| UNITY HOLDINGS, INC.

AND SUBSIDIARY

CONSOLIDATED FINANCIAL REPORT

DECEMBER 31, 2006 |
|----------------------------------------------------------------------------------------|

----

April 14, 2007

Dear Valued Shareholder:

I am pleased to report to you the results of theyear ended December 31, 2006.  The past year proved very successful for UnityHoldings, Inc.  We added to our expanding office network and increased marketshare in our current areas of business.  The company also provided shareholdersan opportunity to realize gains on their investment through a stock buy backprogram, which was extremely successful.  The Company's financial performancecontinues to add value to your investment.

Unity National bank (the "Bank"), our whollyowned subsidiary, continued its favorable performance trends.  Our success inour different markets indicate that community banking with a focus on hightouch service continues to be a preferred banking choice.  Total assets at yearend were $266.6 million, an increase of $33.2 million over last year.  Thishigh growth was fueled by $28.5 million in loan growth and $26.2 million indeposit growth.  Net interest margins remain strong thanks to these profitablegrowth trends.  The Company's book value at December 31, 2006 was $17.27, an11.3% growth over the $15.51 posted for 2005.  Increases in book value indicatea strong equity base during periods or accelerated loan and deposit growth.

We continue to seek out avenues to increase theCompany's franchise value.  In August 2006, the Bank opened its full serviceoffice in Calhoun, Gordon County Georgia.  We had found that this market was agood fit for the Company through our loan production office located there forseveral years.  We look forward to servicing Gordon County with all theirbanking needs.

Our strategy of high growth keeps our loan volumesahead of deposit volumes, but our funding mix continues to shift tonon-maturity deposits that carry lower costs.  Our aggressive yet high qualitygrowth allows us to fully leverage our strong capital base.

I invite you to review this report for a morethorough explanation of our financial performance.  Your active participationin the ongoing history of Unity Holdings, Inc. is always encouraged.  We urgeyou to bank with us and meet our friendly, experienced staff.  The Board,staff, and I stand ready to serve your shareholder and banking needs.  Pleasemake plans to attend the Annual Meeting of Shareholders on May 16, 2007.

Sincerely,

MICHAEL L. McPHERSON

Michael L. McPherson,

President & CEO

----

| **LOCATIONS**                                                         |
|-----------------------------------------------------------------------|
| MAIN OFFICE    950 Joe Frank Harris Parkway    Cartersville, GA 30121 | ADAIRSVILLE    7450 Adairsville Highway, NW    Adairsville, GA 30103 | ROME  42 Three Rivers Drive    Rome, GA 30161 |
|                                                                       |  |  |
| HENDERSON DRIVE    601 Henderson Drive    Cartersville, GA 30120      | CALHOUN  150 W.C. Bryant Parkway  Calhoun, GA 30701 | OPERATIONS CENTER    34 Center Road    Cartersville, GA 30121 |
|                                                                       |  |  |

|  |
|--|

| **DIRECTORS**             |
|---------------------------|
| JERRY W. BRADEN  Chairman | KENNETH R. BISHOP | DONALD D. GEORGE | JOHN S. LEWIS |
|                           |  |  |  |
| SAM R. McCLESKEY          | MICHAEL L. MCPHERSON | STEPHEN A. TAYLOR | B. DON TEMPLES |

----

| **EXECUTIVE OFFICERS**                                           |
|------------------------------------------------------------------|
|                                                                  | MICHAEL L. MCPHERSON  President and Chief Executive Officer |  |
|                                                                  |  |  |
| W. STEWART GRIGGS  Executive Vice President  Senior Loan Officer |  | ELI D. MULLIS  Senior Vice President  Chief Financial Officer |

|  |
|--|

| **OFFICERS**                                                                     |
|----------------------------------------------------------------------------------|
| KIMBERLY ABERNATHY  Vice President  Human Resources                              | MICHELLE BAILEY  Vice President  Loan Operations |
| BARRY BURCH  Vice President  Commercial Lender, Main Office - Cartersville       | MARTHA DARBY  Vice President  Loan Officer, Calhoun |
| JOHN GRAHAM  Vice President  Commercial Lender - Rome                            | RICK HUGHES  Vice President  Commercial Lender, Main Office - Cartersville |
| RICK KOLLHOFF  Vice President  Commercial Lender, Henderson Drive - Cartersville | CHRISTIE McLAUGHLIN  Vice President  Deposit Operations |
|                                                                                  |  |
| CONNIE MITCHELL-WHITE  Vice President  Retail Division Officer                   | MICHAEL SMITH  Vice President  Commercial Lender, Adairsville |
| MIKE STOVER  Vice President  Commercial Lender, Rome                             | STANLEY TAYLOR  Vice President  Commercial Lender, Calhoun |
| DONA WISNOM  Vice President  Loan Officer, Main Office - Cartersville            |
|                                                                                  |  |
| BRANDON ADAMS  Financial Reporting and Compliance Officer                        | TERESA BROWN  Retail Banking Officer, Cartersville |
| JOSH KUSNITZ  Banking Officer  Credit Analysis                                   | JOE LYNCH  Collections Officer |
| APRIL SCOTT  Business Development Officer                                        | BRYAN SHEALY  Loan Officer, Adairsville |
| JEREMY SMITH  Loan Officer, Main Office - Cartersville                           | JEFF STARKE  Technology Officer |
| HAZEL D. TEMPLES  BSA Officer                                                    |  |
|                                                                                  |  |

----

**UNITY HOLDINGS, INC.**

**AND SUBSIDIARY**

** **

**CONSOLIDATED FINANCIAL REPORT**

**DECEMBER 31, 2006**

**TABLE OF CONTENTS**

| ** **                                                   | ** **                                                                                 | **Page**

** ** |
|--------------------------------------------------------------|--------------------------------------------------------------------------------------------|----------------------|
| **REPORT OF INDEPENDENT REGISTERED PUBLIC  ACCOUNTING FIRM** | **1**                                                                                      |
| ** **                                                   | ** **                                                                                 | ** **           |
| **FINANCIAL STATEMENTS**                                     | ** **                                                                                 |
| ** **                                                   | ** **                                                                                 | ** **           |
| ** **                                                   | **Consolidated balance sheets**                                                            | **2**                |
| ** **                                                   | **Consolidated statements of income**                                                      | **3**                |
| ** **                                                   | **Consolidated statements of  comprehensive income**                                       | **4**                |
| ** **                                                   | **Consolidated statements of stockholders'  equity**                                       | **5**                |
| ** **                                                   | **Consolidated statements of cash flows**                                                  | **6**                |
| ** **                                                   | **Notes to consolidated financial  statements**                                            | **8-27**             |
| ** **                                                   | **Selected Financial Data**                                                                | **28**               |
| ** **                                                   | **Management's Discussion and Analysis of  Financial Condition and Results of Operations** | **30-43**            |

** **

----

** **

MAULDIN& JENKINS

CertifiedPublic Accountants, LLC

| ** **

**       REPORT OF  INDEPENDENT REGISTERED**

** PUBLIC ACCOUNTING  FIRM** |
|---------------------------------------------------------------------------------------------------------------------------|

**To the Board of Directors**

**Unity Holdings, Inc.**

**Cartersville****, Georgia**

We have audited theaccompanying consolidated balance sheets of **Unity Holdings, Inc. andsubsidiary** as of December 31, 2006 and 2005, and the related consolidatedstatements of income, comprehensive income, stockholders' equity and cash flowsfor the years then ended.  These financial statements are the responsibility ofthe Company's management.  Our responsibility is to express an opinion on thesefinancial statements based on our audits.

We conducted our auditsin accordance with the standards of the Public Company Accounting OversightBoard (United States).  Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the financial statements arefree of material misstatement.  An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financialstatement presentation.  We believe that our audits provide a reasonable basisfor our opinion.

In our opinion, theconsolidated financial statements referred to above present fairly, in all materialrespects, the financial position of Unity Holdings, Inc. and subsidiary****asof December 31, 2006 and 2005, and the results of their operations and theircash flows for the years then ended, in conformity with U.S. generally acceptedaccounting principles.

