<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
X Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange
--- Act of 1934
For Quarter Ended June 30, 1995 Commission File No. 1-10594
-------------
H. W. KAUFMAN FINANCIAL GROUP, INC.
-----------------------------------
(exact name of registrant as specified in its charter)
Michigan 38-1903339
------------------------ -------------------
(State of Incorporation) (I.R.S. Employer
Identification No.)
30833 NORTHWESTERN HIGHWAY
SUITE 220
FARMINGTON HILLS, MI 48334
-------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (810) 932-9000
--------------
Indicated by a check mark whether the registrant (1) has filed all reports
required by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
As of August 4, 1995 there were 3,440,467 shares of Common Stock outstanding.
The aggregate market value of the voting stock held by non-affiliates (648,542
shares) based upon the closing price of such stock on the American Stock
Exchange on August 4, 1995 was approximately $5,107,268.
As of June 30, 1995 there were 3,440,467 shares of Common Stock at a par value
of $.0025 per share issued and outstanding.
Documents Incorporated by Reference
--------- ------------ -- ---------
NONE
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<PAGE> 2
H. W. KAUFMAN FINANCIAL GROUP, INC.
-----------------------------------
FORM 10-Q
---------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
--------------------
Consolidated Balance Sheets at 4 - 5
June 30, 1995 and December 31, 1994
Consolidated Statements of Income for 6
the six months and the three months
ended June 30, 1995 and 1994
Consolidated Statements of Cash Flows 7 - 8
for the six months ended June 30, 1995
and 1994
ITEM 2. Management's Discussion and Analysis of 9 - 15
------------ ---------- --- -------- --
Financial Condition and Consolidated
--------- --------- --- ------------
Results of Operations
------- -- ----------
PART II. OTHER INFORMATION
ITEM 5. Other Information 16 - 17
----- -----------
</TABLE>
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<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
The consolidated Financial Statements included herewith have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in the Consolidated Financial Statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading.
In the opinion of the Company's Management, the Financial Statements for three
months and six months ended June 30, 1995 and 1994 reflect all adjustments for
normal recurring accruals which are necessary to present a fair statement of
the results for the period then ended. It is suggested that these Financial
Statements be read in conjunction with the audited, consolidated Financial
Statements and notes thereto submitted in the Company's Form 10-K filing for
the year ended December 31, 1994.
The results for the six months ended June 30, 1995, are not necessarily
indicative of the results of the entire year of 1995.
On April 17, 1995, the Company reported a 10% Stock Dividend payable to
shareholders of record as of May 1, 1995. 311,977 additional shares of Common
Stock were issued on May 17, 1995. The weighted average number of shares
outstanding on the Consolidated Statements of Income only, have been adjusted
to reflect the May 17, 1995 Stock Dividend.
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<PAGE> 4
H. W. KAUFMAN FINANCIAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,*
ASSETS 1995 1994
------ ----------- -------------
<S> <C> <C>
CURRENT:
Cash and cash equivalents $12,354,672 $10,370,260
Marketable securities, market value,
Available-for-sale 4,396,033 3,983,853
Receivables:
Trade 25,260,418 23,575,263
Notes 3,865,324 2,456,921
Other 362,902 107,194
Prepaid expenses and other current assets 775,271 1,000,589
----------- -----------
TOTAL CURRENT ASSETS 47,014,620 41,494,080
