<PAGE> 1
As filed with the Securities and Exchange Commission on November 8, 1996
Registration No. 33-80627
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No.3 to
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
GILMAN & CIOCIA, INC.
----------------------------------------------
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
Delaware 7291 11-2587324
- ---------------------- -------------------- ----------------
(State or jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classifica- Identification
organization) tion Code Number) No.)
</TABLE>
475 Northern Boulevard, Great Neck, NY 11021, (516) 482-4860
-------------------------------------------------------------
(Address and telephone number of principal executive offices)
475 Northern Boulevard, Great Neck, NY 11021
-------------------------------------------------------------
(Address or principal place of business or intended principal
place of business)
Mr. Ralph Esposito
Gilman & Ciocia, Inc.
475 Northern Boulevard
Great Neck, NY 11021, (516) 482-4860
---------------------------------------------------------
(Name, Address and telephone number of agent for service)
With copies to:
Seth A. Akabas, Esq.
Akabas & Cohen
488 Madison Avenue, 6th Floor
New York, NY 10022
(212) 308-8505
-----------------------
Approximate date of proposed sale to the public: As soon as practicable after
the effective date of this Registration Statement.
<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==========================================================================================================
Title of each class of Proposed Proposed Amount of
securities to be Amount to be offering price aggregate registration
registered registered per share(1) offering price(1) fee
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common 239,975 $7.00 $1,679,825 $ 579.25
Stock(2) shares
- ----------------------------------------------------------------------------------------------------------
Common 101,566 $7.00 $ 710,962 $ 245.16
Stock(3) shares
- ----------------------------------------------------------------------------------------------------------
Warrants(4) 50,783 $2.44 $ 123,911 $ 42.73
Warrants
- ----------------------------------------------------------------------------------------------------------
Common 50,783 $7.00 $ 355,481 $ 122.58
Stock(5) shares
- ----------------------------------------------------------------------------------------------------------
Common 507,926 $4.67 $2,372,014 $ 817.94
Stock (6) shares
- ----------------------------------------------------------------------------------------------------------
Common 315,000 $7.00 $2,205,000 $ 760.35
Stock (7) shares
- ----------------------------------------------------------------------------------------------------------
Common 632,002 $7.00 $4,424,014 $1,525.52
Stock (8) shares
- ----------------------------------------------------------------------------------------------------------
Common 27,452 $5.00 $ 137,260 $ 47.33
Stock (9) shares
==========================================================================================================
</TABLE>
<TABLE>
<S> <C>
TOTAL: $4,140.86
AMOUNT PREVIOUSLY PAID: $4,120.99
---------
AMOUNT CURRENTLY OWED: $ 19.87
=========
</TABLE>
(1) Estimated using the market price of the Company's Common Stock
solely for the purpose of determining the registration fee.
(2) Issuable upon exercise of the bridge loan Class B Warrants
outstanding.
(3) Issuable upon exercise of the Underwriter's Warrants
outstanding.
(4) Issuable upon exercise of the Underwriter's Warrants
outstanding.
(5) Issuable upon exercise of the Redeemable Public Warrants that
are issuable upon exercise of the Underwriter's Warrants,
assuming all of the Underwriter's Warrants are exercised.
(6) Issuable upon exercise of all of the outstanding Redeemable
Public Warrants.
(7) Issuable upon exercise of stock options outstanding.
(8) 632,002 shares are issuable upon exercise of employee stock
options outstanding.
(9) Outstanding shares of Common Stock owned by employees of the
Company.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission (the
"Commission"), acting pursuant to said Section 8(a), may determine.
<PAGE> 3
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED NOVEMBER 8, 1996
GILMAN & CIOCIA, INC.
507,926 SHARES OF COMMON STOCK
----------------------------
1,366,778 SHARES OF COMMON STOCK BY SELLING SECURITYHOLDERS
----------------------------
50,783 REDEEMABLE COMMON STOCK PURCHASE WARRANTS BY SELLING
SECURITYHOLDERS
This Prospectus relates to the offering by the Company (the
"Offering") of 507,926 shares of common stock (the "Common Stock"), par value
$.01 per share, of Gilman & Ciocia, Inc., a Delaware corporation (the
"Company").
This Prospectus also relates to the offering (the "Offering") by
holders or prospective holders of securities of the Company including officers
and directors (the "Selling Securityholders") of shares of Common Stock
issuable upon the exercise of outstanding warrants and options, and 50,783
warrants (the "Redeemable Public Warrants") for the purchase of Common Stock at
an exercise price of $4.67 per share (the "Redeemable Public Warrant Exercise
Price"), expiring on September 8, 1997. Each Redeemable Public Warrant is
redeemable at a price of $.01 per warrant, provided that (i) notice of
redemption is given to the Redeemable Public Warrantholders not less than 30
days prior to redemption; (ii) the average of the closing bid and asked
quotations of the Common Stock shall have been at least 25% above the
Redeemable Public Warrant Exercise Price for the 20 trading days ending on the
third day prior to the day on which notice of redemption is given; and (iii)
holders of Redeemable Public Warrants shall be entitled to exercise Redeemable
Public Warrants until the close of business on the day prior to the date fixed
for redemption.
In addition, this Prospectus also relates to the offering by an
officer of 11,380 shares and an employee of 16,072 shares of Common Stock.
Shares underlying the Redeemable Public Warrants will be sold as
warrants are exercised. Such Common Stock and other Common Stock being sold by
Selling Securityholders may be sold by the Selling Securityholders, from time
to time, in transactions on the over-the-counter market, in negotiated
transactions, or through a combination of such methods of sale, at fixed
prices, which may be
<PAGE> 4
changed. The Company or the Selling Securityholders, as the case may be may
effect such transactions by selling the Common Stock or Redeemable Public
Warrants to or through broker-dealers, and such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
Company or the Selling Securityholders, as the case may be, and/or the
purchasers of the Common Stock or Redeemable Public Warrants for whom such
broker-dealers may act as agent or to whom they may sell as principal, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions). See "PLAN OF DISTRIBUTION" and "SELLING
SECURITYHOLDERS."
None of the proceeds of the sale of the shares of Common Stock or the
Redeemable Public Warrants by the Selling Securityholders will be received by
the Company. However, such securities are issuable upon the exercise of
outstanding options and warrants upon the exercise of which the Company will
receive approximately $7,306,977 of gross proceeds.
The shares of Common Stock and the Redeemable Public Warrants are
traded on The NASDAQ SmallCap Stock Market under the symbols "GTAX" and
"GTAX-W," respectively.
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE, INVOLVE A HIGH DEGREE
OF RISK AND SHOULD BE PURCHASED ONLY BY INVESTORS ABLE TO SUSTAIN A TOTAL LOSS
OF THEIR INVESTMENT. Prospective purchasers should carefully consider the
matters discussed under the caption "RISK FACTORS" located on page 7.
---------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------------------
The Company's fiscal year ends on June 30th. The Company is currently
a reporting company under the Securities Exchange Act of 1934, as amended. The
Company will provide without charge to each shareholder a copy of all reports
filed thereunder. Such requests should be addressed to the Company at 475
Northern Boulevard, Great Neck, NY 11021, telephone number (516) 482-4860,
Attention: Secretary. Such reports will also be available for inspection at The
NASDAQ Stock Market at 1735 K Street, N.W., Washington, D.C. 20006. In
addition, such reports and other information will be available for inspection
at the public reference facilities of the Securities and Exchange Commission in
Washington DC, and at its regional offices at 7 World Trade Center, New York,
NY 10048 and at the Everett McKinley Dirksen Building, 219 South Dearborn
Street, Chicago, IL 60604, and copies of such materials could be obtained from
the Public Reference Section of the Securities and Exchange Commission (the
"Commission") in Washington, D.C. at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates.
<PAGE> 5
GILMAN & CIOCIA, INC.
Cross-Reference Sheet
<TABLE>
<CAPTION>
Item Caption Location
<S> <C> <C>
1. Forepart of Registration Outside Front Cover Page
Statement and Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Inside Front and Outside
Back Cover Pages of Back Cover Pages
Prospectus
3. Summary Information and Prospectus Summary; Risk
Risk Factors Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Not Applicable
Price
6. Dilution Not Applicable
7. Selling Securityholders Selling Securityholders
8. Plan of Distribution Plan of Distribution; Selling
Securityholders
9. Legal Proceedings Business--Legal Proceedings
10. Directors, Executive Management
Officers, Promoters and
Control Persons
11. Security Ownership of Principal Stockholders
Certain Beneficial Owners
and Management
12. Description of Securities Description of Securities
13. Interest of Named Experts Legal Matters
and Counsel
14. Disclosure of Commission Remuneration of Officers
Position on and Directors
Indemnification
for Securities
15. Organization within Last Not Applicable
Five Years
</TABLE>
<PAGE> 6
<TABLE>
<S> <C> <C>
16. Description of Business Business; Risk Factors;
Financial Statements;
Prospectus Summary;
Market Information;
Use of Proceeds
17. Management's Discussion Management's Discussion
and Analysis or Plan of and Analysis of Financial
Operation Condition and Results of
Operations
18. Description of Property Business--Facilities
19. Certain Relationships and Certain Transactions
Related Transactions
20. Market for Common Equity Market Information;
and Related Stockholder Prospectus Summary
Matters
21. Executive Compensation Remuneration of Officers and
Directors
22. Financial Statements Financial Statements
</TABLE>
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is intended only to summarize certain material
in this Registration. This summary is qualified in its entirety by the detailed
information and financial statements that appear elsewhere herein.
THE COMPANY
Gilman & Ciocia, Inc. (the "Company") was incorporated under the laws
of the State of Delaware on September 3, 1993 and is 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 revenuesby effecting
limited transactions in securities for its clients, and by 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.
-1-
<PAGE> 8
<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Securities Outstanding:
Before the Offering................. 5,550,582 shares of Common Stock (1)
507,926 Redeemable Common Stock Purchase
Warrants
After the Offering.................. 7,397,834 shares of Common Stock (2)
Securities Offered........................ 1,874,704 shares of Common Stock (3)
50,783 Redeemable
Common Stock Purchase Warrants (4)
Use of Proceeds........................... The Company will receive $7,306,977 of gross proceeds from the exercise of the
Redeemable Public Warrants, the bridge loan Class B Warrants, the Underwriter's
Warrants, the Redeemable Public Warrants issuable upon exercise of the
Underwriter's Warrants and the outstanding options described herein. The Company
will use such proceeds for working capital purposes. The Company will not receive
any of the proceeds from the sale of shares of Common Stock by the Selling
Securityholders; all proceeds will be paid directly to the Selling
Securityholders. See
</TABLE>
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<PAGE> 9
<TABLE>
<S> <C>
"SELLING SECURITYHOLDERS."(5)
Risk Factors.............................. An investment in the Common Stock offered hereby involves a high degree of risk
and immediate dilution. Common Stock should not be purchased by a person who
cannot afford the loss of his or her entire investment. A prospective purchaser
of Common Stock should carefully consider the factors discussed under the caption
"RISK FACTORS."
