities and Exchange Commission's (the "SEC") Uniform Net
Capital Rule ("Rule 15c3-1"), which requires the maintenance
of minimum net capital, as defined, of 6-2/3% of aggregate
indebtedness or $50,000 for Management and $5,000 for AFSI,
whichever is greater, and a ratio of aggregate indebtedness
to net capital of not more than 15 to 1. At March 31, 1999,
Management had net capital of $431,982, which was $381,982
in excess of its required net capital of $50,000 and a
ratio of aggregate indebtedness to net capital of 0.51 to 1.
At March 31, 1999, AFSI had net capital of $144,526, which
was $139,526 in excess of its required net capital of
$5,000, and a ratio of aggregate indebtedness to net capital
of .28 to 1.
Pursuant to Rule 15c3-3 as promulgated by the SEC,
Management and AFSI calculate their reserve requirement and
segregate cash and/or securities for the exclusive benefit
of their customers on a periodic basis. The reserve
requirement calculated by Management and AFSI were $0 at
March 31,1999. Balances segregated in excess of reserve
requirements are not restricted.
-16-
<PAGE>
<PAGE>
UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1999 AND 1998
-----------------------
Note 9 - COMMON AND PREFERRED STOCK
Common Stock:
Acquisitions
------------
The Company has 10,000,000 authorized shares of Common
Stock. In connection with the acquisitions consummated
during 1998 and 1999, the Company issued shares of Common
Stock. The shares issued by acquisition follow:
Company acquired Date Shares issued
---------------- ----------------- -------------
Benefit Planners March 10, 1998 12,000
EMCO August 21, 1998 11,000
Fiduciary Counsel August 21, 1998 36,110
Equity Insurance December 17, 1998 241,745
CPFC December 17, 1998 12,800
Strategic December 22, 1998 7,500
AmeriPrime December 31, 1998 410,000
M. Wilson January 1, 1999 3,636
Private Placement Offering
--------------------------
Effective December 10, 1998, the Company commenced a
private placement (the "Private Placement") offering to sell
a maximum of 1,750,000 shares of Common Stock. The first
1,250,000 shares are being offered at a price of $40.00 per
share and, upon acceptance by the Company of subscriptions
for such 1,250,000 shares, the remaining 500,000 shares will
be offered at a price of $50.00 per share. All shares of
Common Stock are being offered 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 (1) subscription for 1,750,000
shares have been accepted; or (2) September 31, 1999;
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 December 31, 1999. The securities offered
and sold in this private placement will not be and have not
been registered under the Securities Act of 1933, as
amended, and may not be offered or sold in the United States
absent registration or an applicable exemption from
registration requirements.
As of March 31, 1999, the Company had accepted subscriptions
for 4,495 shares of Common Stock pursuant to the Private
Placement.
-17-
<PAGE>
<PAGE>
UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1999 AND 1998
-----------------------
Note 9 - COMMON AND PREFERRED STOCK (continued)
Preferred Stock
---------------
As of March 31, 1999, the total preferred shares authorized
for the Company were 1,000,000 with a par value of $.01 per
share of which 102,100 shares were designated at March 31,
1998 as follows:
<TABLE>
<CAPTION>
SHARES SHARES SHARES STATED PAR
DESIGNATED ISSUED OUTSTANDING VALUE VALUE
---------- ------ ----------- ----- -----
<S> <C> <C> <C> <C>
Preferred Stock Series C:
2,100 1,672 1,672 $100 $0.01
Preferred Stock Series D:
100,000 -0- -0- 200 0.01
</TABLE>
Series C Preferred Stock Issuance
---------------------------------
In May 1998, the Company issued 2,100 shares of Series C
6.75% Cumulative Convertible Preferred Stock to certain
directors, executive officers and agents of the Company for
total consideration of $210,000. Each share of Series C
Preferred Stock is convertible, at any time at the option of
the holder thereof and without the payment of any additional
consideration with respect thereto, into 135 shares of
Common Stock. As of March 31, 1999, 428 Series C Preferred
Stock had been converted into 57,780 shares of Common Stock.
Series D Preferred Stock Authorized
-----------------------------------
In July 1998, the Company authorized 100,000 shares of
Series D Convertible Junior Participating Preferred Stock.
