-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R6Y38k2rQA4D7TrJV29AvwfWCu2ezGHBg+SQKh7LOUzWxznMW510p/CR74f7xOlN u56C1dD6qgNg3rJDk5YdIQ== 0001068800-98-000006.txt : 19981021 0001068800-98-000006.hdr.sgml : 19981021 ACCESSION NUMBER: 0001068800-98-000006 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980821 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19981020 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNIFIED FINANCIAL SERVICES INC CENTRAL INDEX KEY: 0001033926 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT CONSULTING SERVICES [8742] IRS NUMBER: 351797759 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-22629 FILM NUMBER: 98728091 BUSINESS ADDRESS: STREET 1: 431 N PENNSYLVANIA ST. CITY: INDIANAPOLIS STATE: IN ZIP: 46204-1873 BUSINESS PHONE: 3146343301 MAIL ADDRESS: STREET 1: 431 N PENNSYLVANIA ST CITY: INDIANAPOLIS STATE: IN ZIP: 46204-1873 FORMER COMPANY: FORMER CONFORMED NAME: UNIFIED HOLDINGS INC DATE OF NAME CHANGE: 19970218 8-K/A 1 UNIFIED FINANCIAL SERVICES, INC. 8-K/A =================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 __________________________________ FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): August 21, 1998 UNIFIED FINANCIAL SERVICES, INC. (Exact name of registrant as specified in its charter) DELAWARE 0-22629 35-1797759 (State or other (Commission File (I.R.S. Employer jurisdiction of Number) Identification organization) Number) 431 NORTH PENNSYLVANIA STREET INDIANAPOLIS, INDIANA 46204-1873 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (317) 634-3301 =================================================================== ITEM 2. ACQUISITION OF ASSETS Reference is made to the Current Report on Form 8-K filed by the Registrant on August 28, 1998 announcing the closing of the merger of Fiduciary Counsel, Inc. into a wholly owned subsidiary of the Registrant, and the consummation of the sale of assets by EMCO Estate Management Company, Inc. to a wholly owned subsidiary of the Registrant. Both transactions became effective as of August 21, 1998. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements of Business Acquired (i) Independent Auditors' Report (ii) Balance Sheets (Audited) as of December 31, 1997 and December 31, 1996 (iii) Statement of Cash Flows (Audited) for the years ended December 31, 1997 and December 31, 1996 (iv) Statement of Operations and Retained Earnings (Deficit) (Audited) for the years ended December 31, 1997 and December 31, 1996 (v) Notes to Audited Financial Statements (vi) Balance Sheet (Unaudited) as of June 30, 1998 (vii) Statement of Income and Retained Earnings (Deficit) (Unaudited) for the six months ended June 30, 1998 and June 30, 1997 (viii) Comparative Statement of Cash Flows (Unaudited) for the six months ended June 30, 1998 and June 30, 1997 (ix) Notes to Unaudited Financial Statements (b) Pro Forma Financial Information (i) Pro Forma Condensed Consolidated Balance Sheet (Unaudited) as of June 30, 1998 (ii) Pro Forma Condensed Consolidated Income Statement (Unaudited) for the six months ended June 30, 1998 (iii) Pro Forma Condensed Consolidated Income Statement (Unaudited) for the year ended December 31, 1997 (iv) Notes to Pro Forma Condensed Consolidated Financial Statements (Unaudited) (c) Exhibits See Exhibit Index. - 2 - To the Board of Directors and Stockholders of Fiduciary Counsel, Inc. New York, New York INDEPENDENT AUDITORS' REPORT ---------------------------- We have audited the accompanying statements of financial condition of Fiduciary Counsel, Inc. as of December 31, 1997 and 1996, and the related statements of operations and retained earnings (deficit), and cash flows for the years then ended. The financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based upon our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Fiduciary Counsel, Inc. at December 31, 1997 and 1996, and the results of operations and cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Larry E. Nunn & Associates, L.L.C. Columbus, Indiana October 6, 1998 - 3 - FIDUCIARY COUNSEL, INC. BALANCE SHEETS December 31, 1997 and 1996
1997 1996 ---- ---- ASSETS ------ Current Assets: Cash and cash equivalents $191,476 $ 219,775 Accounts receivable, net of allowance for doubtful accounts of $-0- 57,602 32,955 Loans receivable - affiliated companies 184,852 177,484 Other receivables 18,080 11,727 Other current assets 31,205 21,169 -------- --------- Total current assets 483,215 463,110 -------- --------- Fixed Assets: Furniture and equipment 164,942 232,660 Leasehold improvements 11,561 290,168 -------- --------- 176,503 522,828 Less: Accumulated depreciation (46,549) (486,908) -------- --------- Net Fixed Assets 129,954 35,920 -------- --------- Other Assets: Security deposits 23,530 5,315 Marketable equity securities 13,782 6,984 -------- --------- Total Other Assets 37,312 12,299 -------- --------- Total Assets $650,481 $ 511,329 ======== ========= LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current Liabilities: Capital lease obligations, current portion $ 31,768 $ 11,222 Accrued compensation 8,059 6,944 Accounts payable and accrued expenses 76,336 120,692 Unearned fee income 183,039 218,151 Income taxes payable - 7,395 -------- --------- Total Current Liabilities 299,202 364,404 -------- --------- Capital lease obligation, less current portion 70,062 - -------- --------- Total Liabilities 369,264 364,404 -------- --------- Stockholders' Equity: Common stock, no par value, 50,000 shares shares authorized, issue and outstanding including 50 shares held in treasury 52,809 52,809 Capital contributed in excess of stated value 168,243 168,243 Retained earnings 60,415 (73,877) -------- --------- 281,467 147,175 Less: Treasury stock, at cost, 50 shares (250) (250) -------- --------- Total Stockholders' Equity 281,217 146,925 -------- --------- Total Liabilities & Stockholders' Equity $650,481 $ 511,329 ======== ========= See independent auditor's report and notes to financial statements.