MAULDIN & JENKINS,LLC

Atlanta, Georgia

March 26, 2007

----

| **UNITY HOLDINGS,  INC.**

**AND SUBSIDIARY**

**CONSOLIDATED  BALANCE SHEETS**

**DECEMBER 31, 2006  AND 2005** |
|------------------------------------------------------------------------------------------------------------------|
|                                                                                                                  | ** ** | ** ** |
|                                                                                                                  | **2006** | **2005** |
| **Assets**                                                                                                       |  |  |  |  |
| Cash and due from banks                                                                                          | **$** | **4,972,107 ** | **$** | 3,765,256  |
| Interest-bearing deposits in banks                                                                               | ** ** | **247,787 ** | ** ** | 132,082  |
| Federal funds sold                                                                                               | ** ** | **- ** | ** ** | 725,000  |
| Securities available-for-sale                                                                                    | ** ** | **19,815,125 ** | ** ** | 18,879,777  |
| Restricted equity securities, at cost                                                                            | ** ** | **2,539,778 ** | ** ** | 2,265,078  |
| Loans                                                                                                            | ** ** | **224,117,346 ** | ** ** | 195,599,390  |
| Less allowance for loan losses                                                                                   | ** ** | **2,791,343 ** | ** ** | 2,445,221  |
|           Loans, net                                                | ** ** | **221,326,003 ** | ** ** | 193,154,169  |
| Premises and equipment                                                                                           | ** ** | **11,813,161 ** | ** ** | 9,402,200  |
| Other assets                                                                                                     | ** ** | **5,858,825 ** | ** ** | 5,010,711  |
| **          TOTAL ASSETS**                                          | **$** | **266,572,786 ** | **$** | 233,334,273  |
|                                                                                                                  | ** ** | ** ** | ** ** |  |
| **Liabilities, Redeemable Common Stock and  Stockholders' Equity**                                               | ** ** | ** ** | ** ** |  |
| Deposits                                                                                                         | ** ** | ** ** | ** ** |  |
|     Noninterest-bearing                                                                           | **$** | **17,004,652 ** | **$** | 14,133,868  |
|     Interest-bearing                                                                              | ** ** | **192,478,878 ** | ** ** | 169,185,085  |
|          Total deposits                                                  | ** ** | **209,483,530 ** | ** ** | 183,318,953  |
| Other borrowings                                                                                                 | ** ** | **33,850,000 ** | ** ** | 29,250,000  |
| Guaranteed subordinated debentures                                                                               | ** ** | **3,093,000 ** | ** ** | 3,093,000  |
| Other liabilities                                                                                                | ** ** | **2,042,080 ** | ** ** | 973,653  |
| **         TOTAL LIABILITIES**                                           | ** ** | **248,468,610 ** | ** ** | 216,635,606  |
|                                                                                                                  | ** ** | ** ** | ** ** |  |
| Commitments and contingencies                                                                                    | ** ** | ** ** | ** ** |  |
|                                                                                                                  | ** ** | ** ** | ** ** |  |
| Redeemable common stock held by KSOP                                                                             | ** ** | **506,046 ** | ** ** | 106,548  |
|                                                                                                                  | ** ** | ** ** | ** ** |  |
| Stockholders' equity                                                                                             | ** ** | ** ** | ** ** |  |
|    Preferred stock, par value $.01; 10,000,000 shares                                             | ** ** | ** ** | ** ** |  |
|         authorized; none issued                                               | ** ** | ** ** | ** ** |  |
|     Common stock, par value $.01; 10,000,000 shares  authorized;                                  | ** ** | ** ** | ** ** |  |
|          990,030 and 1,014,510 issued and outstanding,  respectively     | ** ** | **9,900 ** | ** ** | 10,145  |
|     Capital surplus                                                                               | ** ** | **10,166,421 ** | ** ** | 10,847,421  |
|     Retained earnings                                                                             | ** ** | **7,496,033 ** | ** ** | 5,897,630  |
|     Accumulated other comprehensive loss                                                          | ** ** | **(74,224)** | ** ** | (163,077) |
|           Total stockholders' equity                                | ** ** | **17,598,130 ** | ** ** | 16,592,119  |
| **          TOTAL LIABILITIES, REDEEMABLE COMMON STOCK**            | ** ** | ** ** | ** ** |  |
| **             AND STOCKHOLDERS' EQUITY**            | **$** | **266,572,786 ** | **$** | 233,334,273  |
|                                                                                                                  | ** ** |  |  |  |
| **See Notes to Consolidated Financial Statements.**                                                              | ** ** |  |  |  |

** **

2

----

** **

| **UNITY HOLDINGS , INC.**                                                                                   |
|-------------------------------------------------------------------------------------------------------------|
| **AND SUBSIDIARY**                                                                                          |
|                                                                                                             |  |  | ** ** |  |  |
| **CONSOLIDATED STATEMENTS OF INCOME**                                                                       |
| **YEARS ENDED DECEMBER 31, 2006 AND 2005**                                                                  |
| ** **                                                                                                  |  |  | ** ** |  |  |
|                                                                                                             | **2006** |  | **2005** |
| **Interest income**                                                                                         |  |  | ** ** |  |  |
|     Loans                                                                                    | **$** | **17,829,224** |  | **$** | 13,448,376 |
|     Taxable securities                                                                       | ** ** | **807,764** |  | ** ** | 653,784 |
|     Nontaxable securities                                                                    | ** ** | **238,694** |  | ** ** | 258,932 |
|     Federal funds sold                                                                       | ** ** | **58,233** |  | ** ** | 67,802 |
|     Interest-bearing deposits in banks                                                       | ** ** | **7,879** |  | ** ** | 6,582 |
|           Total interest income                                | ** ** | **18,941,794** |  | ** ** | 14,435,476 |
| ** **                                                                                                  | ** ** | ** ** |  | ** ** |  |
| **Interest expense**                                                                                        | ** ** |  |  | ** ** |  |
|     Deposits                                                                                 | ** ** | **7,574,093** |  | ** ** | 5,228,555 |
|     Borrowings                                                                               | ** ** | **1,392,427** |  | ** ** | 885,595 |
|           Total interest expense                               | ** ** | **8,966,520** |  | ** ** | 6,114,150 |
|                                                                                                             | ** ** | ** ** |  | ** ** |  |
|           Net interest income                                  | ** ** | **9,975,274** |  | ** ** | 8,321,326 |
| **Provision for loan losses**                                                                               | ** ** | **461,500** |  | ** ** | 220,928 |
|           Net interest income after provision for loan  losses | ** ** | **9,513,774** |  | ** ** | 8,100,398 |
|                                                                                                             | ** ** | ** ** |  | ** ** |  |
| **Other income**                                                                                            | ** ** | ** ** |  | ** ** |  |
|     Service charges on deposit accounts                                                      | ** ** | **896,143** |  | ** ** | 761,132 |
|     Mortgage loan fees                                                                       | ** ** | **546,499** |  | ** ** | 373,211 |
|     Gain (loss) on sale of securities available-for-sale                                     | ** ** | **(21,423)** |  | ** ** | 4,921 |
|     Other operating income                                                                   | ** ** | **176,957** |  | ** ** | 156,504 |
|           Total other income                                   | ** ** | **1,598,176** | ** ** | ** ** | 1,295,768 |
|                                                                                                             | ** ** | ** ** |  | ** ** |  |
| **Other expenses**                                                                                          | ** ** | ** ** | ** ** | ** ** |  |
|     Salaries and employee benefits                                                           | ** ** | **4,568,849** |  | ** ** | 3,324,719 |
|     Equipment and occupancy expenses                                                         | ** ** | **1,056,914** |  | ** ** | 898,955 |
|     Other operating expenses                                                                 | ** ** | **2,477,776** |  | ** ** | 2,255,134 |
|           Total other expenses                                 | ** ** | **8,103,539** |  | ** ** | 6,478,808 |
| ** **                                                                                                  | ** ** | ** ** |  | ** ** |  |
| Income before income taxes                                                                                  | ** ** | **3,008,411** |  | ** ** | 2,917,358 |
| Income tax expense                                                                                          | ** ** | **1,010,511** | ** ** | ** ** | 953,919 |
| **NET INCOME**                                                                                              | **$** | **1,997,900** |  | **$** | 1,963,439 |
| ** **                                                                                                  |  |  |  |  |  |
| **Basic earnings per share**                                                                                | **$** | **2.01** |  | **$** | 1.94 |
| **Diluted earnings per share**                                                                              | **$** | **1.79** |  | **$** | 1.74 |
|                                                                                                             |  |  |  |  |  |
| **See Notes to Consolidated Financial Statements.**                                                         |  |  |  |  |  |

3

----

** **

| **UNITY HOLDINGS, INC.**                                                                                                         |
|----------------------------------------------------------------------------------------------------------------------------------|
| **AND SUBSIDIARY**                                                                                                               |
| ** **                                                                                                                       |  |  | ** ** |  |  |
| **CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME**                                                                              |
| **YEARS ENDED DECEMBER 31, 2006 AND 2005**                                                                                       |
|                                                                                                                                  |  |  |  |  |  |
|                                                                                                                                  |  | **2006** |  |  | 2005 |
|                                                                                                                                  |  |  |  |  |  |
| **Net income**                                                                                                                   | **$** | **1,997,900 ** |  | $ | 1,963,439  |
|                                                                                                                                  |  | ** ** |  |  |  |
| **Other comprehensive income (loss):**                                                                                           |  | ** ** | ** ** |  |  |
|     Unrealized holding gains (losses) on securities  available-for-sale:                                          |  | ** ** | ** ** |  |  |
|                                                                                                                                  |  | ** ** | ** ** |  |  |
|         Unrealized holding gains (losses) on securities  arising during period,               |  | ** ** | ** ** |  |  |
|             net of tax (benefit) of $38,576 and  ($121,805), respectively | ** ** | **74,626 ** | ** ** |  | (236,445) |
|                                                                                                                                  | ** ** | ** ** | ** ** |  |  |
|         Reclassification adjustment for (gains) losses  realized in net income,               | ** ** | ** ** | ** ** |  |  |
|             net of (tax) benefit of $7,196 and ($1,673),  respectively    | ** ** | **14,227 ** | ** ** |  | (3,248) |
|                                                                                                                                  |  | ** ** | ** ** |  |  |
| **Other comprehensive income (loss)**                                                                                            |  | **88,853 ** | ** ** |  | (239,693) |
|                                                                                                                                  |  | ** ** | ** ** |  |  |
| **Comprehensive income**                                                                                                         | **$** | **2,086,753 ** | ** ** | $ | 1,723,746  |
|                                                                                                                                  |  | ** ** | ** ** |  |  |
| ** **                                                                                                                       |  |  |  |  |  |
| **See Notes to Consolidated Financial Statements.**                                                                              |  | ** ** |  |  |  |

