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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
X Annual report under Section 13 or 15(d) of the Securities Exchange Act of
- --- 1934 (Fee required)
For the fiscal year ended June 30, 1996.
Transition report under Section 13 or 15(d) of the Securities Exchange Act
- --- of 1934 (No fee required)
For the transition period from _______ to _______
Commission file number 000-22996
GILMAN & CIOCIA, INC.
---------------------
(Name of small business issuer in its charter)
Delaware 11-2587324
-------- ----------
(State or jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
475 Northern Boulevard, Great Neck, NY 11021
- -------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(516) 482-4860
------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Securities registered under Section 12(g) of the Act:
Title of each class Name of each exchange
------------------- on which registered
---------------------
Common Stock, par value $.01
- ------------------------------- ---------------------
Per share N/A
- ------------------------------- ---------------------
Redeemable Warrants to purchase
- ------------------------------- ---------------------
Common Stock N/A
- ------------------------------- ---------------------
----------
Check whether the issuer: (1) filed reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 past 90 days. Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.
-----
State issuer's revenues for its most recent fiscal year. $16,509,677
The aggregate market value of the voting stock held by non-affiliates
as of September 30, 1996 was $16,003,526 based on a sale price of $5.50.
State the number of shares outstanding of each class of the issuer's
classes of common equity, as of the latest practicable date. As of September 30,
1996, 5,550,582 shares of the issuer's common equity were outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
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GILMAN + CIOCIA, INC.
FORM 10-KSB
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Gilman + Ciocia, Inc. (the "Company") was incorporated under the laws
of the State of Delaware on September 3, 1993, the successor in interest to
Gilman + Ciocia, Inc., a New York corporation organized on November 4, 1981 and
is a preparer of federal, state and local income tax returns. The Company also
earns revenues from acting as an insurance agent and mortgage broker. In
addition, the Company's wholly owned subsidiary, JT Securities, Inc. (a
registered securities broker/dealer and a registered investment advisor )("JT
Securities"), earns a significant portion of the Company's revenues by effecting
limited transactions in securities for its clients, providing office space,
clerical support and client references to registered representatives of another
registered securities broker/dealer. Such registered representatives are
employees or affiliated financial planners of the Company and effect
transactions in securities on behalf of clients of the Company. JT Securities
also acts as an investment advisor in conjunction with other investment advisors
to manage clients' funds. The Company recently began a division operating as a
direct mail service.
The Company has a total of one hundred and eighteen offices: forty
three in New York, sixteen in New Jersey, nine in Florida, nine in Arizona, nine
in Ohio, eight in Maryland, seven in Connecticut, seven in Washington, five in
Nevada, two in California, two in Pennsylvania and one in Kentucky, and it
maintains its principal executive office at 475 Northern Boulevard, Great Neck,
NY 11021, telephone (516) 482-4860.
The Company opened fifteen offices in January 1994, twenty two offices
in January 1995 and forty four offices in 1996, closing four in the first half
of 1996.
In December 1994, the Company consummated its initial public offering
("IPO") of 507,926 units, including the underwriter's overallotment option, of
its securities to the public for $7.00 per unit. Each unit consisted of two
shares of the Company's common stock and a warrant to purchase another share of
common stock at $4.67 per share. Proceeds of the offering less underwriting
discounts of approximately $278,000 were approximately $3,277,000. Expenses for
the IPO totaled approximately $190,000, resulting in net proceeds to the Company
of approximately $3,087,000. In connection with the IPO, the Company issued
warrants to purchase 50,783 units to the underwriter.
On February 10, 1995, effective November 1, 1994, the Company acquired
all the outstanding stock of Gilbert Financial Services Inc. (a Florida
Corporation) in exchange for 203,428 shares of the Company's common stock.
On June 30, 1995, the Company acquired certain assets in order to
commence a direct mail service business under the name of "Progressive Mailing."
The Company uses direct mail as its main form of advertising and plans to expand
its Progressive Mailing operations into an independent business.
MARKET AND STRATEGIC OVERVIEW
The Company believes that most middle and upper income Americans
require services for preparing income tax returns. Other financial services,
such as brokerage for mutual fund investment and the sale of insurance products,
have historically been supplied by segmented firms, but the Company believes
that the current trend to multiservice firms that provide clients with the
convenience of personalized, "one-stop" financial shopping will enable the
Company to extend the services that it delivers to its existing tax preparation
clients and to attract more clients for its full range of services.
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TAX RETURN PREPARATION
The Company prepares federal, state and local income tax returns for
individuals, predominantly in the middle and upper income brackets. The
preparation of a tax return by the Company usually involves a personal meeting
at the office between a prospective client and an employee of the Company. At
the meeting, the Company's employee solicits from the client the information on
income and deductions and family status necessary to prepare the client's tax
return. The Company uses publicly available computer software packages for the
processing of tax returns for which it pays standard licensing fees and
royalties. After the meeting, drafts of the client's tax returns are prepared.
After review and final correction by the tax preparer, the returns are delivered
to the client for filing. The client then meets with a financial planner. See
"DESCRIPTION OF BUSINESS --Financial Planning Services."
In keeping with the trend toward increasingly automated filing of
income tax returns, the Company offers to clients the option of filing their
federal income tax returns electronically. Under this system, the final federal
income tax return is transmitted to the Internal Revenue Service ("IRS") through
a publicly available software package.
Refund anticipation loans are also available to the clients of the
Company through arrangements with approved banking institutions. Using this
service, a client is able to receive a check in the amount of his federal
refund, drawn on an approved bank, at the office where he or she had his or her
return prepared. The Company acts only as a facilitator between the client and
the bank in preparing and submitting the loan documentation and receives a fee
for these services payable upon consummation of the loan. The Company has no
liability in connection with these loans. The Company makes no loans, and its
funds are not disbursed in any fashion to reimburse customers.
None of the Company's full-time tax preparers is a certified public
accountant, and, therefore, they are limited in the representation that they can
provide to clients of the Company on an audit by the IRS. The Company provides
training seminars for all tax preparers. Training for seasonal preparers
consists of a biweekly tax course that runs from September through December
from 9 a.m. - 4 p.m. on Saturdays. This course covers all aspects of tax return
preparation. In addition, a one-day seminar is given in January which covers
all new tax law changes as well as a general review of the process of tax
return preparation.
The Company's business of preparing income tax returns subjects it to
potential civil liabilities under the Internal Revenue Code (the "Code").
Although the Company complies with all applicable laws and regulations, no
assurance can be given that the Company will never incur any material fines or
penalties.
In addition, the Company does not maintain any professional liability
or malpractice insurance policy. Although the Company complies with all
applicable laws and regulations, no assurance can be given that the Company will
not be subject to professional liability or malpractice suits.
SEASONALITY
The Company's tax preparation business is conducted predominantly in
the months of February, March and April when most individuals prepare their
federal, state and local income tax returns. The Company hires approximately 350
seasonal employees in conjunction with the utilization of its existing employees
to meet the demand imposed during those months, and as a result, has avoided
opening offices especially for tax season and closing them after the peak
period.
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To assist in funding operations during the off season and to facilitate
its plans for expansion, the Company has a credit facility in the form of a line
of credit for up to $2,000,000. Borrowings under this line are in the form of
short-term notes with interest charged monthly at the bank's prime lending rate
plus 1-1/2%.
BROKER/DEALER SUBSIDIARY
JT Securities is registered as a securities broker/dealer under the
Securities Exchange Act of 1934, as amended, and has been a member of the
National Association of Securities Dealers, Inc. ("NASD") since July 1994. In
addition, JT Securities has effected all filings under New York State law to
register as a broker/dealer in New York and Florida. In 1995, JT Securities was
registered with the Securities and Exchange Commission (the "Commission") and
with the states of New York and Florida as an investment advisor. See
"DESCRIPTION OF BUSINESS--Regulation."
FINANCIAL PLANNING SERVICES
While preparing tax returns, clients often consider other aspects of
their financial needs, such as insurance, investments and pension and estate
planning. The Company attempts to capitalize on this situation by introducing
clients of its tax preparation business to its employees and affiliated
financial planners who are registered representatives of JT Securities or
another registered securities broker/dealer and/or authorized agents of
insurance carriers.
Most middle and upper income individuals require a variety of financial
planning services. If clients seek insurance products in connection with the
creation of a financial plan, they are referred to an employee or affiliated
financial planner of the Company (who may be the tax preparer himself) who is an
authorized agent of an insurance underwriter. If clients seek mutual fund
products or other securities for investment, they are referred to an employee or
affiliated financial planner of the Company (who may be the tax preparer
himself) who is a registered representative of a securities broker/dealer,
either the Company's wholly owned subsidiary or another broker dealer. If
clients seek money management services, they are referred to an investment
advisor of JT Securities. See "DESCRIPTION OF BUSINESS--Relationship with
Registered Representatives of Broker/Dealers; and --Relationship with Authorized
Agents of Insurance Underwriters; and --Relationship with Investment Advisors."
RELATIONSHIP WITH REGISTERED REPRESENTATIVES OF BROKER/DEALERS
A number of the Company's full-time employees and affiliated financial
planners are registered representatives ("Registered Representatives") of Royal
Alliance Associates, Inc. ("Royal Alliance"), an unaffiliated corporation, which
is a registered securities broker/dealer and a member of the NASD. Four of such
full-time employees (all of whom are officers of the Company) are also
Registered Representatives of JT Securities. In addition, the Company's Chief
Financial Officer is a Registered Representative of JT Securities but not a
Registered Representative of Royal Alliance.
Registered Representatives who work with only one firm are supervised
by such firm. Registered Representatives who work with Royal Alliance and JT
Securities are generally supervised by both firms and with regards to any
particular transaction by the firm through which the transaction is effected.
Such firms are exclusively responsible for all supervision and record keeping in
connection with the Registered Representatives and their activities.
If clients of the Company inquire about the acquisition or sale of
investment securities, they are directed to one of such Registered
Representatives. Such Registered Representatives are able, through Royal
Alliance or JT Securities, to effect transactions in such securities at the
request of clients and retain a
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certain percentage of the commissions earned on such transactions. Royal
Alliance has licensed principals in all areas of the securities business. JT
Securities has licensed principals in selected areas of the securities business.
The securities transactions effected by Registered Representatives who are
either employed by or affiliated with the Company, involve interests in mutual
funds, variable annuities, corporate equities and bonds and other securities.
All security transactions are introduced and cleared on a fully
disclosed basis through a correspondent broker that is a member of the New York
Stock Exchange.
For a securities transaction effected through Royal Alliance, Royal
Alliance retains approximately 6% of the total commission, and a majority of the
individual Registered Representatives and JT Securities each receives
approximately 47% of the total commission. Each of the Registered
Representatives except the officers of the Company has entered into an
independent contractor's agreement with the Company, which generally provides
that a specified percentage of the commissions earned by the Registered
Representative is paid to JT Securities as compensation for supplying to such
Registered Representative office space, clerical and secretarial support and
references of clients. All Registered Representatives have agreements that
contain covenants requiring them to maintain strict confidentiality and to
refrain from certain competition with the Company. Each agreement with a
Registered Representative has a duration of no more than one year from the date
of the agreement.
The Company has no written agreement with Royal Alliance, and either
the Company or Royal Alliance could terminate their relationship at any time.
The Company believes that other broker/dealers, including JT Securities, could
be found to affiliate with and supervise the Registered Representatives if the
Company's relationship with Royal Alliance were terminated.
RELATIONSHIP WITH AUTHORIZED AGENTS OF INSURANCE UNDERWRITERS
Certain of the Company's full-time employees and affiliated financial
planners are authorized agents of insurance underwriters. If clients of the
Company inquire about insurance products, then they are directed to one of such
authorized agents. Such agents are able, through several insurance underwriters,
to sell insurance products at the request of clients and retain a certain
percentage of the commissions earned on such sales. The Company is an authorized
insurance agent under both New York and Florida law.
Each of the insurance agents (except the Company's officers) has
entered into an independent contractor's agreement with the Company. Each such
agreement generally provides that a specified percentage of the commissions
earned by the agent is paid to the Company as compensation for the Company's
supplying to such agent office space, clerical and secretarial support and
references of clients. The agreements also contain covenants requiring the agent
to maintain strict confidentiality and to refrain from certain competition with
the Company. Each agreement with an insurance agent has a duration of no greater
than one year from the date of the agreement.
RELATIONSHIP WITH INVESTMENT ADVISORS
JT Securities provides investment advisory services in conjunction with
other investment advisors in connection with the management of client funds and
accounts. In these activities, such other investment advisors manage client
funds on a discretionary basis, and JT Securities continues to offer investment
advisory services to such other investment advisors, but does not have
discretion over the accounts.
Fees are quoted based upon the amount of funds under management. Fees
for investment advisory and review services are shared between the Company and
the investment advisors. Currently JT Securities has such arrangement with three
investment advisors.
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JT Securities through its qualified investment advisors provides
financial plans, retirement plans, financial planning consultations, insurance
analyses, business planning, children's education planning, estate planning,
mortgage refinance consultation, mortgage prepayment planning, and investment
counseling to individuals, businesses, personal trusts, and pension and profit
sharing plans.
JT Securities has also begun to provide exclusive management services
for clients' funds invested in mutual funds and annuities and expects to expand
such business in the near future.
MARKETING
Most of the Company's clients are repeat clients from prior years. The
majority of clients in each office return to the Company for tax preparation
services during the following years, and the retention rate is approximately
70%. In addition, the Company markets its services principally through direct
mail and promotions.
Direct Mail. Each year prior to the "tax season" when individuals file
federal, state and local income tax returns, the Company sends direct mail
advertisements. The direct mail advertising solicits business principally for
the Company's tax preparation services. A large majority of the Company's new
clients each year are first introduced to the Company through its direct mail
advertising. The Company utilizes the customer lists purchased for direct mail
during the remainder of the year to solicit the financial planning services.
Promotions. The Company offers a $50 U.S. Savings Bond to any client
that refers another two clients to the Company. The program has resulted in
approximately 300 new clients per year.