- 4 - FIDUCIARY COUNSEL, INC. STATEMENT OF CASH FLOWS December 31, 1997 and 1996
1997 1996 ---- ---- Net Income $134,292 $ 74,588 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 55,276 43,977 Gain on sale of marketable equity securities (6,540) (666) Gain on sale of furniture and equipment (1,700) - (Increase) Decrease in: Accounts receivable (24,647) 113,762 Loans receivable - affiliated companies (6,449) (3,933) Loans receivable (7,273) (18,654) Other current assets (10,036) (1,569) Increase (Decrease) in: Accrued compensation 2,785 (387) Accounts payable and accrued expenses (46,121) (149,954) Unearned fee income (35,112) 25,868 Income taxes payable (7,395) (2,855) -------- --------- Net cash provided by operating activities 47,080 80,177 -------- --------- Cash flows from investing activities: Purchase of equipment (22,009) (6,678) Purchase of leasehold improvements (11,561) - Proceeds from sale of furniture and equipment 1,700 - Increase in security deposits (18,215) - Purchase of marketable securities, net of due (8,789) (5,723) Proceeds from sale of marketable securities 8,625 5,559 -------- --------- Net cash used by investing activities (50,249) (6,842) -------- --------- Cash flows from financing activities: Payments made on capital lease obligation (25,130) (16,710) -------- --------- Net cash provided (used) in financing activities (25,130) (16,710) -------- --------- Net increase in cash (28,299) 56,625 Cash and cash equivalents, beginning of year 219,775 163,150 -------- --------- Cash and cash equivalents, end of year $191,476 $ 219,775 ======== ========= Supplemental disclosure of cash flow information - ------------------------------------------------ Cash paid for interest $ 6,378 $ 3,106 Cash paid for income taxes $ 20,574 $ 22,796 See independent auditor's report and notes to financial statements.
- 5 - FIDUCIARY COUNSEL, INC. Statements of Operations and Retained Earnings (Deficit) December 31, 1997 and 1996
1997 1996 ---- ---- Income: Fee income - investment advisory $1,277,954 $1,532,481 Investment income 3,498 3,346 Gain on sale of furniture and equipment 1,700 - Realized gain on sale of securities 6,540 666 ---------- ---------- Total income 1,289,692 1,536,493 ---------- ---------- Expenses: Compensation and benefits 482,873 837,073 Commissions 48,794 13,920 Retirement pay 61,400 70,610 Consulting fees 115,856 62,600 Occupancy 100,096 148,137 Computer services 66,474 49,486 Professional fees 25,046 18,867 Insurance 6,282 9,319 Telephone 13,724 17,847 Postage and stationary 18,220 16,801 Depreciation and amortization 55,276 43,977 Interest 6,378 3,109 Travel and entertainment 100,951 107,016 Dues and subscriptions 19,413 14,323 All other 27,926 29,014 ---------- ---------- Total Expenses 1,148,709 1,442,099 ---------- ---------- Income before income taxes 140,983 94,394 Provision for income taxes 6,691 19,806 ---------- ---------- Net income 134,292 74,588 Retained earnings (deficit) beginning of year (73,877) (125,638) Prior period adjustment - (22,827) ---------- ---------- Retained earnings (deficit) beginning of year -- Restated (73,877) (148,465) ---------- ---------- Retained earnings (deficit) end of year $ 60,415 $ (73,877) ========== ========== See independent auditor's report and notes to financial statements.
