<PAGE> 1
As filed with the Securities and Exchange Commission on May 8, 1996
Registration No. 33-80627
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No.2 to
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
GILMAN & CIOCIA, INC.
----------------------------------------------
(Name of small business issuer in its charter)
Delaware 7291 11-2587324
- ---------------------- ---------------------- ----------------
(State or jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classifica- Identification
organization) tion Code Number) No.)
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 Amount to be Proposed Proposed Amount of
class of registered offering aggregate registra-
securities to price per offering tion fee
be registered share(1) price(1)
- ------------------------------------------------------------------------------------------------------------------
<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 643,382 $7.00 $4,503,674 $1,552.98
Stock (8) shares
==================================================================================================================
TOTAL: $4,120.99
AMOUNT PREVIOUSLY PAID: $3,107.20
---------
AMOUNT CURRENTLY OWED: $1,013.79
=========
</TABLE>
(1) Estimated 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 Public Redeemable 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 Public
Redeemable Warrants.
(7) Issuable upon exercise of stock options outstanding.
(8) 632,002 shares are issuable upon exercise of employee stock
options outstanding.
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
<PAGE> 3
become effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
<PAGE> 4
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 8, 1996
GILMAN & CIOCIA, INC.
507,926 SHARES OF COMMON STOCK
------------------------------
1,350,706 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 of Common Stock.
Such securities may be sold by the Company or 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 changed. The Company 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 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 $3,969,640 of gross proceeds.
<PAGE> 5
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.
---------------------------------------
<TABLE>
<CAPTION>
==================================================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND ISSUER(3)
PUBLIC(1) COMMISSIONS(2)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share of
Common Stock
507,926 Shares $4.67 $-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.
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 in
Washington, D.C. at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates.
<PAGE> 6
GILMAN & CIOCIA, INC.
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
Item Caption Location
<S> <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> 7
<TABLE>
<S> <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> 8
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.
The Company is engaged in the business of the preparation 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), earns a significant portion of the Company's revenues. JT
Securities effects 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 also recently began a division operating as a direct mail
service.
The Company has a total of 119 offices: 44 in New York, 16 in New
Jersey, seven in Connecticut, nine in Florida, nine in Arizona, five in Nevada,
nine in Ohio, two in California, eight in Maryland, seven in Washington, one in
Kentucky and two in Pennsylvania, and it maintains its principal executive
office at 475 Northern Boulevard, Great Neck, NY 11021, telephone (516)
482-4860.
On October 4, 1993, the Company effected an approximately 4.064 for one
stock split, and on December 1, 1993, the Company effected .96 for one reverse
stock split, and all share amounts referred to in this Prospectus, unless
otherwise specified, have been adjusted to reflect such splits.
-1-
<PAGE> 9
THE OFFERING
<TABLE>
<S> <C>
Securities Outstanding:
Before the Offering......... 5,576,430 shares of Common Stock (1)
507,926 Redeemable Common Stock Purchase
Warrants
After the Offering.......... 7,423,682 shares of Common Stock (2)
Securities Offered................... 1,858,632 shares of Common Stock (3)
50,783 Redeemable Common Stock Purchase
Warrants (4)
Use of Proceeds...................... The Company will receive $7,580,577 of
gross proceeds from the exercise of the
Public Redeemable Warrants, the bridge
loan Class B Warrants, the Underwriter's
Warrants, the Public Redeemable 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>
-2-
<PAGE> 10
<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 Public Redeemable 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 on the exercise of options at $2.50 per share, 288,001
shares of Common Stock issuable on the exercise of options at $2.60 per share,
144,001 shares of Common Stock issuable on the exercise of options at $3.65 per
share or 295,000 shares of Common Stock issuable on the exercise of options at
prices based on the market price per share of the Common Stock, 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 Non-plan employee stock options. 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.
-3-
<PAGE> 11
(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 Public Redeemable 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, 178,000 shares of Common Stock issuable upon the
exercise of options at prices based on market price per share at time of vesting
and 507,926 shares of Common Stock issuable on the exercise of options at $4.67
per share. Does not include 280,081 shares of Common Stock issuable on the
exercise of options at $2.60 per share, 139,921 shares of Common Stock issuable
on the exercise of options at $3.65 per share or 95,000 shares of Common Stock
issuable on the exercise of options at prices based on the market price per
share of the Common Stock, 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 Non-plan employee stock
options.
