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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 June 30, 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 August 9, 1999, the registrant had outstanding 2,633,112 shares of
Common Stock, $.01 par value.
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TABLE OF CONTENTS
<CAPTION>
Page
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<S> <C>
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 22
Comparison of Results for the Six Months Ended June 30, 1999 and 1998 24
Comparison of Results for the Three Months Ended June 30, 1999 and 1998 26
Liquidity and Capital Resources 28
Year 2000 Compliance 28
PART II. OTHER INFORMATION 31
Item 3. Changes in Securities and Use of Proceeds 31
Item 4. Submission of Matters to a Vote of Securityholders 31
Item 5. Exhibits and Reports on Form 8-K 32
SIGNATURE PAGE 33
EXHIBIT INDEX 34
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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS:
<TABLE>
UNIFIED FINANCIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30, December 31,
1999 1998
----------- ------------
(unaudited)
<S> <C> <C>
ASSETS
------
Current Assets
Cash and cash equivalents $12,663,560 $10,342,501
Investments in affiliated mutual funds 412,982 231,728
Investments in securities and non-affiliated
mutual funds 248,080 494,403
Accounts receivable (net of allowance for doubtful
accounts of $41,576 for 1999 and $38,326 for 1998) 10,384,199 8,873,903
Prepaid and sundry assets 214,293 230,006
----------- -----------
Total current assets 23,923,114 20,172,541
----------- -----------
Fixed assets, at cost
Equipment and furniture (net of accumulated
depreciation of $3,267,884 for 1999 and
$2,913,498 for 1998) 2,831,629 1,542,251
----------- -----------
Total fixed assets 2,831,629 1,542,251
----------- -----------
Non-Current Assets
Investment in debt securities 1,037,446 994,211
Equity investment in affiliates 619,850 565,566
Organization cost (net of accumulated amortization of
$294,229 for 1999 and $254,230 for 1998) 1,263,033 898,027
Goodwill (net of accumulated amortization
of $142,832 for 1999 and $34,773 for 1998) 1,583,625 1,902,691
Other non-current assets 358,886 620,649
----------- -----------
Total non-current assets 4,862,840 4,981,144
----------- -----------
TOTAL ASSETS $31,617,583 $26,695,936
=========== ===========
See accompanying notes.
</TABLE>
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<TABLE>
UNIFIED FINANCIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEET
<CAPTION>
June 30, December 31,
1999 1998
----------- ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Current portion of capital lease obligations $ 48,291 $ 52,735
Current portion of borrowings 2,894,412 3,886,612
Accounts payable and accrued expenses 2,711,049 1,860,544
Accrued compensation and benefits 578,778 338,779
Payable to insurance companies 6,577,118 6,456,511
Payable to broker-dealer 286,213 596,509
Income taxes payable, current -- 1,857
Income taxes payables, deferred -- 90,318
Other liabilities 960,509 1,218,855
----------- -----------
Total current liabilities 14,056,370 14,502,720
----------- -----------
Long-term Liabilities
Long-term portion of capital leases obligations 15,941 37,122
Long-term portion of borrowings 2,277,405 2,024,579
Other long-term liabilities 314,182 385,886
Deferred income taxes 2,740 33,361
----------- -----------
Total long-term liabilities 2,610,268 2,480,948
----------- -----------
Total liabilities 16,666,638 16,983,668
----------- -----------
Commitments and Contingencies -- --
----------- -----------
Stockholders' Equity
Common Stock, par value $.01 per share 30,693 27,174
Preferred Stock Series C 1,459 1,672
Preferred Stock Series D -- --
Additional paid-in capital 14,195,111 8,234,123
Retained earnings 1,358,983 1,449,299
Accumulated other comprehensive income -- --
Less treasury stock (635,301) --
----------- -----------
Total stockholders' equity 14,950,945 9,712,268
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $31,617,583 $26,695,936
=========== ===========
See accompanying notes.
</TABLE>
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UNIFIED FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
------------------------ ----------------------
1999 1998 1999 1998
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUE:
Gross revenue (see note 12) $12,665,565 $10,003,293 $6,153,511 $4,914,579
----------- ----------- ---------- ----------
Total gross revenue 12,665,565 10,003,293 6,153,511 4,914,579
----------- ----------- ---------- ----------
COST OF SALES:
Cost of sales 3,619,226 3,116,907 1,979,010 1,263,933
----------- ----------- ---------- ----------
Total cost of sales 3,619,226 3,116,907 1,979,010 1,263,933
----------- ----------- ---------- ----------
Gross profit (see note 12) 9,046,339 6,886,386 4,174,501 3,650,646
----------- ----------- ---------- ----------
EXPENSES:
Employee compensation and benefits 4,598,745 3,060,887 2,215,703 1,562,083
Brokerage operating expenses 388,136 187,146 258,799 106,262
Fund services operating expenses 68,813 311,716 27,486 292,528
Mail and courier 124,913 50,383 63,656 14,771
Telephone 190,630 109,654 120,009 61,646
Equipment rental and maintenance 268,671 105,886 166,861 53,997
Occupancy 445,163 320,254 238,789 248,085
Depreciation and amortization 430,951 329,304 212,133 182,701
Professional fees 780,093 67,479 240,408 (61,275)
Business development cost 296,872 269,520 74,056 66,696
Other operating expenses 1,477,142 1,295,040 792,477 756,834
----------- ----------- ---------- ----------
Total expenses 9,070,129 6,107,269 4,410,377 3,284,328
----------- ----------- ---------- ----------
Income from operations (23,790) 779,117 (235,876) 366,318
----------- ----------- ---------- ----------
OTHER INCOME (LOSS)
Unrealized gain (loss) on securities 9,701 30,119 39,827 (6,278)
Realized gain on securities 2,921 6,250 3,734 914
Equity in results of operations of affiliates 54,284 7,759 47,443 60,863
Gain on sale/disposal of fixed assets -- 5,140 -- 5,140
All other -- (38,033) -- (43,311)
----------- ----------- ---------- ----------
Total other income 66,906 11,235 91,004 17,328
----------- ----------- ---------- ----------
Income (loss) before income taxes 43,116 790,352 (144,812) 383,646
Income taxes 44,000 12,524 39,438 (10,425)
----------- ----------- ---------- ----------
Net income (loss) $ (884) $ 777,828 $ (184,310) $ 394,071
=========== =========== ========== ==========
Per share earnings
Basic common shares outstanding 2,585,042 1,900,285 2,585,042 1,900,285
Net income - basic $ 0.00 $ 0.37 $ (0.07) $ 0.19
Fully diluted common shares outstanding 2,843,958 2,190,585 2,848,288 2,190,585
Net income - fully diluted $ 0.00 $ 0.33 $ (0.08) $ 0.17
See accompanying notes.