** **

** **

4

----

** **

| **UNITY HOLDINGS,  INC.**                            |
|------------------------------------------------------|
| **AND SUBSIDIARY**                                   |
|                                                      |  | ** ** | ** ** | ** ** | ** ** | ** ** |  |  |  |  |  |  |
| **CONSOLIDATED  STATEMENTS OF STOCKHOLDERS' EQUITY** |
| **YEARS ENDED  DECEMBER 31, 2006 AND 2005**          |
|                                                      |  |  |  |  |  |  |  |  |  |  |  |  |
|                                                      |  |  |  |  |  |  |  |  | **Accumulated** |  |  |
|                                                      |  | ** ** | ** ** | ** ** | ** ** | ** ** |  |  | **Other** | **Total** |
|                                                      |  | **Common Stock** | **Capital** | **Retained** | **Comprehensive** | **Stockholders'** |
|                                                      |  | **Shares** | **Par Value** | **Surplus** | **Earnings** | **Income (Loss)** | **Equity** |
|                                                      |  |  |  | ** ** |  | ** ** |  |  |  |  |  |  |
| **Balance, December 31,  2004**                      |  | 1,013,510  | $ | 10,135  | $ | 10,837,431  | $ | 3,958,780  | $ | 76,616  | $ | 14,882,962  |
|     Net income                        |  | -  |  | -  |  | -  |  | 1,963,439  |  | -  |  | 1,963,439  |
|     Exercise of stock  options        |  | 1,000  |  | 10  |  | 9,990  |  | -  |  | -  |  | 10,000  |
|     Adjustment for shares  owned      |  |  |  |  |  |  |  |  |  |  |  | -  |
|         by KSOP   |  | -  |  | -  |  | -  |  | (24,589) |  | -  |  | (24,589) |
|     Other comprehensive loss          |  | -  |  | -  |  | -  |  | -  |  | (239,693) |  | (239,693) |
| **Balance, December 31,  2005**                      |  | 1,014,510  |  | 10,145  |  | 10,847,421  |  | 5,897,630  |  | (163,077) |  | 16,592,119  |
|     Net income                        |  | -  |  | -  |  | -  |  | 1,997,900  |  | -  |  | 1,997,900  |
|     Exercise of stock  options        |  | 5,800  |  | 58  |  | 61,942  |  | -  |  | -  |  | 62,000  |
|     Adjustment for shares  owned      |  |  |  |  |  |  |  |  |  |  |  | -  |
|         by KSOP   |  | -  |  | -  |  | -  |  | (399,497) |  | -  |  | (399,497) |
|     Retirement of common  stock       |  | (30,280) |  | (303) |  | (789,322) |  | -  |  | -  |  | (789,625) |
|     Stock compensation                |  | -  |  | -  |  | 46,380  |  | -  |  | -  |  | 46,380  |
|     Other comprehensive  income       |  | -  |  | -  |  | -  |  | -  |  | 88,853  |  | 88,853  |
| **Balance, December 31,  2006**                      |  | 990,030  | $ | 9,900  | $ | 10,166,421  | $ | 7,496,033  | $ | (74,224) | $ | 17,598,130  |
|                                                      |  |  |  |  |  |  |  |  |  |  |  |  |
| **See Notes to Consolidated  Financial Statements.** |  |  |  |  |  |  |  |  |  |  |

** **

** **

5

----

** **

| **UNITY  HOLDINGS, INC. AND SUBSIDIARY** |  
** **

 
**CONSOLIDATED  STATEMENTS OF CASH FLOWS**

 
**YEARS ENDED  DECEMBER 31, 2006 AND 2005**

 
** **

 
**2006**

**2005**

 
**OPERATING  ACTIVITIES**

** **

 
     Net income 

**$**

**1,997,900 **

 $

1,963,439   

     Adjustments to reconcile net income to net

** **

** **

 
         cash provided by operating activities:

** **

** **

 
         Depreciation

** **

**540,800 **

446,920   

 
         Provision for loan losses

** **

**461,500 **

220,928   

 
         Deferred income taxes

** **

**(211,399)**

(162,018)

 
         (Gain) loss on sale of securities available-for-sale

** **

**21,423 **

(4,921)

 
         Gain on sale of other real estate

** **

**(43,063)**

-   

 
         Increase in interest receivable

** **

**(416,412)**

(437,830)

 
         Increase (decrease) in interest payable

** **

**164,320 **

(48,349)

 
         Stock compensation expense

** **

**46,380 **

-   

 
         Net other operating activities

** **

**285,964 **

194,690   

 
**               Net cash provided by operating activities**

** **

**2,847,413 **

2,172,859   

 
** **

** **

 
**INVESTING  ACTIVITIES**

** **

** **

 
     Net (increase) decrease in interest-bearing deposits in banks

** **

**(115,705)**

171   

 
     Purchases of securities available-for-sale

** **

**(3,151,575)**

(11,259,134)

 
     Proceeds from sales of securities available-for-sale

** **

**1,478,125 **

5,007,964   

 
     Proceeds from maturities\calls of securities available-for-sale

** **

**851,306 **

842,149   

 
     Redemption of restricted equity securities 

** **

**332,800 **

135,000   

 
     Purchases of restricted equity securities 

** **

**(607,500)**

(694,269)

 
     Net decrease in federal funds sold 

** **

**725,000 **

2,943,000   

 
     Net increase in loans

** **

**(29,419,393)**

(28,398,861)

 
     Purchase of cash surrender value life insurance

** **

**- **

(61,933)

 
     Proceeds from sale of other real estate owned

** **

**843,188 **

-   

 
     Purchase of premises and equipment

** **

**(2,951,761)**

(1,758,271)

 
**           Net cash used in investing activities**

** **

**(32,015,515)**

(33,244,184)

 
** **

** **

 
**FINANCING  ACTIVITIES**

** **

** **

 
     Net increase in deposits

** **

**26,164,577 **

21,909,340   

 
     Net increase in federal funds purchased

** **

**338,000 **

-   

 
     Proceeds from other borrowings

** **

**29,250,000 **

23,000,000   

 
     Repayments of other borrowings

** **

**(24,650,000)**

(12,900,000)

 
     Purchase of common stock

** **

**(1,147,310)**

-   

 
     Proceeds from sale  of common stock

** **

**357,686 **

-   

 
     Proceeds from exercise of stock options

** **

**62,000 **

10,000   

 
**           Net cash provided by financing activities**

** **

**30,374,953 **

32,019,340   

 
** **

** **

 
Net  increase in cash and due from banks

** **

**1,206,851 **

948,015   

 
Cash  and due from banks at beginning of period

** **

**3,765,256 **

2,817,241   

 
**Cash  and due from banks at end of period**

**$**

**4,972,107 **

 $

3,765,256   

** **

** **

 
6

**SUPPLEMENTAL  DISCLOSURES**

** **

 
     Cash paid during the period for:

** **

** **

 
         Interest

**$**

**8,802,200 **

 $

6,162,499   

         Income taxes

**$**

**1,193,511 **

 $

1,107,660   

** **

 
**NONCASH  TRANSACTIONS**

** **

 
         Loans transferred to other real estate owned

**$**

**786,059 **

 $

132,366   

 
** **

 
**See  Notes to Consolidated Financial Statements.**

** **

 
** **

7
****
**UNITY HOLDINGS, INC.**

**AND SUBSIDIARY**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

** **

** **

**NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

** **

**Nature of Business**

** **

Unity Holdings, Inc. (the "Company") is a bankholding company whose business is conducted by Unity National Bank, itswholly-owned subsidiary.  Unity National Bank (the "Bank") is a commercial bankheadquartered in Cartersville, Bartow County, Georgia.  The Bank operates twooffices in Cartersville and additional offices in Adairsville (Bartow County),  Rome (Floyd County), and Calhoun (Gordon County), Georgia.  Each officeprovides a full range of banking services in its primary market areas.

**Basis of Presentation and Accounting Estimates**

The consolidatedfinancial statements include the accounts of the Company and its subsidiary.Significant intercompany transactions and balances have been eliminated in consolidation.

In preparing the consolidated financial statements in accordance withaccounting principles generally accepted in the United States of America,management is required to make estimates and assumptions that affect thereported amounts of assets and liabilities and the disclosure of contingentassets and liabilities as of the balance sheet date and the reported amounts ofrevenues and expenses during the reporting period.  Actual results could differfrom those estimates.

Material estimates that are particularly susceptible to significant change inthe near term relate to the determination of the allowance for loan losses,deferred tax assets, valuation of foreclosed assets and contingent assets andliabilities.  The determination of the adequacy of the allowance for loanlosses is based on estimates that are susceptible to significant changes in theeconomic environment and market conditions.  In connection with thedetermination of the estimated losses on loans and foreclosed assets,management obtains independent appraisals for significant collateral.

**Cash, Due From Banks and Cash Flows**

For purposes ofreporting cash flows, cash and due from banks includes cash on hand, cash itemsin process of collection and amounts due from banks.  Cash flows from loans,federal funds sold, interest-bearing deposits in banks, deposits, and federalfunds purchased are reported net.