Online. The Company currently has two web sites on the Internet:
http://www.gtax.com and http://www.ssnn.com for income tax and financial
planning advice, 10K/Q information and the latest news releases.
Other Marketing. The Company also prints and distributes brochures and
flyers about its services. In addition, the Company markets its services through
prerecorded taped descriptions of its services, which are played automatically
for incoming callers while "on hold."
The Company believes that its most promising market for expansion may
lie in areas where Americans and other nationals are migrating. Individuals
usually retain a local tax preparer in connection with their personal tax
returns. When people move, therefore, they usually seek to find a new income tax
preparer. At or shortly after the time that they move, therefore, individuals
are most susceptible to the direct mail advertising of the Company's tax
preparation services. The Company has not conducted any analysis of demographic
data or any formal market surveys.
COMPETITION
The income tax preparation and financial planning services industry is
highly competitive. The Company's competitors include companies specializing in
income tax preparation as well as companies that provide general financial
services. Many of these competitors, which include H + R Block, Inc., HD Vest,
Inc., Jackson Hewitt Tax Service, Inc. and Triple Check Income Tax Service, Inc.
in the tax preparation field and many well-known brokerage firms in the
financial services field, have significantly greater financial and other
resources than the Company. The Company believes that the primary elements of
competition are convenience, quality of service and price. No assurance can be
given, however, that the Company will be able to compete successfully with
larger and more established companies.
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In addition, the Company may suffer from competition from departing
employees and affiliated financial planners. Although the Company attempts to
restrict such competition contractually, as a practical matter, enforcement of
contractual provisions prohibiting small scale competition by individuals is
difficult.
TRADEMARKS
The Company has registered its "Gilman + Ciocia" trademark with the
U.S. Patent and Trademark Office. No assurance can be given that the Company
would be able successfully to defend its trademark if forced to litigate its
enforceability. The Company believes that its trademark "Gilman + Ciocia"
constitutes a valuable marketing factor. If the Company were to lose the use of
such trademark, its sales could be adversely affected.
DIRECT MAIL DIVISION
The Company commenced operations of a direct mail service division in
July 1995 under the name "Progressive Mailing". Progressive Mailing does not
design, create or draft the text for direct mail materials, but does provide
limited consulting services in these areas. The Progressive Mailing division
uses equipment acquired from a liquidated company and is operated by certain
personnel hired from that company.
The Company's principal marketing medium is direct mail solicitation,
and the Company's solicitations constitute the majority of Progressive Mailing's
services. Currently, Progressive Mailing is soliciting business solely through
word of mouth and referrals. The Company plans to hire a salesperson to help
market its services.
The direct mail business is highly competitive with many large and
small entities competing for business. The principal factors of competition are
timeliness, accurate service and price.
At September 30, 1996, the Company employed thirty one persons on a
full-time basis in its Progressive Mailing division: one executive person, two
clerical personnel, and twenty eight staff personnel.
PUBLIC RELATIONS AND INVESTMENT BANKING AGREEMENTS
On October 9, 1995, the Company entered into a consulting agreement
with EuroMarket Advisory, Inc. ("Euromarket") for the development of
relationships with European investors. The Company, according to the terms of
the agreement, has granted options to purchase 150,000 shares of Common Stock in
the Company at a price of $5.13 per share. Euromarket subsequently assigned
50,000 of such options to Cascade Corporation and 50,000 of such options to
Deborah A. Picou, the President of Euromarket.
On November 17, 1995, the Company entered into an investment banking
agreement with Texas Capital Securities Inc. ("Texas Capital") to provide
merchant banking advisor services to the Company. The Company, according to the
terms of the agreement, granted options to purchase 100,000 shares of Common
Stock in the Company at a price of $5.13 per share. Texas Capital subsequently
assigned 85,000 of such options to Harbor Financial Inc.
REGULATION
The Company, as a preparer of federal income tax returns, is subject to
the regulations of the Code and regulations promulgated thereunder. The Code
requires, for example, that tax preparers comply with
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certain ministerial requirements with respect to the preparation and filing of
tax returns and rules on the maintenance of taxpayer records. The Code also
imposes regulations relating to the truthfulness of the contents of tax returns,
the confidentiality of taxpayer information, and the proper methods of
negotiating taxpayer refund checks. Penalties for violations are specified in
the Code.
To represent a taxpayer before the IRS after the initial audit, an
individual must meet certain requirements. Only an attorney, a certified public
accountant or a person specifically enrolled to practice before the IRS can
represent a taxpayer in such circumstances. Some of the employees of the
Company meet such requirements. Most of the full-time employees of the Company,
therefore, are limited in that they may appear as a representative of a taxpayer
only through the stage of an audit examination at the office of a District
Director, and then only upon complying with applicable regulations.
Tax preparers are prohibited by regulations promulgated by the IRS from
using information on a taxpayer's tax return for certain purposes involved in
the solicitation of other business from such taxpayer without the consent of
such taxpayer. The Company believes that it complies with all applicable IRS
regulations.
With the exception of qualified advisors of JT Securities, a registered
investment advisor, neither the employees of the Company nor its affiliated
financial planners generally give investment advice about particular investments
to clients. Instead, financial planning services involve making clients aware of
the types of vehicles available for savings, investment and planning for
retirement and death, disability and other contingencies. Furthermore, any
advice given by employees of the Company or affiliated financial planners is
incidental to their work in connection with the purchases and sales of mutual
fund shares and other securities. They are registered representatives of a
broker/dealer and work under the supervision of such broker/dealer. Accordingly,
the Company does not believe that it or any of its employees (other than
qualified advisors of JT Securities, a registered investment advisor) is
required to register as an investment adviser with the Commission or any
applicable state agency. In 1992, the staff of the Commission made written
inquiries to the Company regarding a possible requirement for it to register as
an investment adviser. The Company responded to such inquiries in March 1993 and
has not received any other communication from the Commission on this subject.
Since such date, JT Securities has registered as an investment advisor.
If the Commission were to determine that, prior to the registration of
JT Securities, as a securities broker/dealer and as an investment adviser, the
Company was required to be registered as a broker/dealer and/or as an investment
adviser, then the Company may be subject to regulatory action.
The registered representatives themselves are, strictly regulated in
their activities as registered representatives of a securities broker/dealer
under the Securities Act of 1934, as amended, and the rules and regulations
promulgated thereunder, state regulation, the rules of the NASD and by the rules
and regulations of the broker/dealer.
JT Securities, is a registered broker/dealer under the Securities
Exchange Act of 1934, as amended, and a member of the NASD, is subject to
detailed rules and regulations, including extensive record keeping requirements,
incumbent upon registered broker/dealers and investment advisors. JT Securities
is also registered as an investment adviser under the Investment Advisers Act of
1940, and is subject, therefore, to the detailed rules and regulations
promulgated thereunder.
JT Securities has not registered as a broker/dealer in any states other
than New York and Florida, although the Company has offices in ten other states.
The Company does not believe that JT Securities is currently required to so
register, however, the Company intends to cause JT Securities to register as a
broker/dealer in other states so that it can expand the scope of its business.
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EMPLOYEES
At September 30, 1996, the Company employed 152 persons on a full-time
basis, including the Company's five officers. See "DIRECTORS, EXECUTIVE
OFFICERS, PROMOTERS AND CONTROL PERSONS." The Company's full-time employees
include 57 professional tax preparers, 41 clerical and support staff persons,
and 23 administrative personnel, who include the Company's executive officers.
In addition, 31 employees are part of the Company's direct mail services
division. During peak season the Company employs approximately 500 full-time
employees.
The Company also utilizes approximately 119 independent contractors who
serve as registered representatives of Royal Alliance and/or as insurance agents
as well as seasonal employees. See "DESCRIPTION OF BUSINESS--Seasonality."
The Company's offices are partially staffed by financial planners who
are affiliated with the Company as independent contractors, particularly during
the off season. The Company also retains seasonal employees. See "DESCRIPTION OF
BUSINESS--Seasonality." During a portion of the year, approximately ten of the
Company's offices are not staffed full-time by employees and/or full-time
financial planning affiliates of the Company. During such periods, such offices
are staffed part-time by affiliated financial planners and calls to such offices
when no personnel are present are forwarded automatically to an office of the
Company that is fully staffed.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company provides services to its clients at 118 local offices in
twelve states: Forty three in New York, sixteen in New Jersey, nine in Arizona,
nine in Florida, nine in Ohio, eight in Maryland, seven in Connecticut, seven in
Washington, five in Nevada, two in Pennsylvania, two in California and one in
Kentucky. Forty four of such offices opened in January 1996. A majority of the
offices are leased in commercial office buildings. Most of the Company's offices
are leased pursuant to standard form office leases, although seven offices are
leased on an oral month-to-month basis. The remaining leases range in terms from
one to seven years. The Company's rental expense during its fiscal year ended
June 30, 1996 was $1,502,788. The Company believes that any of its offices could
be replaced with comparable office space, however location and convenience is an
important factor in marketing the Company's services to its clients. Since the
Company advertises in the geographic area surrounding the office location, the
loss of such a office that is not replaced with a nearby office could adversely
affect the Company's business at that office.
The Company needs less than 1,000 square feet of usable floor space to
operate an office, and its needs can be flexibly met in a variety of real estate
environments. Therefore, the Company believes that its facilities are adequate
for its current needs.
The Company also owns a building housing one of its offices in Babylon,
New York.
ITEM 3. LEGAL PROCEEDINGS.
There are no material proceedings currently pending against the
Company
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
No matter was submitted during the fourth quarter of the Company's 1996
fiscal year to a vote of security holders.
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PART II
ITEM 5. MARKET INFORMATION.
The principal market on which the Company's common stock trades is The
Nasdaq Small-Cap Stock Market under the symbol "GTAX." Prior to December 1994 no
public market existed for the Company's securities.
From October 1993 to January 1994, the Company issued a total of
186,197 shares of Common Stock for total consideration of $576,334 in private
placement sales. Such sales were made subsequent to the filing of a registration
by the Company for its IPO and approximately one year prior to the closing of
such offering. The Company did not treat these shares as being required to be
integrated with the Company's IPO, and no private party has made any such
assertion. If these shares were required to be integrated with the Company's
initial public offering, then as such , the private placement sales would have
constituted an unregistered public offering of securities in violation of
Section 5 of the Securities Act of 1933. The purchasers of this unregistered
stock would be entitled to recision and could subject the Company to a liability
under such Section 5. As of the date of this report, none of the shareholders
has approached the Company about rescinding the purchase of the shares. It is
the opinion of management that the likelihood of these shareholders seeking
recision is negligible.
If such shareholders demanded recision at this time, the Company would
return their subscription payments out of its available cash because the market
value of the Common Stock far exceeds the subscription price. If such
shareholders demanded recision at a time when the market value of the Common
Stock were to be less than the subscription price, then the Company would
vigorously oppose any right of such shareholders to recision and would defend
any litigation resulting from it.
The following table sets forth the high and low sales prices for the
common stock of the Company during the period indicated:
<TABLE>
<CAPTION>
Sales Price
-----------
Quarter Ended High Low
- ------------- ---- ---
<S> <C> <C>
December 31, 1994 $3 3/4 $3 1/2
March 31, 1995 $4 $2 1/4
June 30, 1995 $4 1/8 $2 1/4
September 30, 1995 $5 5/8 $3 1/8
December 31, 1995 $7 1/2 $5 1/4
March 31, 1996 $7 7/16 $5 1/2
June 30, 1996 $7 1/4 $5 3/8
</TABLE>
As of September 30, 1996, the approximate number of holders of record
of the Company's common stock was 322. The Company has not paid dividends to its
shareholders since its inception and does not plan to pay dividends in the
foreseeable future. The Company currently intends to retain any earnings to
finance the growth of the Company.
The Company's NASDAQ symbols are:
Common Stock........................... GTAX
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Redeemable Warrants.................... GTAXW
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS.
RESULTS OF OPERATIONS: 1996 AND 1995 FISCAL YEARS COMPARED
The Company's revenues for the fiscal year ended June 30, 1996 were
$16,509,677 as compared to revenues of $9,932,161 for the prior fiscal year. The
increase of 66.2% in revenues for its 1996 fiscal year from its 1995 fiscal year
is attributable to the Company's opening forty four new offices in January 1996
resulting in increased revenues of $1,041,000, acquisitions of ten customer
lists, continued growth of the existing offices , increased financial planning
revenue of approximately $2,400,000 as well as revenue of approximately
$2,700,000 from its direct mailing division. The total revenues for the year
ended June 30, 1996 consist of $8,147,986 for tax preparation services,
$5,671,905 for financial planning services and $2,689,786 for direct mailing
services. The revenue for the year ended June 30, 1995 consists of $6,657,520
for tax preparation services and $3,274,541 for financial planning services.
The Company's operating expenses for the 1996 fiscal year were
$15,915,148 as compared to operating expenses of $9,348,997 for the 1995 fiscal
year. The increase of 70.2% in the Company's operating expenses for its 1996
fiscal year from its 1995 fiscal year was attributable to increases of $539,947
in advertising, $2,436,248 in salaries and commissions, $590,223 in rent,
$1,129,796 in general and administrative expenses and direct mail costs of
$1,682,108. These increases resulted primarily from the establishment and
operations of the Company's new direct mailing division, recurring expenses
related to the opening of forty four new offices in the Company's 1996 fiscal
year and to normal increases in business at the Company's existing offices. In
addition, in Fiscal 1996, the Company recorded non-cash compensation charges as
general and administrative expenses of approximately $437,000 related to the
issuance of stock options and the forgiveness of oficers' loans. The increase
in salaries and commissions is due to increased financial planning activities
as well as $625,773 in salaries for the direct mailing division. The increase
in depreciation and amortization is due primarily to the acquisition of ten
customer lists for approximately $730,000 and approximately $900,000 in
capital expenditures.
The increase in other income of $242,475 or 481% is due to the
Company's investment in partnership and an increase in realized gains of
approximately $76,000 on the sale of marketable securities. In July, 1995, the
Company together with one of its officers formed an investment partnership which
yielded income of approximately $198,000. In addition, during fiscal 1996 the
Company liquidated marketable securities of $2,095,750 to fund its expansion
resulting in a realized gain of approximately $91,000.