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UNIFIED FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
-------------------- ---------------------
1999 1998 1999 1998
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Net income (loss) $ (884) $777,828 $(184,310) $394,071
Other comprehensive income,
net of tax
Unrealized gain (loss) on
securities, net of
reclassification adjustment -- -- -- 7,331
-------- -------- --------- --------
Comprehensive income $ (884) $777,828 $(184,310) $401,402
======== ======== ========= ========
See accompanying notes.
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UNIFIED FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income (loss) $ (884) $ 777,828 $ (184,310) $ 394,071
Adjustments to reconcile net income to cash
provided by (used) in operating activities
Deferred income taxes (120,939) 53,451 (20,970) 19,015
Provision for depreciation and amortization 430,951 349,180 212,133 201,790
Unrealized gain (loss) on investments (9,701) (12,471) (9,701) 31,257
(Gain) loss on disposal of fixed assets -- (30,119) -- (24,836)
Results of affiliate/minority interest (54,284) (7,758) (47,443) (60,862)
Adjustments to goodwill reporting purchase
of Fiduciary Counsel 211,007 -- 211,007 --
Excess of net assets of Advisers -- (814,347) -- (814,347)
Deferred start-up costs (405,005) -- (305,005) --
(Increase) decrease in operating assets
Receivables (2,595,296) (2,429,503) (1,332,767) 367,717
Prepaid and sundry assets 15,713 (12,380) (47,896) 46,253
Other non-current assets 261,763 (13,500) 261,763 (13,500)
Increase (decrease) in operating liabilities
Accounts payable and accrued expenses 660,816 2,497,472 668,524 (669,712)
Accrued compensation and benefits 239,999 117,819 (75,677) 23,246
Other liabilities (330,050) 250,996 (168,555) 297,347
Accrued income taxes (1,857) -- (407) 8,807
----------- ----------- ----------- -----------
Net cash provided (used) in operating activities (612,767) 726,667 245,696 (193,755)
----------- ----------- ----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of equipment (1,450,941) (292,688) (682,214) (96,362)
Proceeds from sale of fixed assets -- 13,244 -- 3,276
Investments in securities and mutual funds 74,770 154,583 24,450 38,077
Investment in debt securities (43,235) -- (43,235) --
----------- ----------- ----------- -----------
Net cash used in investing activities (1,419,406) (124,860) (700,999) (55,008)
----------- ----------- ----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 5,800,667 8,629,109 5,620,867 8,449,109
Proceeds from issuance of Series C
preferred stock 93,000 210,000 93,000 210,000
Proceeds from borrowings 700,000 2,791,544 326,300 (29,863)
Redemption of Series A and Series B
preferred stock -- (1,706,900) -- (1,706,900)
Dividends before acquisition of
Fully Armed Productions and Commonwealth
Investment (18,624) -- (18,624) --
Dividends on AmeriPrime common stock -- (125,000) -- --
Dividends -- (65,844) -- (65,844)
Treasury stock (635,301) -- (635,301) --
</TABLE>
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UNIFIED FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(CONTINUED)
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
------------------------- ------------------------
1999 1998 1999 1998
------------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
Purchase of common stock at Equity Insurance -- (2,926,024) -- (4,000)
Acquisition of Advisers -- -- -- 814,347
Repayment of borrowings (1,485,046) (1,922) (216,239) 5,758
Repayment of capital lease obligations (27,964) (21,858) (14,285) (8,074)
Purchase of Archer (73,500) -- (73,500) --
------------ ----------- ----------- ----------
Net cash provided in financing activities 4,353,232 6,783,105 5,082,218 7,698,951
------------ ----------- ----------- ----------
Net increase in cash and cash equivalents 2,321,059 7,384,912 4,626,915 7,450,188
Cash and cash equivalents, beginning of year 10,342,501 2,564,024 8,036,645 2,498,748
------------ ----------- ----------- ----------
Cash and cash equivalents, end of period $ 12,663,560 $ 9,948,936 $12,663,560 $9,948,936
============ =========== =========== ==========
See accompanying notes.
</TABLE>
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UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 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. ("Advisers"),
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"), Archer Trading, Inc. ("Archer"),
Commonwealth Investment Services, Inc. ("Commonwealth
Investment") and Fully Armed Productions, Inc. ("Fully Armed
Productions").
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; (xvii) claim processing and management;
and (xviii) advertising and marketing.
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)
JUNE 30, 1999 AND 1998
----------------------
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
have been included. Operating results for the three and six
months ended June 30, 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.
Effective June 1, 1999, the Company acquired each of
Commonwealth Investment and Fully Armed Productions in transactions
accounted for under the pooling-of-interests method of accounting.
In connection with such acquisitions, the Company issued 27,500
and 18,182 shares of Common Stock in exchange for all of the
capital stock of Commonwealth Investment and Fully Armed Productions,
respectively.
Due to the immateriality of the results of operations of M.
Wilson, Commonwealth Investment and Fully Armed Productions,
individually and in the aggregate, to that of the Company,
the consolidated financial statements of the Company
contained herein and as of and for the three years ended
December 31, 1998 have not been restated to give effect to
the acquisitions of M. Wilson, Commonwealth Investment and
Fully Armed Productions. The results of operations of M.
Wilson, Commonwealth Investment and
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UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1999 AND 1998
----------------------
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fully Armed Productions have been included in the Company's
financial statements since January 1, 1999.
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.
In connection with the Company's private placements of equity
securities, Management records revenue on the accrual basis
of accounting (equal to ten percent of the proceeds of the
private placement) and incurs an expense related to the cost
of solicitation of the private placement. 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 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
Income 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, M. Wilson,
Commonwealth Investment and Fully Armed Productions will be
included in the consolidated tax returns of the Company,
which uses the accrual method of tax and accounting
reporting.
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UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1999 AND 1998
----------------------
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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
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.
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UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1999 AND 1998
----------------------
Note 3 - PROPOSED AND COMPLETED ACQUISITIONS
On January 1, 1999, Unified acquired M. Wilson, a Kentucky
corporation and 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 is accounted for under the purchase
method of accounting.
On June 1, 1999, Unified acquired Commonwealth Investment, a
Kentucky corporation that 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"). This acquisition is accounted for
pursuant to the pooling-of-interests method of accounting.
In connection with the acquisition, Unified issued 27,500
shares of Common Stock in exchange for all of the capital
stock of Commonwealth Investment. As of June 1, 1999,
Commonwealth Investment reported total assets of $56,240 and
shareholder's equity of $28,980.