- 6 - FIDUCIARY COUNSEL, INC. NOTES TO FINANCIAL STATEMENTS For the Years Ended December 31, 1997 and 1996 NOTE 1 - ORGANIZATION Fiduciary Counsel, Inc. (the "Company") was organized under the laws of the State of Delaware on April 30, 1931, and is in the investment advisory business. The Company's headquarters is located in New York, but also had operations in Illinois, New Jersey and Virginia during 1997 and 1996. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Fees and commissions - The Company records revenue on the -------------------- accrual basis of accounting and records the commission expense to subadvisors and commissioned employees, which are generally based upon established fee schedules and contracts. Marketable equity securities - Marketable equity securities ---------------------------- are carried at the lower of cost or market. Furniture, equipment and leasehold improvements - Furniture, ----------------------------------------------- equipment and leasehold improvements are recorded at cost. Depreciation is provided by the accelerated cost recovery method for furniture and equipment over five to seven years and the straight-line method for leasehold improvements over five years and ten years for the years ended December 31, 1997 and 1996, respectively. Income taxes - The Company has adopted Statement of ------------ Financial Accounting Standards No. 109 (SFAS 109) accounting for income taxes. The Statement requires use of the liability method of accounting for deferred income taxes. Deferred taxes are provided on temporary differences in reporting certain transactions for financial accounting and tax purposes. The items treated in this manner are difference in recording depreciation expense, the unrealized market value loss on investments and the resulting difference on the sale of property and investments when sold or retired. Due to the loss carry forwards there has not deferred tax liability or asset recorded. During 1997, the Company used a depreciation difference on leasehold improvements abandoned with its move to eliminate Federal income taxes. During 1996 the Company used net operating loss carryforwards to eliminate Federal income taxes. The statement of operations and retained earnings for 1997 and 1996 report the income tax expense net of these benefits. - 7 - FIDUCIARY COUNSEL, INC. NOTES TO FINANCIAL STATEMENTS For the Years Ended December 31, 1997 and 1996 The Company has available for federal income tax purposes an investment tax credit and capital loss carry-forwards expiring as follows:
Net operating Investment Capital loss tax credit loss --------- ---------- ------- For the year ended December 31, 1997 ------------------------------------ 1998 $ - $ - $1,544 2000 - 4,076 - 2012 66,177 - - ------- ------ ------ Total $66,177 $4,076 $1,544 ======= ====== ====== For the year ended December 31, 1996 ------------------------------------ 1997 $ - $ - $4,723 1998 - - 3,361 1999 - 4,076 - ------- ------ ------ Total $ - $4,076 $8,084 ======= ====== ======
Employee benefits - The Company has established a 401(k) ----------------- plan that enables employees on a salary reduction basis to contribute from 1% to 15% of compensation up to a maximum dollar limitation. The plan provides for no employer match. Bonus and incentive plans - The Company has a bonus and ------------------------- incentive plan covering all employees and members of management. Bonus and incentive plan expense is at the discretion of the Board of Directors. Use of estimates - The preparation of financial statements ---------------- in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ form those estimates. Statement of cash flows - For the purposes of the statement ----------------------- of cash flows, the Company considers highly liquid investments purchased with a maturity of three months or less to be cash equivalents. NOTE 3 - MARKETABLE EQUITY SECURITIES Marketable Equity Securities included in non-current assets had a cost of $13,782 and $6,984 and a market value of $14,577 and $8,695 as of December 31, 1997 and 1996, respectively. Gross unrealized gains and gross unrealized losses pertaining to the non-current marketable equity securities were as follows: - 8 - FIDUCIARY COUNSEL, INC. NOTES TO FINANCIAL STATEMENTS For the Years Ended December 31, 1997 and 1996
1997 1996 ---- ---- Gross unrealized gains $2,964 $3,604 Gross unrealized losses 2,169 1,893 ------ ------ Net unrealized gain $ 795 $1,711 ====== ======
NOTE 4 - CAPITAL LEASE OBLIGATION The Company leased both computer and office equipment under capital leases during 1997 and computer equipment during 1996. The economic substance of the leases is that the Company is financing the acquisition of the equipment through the leases and, accordingly, they are recorded in the Company's assets and liabilities. The following are schedules by years of the future minimum payments required under the leases together with their present value as of December 31, 1997 and 1996, respectively:
For the year ended December 31, 1997 December 31, 1996 ----------------- ----------------- 1997 $ 11,632 1998 $ 39,216 1999 39,216 2000 28,145 2001 7,632 - -------- -------- Total lease payments 114,209 11,632 Less amount representing interest 12,379 410 -------- -------- Present value of net future payments 101,830 11,222 Less current portion (31,768) (11,222) -------- -------- Long-term portion $ 70,062 $ - ======== ========
The leases are each secured by the underlying equipment and the total capitalized cost of the capitalized leases was $115,739 in 1997 and $65,838 in 1996. The capitalized lease property acquired in 1997 totaling $115,239 was a non cash investing and financing transaction, therefore not included in the statement of cash flow. NOTE 5 - LEASE COMMITMENTS The Company leases offices space under a non-cancelable operating leases expiring at July 31, 2002 and July 31, 1997 for the years ended December 31, 1997 and 1996, respectively. Such leases contain a provision for increasing rental due to increased expenses, taxes and cost of living. The office space is subleased under non-cancelable operating leases. The Company moved its New York location during 1997 when the lease expired in July 31, 1997. - 9 - FIDUCIARY COUNSEL, INC. NOTES TO FINANCIAL STATEMENTS For the Years Ended December 31, 1997 and 1996 The total rent expense was $302,412 which was reduced by the sublease rent of $154,275 during the year ended December 31, 1996. The total rent expense was $174,001, which was reduced by the sublease rent of $81,410 during the year ended December 31, 1997. The following are schedules by years of future minimum lease payments required under the non-cancelable operating lease.