The Company's NASDAQ Symbols:
Common Stock............................... GTAX
Redeemable Warrants........................ GTAX-W
</TABLE>
---------------
(1) Does not include 239,975 shares of Common Stock issuable upon the
exercise of bridge loan Class B Warrants at an exercise price of $3.13 per
share, 101,566 shares of Common Stock and 50,783 Redeemable Public Warrants,
all issuable pursuant to the Underwriter's Warrants to acquire up to 50,783
Units at an exercise price of $8.40 per Unit. See "RISK FACTORS--Underwriter's
Warrants and Other Warrants Subject to Registration." Does not include 65,000
shares of Common Stock issuable upon the exercise of options at $2.50 per
share, 288,001 shares of Common Stock issuable upon the exercise of options at
$2.60 per share, 144,001 shares of Common Stock issuable upon the exercise of
options at $3.65 per share, 10,000 shares of Common Stock issuable upon the
exercise of options at $3.00 per share, 12,000 shares of Common Stock issuable
upon the exercise of options at $4.00 per share, 14,000 shares of Common Stock
issuable upon the exercise of options at $4.80 per share and 164,000 shares of
Common Stock issuable upon the exercise of options at 80% of market price at
various vesting dates, all granted under the Company's 1993 Joint Incentive and
Non-Qualified Stock Option Plan (the "Plan"). Does not include 340,000 shares
of Common Stock issuable upon the exercise of options based on market price at
various vesting dates, 5,000 shares of Common Stock issuable upon the exercise
of options at $3.00 per share, 6,000
-3-
<PAGE> 10
shares of Common Stock issuable upon the exercise of options at exercise of
options at $3.38 per share, 84,000 shares of Stock issuable upon the exercise
of options at 50% of market price at various vesting dates, 10,000 shares of
Common Stock issuable at $3.38 per share, 10,000 shares of Common Stock
issuable upon the exercise of options at $1.75 per share and 10,000 shares of
Common Stock issuable upon the exercise of options at $2.62 per share, all
granted under non-plan employee stock agreements. Does not include 100,000
shares of Common Stock issuable on the exercise of options at $5.125 per share
or 150,000 shares of Common Stock issuable on the exercise of options at $5.13
per share.
(2) Assumes the issuance of 239,975 shares of Common Stock issuable upon
the exercise of bridge loan Class B Warrants, 101,566 shares of Common Stock
issuable pursuant to the Underwriter's Warrants, 50,783 shares of Common Stock
issuable upon the exercise of the Redeemable Public Warrants that are issuable
upon exercise of the Underwriter's Warrants, 65,000 shares of Common Stock
issuable on the exercise of options at $2.50 per share, 100,000 shares of
Common Stock issuable on the exercise of options at $5.125 per share, 150,000
shares of Common Stock issuable on the exercise of options at $5.13 per share,
144,001 shares of Common Stock issuable upon the exercise of options at $3.65
per share, 288,001 shares of Common Stock issuable upon the exercise of options
at $2.60 per share, 10,000 shares of Common Stock issuable upon the exercise of
options at $3.00 per share, 12,000 shares of Common Stock issuable upon the
exercise of options at $4.00 per share, 14,000 shares of Common Stock issuable
upon the exercise of options at $4.80 per share and 164,000 shares of Common
Stock issuable upon the exercise of options at 80% of market price at various
vesting dates and 507,926 shares of Common Stock issuable on the exercise of
options at $4.67 per share. Does not include 340,000 shares of Common Stock
issuable upon the exercise of options based on market price at various vesting
dates, 5,000 shares of Common Stock issuable upon the exercise of options at
$3.00 per share, 6,000 shares of Common Stock issuable upon the exercise of
options at $3.38 per share, 84,000 shares of Common Stock issuable upon the
exercise of options at 50% of market price at various vesting dates, 10,000
shares of Common Stock issuable upon the exercise of options at $1.75 per share
and 10,000 shares of Common Stock issuable upon the exercise of options at
$2.62 per share, all granted under non-plan employee stock agreements.
(3) The Common Stock offered hereunder will be issued in connection with
the exercise of the outstanding Redeemable Public Warrants, the Underwriter's
Warrants, the Redeemable Public Warrants issuable on exercise of Underwriter's
Warrants, the bridge loan Class B Warrants and certain other outstanding
options.
(4) Assumed to be exercised in connection with the offering.
-4-
<PAGE> 11
(5) The Redeemable Public Warrants registered hereunder are issuable upon,
and assume the exercise of, the Underwriter's Warrants.
-5-
<PAGE> 12
SUMMARY FINANCIAL INFORMATION
The following summary financial information as of June 30, 1996 and
for the years ended June 30, 1996 and 1995 are derived from the Company's
audited financial statements included elsewhere in this Prospectus. The
Company's balance sheet as of June 30, 1995 was filed with the SEC as part of
the Form 10-KSB for the year ended June 30, 1995. Such summary financial data
are qualified in their entirety by reference to such audited financial
statements. The following summary financial information should be read in
conjunction with the Financial Statements and related notes thereto included
elsewhere in this Prospectus and the Company's Form 10-KSB for the year ended
June 30, 1995.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30,
---------------------------
1996 1995
---- ----
(restated)
<S> <C> <C>
INCOME STATEMENT DATA:
TOTAL REVENUES $16,509,677 $9,932,161
OPERATING INCOME $ 594,529 $ 583,164
NET INCOME $ 534,726 $ 247,503
NET INCOME PER
SHARE (a) $ 0.10 $ 0.05
DIVIDENDS PAID NONE NONE
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30,
---------------------------
BALANCE SHEET DATA: 1996 1995
- ------------------- ---- ----
<S> <C> <C>
WORKING CAPITAL $2,335,332 $3,917,779
TOTAL ASSETS $7,866,501 $5,974,871
TOTAL CURRENT
LIABILITIES $1,367,560 $ 433,486
TOTAL STOCKHOLDERS'
EQUITY $6,498,941 $5,346,525
</TABLE>
(a) Assumes the exercise of all warrants and options which have a dilutive
effect.
-6-
<PAGE> 13
RISK FACTORS
An investment in the Common Stock offered hereby involves a high
degree of risk. Common Stock should not be purchased by a person who cannot
afford the loss of his or her entire investment. The following risks, in
addition to those discussed elsewhere in this Prospectus, should be considered
carefully in evaluating the Company and its business prior to purchasing any of
the Units offered hereby.
1. Costs and Material Effects of Rapid Expansion. In order to open new
offices, the Company incurs significant expenses to purchase furniture,
equipment and supplies. The Company has found that a new office usually suffers
a loss in its first year of operation, shows no material profit or loss in its
second year of operation and does not attain profitability, if ever, until its
third year of operation. Therefore, the Company's operating income may be
reduced in any year that the Company opens a number of new offices that is
significant in relation to the number of its existing older offices. The
Company opened 15 new offices in January 1994, and during its 1994 fiscal year,
the Company earned $687,159 from operations. In January 1995 the Company
opened 22 new offices, and in its 1995 fiscal year, the Company earned $583,164
from operations, a decrease of 15% as compared to 1994. In addition, the
Company believes that income from offices opened in 1994 had begun to
contribute to the Company's earnings in 1995. In January 1996, the Company
opened 44 new offices and closed four in the first half of the year, generating
for the 1996 fiscal year, $594,529 in operating income.
A rapid expansion of offices may, therefore, reduce the Company's
short-term net income or result in losses. No assurance, however, can be given
that new offices will ultimately operate profitably and increase the Company's
net income in the long term.
In addition, the Company plans to acquire small tax preparation
practices. The success of the Company will in large part be dependent upon the
successful operation of the practices acquired. No assurance can be given that
the Company will be able to successfully operate the practices that it
acquires.
The Company is unable to allocate its expenses to the different areas
of its business because all areas of its business are intertwined and benefit
from its administrative expenses. Due to the Company's inability to allocate
its expenses, it is unable to determine the individual and differentiating
impact that each of its lines of business has had on its operating results and
liquidity. In its expansion, therefore, projecting the outcome of the Company's
strategic decisions is uncertain without reliable data on the impact of each of
its lines of business.
-7-
<PAGE> 14
2. Shares of Common Stock May be Subject to Recision. From
October 1993 to January 1994, the Company issued a total of 186,197 shares of
Common Stock for consideration of $576,334 in private placement sales. Such
sales were made subsequent to the filing of a registration by the Company for
its initial public offering 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 initial public offering, 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 Prospectus, 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.
3. Seasonality and Need for Additional Financing. If the Company
encounters more difficulty in the acceptance of its services or in other areas,
or if the financial planners whom the Company recruits or the practices that it
acquires are not as successful as the Company anticipates, then the Company may
require additional financing for marketing and sales, the opening of new
offices, and/or general working capital. The Company also plans to fund any
additional capital requirements of JT Securities, its wholly owned subsidiary,
which is registered as a securities broker/dealer, from its profits, cash
reserves and borrowings. JT Securities, as a registered broker/dealer and
registered investment advisor, will be subject to regulations requiring it to
maintain certain net capital amounts, and the expenses of establishing a
broker/dealer cannot be predicted with certainty. The Company will also require
approximately $2,000,000 of financing each year to fund its operations during
tax season, particularly because, in the past, the Company experiences
quarterly losses from July 1st to December 31st each year. No assurance can be
given that such financing will be available to the Company, or, if it is
available, that it will be on terms favorable to the Company.
4. Competition. The income tax preparation and financial planning
services industry is highly competitive. The Company's
-8-
<PAGE> 15
competitors include companies specializing in income tax preparation as well as
companies that provide general financial services. Many of these, which
include H+R Block, Inc., H.D. Vest, Inc., Jackson Hewitt Tax Service, Inc. and
Triple Check Income Tax Service, Inc. in the tax preparation field, and many
well-known brokerage and other firms in the financial services field, have
significantly greater financial and other resources than the Company. No
assurance can be given that the Company will be able to compete successfully
with other older, more established companies. See "BUSINESS--Competition."
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. In the past, departing employees and affiliated financial planners
have competed with the Company. They have the advantage of knowing the
Company's methods and, in some cases, having access to the Company's clients.
No assurance can be given that the Company will be able to retain its most
important employees and financial planners or that the Company will be able to
prevent competition from them or successfully compete against them.
5. Profit Sharing with Managers. Approximately 19 of the managers of
offices of the Company, who manage approximately 35 of the Company's offices,
have profit sharing arrangements with the Company by which managers of an
office are paid a bonus equal to a specified percentage, approximately 40% of
the pre-tax income attributable to such office during each calendar year. In
addition, if a manager operates an office that generates a loss, that loss is
applied against income from any other office managed by such manager and then
against any future income of the office, to be absorbed in full before said
manager may receive any bonus. The participation of such managers in the
profits of the offices owned by the Company, which the Company views as
important incentive compensation, may nonetheless result in an increase in
compensation expenses as the Company's offices become more profitable and such
bonuses to such managers proportionally increase. This is an upside risk,
which dampens the Company's profits and may operate to inhibit growth in the
Company's overall profitability. The Company paid $20,402 and $37,873 in such
bonus compensation for calendar years 1995 and 1994, respectively. No executive
officer of the Company receives such compensation. The Company, in some
circumstances, plans to enter into such profit sharing arrangements with
managers of its future offices.
6. Dependence Upon Key Personnel. The Company is dependent upon the
services of James Ciocia, its President, Thomas Povinelli, its Executive Vice
President, Gary Besmer, its Vice President, and Kathryn Travis, its Secretary.
The loss or interruption of the services of any of these individuals would have
a material adverse
-9-
<PAGE> 16
effect on the Company. The Company carries no life insurance for its principal
officers. Such officers own large holdings of Common Stock of the Company and
therefore have a substantial interest in the success of the Company.
7. Potential Civil and Criminal Liabilities. The Company's business
preparing tax returns subjects it to potential civil liabilities under the
Internal Revenue Code and the regulations promulgated thereunder. Civil
penalties, ranging from $50 to $10,000 per violation, could be assessed against
the Company for failure to observe certain ministerial requirements, failure to
keep required records, improper disclosure of taxpayer records, or failure to
maintain required ethical standards with respect to the accuracy of the returns
and the positions taken therein regarding taxpayer liability for taxes. In
addition, because none of the full-time employees of the Company is an
attorney, and only one is a certified public accountant or otherwise enrolled
to practice before the IRS, the employees of the Company are strictly limited
as to the roles they may take in assisting a client in an audit with the IRS.