On June 1, 1999, Unified acquired Fully Armed Productions, a
Kentucky corporation that provides creative and
technological services for the television, radio and
internet industries through its specialty production
capabilities and 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 accounted
for pursuant to the pooling-of-interests method of
accounting. In connection with the acquisition, Unified
issued 18,182 shares of Common Stock in exchange for all of
the capital stock of Fully Armed Productions. As of June 1,
1999, Fully Armed Productions reported total assets of
$77,200 and shareholder's equity of $28,813.
The Company has filed applications with the Office of Thrift
Supervision and the Federal Deposit Insurance Corporation with
respect to the organization by the Company of a federal savings
bank (the "Savings Bank") to be headquartered in Lexington,
Kentucky. The Company expects to commence operations of the
Savings Bank during the fourth quarter of 1999, subject to
the receipt of the required regulatory approvals and the
issuance of a charter.
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UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1999 AND 1998
----------------------
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.
Under the terms of the Plan, employees, directors, advisors
and consultants of the Company and its subsidiaries are
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 June 30, 1999, options to acquire 61,951 shares of
Common Stock were outstanding to certain employees,
directors and advisers of the Company. Such options were
fully vested on the date of grant and have exercise
prices as follows:
(a) 6,400 shares at $25 per share
(b) 19,776 shares at $27.50 per share
(c) 35,775 shares at $40 per share
Of such options, 60,651 are intended to qualify as incentive
stock options pursuant to Section 422 of the Internal
Revenue Code of 1986, as amended.
- 14 -
<PAGE>
<PAGE>
UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 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 June 30, 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 $ 228,057 $ 258,777 Prime plus .5% December 31, 2001 Monthly installments for
communication and computer
hardware and software
2) Equity Insurance Bank 800,000 -- 800,000 Prime September 20, 1999 Term loan maximum loan
amount $800,000
3) Equity Insurance Bank 312,500 833,333 1,145,833 Prime September 20, 1999 Note due in installments,
maximum loan amount
$1,250,000
4) Equity Insurance Bank -- 400,000 400,000 Prime September 20, 1999 Revolving credit line,
maximum loan amount
$400,000
5) CPFC Bank 1,620,000 -- 1,620,000 Prime September 20, 1999 Revolving credit line
maximum loan amount
$2,000,000
6) Irland and
Rogers Previous owner 104,998 429,676 534,674 9.50% January 1, 2003 Due in annual installments
7) Unified Aviation Bank 13,107 358,288 371,395 8.25% March 31, 2014 Due in monthly
installments for
aircraft
8) Fully Armed
Productions Bank 6,544 13,354 19,898 10.397% April 11, 2002 Installment loan for
equipment
9) Fully Armed
Productions Bank 6,543 14,697 21,240 10.576% September 24, 2002 Installment loan for
equipment
---------- ---------- ----------
Total $2,894,412 $2,277,405 $5,171,817
========== ========== ==========
</TABLE>
- 15 -
<PAGE>
<PAGE>
UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1999 AND 1998
----------------------
Note 5 - FINANCING AND CAPITAL LEASES OBLIGATIONS (continued)
The Company's capitalized lease obligations are payable over
a 60-month period. The following is a summary of future
minimum lease payments under capitalized lease obligations
as of June 30, 1999.
For the twelve months ended June 30, Amount
------------------------------------ -------
2000 $52,892
2001 14,605
2002 1,814
2003 723
2004 121
-------
Subtotal 70,155
Less: amount representing interest 5,923
-------
Net present value $64,232
=======
The Company did not acquire equipment through capital lease
obligations during the three month periods ended June 30,
1999 and 1998, other than in connection with the acquisition
of Commonwealth Investment.
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 June 30,
1999 for all operations were as follows:
For the twelve months ended June 30, Lease commitments
------------------------------------ -----------------
2000 $1,014,392
2001 993,841
2002 854,263
2003 309,399
Thereafter 951,732
----------
Total $4,123,627
==========
Total rental expense was $268,671 and $105,886 for the six
months ended June 30, 1999 and 1998, respectively.
- 16 -
<PAGE>
<PAGE>
UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 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 that covers substantially all employees.
The Board of Directors determines contributions to the plan.
For the six months ended June 30, 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, AFSI AND COMMONWEALTH INVESTMENT
Management, AmeriPrime Financial Securities, Inc., a subsidiary
of AmeriPrime ("AFSI"), and Commonwealth Investment 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 the greater of 6-2/3% of
aggregate indebtedness and $5,000, or $50,000 for Management, $6,690
for AFSI and $5,000 for Commonwealth Investment, and a ratio
of aggregate indebtedness to net capital of not more than 15
to 1. At June 30, 1999, Management had net capital of
$320,548, which was $270,548 in excess of its required net
capital of $50,000 and a ratio of aggregate indebtedness to
net capital of 0.78 to 1. At June 30, 1999, AFSI had net
capital of $184,651, which was $177,961 in excess of its
required net capital of $6,690, and a ratio of aggregate
indebtedness to net capital of 0.54 to 1. At June 30, 1999,
Commonwealth Investment had net capital of $17,302, which
was $12,302 in excess of its required net capital of $5,000,
and a ratio of aggregate indebtedness to net capital of 2.27
to 1.
Pursuant to Rule 15c3-3 as promulgated by the SEC,
Management, AFSI and Commonwealth Investment 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,
AFSI and Commonwealth Investment were $0 at June 30, 1999.
Balances segregated in excess of reserve requirements are
not restricted.
- 17 -
<PAGE>
<PAGE>
UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1999 AND 1998
----------------------
Note 9 - COMMON AND PREFERRED STOCK
Common Stock:
Authorized
----------
On May 27, 1999, the stockholders of the Company adopted
an amendment to the Amended and Restated Certificate of
Incorporation of the Company to increase to 20,000,000 the
number of authorized shares of Common Stock.
Acquisitions
------------
The Company has 20,000,000 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:
<TABLE>
<CAPTION>
Company acquired Date Shares issued
---------------- ----------------- -------------
<S> <C> <C>
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
Commonwealth Investment June 1, 1999 27,500
Fully Armed Productions June 1, 1999 18,182
</TABLE>
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 30, 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 June 30, 1999, the Company had accepted subscriptions
for 161,080 shares of Common Stock pursuant to the Private
Placement.