The Bank is required tomaintain reserve balances in cash or on deposit with the Federal Reserve Bank,based on a percentage of deposits.  The total of those reserve balances wasapproximately $653,000 and $571,000 at December 31, 2006 and 2005,respectively.

**Securities**

Debt securities that managementhas the positive intent and ability to hold to maturity are classified as held-to-maturityand recorded at amortized cost.  Debt securities not classified asheld-to-maturity are classified as available-for-sale and recorded at fairvalue with unrealized gains and losses excluded from earnings and reported in accumulatedother comprehensive loss net of the related deferred tax effect.  Equitysecurities, including restricted stock, without a readily determinable fairvalue are recorded at cost.

7

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)**

**Securities (Continued)**

Purchasedpremiums and discounts are recognized in interest income using the interestmethod over the terms of the securities.  Gains and losses on the sale ofsecurities are determined using the specific identification method.  Declinesin the fair value of held-to-maturity and available-for-sale securities below theircost that are deemed to be other than temporary are reflected in earnings asrealized losses.  In estimating other-than-temporary impairment losses,management considers (1) the length of time and the extent to which the fairvalue has been less than cost, (2) the financial condition and near-termprospects of the issuer, and (3) the intent and ability of the Company toretain its investment in the issuer for a period of time sufficient to allowfor any anticipated recovery in fair value.

**Loans**

Loans are reported attheir outstanding principal balances less net deferred loan fees and theallowance for loan losses.  Interest income is accrued on the outstandingprincipal balance.  Nonrefundable loan fees, net of direct loan originationcosts, are deferred with the net amount recognized into interest income overthe life of the loans using a method which approximates a level yield.

The accrual of intereston loans is discontinued when, in management's opinion, the borrower may be unableto meet payments as they become due, unless the loan is well-secured.  Allinterest accrued but not collected for loans that are placed on nonaccrual orcharged off is reversed against interest income, unless management believesthat the accrued interest is recoverable through the liquidation ofcollateral.  Interest income on nonaccrual loans is recognized on thecost-recovery method, until the loans are returned to accrual status.  Loansare returned to accrual status when all the principal and interest amounts arebrought current and future payments are reasonably assured.

A loan is consideredimpaired when it is probable, based on current information and events, theCompany will be unable to collect all principal and interest payments due inaccordance with the contractual terms of the loan agreement.  Impaired loansare measured by either the present value of expected future cash flowsdiscounted at the loan's effective interest rate, the loan's obtainable marketprice, or the fair value of the collateral if the loan is collateraldependent.  The amount of impairment, if any, and any subsequent changes areincluded in the allowance for loan losses.  Interest on accruing impaired loansis recognized as long as such loans do not meet the criteria for nonaccrualstatus.

**Allowance for Loan Losses**

The allowance for loanlosses is established through a provision for loan losses charged to expense. Loan losses are charged against the allowance when management believes thecollectibility of the principal is unlikely.  Subsequent recoveries arecredited to the allowance.

The allowance is anamount that management believes will be adequate to absorb estimated lossesrelating to specifically identified loans, as well as probable credit lossesinherent in the balance of the loan portfolio, based on an evaluation of thecollectibility of existing loans and prior loss experience.  This evaluationalso takes into consideration such factors as changes in the nature and volumeof the loan portfolio, overall portfolio quality, review of specific problemloans, concentrations and current economic conditions that may affect theborrower's ability to pay.  This evaluation does not include the effects ofexpected losses on specific loans or groups of loans that are related to futureevents or expected changes in economic conditions.  While management uses thebest information available to make its evaluation, future adjustments to theallowance may be necessary if there are any significant changes in economicconditions.  In addition, regulatory agencies, as an integral part of theirexamination process, periodically review the Company's allowance for loanlosses, and may require the Company to make additions to the allowance based ontheir judgment about information available to them at the time of theirexaminations.

8

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)**

**Premises and Equipment**

Land is carried atcost.  Premises and equipment are carried at cost less accumulated depreciation. Depreciation is computed principally by the straight-line method over theestimated useful lives of the assets.  Estimated useful lives for premises andequipment are three years to forty years.  

**Other Real Estate Owned**

Other real estate ownedrepresents properties acquired through foreclosure.  Other real estate owned isheld for sale and is carried at the lower of cost or fair value less estimatedcosts to sell.  Any write-down to fair value at the time of transfer to other realestate owned is charged to the allowance for loan losses.  Revenue and expensesfrom operations and changes in the valuation allowance are included in netexpenses from foreclosed assets.  The Company had $118,300 and $132,366 ofother real estate owned at December 31, 2006 and 2005, respectively.

**Stock Compensation Plans**

At December 31, 2006, the Company has two stock-basedemployee compensation plans, which are described more fully in Note 8. Effective January 1, 2006, we adopted SFAS No. 123 (revised), "Share-BasedPayment" ("SFAS 123(R)") utilizing the modified prospective approach.  Prior tothe adoption of SFAS 123(R) we accounted for stock-based compensation grants inaccordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees"(the intrinsic value method), and accordingly recognized no compensationexpense for stock-based compensation grants.

Under the modified prospective approach, SFAS 123(R) applies to new awards andto awards that were outstanding on January 1, 2006 that are subsequentlymodified, repurchased or cancelled.  Under the modified prospective approach,compensation cost recognized for the year ended December 31, 2006 includescompensation cost for all share-based payments granted prior to, but not yetvested as of January 1, 2006, based on the grant-date fair value estimated inaccordance with the original provisions of SFAS 123, and compensation cost forall share-based payments granted subsequent to January 1, 2006, based on thegrant-date fair value estimated in accordance with the provisions of SFAS123(R).  Prior periods were not restated to reflect the impact of adopting thenew standard.

Grant-date fair value is measured on the date of grant using option-pricingmodels with market assumptions. The grant-date fair value is amortized intoexpense on a straight-line basis over the vesting period.  Option pricingmodels require the use of highly subjective assumptions, including but notlimited to, expected stock price volatility, forfeiture rates, and interestrates, which if changed can materially affect fair value estimates. Accordinglythe model does not necessarily provide a reliable single measure of the fairvalue of our stock options. 

Under SFAS No. 123(R), stock-based compensation expense was $46,380 for yearended December 31, 2006.  Basic earnings per share were decreased by $.03 bythe adoption of SFAS 123(R), and diluted earnings per share decreased $.02because of SFAS 123 (R).

9

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)**

**Stock Compensation Plans (Continued)**

The following table provides pro forma net income andearnings per share information, as if we had applied the fair value recognitionprovisions of SFAS No. 123, "Accounting for Stock Based Compensation"("SFAS 123") to stock-based employee compensation option plans for the yearended December 31, 2005:

**December 31,  2005**

Net  income, as reported

** $**

**1,963,439 **

Deduct:  Total stock-based employee compensation 

** **

    expense determined under fair value based 

** **

    method for all option awards

**(46,377)**

**Pro  forma net income**

** $**

**1,917,062 **

** **

**Earnings  per share:**

** **

Basic  - as reported

** $**

**1.94 **

Basic  - pro forma

** $**

**1.89 **

Diluted  - as reported

** $**

**1.74 **

Diluted  - pro forma

** $**

**1.70 **

**Earnings Per Share**

Basic earnings per shareare computed by dividing net income  by the weighted average number of sharesof common stock outstanding.  Diluted earnings per share are computed bydividing net income  by the sum of the weighted average number of shares of commonstock outstanding and potential common shares.  Potential common shares consistof stock options and stock warrants.

**Comprehensive Income**

Accounting principlesgenerally require that recognized revenue, expenses, gains and losses beincluded in net income.  Although certain changes in assets and liabilities,such as unrealized gains and losses on available-for-sale securities, arereported as a separate component of the equity section of the balance sheet,such items, along with net income, are components of comprehensive income.

**Recent Accounting Standards**

In July 2006, the FASBissued Interpretation No. 48, Accounting for Uncertainty in Income Taxes - AnInterpretation of FASB Statement No. 109.  This interpretation addressesthe accounting for uncertainty in income taxes recognized in a Company'sfinancial statements in accordance with FASB Statement No. 109, Accounting forIncome Taxes.  It prescribes a comprehensive model for recognizing,measuring, presenting and disclosing in the financial statements tax positionstaken or expected to be taken in a tax return.  It requires that onlybenefits from tax positions that are more-likely-than-not of being sustainedupon examination should be recognized in the financial statements.  Thesebenefits would be recorded at amounts considered to be the maximum amountsmore-likely-than-not of being sustained.  At the time these positionsbecome more-likely-than-not to be disallowed, their recognition would bereversed.  This interpretation is effective for fiscal years beginningafter December 15, 2006 and is not expected to have a material impact on theCompany's financial condition or results of operations.

10

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)**

**Recent Accounting Standards (Continued)**

In September 2006, theFASB issued SFAS 157, Fair Value Measurements.  The standard providesguidance for using fair value to measure assets and liabilities.  Itdefines fair value, establishes a framework for measuring fair value undergenerally accepted accounting principles and expands disclosures about fairvalue measurement.  Under the standard, fair value refers to the pricethat would be received to sell an asset or paid to transfer a liability in anorderly transaction between market participants in the market in which thereporting entity transacts.  It clarifies the principle that fair valueshould be based on the assumptions market participants would use when pricingthe asset or liability.  In support of this principle, the standardestablishes a fair value hierarchy that prioritizes the information used todevelop those assumptions.  Under the standard, fair value measurementswould be separately disclosed by level within the fair value hierarchy. Statement 157 is effective for financial statements issued for fiscalyears beginning after November 15, 2007.  The Company is currentlyevaluating the impact the adoption of this statement could have on itsfinancial condition, results of operations and cash flows.