The Company has reserved all of the shares of Series D
Preferred Stock for issuance under a Rights Agreement dated
August 26, 1998 between the Company and Services, as rights
agent. On August 26, 1998, the Board of Directors of
Unified declared a dividend distribution of one Preferred
Stock Purchase Right (collectively, the "Rights") for each
outstanding share of Common Stock. The dividend
distribution was payable to the stockholders of record at
the close of business on August 26, 1998. Generally, each
Right, when exercisable, entitles the registered holder to
purchase from the Company one one-hundredth of a share of
Series D Preferred Stock at a price of $200.00 per one one-
hundredth of a share.
Note 10 - INCOME TAXES
Consolidated net operating loss carryforwards at
December 31,1998 amounted to approximately $13,100,000,
expiring through 2008.
Consolidated State of Indiana net operating loss
carryforwards at December 31,1998 amounted to approximately
$12,100,000, expiring through 2008.
-18-
<PAGE>
<PAGE>
UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1999 AND 1998
-----------------------
Note 11 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and
estimated fair value of the Company's financial instruments
at March 31, 1999 and 1998. FAS No. 107, Disclosures about
Fair Value of Financial Instruments, defines the fair value
of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction
between willing parties.
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------------------
1999 1998
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
($ IN THOUSANDS) AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
<S> <C> <C> <C> <C>
Financial assets
Cash and cash equivalents $ 8,036.6 $ 8,036.6 $10,342.5 $10,342.5
Investment in:
Mutual funds and
securities 224.5 224.5 494.4 494.4
Mutual funds -
affiliates 451.3 451.3 231.7 231.7
Receivables 10,136.4 10,136.4 8,873.9 8,873.9
Prepaid and sundry 215.3 215.3 230.0 230.0
Financial obligations
Current liabilities 13,857.3 13,857.3 14,502.7 14,502.7
Capital lease obligation 25.9 25.9 37.1 37.1
Long-term debt 1,910.9 1,910.9 2,024.6 2,024.6
</TABLE>
Note 12 - DISCLOSURES ABOUT REPORTING SEGMENTS
The Company has five reportable segments: brokerage,
financial services administration, investment advisory,
insurance brokerage, and all other. The brokerage segment
provides services of a broker-dealer. The financial
services administration provides transfer agency, fund
accounting, administrative and start-up services for mutual
funds. In addition, it provides retirement plan
consultation and plan administration to pension plans.
Investment advisory provides asset management services to
pension plans, foundations and mutual funds. Insurance
brokerage provides specialty insurance products. All other
represents activities not categorized as a separate segment.
The accounting policies of the segments are the same as
those described in the summary of significant accounting
policies. The Company evaluates performance based on profit
or loss from operations before income taxes not including
recurring gains and losses.
-19-
<PAGE>
<PAGE>
UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1999 AND 1998
-----------------------
Note 12 - DISCLOSURES ABOUT REPORTING SEGMENTS (continued)
The Company's reportable segments are strategic business
units that offer different products and services. They are
managed separately because each business requires different
technology and marketing strategies. Most of the businesses
were acquired as a unit and the management at the time of
the acquisition was retained. Reportable Segment Profit of
Loss, Segment Assets are as follows for the three months
ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1999 1998
---- ----
<S> <C> <C>
Revenues
Brokerage $ 776.7 $ 485.0
Financial services administration 2,050.3 1,074.1
Investment advisory 1,225.0 678.2
Insurance brokerage 2,303.7 2,719.1
Other 156.4 132.3
--------- ---------
Total $ 6,512.1 $ 5,088.7
========= =========
Gross Profit
Brokerage $ 341.8 $ 153.8
Financial services administration 1,907.6 854.1
Investment advisory 1,197.2 641.2
Insurance brokerage 1,268.9 1,454.3
Other 156.3 132.3
--------- ---------
Total $ 4,871.8 $ 3,235.7
========= =========
Total Assets
Brokerage $ 970.4 $ 932.2
Financial services administration 5,388.7 2,466.6
Investment advisory 4,186.0 1,812.0
Insurance brokerage 9,359.2 9,172.3
Other 6,291.1 1,048.3
--------- ---------
Total $26,195.4 $15,429.4
========= =========
Capital expenditures
Brokerage $ 14.0 $ 9.2
Financial services administration 55.0 8.5
Investment advisory 11.9 2.5
Insurance brokerage 31.9 169.4
Other 655.9 6.7
--------- ---------
Total $ 768.7 $ 96.3
========= =========
Depreciation and amortization
Brokerage $ 5.6 $ 5.1
Financial services administration 40.4 18.8
Investment advisory 83.8 38.2
Insurance brokerage 48.4 60.2
Other 40.6 24.3
--------- ---------
Total $ 218.8 $ 146.6
========= =========
</TABLE>
-20-<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Quarterly Report on Form 10-
QSB 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
The Company, a Delaware corporation, was organized on December 7,
1989. The following table sets forth the Company's active subsidiaries
as of March 31, 1999.