- 18 -
<PAGE>
<PAGE>
UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1999 AND 1998
----------------------
Note 9 - COMMON AND PREFERRED STOCK (continued)
Preferred Stock
---------------
As of June 30, 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 June 30,
1999 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 1,459 1,459 $100 $0.01
Preferred Stock Series D:
100,000 -0- -0- 200 0.01
</TABLE>
Series C Preferred Stock Issuance
---------------------------------
In May 1998 and 1999, the Company issued 2,100 and 930
shares, respectively, of Series C 6.75% Cumulative
Convertible Preferred Stock to certain directors, executive
officers and agents of the Company at a price of $100.00 per
share. 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
June 30, 1999, 1,571 Series C Preferred Stock had been
converted into 212,085 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.
- 19 -
<PAGE>
<PAGE>
UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 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 June 30, 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>
JUNE 30,
---------------------------------------------------------------
1999 1998
--------------------------- ---------------------------
CARRYING FAIR CARRYING FAIR
(IN THOUSANDS) AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
<S> <C> <C> <C> <C>
Financial assets
Cash and cash equivalents $12,663.6 $12,663.6 $ 9,948.9 $ 9,948.9
Investment in:
Mutual funds and
securities 248.1 248.1 358.8 358.8
Mutual funds -
affiliates 413.0 413.0 474.1 474.1
Receivables 10,384.2 10,384.2 8,623.9 8,623.9
Prepaid and sundry 214.3 214.3 233.3 233.3
Financial obligations
Current liabilities 14,056.4 14,056.4 12,167.4 12,167.4
Capital lease obligation 15.9 15.9 10.9 10.9
Long-term debt 2,277.4 2,277.4 3,789.7 3,789.7
</TABLE>
Note 12 - DISCLOSURES ABOUT REPORTING SEGMENTS
The Company has five reportable segments: brokerage;
financial services administration; investment advisory;
insurance brokerage; and 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. 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.
- 20 -
<PAGE>
<PAGE>
UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 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 revenues, profit
and assets were as follows for the six months ended June 30, 1999
and 1998:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998
---- ----
<S> <C> <C>
Revenues
Brokerage $ 2,210.6 $ 1,352.1
Financial services administration 2,808.5 2,129.5
Investment advisory 2,456.6 1,384.8
Insurance brokerage 4,666.4 4,743.6
Other 523.5 393.3
--------- ---------
Total $12,665.6 $10,003.3
========= =========
Gross Profit
Brokerage $ 1,416.2 $ 1,026.2
Financial services administration 2,326.1 1,759.2
Investment advisory 2,327.2 1,349.4
Insurance brokerage 2,453.4 2,358.3
Other 523.4 393.3
--------- ---------
Total $ 9,046.3 $ 6,886.4
========= =========
Total Assets
Brokerage $ 1,378.4 $ 1,457.7
Financial services administration 5,492.9 4,395.3
Investment advisory 4,354.3 1,544.6
Insurance brokerage 7,839.6 8,170.3
Other 12,552.4 7,842.4
--------- ---------
Total $31,617.6 $23,410.3
========= =========
</TABLE>
- 21 -
<PAGE>
<PAGE>
UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1999 AND 1998
----------------------
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 June 30, 1999.
<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 and 100%
transfer agent
- ---------------------------------------------------------------------------------------------------------------------------------
Health Financial, Inc. Lexington, Kentucky A registered investment adviser 100%
- ---------------------------------------------------------------------------------------------------------------------------------
First Lexington Trust Company Lexington, Kentucky A non-bank affiliated trust company that 100%
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, New York An investment management firm 100%
- ---------------------------------------------------------------------------------------------------------------------------------
EMCO Estate Management Company, Inc. New York, New York A wealth management firm 100%
- ---------------------------------------------------------------------------------------------------------------------------------
AmeriPrime Financial Services, Inc. Southlake, Texas A provider of administrative, regulatory, 100%
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 states 100%<F1>
- ---------------------------------------------------------------------------------------------------------------------------------
Equity Underwriting Group, Inc. Lexington, Kentucky A holding company that provides, through 100%
its subsidiaries, specialty insurance
products as a general agent or broker
- ---------------------------------------------------------------------------------------------------------------------------------
Equity Insurance Managers, Inc. Lexington, Kentucky A provider of specialty property and 100%<F2>
casualty insurance products as a managing
general agent and broker
- ---------------------------------------------------------------------------------------------------------------------------------
21st Century Claims Service, Inc. Lexington, Kentucky A provider of adjusting services and 100%<F2>
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
- ---------------------------------------------------------------------------------------------------------------------------------
Equity Insurance Managers of Illinois, Illinois A wholesale brokerage firm 55%<F4>
L.L.C. (d/b/a/ Irland & Rogers)
- ---------------------------------------------------------------------------------------------------------------------------------
- 22 -
<PAGE>
<PAGE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
PERCENT
PRINCIPAL PLACE OWNED BY
SUBSIDIARY NAME OF BUSINESS DESCRIPTION OF SUBSIDIARY COMPANY
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commonwealth Premium Finance Lexington, Kentucky A provider of financing for the payment 100%<F2>
Corporation of premiums on insurance coverage placed
by Equity Underwriting Group, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Strategic Fund Services, Inc. New York, New York A provider of mutual fund administration 100%
services
- ---------------------------------------------------------------------------------------------------------------------------------
Unified Aviation, Inc. Lexington, Kentucky An aviation operating company 100%
- ---------------------------------------------------------------------------------------------------------------------------------
VSX Technologies, Inc. New York, New York A developer of software systems for the 100%
brokerage industry
- ---------------------------------------------------------------------------------------------------------------------------------
Unified Capital Resources, Inc. New York, New York An investment and merchant banking company 100%
- ---------------------------------------------------------------------------------------------------------------------------------
M. Wilson & Associates, Inc. Lexington, Kentucky A claim processing and management company 100%<F2>
- ---------------------------------------------------------------------------------------------------------------------------------
Commonwealth Investment Services, Inc. Lexington, Kentucky An NASD broker-dealer that provides 100%
investment services to individuals,
businesses and institutions
- ---------------------------------------------------------------------------------------------------------------------------------
Fully Armed Productions, Inc. Lexington, Kentucky A provider of creative and technology 100%
services for the television, radio and
internet industries
- ---------------------------------------------------------------------------------------------------------------------------------
<FN>
- ----------------
<F1> A wholly owned subsidiary of AmeriPrime Financial Services, Inc.
<F2> A wholly owned subsidiary of Equity Underwriting Group, Inc.
<F3> 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.
</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 in excess of $1.5 billion
of assets under management and $5.0 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 and 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.