For the year ended December 31, 1997 December 31, 1996 ----------------- ----------------- 1997 - $164,807 1998 $ 92,084 - 1999 93,430 - 2000 96,661 - 2001 98,546 - 2002 57,483 - -------- -------- Totals $438,204 $164,807 ======== ========
All rental payments are charged to operations as they are made. Rental income is netted against rental expense. NOTE 6 - RELATED PARTY TRANSACTIONS The Company leases office space to a related party, Estate Management Company, Inc. ("EMCO") which amounted to $13,750 in 1997 and $22,575 in 1996. As of December 31, 1997 and 1996, EMCO owed the Company $20,241 and $21,622, respectively. The Company leases office space to a related party, Starwood Corporation ("SWC") which amounted to $9,700 in 1997 and $13,200 in 1996. As of December 31, 1997 and 1996, SWC owed the Company $7,898 and $13,648 respectively. NOTE 7 - CONTINGENCIES & COMMITMENTS The Company maintains bank accounts that periodically exceed the FDIC guarantee limit during a year. At December 31, 1996, the Company had a bank account, which was in excess of the FDIC limit by approximately $54,610. Additionally, the Company maintains money market funds, which are not FDIC guaranteed and therefore involve risk to principal. The balance in money market funds at December 31, 1997 and December 31, 1996 was $85,256 and $101,591, respectively. The Company entered into a retirement pay plan with two of its former employees, wherein the Company agreed to pay each of them a ten percent (10%) commission on fees billed to clients retained by the Company, which had been managed by each individual during his or her employment. The plan and payments for each individual will cease upon the death of the former employee. During the years - 10 - FIDUCIARY COUNSEL, INC. NOTES TO FINANCIAL STATEMENTS For the Years Ended December 31, 1997 and 1996 ended December 31, 1997 and December 31, 1996 the commissions under this plan amounted to $61,401 and $70,610, respectively. NOTE 8 - RESTATEMENT The financial statements have been restated to adjust for settlement expense of $22,827, which had been reported in previously issued financial statements as an expense during the year, ended December 31, 1996. The settlement was the result of business operations prior to 1996 and the amount of the settlement was probable and the settlement cost was known as of December 31, 1995. The effect on the financial statements was to reduce the expense in 1996 and reduce the retained earnings (deficit) as of December 31, 1995 by the settlement amount. NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of financial instruments including cash, accounts receivable, accrued compensation and accounts payable approximated fair value as of December 31, 1997 and 1996 because of the relatively short-term maturity of these instruments. - 11 - FIDUCIARY COUNSEL, INC. Balance Sheet UNAUDITED June 30, 1998 ASSETS ------ CURRENT ASSETS - -------------- Cash $302,465 Accounts receivable, net of doubtful accounts of $0 40,186 Loan receivable - affiliated company 156,079 Loans receivable 10,691 Other current assets 28,416 -------- Total current assets 537,837 -------- FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS - ----------------------------------------------- Furniture and equipment 157,191 Leasehold improvements 11,561 -------- 168,752 Less: Accumulated depreciation and amortization 57,289 -------- Net furniture, equipment and leasehold improvements 111,463 -------- OTHER ASSETS - ------------ Security deposits 23,530 Marketable equity securities 13,614 -------- Total other assets 37,144 -------- Total assets $686,444 ======== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES - ------------------- Capital lease obligations, current portion $ 30,694 Accrued compensation 172,000 Accounts payable and accrued expenses 53,074 Unearned fee income 120,325 Income taxes payable - -------- Total current liabilities 376,093 Capital lease obligations, less current portion 55,686 -------- Total liabilities 431,779 -------- STOCKHOLDERS' EQUITY - -------------------- Common stock, no par value: 50,000 shares authorized and issued 52,809 Capital contributed in excess of stated value 168,243 Retained earnings 33,863 -------- 254,915 Less: Treasury stock, at cost, 50 shares 250 -------- Total stockholders' equity 254,665 -------- Total liabilities and stockholders' equity $686,444 ======== The accompanying notes are an integral part of these financial statements.