Although the Company has not been assessed with material civil penalties or
fines, and although the Company intends to comply with all applicable laws and
regulations, no assurance can be given that the Company will never incur any
material fines or penalties. The Company does not maintain any professional
liability or 'malpractice' insurance policy. The Company has never been the
subject of a malpractice claim, but if many such claims were made, they could
adversely affect the Company.
In addition, making fraudulent statements on a tax return, willfully
delivering fraudulent documents to the IRS and unauthorized disclosure of
taxpayer information can constitute criminal offenses. Criminal penalties for
such offenses range from $1,000 and/or one year of imprisonment to $500,000
and/or three years of imprisonment per violation. The Company has never been
charged with a criminal offense.
8. Potential Liability for Failure to Register as a Broker/Dealer or
an Investment Adviser. As of July 1, 1994, all of the Company's business
relationships with registered representatives of an unaffiliated securities
broker/dealer have been transacted through the Company's wholly owned
subsidiary, JT Securities, a registered securities broker/dealer. In addition,
JT Securities registered as an investment advisor with the Commission and with
the appropriate authorities in New York State and Florida on June 8, 1995. The
Company believes that, prior to the registration of JT Securities, the
Company's business activities did not constitute it as a broker/dealer of
securities or as an investment adviser.
Prior to such registrations, if the Company was acting as a
broker/dealer, then it would have been required to register as such with the
Commission, with the National Association of Securities
-10-
<PAGE> 17
Dealers, Inc. ("NASD"), and possibly with various state authorities, and if the
Company was acting as an investment adviser, then it would have been required
to register as such with the Commission and with various state authorities. In
addition, the fact that the Company has not registered in the past could
subject it to civil liabilities, and, possibly, a final order barring the
participation of the Company and its principals in the securities industry, in
the case that it is determined by an appropriate governmental authority that
such registration was required. Registration and the related reporting
obligations impose additional costs on the Company and limitations on its
manner of doing business.
The Company derives a material portion of its revenues from JT
Securities, which earns a share of commissions with an unaffiliated
broker/dealer and a share of money management fees from registered investment
advisors. JT Securities is registered as a securities broker/dealer and an
investment advisor with the Securities and Exchange Commission and is a member
of the NASD. JT Securities is also registered as a broker/dealer in New York
State, and a registered investment advisor in New York State and Florida, but
is not currently registered as a broker/dealer or investment advisor in any of
the other states in which the Company has offices. The Company does not
believe that JT Securities is required to register as a broker/dealer or
investment advisor in such other states based upon its current activities,
however, no assurance can be given that state securities officials would not
consider JT Securities to be acting as an unregistered broker/dealer or
investment advisor in such states. The Company does intend to cause JT
Securities to register in other states to enable it to expand the scope of its
business there.
9. Potential Liability for New York State Unemployment Insurance
Contributions. The New York State Department of Labor, in connection with an
audit of the Company's unemployment insurance contributions for the period from
January 1, 1986 through September 30, 1989, has assessed approximately $30,000,
plus interest and penalties, based on the claim that tax preparers and
financial planners reported by the Company to be independent contractors were
employees. After a hearing, the initial determination of the audit was
sustained by an administrative law judge. The Company contested this
assessment through an appeal, which was denied in January 1996. The Company
has determined not to pursue the appeal process and has recorded a liability of
$60,000 and a corresponding charge to operations as of and for the period ended
June 30, 1996. The Company believes that no claim will be made by the Internal
Revenue Service based on the claimed status of such independent contractors
because the applicable statute of limitations has expired for an assessment on
the collection of taxes during the relevant period. From and after September
30, 1989, the Company treated its independent contractors as employees for
unemployment insurance purposes, and the Company has been paying unemployment
-11-
<PAGE> 18
insurance since September 30, 1989 for these individuals and, as of the date of
this Prospectus, is current with its payments.
10. Trademark. The Company has registered its "Gilman + Ciocia(R)"
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(R)" constitutes a valuable marketing factor. If the Company
were to lose the use of such trademark, its sales could be adversely affected.
11. Expansion into Financial Planning. The Company plans to expand
into the area of financial planning and recruit financial planners, which would
require offering guaranteed salaries and bonuses. The success of the Company
will in large part be dependent upon the successful operation of the financial
planners who are recruited. No assurance can be given that such financial
planners will be successful in their ventures.
12. Control by Management. The current management of the Company owns
approximately 51% of the outstanding Common Stock of the Company. No cumulative
voting is in effect for the election of directors of the Company, and no such
arrangement is currently contemplated. The current management will, therefore,
be able to elect all of the directors and thereby effectively continue to
control the Company. See "DESCRIPTION OF SECURITIES."
13. Preferred Stock May Inhibit Change of Control. The Company has
authorized 100,000 shares of Preferred Stock, which may be issued, without
approval by the shareholders of the Company, by the Board of Directors of the
Company in such classes, with such designations, rights and preferences and at
such prices as the Board of Directors determines to be in the best interest of
the Company. Holders of such Preferred Stock so issued could have preferential
rights over the holders of Common Stock in a liquidation of the Company. In
addition, although management of the Company will control approximately 51% of
the outstanding Common Stock, if at any time in the future management does not
control a majority of the outstanding Common Stock, then Preferred Stock with
special voting or other rights could be issued that could entrench current
management and adversely affect any proposed change of control of the Company.
14. Management Discretion in Use of Proceeds. The proceeds of the
Offering will be utilizied predominately for the opening of new offices,
recruiting financial planners, acquiring existing tax preparation practices,
marketing sales, and general and administrative expenses and working capital
requirements. However, management will have broad discretion over the
application and allocation of the use of the net proceeds. See "USE OF
PROCEEDS."
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<PAGE> 19
15. Immediate Dilution. At the current market price of $5.00 and
assuming that all outstanding options are exercised and shares of Common Stock
are sold, purchasers of Common Stock will experience a dilution of $3.27.(1)
16. No Dividends. Since its initial public offering of securities in
1994, the Company has paid no dividends, and it 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.
17. Potential Future Sales pursuant to Rule 144. Of the 5,550,582
shares of Common Stock currently issued and outstanding 3,500,000 shares are
"restricted securities" as that term is defined under the Securities Act of
1933, as amended (the "Act"). In general, under Rule 144 promulgated under the
Act, a person who has satisfied a two-year holding period may, under certain
circumstances, sell, within any three-month period, a number of shares that
does not exceed the greater of one percent of the then outstanding shares of
Common Stock or the average weekly trading volume of such shares during the
four calendar weeks prior to such sale. Rule 144 also permits, under certain
circumstances, the sale of shares of Common Stock by a person who is not an
"affiliate" of the Company (as defined in Rule 144) and who has satisfied a
three-year holding period, without any volume or other limitation. Of the
shares of Common Stock currently outstanding, almost all of the "restricted"
shares have already been held for the two-year holding period mentioned above
and 606,603 of the "restricted" shares have been held for longer than three
years and are not owned by control shareholders. The shareholders holding
3,911,037 shares of Common Stock at the time of the Company's initial public
offering of securities have agreed with the underwriter of the Company's
initial public offering, Patterson Travis, Inc. ("Patterson Travis"), not to
sell their Common Stock for a period of two years after September 9, 1994,
however, such agreement has expired.
The Company has granted 705,000 options to purchase shares of the Company's
Common Stock to three individuals and two consultants in addition to the
697,002 granted to employees in conjunction with its 1993 Joint Incentive and
Non-qualified Stock Option Plan, of which 65,000 were sold to a outside party.
The shares issuable upon exercise of such options would be eligible for resale
under
- --------------------
(1) This calculation assumes that the following shares of common stock,
options and warrants will be fully exercised: 507,926 Redeemable Public
Warrants, 50,783 Redeemable Public Warrants issuable upon the exercise of under
writer's warrants, 50,783 underwriter's warrants, 239,975 Class B bridge
warrants, 250,000 options to various consultants to the Company, 65,000 options
to an outside party and 1,087,002 options to various employees of the Company.
-13-
<PAGE> 20
Rule 144 after two years following the exercise of such options or earlier if
the underlying Common Stock were registered by the Company.
The sale of restricted Common Stock in the future, or even the
possibility that it may be sold, may have an adverse affect on the market price
for the Common Stock.
18. Underwriter's Warrants, Other Warrants and Certain Options Being
Registered. The Company is registering for sale up to 507,926 shares underlying
the Redeemable Public Warrants and 101,566 shares of Common Stock issuable
pursuant to the Underwriter's Warrants, 50,783 shares of Common Stock issuable
upon the exercise of Redeemable Public Warrants that are issuable upon exercise
of the Underwriter's Warrants, 239,975 shares issuable upon the exercise of
Class B Warrants to purchase Common Stock at $3.13 per share, 100,000 shares of
Common Stock issuable upon the exercise of options at $5.125 per share, 150,000
shares issuable upon exercise of options at $5.13 per share, 65,000 shares
issuable upon exercise of options at $2.50 per share, 144,001 shares of Common
Stock issuable upon the exercise of options at $3.65 per share, 288,001 shares
of Common Stock issuable upon the exercise of options at $2.60 per share,
10,000 shares of Common Stock issuable upon the exercise of options at $3.00
per share, 12,000 shares of Common Stock issuable upon the exercise of options
at $4.00 per share, 14,000 shares of Common Stock issuable upon the exercise of
options at $4.80 per share and 164,000 shares of Common Stock issuable upon the
exercise of options at 80% of market price at various vesting dates. Exercise
of such Redeemable Class B Warrants and the Underwriter's Warrants, as well as
options granted to employees and consultants of the Company, could occur at a
time that the Company could probably obtain financing on better terms, and such
exercise would likely dilute the percentage ownership interest of holders of
Common Stock. In addition, the offering for sale of some or all of such
underlying Common Stock, or even the possibility of such sale, may have an
adverse affect on the market price for the Common Stock. See "DESCRIPTION OF
SECURITIES" and "PLAN OF DISTRIBUTION."
19. Rules Limiting Broker-Dealer Sales of Company Shares. It is
possible that the Company's Common Stock will be covered by a Commission rule
that imposes additional sales practice requirements on broker-dealers who sell
such securities to persons other than established customers and accredited
investors (generally institutions with assets in excess of $5,000,000 or
individuals with net worth in excess of $1,000,000 or annual income exceeding
$200,000, or $300,000 jointly with their spouse). For transactions covered by
the rule, the broker-dealer must make a special suitability determination for
the purchaser and receive the purchaser's written agreement to the transaction
prior to the sale.
In addition, it is possible that an underwriter's participation in the
trading market of the Common Stock and the
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<PAGE> 21
Redeemable Warrants will be covered by a Commission rule that imposes
additional disclosure requirements on broker-dealers in "penny stock"
transactions. Although the Common Stock is currently outside the definition of
a "penny stock" under the applicable rules, in the event the Common Stock were
subsequently to become characterized as a "penny stock," as a result of being
delisted from The NASDAQ SmallCap Stock Market or otherwise, broker/dealers
effecting transactions for clients in the Common Stock will be required to make
extensive disclosures to such clients in certain circumstances regarding the
Common Stock, including bid, offer and other pricing information relating to
the Common Stock, such broker/dealer's compensation and the compensation of
associated persons in connection with the transaction, and such client's
specific account information. Such additional burdens imposed upon
broker/dealers may discourage broker/dealers from effecting transactions in the
Common Stock. Consequently, these rules may affect the ability of
broker-dealers to sell the Company's securities and also may affect the ability
of purchasers of Common Stock to sell their securities in the secondary market.
20. Limitation on Directors' Liabilities under Delaware Law. Pursuant
to the Company's Certificate of Incorporation and under Delaware law, directors
of the Company are not liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty, except for liability in connection with a
breach of duty of loyalty, for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, for dividend
payments or stock repurchases illegal under Delaware law or any transaction in
which a director has derived an improper personal benefit. See "MANAGEMENT."