----------- -----------
IMPROVEMENTS AND EQUIPMENT:
Furniture, fixtures and equipment 3,847,143 3,319,261
Improvements to leased premises 588,520 583,043
----------- -----------
4,435,663 3,902,304
Less accumulated depreciation and
amortization (2,094,101) (1,689,590)
----------- -----------
NET IMPROVEMENTS AND EQUIPMENT 2,341,562 2,212,714
----------- -----------
OTHER ASSETS:
Goodwill, net of accumulated amortization
of $1,497,903 and $1,338,408 1,417,141 1,481,636
Covenants not to compete, net of accumulated
amortization of $503,158 and $418,892 385,841 174,108
Other intangible assets, net of accumulated
amortization of $1,120,901 and $819,106 2,349,053 1,692,848
Miscellaneous 945,221 849,047
----------- -----------
TOTAL OTHER ASSETS 5,097,256 4,197,639
----------- -----------
$54,453,438 $47,904,433
=========== ===========
</TABLE>
*Condensed from the 1994 Audited Financial Statements
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<PAGE> 5
H. W. KAUFMAN FINANCIAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,*
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
----------- --- ------------- ------ ----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable:
Insurance companies $36,553,474 $31,559,820
Customer advance payments 2,846,865 2,137,937
Other 707,127 598,603
Accruals:
Taxes, other than on income 2,104,043 2,566,699
Compensation 1,680,678 2,097,202
Other 301,907 210,666
Current portion of long-term obligations 775,000 425,000
----------- -----------
TOTAL CURRENT LIABILITIES 44,969,094 39,595,927
LONG TERM DEBT, LESS CURRENT PORTION 150,000 425,000
DEFERRED REVENUE 2,266,501 1,115,132
----------- -----------
TOTAL LIABILITIES 47,385,595 41,136,059
STOCKHOLDERS' EQUITY:
Common stock, $.0025 par - 7,500,000
shares authorized; 3,440,467 shares
outstanding in 1995 and 3,123,043
shares outstanding in 1994 8,601 7,808
Additional paid-in capital 3,743,028** 1,953,069**
Retained earnings 3,196,968** 4,906,265**
Securities valuation 119,246 (98,768)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 7,067,843 6,768,374
----------- ----------
$54,453,438 $47,904,433
=========== ===========
</TABLE>
* Condensed from 1994 Audited Financial Statements
**Additional paid-in capital and Retained earnings have been adjusted to
reflect the 10% stock dividend distributed on May 17, 1995, and the 10% stock
dividend distributed on May 5, 1994.
-5-
<PAGE> 6
H.W. KAUFMAN FINANCIAL GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
COMMISSIONS AND FEES $28,705,280 $25,703,220 $15,349,483 13,441,709
COST OF COMMISSION AND FEES 12,679,699 11,258,085 6,929,023 5,790,515
----------- ----------- ----------- -----------
Gross profit 16,025,581 14,445,135 8,420,460 7,651,194
----------- ----------- ----------- -----------
DIVISIONAL OPERATING EXPENSES 11,438,491 10,296,895 5,908,677 5,285,265
GENERAL & ADMINISTRATIVE 3,621,216 3,249,524 1,874,196 1,655,554
----------- ----------- ----------- -----------
Total operating expense 15,059,707 13,546,419 7,782,873 6,940,819
----------- ----------- ----------- -----------
Operating income 965,874 898,716 637,587 710,375
OTHER INCOME 394,935 218,444 209,999 108,909
----------- ----------- ----------- -----------
Income before income taxes 1,360,809 1,117,160 847,586 819,284
TAXES ON INCOME 751,174 591,195 393,383 386,195
----------- ----------- ----------- -----------
NET INCOME $609,635 $ 525,965 $ 454,203 $ 433,089
=========== =========== =========== ===========
EARNINGS PER SHARE $ .18 $ .15* $ .13 $ .13*
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 3,443,519 3,425,788* 3,446,107 3,425,804*
</TABLE>
Interim results are not necessarily indicative of the results of operations for
a full year.
*Weighted average number of shares outstanding and earnings per share have been
adjusted to reflect the 10% stock dividend distributed on May 17, 1995.