** **

**NOTE 2.  SECURITIES**

**Gross**

**Gross**

** **

** **

**Amortized**

**Unrealized**

**Unrealized**

** **

**Fair**

**Cost**

**Gains**

**Losses**

** **

**Value**

**Securities Available for Sale**

**December  31, 2006:**

** **

**   U.S. Government sponsored  agency securities**

** **

** $**

**10,239,380 **

** **

** $**

**9,141 **

** **

** $**

**(129,165)**

** **

** $**

**10,119,356 **

**Municipal  securities**

** **

**5,960,903 **

** **

**96,403 **

** **

**(8,658)**

** **

**6,048,648 **

**Mortgage-backed  securities**

** **

**3,727,304 **

** **

**- **

** **

**(80,183)**

** **

**3,647,121 **

** **

** $**

**19,927,587 **

** **

** $**

**105,544 **

** **

** $**

**(218,006)**

** **

** $**

**19,815,125 **

December  31, 2005:

** **

** **

** **

** **

** **

** **

** **

    U.S. Government sponsored  agency securities

 $

8,992,454   

 $

-   

 $

(188,392)

 $

8,804,062   

Municipal  securities

5,567,954   

62,539   

(11,160)

5,619,333   

    Mortgage-backed securities

4,566,456   

20   

(110,094)

4,456,382   

 $

19,126,864   

 $

62,559   

 $

(309,646)

 $

18,879,777   

The amortized cost and fair value of securitiesare summarized as follows:

Securities with acarrying value of $8,017,511 and $5,984,350 at December 31, 2006 and 2005, respectively,were pledged to secure public deposits and for other purposes required orpermitted by law.  

Gross gains of $0 and$36,913 were realized on sales of securities available for sale for the yearsended December 31, 2006 and 2005, respectively.  Gross losses of $21,423 and $31,992were realized on sales of securities available for sale for the years endedDecember 31, 2006 and 2005, respectively.

11

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 2.  SECURITIES (Continued)**

The amortized cost andfair value of debt securities as of December 31, 2006 by contractual maturityare shown below.  Maturities may differ from contractual maturities ofmortgage-backed securities because the mortgages underlying the securities maybe called or repaid without penalty.  Therefore, these securities are notincluded in the maturity categories in the following summary.

** **

**Securities  Available-for-Sale**

** **

**Amortized**

** **

**Fair**

** **

**Cost**

** **

**Value**

Due in less than one year

$

125,000 

** **

 $

125,201   

Due from one to five years

6,405,184 

** **

6,346,996 

Due from five to ten years

2,703,152 

** **

2,690,545 

Due after ten years

** **

6,966,947 

** **

7,005,262 

Mortgage-backed securities

** **

3,727,304 

** **

3,647,121 

** **

$

**19,927,587 **

** **

** $**

**19,815,125 **

Restricted equity securities consist of thefollowing:

** **

**December 31,**

** **

**2006**

2005

Federal Home Loan Bank stock

** **

** $**

**1,989,700 **

 $

1,715,000   

Federal Reserve Bank stock

**333,900 **

333,900   

Other correspondent bank stock

** **

**123,178 **

123,178   

Trust preferred securities

** **

**93,000 **

93,000   

** **

** **

** $**

**2,539,778 **

 $

2,265,078   

The FASB Emerging IssuesTask Force released Issue No. 03-01, *The Meaning of Other-Than-TemporaryImpairment and Its Application to Certain Investments,*which**requiresdisclosure of certain information about other than temporary impairments in themarket value of securities.  The market value of investment securities is basedon quoted market values and is significantly affected by the interest rateenvironment.  At December 31, 2006 and 2005, all unrealized losses in thesecurities portfolio were for debt securities.  

**Less Than Twelve  Months**

**Twelve Months or  More**

**Gross**

** **

**Gross**

** **

**Unrealized**

**Fair**

**Unrealized**

**Fair**

**Losses**

**Value**

**Losses**

**Value**

**December 31, 2006:**

U.S.  Government sponsored federal agencies

** **

** $**

**1,039 **

** **

** $**

**747,715 **

** **

** $**

**128,126 **

** **

** $**

**7,862,500 **

State  and municipal securities

**1,000 **

** **

**602,481 **

**7,658 **

** **

**407,488 **

Mortgage-backed  securities

**- **

** **

**- **

**80,183 **

** **

**3,646,470 **

   Temporarily impaired debt securities

** **

** $**

**2,039 **

** **

** $**

**1,350,196 **

** **

** $**

**215,967 **

** **

** $**

**11,916,458 **

The following table shows the gross unrealizedlosses and fair value of securities, aggregated by category and length of timethat securities have been in a continuous unrealized loss position at December31, 2006.

12

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 2.  SECURITIES (Continued)**

The following tableshows the gross unrealized losses and fair value of securities, aggregated bycategory and length of time that securities have been in a continuousunrealized loss position at December 31, 2005.

**Less Than Twelve  Months**

**Twelve Months or  More**

**Gross**

** **

**Gross**

** **

**Unrealized**

**Fair**

**Unrealized**

**Fair**

**Losses**

**Value**

**Losses**

**Value**

December 31, 2005:

U.S.  Government sponsored federal agencies

 $

66,375   

 $

4,935,938   

 $

122,016   

 $

3,868,125   

State  and municipal securities

11,161   

677,303   

-   

-   

Mortgage-backed  securities

110,094   

4,452,287   

-   

-   

   Temporarily impaired debt securities

 $

187,630   

 $

10,065,528   

 $

122,016   

 $

3,868,125   

Managementevaluates securities for other-than-temporary impairment at least on aquarterly basis, and more frequently when economic or market concerns warrantsuch evaluation.  Consideration is given to (1) the length of time and theextent to which the fair value has been less than cost, (2) the financialcondition and near-term prospects of the issuer, and (3) the intent and abilityof the Company to retain its investment in the issuer for a period of timesufficient to allow for any anticipated recovery in fair value.

AtDecember 31, 2006 and 2005, no debt securities have unrealized losses withaggregate depreciation of 5% from the Company's amortized cost basis.  Inanalyzing an issuer's financial condition, management considers whether thesecurities are issued by the federal government or its agencies, whetherdowngrades by bond rating agencies has occurred, and industry analysts'reports.  As management has the ability to hold debt securities until maturity,or for the foreseeable future if classified as available for sale, no declinesare deemed to be other than temporary.

**NOTE 3.  LOANS**

** **

The composition of loans is summarized asfollows:

**December 31,**

**2006**

2005

Commercial, financial and agricultural

** $**

**13,725,859  **

 $

11,014,158    

Real estate - construction

**43,293,347  **

35,407,516    

Real estate - mortgage

**160,832,244  **

142,881,136    

Consumer, installment and other

**6,574,313  **

6,695,488    

**224,425,763  **

195,998,298    

Net deferred loan fees

**(308,417)**

(398,908)

Allowance for loan losses

**(2,791,343)**

(2,445,221)

**Loans, net**

** $**

**221,326,003  **

 $

193,154,169    

** **

13

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 3.  LOANS (Continued)**

Changes in the allowance for loan losses are asfollows:

**Years Ended  December 31,**

**2006**

2005

** **

Balance, beginning of year

** $                2,445,221**

 $              2,258,994 

   Provision for loan losses

**                       461,500**

                    220,928 

   Loans charged off

**                     (147,401)**

                     (80,982)

   Recoveries of loans previously charged off

**                         32,023**

                      46,281 

Balance, end of year

** $                2,791,343**

 $              2,445,221 

The following is asummary of information pertaining to impaired loans:

**As of and for  the Years Ended**

**December 31,**

**2006**

2005

Impaired loans without a valuation allowance

** $**

**76,279 **

 $

-   

Impaired loans with a valuation allowance

**4,253,614 **

3,001,830   

Total Impaired loans

**4,329,893 **

3,001,830   

Valuation allowance related to impaired loans

**430,330 **

303,740   

Average investment in impaired loans

** $**

**3,852,557 **

 $

2,977,575   

Interest incomerecognized on impaired loans for cash payments received was not material forthe years ended December 31, 2006 and 2005.  Loans on nonaccrual statusamounted to approximately $4,235,000 and $2,964,000 at December 31, 2006 and2005, respectively.  Loans past due ninety days or more and still accruinginterest were approximately $94,000 and $38,000 at December 31, 2006 and 2005,respectively.