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<PAGE> 22
MARKET INFORMATION
The Principal market on which the Company's Common Stock trades is The
NASDAQ SmallCap Stock Market under the symbol "GTAX." Prior to December 1994
no public market existed for the Company's securities.
The following table sets forth the high and low sales prices for the
Common Stock during the period indicated:
<TABLE>
<CAPTION>
Sales Prices
------------
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 Common Stock was 322.
The Company has not paid dividends to its shareholders since its
initial public offering 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:
<TABLE>
<S> <C>
Common Stock........................... GTAX
Redeemable Warrants.................... GTAX-W
</TABLE>
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<PAGE> 23
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of
shares of Common Stock by the Selling Securityholders; all proceeds will be
paid directly to the Selling Securityholders. See "SELLING SECURITYHOLDERS."
The Company will receive $7,306,977 of gross proceeds from the exercise of all
of the currently outstanding Redeemable Warrants, the bridge loan Class B
Warrants, the Underwriter's Warrants, the Redeemable Public Warrants issuable
upon exercise of the Underwriter's Warrants and 947,002 additional shares of
Common Stock issuable upon the exercise of options.
The Company estimates that it will incur approximately $70,000 in
expenses relating to this offering and intends to use the net proceeds for
working capital purposes. Such funds will not be kept separate from other
funds of the Company and collectively will be used to pay all obligations of
the Company including compensation to the officers. No proceeds are allocated
specifically to any other payment, directly or indirectly, to directors,
officers or their affiliates. The officers of the Company have broad
discretion over the use of proceeds. See Risk Factors -- Management Discretion
in Use of Proceeds.
The sale of securities of Securityholders does not result in any
proceeds to the Company. However, it presumes exercise of outstanding warrants
and options, and proceeds to the issuer as follows:
<TABLE>
<CAPTION>
==============================================================================================================
Price to Underwriting Discounts
Public(1) and Commissions(2) Proceeds to Issuer(3)
- --------------------------------------------------------------------------------------------------------------
PER SHARE OF
COMMON STOCK
<S> <C> <C> <C>
507,926 SHARES $4.67(4) $-0- $2,372,014
- --------------------------------------------------------------------------------------------------------------
TOTAL......... $2,372,014
==============================================================================================================
</TABLE>
(1) The 507,926 shares of Common Stock issuable at $4.67 per share
consist of the shares issuable upon the exercise of the 507,926
currently outstanding Redeemable Public Warrants.
(2) The securities registered hereunder will not be sold through an
underwriter.
(3) All expenses of this registration other than commissions and
concessions are payable by the Company, and are estimated at
$70,000.
(4) The warrant exercise price is the price warrantholders may buy
Common Stock upon the exercise of Redeemable Public Warrants.
-17-
<PAGE> 24
<TABLE>
<CAPTION>
==============================================================================================================
Price to Underwriting Discounts Proceeds to
Public and Commissions(3) Issuer(4)
- --------------------------------------------------------------------------------------------------------------
PER SHARE OF
COMMON STOCK
<S> <C> <C> <C>
50,783
SHARES $ 4.67 (1) $-0- $ 237,157
101,566
SHARES $ 4.20 (1) $-0- $ 426,577
239,975 $ 3.13 (2) $-0- $ 751,122
SHARES
100,000 $ 5.125 (2) $-0- $ 512,500
SHARES
65,000 $ 2.50 (2) $-0- $ 162,500
SHARES
150,000 $ 5.13 (2) $-0- $ 769,500
SHARES
144,001 $ 3.65 (2) $-0- $ 525,604
SHARES
288,001 $ 2.60 (2) $-0- $ 748,803
SHARES
10,000 $ 3.00 (2) $-0- $ 30,000
SHARES
176,000 $ 4.00 (2)(5) $-0- $ 704,000
SHARES
14,000 $ 4.80 (2) $-0- $ 67,200
SHARES
PER REDEEMABLE
PUBLIC WARRANT
50,783 $ -0- (6) $-0- $ -0-
WARRANTS
- --------------------------------------------------------------------------------------------------------------
TOTAL......... $-0- $ 4,934,963
==============================================================================================================
</TABLE>
(1) The 50,783 Shares of Common Stock issuable at $4.67 per share
consist of the shares issuable upon exercise of those Redeemable
Public Warrants that are issuable in connection with the exercise
of the
-18-
<PAGE> 25
Underwriter's Warrants. The 101,566 shares of Common Stock
issuable at $4.20 per share consist of the shares of Common Stock
issuable upon the exercise of the Underwriter's Warrants. The
239,975 shares of Common Stock issuable at $3.13 per share
consist of the shares of Common Stock issuable upon the exercise
of the outstanding bridge loan Class B Warrants.
(2) Shares of Common Stock issuable upon the exercise of outstanding
options.
(3) The securities registered hereunder will not be sold through an
underwriter.
(4) All expenses of this registration other than commissions and
concessions are payable by the Company, and are estimated at
$70,000.
(5) Estimated based on current market price of $5.00. Option
exercise price depends on market price on the date of vesting.
(6) The 50,783 Redeemable Public Warrants are issuable upon the
exercise of the Underwriter's Warrants. For the purposes of this
chart, the entire exercise price of the Underwriter's Warrants
has been allocated to the Common Stock issuable thereon.
-19-
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 revenues 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 to
general and administrative expenses of approximately $437,000 related to the
issuance of stock options and the forgiveness of officers' 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 capital expenditures of
approximately $900,000.
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
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<PAGE> 27
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 ended
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 consists primarily of increases in depreciation and amortization of
approximately $313,000 as a result of customer list acquisitions totaling
approximately $730,000, 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 $3,122,006
from $3,806,563 to $684,557 due to proceeds of approximately $3,900,000 in
connection with the consummation of the Company's IPO in December 1994 and
additional issuances of stock.
-21-
<PAGE> 28
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 Lived 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
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<PAGE> 29
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 options
and warrants because the sale and/or resale of the common stock underlying such
securities is currently being registered pursuant to this registration.
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.
-23-
<PAGE> 30
BUSINESS
GENERAL
Gilman & Ciocia, Inc. (the "Company") was incorporated under the
laws of the State of Delaware on September 3, 1993 and is 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
revenuesby effecting limited transactions in securities for its clients, and it
earns revenues by 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.
HISTORY
Following its organization in 1981, most of the Company's
expansion was effected through separate corporations under common control with
the Company. In December 1992, the Company merged with fifteen of such
affiliated corporations conducting the same business as the Company, each of
which was controlled by the then four sole shareholders of the Company. Prior
to such merger, the Company conducted many of its operations jointly with such
other affiliated corporations (such as licensing of computer software, ordering
and purchasing of furniture, equipment, supplies, accounting, legal and
advertising services), so that the merger did not materially affect the
Company's operations. In addition to the merger and on its effective date, the
Company acquired the assets of another similarly affiliated entity, a joint
proprietorship under common control with the Company, in exchange for Common
Stock. Several of such affiliated corporations, which did not participate in
the merger, were liquidated prior to such merger. Their clients and
territories were absorbed by other nearby offices
-24-
<PAGE> 31
of the Company. The Company opened 15 new offices in January 1994, 22 offices
in January 1995, and 44 offices at the beginning of 1996, closing four in the
first half of 1996. The Company now has a total of 118 locations.
On December 13, 1994 the Company successfully completed its
initial public offering ("IPO") of securities. The Company sold 507,926 Units
(the "Units"), including the underwriter's overallotment option, of its
securities to the public at $7.00 per Unit. Each unit consisted of two shares
of Common Stock and one warrant to buy one 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 the Company acquired all the outstanding
capital stock of Gilbert Financial Services Inc., a Florida corporation, in
exchange for 203,428 shares of the Company's Common Stock. The acquisition by
the Company of Gilbert Financial has been accounted for as a combination of
companies under common control in a manner similar to a pooling of interests.
In May 1995 all of the Company's Class A Bridge Loan Warrants
were exercised at $2.08 per share, generating additional capital of $748,800
for the Company.
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.
TAX RETURN PREPARATION
The Company prepares federal, state and local income tax returns
for individuals, predominantly in the middle and upper
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income brackets. Approximately 50% of the Company's revenues are derived from
fees for the preparation and filing of tax returns. All tax returns are
prepared by employees of the Company. 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. 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 "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'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.
The Company uses publicly available computer software packages
for the processing of tax returns. The Company pays standard licensing fees
and royalties for such software.
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SEASONALITY
The Company's tax return 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. To prepare for the
demand during such periods, the Company, as much as possible, uses its existing
employees by offering incentives. The Company has avoided opening offices
especially for the tax season and closing them after the peak period. The
Company also hires approximately 350 seasonal employees for its peak demand
periods. The Company organizes its own training seminars for seasonal tax
preparers. The training 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.
To assist in maintaining operations and carrying out its
expansion plans during the off season 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
The Company has organized a wholly owned subsidiary, JT
Securities, Inc., a New York corporation ("JT Securities"). 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 and Florida law to register as a
securities broker/dealer in New York and Florida. In 1995, JT Securities
registered with the Securities and Exchange Commission (the "Commission") and
with the states of New York and Florida as an investment advisor. See
"BUSINESS--Regulation."
The Company originally funded JT Securities with a capital
contribution of $150,000. If JT Securities requires additional funding, the
Company intends to provide such funding from its cash reserves, profits and
borrowings.
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 in its tax
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preparation business, through its wholly owned subsidiary, JT Securities, 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 "BUSINESS --Relationship with
Registered Representatives of Broker/Dealers; --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., an unaffiliated
corporation ("Royal Alliance"), 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,
the Company's wholly owned subsidiary. In addition, the Company's Chief
Financial Officer is a Registered Representative of JT Securities and is 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 supervised in general 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, which may be the tax preparer himself/herself. 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 certain percentage of the commissions earned on such transactions. Royal
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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; however, because the agreements were executed on different
dates, the agreements expire at different times and a uniform expiration
schedule cannot be provided.
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 which may be the tax preparer himself/herself.
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
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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 more than one year; however, because the agreements were
executed on different dates, the agreements expire at different times and a
uniform expiration schedule cannot be provided.
RELATIONSHIP WITH INVESTMENT ADVISORS
JT Securities also provides investment advisory services in
conjunction with other investment advisors to manage clients' 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.
Investment advisory and review services are shared as are the fees. Currently
JT Securities has such an arrangement with three investment advisors.
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
return preparation services during the following years, and in most offices 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 prepare federal income tax returns, the Company sends direct mail
advertisements. The direct mail advertising solicits business principally for
the Company's tax preparation services.
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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 worked
effectively in the past and has resulted in approximately 300 new clients per
year.
Online. The Company currently has two web sites on the America
Online Inc. (AOL) network: http://www.cfonews.com/taxadv.html for income tax
and financial planning advice and http://www.cfonews.com/gtax for 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. Although the Company has not conducted any
analysis of demographic data or any formal market surveys, the Company believes
that these demographic factors have led to the strong success of its new
offices in Arizona and Nevada.
COMPETITION
The income tax return preparation industry and the financial planning services
industry are both highly competitive. The Company's competitors include
companies specializing in income tax return 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 other 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(R)" 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(R)" constitutes a valuable marketing factor. If the Company were to
lose the use of such trademark, its sales could be adversely affected.
SUPPLIERS
The Company depends upon a variety of suppliers for office
supplies and printed forms. All of such raw materials are available from many
suppliers, and the loss of any one supplier would not materially adversely
affect the business of the Company.
DIRECT MAIL DIVISION
The Company commenced operations of a direct mail service
division in July 1995 under the name "Progressive Mailing." The Progressive
Mailing division uses equipment acquired from a liquidated company and is
operated by certain personnel hired from that company. Progressive Mailing
principally provides services in the areas of printing addresses on envelopes,
inserting mailing materials, sorting mailings by zip codes, stamping and
mailing. Progressive Mailing does not design, create or draft the text for
direct mail materials, but it does provide limited consulting services in these
areas.