The Company's income before provision for income taxes for its 1996
fiscal year is $887,373 as compared to $633,533 for fiscal year end 1995. The
increase of 40.1% is primarily due to the Company's expansion in January, 1996
as well as increased financial planning income.
Taxes on income decreased as a percentage of income before taxes as a
result of the Company filing consolidated tax returns for fiscal 1996. During
fiscal 1995, the Company and JT Securities filed separate tax returns. The
Company changed its tax reporting year from a calendar year to a fiscal year
which resulted in two tax closings during fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flow provided by (used in) operating activities was
$434,937 and ($433,315) for the years ended June 30, 1996 and 1995,
respectively. The increase of approximately $868,000 is due primarily to an
increase in net income plus non-cash adjustments of approximately $667,000 and
an increase in accounts payable, accrued expenses and other current liabilities
of approximately $1,011,000 as a result of the Company's expansion. These
increases were offset by approximately $654,000 in advances to financial
planners and an increase in accounts receivable of approximately $168,000 as a
result of the Company's expansion. The increase in net income plus non-cash
adjustments is primarily comprised of
11
<PAGE> 12
increases in depreciation and amortization of approximately $313,000 as a result
of acquisitions totaling approximately $730,000 and capital expenditures of
approximately $900,000 and increased compensation expense recognized in
connection with the issuance of stock and stock options of approximately
$202,000.
Net cash used in investing activities was $233,461 and $3,213,911 for
the years ended June 30, 1996 and 1995, respectively. The decrease of
approximately $2,980,450 is primarily due to proceeds of approximately
$2,187,000 from the sale of marketable securities and a decrease in the purchase
of marketable securities of approximately $2,080,000 offset by increases in
capital expenditures of approximately $282,000 and acquisitions of intangible
assets of approximately $546,000 and an investment in partnership of
approximately $448,000.
Net cash provided by financing activities decreased by $3,397,006 from
$4,081,563 to $684,557 due to proceeds of approximately $3,700,000 in connection
with the consummation of the Company's IPO in December 1994 and additional
issuances of stock.
The Company has two credit facilities with a bank. The first facility
is a line of credit for up to $2,000,000. Borrowings under this line are in the
form of short-term notes with interest charged monthly at the bank's prime
lending rate plus 1 1/2 %. At June 30, 1996 the Company had an outstanding
principal balance of $500,000.
The second credit facility is an installment note in the principal
amount of $500,000. The note is payable in 36 equal monthly installments of
$13,889, plus interest at the bank's prime lending rate plus 1 3/4%. The final
installment is due June 30, 1997. At June 30, 1996 the note had an outstanding
principal balance amounting to $180,556.
In July 1996, the Company acquired a building to house one of its
offices in Babylon, NY for approximately $221,000.
The Company believes that it could continue to operate without any
additional financing (other than its seasonal bank loans) during the next 12
months. The Company anticipates that it will not pay dividends on its Common
Stock in the foreseeable future, but will apply any profits to fund the
Company's expansion.
RECENT ACCOUNTING PRONOUNCEMENTS
In March, 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard ("SFAS") No. 121, "Accounting
For the Impairment of Long Lived Assets and for Long Lives Assets to be Disposed
Of", which is effective for fiscal years beginning after December 15, 1995. The
Company will adopt SFAS No. 121 as of July 1, 1996 and does not expect the
adoption of SFAS No. 121 to have a material impact on its results of operations,
financial position or cash flows.
In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation", which is effective for transactions entered into for fiscal years
that begin after December 15, 1995. SFAS No. 123 establishes a fair value method
for accounting for stock-based compensation plans either through recognition or
disclosure. The Company intends to adopt the employee stock-based compensation
provisions of SFAS No. 123 as of July 1, 1996 by disclosing the pro forma net
income and pro forma net income per share amounts assuming the fair value method
was adopted July 1, 1995. The adoption of this standard will not impact the
Company's consolidated results of operations, financial position or cash flows.
PLAN OF OPERATION
The Company plans to continue its expansion and open new offices during
the next year (although no specific target has been set), recruit successful
financial planners and acquire existing tax preparation practices. The Company
anticipates funding this growth through operating profits and use of its short-
term line of credit but anticipates the availability of additional funds through
the exercise of outstanding
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<PAGE> 13
options and warrants because the sale and/or resale of the common stock
underlying such securities is currently being registered through the filing of a
Form SB-2, as amended, with the SEC filed on May 8, 1996. However,
there can be no assurance that the offering will be consummated.
The Company anticipates that opening new offices will increase its
revenues, but will involve a substantial increase in costs. The Company has no
basis to predict whether its new offices will have a material effect on its net
income. The Company believes that its new offices can ultimately be operated
profitably, but expansion may initially reduce the Company's profits or result
in an overall loss in future years.
The Company intends for its direct mail division to operate as an
independent division and solicit its own customers for its direct mail services.
ITEM 7. FINANCIAL STATEMENTS.
Information called for by this item is set forth in the Company's
consolidated financial statements contained in this report, and can be found at
the pages listed in the index on page F-2.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Weinick, Sanders & Co. LLP was dismissed as the independent
accountants' of the Company as of June 25, 1996. Such former independent
accountants' report on the financial statements of the Company for either of the
prior two years did not contain an adverse opinion or disclaimer of opinion, and
was not modified as to uncertainty, audit scope or accounting principles. The
decision to replace the Company's independent accountants was made by executive
officers of the Company without action by the Company's Board of Directors.
There was no disagreement with the former accountants, either that was resolved
or that remained unresolved, on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure. On
June 25, 1996, the Company engaged BDO Seidman, LLP as its new independent
certified public accountants.
13
<PAGE> 14
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS AND
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
Executive
Officer or
Director
Name Age Position Since
- ---- --- -------- ----------
<S> <C> <C> <C>
James Ciocia 39 Chief Executive Officer, President 11/81
and Director
Thomas Povinelli 35 Chief Operating Officer 11/84
and Director
Gary Besmer 54 Vice President and Director 11/84
Kathryn Travis 47 Secretary, Vice President and Director 11/89
Ralph V. Esposito 41 Treasurer, Vice President 4/94
and Chief Financial Officer
Seth A. Akabas 40 Director 4/95
Louis P. Karol 38 Director 4/95
</TABLE>
James Ciocia, Chief Executive Officer, President and Director
Mr. Ciocia is a principal founder of the Company. He opened his first
office in 1981 and has served in his current capacity since that time. In
addition to serving the Company as its chief executive officer, he prepares tax
returns, serves as a life insurance agent and sells life and other insurance
products to clients of the Company. Mr. Ciocia is a registered representative of
JT Securities and is a registered representative of Royal Alliance. A graduate
of St. John's University with a B.S. degree in accounting, he is a member of the
International Association for Financial Planners.
Thomas Povinelli, Chief Operating Officer and Director
Mr. Povinelli began his tenure with the Company as an accountant in
1983 and has served as an executive officer since November 1984. In addition to
supervising the opening of all new offices, he prepares tax returns, serves as a
life insurance agent, selling life and other insurance products to clients as
well as effecting transactions in mutual funds shares and other securities. Mr.
Povinelli is a registered representative of JT Securities and Royal Alliance. He
graduated from Iona College with a B.S. in accounting.
Gary Besmer, Vice President and Director
Mr. Besmer joined the Company as an accountant in 1983 after retiring
from the New York City Police Department. He has served as an executive officer
and a director of the Company since November, 1984. Mr. Besmer prepares tax
returns and manages the Company's Rockville Centre office. Mr. Besmer
14
<PAGE> 15
is a registered representative of JT Securities and Royal Alliance. He is a
graduate of the New York Institute of Technology with a B.A. in behavioral
science and a minor in accounting.
Kathryn Travis, Secretary, Vice President and Director
Ms. Travis began her career with the Company in 1986 as an accountant
and has served as Vice President and director since November, 1989. She prepares
tax returns and manages the Company's Great Neck office. She also serves as
President, a director and a registered representative of JT Securities and is a
registered representative of Royal Alliance. Ms. Travis graduated from the
College of New Rochelle with a B.A. in mathematics.
Ralph V. Esposito, Treasurer, Vice President and Chief Financial Officer
Mr. Esposito served as Chief Financial Officer of the Company from
September, 1992 through December, 1993 and since April, 1994. During the interim
he was Chief Financial Officer of Multiva Securities, a registered securities
broker/dealer. Prior to joining the Company in 1992, he was Vice President of
Finance at Gabelli & Company, Inc. Mr. Esposito is also the Treasurer, a
Director and a Registered Representative of JT Securities. He is a graduate of
St. John's University with a B.S. in accounting.
Louis P. Karol, Director
Mr. Karol has been a partner of the law firm of Karol, Hausman &
Sosnick and its predecessors for more than the prior five years. Mr. Karol is a
graduate of George Washington University and a graduate of Cardozo Law School
and has received an LLM degree in Taxation from New York University School of
Law. Mr. Karol is a Certified Public Accountant. Mr. Karol is on the Board of
Directors of the Long Island Chapter of the International Association of
Financial Planning.
Seth A. Akabas, Director
Since June 1991 Mr. Akabas has been a partner at the law firm of Akabas
& Cohen. Prior to June 1991, he was associated with the law firm of Spengler
Carlson Gubar Brodsky & Frischling. Mr. Akabas is a graduate of Princeton
University with a BA degree in economics and a graduate of Columbia University
Schools of Law and journalism.
James Ciocia, Thomas Povinelli, Gary Besmer, and Kathryn Travis, each an
officer and director of the Company, and Ralph Esposito, the Chief Financial
Officer of the Company have filed four reports, three reports, four reports, one
report and one report respectively, disclosing ownership of securities on Form 4
required by Section 16(a) of the Securities Act of 1934 in the past fiscal year.
Each such report reported one transaction.
15
<PAGE> 16
ITEM 10. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Other
Name and Principal Fiscal Annual Options
Position Year Salary Compensation (Shares)
- -------- ---- ------ ------------ --------
<S> <C> <C> <C> <C>
James Ciocia 1994 $200,000 -0- -0-
Chief Executive Officer, 1995 $267,200 -0- 18,850
President and Director 1996 $251,200 $30,500 (1) -0-
Thomas Povinelli 1994 $200,000 -0- -0-
Chief Operating Officer 1995 $259,600 -0- 18,850
and Director 1996 $339,300 $78,600 (2) -0-
Gary Besmer 1994 $150,000 -0- -0-
Vice President and 1995 $156,100 -0- 11,310
Director 1996 $168,800 $19,000 (3) -0-
Kathryn Travis 1994 $150,000 -0- -0-
Secretary, Vice President 1995 $156,300 -0- 14,170
and Director 1996 $166,200 $49,300 (4) -0-
Ralph V. Esposito 1994 $ 90,000 -0- -0-
Treasurer, Vice President 1995 $101,400 -0- 201,820
and Chief Financial Officer 1996 $108,000 $15,600 (5) -0-
</TABLE>
(1) Includes $11,000 for auto expense and $19,500 for forgiveness of
loan.
(2) Includes $18,600 for auto expense and $60,000 for forgiveness of
loan.
(3) Includes $7,000 for auto expense and $12,000 for forgiveness of
loan.
(4) Includes $8,900 for auto expense, $32,300 for forgiveness of loan
and $8,100 for health insurance.
(5) Includes $7,500 for auto expense and $8,100 for health insurance.
Messrs. Ciocia, Povinelli and Besmer and Ms. Travis earn commissions
from the sale of securities and insurance products to clients of JT securities
out of which commissions such individuals compensate JT Securities for clerical
and support services and client references. See "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS."
DIRECTORS
Directors of the Company receive no compensation for serving as a
director.
16
<PAGE> 17
AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs at Options/SARs
Fiscal Year-End(#) Fiscal Year-End($)(1)
------------------------- -------------------------
Name Exercisable/Unexercisable Exercisable/Unexercisable
- ----------------------- ------------------------- -------------------------
<S> <C> <C>
James Ciocia 125,370 / - 398,528 / -
Thomas Povinelli 125,370 / - 398,528 / -
Gary Besmer 75,223 / - 239,119 / -
Kathryn Travis 94,039 / - 298,931 / -
Ralph Esposito 48,000 / 164,000 136,740 / 197,220
</TABLE>
(1) Based on a year-end fair market value of the underlying securities equal to
$6.13.
STOCK OPTION PLAN
On September 14, 1993, the Company adopted the Company's 1993 Joint
Incentive and Non-Qualified Stock Option Plan, as amended October 14, 1993 (the
"Plan"), pursuant to which the Company may grant options to purchase up to an
aggregate of 816,000 shares. Such options may be intended to qualify as
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, or they may be intended not to qualify under
such Section ("Non-Qualified Options").
The Plan is administered by Seth Akabas and Louis Karol, the committee
of independent directors of the Board of Directors of the Company, which has
authority to determine the persons to whom the options may be granted, the
number of shares of Common Stock to be covered by each option, the time or times
at which the options may be granted or exercised, whether the options will be
Incentive Options or Non-Qualified Options, and other terms and provisions of
the options. The exercise price of the Incentive Stock Options granted under the
Plan may not be less than the fair market value of a share of Common Stock on
the date of grant (110% of such value if granted to a person owning in excess of
ten percent of the Company's securities). Options granted under the Plan may not
have a term longer than 10 years from the date of grant (five years if granted
to a person owning in excess of ten percent of the Company's securities) and may
not be granted more than ten years from the date of adoption of the Plan.
INDEMNIFICATION
The Company's Certificate of Incorporation includes a provision that
eliminates or limits the personal financial liability of the Company's
directors, except in situations where there has been a breach of the duty of
loyalty, failure to act in good faith, intentional misconduct or violation of
the law.