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
PERCENT
PRINCIPAL PLACE OWNED BY
SUBSIDIARY NAME OF BUSINESS DESCRIPTION OF SUBSIDIARY COMPANY
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unified Management Corporation Indianapolis, Indiana A licensed National Association of 100%
Securities Dealers, Inc. ("NASD")
broker-dealer
- --------------------------------------------------------------------------------------------------------------------
Unified Fund Services, Inc. Indianapolis, Indiana A registered investment adviser 100%
and transfer agent
- --------------------------------------------------------------------------------------------------------------------
Health Financial, Inc. Lexington, Kentucky A registered investment adviser 100%
- --------------------------------------------------------------------------------------------------------------------
First Lexington Trust Company Lexington, Kentucky A non-bank affiliated trust 100%
company that is regulated by the
Department of Financial
Institutions, Commonwealth of
Kentucky
- --------------------------------------------------------------------------------------------------------------------
Unified Internet Services, Inc. Indianapolis, Indiana An internet services company 100%
- --------------------------------------------------------------------------------------------------------------------
Resource Benefit Planners, Inc. Lexington, Kentucky A professional services firm 100%
- --------------------------------------------------------------------------------------------------------------------
Unified Investment Advisers, Inc. Indianapolis, Indiana A provider of mutual fund advisory 100%
services for the Unified Funds,
the Company's no load mutual fund
family
- --------------------------------------------------------------------------------------------------------------------
Fiduciary Counsel, Inc New York, An investment management firm 100%
New York
- --------------------------------------------------------------------------------------------------------------------
EMCO Estate Management Company, Inc. New York, A wealth management firm 100%
New York
- --------------------------------------------------------------------------------------------------------------------
AmeriPrime Financial Services, Inc. Southlake, Texas A provider of administrative, 100%
regulatory, compliance and start-
up support services to investment
advisors, banks and other money
managers in their proprietary
mutual fund efforts
- --------------------------------------------------------------------------------------------------------------------
AmeriPrime Financial Securities, Inc. Southlake, Texas An NASD broker-dealer in all 50 100%<F1>
states
- --------------------------------------------------------------------------------------------------------------------
Equity Underwriting Group, Inc. Lexington, Kentucky A holding company that provides, 100%
through its subsidiaries,
specialty insurance products as a
general agent or broker
- --------------------------------------------------------------------------------------------------------------------
Equity Insurance Managers, Inc. Lexington, Kentucky A provider of specialty property 100%
and casualty insurance products as
a managing general agent and
broker
- --------------------------------------------------------------------------------------------------------------------
21st Century Claims Service, Inc. Lexington, Kentucky A provider of adjusting services 100%<F2>
and third-party claim
administration services
- --------------------------------------------------------------------------------------------------------------------
Equity Insurance Administrators, Inc. Lexington, Kentucky A provider of third-party claim 100%<F3>
administration services to
insurance companies and program
managers
- --------------------------------------------------------------------------------------------------------------------
-21-
<PAGE>
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
PERCENT
PRINCIPAL PLACE OWNED BY
SUBSIDIARY NAME OF BUSINESS DESCRIPTION OF SUBSIDIARY COMPANY
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Equity Insurance Managers of Illinois, Illinois A wholesale brokerage firm 55%<F4>
L.L.C. (d/b/a/ Irland & Rogers)
- --------------------------------------------------------------------------------------------------------------------
Commonwealth Premium Finance Lexington, Kentucky A provider of financing for the 100%
Corporation payment of premiums on insurance
coverage placed by Equity
Underwriting Group, Inc.