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 31 persons on a
full-time basis in its Progressive Mailing division, including one
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executive manager, 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 Common Stock in the Company at
a price of $5.13 per share at the rate of 75,000 per year for each of the two
years pursuant to such agreement. Euromarket subsequently assigned the right
to 50,000 of such options to Cascade Corporation and the right to 50,000 of
such options to Deborah A. Picou, the President of Euromarket. Such agreement
is cancelable with 30 days notice by either party.
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 Common
Stock in the Company at a price of $5.125 per share at the rate of 50,000 per
year for each of two years pursuant to such agreement. Texas Capital
subsequently assigned the right to 85,000 of such options to Harbor Financial
Inc. Such agreement is cancelable with 30 days notice by either party.
REGULATION
The Company, as a preparer of federal income tax returns, is
subject to the regulations of the Internal Revenue Code and regulations
promulgated thereunder (collectively, the "Code"). The Code requires, for
example, that tax preparers comply with 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 U.S. Internal Revenue Service
("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 meets 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. See "RISK FACTORS--Potential Civil and
Criminal Liabilities."
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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. In addition some uses of such information is
prohibited even if the taxpayer consents. The Company believes that it
complies with all such applicable IRS regulations.
With the exception of the qualified advisors of JT Securities,
which is 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 instead 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 who are Registered Representatives of a
broker/dealer is incidental to their work as Registered Representatives of a
broker/dealer 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 the Company's wholly owned subsidiary, JT Securities, Inc., a
New York corporation ("JT Securities"), as a securities broker/dealer and as an
investment adviser, the Company was required to register as a broker/dealer
and/or as an investment adviser, then the Company may be subject to regulatory
action. See "RISK FACTORS -- Potential Liability If Company was Required to
Register as a Broker/Dealer or an Investment Adviser."
The Registered Representatives themselves are, moreover, 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 National
Association of Securities Dealers, Inc. (the "NASD") and by the rules and
regulations of the broker/dealer. Such rules and regulations impose burdens in
terms of record keeping and reporting.
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The Company's subsidiary, JT Securities, is a registered
broker/dealer under the Securities Exchange Act of 1934, as amended, and a
member of the NASD, it is also a registered investment advisor under the
Investment Advisors Act of 1940, as amended, and under New York State and
Florida laws. It is subject, therefore, to detailed rules and regulations,
including extensive record keeping requirements, incumbent upon registered
broker/dealers and investment advisors.
JT Securities has not registered as a broker/dealer in any states
other than New York State 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.
EMPLOYEES
At September 30, 1996, the Company employed 152 persons on a
full-time basis, including the Company's five officers. See "MANAGEMENT." 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 "BUSINESS--Seasonality."
The Company's offices are partially staffed by financial planners
who are affiliated with the Company as independent contractors, particularly
during the non tax season. The Company also retains seasonal employees. See
"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.
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.
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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.
LEGAL PROCEEDINGS
There are no material proceedings currently pending against the
Company.
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MANAGEMENT
<TABLE>
<CAPTION>
DIRECTORS AND OFFICERS
EXECUTIVE
OFFICER OR
DIRECTOR
NAME AGE POSITION SINCE
- ---- --- -------- ----------
<S> <C> <C> <C>
James Ciocia 39 Chief Executive Officer, 11/81
President 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.
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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 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 a 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. Johns 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.
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BOARD OF DIRECTORS
Each director is elected for a period of one year at the
Company's annual meeting of stockholders and serves until his or her successor
is duly elected by the stockholders. Officers are elected by and serve at the
will of the Board of Directors. The Company has a Stock Option Plan Committee
and an audit committee of its board of Directors. The Company has no
nominating, compensation or other committees. The Stock Option Plan Committee
administers the Company's 1993 Joint Incentive and Non-Qualified Stock Option
Plan. The audit committee will be responsible for carrying out the functions
specified in Section 6 of Schedule E of the NASD by-laws. These functions
include: (i) review the scope of each audit of the Company, (ii) review, with
the independent auditors, the Company's accounting practices and policies,
(iii) review, with the independent auditors, their final report, (iv) review
the Company's overall accounting and financial controls with internal and
independent auditors, and (v) consult, as needed, with the independent
auditors.
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 delinquently 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.
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<PAGE> 46
REMUNERATION OF OFFICERS AND DIRECTORS
MANAGEMENT
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 $8,100 for health
insurance.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR
VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs at Options/SARs
Fiscal Year-End(#) Fiscal Year-End($)(1)
Name Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------------------- -------------------------
<S> <C> <C> <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.
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<PAGE> 47
Messrs. Ciocia, Povinelli, Besmer and Esposito 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' COMPENSATION
Directors of the Company receive no compensation for serving as a
director.
STOCK OPTION PLAN
On September 14, 1993, the Company adopted its 1993 Joint
Incentive and Non-Qualified Stock Option Plan, as amended October 14, 1993 (the
"Plan"), pursuant to which the Company may now 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
(the "Stock Option Committee"), 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
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 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.
The Stock Option Committee consists of disinterested directors
and administers the Plan for the purpose of complying with Rule 16(b)(3) under
the Securities Exchange Act of 1934, as amended, with respect to grants under
the Plan.
To the date of this Prospectus, Non-Qualified Options to purchase
83,604 shares, 83,604 shares, 50,163 shares, and 62,710 shares of Common Stock
at the price of $2.60 per share have been granted under the Plan to James
Ciocia, Thomas Povinelli, Gary Besmer and Kathryn Travis, respectively;
Non-Qualified Options to
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<PAGE> 48
purchase 41,766 shares, 41,766 shares, 25,060 shares, and 31,329 shares of
Common Stock at the price of $3.65 per share have been granted under the Plan
to James Ciocia, Thomas Povinelli, Gary Besmer and Kathryn Travis,
respectively; Non-Qualified Options to purchase 18,850 shares, 18,850 shares,
11,310 shares, and 14,170 shares of Common Stock at the price of $2.50 per
share have been granted under the Plan to James Ciocia, Thomas Povinelli, Gary
Besmer and Kathryn Travis, respectively; Non-Qualified Options to purchase
1,820 shares of Common Stock at the price of $2.50 per share, 7,920 shares of
Common Stock at the price of $2.60 per share and 4,080 shares of Common Stock
at the price of $3.65 per share have been granted under the Plan to Ralph
Esposito, the Chief Financial Officer of the Company. In addition, the Company
granted to its Chief Financial Officer options to purchase up to 200,000 shares
of Common Stock vesting over several years and exercisable at a 20% discount
from the market price of the Common Stock. In total the Company has granted
the option to purchase 697,002 shares and options to purchase 118,998 shares
remain to be granted under 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, engaging in intentional misconduct or
knowing 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 such persons shall be determined
to have acted not in good faith, unlawfully or not in the best interest 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 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.
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<PAGE> 49
PRINCIPAL STOCKHOLDERS
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 5% of the issued and outstanding 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 Percent of
Beneficial Owner Beneficial Ownership Class
- -------------------- ---------------------- -----------
<S> <C> <C>
James Ciocia 1,040,473 (1) 18.3%
17 Folgers Lane
Dix Hills, NY 11746
Thomas Povinelli 1,083,473 (2) 19.1%
3427 Bayfront Place
Baldwin, NY 11510
Gary Besmer 358,480 (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 59,380 (5) 1.1%
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
as a group (7 persons) 3,108,852 51.7%
</TABLE>
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<PAGE> 50
(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 issuable upon the exercise of options
that are 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 a 97% beneficiary. In addition,
includes 240,000 shares issuable upon exercise of options at $3.50 per share.
Does not include 100,000 shares issuable at $3.50 per share that are not
exercisable within 60 days.
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<PAGE> 51
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.
In 1991, the four principal 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 January 1995, two officers of the Company, Kathryn Travis and Ralph
Esposito, purchased 22,759 shares of common stock that
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<PAGE> 52
had been canceled due to non-payment by a private placement investor. The
purchase price of $3.07 per share was the price to be paid by such investor.
In March 1995, the Company transferred ownership of certain life
insurance policies that 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)
each 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 share at $2.50 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. 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 (who are not officers or directors) 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 had already been repaid by James Ciocia.
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<PAGE> 53
PLAN OF DISTRIBUTION
The Common Stock and Redeemable Warrants registered hereby will be
issued by the Company to the holders of the applicable convertible security
upon the exercise thereof by such holders. The Company may engage in
solicitations through its officers and directors or through placement agents to
induce the holders of such securities to exercise them. In addition, the
Company has the right to redeem Redeemable Warrants at a price of $.01 per
share, provided that Redeemable Warrantholders will have 30 days to exercise in
the case of such redemption. If the Company redeems the Redeemable Warrants
however, the volume of warrantholders exercising the warrants may depress the
market price of the Common Stock. Upon exercise, the Common Stock and
Redeemable Warrants will be held by such holders and any further distribution
will not be in the Company's control.
SELLING SECURITYHOLDERS
All of the shares of Common Stock (collectively, the "Shares") offered
herein for the accounts of the persons identified in the following table (the
"Selling Securityholders") may be sold from time to time. The Selling
Securityholders and the amount of securities that may be acquired by each are
set forth below.
All of the Shares, which will be offered by the Selling
Securityholders, may be acquired by them as follows: 239,975 shares at an
exercise price per share of $3.13 from the Company pursuant to the exercise of
Class B Warrants that were granted in October and November 1993 in connection
with the Company's private placement offering of debt securities, 100,000
shares at an exercise price of $5.125 pursuant to outstanding options, 150,000
shares at an exercise price of $5.13 pursuant to outstanding options, 65,000
shares at an exercise price of $2.50 pursuant to outstanding employee options
sold to Rozel International Holding, Ltd., 144,001 shares of Common Stock at an
exercise price of $3.65 per share pursuant to outstanding employee options,
288,001 shares of Common Stock at an exercise price of $2.60 pursuant to
outstanding employee options, 10,000 shares of Common Stock at an exercise
price of $3.00 per share pursuant to outstanding employee options, 12,000
shares of Common Stock at an exercise price of $4.00 per share pursuant to
outstanding employee options, 14,000 shares of Common Stock at an exercise
price of $4.80 per share pursuant to outstanding employee options, 164,000
shares of Common Stock at prices based on market price per share at time of
vesting pursuant to outstanding employee options, 101,566 shares of Common
Stock and 50,783 Redeemable Public Warrants issuable to Patterson Travis, Inc.
may be acquired at a price of $8.40 per unit, each unit consisting of two
shares of Common Stock and one Public Redeemable Warrant, and 50,783 shares of
Common Stock issuable to Patterson Travis, Inc. upon exercise of the Redeemable
Public Warrants that are issuable upon exercise of the Underwriter's
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<PAGE> 54
Warrants may be acquired at a price of $4.67. As of the date of this
Prospectus, no Selling Securityholder has exercised any of the warrants or
options described above.