In addition, the Company's By-laws include provisions to indemnify its
officers and directors and other persons against expenses, judgments, fines and
amounts paid in settlement in connection with threatened, pending or completed
suits or proceedings against such persons by reason of serving or having served
as officers, directors or in other capacities, except in relation to matters
with respect to which persons shall be determined to have acted not in good
faith, unlawfully or not in the best interests of the Company. With respect to
matters as to which the Company's officers and directors and others are
determined to be liable for misconduct or negligence in the performance of their
duties, the Company's By-laws provide for indemnification only to the extent
that the Company determines that such person acted in good faith and in a manner
not opposed to the best interests of the Company.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES
ACT OF 1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING THE
COMPANY PURSUANT TO THE FOREGOING PROVISIONS, THE COMPANY HAS BEEN
17
<PAGE> 18
INFORMED THAT IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION, SUCH
INDEMNIFICATION IS AGAINST PUBLIC POLICY AS EXPRESSED IN THE ACT AND IS
THEREFORE UNENFORCEABLE.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of September 30, 1996, to the extent
known to the Company, the ownership of the Company's Common Stock, par value
$.01 per share, by (i) each person who is known by the Company to own of record
or beneficially more than five percent of the Company's Common Stock, (ii) each
of the Company's directors and executive officers and (iii) all directors and
executive officers as a group. Except as otherwise indicated, the stockholders
listed in the table have sole voting and investment powers with respect to the
shares indicated.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership Percent of Class
- ---------------- -------------------- ----------------
<S> <C> <C>
James Ciocia 1,040,473 (1) 18.3%
1304 Ridge Road
Laurel Hollow, NY 11791
Thomas Povinelli 1,083,473 (2) 19.1%
3427 Bayfront Place
Baldwin, NY 11510
Gary Besmer 538,480 (3) 9.6%
35 Deer Run
East Islip, NY 11730
Kathryn Travis 358,185 (4) 6.3%
31 Wood Lane
Lattingtown, NY 11560
Ralph V. Esposito 79,380 (5) 1.4%
854 Beckman Drive
No. Bellmore, NY 11710
Seth Akabas 8,081(6) .1%
245 West 107th Street
New York, NY 10025
Louis Karol 780 .01%
28 Fairview Avenue
East Williston, NY 11596
Steven Gilbert 486,154(7) 8.4%
2420 Enterprise Road; Suite 100
Clearwater, FL 34623
All directors and officers 3,108,852 51.7%
as a group (7 persons)
</TABLE>
- --------------
18
<PAGE> 19
(1) Includes 83,604 shares and 41,766 shares of Common Stock issuable upon
the exercise of currently exercisable options at prices of $2.60 and $3.65,
respectively.
(2) Includes 83,604 shares and 41,766 shares of Common Stock issuable upon
the exercise of currently exercisable options at prices of $2.60 and $3.65,
respectively.
(3) Includes 50,163 shares and 25,060 shares of Common Stock issuable upon
the exercise of currently exercisable options at prices of $2.60 and $3.65,
respectively.
(4) Includes 62,710 shares and 31,329 shares of Common Stock issuable upon
the exercise of currently exercisable options at prices of $2.60 and $3.65,
respectively.
(5) Includes 7,920 shares and 4,080 shares of Common Stock issuable upon
the exercise of currently exercisable options at prices of $2.60 and $3.65,
respectively. In addition includes 10,000 shares of Common Stock issuable upon
the exercise of currently exercisable options at a price of $3.00, 12,000 shares
of Common Stock issuable upon the exercise of currently exercisable options at a
price of $4.00 and 14,000 shares of Common Stock issuable upon the exercise of
currently exercisable options at a price of $4.80. Does not include 164,000
shares not exercisable within 60 days.
(6) Includes 8,081 shares owned by the law firm of Akabas & Cohen of which
Mr. Akabas is a partner.
(7) Includes 246,154 shares owned by the Gilbert Family Limited Partnership
of which Steven Gilbert is beneficiary. In addition, includes 240,000 options at
$3.50 per share that were exercisable upon issuance. Does not include 100,000
shares issuable at $3.50 per share that are not exercisable within 60 days.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Each of James Ciocia, Thomas Povinelli, Gary Besmer and Kathryn Travis,
acts as a registered representative for Royal Alliance and as an authorized
agent for insurance carriers.
Mr. Ciocia earned gross commissions from sales of securities and
insurance products in connection with his work with the Company equal to
approximately $280,000 in the Company's 1996 fiscal year and $234,000 in the
Company's 1995 fiscal year and paid approximately $108,000, and $100,000 in such
years to the Company for clerical, support staff, office space and client
references.
Mr. Povinelli earned gross commissions from sales of securities and
insurance products in connection with his work with the Company equal to
approximately $260,000 in the Company's 1996 fiscal year, $250,000 in the
Company's 1995 fiscal year and paid approximately $62,200 and $107,000 in such
years to the Company for clerical, support staff, office space and client
references.
Mr. Besmer earned gross commissions from sales of securities and
insurance products in connection with his work with the Company equal to
approximately $14,000 in the Company's 1996 fiscal year and $21,000 in the
Company's 1995 fiscal year and paid approximately $1,200 and $9,000 in such
years to the Company for clerical, support staff, office space and client
references.
Ms. Travis earned gross commissions from sales of securities and
insurance products in connection with her work with the Company equal to
approximately $28,000 in the Company's 1996 fiscal year and $12,000 in the
Company's 1995 fiscal year and paid approximately $8,300 and $5,000 in such
years to the Company for clerical, support staff, office space and client
references.
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<PAGE> 20
In 1991, the four principle shareholders, Messrs. Ciocia, Povinelli and
Besmer and Ms. Travis, personally agreed to purchase the Common Stock of a
former stockholder and executed and delivered a promissory note in the original
principal amount of $360,000 in connection with such purchase. From 1991 through
1994, annual payments thereunder, in the amount of approximately $75,000 with
interest, were advanced by the Company, and each shareholder's allocable portion
thereof was deducted from his or her salary that would otherwise be payable by
the Company. In January 1995, the Company paid such former shareholder in full
on behalf of the four principal shareholders. In January and July 1995, the four
principal shareholders agreed to surrender a total of 96,964 shares of Common
Stock in lieu of repayment of such loans advances by the Company. In such
transactions, such Common Stock was valued at its market price.
In March 1995, the Company transferred ownership of certain life
insurance policies which it maintained on key officers to the officers
themselves. These policies had cumulative cash values of $117,194 on the books
of the Company. On August 18, 1995, the officers gave the Company promissory
notes in principal amounts equal to the recorded cash values. The notes are
payable in 52 equal bi-weekly installments (including interest at 9% per annum)
totaling $1,700, with balloon payments totaling 8,434 due August 15, 1997.
The four principle shareholders, Messrs. Ciocia, Povinelli and Besmer
and Ms. Travis, personally guaranteed the repayment of the Company's long-term
loan in the amount of $500,000 from State Bank of Long Island. Such shareholders
received no consideration for such guarantees other than their salaries and
other compensation.
On July 1, 1995, the Company, together with one of its officers and
five individuals who are relatives of the officers of the Company formed ATM
Partners, LP (the "Partnership"). All investment transactions are executed
through JT Securities by the Chief Financial Officer of the Company. At June 30,
1996, the Company had a 35.62% interest in the Partnership and recognized income
of approximately $198,000 from the Partnership for the year then ended.
In November 1995, the five executive officers sold options to purchase
a total of 65,000 shares at $2.50 per share for $2.00 per share to Rummco, Ltd.,
a Cayman Islands company. In connection with such sale, the Company agreed to
consent to such sale and register shares underlying such options with the
registration statement of which this Prospectus is a part. These options to
purchase shares of common stock were subsequently sold to Rozel International
Holding, Ltd. for $4.50 per share in an agreement dated June 10, 1996.
The Company holds demand loans due from stockholders aggregating
$180,895, of which $127,395 was due from directors and was previously agreed to
be repaid by June 30, 1995 through salary deductions or cash repayments. These
loans were in default although the Company made no demand for repayment until
March 1996. On March 8, 1996, the demand loans amounting to $127,395 were
converted to notes receivable. The remaining loans aggregating $53,500 are due
from various minority stockholders on demand. The Company subsequently forgave
the loans for the following individuals in the following amounts: James Ciocia
$19,580; Thomas Povinelli $60,004; Gary Besmer $12,009; and Kathryn Travis
$32,306, for a aggregate total of $123,899. The difference of $3,496 was already
paid off by James Ciocia.
ITEM 13. EXHIBITS; LIST AND REPORTS ON FORM 8-K.
(a) Exhibits
3.1 Registrant's Articles of Incorporation, as amended, incorporated
by reference to the like-numbered exhibit in the Registrant's
Registration Statement on Form SB-2 under the Securities Act of
1933, as amended, File No. 33-70640-NY
20
<PAGE> 21
3.2 Registrant's By-laws, incorporated by reference to the
like-numbered exhibit in the Registrant's Registration Statement
on Form SB-2 under the Securities Act of 1933, as amended, File
No. 33-70640-NY
4.1 Form of Class A Warrant delivered to Bridge Loan lenders,
incorporated by reference to the like-numbered exhibit in the
Registrant's Registration Statement on Form SB-2 under the
Securities Act of 1933, as amended, File No. 33-70640-NY
4.2 Form of Class B Warrant delivered to Bridge Loan lenders,
incorporated by reference to the like-numbered exhibit in the
Registrant's Registration Statement on Form SB-2 under the
Securities Act of 1933, as amended, File No. 33-70640-NY
4.3 Form of Redeemable Warrant included in Units, incorporated by
reference to the like-numbered exhibit in the Registrant's
Registration Statement on Form SB-2 under the Securities Act of
1933, as amended, File No. 33-70604-NY
4.4 Form of Purchase Option for Underwriter's Warrants, incorporated
by reference to the like-numbered exhibit in the Registrant's
Registration Statement on Form SB-2 under the Securities Act of
1933, as amended, File No. 33-70640-NY
10.1 Restated and Amended Agreement and Plan of Merger dated December
23, 1992 among the Registrant and 15 participating corporations,
incorporated by reference to the like-numbered exhibit in the
Registrant's Registration Statement on Form SB-2 under the
Securities Act of 1933, as amended, File No. 33-70640-NY
10.2 Asset Sale Agreement dated December 31, 1992, incorporated by
reference to the like-numbered exhibit in the Registrant's
Registration Statement on Form SB-2 under the Securities Act of
1933, as amended, File No. 33-70640-NY
10.3 Escrow letter regarding certain shares of Common Stock of the
Registrant, incorporated by reference to the like-numbered
exhibit in the Registrant's Registration Statement on Form SB-2
under the Securities Act of 1933, as amended, File No.
33-70640-NY
10.4 {Omitted}
10.5 Warrant Agreement dated October 31, 1993 between the Registrant
and the Warrant Agent, incorporated by reference to the
like-numbered exhibit in the Registrant's Registration Statement
on Form SB-2 under the Securities Act of 1933, as amended, File
No. 33-70640-NY
10.6 {Omitted}
10.7 1993 Joint Incentive and Non-Qualified Stock Option Plan of the
Registrant, incorporated by reference to the like-numbered
exhibit in the Registrant's Registration Statement on Form SB-2
under the Securities Act of 1933, as amended, File No.
33-70640-NY
10.8 {Omitted}
10.9 {Omitted}
10.10 Form of Lock-up letter executed by shareholders of the
Registrant, incorporated by reference to the like-numbered
exhibit in the Registrant's Registration Statement on Form SB-2
under the Securities Act of 1933, as amended, File No.
33-70640-NY
21
<PAGE> 22
10.11 Term-loan Promissory Note to State Bank of Long Island,
incorporated by reference to the like-numbered exhibit in the
Registrant's Registration Statement on Form SB-2 under the
Securities Act of 1933, as amended, File No. 33-70640-NY
10.12 {Omitted}
10.13 Escrow Agreement among State Bank of Long Island as escrow agent,
the Registrant and Patterson Travis, Inc., incorporated by
reference to the like-numbered exhibit in the Registrant's
Registration Statement on Form SB-2 under the Securities Act of
1933, as amended, File No. 33-70640-NY
10.14 Form of guarantee of Term-loan Promissory Note to State Bank of
Long Island, incorporated by reference to the like-numbered
exhibit in the Registrant's Registration Statement on Form SB-2
under the Securities Act of 1933, as amended, File No.
33-70640-NY
10.15 Agreement among Registrant and James Ciocia, Thomas Povinelli,
Gary Besmer and Kathryn Travis regarding the repayment of
advances, incorporated by reference to the like-numbered exhibit
in the Registrant's Registration Statement on Form SB-2 under the
Securities Act of 1933, as amended, File No. 33-70640-NY
10.16 Underwriting Agreement between the Registrant and Patterson
Travis, Inc., incorporated by reference to exhibit number 1.1 in
the Registrant's Registration Statement on Form SB-2 under the
Securities Act of 1933, as amended, File No. 33-70640-NY
10.17 Stock Purchase Agreement dated February 10, 1995 between
Registrant and Steven Gilbert, incorporated by reference to
exhibit 99.1 to the Company's Current Report on Form 8-K, dated
February 10, 1995
10.18 Noncompetition Agreement dated February 10, 1995 between
Registrant and Steven Gilbert, incorporated by reference to
exhibit 99.2 to the Company's Current Report on Form 8-K, dated
February 10, 1995
10.19 Employment Agreement dated February 10, 1995 between Steven
Gilbert Financial Corp. and Steven Gilbert, incorporated by
reference to exhibit 99.3 to the Company's Current Report on Form
8-K, dated February 10, 1995
10.20 Registration Rights Agreement dated February 10, 1995 between
Registrant and Steven Gilbert, incorporated by reference to
exhibit 99.4 to the Company's Current Report on Form 8-K, dated
February 10, 1995
10.21 Letter Agreement dated April 26, 1995 between the Company and
Steven Gilbert, incorporated by reference to exhibit 10.20 in the
Company's quarterly report on form 10Q for the fiscal quarter
ended March 31, 1995
10.22 Joint Venture Agreement dated December 28, 1994 between Midwood
Tax Service, Inc. and Registrant, incorporated by reference to
the like-numbered exhibit in the Registrant's Registration
Statement on Form SB-2 under the Securities Act of 1933, as
amended, File No. 33-80627
22
<PAGE> 23
10.23 Promissory notes delivered by James Ciocia, Thomas Povinelli,
Gary Besmer and Kathryn Travis in payment for cash value of life
insurance policies held by Registrant on the lives of such
officers, incorporated by reference to the like-numbered exhibit
in the Registrant's Registration Statement on Form SB-2 under the
Securities Act of 1933, as amended, File No. 33-80627
10.24 Consulting Agreement dated October 9, 1995 between EuroMarket
Advisory, Inc. and Registrant, incorporated by reference to the
like-numbered exhibit in the Registrant's Registration Statement
on Form SB-2 under the Securities Act of 1933, as amended, File
No. 33-80627
10.25 Investment Banking Agreement dated October 17, 1995 between Texas
Capital Securities Inc. and Registrant, incorporated by reference
to the like-numbered exhibit in the Registrant's Registration
Statement on Form SB-2 under the Securities Act of 1933, as
amended, File No. 33-80627
10.26 Agreement dated November 1995 among Rummco, Ltd., five executive
officers of Registrant, and Registrant in connection with the
sale of stock options, incorporated by reference to the
like-numbered exhibit in the Registrant's Registration Statement
on Form SB-2 under the Securities Act of 1933, as amended, File
No. 33-80627
10.27 Lock-Up Release Letter by Patterson Travis, Inc. dated January
10, 1996, incorporated by reference to the like-numbered exhibit
in the Amendment No.1 to Registrant's Registration Statement on
Form SB-2 under the Securities Act of 1933, as amended, File No.