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<PAGE> 7
H. W. KAUFMAN FINANCIAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 609,635 $ 525,965
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation expense 404,511 241,417
Amortization of intangible assets 545,557 551,578
Deferred income taxes (203) 73,000
Decrease (increase) in accounts
receivable (3,349,266) (4,422,752)
Decrease (increase) in prepaid expenses
and other current assets 79,975 290,966
Decrease (increase) in miscellaneous
assets (96,174) 9,877
Increase (decrease) in accounts
payable 5,811,106 5,736,619
Increase (decrease) in accrued
expenses (787,939) (971,024)
Abandonment of leasehold improvements -- 23,678
Write-off of intangibles -- 65,786
(Gain) loss on sale of marketable
securities (16,000) 19,019
Increase in deferred revenue 1,151,369 1,115,132
----------- -----------
Net cash provided by operating activities 4,352,571 3,259,261
----------- -----------
CASH FLOWS FROM INVESTMENT ACTIVITIES:
Proceeds from the sale of marketable
securities 153,500 83,587
Purchase of marketable securities (186,120) (360,807)
Purchase of books of business (849,000) (462,000)
Purchase of improvements and equipment (533,359) (1,096,464)
----------- -----------
Net cash used by investing activities (1,414,979) (1,835,684)
----------- -----------
</TABLE>
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<PAGE> 8
H. W. KAUFMAN FINANCIAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Concluded)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES;
Dividends paid $ (564,061) $ (510,177)
Proceeds from stock issuance 35,881 6,501
Reduction of long term debt (425,000) --
----------- -----------
Net cash used by financing activities (953,180) (503,676)
----------- -----------
NET INCREASE (DECREASE) IN CASH
& CASH EQUIVALENTS 1,984,412 919,901
CASH AND CASH EQUIVALENTS,
beginning of year 10,370,260 9,296,749
----------- -----------
CASH AND CASH EQUIVALENTS,
end of period $12,354,672 $10,216,650
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the six months ended:
Income taxes 510,000 $700,000
Interest 7,352 --
-8-
</TABLE>
<PAGE> 9
PART I - FINANCIAL INFORMATION
Item 2 - Management's Discussion and Analysis of Financial Condition and
Consolidated Results of Operations
Liquidity and Capital Resources
-------------------------------
On June 30, 1995, the Company's Financial condition reflected working capital
of $2,045,526, a tangible net worth of $2,915,808 and stockholders' equity of
$7,067,843. This compares to working capital of $1,539,990, a tangible net
worth of $1,916,059, and stockholders' equity of $5,605,713 at June 30, 1994.
The improvement in working capital and tangible net worth reflects the
continued profitability of the Company over the last year, and the $1,151,369
addition to Deferred Revenue during the 1st quarter of 1995. Financial
highlights from June 30, 1995 and 1994 financials are presented below:
<TABLE>
<CAPTION>
JUNE 30,
Description 1995 1994
--------------------------------- ----------- -----------
<S> <C> <C>
Total Current Assets $47,014,620 $41,529,602
Total Assets 54,453,438 48,034,270
Total Current Liabilities 44,969,094 39,989,612
Total Liabilities 47,385,595 42,428,557
Retained Earnings 3,196,968* 3,664,903*
Total Stockholders' Equity 7,067,843 5,605,713
Gross Profit 16,025,581 14,445,135
Net Income before Taxes 1,360,809 1,117,160
Net Income after Taxes 609,635 525,965
Net Income per Share $.18 $.15*
</TABLE>
*Retained Earnings and Net Income per Share have been adjusted to reflect the
10% stock dividend distributed on May 17, 1995, and the 10% stock dividend
distributed May 5, 1994.
-9-
<PAGE> 10
PART I - FINANCIAL INFORMATION
Item 2 - Management's Discussion and Analysis of Financial Condition and
Consolidated Results of Operations (continued)
Results of Operations
The designations "Commission and Fees" on the Consolidated Statements of Income
consist of three components, (1) commissions, (2) fees and (3) profit-sharing
commissions and volume bonuses.
"Commissions" are amounts earned by the Company and are equal to a percentage
ranging from approximately 15% to 22% of the premiums invoiced under insurance
coverage placed by the Company. Commissions are paid by the insurance carriers
that have placed insurance coverages through the Company. Commissions are
somewhat lower when the Company is acting as an insurance broker as compared to
when the Company is acting as an insurance agent under a general agency
agreement with an insurance carrier. Insurance carriers can and do unilaterally
modify commission rates from time to time.