<TABLE>
<CAPTION>
Percentage
Amount of of Common
Common Amount Stock
Selling Stock of owned
Securityholder owned Common after
and Position before Stock offering
to Company offering offered (greater than 1%)
- ----------- -------- ------- -----------------
<S> <C> <C> <C>
Paula Sclafani, 18,035 18,035 -0-
mother of Kathryn Travis,
Secretary, Vice President
and Director
Thomas Povinelli, Sr., 49,595 49,595 -0-
father of Thomas Povinelli,
Chief Operating Officer
and Director
Joseph Cifarelli 1,600 1,600 -0-
Samuel Bernthal 10,762 10,762 -0-
Carmela Ciocia 41,596 41,596 -0-
Ilia Walsh,
stepdaughter of Gary Besmer,
Vice President and Director 31,997 31,997 -0-
James Ciocia,
Chief Executive Officer,
President and Director 1,040,473 125,370 16.1%
Thomas Povinelli,
Chief Operating Officer and Director 1,083,473 125,370 16.9%
Gary Besmer,
Vice President and Director 538,480 75,223 8.2%
Kathryn Travis,
Secretary, Vice President and Director 358,185 94,039 4.7%
Ralph Esposito, 238,398 212,000 -0-
Chief Financial Officer,
Vice President and Treasurer
John Schnitzler 35,996 35,996 -0-
Garo Armen 35,996 35,996 -0-
Michael Howard 8,000 8,000 -0-
Patterson Travis, Inc., 273,888 101,566(1) 2.2%
underwriter of Company's
initial public offering
EuroMarket Advisory, Inc. 50,000 50,000 -0-
</TABLE>
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<PAGE> 55
<TABLE>
<S> <C> <C> <C>
Cascade Corporation 50,000 50,000 -0-
Deborah A. Picou 50,000 50,000 -0-
Texas Capital Securities, Inc. 15,000 15,000 -0-
Harbor Financial Inc. 85,000 85,000 -0-
Rozel International Holding, Ltd. 65,000 65,000 -0-
</TABLE>
<TABLE>
<CAPTION>
Percentage of
Amount of Public
Public Redeemable
Redeemable Amount of Warrants
Selling Warrants Public owned
Securityholder owned Redeemable after
and Position before Warrants offering
to Company offering offered (greater than 1%)
- ---------- -------- ------- -----------------
<S> <C> <C> <C>
First Hanover Securities, Inc. 50,783 50,783 -0-
original underwriter of Company's
initial public offering
</TABLE>
- --------------------------------------------------------------------------------
(1) Issuable upon exercise of the Redeemable Public Warrants that are
issuable upon exercise of the Underwriter's Warrants.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Stock
Selling Stock owned
Securityholder owned after
and Position before Stock offering
to Company offering offered (greater than 1%)
- ----------- -------- ------- -----------------
<S> <C> <C> <C>
Edward Haas, employee 64,286 16,072 -0-
Ralph Esposito 11,380 11,380 -0-
Chief Financial Officer,
Vice President and Treasurer
</TABLE>
PLAN OF DISTRIBUTION BY SELLING SECURITYHOLDERS
No underwriter is involved in the distribution of the securities that
may be owned by the Selling Securityholders, but rather sales will be made by
the Selling Securityholders either directly or through one or more securities
brokers or dealers in over-the-counter transactions on The NASDAQ Stock Market,
or in privately negotiated transactions. At the time that a particular offer of
any of the Shares is made by or on behalf of a Selling Securityholder, to the
extent required, a Prospectus Supplement will be distributed that will set
forth the number of Shares being offered and the terms of the offering,
including the name or names of any underwriters, dealers or agents, the
purchase price paid by any underwriter for Shares purchased from the Selling
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<PAGE> 56
Securityholder and any discounts, commissions or concessions allowed or
reallowed or paid to dealers, and the proposed selling price to the public.
Shares sold in over-the-counter transactions will be sold at the
current market prices at the time of sale, and any Shares sold in private
transactions will be sold at prices acceptable to the buyer and seller.
Broker-dealers through which the Selling Securityholders effect sales of the
Shares may receive compensation in the form of discounts, concessions or
commissions from the Selling Securityholders and/or the purchasers of the
Shares for whom such broker-dealers may act as agent or to whom they sell as
principal, or both (which compensation as to a particular broker-dealer may be
in excess of customary compensation).
The Selling Securityholders and any broker-dealers who act in
connection with the sale of Shares hereunder may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act of 1933, as amended
(the "Securities Act"), and any commissions received by them and profit on any
resale of the Shares as principal might be deemed to be underwriting discounts
and commissions under the Securities Act.
Under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the regulations promulgated thereunder, any person engaged in a
distribution of Common Stock offered by this Prospectus may not simultaneously
engage in market-making activities with respect to the Common Stock during the
applicable "cooling off" period (9 days) prior to the commencement of such
distribution. In addition, and without limiting the foregoing restriction, the
Selling Securityholders will be subject to applicable provisions of the
Exchange Act and the rules and regulations promulgated thereunder, including,
without limitation, Rules 10b-6 and 10b-7 in connection with transactions in
the Shares, which provisions may limit the timing of purchases and sales of
shares of Common Stock by the Selling Securityholders.
The Selling Securityholders will receive the entire proceeds from the
sale of their Shares, less any commissions paid to brokers or dealers for
executing such offers. Although the Company will not receive any funds from the
sale of the Selling Securityholders' shares, the Company will pay for all
expenses of the offering and will furnish current prospectuses to the Selling
Securityholders at their request.
LOCK-UP AGREEMENTS
All shareholders of the Company prior to its IPO agreed not to sell any
Common Stock without the prior written consent of the underwriter of the
Company's initial public offering until September 9, 1996. A Lock-up Release
Letter for a total of 261,380
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<PAGE> 57
shares was executed by Patterson Travis, Inc. in January 1996, but such
agreement has now expired.
DESCRIPTION OF SECURITIES
UNITS
Each Unit (a "Unit") offered hereby consists of two shares of the
Common Stock, par value $.01 per share, of the Company and one redeemable
warrant (each a "Redeemable Warrant"), each Redeemable Warrant to purchase one
additional share of such Common Stock at an exercise price of $4.67 per share.
The Units are no longer traded as units, and the Common Stock and Redeemable
Public Warrants composing the Units are separately transferrable.
COMMON STOCK
The Company, a Delaware corporation, is authorized to issue nine
million (9,000,000) shares of Common Stock, par value $.01 per share. At the
date of this Prospectus the Company has five million, five hundred fifty
thousand, five hundred eighty-two (5,550,582) shares of Common Stock
outstanding. Upon payment in full of the subscription price therefor, the
shares of Common Stock are not subject to further assessment or call.
The following summary description of the Common Stock is qualified in
its entirety by reference to the Company's Certificate of Incorporation, as
amended. The holders of the Common Stock are entitled to one vote for each
share held of record on each matter submitted to a vote of stockholders. There
is no cumulative voting for election of directors. Subject to the prior rights
of any series of Preferred Stock that may from time to time be outstanding, if
any, holders of Common Stock are entitled to receive ratably such dividends as
may be declared by the Board of Directors out of funds legally available
therefor, and, in the event of liquidation, dissolution or winding up of the
Company, are entitled to share ratably in all assets remaining after payment of
liabilities. Holders of Common Stock have no preemptive rights and have no
rights to convert their Common Stock into any other securities. The outstanding
Common Stock is, and the Common Stock to be outstanding upon completion of this
offering will be, validly issued, fully paid and nonassessable.
REDEEMABLE PUBLIC WARRANTS
Each Redeemable Public Warrant entitles the holder thereof to purchase
one share of Common Stock at an exercise price of $4.67 per share, subject to
adjustment in the event of certain occurrences, such as stock dividends, splits
and combinations. The Redeemable Public Warrants are exercisable for a period
of three years after the date of this Prospectus, by surrendering the
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<PAGE> 58
certificate representing the Redeemable Public Warrant to the Company, or its
authorized transfer agent, with the subscription form attached thereto properly
completed and executed together with payment in full by certified or bank
teller's check of the aggregate exercise price of all the Redeemable Public
Warrants then exercised. The Redeemable Public Warrants are redeemable by the
Company at a price of one cent ($.01) per Redeemable Public Warrant, provided
that (i) notice of redemption is given to the Redeemable Public Warrantholder
not less than thirty days prior to the date fixed for redemption; (ii) the
aggregate average of the closing bid and asked quotations of the Common Stock
shall have been at least 25% above the Redeemable Public Warrant Exercise Price
per share for the twenty trading days ending on the third day prior to the day
on which notice of redemption is given; and (iii) holders of the Redeemable
Public Warrants shall be entitled to exercise Redeemable Public Warrants until
the close of business on the day prior to the date fixed for redemption.
The Company may at any time, and from time to time, extend the exercise
period of the Redeemable Public Warrants provided that written notice of such
extension is given to the Redeemable Public Warrantholders prior to the
expiration date then in effect. Also, the Company may reduce the exercise
price of the Redeemable Public Warrants for limited periods of time through the
end of the exercise period. Changes in the terms of outstanding Redeemable
Public Warrants may constitute an offering of a new security for which an
appropriate registration statement (or post-effective amendment to the
registration statement of which this Prospectus is a part) would have to be
filed and declared effective prior to any exercise under such changed terms. In
addition, the Company may be deemed to be engaged in a self tender offer or a
going private transaction, which would result in additional required filings.
The Company must give notice of any reduction of the exercise price to the
Redeemable Public Warrantholders. The Company does not currently contemplate an
extension of the exercise period or a reduction of the exercise price.
Each Redeemable Public Warrant will be separable from the Units upon
issuance and will be separately traded and quoted. No assurance can be given,
however, that any trading market for the Redeemable Public Warrants will
continue. Upon the expiration of the Redeemable Public Warrants following the
exercise period referred to above, any market that might have existed for the
Redeemable Public Warrants will terminate.
The exercise price of the Redeemable Public Warrants and the number of
shares issuable upon exercise will be adjusted upon the occurrence of certain
events, including (a) the issuance of dividends payable in Common Stock, (b)
subdivisions or combinations of the Common Stock, (c) the issuance of rights or
options entitling the holder to acquire shares of Common Stock at less than the
then current market price and the then current Redeemable
-52-
<PAGE> 59
Warrant Exercise Price, and (d) the issuance of shares of Common Stock or of
obligations or other securities convertible into or exchangeable for shares of
Common Stock, in each case for a consideration less than the then current
market price and the then current Redeemable Warrant Exercise Price; provided
that no adjustment will be required for the issuance of shares upon the
exercise of conversion, option, warrant or other rights currently outstanding
and described elsewhere in this Prospectus, and no adjustment will be required
in the event that a merger or acquisition is undertaken by the Company, and no
adjustment will be required upon the issuance or exercise of options under a
bona fide employee stock option plan and in certain other circumstances.
The Redeemable Public Warrants are being issued pursuant to a Warrant
Agreement between the Company and Corporate Stock Transfer, Inc., as Warrant
agent. Corporate Stock Transfer, Inc. will also act as the Company's transfer
agent for its Common Stock. The foregoing brief description of the Redeemable
Public Warrants is a summary of the rights and privileges of Redeemable Public
Warrantholders, does not purport to be complete and is qualified in its
entirety by reference to the Warrant Agreement, a copy of the form of which is
an exhibit to the Registration Statement of which this Prospectus forms a part.
UNDERWRITER'S WARRANTS
The Company granted to the underwriter of its initial public offering
of securities five-year Underwriter's Warrants to purchase up to 50,783 Units
exercisable until September 9, 1999, at $8.40 per Unit, subject to adjustment
in the event of certain occurrences, such as stock dividends, splits and
combinations. The Underwriter's Warrants also contain certain provisions
further protecting the holder against dilution.
The Underwriter's Warrants may be exercised by surrendering the
certificate representing the Underwriter's Warrants to the Company, or its
authorized transfer agent, with the subscription form attached thereto properly
completed and executed together with payment in full of the aggregate exercise
price. The Underwriter's Warrants and the securities underlying them are
covered by the Registration Statement of which this Prospectus is a part.