33-80627
10.28 Management Agreement dated April 10, 1995 between Dominick Riolo
and Registrant in connection with the opening of a new office,
incorporated by reference to the like-numbered exhibit in the
Amendment No.1 to Registrant's Registration Statement on Form
SB-2 under the Securities Act of 1933, as amended, File No.
33-80627
10.29 Management Agreement dated April 10, 1995 between Gregory Ferone
and Registrant in connection with the opening of a new office,
incorporated by reference to the like-numbered exhibit in the
Amendment No.1 to Registrant's Registration Statement on Form
SB-2 under the Securities Act of 1933, as amended, File No.
33-80627
10.30 Management Agreement dated April 10, 1995 between Armando
Olivieri and Registrant in connection with the opening of a new
office, incorporated by reference to the like-numbered exhibit in
the Amendment No.1 to Registrant's Registration Statement on Form
SB-2 under the Securities Act of 1933, as amended, File No.
33-80627
10.31 Independent Employment Contract dated December , 1993 between
Abraham Dorfman and Registrant, incorporated by reference to the
like-numbered exhibit in the Amendment No.1 to Registrant's
Registration Statement on Form SB-2 under the Securities Act of
1933, as amended, File No. 33-80627
10.32 Form of Subscription Letter representing stock issuance's to
individuals, incorporated by reference to the like-numbered
exhibit in the Amendment No.1 to Registrant's Registration
Statement on Form SB-2 under the Securities Act of 1933, as
amended, File No. 33-80627
10.33 Independent Contractor's Agreement dated September 6, 1995
between Howard Wilkin and the Registrant, incorporated by
reference to the like-numbered exhibit in the Amendment No.1 to
Registrant's Registration Statement on Form SB-2 under the
Securities Act of 1933, as amended, File No. 33-80627
23
<PAGE> 24
10.34 Independent Contractor's Agreement dated September 6, 1995
between Alfred Schepis and the Registrant, incorporated by
reference to the like-numbered exhibit in the Amendment No.1 to
Registrant's Registration Statement on Form SB-2 under the
Securities Act of 1933, as amended, File No. 33-80627
10.35 Independent Contractor's Agreement dated September 6, 1995
between Armando Olivieri and the Registrant, incorporated by
reference to the like-numbered exhibit in the Amendment No.1 to
Registrant's Registration Statement on Form SB-2 under the
Securities Act of 1933, as amended, File No. 33-80627
21 List of Subsidiaries, incorporated by reference to Exhibit 21 in
the Company's Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1995.
(b) Reports on Form 8-K
Disclosure for Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure, incorporated by reference to
the Company's Current Report on Form 8-K, dated July 2, 1996.
24
<PAGE> 25
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GILMAN & CIOCIA, INC.
By: /s/ Ralph V. Esposito
------------------------------------------
Ralph V. Esposito, Chief Financial Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ James Ciocia Chief Executive Officer, President October 15, 1996
- ----------------------- and Director
James Ciocia
/s/ Thomas Povinelli Chief Operating Officer October 15, 1996
- ----------------------- and Director
Thomas Povinelli
/s/ Gary Besmer Vice President and Director October 15, 1996
- -----------------------
Gary Besmer
/s/ Kathryn Travis Secretary, Vice President and Director October 15, 1996
- -----------------------
Kathryn Travis
/s/ Ralph V. Esposito Treasurer, Vice President and October 15, 1996
- ----------------------- Chief Financial Officer
Ralph V. Esposito
/s/ Seth Akabas Director October 15, 1996
- -----------------------
Seth Akabas
Director October , 1996
- -----------------------
Louis P. Karol
</TABLE>
25
<PAGE> 26
GILMAN & CIOCIA, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-KSB - ITEM 7
YEARS ENDED JUNE 30, 1996 AND 1995
F-1
<PAGE> 27
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
INDEX
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
FOR THE YEAR ENDED JUNE 30, 1996 F-3
INDEPENDENT ACCOUNTANTS' REPORT FOR THE YEAR ENDED
JUNE 30, 1995 F-4
FINANCIAL STATEMENTS:
Consolidated balance sheet as of June 30, 1996 F-5 - F-6
Consolidated statements of income for the
years ended June 30, 1996 and 1995 F-7
Consolidated statements of stockholders' equity
for the years ended June 30, 1996 and 1995 F-8 - F-9
Consolidated statements of cash flows for the
years ended June 30, 1996 and 1995 F-10 - F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-12 - F-31
F-2
<PAGE> 28
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Gilman & Ciocia, Inc.
Great Neck, New York
We have audited the accompanying consolidated balance sheet of Gilman & Ciocia,
Inc. and subsidiaries as of June 30, 1996, and the related consolidated
statements of income, stockholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Gilman
& Ciocia, Inc. and subsidiaries at June 30, 1996 and the consolidated results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
BDO Seidman, LLP
New York, New York
September 30, 1996
F-3
<PAGE> 29
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors
Gilman & Ciocia, Inc.
We have audited the accompanying consolidated statements of income,
stockholders' equity and cash flows of Gilman & Ciocia, Inc. and subsidiaries
for the year ended June 30, 1995. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and
cash flows of Gilman & Ciocia, Inc. and subsidiaries for the year ended June 30,
1995, in conformity with generally accepted accounting principles.
As described in Note 13(a), the Company restated its June 30, 1995 consolidated
financial statements to correct and increase its tax liability as of June 30,
1995 by approximately $145,000.
/s/ Weinick, Sanders & Co. LLP
------------------------------
Weinick, Sanders & Co. LLP
New York, N.Y.
August 7, 1995
(Except for Note 7(d) as to which
the date is September 22, 1995)
F-4
<PAGE> 30
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, 1996
- -----------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
CURRENT:
Cash $2,221,795
Accounts receivable, net of allowance for doubtful accounts of
$45,974 976,686
Receivables from related parties, current portion 403,545
Prepaid expenses and other current assets 100,866
- -----------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 3,702,892
PROPERTY AND EQUIPMENT, AT COST, LESS ACCUMULATED
DEPRECIATION AND AMORTIZATION 1,501,701
INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION OF
$192,282 1,030,820
INVESTMENT IN PARTNERSHIP 646,525
ADVANCES AND NOTES RECEIVABLE FROM FINANCIAL PLANNERS 501,531
SECURITY DEPOSITS 209,852
RECEIVABLES FROM RELATED PARTIES, NET OF CURRENT PORTION 139,595
DEFERRED TAX ASSETS 133,585
- -----------------------------------------------------------------------------------------------------
$7,866,501
- -----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 31
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Short-term borrowings $ 680,556
Accounts payable 291,554
Accrued expenses and other current liabilities 395,450
- ------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,367,560
- ------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock - $.001 par value - shares
authorized 100,000; issued and
outstanding, none -
Common stock - $.01 par value - shares
authorized 9,000,000; issued and
outstanding 5,550,582 55,505
Paid-in capital 6,184,075
Retained earnings 717,375
- ------------------------------------------------------------------------------------------------------------
6,956,955
Stock subscriptions and accrued interest receivable (458,014)
- ------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 6,498,941
- ------------------------------------------------------------------------------------------------------------
$ 7,866,501
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 32
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Restated)
Year Ended June 30, 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES:
Tax preparation fees $ 8,147,986 $ 6,657,620
Financial planning commissions 5,671,905 3,274,541
Direct mail services 2,689,786 -
- --------------------------------------------------------------------------------------------------------
TOTAL REVENUES 16,509,677 9,932,161
- --------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Salaries and commissions 6,352,211 3,915,963
General and administrative expenses 3,392,448 2,262,652
Advertising 2,585,125 2,045,178
Direct mail costs 1,682,108 -
Rent 1,502,788 912,565
Depreciation and amortization 525,468 212,639
Reimbursement of financial planning expenses (125,000) -
- --------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 15,915,148 9,348,997
- --------------------------------------------------------------------------------------------------------
OPERATING INCOME 594,529 583,164
- --------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSES):
Income from investment in partnership 198,165 -
Interest income 91,435 97,894
Interest expense (107,111) (91,359)
Rental income 19,180 12,275
Realized gain on sale of marketable securities 91,175 15,343
Unrealized gain on marketable securities - 16,216
- --------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME (EXPENSES) - NET 292,844 50,369
- --------------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES 887,373 633,533
PROVISION FOR INCOME TAXES 352,647 386,030
- --------------------------------------------------------------------------------------------------------
NET INCOME $ 534,726 $ 247,503
- --------------------------------------------------------------------------------------------------------
NET INCOME PER SHARE $ 0.10 $ 0.05
- --------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES:
Primary 5,916,044 4,716,106
Fully diluted 5,916,044 4,882,737
- --------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 33
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Stock
Subscriptions
and
Common Stock Additional Accrued Treasury Stock Total
----------------- Paid-in Retained Interest ----------------- Stockholders'
Year Ended June 30, 1995 Shares Amount Capital Earnings Receivable Shares Amount Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1994 4,114,465 $41,144 $1,396,825 $ 714,923 $(694,148) - $ - $1,458,744
Collection of common stock
subscriptions and accrued
interest receivable - - - - 97,012 - - 97,012
Sale of common stock, net 1,015,852 10,158 3,076,520 - - - - 3,086,678
Acquisition of treasury stock - at
cost - - - - - 20,000 (72,500) (72,500)
Issuance of common stock for
cash and subscriptions
receivable 80,261 803 242,697 - (115,000) - - 128,500
Receipt of stock in lieu of
repayment of officers' loans
receivable - - - - - 96,964 (339,375) (339,375)
S Corporation dividend
distributions - - - (202,868) - - - (202,868)
Termination of subchapter "S"
election by Gilbert Financial
Corp. and transfer of retained
earnings to paid-in capital - - 98,720 (98,720) - - - -
Compensation expense
recognized in connection with
issuance of stock options - - 30,875 - - - - 30,875
Exercise of bridge warrants 360,000 3,600 745,200 - - - - 748,800
Issuance of common stock, in
connection with the
acquisition of intangible assets 64,286 643 224,357 - - - - 225,000
Accrued interest receivable - - - - (61,844) - - (61,844)
Net income (Restated) - - - 247,503 - - - 247,503
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1995 5,634,864 $56,348 $5,815,194 $ 660,838 $(773,980) 116,964 $(411,875) $5,346,525
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 34
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Stock
Subscriptions
Year Ended June 30, 1996 Common Stock Additional and Accrued
---------------------------- Paid-in Retained Interest
Shares Amount Capital Earnings Receivable
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, July 1, 1995 5,634,864 $ 56,348 $5,815,194 $ 660,838 $ (773,980)
Purchase of treasury stock - - - - 67,590
Retirement of treasury stock (127,558) (1,276) - (478,189) -
Issuance of common stock 26,307 263 53,063 - -
Exercise of stock options 10,000 100 23,100 - -
Compensation recognized in
connection with the issuance
of stock options - - 232,782 - -
Repayments of stock
subscriptions - - - - 310,809
Issuance of stock subscriptions 6,969 70 39,930 - (40,000)
Accrued interest income - - - - (22,433)
Income tax benefit related to
exercise of common stock
options - - 20,006 - -
Net income - - - 534,726 -
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1996 5,550,582 $ 55,505 $6,184,075 $ 717,375 $ (458,014)
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended June 30, 1996 Treasury Stock Total
----------------------------- Stockholders'
Shares Amount Equity
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, July 1, 1995 116,964 $ (411,875) $5,346,525
Purchase of treasury stock 10,594 (67,590) -
Retirement of treasury stock (127,558) 479,465 -
Issuance of common stock - - 53,326
Exercise of stock options - - 23,200
Compensation recognized in
connection with the issuance
of stock options - - 232,782
Repayments of stock
subscriptions - - 310,809
Issuance of stock subscriptions - - -
Accrued interest income - - (22,433)
Income tax benefit related to
exercise of common stock
options - - 20,006
Net income - - 534,726
- ---------------------------------------------------------------------------------------------------
Balance, June 30, 1996 - $ _ $6,498,941
- ---------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE> 35
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Restated)
Year Ended June 30, 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 534,726 $ 247,503
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Compensation expense recognized in connection
with the issuance of stock options 232,782 30,875
Depreciation and amortization 525,468 212,639
Income from investment in partnership (198,165) -
Increase in deferred tax asset (133,585) -
Compensation expense recognized in connection
with the forgiveness of officer's loan 123,899 -
Gain on sale of marketable securities (91,175) -
Compensation expense recognized in connection
with amortization of advances to financial
planners 79,851 -
Provisions for doubtful accounts 99,175 -
Interest on stock subscriptions (22,433) -
Gain on disposal of property and equipment (9,000) -
Unrealized gain on marketable securities - (16,216)
(Increase) decrease in:
Accounts receivable (441,136) (273,401)
Advances to financial planners (653,768) -
Security deposits (100,486) (10,065)
Prepaid expenses and other current assets 26,786 (75,481)
Increase (decrease) in:
Accounts payable, accrued expenses and other
current liabilities 461,998 (549,169)
- -----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES 434,937 (433,315)
- -----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (900,385) (618,744)
Purchase of marketable securities - (2,079,534)
Proceeds from sale of marketable securities 2,186,925 -
Acquisition of intangible assets (730,076) (184,028)
Investment in partnership (448,360) -
Proceeds from related party transactions 152,655 3,907
Payments to related parties (494,220) (335,512)
- -----------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES $ (233,461) $(3,213,911)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE> 36
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Restated)
Year Ended June 30, 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Acquisition of treasury stock $ - $ (72,500)
Proceeds from short-term borrowings 2,297,222 1,000,000
Payments of short-term borrowings (2,000,000) (1,116,666)
Proceeds from sale of common stock and exercise
of stock options 76,526 3,452,555
Proceeds from stock subscriptions 310,809 73,024
Incurrence of deferred registration costs - (3,632)
Decrease in note payable - officer - (72,150)
S Corporation dividend distribution - (202,868)
Exercise of bridge warrants - 748,800
- -------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 684,557 3,806,563
- -------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH 886,033 159,337
CASH AT BEGINNING OF YEAR 1,335,762 1,176,425
- -------------------------------------------------------------------------------------------------------------------------------
CASH AT END OF YEAR $2,221,795 $ 1,335,762
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE> 37
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF (a) Business
ACCOUNTING POLICIES
Gilman & Ciocia, Inc. (the "Company"),
which is incorporated in Delaware, is a
provider of income tax preparation and
financial planning services to
individuals and businesses. The Company
also provides direct mail services
through its Progressive Mailing Services
("Progressive") division. The Company
has three wholly-owned subsidiaries.