"Fees" are amounts received by the Company for services rendered to the
referring insurance agents, and include inspection fees, policy-writing fees
and underwriting fees. The types of fees that may be charged by the Company are
determined by state regulations and, therefore, vary by state.
"Profit-sharing commissions and volume bonuses" are paid by several insurance
carriers, but principally by one carrier, for whom the Company acts as a
general agent. Profit-sharing commissions are based upon a ratio of the amount
of premiums invoiced by the Company for insurance coverages placed with the
applicable insurance carrier and the loss-experience of such insurance carriers
under such coverages during the computation period. Because the volume of
business placed with a carrier and loss-ratios vary from year to year, and
because insurance carriers can and do unilaterally modify profit-sharing
commissions to satisfy their own objectives, the amount of profit-sharing
commissions may vary dramatically from period to period. Volume bonuses are
additional commissions paid by several carriers for increased sales. The
recognition of profit-sharing commissions and volume bonuses adds no additional
costs to the Company's operations as all costs attributable to their generation
have already been recorded when the policies are placed with the carrier.
Accordingly, profit-sharing commissions and volume bonuses tend to impact
heavily on gross profit.
-10-
<PAGE> 11
Item 2 - Management's Discussion and Analysis of Financial Condition and
Consolidated Results of Operations (continued)
Commissions and fees are recognized as revenue when the Company invoices the
independent insurance agent for the insurance coverage placed for his client.
Generally, the Company invoices the insurance agency only after a particular
insurance coverage is "bound" (accepted by the insurance carrier and by the
agent's client). Commissions and fees are recognized when invoiced and are not
recognized incrementally over the period of the underlying insurance policy. In
other words, on a 12-month policy, the Company will recognize commissions and
fees at the time the policy is invoiced, rather than recognizing 1/12 of the
premium in each month that the policy is in force. Volume bonuses are recorded
when earned. Profit-sharing commissions are recognized when received from
insurance carriers. Some of the carriers may subsequently adjust the
profit-sharing commissions based on actual policy experience. Adjustments
resulting in underpayments are recorded as accounts receivable in the financial
statements, while overpayments are reflected as deferred revenue and are
applied to future profit-sharing commissions based on the Company's agreement
with individual carriers.
"Cost of commissions and fees" consists, almost entirely, of the portion of
gross commissions and fees that is paid by the Company as commissions to the
referring independent insurance agents for doing business through the Company.
"Divisional operating expense" consists of direct costs and expenses of
operating the branch offices including salaries of branch office managers and
employees, rent, utilities, telephone, employee benefits, payroll taxes, other
expenses and costs incurred directly by or for the benefit of branch offices.
"General and administrative expenses" consist of salaries of executives and
central administrative officers and employees, payroll taxes for such
employees, central computer expenses, general insurance costs, legal and
accounting and other general and administrative expenses and costs deemed
attributable by management to the operations of the Company as a whole.
"Other income (expenses) - net" consists principally of gains (or losses) from
investments by the Company in various securities, dividends on such securities
and interest earned by the Company on various short-term investments.
"Deferred revenue" consists of advance contingent commissions paid to the
Company by its Primary Carrier.
-11-
<PAGE> 12
PART I - FINANCIAL INFORMATION
Item 2 - Management's Discussion and Analysis of Financial Condition
and Consolidated Results of Operations (continued)
Summaries of results of operations and comparisons for the comparable six
months ended June 30, 1995 and June 30, 1994; for the three months ended June
30, 1995 compared to the three months ended June 30, 1994; and for the prior
three months ended March 31, 1995 compared to the three months ended June 30,
1995.