PREFERRED STOCK
The Company is authorized to issue 100,000 shares of Preferred Stock,
none of which is outstanding, and the Company has no current understanding to
issue any of such Preferred Stock. The Board of Directors of the Company is
vested with authority to divide the authorized shares of Preferred Stock into
one or more series of such shares and to fix and determine the relative rights
and preferences of any such series. A series of such shares may, among other
matters, establish (a) the number of shares of Preferred
-53-
<PAGE> 60
Stock to constitute such series and the designations thereof; (b) the rate and
preference of dividends, if any, the time of payment of dividends, whether
dividends are cumulative and the date from which any dividend shall accrue; (c)
whether Preferred Stock may be redeemed, and, if so, the redemption price and
the terms and conditions of redemption; (d) the liquidation preferences payable
on Preferred Stock in the event of liquidation; (e) sinking fund or other
provisions, if any, for redemption or purchase of such shares; (f) the terms
and conditions by which Preferred Stock may be converted, if the series is
issued with the privilege of conversion; and (g) voting rights, if any. The
Board of Directors, without the approval of the Company's shareholders, has the
power to authorize the issuance of Preferred Stock with voting and conversion
rights that could adversely affect the voting power of the Common Stock. See
"RISK FACTORS--Preferred Stock May Inhibit Change of Control."
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Weinick, Sanders & Co., L.L.P. 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 the 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.
LEGAL MATTERS
The legality of the securities offered hereby will be passed on for the
Company by Akabas & Cohen, 488 Madison Avenue, 6th floor, New York, NY 10022.
Akabas & Cohen is the beneficial and record owner of 8,081 shares of the
Company's Common Stock. Seth Akabas, a partner in the law firm of Akabas &
Cohen, is a director of the Company.
-54-
<PAGE> 61
EXPERTS
The financial statements of the Company for the year ended June 30,
1995 included in this Prospectus have been included herein in reliance on the
report by Weinick, Sanders & Co., L.L.P., 1515 Broadway, New York, NY 10036,
appearing elsewhere in this Prospectus and upon the authority of such firm as
experts in auditing and accounting.
The financial statements for the year ended June 30, 1996 included in
this Prospectus constituting a part of this Registration Statement have been
audited by BDO Seidman, LLP, independent certified public accountants, to the
extent and for the period set forth in their report appearing elsewhere herein
and in the Registration Statement, and are included in reliance upon such
report given upon the authority of said firm as experts in auditing and
accounting.
ADDITIONAL INFORMATION
The Company has filed with the office of the Securities and Exchange
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, its Registration
Statement on Form SB-2 (Registration No. 33-80627 under the Securities Act of
1933, with respect to the securities offered hereby (the "Registration
Statement"). This Prospectus does not contain all of the information set forth
in the Registration Statement and the exhibits and schedules thereto. For
further information, reference is hereby made to the Registration Statement.
Statements contained in the Prospectus as to the contents of any document are
not necessarily complete, and in each instance reference is made to the copy of
such document filed as an exhibit to the Registration statement, each such
statement being qualified in all respects by such reference. Copies of the
Registration Statement and such other reports filed by the Company may be
inspected without charge at the Public Reference Section of the Commission in
New York, NY at the address set forth above, at the Commission's regional
office in the Everett McKinley Dirksen Building, 219 South Dearborn Street,
Chicago, IL 60604, and at the Commission's office at 7 World Trade Center, New
York, NY 10048, and copies of all or any part thereof may be obtained from the
Commission at prescribed rates.
Any document or part thereof which is incorporated by reference within
this Prospectus and not delivered herewith, will be provided, without charge,
to each person, including any beneficial owner, to whom a Prospectus is
delivered, upon written or oral request of such person; however, exhibits to
documents that are incorporated by reference shall not be furnished unless such
exhibits are specifically incorporated by reference into the information that
the Prospectus incorporates. Such information may be obtained by writing the
Company at 475 Northern Boulevard, Great Neck, NY 11021, telephone (516)
482-4860, Attn: Secretary.
-55-
<PAGE> 62
GILMAN & CIOCIA, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-KSB - ITEM 7
YEARS ENDED JUNE 30, 1996 AND 1995
F-1
<PAGE> 63
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-35
F-2
<PAGE> 64
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> 65
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> 66
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> 67
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> 68
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> 69
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> 70
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> 71
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> 72
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> 73
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> 74
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> 75
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> 76
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> 77
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> 78
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> 79
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> 80
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> 81
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> 82
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> 83
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> 84
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> 85
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> 86
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> 87
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> 88
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> 89
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> 90
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> 91
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> 92
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> 93
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> 94
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> 95
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-34
<PAGE> 96
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> 97
No Person is authorized to give any information or to make any representation
other than those contained in this Prospectus, and if given or made, such
information or representation must not be relied upon as having been
authorized. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the securities
offered by this Prospectus or an offer to sell or a solicitation of an offer to
buy the securities in any jurisdiction to any person to whom it is unlawful to
make such an offer or solicitation in such jurisdiction.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Market Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Management's Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Remuneration of Officers
and Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Principal Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Certain Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Selling Securityholders . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Description of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
</TABLE>
Until the conclusion of the distribution of the securities offered hereby,
there is an obligation of dealers to deliver a Prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
507,926 Shares
of Common Stock
1,366,778 Shares
of Common Stock
by Selling Securityholders
50,783 Redeemable
Common Stock
Purchase Warrants
by
Selling Securityholders
GILMAN & CIOCIA, INC
-----------------------
PROSPECTUS
November 8, 1996
<PAGE> 98
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. Indemnification of Officers and Directors
Article EIGHTH of the Corporation's Certificate of
Incorporation provides:
A director of this Corporation shall not be personally liable
to this Corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to this Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware General Corporation Law, or (iv) for
any transaction from which the director derived any improper personal
benefit. If the Delaware General Corporation Law is hereafter amended
to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of
this Corporation shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
Article NINTH of the Corporation's Certificate of
Incorporation provides:
This Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
complete action, suit or proceeding, whether civil, criminal,
administrative or investigative, or by or in the right of this
Corporation to procure judgment in its favor, by reason of the fact
that he is or was a director or officer, employee or agent of this
Corporation, or is or was serving at the request of this Corporation as
a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best
interests of this Corporation, in accordance with and to the full
extent permitted by statute. Expenses incurred in defending a civil or
criminal action, suit or proceeding may be paid by this Corporation in
advance of the final disposition of such action, suit or proceeding as
authorized by the Board of Directors in the specific case upon receipt
of an undertaking by or on behalf of the director, officer, employee or
agent to repay such amount unless it shall ultimately be determined
that he is entitled to be indemnified by this Corporation as authorized
in this section.
II-1
<PAGE> 99
The indemnification provided by this section shall not be deemed
exclusive of any other rights to which those seeking indemnification
may be entitled under these Articles or any agreement or vote of
stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
Article TENTH of the Company's By-Laws provides as follows:
Any person made a party to any action or proceeding (whether
or not by or in the right of the Corporation to procure a judgment in
its favor or by or in the right of any other corporation) by reason of
the fact that he, his testator or intestate, is or was a director,
officer or employee of the Corporation, or of any corporation which he
served as such at the request of the Corporation, shall be indemnified
by the Corporation against judgments, fines, amounts paid in settlement
and reasonable expenses, including attorneys' fees, actually and
necessarily incurred by him in connection with the defense of or as a
result of such action or proceeding, or in connection with any appeal
therein, to the full extent permitted under the laws of the State of
Delaware from time to time in effect. The Corporation shall have the
power to purchase and maintain insurance for the indemnification of
such directors, officers and employees to the full extent permitted
under the laws of the State of Delaware from time to time in effect.
Such right of indemnification shall not be deemed exclusive of any
other rights of indemnification to which such director, officer or
employee may be entitled.
ITEM 25. Other Expenses of Issuance and Distribution
The expenses payable by Registrant in connection with the issuance and
distribution of the securities being registered (other than underwriting
discounts and commissions, and non-accountable expenses of $-0-) are as
follows:
<TABLE>
<S> <C>
Securities and Exchange Commission Fees............ $ 4,148.70
NASDAQ Stock Market listing fees................... 1,000.00
Transfer/Warrant Agent's Fee and Expenses.......... 1,000.00
Accounting Fees and Expenses....................... 25,000.00
Blue Sky Fees and Expenses......................... 5,000.00
Printing Expenses ................................. 4,000.00
Legal Fees......................................... 29,000.00
Miscellaneous...................................... 851.30
----------
TOTAL.................................... $70,000.00
==========
</TABLE>
II-2
<PAGE> 100
ITEM 26. Recent Sales of Unregistered Securities
In October 1993, the Registrant granted options to purchase 288,001
shares of Common Stock at $2.60 per share and options to purchase 144,001
shares of Common Stock at $3.65 per share in the aggregate to five individuals
who are officers, directors, employees and/or consultants of the Company. No
underwriter or placement agent was involved.
From October 1993 to January 1994, the Company sold a total of 186,197
shares of Common Stock to 19 purchasers for an aggregate purchase price of
$576,334. Each of 18 of such purchasers was a manager of an office of the
Company who purchased such shares to provide capital to the Company to enable
the Company to open an additional office for such purchaser to manage. The
other purchaser was a law firm that accepted Common Stock in lieu of cash for
an account receivable.
In October and November 1993, the Company granted Class A Warrants to
purchase 360,000 shares of Common Stock at $2.08 per share and Class B Warrants
to purchase 239,976 shares of Common Stock at $3.13 per share to 11 bridge
lenders who advanced bridge loans to the Company in the following amounts:
Paula Sclafani -- $56,368; Thomas Povinelli, Sr. -- $100,000; Joseph Cifarelli
- -- $5,000; Joseph Bonacore -- $55,000; Samuel Bernthal -- $33,632; Carmela
Ciocia -- $130,000; Ilia Walsh -- $100,000; Ralph Esposito --$20,000; John
Schnitzler -- $112,500; Garo Armen -- $112,500; and Michael Howard -- $25,000,
and, in the aggregate, lent $750,000 to the Company. None of such bridge
lenders was an officer, director or shareholder of the Company or a spouse or
dependent of any such person. One was a former controller and is currently the
Chief Financial Officer of the Company. First Hanover Securities, Inc.
participated in connection with such bridge loans and received $12,500 in
compensation in connection therewith.
In July 1994, the Company granted additional options to purchase shares
of Common Stock at $2.50 per share to officers and directors as follows: James
Ciocia 18,850, Thomas Povinelli 18,850, Gary Besmer 11,310, and Kathryn Travis
14,170, and to the Company's Chief Financial Officer, Ralph Esposito, 1,820.
From December 1994 through June 1995, the Company sold 70,161 shares of
Common Stock to employees of the Company at prices ranging from $3.07 to $3.50,
for an aggregate purchase price of approximately $232,000. During the same
period, the Company also issued 10,100 shares of Common Stock to employees and
others as performance bonuses.
In January 1995, the Company sold a total of 22,759 shares of its
Common Stock (which had been returned to the Company as a result of a default
in the payment of a subscription receivable) to two officers of the Company for
an aggregate purchase price of $69,870.
II-3
<PAGE> 101
In February 1995, the Company issued 203,428 shares of Common Stock in
connection with the Company's acquisition of Gilbert Financial Services, Inc.
and granted options to purchase 400,000 shares of Common Stock in connection
with an employment agreement with Mr. Steven Gilbert. After the end of the
1995 fiscal year, 60,000 options granted to Mr. Gilbert during such year were
rescinded pursuant to a preexisting incentive compensation agreement.
In April 1995, the Company issued 25,713 restricted shares of Common
Stock for an aggregate purchase price of $89,995.50 to the following
individuals in the following amounts: Dominick Riolo 8,571 shares; Gregory
Ferone 8,571 shares; and Armando Olivieri 8,571 shares, pursuant to a contract
for the opening of new offices in New City, Mamaroneck and Scarsdale between
such individuals and the Company.
In May 1995, Judah Wernick, an employee of the underwriter in the
Company's initial public offering purchased all outstanding bridge loan Class A
Warrants, and upon exercise thereof, the Company issued 360,000 shares of
Common Stock for an aggregate purchase price of $748,800.