- 12 - FIDUCIARY COUNSEL, INC. UNAUDITED Statement of Income and Retained Earnings (Deficit) For the six months ended June 30, 1998 and 1997
1998 1997 -------- -------- INCOME - ------ Fee income - Investment advisory $658,854 $665,452 Investment income 2,680 2,104 Loss on disposition of furniture and equipment (1,223) - Other income 1,352 1,700 -------- -------- Total income 661,663 669,256 -------- -------- EXPENSES - -------- Compensation and benefits 412,247 261,668 Commissions 21,666 7,087 Retirement pay 33,916 35,481 Consulting fees 26,395 31,806 Occupancy 42,876 75,422 Computer services 28,585 25,656 Professional fees 21,886 14,047 Insurance 3,060 4,769 Telephone 8,633 6,176 Postage and stationery 9,572 7,779 Depreciation and amortization 22,707 22,712 Interest 4,984 617 Travel and entertainment 39,553 58,684 Dues and subscriptions 9,082 6,443 All other 5,900 12,897 -------- -------- Total expenses 691,062 571,244 Income before income taxes (29,399) 98,012 Provision for income taxes (benefit) (2,847) 9,800 -------- -------- Net income (26,552) 88,212 Retained earnings (deficit), beginning of year 60,415 (73,877) -------- -------- Retained earnings, end of year $ 33,863 $ 14,335 ======== ======== The accompanying notes are an integral part of these financial statements.
- 13 - FIDUCIARY COUNSEL, INC. UNAUDITED Comparative Statement of Cash Flows For the six months ended June 30, 1998 and 1997
1998 1997 -------- --------- CASH FLOWS FROM OPERATING ACTIVITIES - ------------------------------------ Net income $(26,552) $ 88,212 Adjustments to reconcile net income to net provided by operating activities: Depreciation and amortization 22,707 22,712 Book value of furniture and equipment 1,223 (1,700) Unrealized gain in securities 168 - (Increase) decrease in: Accounts receivable 17,416 (15,758) Loan receivable - affiliated companies 28,678 (28,374) Loan receivable 7,485 3,916 Other current assets 2,789 (598) Increase (decrease) in: Accrued compensation 160,000 (9,215) Accounts payable and accrued expenses (19,146) 26,521 Unearned fee income (62,714) (103,056) Income taxes payable - 2,405 -------- --------- Net cash provided (used) by operating activities 132,054 (14,935) -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES - ------------------------------------ Purchase of equipment (5,439) (25,764) Proceeds from sale of furniture and equipment - 1,700 Increase in security deposits - (21,405) -------- --------- Net cash used by investing activities (5,439) (45,469) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES - ------------------------------------ Reduction of capital lease obligations (15,451) (9,051) -------- --------- Net cash used in financing activities (15,451) (9,051) -------- --------- Net increase (decrease) in cash 111,164 (69,455) Cash, beginning of year 191,301 219,694 -------- --------- Cash, end of year $302,465 $ 150,239 ======== ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION - ------------------------------------------------- Cash paid for interest $ 4,984 $ 617 Cash paid for income taxes $ 125 $ 16,224 The accompanying notes are an integral part of these financial statements.
- 14 - FIDUCIARY COUNSEL, INC. NOTES TO FINANCIAL STATEMENTS For the six months ended June 30, 1998 Note 1 - Summary of Significant Accounting Policies ------------------------------------------ Organization - Fiduciary Counsel, Inc. (the "Company") was organized ------------ under the laws of the State of Delaware, on April 30, 1931, and is in the investment advisory business. Marketable equity securities - Marketable equity securities are ---------------------------- carried at the lower of cost or market. Furniture, equipment and leasehold improvements - Furniture, ----------------------------------------------- equipment and leasehold improvements are recorded at cost. Depreciation is provided by the accelerated cost recovery method for furniture and equipment over five to seven years and the straight- line method for leasehold improvements over the life of the lease. Income taxes - The Company has available for federal income tax ------------ purposes an investment tax credit and capital loss carry-forwards expiring as follows:
Net operating Investment Capital loss tax credit loss --------- ---------- ------- For the year ended December 31, 1997 ------------------------------------ 1998 $ - 0 - $- 0 - $1,544 2000 - 0 - 4,076 - 0 - 2012 66,177 - 0 - - 0 - ------- ------ ------ Total $66,177 $4,076 $1,544 ======= ====== ======
Employee benefits - The Company has established a 401 (k) plan that ----------------- enables employees on a salary reduction basis to contribute from 1% to 15% of compensation up to a maximum dollar limitation. The plan provides for no employer match. Bonus and incentive plans - The Company has a bonus and incentive ------------------------- plan covering all employees and members of management. Bonus and incentive plan expense is at the discretion of the Board of Directors. Use of estimates - The preparation of financial statements in ---------------- conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Note 2 - Marketable Equity Securities ---------------------------- Marketable equity securities included in non-current assets had a cost of $13,782 and a market value of $14,577 as of June 30, 1998. Gross unrealized gains and gross unrealized losses pertaining to the non-current marketable equity securities were as follows: - 15 - Gross unrealized gains $2,964 Gross unrealized losses 2,169 ------ Net unrealized gain $ 795 ======
Note 3 - Capital Lease Obligation ------------------------ The Company leased both computer and office equipment under capital leases during 1997 and only computer equipment during 1996. The economic substance of the leases is that the Company is financing the acquisition of the equipment through the leases and, accordingly, they are recorded in the Company's assets and liabilities. The following are schedules by years of the future minimum payments required under the leases together with their present value as of June 30, 1998:
For the twelve months ended June 30, 1998 ------------- 1999 $41,372 2000 34,477 2001 22,591 ------- Total lease payments 98,440 Less: Amount representing interest 12,060 ------- Present value of net lease payments 86,380 Less: Current portion 30,394 ------- Long-term portion $55,986 =======
The leases are each secured by the underlying equipment. Note 4 - Lease Commitments ----------------- The Company leases office space under non-cancelable operating leases expiring at July 31, 2002. Such leases contain a provision for increasing rental due to increased expenses, taxes and cost of living. The following are schedules by years of future minimum lease payments required under the non-cancelable operating lease.