<TABLE>
<CAPTION>
Six Months Ended Percent
JUNE 30, 1995 JUNE 30, 1994 Change
------------- ------------- -------
<S> <C> <C> <C>
Commission & Fee Income $28,705,280 $25,703,220 11.68%
Cost of Commissions & Fees 12,679,699 11,258,085 12.63%
Total Operating Expenses 15,059,707 13,546,419 11.17%
Income Before Income Taxes 1,360,809 1,117,160 21.81%
Net Income 609,635 525,965 15.91%
<CAPTION>
Three Months Ended Percent
JUNE 30, 1995 JUNE 30, 1994 Change
------------- ------------- -------
<S> <C> <C> <C>
Commission & Fee Income $15,349,483 $13,441,709 14.19%
Cost of Commissions & Fees 6,929,023 5,790,516 19.66%
Total Operating Expenses 7,782,873 6,940,819 12.13%
Income Before Income Taxes 847,586 819,284 3.45%
Net Income 454,203 433,089 4.88%
<CAPTION>
Three Months Ended Percent
JUNE 30, 1995 MARCH 30, 1995 Change
------------- -------------- -------
<S> <C> <C> <C>
Commission & Fee Income $15,349,483 $13,355,797 14.93%
Cost of Commissions & Fees 6,929,023 5,750,676 20.49%
Total Operating Expenses 7,782,873 7,276,834 6.95%
Income Before Income Taxes 847,586 513,223 65.15%
Net Income 454,203 155,431 192.22%
</TABLE>
At the end of the second quarter ended June 30, 1995 the Company had 36
operating locations in 22 states compared to 33 in the quarter ended June 30,
1994.
-12-
<PAGE> 13
SIX MONTHS ENDED JUNE 30, 1995 AND 1994
Commission and fee income increased $3,002,060 or 11.68% to $28,705,280 for the
six months ended June 30, 1995 from $25,703,220 for the six months ended June
30, 1994. The increase reflects increased sales over last year at existing
offices and the additional sales of Illinois R.B. Jones/Burns & Wilcox Ltd.
and the Gerry McLaughlin Agency which were acquired March 31, 1995 and February
15, 1995 respectively.
Profit-sharing commissions in the six months ended June 30, 1995 were $781,630
and accounted for approximately 2.7% of commission and fee revenue as compared
to $800,417 or 3.1% of commissions and fees for the comparable period in 1994.
Gross profit increased $1,580,446 to $16,025,581 for the six months ended June
30, 1995 as compared to $14,445,135 for the six months ended June 30, 1994.
Gross profit as a percentage of commission and fee income, excluding profit
sharing and volume bonus commissions, decreased to 54.59% for the six months
ended June 30, 1995 as compared to 54.79% for the comparable period in 1994.
This decrease was attributable to both an increase in commissions paid to
producers and a decrease in contingent commissions received during the second
quarter of 1995 compared to the second quarter of 1994.
Total operating expenses, including both divisional and general and
administrative expenses, were $15,059,707 for the six months ended June 30,
1995 compared to $13,546,419 for the six months ended June 30, 1994. The
aggregate dollar amount of total operating expenses increased due to higher
payroll and rent expense. Total operating expenses as a percentage of
commission and fee income, excluding profit sharing and bonus commissions,
decreased to 53.93% for the six months ended June 30, 1995 from 54.40% for the
six months ended June 30, 1994. Amortization expense for the six months ended
June 30, 1995 was $545,557 compared to $617,364 for the six months ended June
30, 1994.
Other income was $394,935 for the six months ended June 30, 1995 as compared to
$218,444 in the comparable period in fiscal 1994. The six months ended June 30,
1995 included a gain on the sale of marketable securities and an increase in
interest and dividend income. The increased interest and dividend income was
due to a higher rate of interest on investments.
The Company's provision for income taxes for the six months ended June 30, 1995
increased to $751,174 from $591,195 for the comparable period last year due to
increased profitability in the first half of this year and an increase in State
income tax for prior years.
As a result of the forgoing factors, net income increased to $609,635 for the
six months ended June 30, 1995 from $525,965 for the six months ended June 30,
1994.
-13-
<PAGE> 14
PART I - FINANCIAL INFORMATION (continued)
THREE MONTHS ENDED JUNE 30, 1995 AND 1994
Commission and fee income increased $1,907,774 or 14.19% to $15,349,483 for the
three months ended June 30, 1995 compared to $13,441,709 for the three months
ended June 30, 1994. Profit-sharing and volume bonus commissions for the three
months ended June 30, 1995 were $236,244 compared to $481,599 for the three
months ended June 30, 1994. The increase in commission and fee income is
attributable to the acquisition of Illinois R.B. Jones/Burns & Wilcox, Ltd. and
the Gerry McLaughlin Agency.
