-----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, M/hGvhzT9dXrRrRQmP4uYKMN6CPTSb829WfIIeTukgTokhK2PzbHZBrrXdnHZuNF cjr7rG/nd8FsXudr4DyEzg== 0001068800-99-000363.txt : 19990824 0001068800-99-000363.hdr.sgml : 19990824 ACCESSION NUMBER: 0001068800-99-000363 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990823 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: 10QSB SEC ACT: SEC FILE NUMBER: 000-22629 FILM NUMBER: 99697648 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 10QSB 1 UNIFIED FINANCIAL SERVICES, INC. 10-QSB 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. TABLE OF CONTENTS
Page ---- 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
- 2 - PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS: UNIFIED FINANCIAL SERVICES, INC. CONSOLIDATED BALANCE SHEETS
June 30, December 31, 1999 1998 ----------- ------------ (unaudited) 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.
- 3 - UNIFIED FINANCIAL SERVICES, INC. CONSOLIDATED BALANCE SHEET
June 30, December 31, 1999 1998 ----------- ------------ (Unaudited) 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.
- 4 - UNIFIED FINANCIAL SERVICES, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Six Months Ended Three Months Ended June 30, June 30, ------------------------ ---------------------- 1999 1998 1999 1998 ----------- ----------- ---------- ---------- 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.
- 5 - UNIFIED FINANCIAL SERVICES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Six Months Ended Three Months Ended June 30, June 30, -------------------- --------------------- 1999 1998 1999 1998 -------- -------- --------- -------- 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.
- 6 - UNIFIED FINANCIAL SERVICES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended Three Months Ended June 30, June 30, ------------------------- ------------------------- 1999 1998 1999 1998 ----------- ----------- ----------- ----------- 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) --
- 7 - UNIFIED FINANCIAL SERVICES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)
Six Months Ended Three Months Ended June 30, June 30, ------------------------- ------------------------ 1999 1998 1999 1998 ------------ ----------- ----------- ---------- 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.
- 8 - 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 - 9 - 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 - 10 - 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. - 11 - 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. - 12 - 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. - 13 - 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 - 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.
Balance at June 30, 1999 -------------------------------- Current Long-Term Creditor Lender Portion Portion Total Interest rate Date of Maturity Remarks - -------- ------ -------------------------------- -------------- ------------------ -------------------------- 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 ========== ========== ==========
- 15 - 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 - 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 - 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:
Company acquired Date Shares issued ---------------- ----------------- ------------- Benefit Planners March 10, 1998 12,000 EMCO August 21, 1998 11,000 Fiduciary Counsel August 21, 1998 36,110 Equity Insurance December 17, 1998 241,745 CPFC December 17, 1998 12,800 Strategic December 22, 1998 7,500 AmeriPrime December 31, 1998 410,000 M. Wilson January 1, 1999 3,636 Commonwealth Investment June 1, 1999 27,500 Fully Armed Productions June 1, 1999 18,182
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 - 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:
SHARES SHARES SHARES STATED PAR DESIGNATED ISSUED OUTSTANDING VALUE VALUE ---------- ------ ----------- ------ ----- Preferred Stock Series C: 2,100 1,459 1,459 $100 $0.01 Preferred Stock Series D: 100,000 -0- -0- 200 0.01
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 - 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.
JUNE 30, --------------------------------------------------------------- 1999 1998 --------------------------- --------------------------- CARRYING FAIR CARRYING FAIR (IN THOUSANDS) AMOUNT VALUE AMOUNT VALUE ------ ----- ------ ----- 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
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 - 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:
(IN THOUSANDS) 1999 1998 ---- ---- 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 ========= =========
- 21 - 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.
- --------------------------------------------------------------------------------------------------------------------------------- PERCENT PRINCIPAL PLACE OWNED BY SUBSIDIARY NAME OF BUSINESS DESCRIPTION OF SUBSIDIARY COMPANY - --------------------------------------------------------------------------------------------------------------------------------- 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% - --------------------------------------------------------------------------------------------------------------------------------- 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% casualty insurance products as a managing general agent and broker - --------------------------------------------------------------------------------------------------------------------------------- 21st Century Claims Service, Inc. Lexington, Kentucky A provider of adjusting services and 100% third-party claim administration services - --------------------------------------------------------------------------------------------------------------------------------- Equity Insurance Administrators, Inc. Lexington, Kentucky A provider of third-party claim 100% administration services to insurance companies and program managers - --------------------------------------------------------------------------------------------------------------------------------- Equity Insurance Managers of Illinois, Illinois A wholesale brokerage firm 55% L.L.C. (d/b/a/ Irland & Rogers) - --------------------------------------------------------------------------------------------------------------------------------- - 22 - - --------------------------------------------------------------------------------------------------------------------------------- PERCENT PRINCIPAL PLACE OWNED BY SUBSIDIARY NAME OF BUSINESS DESCRIPTION OF SUBSIDIARY COMPANY - --------------------------------------------------------------------------------------------------------------------------------- Commonwealth Premium Finance Lexington, Kentucky A provider of financing for the payment 100% 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% - --------------------------------------------------------------------------------------------------------------------------------- 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 - --------------------------------------------------------------------------------------------------------------------------------- - ---------------- A wholly owned subsidiary of AmeriPrime Financial Services, Inc. A wholly owned subsidiary of Equity Underwriting Group, Inc. A wholly owned subsidiary of Equity Insurance Managers, Inc. Equity Insurance Managers of Illinois, L.L.C. is 55% owned by Equity Insurance Managers, Inc.
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 - 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 - 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 - 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 - 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 - 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 - 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 - 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 - 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:
NAME FOR AGAINST WITHHELD ---- --- ------- -------- 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
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 - 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 - 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 - 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 - EX-3.1 2 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION 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. 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 EX-11.1 3 COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11.1 UNIFIED FINANCIAL SERVICES, INC. EARNINGS PER SHARE CALCULATION (UNAUDITED)
Six Months Ended Three Months Ended June 30, June 30, ---------------------------- ---------------------------- 1999 1998 1999 1998 ---------- ---------- ---------- ---------- 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 ========== ========== ========== ==========
EX-27.1 4 FINANCIAL DATA SCHEDULE
5 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. 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 12,663,560 661,062 10,425,775 (41,576) 0 23,923,114 6,099,513 (3,267,884) 31,617,583 14,056,370 0 30,693 0 1,459 0 31,617,583 0 12,665,565 3,619,226 3,619,226 8,762,509 3,250 237,464 43,116 44,000 (884) 0 0 0 (884) 0.00 0.00
EX-27.2 5 RESTATED FINANCIAL DATA SCHEDULE
5 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. 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 9,948,937 832,945 8,625,969 (2,041) 0 19,639,099 3,286,527 (1,825,811) 23,410,279 12,167,408 0 19,404 0 2,100 0 23,410,279 0 10,003,293 3,116,907 3,116,907 5,895,860 15,000 185,174 790,352 12,524 777,828 0 0 0 777,828 0.37 0.33
-----END PRIVACY-ENHANCED MESSAGE-----