- 23 -
<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 SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Revenues for the six months ended June 30, 1999 as compared
to the corresponding period of 1998 increased $2,662,272, or 26.6%, from
$10,003,293 to $12,665,565. For such period, brokerage revenue increased
$858,500, or 63.5%, financial services administration revenue increased
$679,000, or 31.9%, investment advisory revenue increased $1,071,900, or
77.4%, insurance brokerage revenue declined $77,200, or 1.6%, and other
revenue increased $130,200, or 33.1%. The increase in brokerage revenue
reflected the higher distribution service fees based upon contractual
agreements with a fund and on variable distribution fees based upon fund
assets or commission on fund sales, coupled with $593,000 of commissions
received by Management in connection with the Private Placement, as compared
to $518,000 in commissions for the corresponding period of 1998. The addition
of Commonwealth Investment's revenue, approximately $193,000 for the six months
ended June 30, 1999, also contributed to the increase in revenue. 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 increase in the number
of clients whose assets were serviced under trusts. Claim service revenue, a
component of insurance brokerage revenue, increased principally due to the
acquisition of M. Wilson on January 1, 1999 and new service contracts entered
into during the first half of 1999. Premium financing activities relating to
insurance policies issued increased significantly compared the first half 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 during the first
six months of 1999 compared to the corresponding period of 1998 due to lesser
premium income being written during the first half of 1999. Overall, premiums
written during the six months ended June 30, 1999 were slightly lower than the
six months ended June 30, 1998. This decrease was attributable to a decline
of approximately $1,500,000 in private passenger automobile business, but was
offset by an overall increase in all other lines. 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 by year-end 1999. Other income increased during the first half of
1999 as compared to the same period of 1998, principally as a result of
acquisition of Fully Armed Productions in June 1999, but the revenues of which
are included from January 1, 1999.
Gross profit for the six months ended June 30, 1999 as
compared to the six months ended June 30, 1998 increased $2,159,953, or
31.4%, from $6,886,386 to $9,046,339. For such periods, gross profit
as a percentage of revenue increased to 71.4% from 68.8%. Brokerage
gross profit increased to $1,416,200 for the six months ended June 30,
1999 from $1,026,200 for the prior year six months. The brokerage gross
profit increase reflects the inclusion of Commonwealth Investment from
January 1, 1999, slightly higher commissions received in connection with
the Private Placement ($593,000 for the six months ended June 30, 1999
compared to $518,000 for the corresponding period of 1998), and 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
- 24 -
<PAGE>
<PAGE>
significantly. Financial services administration gross profit
increased to $2,326,100 for the six months ended June 30, 1999 from
$1,759,200 for the six months ended June 30, 1998, reflecting the
increased assets under service, the increased additional fees for service
and the growth in mutual fund and trust clients served, which was partially
offset by a deferment of revenue that management currently expects will
be collected during the fourth quarter of 1999. Investment advisory
gross profit increased to $2,327,200 for the six months ended June 30, 1999
from $1,349,400 for the six months ended June 30, 1998. For such periods,
investment advisory gross profit increased $977,800, of which $874,200 was
due to the acquisitions of Advisers and Fiduciary Counsel in March 1998 and
August 1998, respectively, plus increased assets under management for all
companies. Insurance brokerage gross profit of $2,453,400 declined $95,100
for the six months ended June 30, 1999 as compared to insurance brokerage
gross profit of $2,358,300 for the six months ended June 30, 1998. The
insurance brokerage gross profit decrease was attributable to a premium
decline 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 $130,100 reflects the increased revenue from the
acquisition of Fully Armed Productions in 1999.
Income from operations for the six months ended June 30, 1999
was a loss of $23,790 as compared to income from operations of $779,117
for the corresponding period of 1998. Total expenses for the six months
ended June 30, 1999 were $9,070,129, or 71.6% of total revenue, as compared
to $6,107,269, or 61.0% of total revenue, for the six months ended June
30, 1998. Fiduciary Counsel and Advisers, which were acquired during 1998,
and Fully Armed Productions, Commonwealth Investment, M. Wilson and Archer,
which were acquired in 1999 without comparable expenses in 1998, accounted
for $1,564,000 of the additional expenses during the six months ended
June 30, 1999 when compared to the corresponding period of 1998. Expenses
during the six months ended June 30, 1999 were up significantly due to the
following: (i) the Company's merger and acquisition program (represented
approximately $310,000 of total expenses for the six months ended June
30, 1999 as compared to $60,000 for the corresponding period of 1998);
(ii) start-up of the Company's Internet on-line brokerage service, which
required additional staff, website development and other website cost
(represented approximately $100,000 of total expenses for the six months
ended June 30, 1999 as compared to $10,000 for the corresponding period
of 1998); (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 (represented
approximately $180,000 of total expenses for the six months ended June
30, 1999 as compared to $30,000 for the corresponding period of 1998);
(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
(represented approximately $75,000 of total expenses for the six
months ended June 30, 1999 as compared to $5,000 for the corresponding
period of 1998); (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 (represented approximately $185,000 of total expenses
for the six months ended June 30, 1999 as compared to $5,000 for the
corrresponding period of 1998); (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 (represented approximately $280,000 of total expenses
for the six months ended June 30, 1999 as compared to $40,000 for the
corresponding period of 1998); and (vii) capital expenditures in connection
with the organization by the Company of a federal savings bank and other
subsidiaries (represented approximately $1,042,000 of total expenditures for
the six months ended June 30, 1999 as compared to $0 for the corresponding
period of 1998).
- 25 -
<PAGE>
<PAGE>
For the six months ended June 30, 1999, the Company's
portion of the benefit from operations of affiliates was $54,284 as
compared to $7,759 for the six months ended June 30, 1998. Unrealized
gain on securities of $9,701 during the six months ended June 30, 1999
compared to a $30,119 unrealized gain during the corresponding period of 1998.
Net loss was $884 for the six months ended June 30, 1999
compared with net income of $777,828 for the corresponding period of 1998.
For the six months ended June 30, 1999, the increase in expenses (an increase
of approximately 48.5% as compared to the six months ended June 30, 1998)
offset the increase in revenue, which increased approximately 26.6%, or
$2,662,272, for such periods. For the six months ended June 30, 1999, the
increase in revenues was insufficient to offset the increase in expenses,
which increased for the reasons previously stated. The results for the
six months ended June 30, 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 six months ended June 30, 1999 results
also include Fully Armed Productions, Archer and Commonwealth Investment gross
revenue of $347,379 and a loss before taxes of $129,712 with no comparison
to the six months ended June 30, 1998.