For the twelve months ended June 30, 1998 ------------- 1999 $ 92,084 2000 94,776 2001 98,546 2002 106,756 -------- Total $392,162 ========
All rental payments are charged to operations as they are made. Rental income is netted against rental expense. Note 5 - Related Party Transactions -------------------------- The Company leases office space to a related party, EMCO Estate Management Company, Inc. ("EMCO") which amounted to $0 for the six months ended June 30, 1998. As of June 30,1998, the Company owed EMCO $5,711. - 16 - The Company leases office space to a related party, Starwood Corporation ("SWC") which amounted to $2,400 for the six months ended June 30, 1998. As of June 30, 1998, SWC owed the Company $5,172. Note 6 - Fair Value of Financial Instruments ----------------------------------- The carrying amounts of financial instruments including cash, accounts receivable, accrued compensation and accounts payable approximated fair value as of June 30, 1998 because of the relatively short-term maturity of these instruments. - 17 - Pro Forma Financial Information ------------------------------- The following unaudited pro forma combined consolidated balance sheet gives effect to the acquisition of Fiduciary Counsel as if it were consummated on June 30, 1998. The following pro forma unaudited combined consolidated income statements for the year ended December 31, 1997 and for the six-month period ended June 30, 1998 set forth the results of operations of the Company combined with the results of operations of Fiduciary Counsel as if the acquisition had occurred as of January 1, 1997. The unaudited pro forma combined consolidated financial statements should be read in conjunction with the accompanying Notes to the Pro Forma Combined Financial Statements (Unaudited) and with the historical financial statements of the Company and Fiduciary Counsel. These pro forma combined consolidated financial statements may not be indicative of the results of operations that actually would have occurred if the acquisition had been consummated on the dates assumed above or of the results of operations that may be achieved in the future. - 18 - UNIFIED FINANCIAL SERVICES, INC. AND SUBSIDIARIES Pro Forma Condensed Consolidated Balance Sheet (unaudited) As at June 30, 1998
Adjustments and Eliminations ---------------------------- Unified Financial Fiduciary Services Counsel, Inc. Debit Credit Combined ----------- ------------- ---------- -------- ----------- ASSETS: CURRENT ASSETS: Cash and cash equivalents $ 8,646,373 $302,465 $ - $800,835 $ 8,148,003 Investment in affiliated mutual funds 474,168 474,168 Investment in non-affiliated mutual funds 204,830 204,830 Notes receivable, affiliated company - - Loan receivable - 166,770 166,770 Accounts receivable (net of allowance for - doubtful accounts of $2,041) 1,631,525 40,186 1,671,711 Prepaid and sundry assets 145,707 28,416 174,123 ----------- -------- ---------- -------- ----------- Total current assets 11,102,603 537,837 - 800,835 10,839,605 ----------- -------- ---------- -------- ----------- FIXED ASSETS, AT COST: Equipment and furniture (net of accumulated depreciation) 582,621 582,621 Capitalized leased equipment and leasehold improvements (net of accumulated depreciation and amortization) 40,464 111,463 151,927 ----------- -------- ---------- -------- ----------- Total fixed assets 623,085 111,463 - - 734,548 ----------- -------- ---------- -------- ----------- NON-CURRENT ASSETS: Investment in debt securities 864,175 864,175 Organization cost net of accumulated amortization of $213,295 376,150 376,150 Equity in and advances in affiliates - Goodwill 1,500,920 1,500,920 Notes receivable, net of current maturity - Other assets 37,144 37,144 ----------- -------- ---------- -------- ----------- Total non-current assets 1,240,325 37,144 1,500,920 - 2,778,389 ----------- -------- ---------- -------- ----------- Total fixed and non-current assets 1,863,410 148,607 1,500,920 - 3,512,937 ----------- -------- ---------- -------- ----------- Total assets $12,966,013 $686,444 $1,500,920 $800,835 $14,352,542 =========== ======== ========== ======== =========== See notes to consolidated financial statements. - 19 - UNIFIED FINANCIAL SERVICES, INC. AND SUBSIDIARIES Pro Forma Condensed Consolidated Balance Sheet (unaudited) As at June 30, 1998 Adjustments and Eliminations ---------------------------- Unified Financial Fiduciary Services Counsel, Inc. Debit Credit Combined ----------- ------------- ---------- -------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY: CURRENT LIABILITIES: Current portion of capitalized leases $ 18,746 $ 30,694 $ - $ - $ 49,440 Current portion of bank loan 30,719 - 30,719 Accounts payable and accrued expenses 728,610 53,074 22,000 803,684 Accrued compensation and benefits 292,041 172,000 464,041 Payable to broker/dealers 337,659 - 337,659 Income taxes payable 5,548 - 5,548 Deferred income taxes 59,918 - 59,918 Other liabilities 1,115,477 120,325 1,235,802 ----------- -------- ---------- -------- ----------- Total current liabilities 2,588,718 376,093 - 22,000 2,986,811 ----------- -------- ---------- -------- ----------- LONG-TERM LIABILITIES: Long-term capitalized lease obligations, net of current portion 10,860 55,686 66,546 Bank loan, net of current portion 306,217 - 306,217 Other long-term liabilities 30,000 30,000 Deferred income taxes 800 - 800 ----------- -------- ---------- -------- ----------- Total long-term liabilities 317,877 55,686 - 30,000 403,563 ----------- -------- ---------- -------- ----------- Total liabilities 2,906,595 431,779 - 52,000 3,390,374 ----------- -------- ---------- -------- ----------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, par value $.01 per share 18,748 52,809 52,809 36,110 54,858 Preferred stock Series A - - Preferred stock Series B - - Preferred stock Series C 2,100 2,100 Additional paid-in capital 9,116,116 168,243 168,243 866,640 9,982,756 Retained earnings 922,454 33,863 33,863 922,454 Less: Treasury stock - (250) 250 - ----------- -------- ---------- -------- ----------- Total stockholders' equity 10,059,418 254,665 254,915 903,000 10,962,168 ----------- -------- ---------- -------- ----------- Total liabilities and stockholders' equity $12,966,013 $686,444 $ 254,915 $955,000 $14,352,542 =========== ======== ========== ======== =========== See notes to consolidated financial statements.
- 20 - UNIFIED FINANCIAL SERVICES, INC. AND SUBSIDIARIES Pro Forma Condensed Consolidated Statement of Income (unaudited) For the six months ended June 30, 1998
Adjustments and Eliminations ---------------------------- Unified Financial Fiduciary Services Counsel, Inc. Debit Credit Combined ----------- ------------- ---------- -------- ----------- REVENUE Brokerage $ 1,604,177 $658,854 $ - $ - $ 2,263,031 Fund services 545,776 545,776 Investment advisory 1,343,715 1,343,715 Trust and administration services 561,589 561,589 Software and programming services 16,502 16,502 Other income 177,406 4,032 181,438 ----------- -------- ---------- -------- ----------- Total revenue 4,249,165 662,886 - - 4,912,051 ----------- -------- ---------- -------- ----------- COST OF SALES: Brokerage revenue charges 582,410 582,410 Investment fees 66,273 66,273 Administration fees 43,829 43,829 ----------- -------- ---------- -------- ----------- Total cost of sales 692,512 - - - 692,512 ----------- -------- ---------- -------- ----------- Gross profit 3,556,653 662,886 - - 4,219,539 ----------- -------- ---------- -------- ----------- EXPENSES: Employee compensation and benefits 1,341,078 412,247 1,753,325 Brokerage operating charges 187,146 187,146 Fund services operating charges 311,716 311,716 Mail and courier service 49,027 9,572 58,599 Telephone 57,699 8,633 66,332 Equipment rental and maintenance 72,701 28,585 101,286 Occupancy 143,463 42,876 186,339 Depreciation and amortization 141,702 22,707 164,409 All other 507,535 166,442 673,977 ----------- -------- ---------- -------- ----------- Total expenses 2,812,067 691,062 - - 3,503,129 ----------- -------- ---------- -------- ----------- Income from operations 744,586 (28,176) - - 716,410 ----------- -------- ---------- -------- ----------- OTHER INCOME (LOSS): Unrealized gain or (loss) on securities 30,119 30,119 Realized gain or (loss) on securities 6,250 6,250 Results of affiliate (loss) or gain (39,945) (39,945) Gain or (loss) on sale/disposal of fixed assets 5,140 (1,223) 3,917 ----------- -------- ---------- -------- ----------- Total other income (loss) 1,564 (1,223) - - 341 ----------- -------- ---------- -------- ----------- Income before income taxes 746,150 (29,399) - - 716,751 ----------- -------- ---------- -------- ----------- INCOME TAXES: Current 1,904 1,904 Deferred (6,080) (2,847) (6,080) ----------- -------- ---------- -------- ----------- Total income taxes (4,176) (2,847) - - (4,176) ----------- -------- ---------- -------- ----------- Net income $ 750,326 $(26,552) $ - $ - $ 720,927 =========== ======== ========== ======== =========== See notes to consolidated financial statements.