Profit-sharing and volume bonus commissions were 1.5% and 3.6% respectively, of
commission and fee income in the three months ended June 30, 1995 and 1994.
Gross profit increased to $8,420,460 for the three months ended June 30, 1995
from $7,651,194 for the three months ended June 30, 1994. Gross profit as a
percentage of commission and fee income, excluding profit-sharing and volume
bonus commissions, was 54.2% in the three months ended June 30, 1995 compared
to 55.3% for the three months ended June 30, 1994. This decrease was
attributable to both an increase in commissions paid to producers and a
decrease in contingent commissions received during the second quarter of 1995
compared to the second quarter of 1994.
Total operating expenses, including both divisional and general and
administrative expenses, were $7,782,873 for the three months ended June 30,
1995 compared to $6,940,819 for the comparable period last year. Total
operating expenses as a percentage of commission and fee income, excluding the
effect of profit-sharing and volume bonus commissions, decreased to 51.5% for
the three months ended June 30, 1995 from 53.6% for the three months ended June
30, 1994. The 2.1% decrease represents managements' continued effort to control
expenses. The aggregate dollar amount of total operating expenses increased due
to payroll and rent expense. Amortization expense for the three months ended
June 30, 1995 was $298,287 versus $369,019 for the comparable period last year.
Other income increased $101,090 to $209,999 for the three months ended June 30,
1995 compared to $108,909 for the comparable period last year.
The Company's provision for income taxes for the three months ended June 30,
1995 increased to $393,382 as compared to $386,195 for the three months ended
June 30, 1994. The increase is due primarily to increased profitability in the
second quarter of fiscal 1995 compared to the comparable period in fiscal 1994.
As a result of the forgoing factors, net income of $454,203 was recorded for
the three months ended June 30, 1995 compared to a net income of $433,089 in
the comparable period in fiscal 1994.
-14-
<PAGE> 15
PART I - FINANCIAL INFORMATION (continued)
THREE MONTHS ENDED JUNE 30, 1995 AND MARCH 31, 1995
Commission and fee income increased to $15,349,483 for the second quarter ended
June 30, 1995 from $13,355,797 for the first quarter ended March 31, 1995. In
the second quarter the Company received $236,244 in profit sharing and volume
bonus commissions versus $545,386 in the first quarter.
Profit-sharing and volume bonus commissions in the three months ended June 30,
1995 accounted for approximately 1.5% of commission and fee revenue compared to
4.1% for the three months ended March 31, 1995.
Gross profit for the three months ended June 30, 1995 was $8,420,460 compared
to $7,605,121 for the three months ended March 31, 1995. The increase of
$815,339 was primarily due to increased commission and fee income.
Total operating expenses, including both divisional and general and
administrative expenses, were $7,782,873 for the three months ended June 30,
1995 and $7,276,834 for the three months ended March 31, 1995. The increase in
expenses was primarily due to the addition of Illinois R.B. Jones/Burns &
Wilcox Ltd. and the Gerry McLaughlin Agency on March 31, 1995 and February 15,
1995 respectively.
Other income for the three months ended June 30, 1995 was $209,999 compared to
$184,936 for the first quarter of fiscal 1995. The increase was primarily due
to a gain on the sale of marketable securities during the quarter ended June
30, 1995.
The Company's provision for income taxes was $393,383 for the second quarter
ended June 30, 1995 compared to $357,791 in the previous quarter. As a result
of the foregoing factors, net income of $454,203 was recorded for the three
months ended June 30, 1995 compared to income of $155,431 for the three months
ended March 31, 1995.
-15-
<PAGE> 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On June 16, 1995, a lawsuit was commenced in the Circuit Court
for the County of Oakland, Michigan, Case No. 95-499008-CZ, relating
to the proposed merger and naming as defendants the Company, each of
its Directors and AJK and Acquisition. The plaintiff is Richard N.