They are as follows:
JT Securities, Inc. ("JT") is a
registered broker-dealer and investment
advisor, pursuant to the provisions of
the Securities Exchange Act of 1934 and
the Investment Advisers Act of 1940,
respectively.
Gilbert Financial Services, Inc.
("Gilbert"), which was acquired
effective November 1, 1994, is also in
the business of providing financial
services. The Company acquired the
outstanding common stock of Gilbert in
exchange for 203,428 shares of the
Company. Gilbert is presently inactive.
BT Telemarketing, Inc. ("BT") is a
telemarketing company. BT is presently
inactive.
The majority of the Company's revenues
are earned from January through June.
(b) Basis of Financial Statement
Presentation
The consolidated financial statements
include the accounts of the Company and
its three wholly-owned subsidiaries JT,
B.T. and Gilbert, and have been prepared
as if the entities had operated as a
single consolidated group since their
respective dates of incorporation. All
significant intercompany accounts and
transactions have been eliminated in
consolidation. The investment in
partnership has been accounted for under
the equity method.
In preparing financial statements in
conformity with generally accepted
accounting principles, management is
required to make estimates and
assumptions that effect the reported
amounts of assets and liabilities and
the disclosure of contingent assets and
liabilities at the date of the financial
statements and revenues and expenses
during the reporting period. Actual
results could differ from those
estimates.
F-12
<PAGE> 38
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(c) Fair Value of Financial Instruments
The carrying amounts of financial
instruments, including cash, accounts
receivable, notes receivable, accounts
payable and short-term borrowings,
approximated fair value as of June 30,
1996, because of the relatively
short-term maturity of these
instruments.
(d) Property and Equipment
Property and equipment are recorded at
cost. Depreciation and amortization is
calculated using straight-line or
accelerated methods over the estimated
useful lives of the assets or, for
leasehold improvements, over the lease
terms which range from one to seven
years.
(e) Advances to Financial Planners
The Company entered into three year
agreements with independent financial
planners ("Planners"), which require the
Planners to become captive agents of the
Company. In connection therewith, the
Company advances funds to financial
planners. The agreements require the
advances to be forgiven in three years
as long as the Planners remain
independent contractors of the Company.
As such, all advances are amortized on a
straight-line basis over three years.
(f) Intangible Assets
Intangible assets include the costs of
$1,223,102 to acquire lists of customer
accounts and non-competition agreements.
Amortization is computed on a
straight-line basis over a period of
five years and amounted to $190,817 and
$1,465 for the years ended June 30, 1996
and 1995, respectively.
F-13
<PAGE> 39
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's operational policy for the
assessment and measurement of any
impairment in the value of the
intangible assets acquired which is
other than temporary is to evaluate the
recoverability and remaining life of the
intangible assets and determine whether
the intangible assets should be
completely or partially written-off or
the amortization period accelerated. The
Company will recognize an impairment in
the value of the intangible assets if
the estimated future operating cash
flows of the intangible assets are
determined to be less than their
carrying amount. If the Company
determines that impairment has occurred,
the measurement of the impairment will
be equal to the excess of the carrying
amount of the intangible assets over the
amount of the undiscounted estimated
operating cash flows.
F-14
<PAGE> 40
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(g) Revenue Recognition
The Company recognizes all revenues upon
completion of the services associated
with income tax preparation and direct
mail services. Securities transactions
and related commission revenue and
expenses are recorded on a trade date
basis.
JT utilizes financial planners that are
independent contractors of the Company
pursuant to which the Company receives a
portion of the commission revenues
generated by these individuals in
exchange for providing client referrals,
office space, and clerical and
secretarial support.
(h) Advertising
The Company expenses advertising costs
as incurred.
(i) Reimbursement of Financial Planning
Expenses
Based on an employment agreement between
the Company and one of its managers, the
manager is required to reimburse the
Company for certain expenses incurred on
behalf of the Company should he fail to
achieve certain gross revenue criteria.
Based on these criteria, the Company is
entitled to be reimbursed for $125,000
of these expenses in fiscal 1996. The
Company will offset the manager's future
earnings by this amount by December 31,
1996.
(j) Income Taxes
Deferred tax assets and liabilities are
recorded for the estimated future tax
effects attributable to temporary
differences between the basis of assets
and liabilities recorded for financial
and tax reporting purposes (Note 11).
F-15
<PAGE> 41
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(k) Net Income Per Share
Primary and fully diluted earnings per
share are computed using the treasury
stock method, modified for stock options
and warrants outstanding in excess of
20% of the total outstanding shares of
common stock. Under this method, the
aggregate number of shares outstanding
reflects the assumed use of proceeds
from the hypothetical exercise of the
outstanding options and warrants, unless
the effect on earnings is anti-dultive.
The assumed proceeds are used to
repurchase shares of common stock at the
average market value during the period
to a maximum of 20% of the shares
outstanding. The balance of the
proceeds, if any, are used to reduce
outstanding debt with the assumed
interest expense savings being added to
the results of operations for the
reported period.
Fully diluted earnings per share also
reflects the assumed use of proceeds
from the hypothetical exercise of
options and warrants to purchase common
stock at the ending market price for the
reported period.
(l) Reclassifications
Certain amounts as previously reported
have been reclassified to conform to the
June 30, 1996 representation.
(m) Recent Accounting Pronouncements
In March, 1995, the Financial Accounting
Standards Board ("FASB") issued
Statement of Financial Accounting
Standard("SFAS") No. 121, "Accounting
For the Impairment of Long Lived Assets
and for Long Lives Assets to the
Disposed Of", which is effective for
fiscal years beginning after December
15, 1995. The Company will adopt SFAS
No. 121 as of July 1, 1996 and does not
expect the adoption of SFAS No. 121 to
have a material impact on its results of
operations, financial position or cash
flows.
F-16
<PAGE> 42
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In October 1995, FASB issued SFAS No.
123, "Accounting for Stock- Based
Compensation", which is effective for
transactions entered into for fiscal
years that begin after December 15,
1995. SFAS No. 123 establishes a fair
value method for accounting for
stock-based compensation plans either
through recognition or disclosure. The
Company intends to adopt the employee
stock-based compensation provisions of
SFAS No. 123 as of July 1, 1996 by
disclosing the pro forma net income and
pro forma net income per share amounts
assuming the fair value method was
adopted July 1, 1995. The adoption of
this standard will not impact the
Company's consolidated results of
operations, financial position or cash
flows.
F-17
<PAGE> 43
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. ACQUISITIONS (a) Intangible Assets
During fiscal 1996 and 1995, the
Company acquired customer lists
and entered into non-competition
agreements for approximately
$730,000 and $459,000,
respectively. Included in the
intangibles acquired during
fiscal 1995 was a customer list
and a non-competition agreement
with the former principal
stockholder of Progressive.
Pro forma financial information
for these acquisitions has not
been provided because they were
not deemed to be material to the
consolidated results of
operations of the Company.
(b) Gilbert
On February 10, 1995, the
Company acquired all of the
issued and outstanding capital
stock of Gilbert in exchange for
203,428 shares of the Company's
common stock. The acquisition
was effective as of November 1,
1994 and has been accounted for
as a pooling of interests.
3. RECEIVABLES FROM Receivables from related parties consist
RELATED PARTIES of the following:
<TABLE>
<CAPTION>
June 30, 1996
------------------------------------------------
<S> <C>
Non-interest bearing note receivable
from officers/ stockholders of the
Company that is due on demand. $150,000
Notes receivable from independent
contractor/ stockholder of the Company
due on June 30, 1997 and October 8,
1997. Interest is charged at a rate of
8% per annum. 214,219
Receivable from independent
contractor/stockholder of the Company,
payable in monthly installments of
$15,625 through December 1, 1996. 94,750
Other 84,171
------------------------------------------------
543,140
Less: current portion 403,545
------------------------------------------------
</TABLE>
F-18
<PAGE> 44
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
$139,595
------------------------------------------------
</TABLE>
For the years ended June 30, 1996 and
1995, interest income from these
receivables was approximately $12,662
and $11,226, respectively.
4. ADVANCES AND NOTES Advances and notes receivable -
RECEIVABLE - financial planners consist of the
FINANCIAL PLANNERS following:
<TABLE>
<CAPTION>
June 30, 1996
------------------------------------------------
<S> <C>
Non-interest bearing advances to
financial planners amortized over
three years. $451,531
Note receivable from financial planner
due December 4, 1998. Interest is
payable at 6% per annum. 50,000
------------------------------------------------
$501,531
------------------------------------------------
</TABLE>
5. PROPERTY AND Major classes of property and equipment
EQUIPMENT consist of the following:
<TABLE>
<CAPTION>
June 30, 1996
--------------------------------------------------
<S> <C>
Equipment $1,911,788
Furniture and fixtures 147,157
Leasehold improvements 342,206
--------------------------------------------------
2,401,151
Less Accumulated depreciation and
amortization 899,450
--------------------------------------------------
$1,501,701
--------------------------------------------------
</TABLE>
6. SHORT-TERM The Company has a bank line of credit
which provides for borrowings up to a
maximum amount of $2,000,000 and expires
on October 31, 1996. The line of credit
is guaranteed by the four principal
stockholders of the Company. At June
30, 1996, the Company had borrowings
of $500,000 outstanding under this
line of credit. Interest is charged at
the prime rate (8.25% at June 30, 1996)
plus 1.5%.
F-19
<PAGE> 45
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company also has a $500,000 term
loan with the bank which requires
monthly payments of $13,889 (plus
interest at the prime rate, 8.25% at
June 30, 1996 plus 1.75%) through
June 30, 1997. The loan is
secured by all of the Company's
Assets of the Company. At June
30, 1996, the Company's outstanding
balance under this loan was
$180,556.
7. COMMITMENTS AND (a) Leases
CONTINGENCIES
The Company is obligated under
various noncancelable lease
agreements for the rental of office
space and equipment through 2001.
The lease agreements for office
space contain escalation clauses
based principally upon real estate
taxes, building maintenance and
utility costs. The following is a
schedule by year of future minimum
rental payments required under
operating leases:
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------
<S> <C>
1997 $1,531,446
1998 1,265,843
1999 850,731
2000 541,008
2001 254,061
Thereafter 36,743
----------------------------------------
$4,479,832
----------------------------------------
</TABLE>
(b) Internal Revenue Code Provisions
for Penalties of Tax Preparers
The Company's business of preparing
income tax returns subjects it to
potential civil liabilities under
the Internal Revenue Code. Although
the Company believes it complies
with all applicable laws and
regulations, no assurance can be
given that the Company will never
incur any material fines or
penalties.
F-20
<PAGE> 46
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(c) Professional Liability or
Malpractice Insurance
The Company does not maintain any
professional liability or
malpractice insurance policy.
Although the Company believes it
complies with all applicable laws
and regulations, no assurance can be
given that the Company will not be
subject to professional liability or
malpractice suits.
(d) Clearing Agreement
All securities transactions are
introduced and cleared on a fully
disclosed basis through a
correspondent broker that is a
member of the New York Stock
Exchange, Inc. (the "Broker")
pursuant to a clearing agreement
(the "Agreement"). Accordingly, JT
operates under the exemptive
provisions of Securities Exchange
Commission ("SEC") Rule
15c3-3(k)(2)(ii).
The Agreement provides the Broker
with liens upon all cash and
receivables held by the Broker which
totalled approximately $46,000 at
June 30, 1996. These liens secure
the liabilities and obligations of
the Company to the Broker.
(e) Concentration of Credit Risk
Financial instruments which
potentially subject the Company to
concentrations of credit risk
consist of cash and accounts
receivable. The Company maintains
its temporary cash investments with
high quality financial institutions.
The highly seasonal nature of the
Company's business results in the
periodic accumulation of cash in
amounts in excess of the FDIC
insurance limits. The Company
utilizes several financial
institutions at these times to
minimize the exposure for potential
losses.
(f) Net Capital Requirements
JT is subject to the Uniform Net
Capital Rule of the SEC, which
requires the maintenance of minimum
regulatory net capital and requires
that the ratio of aggregate
indebtedness to net capital, both as
defined, shall not exceed 15 to 1.
At June 30, 1996, JT had net capital
of $1,861,884 and a net capital
requirement of $25,000.