In the ordinary courseof business, the Company has granted loans to certain related parties includingdirectors, executive officers and their affiliates.  The interest rates onthese loans were substantially the same as rates prevailing at the time of thetransaction and repayment terms are customary for the type of loan.  Changes inrelated party loans for the year ended December 31, 2006 are as follows:

Balance, beginning of year

 $

1,611,569   

   Advances

675,686   

   Less repayments

1,176,849   

Balance, end of year

 $

1,110,406   

** **

14

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 4.  PREMISES AND EQUIPMENT**

Premises and equipment are summarized asfollows:

**December 31,**

**2006**

** **

2005

Land and land improvements

** $**

**3,680,542 **

 $

2,906,345   

Buildings & construction in process

**7,748,547 **

6,068,166   

Equipment

**2,295,408 **

2,334,461   

**13,724,497 **

11,308,972   

Accumulated depreciation

**(1,911,336)**

(1,906,772)

** $**

**11,813,161 **

 $

9,402,200   

** **

In 2005, the Company leaseda office space in Calhoun, Georgia on an annual basis for a loan productionoffice. In August 2006, the Bank completed construction of its full serviceoffice in Calhoun and discontinued the lease on the office space.  Total rentalexpense incurred for the years ended December 31, 2006 and 2005 was approximately$4,000 and $9,000, respectively.  

**NOTE 5.  DEPOSITS**

The aggregate amount oftime deposits in denominations of $100,000 or more at December 31, 2006 and 2005was $39,313,461 and $30,193,739, respectively.  The scheduled maturities of totaltime deposits at December 31, 2006 are as follows:

2007 

 $

45,717,736   

2008 

26,388,134   

2009 

4,967,508   

2010 

1,299,389   

2011 

2,762,734   

 $

81,135,501   

The Company had brokeredcertificates of deposit at December 31, 2006 and 2005 of $16,464,812 and $14,185,382,respectively.  

** **

**NOTE 6.  OTHER BORROWINGS**

Other borrowings consist of the following:

**December 31,**

**2006**

** **

**2005**

Federal Home Loan Bank advances with interest payable at  various intervals at interest rates ranging from 2.74% to 5.51%, due at  various maturity dates between June 18, 2007 and June 22, 2011.

** $**

**33,850,000 **

 $

29,250,000   

** **

** **

15

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 6.  OTHER BORROWINGS (Continued)**

Contractual maturitiesof other borrowings as of December 31, 2006 are as follows:

2007

$

14,000,000

2008

2,850,000

2009

15,000,000

2011

2,000,000

$

33,850,000

The FHLB advance line iscollateralized by a blanket lien on the Company's 1-4 family mortgage and homeequity loans.  The loans pledged as collateral had an approximate carryingamount of $50,783,000 as of December 31, 2006.
 
**NOTE 7.  GUARANTEED SUBORDINATED DEBENTURES**

In 2003, the Company formed a wholly-owned grantor trust toissue cumulative trust preferred securities.  The grantor trust has investedthe proceeds of the trust preferred securities in junior subordinateddebentures of the Company.  The trust preferred securities can be redeemedprior to maturity at the option of the Company on or after December 17, 2008. The sole assets of the guarantor trust are the Junior Subordinated DeferrableInterest Debentures of the Company (the "Debentures") held by the grantortrust.  The debentures have the same interest rate (three month LIBOR plus 2.95%,floating) as the trust preferred securities.  The Company has the right todefer interest payments on the Debentures at any time or from time to time fora period not exceeding 20 consecutive quarters provided that no extensionperiod may extend beyond the stated maturity of the related Debentures.  Duringany such extension period, distributions on the trust preferred certificateswould also be deferred.

Payment of periodic cash distributions and payment uponliquidation or redemption with respect to the trust preferred securities are guaranteedby the Company to the extent of funds held by the grantor trust (the "PreferredSecurities Guarantee").  The Preferred Securities Guarantee, when takentogether with the Company's other obligations under the Debentures, constitutea full and unconditional guarantee, on a subordinated basis, by the Company ofpayments due on the trust preferred securities.

The trust preferred securities and the related debentureswere issued on December 18, 2003.  Distributions on the trust preferredsecurities are paid quarterly.  Interest on the Debentures is paid on thecorresponding dates.  The aggregate principal amount of Debentures outstandingat December 31, 2006 and 2005 were $3,093,000.  Certain issue costs have beendeferred and recorded in other assets in the accompanying balance sheet.  Theissue costs are being amortized over the initial five year period until thefirst call date.  The remaining outstanding balance of the unamortized issuecosts at December 31, 2006 and 2005 was $30,735 and $43,025, respectively, andis included in other assets.

** **

16

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 8.   STOCK COMPENSATION PLANS**

The Company has an incentivestock option plan that allows for an annual increase in shares available foroptions up to a total of 150,000 shares.  At December 31, 2006, the Company hasavailable 115,046 shares of common stock for issuance to key employees anddirectors.  Options are granted at the fair value of the Company's common stockon the date of grant and expire ten years from the effective date of thegrant.  The options vest at a rate of 20% per year.

**Years Ended  December 31,**

**2006**

** **

2005

** **

** **

**Weighted Average**

** **

Weighted Average

**Number**

** **

**Exercise Price**

** **

Number

Exercise Price

Under option, beginning of year

**88,960 **

** $**

**13.39 **

89,960   

 $

13.36   

Granted

**- **

**-   **

-   

-     

Exercised

**(5,800)**

**10.69 **

(1,000)

10.00   

Terminated

**(200)**

**15.00 **

-   

-     

Under option, end of year

**82,960 **

**13.60 **

88,960   

13.39   

** **

** **

Exercisable, end of year

**70,560 **

** $**

**12.80 **

75,360   

 $

12.49   

** **

Total intrinsic value of exercised shares

** **

** $**

**88,800 **

 $

13,000   

** **

Weighted average remaining contractual term of exercisable  options (in years)

** **

**3.8 **

4.8 

** **

Aggregate intrinsic value of total outstanding options

** **

** $**

**1,028,360 **

 $

854,480   

** **

** **

Aggregate intrinsic value of exercisable options

** **

** $**

**931,360 **

 $

791,680   

Other pertinentinformation related to the options is as follows:

17

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 8.   STOCK COMPENSATION PLANS (Continued)**

Information pertaining to options outstanding atDecember 31, 2006 is as follows:

** **

**Options  Outstanding**

** **

**Options  Exercisable**

** **

** **

**Weighted Average  Remaining Contractual Life**

** **

**Weighted Average  Exercise Price**

** **

** **

** **

**Weighted Average  Exercise Price**

**Range****of Exercise****Price**

**Number  Outstanding**

** **

** **

**Number  Exercisable**

** **

$10  - $15

40,960 

2    years

 $

10.05   

40,960 

 $

10.05   

$16

32,000 

6    Years

16.00   

25,600 

16.00   

$19  - $22

10,000 

8    years

 $

20.50   

4,000 

 $

20.50   

In 1998, the Companygranted 140,000 common stock warrants to its initial directors.  The warrantsare exercisable at a price of $10 per share and are fully vested.  The warrantsexpire ten years from date of grant and have a weighted average remaining contractuallife of two years.  The aggregate intrinsic value of warrants outstanding andexercisable at December 31, 2006 and 2005 was $2,240,000 and $1,820,000,respectively.

The fair value of eachoption grant is estimated on the date of grant using the Black-Scholesoption-pricing model.  No options were granted in 2006 or 2005.  At December31, 2006, there was approximately $64,000 of unrecognized compensation expenserelated to stock-based payments, which is expected to be recognized over aweighted average period of 1.4 years.

**NOTE 9.   OTHER EMPLOYEE AND DIRECTORBENEFIT PLANS**

** **

**Employee Stock Ownership Plan**

In 2002, the Companyestablished a leveraged Employee Stock Ownership Plan with 401-k provisions(KSOP) for the benefit of employees who meet certain eligibility requirements,subject to IRS limits.  Contributions to the KSOP are determined by the Boardof Directors of the Company taking into consideration the financial conditionand fiscal requirements of the Company and such other factors as the Board ofDirectors may deem pertinent and applicable under the circumstances.  TheCompany made matching contributions totaling $56,757 and $44,488 in 2006 and2005, respectively.  The KSOP has no debt as of December 31, 2006 and December31, 2005.  

During 2006, the Companyoffered to buy back shares from existing shareholders at the prevailing stockvalue as determined by an external valuation firm.  The KSOP purchased 13,658shares on behalf of its participants, with the remainder being terminated bythe Company.  Further information about the Company's tender offer can be foundin its Schedule TO filings done in February and April of 2006.  Informationabout the KSOP's purchase of the stock can be found in its Form S-8 filed inJune 2006.  The KSOP owned 17,756 and 4,098 shares of the Company's commonstock as of December 31, 2006 and 2005, respectively, which were purchasedsolely from employee contributions to the KSOP.  

In accordance with theKSOP, the Company is expected to honor the rights of certain participants todiversify their account balances or to liquidate their ownership of the commonstock in the event of termination.  The purchase price of the common stockwould be based on the fair market value of the Company's common stock as of theannual valuation date, which precedes the date the put option is exercised.  Noparticipant has exercised these rights since the inception of the KSOP. However, since the redemption of common stock is outside the control of theCompany, the Company's maximum cash obligation based on the approximate marketprices of common stock as of the reporting date has been presented outsidestockholders' equity.  The amount presented as redeemable common stock held bythe KSOP in the consolidated balance sheet represents the Company's maximumcash obligation and has been reflected as a reduction of retained earnings.

18

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 9.   OTHER EMPLOYEE AND DIRECTORBENEFIT PLANS (Continued)**

** **

**Deferred Compensation Plan**

In 2002, the Companyestablished a deferred compensation plan providing for death and retirementbenefits for its directors.  The estimated amounts to be paid under thecompensation plan are being offset by the earnings of life insurance policieson the directors.  The balance of the director policy surrender values includedin other assets amounted to $388,703 and $316,599 at December 31, 2006 and 2005,respectively.  The balance of deferred compensation included in otherliabilities at December 31, 2006 and December 31, 2005 amounted to $449,123 and$244,883, respectively.  Deferred compensation and other associated expenses amountedto $204,240 and $164,546 for the years ended December 31, 2006 and 2005,respectively.