Frank, and he purports to represent a class which includes
shareholders of the Company other than the defendants. The complaint
sets forth general allegations that, among others, the Directors
breached their fiduciary duties to the shareholders by "grossly"
undervaluing the Company and its shares, by failing to obtain a fair
price and that Herbert W. Kaufman and Alan J. Kaufman agreed to set a
low per share buyout price and that each defendant aided and abetted
the other in such attempt. The principal relief sought is a
declaration as a class action and recovery of damages in an
unspecified amount against all defendants, including attorney fees and
all costs. The Company does not anticipate that this lawsuit will
affect the consummation of the Merger and indicates that the
allegations are unfounded, that it will deny the plaintiff's
allegations and it will contest it vigorously.
Item 2. Changes in Securities
No information called for by this item is applicable for the
period covered by this report.
Item 3. Defaults Upon Senior Securities
Not applicable
Item 5. Other Information
As previously announced, the Company entered into a merger
agreement with AJK Acquisition Company, a corporation formed by Alan
J. Kaufman, the son of Herbert W. Kaufman, which, if successful, will
result in each outstanding share being exchanged for cash in the
amount of $8.20. The board of directors agreed to the merger, subject
to the shareholders' meeting expected to occur within the next several
months.
Item 6. Exhibits and Reports of Form 8-K
(a) Exhibits
No exhibits are being filed with this Form 10-Q.
-16-
<PAGE> 17
Item 6. Exhibits and Reports of Form 8-K (cont.)
(b) Reports on Form 8-K
Two reports on Form 8-K were filed since April 1, 1995. The
first was filed on June 5, 1995 and described under its
Item 5 the execution of the Agreement and Plan of Merger dated
as of May 26, 1995 among the Company, AJK Enterprises Inc. and
AJK Acquisition Company. Pursuant to the Merger Agreement, each
share of the Company's Common Stock will be converted into the
right to receive $8.20 should the merger be successful.
On July 3, 1995 the Company filed an additional Form 8-K
under Item 5 to disclose the lawsuit referred to above in
Part II, Item 1.
-17-
<PAGE> 18
H. W. KAUFMAN FINANCIAL GROUP, INC.
AND ITS CONSOLIDATED SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
H. W. Kaufman Financial Group, Inc.
-----------------------------------
Registrant
Date August 12, 1995 /s/ Herbert W. Kaufman
--------------- ------------------------------------
Herbert W. Kaufman
President
Date August 12, 1995 /s/ Gerald F. Wesolowski
--------------- ------------------------------------
Gerald F. Wesolowski
Chief Financial Officer
-18-
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<S> <C> <C>
27 -- Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ART. 5 FDS FOR 2ND QUARTER 10-Q WITH YEAR-END DATA.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-END> JUN-30-1995 DEC-31-1994
<CASH> 12,354,672 10,370,260
<SECURITIES> 4,396,033 3,983,853
<RECEIVABLES> 29,125,742 26,032,184
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 47,014,620 41,494,080
<PP&E> 4,435,663 3,902,304
<DEPRECIATION> 2,094,101 1,689,590
<TOTAL-ASSETS> 54,453,438 47,904,433
<CURRENT-LIABILITIES> 44,969,094 39,595,927
<BONDS> 150,000 425,000
<COMMON> 8,601 7,808
0 0
0 0
<OTHER-SE> 7,059,242 6,760,566
<TOTAL-LIABILITY-AND-EQUITY> 54,453,438 47,904,433
<SALES> 0 0
<TOTAL-REVENUES> 28,705,280 52,363,586
<CGS> 0 0
<TOTAL-COSTS> 12,679,699 22,745,536
<OTHER-EXPENSES> 15,059,707 26,935,394
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 1,360,809 3,220,324
<INCOME-TAX> 751,174 1,453,000
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 609,635 1,767,324
<EPS-PRIMARY> 0.18 0.57
<EPS-DILUTED> 0 0
</TABLE>