- --------------------------------------------------------------------------------------------------------------------
Strategic Fund Services, Inc. New York, A provider of mutual fund 100%
New York administration services
- --------------------------------------------------------------------------------------------------------------------
Unified Aviation, Inc. Lexington, Kentucky An aviation operating company 100%
- --------------------------------------------------------------------------------------------------------------------
VSX Technologies, Inc. New York, A developer of software systems 100%
New York for the brokerage industry
- --------------------------------------------------------------------------------------------------------------------
Unified Capital Resources, Inc. New York, An investment and merchant banking 100%
New York company
- --------------------------------------------------------------------------------------------------------------------
M. Wilson & Associates, Inc. Lexington, Kentucky A claim processing and management 100%<F5>
company
- --------------------------------------------------------------------------------------------------------------------
<FN>
- ----------------------
<F1> AmeriPrime Financial Securities, Inc. is a wholly owned subsidiary
of AmeriPrime Financial Services, Inc.
<F2> 21st Century Claims Service, Inc. is 50% owned by Equity
Underwriting Group, Inc. and 50% owned by Equity Insurance
Managers, Inc.
<F3> Equity Insurance Administrators, Inc. is a wholly owned subsidiary
of Equity Insurance Managers, Inc.
<F4> Equity Insurance Managers of Illinois, L.L.C. is 55% owned by
Equity Insurance Managers, Inc.
<F5> M. Wilson & Associates, Inc. is a wholly owned subsidiary of
Equity Underwriting Group, Inc.
</TABLE>
The Company conducts substantially all of its operations through
its wholly owned subsidiaries. The Company's principal business is to
provide and maintain vertical integration in the financial services
industry for its subsidiaries, a "platform" that creates synergy and
revenues among its subsidiaries from the fees associated with gathering,
managing, maintaining and servicing assets under management. The
Company currently maintains approximately $1.5 billion of assets under
management and approximately $5 billion of assets under service. The
vertically integrated "platform," a subsidiary "home" for managing and
servicing virtually every type of wealth-building asset, is primarily
accomplished through three strategies: (1) consolidating financial
services companies that expand or deepen the integration by means of
tax-free, stock-for-stock, pooling-of-interests transactions (This
particular consolidation strategy is driven by the Company's goal to
protect, maintain, nurture and advance the entrepreneurial spirit of
small businesses by providing capital, synergy and vertical integration
in an "autonomous" subsidiary environment.); (2) consolidating small
mutual funds into the Company's mutual fund families by means of tax-
free reorganizations (The mutual fund consolidation strategy is assisted
by the Company's mutual fund services capabilities and a highly
qualified systems staff which provides innovative and flexible
programming options, alternatives and solutions required by small mutual
funds to compete against the larger more capitalized mutual fund
families.); and (3) the formation of new subsidiaries to develop
proprietary products and services that deepen the integration and
enhance and advance the synergy and revenues among the Company's
subsidiaries.
Once a component of the Company's vertically integrated network,
each subsidiary then implements its individual business plan in an
autonomous environment and achieves its growth and thereby increases
earnings and share value predominantly by: (1) leveraging the existing
infrastructure and utilizing the vertically integrated platform to
realize fully and effect the synergy and the related earnings impact to
the Company's stock; (2) consolidations by the subsidiary, using the
Company's stock and/or capital, to acquire important and critical
business components along its horizontal business plane; (3) utilizing
the Company's capital for necessary expansion; (4) traditional
advertising, marketing and selling of the subsidiary's products and
services; and (5) networking with the Company's subsidiaries.
-22-
<PAGE>
<PAGE>
The following presents management's discussion and analysis of the
Company's consolidated financial condition and results of operations as
the dates and for the periods indicated. This discussion should be read
in conjunction with the other information set forth in this Quarterly
Report on Form 10-QSB, including the Company's unaudited, consolidated
financial statements and accompanying notes thereto.
COMPARISON OF RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
Revenues for the quarter ended March 31, 1999 as compared to the
quarter ended March 31, 1998 increased $1,413,400, or 28.0%, from
$5,088,700 to $6,512,100. For such period, brokerage revenue increased
$291,700, or 60.1%, investment advisory revenue increased $546,800, or
80.6%, financial services administration revenue increased $976,200, or
90.9%, insurance brokerage revenue declined $415,400, or 15.3%, and
other revenue increased $24,100, or 18.2%. The increase in brokerage
revenue reflects the higher distribution service fees based upon
contractual agreements with a fund and on variable distribution fees
based upon fund assets or commissions on fund sales. In addition, the
volatile market conditions contributed to an increase in the total
number of trades processed, with higher commissions on security trades
as well as an increase in the number of mutual funds trades. Financial
services administration revenue increased principally due to a growth in
the number of mutual fund clients serviced, additional fees associated
with assets under service, a growth in assets under service and an
increased number of clients whose assets were serviced under trusts.