F-21
<PAGE> 47
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(g) Financial Instruments with Off-
balance Sheet Risk
In the normal course of business, JT
executes, as an agent, transactions
on behalf of customers. If the
agency transactions do not settle
because of failure to perform by
either the customer or the
counterpart, JT may be obligated to
discharge the obligation of the
nonperforming party and, as a
result, may incur a loss if the
market value of the security is
different from the contract amount
of the transactions.
JT does not anticipate
nonperformance by customers or
counterparties in the above
situation. JT's policy is to monitor
its market exposure and counterpart
risk. In addition, JT has a policy
of reviewing, as considered
necessary, the credit standing of
each counterpart and customer with
which it conducts business.
(h) Litigation
The Company is a defendant in
various lawsuits which are in the
early stages of discovery and
therefore no conclusion can be made
by legal counsel as to the outcome.
It is the opinion of management that
the outcome of the pending lawsuits
will not materially affect the
operations, cash flows or financial
condition of the Company.
8. STOCKHOLDERS' EQUITY (a) Public Offering
In December 1994, the Company
consummated its initial public
offering ("IPO") of 507,926 units,
including the underwriter's
overallotment option, of its
securities to the public for $7.00
per unit. Each unit consisted of two
shares of the Company's common stock
and a warrant to purchase another
share of common stock at $4.67 per
share. Proceeds of the offering less
underwriting discounts of
approximately $278,000 were
approximately $3,277,000. Expenses
for the IPO totaled approximately
$190,000, resulting in net proceeds
to the Company of approximately
$3,087,000.
In connection with the IPO, the
Company issued warrants to purchase
50,783 units of common stock to the
underwriter.
F-22
<PAGE> 48
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(b) Warrants
(i) 239,975 Class B warrants
outstanding were originally
issued in connection with a
private placement financing that
took place in fiscal 1994 and
are held by the Company's
warrantholders. Each warrant
grants the holder the right to
purchase one share of common
stock at an exercise price of
$3.13 per share and expires in
September 2003.
(ii) The remaining 507,926 and 50,783
warrants outstanding consist of
those issued to the public and
the underwriter, respectively,
in connection with the IPO. Each
warrant issued to the public
grants the holder the right to
purchase one share of common
stock at an exercise price of
$4.67 and expires in September
1997. The warrants issued to the
underwriter grant the holder the
right to purchase two shares of
common stock and a warrant to
purchase another share of common
stock at a exercise price of
$4.67 and expire in September
1999. These warrants are to be
registered in connection with
the Company's outstanding
Registration Statement with the
SEC (Note 8(f)).
(c) Stock Option Agreements and Stock
Option Plan
The Company has granted 695,000
options to purchase shares of the
Company's common stock to three
individuals and two consultants. The
vesting period of such options
ranges from upon grant to 8.5 years
from the date of grant. The options
expire 3 - 14.5 years from the date
of grant. Of these options, 571,000
options were exercisable at June 30,
1996.
In September 1993, the Company's
Board of Directors and Stockholders
adopted the Company's Joint
Incentive and Non-Qualified Stock
Option Plan, (the "Option Plan").
The Option Plan provides for the
granting, at the discretion of the
Board of Directors, of: (i) options
that are intended to qualify as
incentive stock options, within the
meaning of Section 422 of the
Internal Revenue Code of 1986, as
amended, to employees and (ii)
options not intended to so qualify
to employees, officers and
directors. The total number of
shares of common stock for which
options may be granted under the
Option Plan is 816,000 shares.
F-23
<PAGE> 49
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The number of shares granted, price,
terms of exercise, and expiration
dates are determined by the Board of
Directors. The Plan will terminate
in September 2003.
At June 30, 1996, 697,002 options
have been granted under the Option
Plan. Of these options 511,335
options are exercisable and 118,998
options remain available for future
grants under the Option Plan.
The Company recorded compensation
expense of $232,782 and $30,875 for
the years ended June 30, 1996 and
1995, respectively, in connection
with the issuance of stock options.
Changes in options and warrants
outstanding are summarized as
follows:
<TABLE>
<CAPTION>
Options Warrants
-----------------------------------------------------------
Shares Exercise Price Shares Exercise Price
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, July 1, 1994 432,002 $2.60 - $3.65 599,975 $2.08 - $3.13
Granted 678,000 $2.32 - $5.20 * 558,709 $ $4.67
Exercised - - (360,000) $ 2.08
- ----------------------------------------------------------------------------------
Balance, June 30, 1995 1,110,002 $2.32 - $5.20 798,684 $3.13 - $4.67
Cancelled (63,000) $ 3.50 - - -
Granted 355,000 $1.75 - $5.13 - - -
Exercised (10,000) $ 2.32 - - -
- ----------------------------------------------------------------------------------
Balance, June 30, 1996 1,392,002 $1.75 - $5.20 798,684 $3.13 - $4.67
- ----------------------------------------------------------------------------------
</TABLE>
* Including 50,783 warrants issued
to the underwriter which entitled
the holder to two shares of the
Company's common stock and a warrant
to purchase another share of common
stock.
F-24
<PAGE> 50
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(d) Treasury Stock
In December 1994, the Company
acquired 20,000 shares of its common
stock at a cost of $72,500.
In January and July 1995, the Board
of Directors resolved to accept
85,930 and 11,034 shares,
respectively, of the Company's
common stock from four officers in
lieu of repayment of certain loans
due to the Company. The shares were
valued at the approximate fair
market value of $3.50 per share for
an aggregate value of $339,375. Of
the 96,964 shares, 85,930 were
returned to treasury stock on August
23, 1995. The remaining 11,034
shares were returned to treasury
stock on September 22, 1995.
On January 19, 1996, the Board of
Directors of the Company resolved to
cancel and return all existing
shares of the Company's treasury
stock to authorized and unissued
shares of common stock.
(e) Stock Subscriptions and Accrued
Interest Receivable
Stock subscriptions receivable of
$424,988 bear interest at a rate of
9% per annum. For the years ended
June 30, 1996 and 1995, the Company
recognized interest income of
$35,879 and $64,143, respectively.
At June 30, 1996 accrued interest
receivable was $22,433.
The Company is holding in escrow all
of the shares of its common stock
related to the stock subscriptions
receivable. The shares will be
released when the stock
subscriptions receivables are paid.
F-25
<PAGE> 51
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a schedule by year
of principal payments to be
received:
<TABLE>
<CAPTION>
Year Ending June 30,
--------------------------------------
<S> <C>
1997 $165,506
1998 125,232
1999 75,250
2000 59,000
--------------------------------------
$424,988
--------------------------------------
</TABLE>
(f) Registration Statement on Form SB-2
On May 8, 1996, the Company filed a
Form SB-2, as amended, with the SEC
relating to the offering of 507,926
shares of common stock by the
Company issuable upon exercise of
all of the outstanding public
redeemable warrants, 1,350,706
shares of common stock by selling
stockholders and 50,783 redeemable
common stock purchase warrants by
selling stockholders. The filing has
not been declared effective and will
be amended to incorporate the
consolidated financial statements of
the Company for the year ended June
30, 1996.
9. RELATED PARTY (a) Investment in Partnership
TRANSACTIONS
In July, 1995, the Company, together
with one of its officers and five
individuals who are relatives of the
officers of the Company formed ATM
Partners, LP (the "Partnership").
All investment transactions are
executed through JT by the Chief
Financial Officer of the Company. At
June 30, 1996, the Company had a
35.62% interest in the Partnership
and recognized income of
approximately $198,000 from the
Partnership for the year then ended.
F-26
<PAGE> 52
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following are the condensed
financial statements of
the Partnership:
<TABLE>
<CAPTION>
ATM Partners, LP
Balance Sheet
June 30, 1996
-------------------------------------------------
<S> <C>
ASSETS
CURRENT:
Marketable securities $2,163,664
-------------------------------------------------
$2,163,664
-------------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
CURRENT:
Due to clearing broker $ 561,342
Due to partner 68,000
-------------------------------------------------
Total current liabilities 629,342
Partners' capital 1,534,322
-------------------------------------------------
$2,163,664
-------------------------------------------------
ATM Partners, LP
Statement of Income
Year Ended June 30, 1996
-------------------------------------------------
Realized gain on sale of marketable
securities $ 749,896
Unrealized loss on marketable
securities 8,293
Commission expense 185,270
-------------------------------------------------
Net income $556,333
-------------------------------------------------
</TABLE>
F-27
<PAGE> 53
Gilman & Ciocia, Inc.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(b) Commissions Earned by Officers
The Company's principle
officers/stockholders act as
registered representatives of the
Broker and authorized agents of
insurance carriers. During fiscal
1996 and 1995, these individuals
earned gross commissions of
approximately $582,000 and $517,000,
respectively, from sales of
securities and insurance products,
and paid the Company approximately
$180,000 and $221,000 as
reimbursement for client referrals,
office space and clerical and
secretarial support.
(c) Sale of Options by Officers/
Stockholders
In November 1995, five executive
officers sold options to purchase a
total of 65,000 shares of the
Company's common stock for $2.00 per
option to Rummco, Ltd. ("Rummco"), a
Cayman Islands company. In
connection with such sale, the
Company agreed to consent to such
sale and register shares underlying
such options in connection with the
Company's Registration Statement on
Form SB-2 (Note 8(f)). These options
to purchase shares of common stock
were subsequently sold to Rozel
International Holding, Ltd.
("Rozel") for $4.50 per option, in
an agreement dated June 10, 1996.
Both Rummco and Rozel are
independent of the Company.
(d) Forgiveness of Indebtedness of
Officers/Stockholders
The four principal
stockholders/officers were indebted
to the Company under demand loans
totalling $123,899. The loans were
converted to notes receivable upon
the Company's demand for repayment
in March 1996, and then subsequently
forgiven and charged to
compensation.
F-28
<PAGE> 54
Gilman & Ciocia, Inc.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
10. SEGMENTS OF BUSINESS The Company is a provider of income tax
preparation and financial planning
services to individuals and businesses
in various states across the country.
Direct mail services are provided
primarily to businesses and individuals
in the New York metropolitan area.
F-29
<PAGE> 55
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following presents financial
information by segment for the years
ended June 30, 1996 and 1995:
<TABLE>
<CAPTION>
Year Ended Tax Financial
June 30, 1996 Preparation Planning Direct Mail Consolidated
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $8,147,986 $5,671,905 $2,689,786 $16,509,677
Direct costs 3,922,751 3,052,737 2,429,177 9,404,665
Depreciation and
amortization 302,304 210,076 13,088 525,468
General corporate
expenses - - - 5,985,015
----------------------------------------------------------------------------------------
Operating income $3,922,931 $2,409,092 $ 247,521 $ 594,529
----------------------------------------------------------------------------------------
Interest expense $ - $ - $ - $ 107,111
----------------------------------------------------------------------------------------
Identifiable assets $5,519,630 $2,048,485 $ 298,386 $ 7,866,501
----------------------------------------------------------------------------------------
Capital expenditures $ 813,750 $ - $ 86,635 $ 900,385
----------------------------------------------------------------------------------------
Direct costs consist of
the following:
Direct mail costs $1,682,108 $ - $ - $ 1,682,108
Advertising 1,509,001 1,048,628 27,496 2,585,125
Rent 831,303 577,685 93,800 1,502,788
Salaries 1,582,447 1,426,424 625,773 3,634,644
-----------------------------------------------------------------------------------------
Total direct costs $3,922,751 $3,052,737 $2,429,177 $ 9,404,665
-----------------------------------------------------------------------------------------
<CAPTION>
Year Ended Tax Financial
June 30, 1995 Preparation Planning Consolidated
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $6,657,620 $3,274,541 $ 9,932,161
Direct costs 3,106,057 1,435,170 4,541,227
Depreciation and
amortization 142,468 70,171 212,639
General corporate
expense - - 4,595,131
-----------------------------------------------------------------------------------------
Operating income $3,409,095 $1,769,200 $ 583,164
-----------------------------------------------------------------------------------------
Interest expense $ - $ - $ 91,359
-----------------------------------------------------------------------------------------
Identifiable assets $5,226,071 $ 867,389 $ 6,093,460
-----------------------------------------------------------------------------------------
Capital expenditures $ 414,558 $ 204,186 $ 618,744
-----------------------------------------------------------------------------------------
Direct costs consist
of the
following:
Advertising $1,370,269 $ 674,909 $ 2,045,178
Rent 611,419 301,146 912,565
Salaries 1,124,369 459,115 1,583,484
-----------------------------------------------------------------------------------------
Total direct costs $3,106,057 $1,435,170 $ 4,541,227
-----------------------------------------------------------------------------------------
</TABLE>
F-30
<PAGE> 56
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. TAXES ON INCOME Provisions for income taxes in the
consolidated financial statements
consist of the following:
<TABLE>
<CAPTION>
Year Ended June 30, 1996 1995
----------------------------------------------------------------
<S> <C> <C>
Current:
Federal $362,297 $118,038
State and local 123,935 267,992
----------------------------------------------------------------
Total current 486,232 386,030
----------------------------------------------------------------
Deferred:
Federal (103,483) -
State and local (30,102) -
----------------------------------------------------------------
Total deferred (133,585) -
----------------------------------------------------------------
$352,647 $386,030
----------------------------------------------------------------
Deferred tax assets consist of the
following:
June 30, 1996
----------------------------------------------------------------
Compensation expense recognized for
financial reporting purposes in
connection with common stock option
grants issued at below market value $ 60,000
Book amortization of intangibles in
excess of tax 53,000
Provision for bad debts 22,000
Provision for deferred rent liability 22,000
Book depreciation in excess of tax (23,415)
----------------------------------------------------------------
$133,585
----------------------------------------------------------------
</TABLE>
No valuation allowance has been
established against the deferred tax
assets because management believes that
all of the deferred tax assets will be
realized.