- 21 - UNIFIED FINANCIAL SERVICES, INC. AND SUBSIDIARIES Pro Forma Condensed Consolidated Statement of Income (unaudited) For the year ended December 31, 1997
Adjustments and Eliminations ---------------------------- Unified Financial Fiduciary Services Counsel, Inc. Debit Credit Combined ---------- ------------- -------- -------- ---------- REVENUE Brokerage $2,542,130 $ $ - $ - $2,542,130 Fund services 1,624,395 1,624,395 Investment advisory 1,859,566 1,277,954 3,137,520 Trust and administration services 367,555 367,555 Software and programming services 131,787 131,787 Other income 189,055 3,498 192,553 ---------- ---------- -------- -------- ---------- Total revenue 6,714,488 1,281,452 - - 7,995,940 ---------- ---------- -------- -------- ---------- COST OF SALES: Brokerage revenue charges 1,712,545 1,712,545 Investment fees 90,768 90,768 Administration fees 59,015 59,015 ---------- ---------- -------- -------- ---------- Total cost of sales 1,862,328 - - - 1,862,328 ---------- ---------- -------- -------- ---------- Gross profit 4,852,160 1,281,452 - - 6,133,612 ---------- ---------- -------- -------- ---------- EXPENSES: Employee compensation and benefits 2,623,443 482,873 3,106,316 Brokerage operating charges 317,381 317,381 Fund services operating charges 235,561 235,561 Mail and courier service 50,518 13,724 64,242 Telephone 104,068 6,283 110,351 Equipment rental and maintenance 90,404 - 90,404 Occupancy 216,618 115,856 332,474 Depreciation and amortization 189,752 55,276 245,028 All other 596,394 477,648 1,074,042 ---------- ---------- -------- -------- ---------- Total expenses 4,424,139 1,151,660 - - 5,575,799 ---------- ---------- -------- -------- ---------- Income from operations 428,021 129,792 - - 557,813 ---------- ---------- -------- -------- ---------- OTHER INCOME (LOSS): Unrealized gain or (loss) on securities 28,855 28,855 Realized gain or (loss) on securities 15,647 6,540 22,187 Results of affiliate (loss) or gain (160,298) (160,298) Gain or (loss) on sale/disposal of fixed assets - 1,700 1,700 ---------- ---------- -------- -------- ---------- Total other income (loss) (115,796) 8,240 - - (107,556) ---------- ---------- -------- -------- ---------- Income before income taxes 312,225 138,032 - - 450,257 ---------- ---------- -------- -------- ---------- INCOME TAXES: Current 45,500 3,740 1,904 Deferred 7,500 (6,080) ---------- ---------- -------- -------- ---------- Total income taxes 53,000 3,740 - - (4,176) ---------- ---------- -------- -------- ---------- Net income $ 259,225 $ 134,292 $ - $ - $ 454,433 ========== ========== ======== ======== ========== See notes to consolidated financial statements.
- 22 - UNIFIED FINANCIAL SERVICES, INC. AND SUBSIDIARIES Notes to Pro Forma Condensed Consolidated Financial Statements (Unaudited) Acquisition of Fiduciary Counsel, Inc. Effective August 21, 1998, the Company acquired Fiduciary Counsel, Inc. in a transaction to be accounted for under the purchase method of accounting. In connection with the acquisition, the Company issued 36,110 shares of Common Stock and paid $800,835 in cash in exchange for all of the outstanding shares of capital stock of Fiduciary Counsel, Inc. The pro forma excess of cost over fair values of net assets acquired was $1,500,920 for Fiduciary Counsel, Inc. as of June 30, 1998. Such goodwill will be amortized. - 23 - SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. UNIFIED FINANCIAL SERVICES, INC. Dated: October 20, 1998 By: /s/ Timothy L. Ashburn ----------------------------- Timothy L. Ashburn Chairman, President and Chief Executive Officer - 24 - EXHIBIT INDEX
Exhibit No. Description - ----------- ----------- 2 Agreement and Plan of Merger, dated July 10, 1998, by and among Unified Financial Services, Inc., Fiduciary Acquisition Corporation, Fiduciary Counsel, Inc., Associated Family Services, Inc., Intellectronic Management Systems, Inc., Jack R. Orben, Andrew E. Beer and Charles C. Hickox 23 Consent of Larry E. Nunn & Associates, L.L.C. with respect to its report dated October 6, 1998 regarding the financial statements of Fiduciary Counsel, Inc. - ------------- Previously filed.
- 25 - EX-23 2 CONSENT OF EXPERT Exhibit 23 ---------- [Letterhead of Larry E. Nunn & Associates, L.L.C.] CONSENT OF LARRY E. NUNN & ASSOCIATES, L.L.C. --------------------------------------------- We consent to the incorporation by reference in the Registration Statement and in the related Prospectus listed below of Unified Financial Services, Inc. of our report dated October 6, 1998, with respect to the financial statements of Fiduciary Counsel, Inc. for the year ended December 31, 1997, incorporated by reference in this Current Report on Form 8-K/A. Form Registration Number ---- ------------------- S-8 333-53863 /s/ Larry E. Nunn & Associates, L.L.C. Larry E. Nunn & Associates, L.L.C. Certified Public Accountants Columbus, Indiana October 20, 1998 -----END PRIVACY-ENHANCED MESSAGE-----