COMPARISON OF RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
Revenues for the quarter ended June 30, 1999 as compared to
the second quarter of 1998 increased $1,238,932, or 25.2%, from $4,914,579
to $6,153,511. For such period, brokerage revenue increased $566,800, or
65.4%, financial services administration revenue declined $297,100, or
28.2%, investment advisory revenue increased $525,100, or 74.3%, insurance
brokerage revenue increased $338,200, or 16.7%, and other revenue increased
$106,100, or 40.7%. The increase in brokerage revenue reflects the inclusion
of Commonwealth Investment's gross revenue, approximately $193,000 for the
quarter ended June 30, 1999, and $593,000 in commissions received by Management
in connection with the Private Placement during the three months ended June 30,
1999 as compared to $518,000 during the second quarter of 1998. Financial
services administration revenue decreased principally due to a revenue
adjustment of $735,000 related to the deferment of revenue that management
currently expects will be collected during the fourth quarter of 1999. The
decline was partially offset by 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 increase in the number of clients whose assets were
serviced under trusts. Investment advisory revenue increased principally due
to a growth in assets under management plus increased revenue due to the
acquisition by the Company of Fiduciary Counsel in August 1998. Claim services
revenue, a component of insurance brokerage 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 in the three
months ended June 30, 1999 compared to the second quarter of 1998. Gross
insurance brokerage revenues increased due to increased premium income
being written during the second quarter of 1999. Other income increased
during the second quarter of 1999 as compared to the same period of 1998,
principally as a result of the acquisition of Fully Armed Productions
in 1999.
Gross profit for the quarter ended June 30, 1999 as compared
to the quarter ended June 30, 1998 increased $523,855, or 25.2%, from
$3,650,646 to $4,174,501. Brokerage gross profit increased to
$1,074,400 for the quarter ended June 30, 1999 from $872,400 for the
prior year second quarter, reflecting the acquisition of Commonwealth
Investment in 1999 and 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. Financial services
administration
- 26 -
<PAGE>
<PAGE>
gross profit decreased to $418,500 for the quarter ended June 30, 1999
from $905,100 for the quarter ended June 30, 1998, reflecting a revenue
adjustment of $735,000 related to the deferment of revenues that management
currently expects will be collected during the fourth quarter of 1999,
which offset the increased assets under service, the increased additional
fees for service and the growth in mutual fund and trust clients served.
Investment advisory gross profit increased to $1,130,000 for the quarter
ended June 30, 1999 from $708,200 for the quarter ended June 30, 1998.
For such periods, investment advisory gross profit increased $421,800,
of which $397,800 was due to the acquisition of Fiduciary Counsel in
August 1998, plus increased assets under management for all companies.
Insurance brokerage gross profit of $1,184,500 increased $280,500 for
the quarter ended June 30, 1999 as compared to $904,000 for the quarter
ended June 30, 1998. The increase in other gross profit of $106,100
reflected the acquisition of Fully Armed Productions in 1999.
Income from operations for the quarter ended June 30, 1999
was a loss of $235,876, as compared to income from operations of $366,318
for the same quarter last year. Total expenses for the quarter ended
June 30, 1999 were $4,410,377, or 71.7% of total revenue, as compared
to $3,284,328, or 66.8% of total revenue, for the quarter ended June
30, 1998. The acquisition of Fiduciary Counsel in August 1998 accounted
for $335,000 of the expenses during 1999 when compared to the second
quarter 1998 expenses. The acquisitions of Fully Armed Productions,
Commonwealth Investment and Archer accounted for $477,000 of the
expenses for the quarter ended June 30, 1999. Expenses during the
quarter ended June 30, 1999 were up significantly due to: (i) the
Company's merger and acquisition program (represented approximately
$153,000 of total expenses for the quarter ended June 30, 1999 as
compared to $25,000 for the second quarter of 1998); (ii) start-up of
the Company's Internet on-line brokerage service, which required
additional staff, website development and other website cost (represented
approximately $65,000 of total expenses for the quarter ended June 30,
1999 as compared to $5,000 for the second quarter of 1998); (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 (represented approximately
$98,000 of total expenses for the quarter ended June 30, 1999 as compared
to $15,000 for the second quarter of 1998); (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 (represented approximately $40,000 of
total expenses for the quarter ended June 30, 1999 as compared to
$5,000 for the second quarter of 1998); (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 (represented approximately
$125,000 of total expenses for the quarter ended June 30, 1999 as
compared to $5,000 for the second quarter of 1998); (vi) the Company's
management expansion program which started in late 1998 and which has
resulted in the hiring of numerous individuals who contribute
significantly to the Company's future results (represented approximately
$258,000 of total expenses for the quarter ended June 30, 1999 as
compared to $0 for the second quarter of 1998); and (vii) capital
expenditures in connection with the organization by the Company of a
federal savings bank and other subsidiaries (represented approximately
$807,000 of total expenditures for the quarter ended June 30, 1999 as
compared to $0 for the second quarter of 1998).
Net loss was $184,310 for the quarter ended June 30, 1999
compared with net income of $394,071 for the quarter ended June 30,
1998. For the quarter ended June 30, 1999, an increase in revenue of
$1,238,932, or 25.2% from the second quarter of 1998, was insufficient to
offset the increases in expenses compared to the quarter ended June 30,
1998. The results for the three months ended June 30, 1999 reflect revenue
and expenses from the August 1998 acquisition of Fiduciary Counsel (which
was reported pursuant to the purchase method of accounting and is
included in the Company's
- 27 -
<PAGE>
<PAGE>
consolidated financial statements from the date of the acquisition)
and the 1999 acquisitions of Archer in May 1999 and Fully Armed
Productions and Commonwealth Investments in June 1999. In addition,
expenses during the quarter ended June 30, 1999 were up significantly
due to the reasons previously reported.
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 increase in cash and cash
equivalents at June 30, 1999 from December 31, 1998 was $2,321,059. The
increase reflects $6,443,200 received from the issuance of 161,080
shares of Common Stock in the Private Placement during the six months
ended June 30, 1999, offset by the repayment of borrowings, the purchase
of fixed assets and an increase in accounts receivables.
In connection with the organization of the Savings Bank,
Unified has committed to contribute approximately $7.3 million as
capital to the Savings Bank. Upon contribution to the Savings Bank,
these funds will not be available to the Company. It currently is
anticipated that the Savings Bank will commence operations during the
fourth quarter of 1999 and the capital must be contributed before
that time. The source of funds for the capital contribution to the
Savings Bank will be funds received by the Company in the Private
Placement.
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's Year 2000 compliance efforts are directed
towards defined categories of actions, which include awareness,
inventory, assessment, remediation, testing, installation, contingency
planning and vendor management. With respect to particular business
units, the work associated with those categories may be performed in
phases or simultaneously with other categories of Year 2000 tasks,
depending on the nature of the work to be performed and the technology
and business requirements of the specific business unit. For instance,
the Company's contingency planning efforts continue simultaneously with
testing efforts. Attempting to assure that the Company's mission
critical systems achieve Year 2000 compliance, that is, that they will
operate without material errors or interruptions when processing data
and transactions incorporating year 2000 dates, has received the highest
priority in the Company's Year 2000 compliance efforts. "Mission
critical" systems mean systems critical to the ongoing operations of the
Company.