Claim services revenue increased principally due to the acquisition of M.
Wilson on January 1, 1999 and new service contracts entered into during
the first quarter of 1999. Premium financing activities relating to
insurance policies issued increased 8.8% compared to the first quarter
of 1998. Investment advisory revenue increased principally due to the
growth in assets under management plus increased revenue due to the
acquisitions by the Company in March 1998 and August 1998 of Advisers
and Fiduciary Counsel, respectively. Gross insurance brokerage revenues
decreased due to lesser premium income being written during the first
quarter of 1999. Overall, $8,704,373 in premiums were written during
the quarter ended March 31, 1999 as compared to $9,385,699 in the
quarter ended March 31, 1998, reflecting a decrease of 7.3%. This
decrease was attributable to a decline of approximately $1,500,000 in
private passenger automobile business, but was offset by an increase
in all other lines of approximately $860,000, or an increase of 13.6%.
The reductions in private passenger premiums were due to regulatory
approval and software implementation delays experienced in the
development of a new program that should be implemented during the
second quarter of 1999. Other income increased during the first quarter
of 1999 as compared to the same period of 1998, principally as a result
of income earned on cash and cash equivalents received in connection
with the Company's 1998 private placement, offset slightly by a
reduction in miscellaneous and programming revenue.
Gross profit for the quarter ended March 31, 1999 as compared to
the quarter ended March 31, 1998 increased $1,636,100, or 50.6%, from
$3,235,700 to $4,871,800. For such periods, gross profit as a
percentage of revenue increased to 74.8% from 63.6%. Brokerage gross
profit increased to $341,800 for the quarter ended March 31, 1999 from
$153,800 for the prior year first quarter, reflecting the increased
distribution service fees revenue based upon fixed or variable
agreements with mutual funds and commissions on fund sales. The
increased number of security and mutual fund trades, higher commissions
on trades and trail commissions from mutual funds improved the gross
profit margin by 122.2%. Investment advisory gross profit increased to
$1,197,200 for the quarter ended March 31, 1999 from $641,200 for the
quarter ended March 31, 1998. For such periods, investment advisory
gross profit increased $556,000, of which $505,200, was due to the
acquisitions of Advisers and Fiduciary Counsel on March 31, 1998 and
August 21, 1998, respectively, plus increased assets under management
for all companies. Financial services administration gross profit
increased to $1,907,600 for the quarter ended
-23-
<PAGE>
<PAGE>
March 31, 1999 from $854,100 for the quarter ended March 31, 1998,
reflecting the increased assets under service, the increased additional
fees for service and the growth in mutual fund and trust clients served.
Insurance brokerage gross profit of $1,268,900 declined $185,400 for the
quarter ended March 31, 1999 as compared to brokerage gross profit of
$1,454,300 for the quarter ended March 31, 1998. The insurance
brokerage gross profit decrease was attributable to a premium decline of
approximately $1,500,000 in private passenger automobile business, but
was tempered by increases in other lines. The premium decline is
reflective of the very competitive nature of the present insurance
market. The increase in other gross profit of $24,000 reflected the
increased interest income on cash and cash equivalents.
Income from operations for the quarter ended March 31, 1999 was
$212,100, or 3.3% of total revenue, as compared to income from operations
of $412,800, or 6.3%, for the same quarter last year. Total expenses
for the quarter ended March 31, 1999 were $4,659,800, or 71.6% of total
revenue, as compared to $2,822,900, or 43.3% of total revenue, for the
quarter ended March 31, 1998. Fiduciary Counsel and Advisers, each of
which was acquired by the Company during 1998, accounted for $491,700
of the expenses during 1999 when compared to the first quarter 1998
expenses. Expenses during the quarter ended March 31, 1999 were up
significantly due to the following: (i) the Company's aggressive merger
and acquisition program; (ii) start-up of the Company's Internet online
brokerage service, which required additional staff, website development
and other website cost; (iii) additional staffing at the Company's
financial services administration and investment advisory operations,
which has experienced significant growth in new clients and assets under
service and assets under management, coupled with an increased marketing
effort; (iv) the re-engineering of trust services with the hiring of
additional technical personnel and additional spending to improve
recordkeeping and computer systems to provide clients with the highest
quality service; (v) the ability for clients to view their accounts via
the Internet and the development of websites for the Company and each of
its subsidiaries; (vi) the Company's management expansion program which
started in late 1998 and which has resulted in the hiring of numerous
individuals who should contribute significantly to the Company's future
results; and (vii) capital expenditures in connection with the
organization by the Company of a federal savings bank and other
subsidiaries.