In June 1995, the Company issued 64,286 shares of Common Stock in
partial consideration for the acquisition of assets used in the direct mail
advertising business.
In July 1995, the Company sold 100 restricted shares of Common Stock to
Gwendolyn Morgan at $4.625 per share for an aggregate purchase of $462.50 and
5,455 restricted shares of Common Stock to Joel Weinberger at approximately
$5.50 per share for an aggregate purchase price of $30,00.00.
In July 1995, the Company sold 1,429 restricted shares of Common Stock
to Joseph Jensen for an aggregate purchase price of $5,000.00 pursuant to a
severance compensation package agreement between such individual and the
Company.
In August 1995, the Company issued 3,688 restricted shares of Common
Stock to Kerry O'Keefe as a performance bonus.
In October 1995, the Company sold a total of 20,000 shares of Common
Stock upon exercise of a stock option to one of its key independent contractors
for an aggregate purchase price of $40,650 pursuant to a previous contract
between such individual and the Company.
Also in October 1995, the Company issued 3,050 restricted shares of
Common Stock as performance bonuses to the following individuals in the
following amounts: Neil Hasset 300 shares; Jim Ptacek 100 shares; Carol Livolsi
100 shares; Karen Sheppard 50 shares; Joel Weinberger 50 shares; Jeffrey
Ambrosio 50 shares; Pat Ewing 50 shares; Kerry O'Keefe 50 shares; Richard Boehm
200 shares; Dominick Riolo 100 shares; Joe Jacobs 100 shares; Larry Brenner 100
shares; Dave Burgio 100 shares; Lorraine Buscareno-Smith 100
II-4
<PAGE> 102
shares; Dave Critelli 100 shares; Deborah E. O'Connell 1,200 shares; and Scott
Fisher 300 shares.
In addition, in October 1995, the Company granted options to purchase
150,000 shares of Common Stock to EuroMarket Advisory, Inc. ("Euromarket")
pursuant to a consulting agreement. The Company also granted options to
purchase 100,000 shares to Texas Capital Securities, Inc. ("Texas Capital")
pursuant to an investment banking agreement.
In November 1995, the Company sold 5,000 restricted shares of Common
Stock to Frank Daguanno at $6.00 per share for an aggregate purchase price of
$30,000.
In December 1995, the Company issued 1,600 restricted shares of Common
Stock as performance bonuses to the following individuals in the following
amounts: Thomas Mallis 100 shares; Carol Sanford 100 shares; Sandy Valle 100
shares; Rosalie Maiorano 100 shares; Angelo Perna 100 shares; Georget
Czajkowski 100 shares; Leonard Shrift 100 shares; Patricia White 100 shares;
Vinka Pelaic 100 shares; Robert Gilman 100 shares; Jennifer Gilman 100 shares;
Debra Seeley 100 shares; Kerry O'Keefe 100 shares; Joel Weinberger 100 shares;
Pat Ewing 100 shares; and Tim Bodner 100 shares.
In October 1996, the Company sold a total of 10,000 shares of Common
Stock upon exercise of a stock option to one of its key independent contractors
for an aggregate purchase price of $78,600 pursuant to a previous contract
between such individual and the Company.
All sales reported under this item were exempt from the registration
requirements of the Securities Act of 1933, as amended, by reason of Section
4(2) thereof and/or the rules and regulations promulgated thereunder as sales
of securities not involving a public offering.
ITEM 27. Exhibits and Financial Statement Schedules
(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
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
II-5
<PAGE> 103
4.1 Resolution of Designation, Powers, Preferences
and Rights of Series A Preferred Stock,
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 Warrant of 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 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. 33-70640-NY
4.4 Form of Underwriter's Warrant, 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
5 Opinion of Akabas & Cohen
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 December 12, 1994
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
II-6
<PAGE> 104
Act of 1933, as amended, File No. 33-70640-NY
10.6 Omitted.
10.7 1993 Joint Incentive and NonQualified 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 Documents involved in the repurchase of shares
and settlement with Frank Pasatieri, a former
shareholder 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
10.9 Documents involved in the repurchase of shares
and settlement with Alan Grad, a former
shareholder 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
10.10 Form of Lock-up letter executed by
shareholders of the Registrant prior to the
Registrant's initial public offering,
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
10.11 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 Documents involved in the repurchase of shares
and settlement with Bernard McGee and Jay
Cruice, former 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
10.13 Omitted.
10.14 Form of guaranty of Term-loan Promissory Note
to State Bank of Long Island, incorporated by
reference to the like numbered exhibit in the
II-7
<PAGE> 105
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
and Steven Gilbert, incorporated by reference
to exhibit 10.20 in the Company's quarterly
report on Form 10-Q for the fiscal quarter
ended March 31, 1995
10.22* Joint Venture Agreement dated December 28,
1994 between Midwood Tax Service, Inc. and
Registrant
10.23* Promissory notes delivered by James Ciocia,
Thomas Povinelli, Gary Besmer and Kathryn
II-8
<PAGE> 106
Travis in payment for cash value of life
insurance policies held by Registrant on the
lives of such officers
10.24* Consulting Agreement dated October 9, 1995
between EuroMarket Advisory, Inc. and
Registrant
10.25* Investment Banking Agreement dated October 17,
1995 between Texas Capital Securities Inc. and
Registrant
10.26* Agreements dated November , 1995 among
Rummco, Ltd., five executive officers of
Registrant, and Registrant in connection with
the sale of stock options.
10.27* Lock-Up Release Letter by Patterson Travis,
Inc. dated January 10, 1996
10.28* Employment Agreement dated April 10, 1995
between Dominick Riolo and Registrant in
connection with the opening of a new office
10.29* Employment Agreement dated April 10, 1995
between Gregory Ferone and Registrant in
connection with the opening of a new office
10.30* Employment Agreement dated April 10, 1995
between Armando Olivieri and Registrant in
connection with the opening of a new office
10.31* Independent Employment Contract dated
December , 1993 between Abraham Dorfman
and Registrant
10.32* Form of Subscription Letter representing stock
issuances to individuals
10.33* Independent Contractor's Agreement dated
September 6, 1995 between Howard Wilkin and
the Registrant
10.34* Independent Contractor's Agreement dated
September 6, 1995 between Alfred Schepis and
the Registrant
10.35* Independent Contractor's Agreement dated
September 6, 1995 between Armando Olivieri and
the Registrant
11.01 Calculation of Net Income Per Share
21 List of Subsidiaries, incorporated by
reference to Exhibit 21 in the Company's
II-9
<PAGE> 107
Annual Report on Form 10-KSB for the fiscal
year ended June 30, 1995
23.1 Consent of Akabas & Cohen (Included in Exhibit
5)
23.2 Consent of Weinick Sanders & Co., L.L.P.
23.3 Consent of BDO Seidman, LLP
- --------------------------------
* previously filed
ITEM 28. Undertakings
The undersigned Registrant hereby undertakes to:
(a)(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of
the Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; and
(iii) Include any additional or changed material information
on the plan of distribution;
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering;
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the offering; and
(e) If the Registrant requests acceleration of the effective date of
the Registration Statement under Rule 461 under the Securities Act, the
Registrant acknowledges that:
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the
foregoing provisions, or otherwise, the small business issuer has been
advised that in
II-10
<PAGE> 108
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person
of the small business issuer in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Securities Act and
will be governed by the final adjudication of such issue.
II-11
<PAGE> 109
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of Great
Neck, State of New York, on November 7, 1996.
GILMAN & CIOCIA, INC.
By/s/ James Ciocia
--------------------------
James Ciocia,
President
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities
and on the dates stated.
<TABLE>
<S> <C> <C>
/s/ James Ciocia President and November 7, 1996
- -------------------------- Director
James Ciocia
/s/ Thomas Povinelli Director November 7, 1996
- --------------------------
Thomas Povinelli
/s/ Ralph Esposito Chief Financial November 7, 1996
- -------------------------- Officer
Ralph Esposito
/s/ Gary Besmer Director November 7, 1996
- --------------------------
Gary Besmer
/s/ Kathryn Travis Director November 7, 1996
- --------------------------
Kathryn Travis
Director
- --------------------------
Louis Karol
/s/ Seth Akabas Director November 7, 1996
- --------------------------
Seth Akabas
</TABLE>
II-12
<PAGE> 110
INDEX
Exhibit Description Page
- ------- ----------- ----
5 Opinion of Akabas & Cohen
11.01 Calculation of Net Income Per Share
23.1 Consent of Akabas & Cohen (Included in Exhibit 5)
23.2 Consent of Weinick Sanders & Co., L.L.P.
23.3 Consent of BDO Seidman, LLP
II-13
<PAGE> 1
[AKABAS & COHEN LETTERHEAD]
November 7, 1996
Gilman & Ciocia, Inc.
475 Northern Boulevard
Great Neck, NY 11021
Re: Gilman & Ciocia, Inc.
Registration Statement on Form SB-2
File No. 33-80627
Ladies and Gentlemen:
We have acted as counsel to Gilman & Ciocia, Inc., a Delaware
corporation (the "Registrant"), in connection with the preparation and filing
of a Registration Statement on Form SB-2 (the "Registration Statement"), as
amended, relating to an offering (the "Offering") of 507,926 shares of Common
Stock, par value $.01 per share (the "Common Stock") by the Registrant, 27,452
shares of Common Stock by employees of the Company, 1,366,778 shares of Common
Stock by selling securityholders who can acquire such shares upon exercise of
options and warrants and 50,783 redeemable Common Stock purchase warrants for
the purchase of Common Stock at an exercise price of $4.67 per share by a
selling securityholder.
In connection with the proposed Offering, we have examined the
Certificate of Incorporation, as amended, and the By-laws of the Registrant,
the form of certificates representing shares of Common Stock and Redeemable
Public Warrants, resolutions of the Board of Directors of the Registrant, and
the Registration Statement and the Exhibits filed therewith. We have also
made such inquiries and examined originals, certified copies or copies of such
other instruments as we have deemed necessary or appropriate for the purpose of
this opinion. For purposes of such examination, we have assumed the
genuineness of all signatures on original documents, and the conformity to the
original documents of all copies submitted.
Based upon the foregoing inquiries and examinations, we are of the
opinion that:
1. The Registrant is a duly organized and validly existing
corporation under the laws of the State of Delaware.
<PAGE> 2
[AKABAS & COHEN LETTERHEAD CONTINUED]
November 7, 1996
Gilman & Ciocia, Inc.
Page two
2. The Securities covered by the Registration Statement are duly
authorized and when issued pursuant to the terms of the Registration Statement
will be validly issued, fully paid and non-assessable securities of the
Registrant.
We hereby consent to the use of our name under the caption "Legal
Matters" in the Prospectus forming part of the Registration Statement and any
amendment thereto, and to the filing of this opinion as Exhibit 5 thereto.
Very truly yours,
/s/ AKABAS & COHEN
--------------------
<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>
<PAGE> 1
Consent of Weinick, Sanders & Co. LLP
(Independent Certified Public Accountants)
We consent to the use in Amendment No. 3 to the Registration Statement on Form
SB-2 under the Securities Exchange Act of 1993 of our report dated August 17,
1995 (except for Note 7(d) as to which the date is September 22, 1995) on the
consolidated statements of income, stockholders' equity and cash flows of
Gilman & Ciocia, Inc. for the year ended June 30, 1995 and to the reference to
our firm under the heading "Experts" in the Prospectus.
/s/ Weinick, Sanders & Co. LLP
New York, New York
November 8, 1996
<PAGE> 1
CONSENT OF BDO SEIDMAN, LLP
Gilman & Ciocia, Inc.
Great Neck, New York
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated September 30, 1996, relating to the
consolidated financial statements of Gilman & Ciocia, Inc. and subsidiaries,
which is contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman LLP
- --------------------
New York, New York
November 8, 1996