Currently, the focus of the Company's efforts is continued
testing, contingency planning and vendor management. The Company
anticipates that work on the contingency planning and vendor management
phases of the project will continue through the century change. The
Company anticipates that installation, remediation and associated
required testing will be completed by mid-1999. The Company's
subsidiaries are participating in industry-wide testing with the
National Securities Clearing Corporation, Securities Industry Automation
Corporation, Pershing, the Company's clearing broker, custodian banks and
price quotation service bureaus which began in May 1999 and extended into
the second quarter of 1999. As of June 30,1999, no material exceptions had
been encountered in the course of such tests.
- 28 -
<PAGE>
<PAGE>
The Company's vendor management initiatives include creating
inventories of vendors, analyzing the results of the inventories to
assess the criticality of specific vendor relationships in order to
formulate plans for dealing with possible Year 2000 issues, inquiring
directly as to the status of vendors' Year 2000 compliance efforts, and
continuing contacts with vendors to monitor the progress of vendors who
may not yet have achieved Year 2000 compliance. The vendor management
initiatives include computer system vendors as well as vendors of goods
and services that comprise or rely upon date-dependent technology, such
as embedded technology. As of June 30, 1999, the Company had contacted
all significant vendors to ascertain the Year 2000 compliance status of
such vendors' products and services. As of such date, more than 80%
of all testable mission critical third-party products and services that
vendors have represented to be Year 2000 compliant have been tested by
the Company to confirm such compliance. Testing of the remainder of
such products and services is continuing. The anticipated completion
date for all material vendor compliance efforts for mission critical
third-party products and services is August 31, 1999, except for
contingency planning efforts that by their nature will be continuing
until the century change is completed, and except to the extent of
efforts for which completion is dependent on third parties whose actions
are beyond the Company's control.
The progress of the Company's Year 2000 compliance efforts
is managed and reviewed by senior management. The project manager is
responsible for maintaining awareness of Year 2000 issues throughout
the Company, monitoring overall progress of the project, resolving
issues and providing strategic direction. The Company's Board of
Directors receives regular status reports on the project.
CONTINGENCY PLANNING AND RISKS. The Company commenced its
contingency planning efforts in 1999. The contingency planning process
is intended to create, update and implement, as necessary, plans in the
event of Year 2000 errors or failures of third parties with whom the
Company interacts or who supply critical services or goods to the
Company.
In management's opinion, currently there is not sufficient
reliable information available to enable the Company to determine
whether any specific Year 2000 failures are reasonably likely to occur.
The Company continues to take steps to reduce this uncertainty through
its testing strategy and by participating in industry conferences,
communicating with business alliance partners, monitoring the progress
of critical vendors and monitoring national governmental and industry
initiatives. Given the uncertainty of predicting at this point which,
if any, Year 2000 errors or failures are reasonably likely to occur, the
Company's contingency planning process targets systems, transactions,
processes and third parties that are deemed to be critical to the
Company's business, results of operations or financial condition.
The Company is in the process of developing contingency
plans at all subsidiary levels. These plans are expected to be in place
by the end of the third quarter of 1999. The Company doesn't anticipate
any disruption in the Company's business or computer systems as the year
progresses through the year 2000.
COMPLIANCE COST ESTIMATES. The Company currently estimates
that the cost of completing its Year 2000 project, including mission
critical and other core computer systems, distributed applications,
facilities and systems in subsidiaries, but excluding potential costs
related to the implementation of contingency plans that address possible
Year 2000 failures of third-party systems or the Company's systems, is
approximately $150,000. The Company's cost estimate excludes the time
that may be spent by staff not specifically dedicated to the Year 2000
project. As of June 30, 1999, the Company had incurred approximately
$100,000 of the estimated cost of the entire project.
- 29 -
<PAGE>
<PAGE>
The estimated cost and timing of the project are based on
the Company's estimates, which make numerous assumptions about future
events. However, there can be no assurance that these estimates will be
correct and actual costs and timing could differ materially from these
estimates.
- 30 -
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
ITEM 3. CHANGES IN SECURITIES AND USE OF PROCEEDS
For the three months ended June 30, 1999, the only sales of
the Company's securities were: (i) 27,500 and 18,182 shares of Common
Stock issued on June 1, 1999 in connection with the acquisitions of
Commonwealth Investment and Fully Armed Productions, respectively (such
shares were issued in exchange for all the outstanding capital stock of
Commonwealth Investment and Fully Armed Productions); (ii) 156,585
shares of Common Stock issued by the Company to accredited investors in
connection with the Private Placement, at a price of $40.00 per share;
and (iii) 930 shares of Series C 6.75% Convertible Preferred Stock,
$0.01 par value, of the Company issued on May 7, 1999 to certain
consultants of the Company, at a price of $100.00 per share (each share
of Series C Preferred Stock is convertible into 135 shares of Common
Stock). 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
The annual meeting of stockholders of the Company was held
on May 27, 1999. Of 2,503,300 shares issued, outstanding and eligible
to be voted at the meeting, 2,044,716 shares, constituting a quorum,
were represented in person or by proxy at the meeting. Three matters
were submitted to a vote of the stockholders at the meeting.
1. ELECTION OF CLASS II DIRECTORS. The first matter
submitted was the election of three Class II director nominees to the
Board of Directors, each to continue in office until the year 2002.
There is no cumulative voting in the election of directors. Upon
tabulation of the votes cast, it was determined that each director
nominee had been elected. The voting results are set forth below:
<TABLE>
<CAPTION>
NAME FOR AGAINST WITHHELD
---- --- ------- --------
<S> <C> <C> <C>
Thomas G. Napurano 1,984,569 11,809 48,338
John R. Owens 1,996,378 -- 48,338
Lynn E. Wood 1,974,073 22,305 48,338
</TABLE>
Because the Company has a staggered Board, the term of
office of the following named Class II and Class III directors, who were
not up for election at the 1999 annual meeting, continued after the
meeting:
Class I (to continue in office until 2001)
Timothy L. Ashburn
Dr. Gregory W. Kasten
Class II (to continue in office until 2000)
Weaver H. Gaines
Jack R. Orben
- 31 -
<PAGE>
<PAGE>
2. ADOPTION OF AMENDMENT TO CERTIFICATE OF INCORPORATION.
The second matter, a proposal to amend Article 4 of the Company's
Amended and Restated Certificate of Incorporation to increase the number
of authorized shares of Common Stock to 20,000,000, was approved by an
affirmative vote of a majority of the shares that were issued,
outstanding and eligible to vote. The voting results on this matter
were as follows:
FOR AGAINST ABSTAIN
--- ------- -------
1,980,870 21,018 42,798
3. ADOPTION OF THE AMENDED AND RESTATED 1998 STOCK
INCENTIVE PLAN. The third matter, a proposal to adopt the Amended and
Restated Unified Financial Services, Inc. 1998 Stock Incentive Plan, was
approved by an affirmative vote of a majority of the shares that were
issued, outstanding and eligible to vote. The voting results on this
matter were as follows:
FOR AGAINST ABSTAIN
--- ------- -------
1,953,517 28,938 62,261
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: See Exhibit Index on page 33 hereof.