For the quarter ended March 31, 1999, the Company's portion of
profit from affiliates was $6,800 as compared to a $53,100 loss from
affiliates for the quarter ended March 31, 1998. The Company's portion
of the loss of Advisers (prior to the Company's acquisition of 100% of
the capital stock of Advisers on March 31, 1998) was $39,900. Equity's
portion of profit of an affiliate for the quarter ended March 31, 1999
was $6,800 as compared to a loss of $14,200 from an affiliate for the
quarter ended March 31, 1998. Unrealized loss on securities of
approximately $30,000 during the quarter ended March 31, 1999 compared
to a $36,000 gain during the quarter ended March 31, 1998.
Net income was $183,400 for the quarter ended March 31, 1999
compared with net income of $383,800 for the quarter ended March 31,
1998. For the quarter ended March 31, 1999, increased revenue (28.0%)
was offset by the increased expenses (65.1%) as compared to the quarter
ended March 31, 1998. The increase in financial services administration
fees and the growth in assets under management and assets under service
resulted in the increased gross revenue. The results for the three
months ended March 31, 1999 reflect revenue and expenses from
acquisitions completed after the first quarter of 1998 (Advisers and
Fiduciary Counsel were reported pursuant to the purchase method of
accounting and, as a result, are included in the Company's consolidated
financial statements from the date of each respective acquisition). The
Company's management expansion program to hire additional personnel to
support the Company's planned expansion, coupled with increased costs
related to additional asset volume and additional staffing for new
businesses acquired or started near the end of the
-24-
<PAGE>
<PAGE>
quarter ended March 31, 1999, resulted in the decline in net income when
comparing the first quarter of 1999 to the first quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity historically have been
and continue to be cash flow from operating activities, available
borrowing capacity from capitalized leases and a loan from a regional
bank to finance capital equipment. The net decrease in cash and cash
equivalents at March 31, 1999 from December 31, 1998 was $2,305,900.
The decrease reflects the repayment of borrowings, the purchase of fixed
assets and an increase in accounts receivables. The Company received
$179,800 from the issuance of 4,495 shares of Common Stock in the
Private Placement during the three months ended March 31, 1999.
YEAR 2000 COMPLIANCE
The year 2000 issue is the result of computer programs being
written using two digits rather than four digits to define the
applicable year. These programs treat years as occurring between 1900
and the end of 1999 and do not self-convert to reflect the upcoming
change in the century. If not corrected, computer applications could
create erroneous results by or at the Year 2000.
The Company has undertaken a program to understand the nature and
extent of the work required to make its computer systems Year 2000
compliant. This program encompasses evaluation and correction of
operating systems, information systems and facilities systems. The
program also involves an evaluation of the Company's products and the
Year 2000 compliance of the Company's vendors. The program consists of
the following phases: awareness and inventory; triage; detailed
assessment and resolution; testing; deployment; and contingency plan
development.
AWARENESS PHASE. In this phase, the Company informs employees and
management of the Year 2000 problem and how it affects the Company. The
Company explains its Year 2000 project to employees and management and
provides routine updates on the project's status.
INVENTORY PHASE. This phase focuses on the identification of all
products that are not Year 2000 Compliant.
TRIAGE PHASE. In this phase, the Company, based on an evaluation
of technical and business risks, determines which non-compliant computer
systems should be retired and which should be maintained. Those systems
critical to the business of the Company are placed in the detailed
assessment phase.
DETAILED ASSESSMENT PHASE. In this phase, efforts are focused
on the identification of Year 2000 problems within each specific system
and identification of appropriate solutions to such problems.
RESOLUTION PHASE. Efforts in this phase are focused on repair,
replacement or retirement of systems that have been identified as non-
compliant.