In December 2004, theCompany established a deferred compensation plan providing for death andretirement benefits for certain officers.  The estimated amounts to be paidunder the compensation plan are being funded through the purchase of lifeinsurance policies on the officers.  The balance of the policy surrender valuesincluded in other assets amounted to $2,001,336 and $1,927,801 at December 31,2006 and 2005.  The balance of deferred compensation included in otherliabilities amounted to $124,665 and $57,644 at December 31, 2006 and 2005. Expense recognized for deferred compensation amounted to $67,021 and $53,264for the years ended December 31, 2006 and 2005.

**NOTE 10.  INCOME TAXES**

Income tax expense consists of the following:

**Years Ended  December 31,**

**2006**

**2005**

** **

Current

** $**

**1,221,910 **

 $

1,115,937   

Deferred

**(211,399)**

(162,018)

**Income tax expense**

** $**

**1,010,511 **

 $

953,919   

** **

** **

The Company's income taxexpense differs from the amounts computed by applying the federal income taxstatutory rates to income before income taxes.  A reconciliation of the differencesis as follows:

**Years Ended  December 31,**

**2006**

**2005**

** **

Income taxes at statutory rate

** $**

**1,022,860 **

** **

 $

991,902   

Tax-free income

**(80,895)**

** **

(93,464)

State tax expense

**54,000 **

** **

53,298   

Other items

**14,546 **

** **

2,183   

**Income tax expense**

** $**

**1,010,511 **

** **

 $

953,919   

** **

** **

** **

19

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 10.  INCOME TAXES (Continued)**

The components of deferred income taxes are asfollows:

**December 31,**

**2006**

**2005**

Deferred tax assets:

** **

 Loan loss reserves

** $**

**968,854 **

 $

842,826   

 Loan fees

**116,384 **

150,531   

 Deferred compensation

**216,524 **

114,161   

Nonaccrual loan interest

**47,252 **

26,466   

Securities available-for-sale

**38,237 **

84,010   

**1,387,251 **

1,217,994   

Deferred tax liabilities:

** **

 Depreciation 

**176,821 **

173,190   

**176,821 **

173,190   

** **

Net deferred tax assets

** $**

**1,210,430 **

 $

1,044,804   

** **

** **

**NOTE 11.  EARNINGS PER SHARE**

Presentedbelow is a summary of the components used to calculate basic and dilutedearnings per common share.  

**Years Ended  December 31,**

**2006**

** **

**2005**

Basic Earnings Per Share:

** **

** **

Weighted average common shares outstanding

**993,036 **

1,014,154   

** **

Net income

** $**

**1,997,900 **

 $

1,963,439   

Basic earnings  per share

** $**

**2.01 **

 $

1.94   

** **

Diluted Earnings Per Share:

** **

 Weighted average common shares outstanding

**993,036 **

1,014,154   

Net effect of the assumed exercise of stock options and  warrants based on the treasury stock method using average market prices for  the year

**123,247 **

116,300   

Total weighted average  common shares and common stock equivalents outstanding

**1,116,283 **

1,130,454   

** **

Net income

** $**

**1,997,900 **

 $

1,963,439   

Diluted earnings per share

** $**

**1.79 **

 $

1.74   

20

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 12.  COMMITMENTS AND CONTINGENCIES**

**Loan Commitments**

The Company is a partyto financial instruments with off-balance sheet risk in the normal course ofbusiness to meet the financing needs of its customers.  These financialinstruments include commitments to extend credit and letters of credit.  Such commitmentsinvolve, to varying degrees, elements of credit risk and interest rate risk inexcess of the amount recognized in the balance sheets.

The Company's exposureto credit loss in the event of nonperformance by the other party to thefinancial instrument for commitments to extend credit and letters of credit isrepresented by the contractual amount of those instruments.  The Company usesthe same credit policies in making commitments and conditional obligations asit does for on-balance sheet instruments.  A summary of the Company'scommitments is as follows:

**December 31,**

**2006**

2005 

** **

Commitments  to extend credit

** $**

**38,022,000 **

 $

41,862,000   

Letters  of credit

**226,000 **

179,000   

** $**

**38,248,000 **

 $

42,041,000   

** **

Commitments to extendcredit are agreements to lend to a customer as long as there is no violation ofany condition established in the contract.  Since many of the commitments areexpected to expire without being drawn upon, the total commitment amounts donot necessarily represent future cash requirements.

Letters of credit areconditional commitments issued by the Company to guarantee the performance of acustomer to a third party.  Those letters of credit are primarily issued tosupport public and private borrowing arrangements.  The credit risk involved inissuing letters of credit is essentially the same as that involved in extendingloans to customers.  Collateral is required in instances which the Companydeems necessary.

At December 31, 2006 and2005, the carrying amount of liabilities related to the Company's obligation toperform under financial standby letters of credit was insignificant.  TheCompany has not been required to perform on any financial standby letters ofcredit, and the Company has not incurred any losses on financial standbyletters of credit for the years ended December 31, 2006 and 2005.

**Contingencies**

In the normal course ofbusiness, the Company is involved in various legal proceedings.  The Company isalso involved in other non-recurring legal matters, the ultimate outcome ofwhich has not been determined.  In the opinion of management, any liabilityresulting from such proceedings would not have a material effect on theCompany's financial statements.

**NOTE 13.   CONCENTRATIONS OF CREDIT**

The Company originatesprimarily commercial, residential, and consumer loans to customers in Bartow County and surrounding counties.  The ability of the majority of the Company's customersto honor their contractual loan obligations is dependent on the economy inthese areas.

Approximately 90%percent of the Company's loan portfolio is concentrated in loans secured byreal estate, of which a substantial portion is secured by real estate in theCompany's primary market area.  Accordingly, the ultimate collectibility of theloan portfolio is susceptible to changes in market conditions in the Company'sprimary market area.  The other significant concentrations of credit by type ofloan are set forth in Note 3.

The Company, as a matterof policy, does not generally extend credit to any single borrower or group ofrelated borrowers in excess of 15% of the Bank's capital and surplus as definedby the Office of the Comptroller of the Currency (the "OCC"), or approximately$3,376,000.  Because of the Company's capital strength, the Company qualifiesfor the OCC's pilot lending program, which increases the lending limit toapproximately $5,627,000.

21

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 14.  REGULATORY MATTERS**

The Bank is subject tocertain restrictions on the amount of dividends that may be declared withoutprior regulatory approval.  At December 31, 2006, dividends of $6,040,000 couldbe declared without regulatory approval.

The Company and the Bankare subject to various regulatory capital requirements administered by thefederal banking agencies.  Failure to meet minimum capital requirements caninitiate certain mandatory, and possibly additional discretionary actions byregulators that, if undertaken, could have a direct material effect on thefinancial statements.  Under capital adequacy guidelines and the regulatoryframework for prompt corrective action, the Company and Bank must meet specificcapital guidelines that involve quantitative measures of the assets, liabilities,and certain off-balance sheet items as calculated under regulatory accountingpractices.  Capital amounts and classification are also subject to qualitativejudgments by the regulators about components, risk weightings, and otherfactors.  Prompt corrective actions are not applicable to bank holdingcompanies.

Quantitative measuresestablished by regulation to ensure capital adequacy require the Company andBank to maintain minimum amounts and ratios of Total and Tier I capital torisk-weighted assets, as defined, and of Tier I capital to average assets, asdefined.  Management believes, as of December 31, 2006 and 2005, the Companyand the Bank met all capital adequacy requirements to which they are subject.

As of December 31, 2006,the most recent notification from the Federal Deposit Insurance Corporationcategorized the Bank as well capitalized under the regulatory framework forprompt corrective action.  To be categorized as well capitalized, the Bank mustmaintain minimum Total risk-based, Tier I risk-based, and Tier I leverageratios as set forth in the following table.  There are no conditions or eventssince that notification that management believes have changed the Bank'scategory.