--------
(b) Reports on Form 8-K: The Company did not file any Current Reports
-------------------
on Form 8-K during the quarter ended June 30, 1999.
- 32 -
<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: August 20, 1999 By: /s/ Timothy L. Ashburn
-----------------------------------
Timothy L. Ashburn
Chairman, President and Chief
Executive Officer
- 34 -
<PAGE>
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
3.1 Certificate of Amendment of Certificate of
Incorporation of the Company.
11.1 Computations of Earnings Per Share.
27.1 Financial Data Schedule (June 30, 1999).
27.2 Restated Financial Data Schedule (June 30, 1998).
- 33 -
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
UNIFIED FINANCIAL SERVICES, INC.
-------------
PURSUANT TO SECTION 242 OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
Unified Financial Services, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State
of Delaware (the "Corporation"), does hereby certify as follows:
FIRST: At a meeting of the Board of Directors of the Corporation
duly called and held on March 25, 1999, resolutions were duly adopted
setting forth a proposed amendment to the Amended and Restated
Certificate of Incorporation, as amended, of the Corporation (the
"Certificate of Incorporation"), declaring such amendment to be
advisable and directing that such amendment be submitted to the
stockholders of the Corporation for approval at the Annual Meeting of
Stockholders to be held on May 27, 1999. Such resolutions recommended
that the first sentence of Article 4 of the Certificate of Incorporation
be amended by striking the existing first sentence in its entirety and
substituting in lieu thereof the following:
"The total number of shares of stock that the Corporation
shall have the authority to issue is one million (1,000,000)
shares of Preferred Stock with a par value of $0.01 per share; and
twenty million (20,000,000) shares of Common Stock with a par
value of $0.01 per share."
SECOND: At the Annual Meeting of Stockholders of the Corporation
duly called and held on May 27, 1999, the affirmative vote of a majority
of the votes permitted to be cast by the holders of the outstanding
shares of the Corporation's Common Stock, par value $0.01 per share, and
the holders of the outstanding shares of the Corporation's Series C
6.75% Cumulative Convertible Preferred Stock, par value $0.01 per share,
voting as a single class, was obtained in favor of such amendment with
respect to Article 4.
THIRD: Said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, Unified Financial Services, Inc. has cause
this Certificate of Amendment to be signed by Timothy L. Ashburn, its
Chairman of the Board, President and Chief Executive Officer, and
attested by Carol J. Highsmith, its Secretary, this 27th day of May
1999.
UNIFIED FINANCIAL SERVICES, INC.
By: /s/ Timothy L. Ashburn
--------------------------------------------
Timothy L. Ashburn, Chairman of the Board,
President and Chief Executive Officer
Attest:
/s/ Carol J. Highsmith
- -----------------------------------
Carol J. Highsmith, Secretary
<PAGE>
EXHIBIT 11.1
<TABLE>
UNIFIED FINANCIAL SERVICES, INC.
EARNINGS PER SHARE CALCULATION (UNAUDITED)
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
---------------------------- ----------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INCOME AVAILABLE TO
COMMON STOCKHOLDERS
Net income (loss) $ (884) $ 777,828 $ (184,310) $ 394,071
Preferred dividends -- 65,844 -- 31,426
---------- ---------- ---------- ----------
Income available to common
stockholders $ (884) $ 711,984 $ (184,310) $ 362,645
========== ========== ========== ==========
CALCULATION OF COMMON STOCK
Common shares outstanding at beginning
of period 2,267,449 1,758,931 2,275,580 1,758,931
Shares issued in connection with acquisition
of M. Wilson 3,636 -- -- --
Shares issued in connection with acquisition of
Commonwealth Investment 27,500 -- 27,500 --
Shares issued in connection with acquisition of
Fully Armed Productions 18,182 -- 18,182 --
Conversion of Series C Preferred Stock to
common stock 154,305 -- 154,305 --
Shares issued in private placement during period 161,080 141,354 156,585 141,354
Repurchase of common stock for treasury (47,110) -- (47,110) --
---------- ---------- ---------- ----------
Common shares used in basic calculation 2,585,042 1,900,285 2,585,042 1,900,285
---------- ---------- ---------- ----------
Common stock equivalent of options 61,951 6,800 37,526 6,800
Preferred stock Series C conversion into
common stock 196,965 283,500 225,720 283,500
---------- ---------- ---------- ----------
Common shares used in fully
diluted calculation 2,843,958 2,190,585 2,848,288 2,190,585
---------- ---------- ---------- ----------
EARNINGS PER SHARE
Basic $ 0.00 $ 0.37 $ (0.08) $ 0.19
========== ========== ========== ==========
Fully diluted $ 0.00 $ 0.33 $ (0.07) 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. filed as a part of the
Company's Quarterly Report on Form 10-QSB for the quarter ended June 30,
1999 and is qualified in its entirety by reference to such report.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 12,663,560
<SECURITIES> 661,062
<RECEIVABLES> 10,425,775
<ALLOWANCES> (41,576)
<INVENTORY> 0
<CURRENT-ASSETS> 23,923,114
<PP&E> 6,099,513
<DEPRECIATION> (3,267,884)
<TOTAL-ASSETS> 31,617,583
<CURRENT-LIABILITIES> 14,056,370
<BONDS> 0
<COMMON> 30,693
0
1,459
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 31,617,583
<SALES> 0
<TOTAL-REVENUES> 12,665,565
<CGS> 3,619,226
<TOTAL-COSTS> 3,619,226
<OTHER-EXPENSES> 8,762,509
<LOSS-PROVISION> 3,250
<INTEREST-EXPENSE> 237,464
<INCOME-PRETAX> 43,116
<INCOME-TAX> 44,000
<INCOME-CONTINUING> (884)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (884)
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00
</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 June 30,
1999 and is qualified in its entirety by reference to such report.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
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0
2,100
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