TESTING PHASE. In this phase, the Company tests its systems to
determine the effectiveness of the solutions developed in the resolution
phase.
-25-
<PAGE>
<PAGE>
DEPLOYMENT PHASE. The Company makes the Year 2000 systems
operational in this phase.
The Company's objective was to be Year 2000 compliant with its
critical systems by the end of the fourth quarter of 1998, allowing
substantial time for further testing, verification and conversion of
less important activities and systems. The Company has achieved this
goal in over 95% of the mission critical systems. The remaining 5% of
the critical systems is scheduled to be compliant by June 30, 1999. The
Company is utilizing both internal and external resources to identify,
correct or reprogram, and test its internal systems for Year 2000
compliance. The Company has gathered information from its suppliers and
vendors to determine the status of their Year 2000 compliance and the
extent to which the Company's operations may be affected by such third-
parties' non-compliance. The Company is monitoring the progress of each
vendor and is developing contingency plans in the event vendors
experience Year 2000 problems and cannot deliver products and services
necessary to the Company's operations. Further analysis or testing of
the vendors' systems will continue throughout 1999. However, there can
be no assurance that the systems and products of third-parties on which
the Company relies will be compliant.
The following chart identifies the status of each phase in the
critical systems compliance project:
PHASE PROJECTED PERIOD OF PHASE PRESENT STATUS
----- ------------------------- --------------
Awareness Plan Ongoing through 01/2000 100%
Inventory Plan 100% completed by 9/1998 100%
Triage Plan 100% completed by 9/1998 100%
Assessment Plan 100% completed by 10/1998 100%
Resolution Plan 100% completed by 12/1998 100%
Testing Plan 100% completed by 12/1999 90%
Deployment Plan 100% completed by 12/1999 90%
The total cost of the Year 2000 project to date has not been
material. Based on the results of the program to date, the Company does
not expect that future costs of modifications will have a material
adverse effect on the Company's financial position or results of
operations. An estimated $40,000 will be spent in 1999 on hardware and
software to complete the Year 2000 project. Because the Company expects
that its internal systems will become Year 2000 compliant in a timely
manner, the Company believes that the most likely worst case scenario
would result from the failure of vendors or other third parties to
achieve Year 2000 compliance. Depending upon the number of non-
compliant third parties, the nature and extent of their relationship
with the Company and the nature of the non-compliance, the Year 2000
issue could have a material adverse effect on the Company's financial
position or results of operations. However, the Company is developing
contingency plans, which are expected to be completed during the second
half of 1999, should any critical problems occur in any of the
assessment areas noted above. Accordingly, the Company does not expect
Year 2000 problems to result in any material adverse effects on the
Company's financial position or results of operations.
-26-
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
ITEM 3. CHANGES IN SECURITIES AND USE OF PROCEEDS
For the three months ended March 31, 1999, the only sales of the
Company's securities were: (i) 3,636 shares of Common Stock issued in
connection with the acquisition of M. Wilson & Associates, Inc. (such
shares were issued in exchange for all the outstanding capital stock of
M. Wilson & Associates, Inc.); and (ii) 4,495 shares of Common Stock
issued by the Company in connection with the Private Placement, at a
price of $40.00 per share. All shares of stock issued by the Company
during such period were issued pursuant to the exemption provided by
Rule 506, as promulgated by the Commission.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: See Exhibit Index on page 29 hereof.
--------
(b) Reports on Form 8-K: On January 8, 1999, the Company filed a
-------------------
Current Report on Form 8-K to report the acquisition by the
Company of AmeriPrime Financial Services, Inc. ("AmeriPrime"). In
connection with the acquisition of AmeriPrime on December 31,
1998, the Company issued 410,000 shares of Common Stock in
exchange for all the outstanding capital stock of AmeriPrime.
Reported Items 2, 5 and 7.
(c) On February 19, 1999, the Company filed a Current Report on Form
8-K/A to file the following financial statements: (A) for each of
Equity Underwriting Group, Inc. and AmeriPrime: Audited
Consolidated Statements of Financial Condition as of December 31,
1997 and 1996, Audited Consolidated Statements of Operations,
Audited Consolidated Statements of Cash Flows and Audited
Consolidated Statements of Changes in Stockholders' Equity, each
for the years ended December 31, 1997 and 1996, Unaudited
Consolidated Balance Sheet as of September 30, 1998, Unaudited
Consolidated Statements of Operations and Unaudited Consolidated
Statements of Cash Flows, each for the nine months ended September
30, 1998 and 1997; and (B) pro forma financial information for the
Company, including: Pro Forma Consolidating Balance Sheet as of
September 30, 1998, Pro Forma Consolidating Statements of Income
for the nine months ended September 30, 1998 and 1997 and for the
years ended December 31, 1997 and 1996. Reported Items 2, 5 and 7.