The Company and Bank'sactual capital amounts and ratios are presented in the following table:

** **

** **

** **

**For**

** **

**To Be Well  Capitalized**

** **

** **

** **

** **

**Capital Adequacy**

** **

**Under Prompt  Corrective**

**Actual**

** **

**Purposes**

** **

**Action  Provisions**

**December 31, 2006: (Dollars in '000s)**

**Amount**

**Ratio**

**Amount**

**Ratio**

** **

**Amount**

**Ratio**

**Total Capital to Risk Weighted Assets:**

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

**   Consolidated**

** $**

**23,438 **

** **

**10.59 %**

** **

** $**

**17,704 **

** **

**8.00 %**

** **

**N/A**

** **

**N/A**

**   Bank**

** $**

**22,480 **

** **

**10.16 %**

** **

** $**

**17,694 **

** **

**8.00 %**

** **

** $**

**22,117 **

** **

**10.00 %**

**Tier I Capital to Risk Weighted Assets:**

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

**   Consolidated**

** $**

**20,672 **

** **

**9.34 %**

** **

** $**

**8,852 **

** **

**4.00 %**

** **

** N/A**

** **

**N/A**

**   Bank**

** $**

**19,715 **

** **

**8.91 %**

** **

** $**

**8,847 **

** **

**4.00 %**

** **

** $**

**13,270 **

** **

**6.00 %**

**Tier I Capital to Average Assets:**

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

**   Consolidated**

** $**

**20,672 **

** **

**8.32 %**

** **

** $**

**9,952 **

** **

**4.00 %**

** **

** N/A**

** **

**N/A**

**   Bank**

** $**

**19,715 **

** **

**7.93 %**

** **

** $**

**9,943 **

** **

**4.00 %**

** **

** $**

**12,429 **

** **

**5.00 %**

** **

22

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

For

To Be Well  Capitalized

Capital Adequacy

Under Prompt  Corrective

Actual

Purposes

Action Provisions

December 31, 2005: (Dollars in '000s)

Amount

Ratio

Amount

Ratio

Amount

Ratio

Total Capital to Risk Weighted Assets:

   Consolidated

 $

22,265   

11.58 %

 $

15,382   

8.00 %

N/A

N/A

   Bank 

 $

19,897   

10.36 %

 $

15,371   

8.00 %

 $

19,214   

10.00 %

Tier I Capital to Risk Weighted Assets:

   Consolidated

 $

19,861   

10.33 %

 $

7,691   

4.00 %

 N/A 

N/A

   Bank 

 $

17,495   

9.11 %

 $

7,686   

4.00 %

 $

11,529   

6.00 %

Tier I Capital to Average Assets:

   Consolidated

 $

19,861   

8.55 %

 $

9,288   

4.00 %

 N/A 

N/A

   Bank 

 $

17,495   

7.58 %

 $

9,233   

4.00 %

 $

11,541   

5.00 %

** **

** **

**NOTE 15.   FAIR VALUE OF FINANCIAL INSTRUMENTS**

The fair value of afinancial instrument is the current amount that would be exchanged betweenwilling parties, other than in a forced liquidation.  Fair value is bestdetermined based upon quoted market prices.  However, in many instances, thereare no quoted market prices for the Company's various financial instruments. In cases where quoted market prices are not available, fair values are based onestimates using present value or other valuation techniques.  Those techniquesare significantly affected by the assumptions used, including the discount rateand estimates of future cash flows.  Accordingly, the fair value estimates maynot be realized in an immediate settlement of the instrument.  SFAS No. 107, *Disclosuresabout Fair Values of Financial Instruments,*excludes certain financialinstruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarilyrepresent the underlying fair value of the Company.

**Cash, Due From Banks,Interest-bearing Deposits in Banks and Federal Funds Sold: **The carrying amounts ofcash, due from banks, interest-bearing deposits in banks and federal funds soldapproximate fair values.

**Securities: **Fair values forsecurities are based on available quoted market prices.  The carrying values ofrestricted equity securities with no readily determinable fair valueapproximate fair values.

**Loans: **For variable-rate loansthat reprice frequently and have no significant change in credit risk, fairvalues are based on carrying values.  For other loans, the fair values areestimated using discounted cash flow analyses, using interest rates currentlybeing offered for loans with similar terms to borrowers with similar creditquality.  Fair values for impaired loans are estimated using discounted cashflow analyses or underlying collateral values, where applicable.

**BankOwned Life Insurance: **The carrying amounts of bank owned life insuranceapproximates their fair values.

**Deposits: **The carrying amounts ofdemand deposits, savings deposits, and variable-rate certificates of deposit approximatetheir fair values.  Fair values for fixed-rate certificates of deposit areestimated using a discounted cash flow calculation that applies interest ratescurrently being offered on certificates to a schedule of aggregated expectedmonthly maturities on time deposits.

**Other Borrowings and GuaranteedSubordinated Debentures: **The carrying amounts of variable-rate other borrowings, guaranteedsubordinated debentures and federal funds purchased approximate their fairvalues.  Fair values for fixed-rate other borrowings are estimated using adiscounted cash flow calculation that applies interest rates currently beingoffered on other borrowings with similar terms.

**Accrued Interest: **The carrying amounts of accruedinterest approximate their fair values.

23

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**Off-Balance SheetInstruments: **Fairvalues of the Company's off-balance sheet financial instruments are based onfees currently charged to enter into similar agreements.  Since the majority ofthe Company's off-balance sheet instruments consist of nonfee-producing,variable-rate commitments, the Company has determined they do not have adistinguishable fair value.

**NOTE 15.   FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)**

The carrying amounts andestimated fair values of the Company's financial instruments were as follows:

**December 31, 2006**

December 31, 2005

**Carrying**

**Fair**

Carrying

Fair

**Value**

**Value**

Value

Value

(Dollars in Thousands)

**Financial  assets:**

Cash, due from  banks, interest-bearing deposits in banks, and federal funds sold

** $**

**5,220 **

** **

** $**

**5,220 **

 $

4,622   

 $

4,622   

Securities  available-for-sale

**19,815 **

**19,815 **

18,880   

18,880   

Restricted  equity securities

**2,540 **

**2,540 **

2,265   

2,265   

Loans

**221,326 **

**220,431 **

193,154   

187,694   

Bank owned life  insurance

**2,390 **

**2,390 **

2,244   

2,244   

Accrued interest  receivable

**1,769 **

**1,769 **

1,352   

1,352   

** **

** **

**Financial  liabilities:**

** **

** **

Deposits

**209,484 **

**209,128 **

183,319   

182,434   

Borrowings

**33,850 **

**31,163 **

29,250   

28,287   

Guaranteed  subordinated debentures

**3,093 **

**3,093 **

3,093   

3,093   

Accrued interest  payable

**437 **

**437 **

272   

272   

**NOTE 16.  SUPPLEMENTAL FINANCIAL DATA**

Components of other operating expenses in excessof 1% of total revenue are as follows:

**Years Ended  December 31,**

**2006**

** **

2005 

Data  Processing

** $**

**597,095 **

 $

480,049   

Advertising

**266,157 **

233,833   

** **

24

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 17.  PARENT COMPANY FINANCIAL INFORMATION**

The followinginformation presents the condensed balance sheets, statements of income andcash flows of Unity Holdings, Inc. as of and for the years ended December 31,2006 and 2005:

**CONDENSED  BALANCE SHEETS**

**2006**

** **

2005 

**Assets**

** **

Cash

** $**

**1,334,807 **

 $

2,246,779   

Investment in subsidiary

**19,641,448 **

17,332,855   

Restricted equity securities, at cost

**93,000 **

93,000   

Other assets

**137,075 **

126,606   

**      Total assets**

** $**

**21,206,330 **

 $

19,799,240   

** **

**Liabilities, Redeemable Common Stock and Stockholders'  Equity**

** **

Miscellaneous liabilities

** $**

**9,154 **

 $

7,573   

Redeemable common stock held by KSOP

**506,046 **

106,548   

Subordinated debentures

**3,093,000 **

3,093,000   

Stockholders' equity 

**17,598,130 **

16,592,119   

**Total redeemable common stock and stockholders' equity**

** $**

**21,206,330 **

 $

19,799,240   

25

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 17.  PARENT COMPANY FINANCIAL INFORMATION (Continued)**

**CONDENSED  STATEMENTS OF INCOME**

** **

** **

** **

** **

**2006**

** **

2005 

**Income**

** **

** **

Interest income on investments

** $**

**7,526 **

** **

 $

5,843   

    Total Income

**7,526 **

** **

5,843   

** **

** **

**Expenses**

** **

** **

Interest expense on subordinated debentures

**249,441 **

** **

210,168   

Noninterest expense

**86,264 **

** **

17,165   

    Total Expenses

**335,705 **

** **

227,333   

** **

** **

** **

Loss before income tax benefits and equity in  undistributed income of subsidiary 

**(328,179)**

** **

(221,490)

       Income tax benefits 

**(106,340)**

** **

(83,581)

Loss before equity in undistributed income of subsidiary

**(221,839)**

** **

(137,909)

**Equity in undistributed income of subsidiary**

**2,219,739 **

** **

2,101,348   

        **Net income**

** $**

**1,997,900 **

** **

 $

1,963,439   

26

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 17.  PARENT COMPANY FINANCIAL INFORMATION (Continued)**

**CONDENSED  STATEMENTS OF CASH FLOWS**

** **

** **

** **

** **

**2006**

** **

2005 

**OPERATING ACTIVITIES**

 Net income 

** $**

**1,997,900 **

** **

 $

1,963,439   

 Adjustments to reconcile net income  to net cash

** **

** **

    used in operating activities:

** **

** **

Equity in undistributed income  of subsidiary 

**(2,219,739)**

** **

(2,101,348)

Net other operating activities

**37,491 **

** **

8,102   

          Net cash used in operating activities

**(184,348)**

** **

(129,807)

** **

** **

**FINANCING ACTIVITIES**

** **

** **

   Proceeds from sale of common stock, net

**357,686 **

** **

-   

   Purchase of common stock

**(1,147,310)**

** **

-   

   Proceeds from exercise of stock options

**62,000 **

** **

-   

          Net cash used in financing activities

**(727,624)**

** **

-   

** **

** **

Net decrease in cash

**(911,972)**

** **

**(129,807)**

Cash at beginning of year

**2,246,779 **

** **

2,376,586   

Cash at end of year

** $**

**1,334,807 **

** **

 $

2,246,779   

27 |
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