F-31
<PAGE> 57
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the Federal
statutory rate to the provision for
income taxes is as follows:
<TABLE>
<CAPTION>
Year Ended June 30, 1996 1995
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal income taxes computed at
statutory rates $301,706 34.0% $215,401 34.0%
State and local taxes, net of
Federal tax benefit 44,225 5.0 176,875 27.9
Other 6,716 .7 (6,246) (1.0)
---------------------------------------------------------------------------------
$352,647 39.7% $386,030 60.9%
---------------------------------------------------------------------------------
</TABLE>
F-32
<PAGE> 58
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. STATEMENTS OF CASH
FLOWS -
SUPPLEMENTAL
DISCLOSURES
<TABLE>
<CAPTION>
Year Ended June 30, 1996 1995
-------------------------------------------------------------------------
<S> <C> <C>
Cash payments for:
Interest $107,184 $ 78,402
Income taxes $449,276 $543,890
-------------------------------------------------------------------------
Non-cash transactions:
Deferred registration
costs which were
charged to
additional paid-in
capital upon the
completion of the
public offering in
December 1995 $ - $186,245
Issuance of common
stock in exchange
for stock
subscriptions
receivable $ 40,000 $ 20,000
Issuance of common
stock subsequent to
completion of the
public offering in
exchange for
common stock
subscriptions
receivable $ - $ 95,000
</TABLE>
F-33
<PAGE> 59
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C>
Receipt of 96,964
shares of stock to
treasury in lieu of
repayment of
officers' loans
receivable $ - $339,375
Acquisition of
Progressive $ - $275,000
------------------------------------------------------------------------
Acquisition of Gilbert $ - $108,231
Acquisition of treasury
stock and write-off
of stock
subscriptions
receivable $ 67,590 $ -
Retirement of all
outstanding treasury
stock $ 479,465 $ -
------------------------------------------------------------------------
</TABLE>
F-36
<PAGE> 60
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. RESTATEMENTS (a) Fiscal 1995 Financial
Information
The financial position and results of
operations, as of June 30, 1995 and for
the year then ended, have been restated
to increase the Company's tax liability
and provision by approximately $145,000
to correctly reflect its liability as of
that date.
(b) Third Quarter Fiscal 1996 Financial
Information
The financial position and results of
operations of the Company, as of March
31, 1996, and for the quarter and nine
months then ended, will be restated to
reflect the SEC's disagreement with the
accounting treatment for deferred
advertising costs. As a result, the
Company will recognize additional
advertising expense of approximately
$950,000 for the quarter and nine months
ended March 31, 1996.
14. SUBSEQUENT EVENT On July 30, 1996, the Company acquired a
building to house one of its offices in
North Babylon, NY for approximately
$221,000.
F-35
<PAGE> 61
EXHIBIT INDEX
-------------
Exhibit
No. Distribution
- ------- ------------
3.1 Registrant's Articles of Incorporation, as amended, incorporated
by reference to the like-numbered exhibit in the Registrant's
Registration Statement on Form SB-2 under the Securities Act of
1933, as amended, File No. 33-70640-NY
3.2 Registrant's By-laws, incorporated by reference to the
like-numbered exhibit in the Registrant's Registration Statement
on Form SB-2 under the Securities Act of 1933, as amended, File
No. 33-70640-NY
4.1 Form of Class A Warrant delivered to Bridge Loan lenders,
incorporated by reference to the like-numbered exhibit in the
Registrant's Registration Statement on Form SB-2 under the
Securities Act of 1933, as amended, File No. 33-70640-NY
4.2 Form of Class B Warrant delivered to Bridge Loan lenders,
incorporated by reference to the like-numbered exhibit in the
Registrant's Registration Statement on Form SB-2 under the
Securities Act of 1933, as amended, File No. 33-70640-NY
4.3 Form of Redeemable Warrant included in Units, incorporated by
reference to the like-numbered exhibit in the Registrant's
Registration Statement on Form SB-2 under the Securities Act of
1933, as amended, File No. 33-70604-NY
4.4 Form of Purchase Option for Underwriter's Warrants, incorporated
by reference to the like-numbered exhibit in the Registrant's
Registration Statement on Form SB-2 under the Securities Act of
1933, as amended, File No. 33-70640-NY
10.1 Restated and Amended Agreement and Plan of Merger dated December
23, 1992 among the Registrant and 15 participating corporations,
incorporated by reference to the like-numbered exhibit in the
Registrant's Registration Statement on Form SB-2 under the
Securities Act of 1933, as amended, File No. 33-70640-NY
10.2 Asset Sale Agreement dated December 31, 1992, incorporated by
reference to the like-numbered exhibit in the Registrant's
Registration Statement on Form SB-2 under the Securities Act of
1933, as amended, File No. 33-70640-NY
10.3 Escrow letter regarding certain shares of Common Stock of the
Registrant, incorporated by reference to the like-numbered
exhibit in the Registrant's Registration Statement on Form SB-2
under the Securities Act of 1933, as amended, File No.
33-70640-NY
10.4 [Omitted]
10.5 Warrant Agreement dated October 31, 1993 between the Registrant
and the Warrant Agent, incorporated by reference to the
like-numbered exhibit in the Registrant's Registration Statement
on Form SB-2 under the Securities Act of 1933, as amended, File
No. 33-70640-NY
10.6 [Omitted]
10.7 1993 Joint Incentive and Non-Qualified Stock Option Plan of the
Registrant, incorporated by reference to the like-numbered
exhibit in the Registrant's Registration Statement on Form SB-2
under the Securities Act of 1933, as amended, File No.
33-70640-NY
10.8 [Omitted]
10.9 [Omitted]
10.10 Form of Lock-up letter executed by shareholders of the
Registrant, incorporated by reference to the like-numbered
exhibit in the Registrant's Registration Statement on Form SB-2
under the Securities Act of 1933, as amended, File No.
33-70640-NY
<PAGE> 62
Exhibit
No. Distribution
- ------- ------------
10.11 Term-loan Promissory Note to State Bank of Long Island,
incorporated by reference to the like-numbered exhibit in the
Registrant's Registration Statement on Form SB-2 under the
Securities Act of 1933, as amended, File No. 33-70640-NY
10.12 [Omitted]
10.13 Escrow Agreement among State Bank of Long Island as escrow agent,
the Registrant and Patterson Travis, Inc., incorporated by
reference to the like-numbered exhibit in the Registrant's
Registration Statement on Form SB-2 under the Securities Act of
1933, as amended, File No. 33-70640-NY
10.14 Form of guarantee of Term-loan Promissory Note to State Bank of
Long Island, incorporated by reference to the like-numbered
exhibit in the Registrant's Registration Statement on Form SB-2
under the Securities Act of 1933, as amended, File No.
33-70640-NY
10.15 Agreement among Registrant and James Ciocia, Thomas Povinelli,
Gary Besmer and Kathryn Travis regarding the repayment of
advances, incorporated by reference to the like-numbered exhibit
in the Registrant's Registration Statement on Form SB-2 under the
Securities Act of 1933, as amended, File No. 33-70640-NY
10.16 Underwriting Agreement between the Registrant and Patterson
Travis, Inc., incorporated by reference to exhibit number 1.1 in
the Registrant's Registration Statement on Form SB-2 under the
Securities Act of 1933, as amended, File No. 33-70640-NY
10.17 Stock Purchase Agreement dated February 10, 1995 between
Registrant and Steven Gilbert, incorporated by reference to
exhibit 99.1 to the Company's Current Report on Form 8-K, dated
February 10, 1995
10.18 Noncompetition Agreement dated February 10, 1995 between
Registrant and Steven Gilbert, incorporated by reference to
exhibit 99.2 to the Company's Current Report on Form 8-K, dated
February 10, 1995
10.19 Employment Agreement dated February 10, 1995 between Steven
Gilbert Financial Corp. and Steven Gilbert, incorporated by
reference to exhibit 99.3 to the Company's Current Report on Form
8-K, dated February 10, 1995
10.20 Registration Rights Agreement dated February 10, 1995 between
Registrant and Steven Gilbert, incorporated by reference to
exhibit 99.4 to the Company's Current Report on Form 8-K, dated
February 10, 1995
10.21 Letter Agreement dated April 26, 1995 between the Company and
Steven Gilbert, incorporated by reference to exhibit 10.20 in the
Company's quarterly report on form 10Q for the fiscal quarter
ended March 31, 1995
10.22 Joint Venture Agreement dated December 28, 1994 between Midwood
Tax Service, Inc. and Registrant, incorporated by reference to
the like-numbered exhibit in the Registrant's Registration
Statement on Form SB-2 under the Securities Act of 1933, as
amended, File No. 33-80627
<PAGE> 63
Exhibit
No. Distribution
- ------- ------------
10.23 Promissory notes delivered by James Ciocia, Thomas Povinelli,
Gary Besmer and Kathryn Travis in payment for cash value of life
insurance policies held by Registrant on the lives of such
officers, incorporated by reference to the like-numbered exhibit
in the Registrant's Registration Statement on Form SB-2 under the
Securities Act of 1933, as amended, File No. 33-80627
10.24 Consulting Agreement dated October 9, 1995 between EuroMarket
Advisory, Inc. and Registrant, incorporated by reference to the
like-numbered exhibit in the Registrant's Registration Statement
on Form SB-2 under the Securities Act of 1933, as amended, File
No. 33-80627
10.25 Investment Banking Agreement dated October 17, 1995 between Texas
Capital Securities Inc. and Registrant, incorporated by reference
to the like-numbered exhibit in the Registrant's Registration
Statement on Form SB-2 under the Securities Act of 1933, as
amended, File No. 33-80627
10.26 Agreement dated November 1995 among Rummco, Ltd., five executive
officers of Registrant, and Registrant in connection with the
sale of stock options, incorporated by reference to the
like-numbered exhibit in the Registrant's Registration Statement
on Form SB-2 under the Securities Act of 1933, as amended, File
No. 33-80627
10.27 Lock-Up Release Letter by Patterson Travis, Inc. dated January
10, 1996, incorporated by reference to the like-numbered exhibit
in the Amendment No.1 to Registrant's Registration Statement on
Form SB-2 under the Securities Act of 1933, as amended, File No.
33-80627
10.28 Management Agreement dated April 10, 1995 between Dominick Riolo
and Registrant in connection with the opening of a new office,
incorporated by reference to the like-numbered exhibit in the
Amendment No.1 to Registrant's Registration Statement on Form
SB-2 under the Securities Act of 1933, as amended, File No.
33-80627
10.29 Management Agreement dated April 10, 1995 between Gregory Ferone
and Registrant in connection with the opening of a new office,
incorporated by reference to the like-numbered exhibit in the
Amendment No.1 to Registrant's Registration Statement on Form
SB-2 under the Securities Act of 1933, as amended, File No.
33-80627
10.30 Management Agreement dated April 10, 1995 between Armando
Olivieri and Registrant in connection with the opening of a new
office, incorporated by reference to the like-numbered exhibit in
the Amendment No.1 to Registrant's Registration Statement on Form
SB-2 under the Securities Act of 1933, as amended, File No.
33-80627
10.31 Independent Employment Contract dated December , 1993 between
Abraham Dorfman and Registrant, incorporated by reference to the
like-numbered exhibit in the Amendment No.1 to Registrant's
Registration Statement on Form SB-2 under the Securities Act of
1933, as amended, File No. 33-80627
10.32 Form of Subscription Letter representing stock issuance's to
individuals, incorporated by reference to the like-numbered
exhibit in the Amendment No.1 to Registrant's Registration
Statement on Form SB-2 under the Securities Act of 1933, as
amended, File No. 33-80627
10.33 Independent Contractor's Agreement dated September 6, 1995
between Howard Wilkin and the Registrant, incorporated by
reference to the like-numbered exhibit in the Amendment No.1 to
Registrant's Registration Statement on Form SB-2 under the
Securities Act of 1933, as amended, File No. 33-80627
<PAGE> 64
Exhibit
No. Distribution
- ------- ------------
10.34 Independent Contractor's Agreement dated September 6, 1995
between Alfred Schepis and the Registrant, incorporated by
reference to the like-numbered exhibit in the Amendment No.1 to
Registrant's Registration Statement on Form SB-2 under the
Securities Act of 1933, as amended, File No. 33-80627
10.35 Independent Contractor's Agreement dated September 6, 1995
between Armando Olivieri and the Registrant, incorporated by
reference to the like-numbered exhibit in the Amendment No.1 to
Registrant's Registration Statement on Form SB-2 under the
Securities Act of 1933, as amended, File No. 33-80627
21 List of Subsidiaries, incorporated by reference to Exhibit 21 in
the Company's Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1995.
<PAGE> 1
Exhibit 11.01
GILMAN AND CIOCIA
EPS CALCULATION
JUNE 30, 1996
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
YEAR END CALCULATION:
WEIGHTED SHARES OUTSTANDING:
Opening 5,634,587 100.00% 5,634,587
8/18/95 13,960 86.85% 12,124
10/12/95 3,688 69.59% 2,566
12/15/95 25,905 54.25% 14,053
1/19/96 (127,558) 44.66% (56,964)
--------- ------ ---------
5,550,582 5,606,366 Net Income for Year $534,726
========= ========= ----------------------
INTEREST
EQUIVALENT SHARES ADDBACK
----------------- --------
1ST QTR 0 0
2ND QTR 0 0
3RD QTR 1,238,712 44,657
4TH QTR 0 0
--------- --------
1,238,712 309,678 44,657 44,657
--------- ---------
5,916,044 $579,383 $0.10
========= ========== =====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 2,221,795
<SECURITIES> 0
<RECEIVABLES> 976,686
<ALLOWANCES> 45,974
<INVENTORY> 0
<CURRENT-ASSETS> 3,702,892
<PP&E> 2,401,151
<DEPRECIATION> 899,450
<TOTAL-ASSETS> 7,866,501
<CURRENT-LIABILITIES> 1,367,560
<BONDS> 0
0
0
<COMMON> 55,505
<OTHER-SE> 6,440,436
<TOTAL-LIABILITY-AND-EQUITY> 7,866,501
<SALES> 0
<TOTAL-REVENUES> 16,509,677
<CGS> 0
<TOTAL-COSTS> 12,522,700
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 107,111
<INCOME-PRETAX> 887,373
<INCOME-TAX> 352,647
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 534,726
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