-27-
<PAGE>
<PAGE>
SIGNATURE
In accordance with the requirements of the Securities Exchange Act
of 1934, the registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
UNIFIED FINANCIAL SERVICES, INC.
(Registrant)
Dated: May 12, 1999 By: /s/ Timothy L. Ashburn
---------------------------------------
Timothy L. Ashburn
Chairman, President and Chief Executive
Officer
-28-
<PAGE>
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
11.1 Computations of Earnings Per Share.
27.1 Financial Data Schedule (March 31, 1999).
27.2 Restated Financial Data Schedule (March 31, 1998).
-29-
<PAGE>
EXHIBIT 11.1
<TABLE>
UNIFIED FINANCIAL SERVICES, INC.
EARNINGS PER SHARE CALCULATION (UNAUDITED)
<CAPTION>
Three Months Ended
March 31,
-------------------------
1999 1998
---------- ----------
<S> <C> <C>
INCOME AVAILABLE TO COMMON STOCKHOLDERS
Net income $ 183,426 $ 383,757
Preferred dividends - 34,418
---------- ----------
Income available to common stockholders $ 183,426 $ 349,339
========== ==========
CALCULATION OF COMMON STOCK
Common shares outstanding at beginning
of period 2,267,449 1,722,821
Shares issues in connection with acquisition of M. Wilson
& Associates, Inc. 3,636 -
Shares issued in private placement during period 4,495 -
---------- ----------
Common shares used in basic calculation 2,275,580 1,722,821
---------- ----------
Common stock equivalent of options 36,851 6,800
Preferred stock Series C conversion into
common stock 225,720 -
---------- ----------
Common shares used in fully diluted calculation 2,540,151 1,729,621
---------- ----------
EARNINGS PER SHARE
Basic $ 0.08 $ 0.20
========== ==========
Fully diluted $ 0.07 $ 0.20
========== ==========
</TABLE>
-30-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated statements of financial condition and the consolidated statements
of operation of Unified Financial Services, Inc. filed as a part of the
Company's Quarterly Report on Form 10-QSB for the quarter ended March 31,
1999 and is qualified in its entirety by reference to such report.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 8,036,645
<SECURITIES> 675,811
<RECEIVABLES> 10,174,758
<ALLOWANCES> 38,326
<INVENTORY> 0
<CURRENT-ASSETS> 19,064,190
<PP&E> 5,224,476
<DEPRECIATION> 3,059,960
<TOTAL-ASSETS> 26,195,430
<CURRENT-LIABILITIES> 13,857,320
<BONDS> 0
<COMMON> 27,255
0
1,672
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 26,195,430
<SALES> 0
<TOTAL-REVENUES> 6,512,054
<CGS> 1,640,216
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,635,873
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 123,879
<INCOME-PRETAX> 187,988
<INCOME-TAX> 4,562
<INCOME-CONTINUING> 183,426
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 183,426
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.07
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated statements of financial condition and the consolidated statements
of operation of Unified Financial Services, Inc. filed as a part of the
Company's Quarterly Report on Form 10-QSB for the quarter ended March 31,
1999 and is qualified in its entirety by reference to such report.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,498,748
<SECURITIES> 848,347
<RECEIVABLES> 9,015,753
<ALLOWANCES> 2,041
<INVENTORY> 0
<CURRENT-ASSETS> 13,501,586
<PP&E> 4,081,372
<DEPRECIATION> 2,550,000
<TOTAL-ASSETS> 15,429,407
<CURRENT-LIABILITIES> 11,500,816
<BONDS> 0
<COMMON> 21,728
0
17,069
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 15,429,407
<SALES> 0
<TOTAL-REVENUES> 5,088,714
<CGS> 1,852,974
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,731,185
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 91,756
<INCOME-PRETAX> 406,706
<INCOME-TAX> 22,949
<INCOME-CONTINUING> 383,757
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 383,757
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
</TABLE>