(3) The Common Stock offered hereunder will be issued in connection with the
exercise of the outstanding Public Redeemable Warrants, the Underwriter's
Warrants, the Public Redeemable 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.
(5) The Public Redeemable Warrants registered hereunder are issuable upon, and
assume the exercise of, the Underwriter's Warrants.
-4-
<PAGE> 12
SUMMARY FINANCIAL INFORMATION
The following summary financial information as at June 30, 1995 and for
the years ended June 30, 1995 and 1994 are derived from the Company's audited
financial statements included elsewhere in this Prospectus, and such summary
financial data are qualified in their entirety by reference to such audited
financial statements. The following summary financial information at and for the
fiscal quarters ended December 31, 1995 and 1994 are derived from the Company's
financial statements as of such dates and for such periods included elsewhere in
this Prospectus, which are unaudited but include, in the opinion of the
management, all adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation of the financial position as of such dates and
the results of operations for such periods, and such summary financial data are
qualified in their entirety by reference to such unaudited financial statements
and should be viewed in light of the seasonality of the Company's business. The
following summary financial information should be read in conjunction with the
Financial Statements and related notes thereto included elsewhere in this
Prospectus.
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEARS ENDED
ENDED DECEMBER 31, JUNE 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
NET REVENUES $ 2,908,980 $ 1,630,011 $ 9,932,161 $ 7,525,671
INCOME (LOSS) FROM
OPERATIONS $ (905,151) $(1,036,416) $ 583,164 $ 687,159
INCOME (LOSS)
(HISTORICAL) $ (400,273) $ (535,257) $ 392,068 $ 130,124
INCOME (LOSS)
(PROFORMA) (a) $ (400,273) $ (654,696) $ 272,629 $ 328,020
INCOME (LOSS) PER COMMON
SHARE OUTSTANDING (b)
PRIMARY $ (0.07) $ (0.13) $ 0.08 $ 0.03
FULLY DILUTED (c) $ (0.07) $ (0.16) $ 0.08 $ 0.03
DIVIDENDS PAID NONE NONE NONE NONE
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
BALANCE SHEET DATA: 1995 1995 1994
<S> <C> <C> <C>
WORKING CAPITAL $2,537,287 $4,062,344 $ 815,632
TOTAL ASSETS $7,952,931 $6,093,460 $2,829,308
TOTAL LIABILITIES $2,685,173 $ 602,370 $1,316,331
STOCKHOLDERS' EQUITY $5,267,758 $5,491,090 $1,512,977
</TABLE>
footnotes on next page
-5-
<PAGE> 13
(a) Net income (loss) (proforma) reflects the income or (loss) which results
after giving effect for a pro forma adjustment for taxes to reflect the income
tax or income tax credit which would have resulted had the companies included in
the consolidation been taxed as "C" corporations for the entire period or
periods presented.
(b) Adjusted retroactively for an approximately 4.064264 for one split in
October 1993 and a .96 for one reverse stock split in December 1993.
(c) Assumes the exercise of all warrants and options which have a dilutive
effect on the per share income or loss.
-6-
<PAGE> 14
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 net 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 before income taxes. In January 1995 the Company opened
22 new offices, and in its 1995 fiscal year, the Company earned $614,039 from
operations before income taxes, a decrease of 11% 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 one.
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 principal 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> 15
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.
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, Inc., 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 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
-8-
<PAGE> 16
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. 19 of the managers of offices of the
Company, who manage 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 $37,873 and $51,454 in such bonus compensation in respect of the 1994 and
1993 calendar years, 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 effect on 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
-9-
<PAGE> 17
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, Inc. ("JT Securities"), a registered securities
broker/dealer. In addition, JT Securities registered as an investment advisor
with the Securities and Exchange Commission (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 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
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<PAGE> 18
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 December 31,
1995. 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
insurance since September 30, 1989 for these individuals and, as of the date of
this Prospectus, is current with its payments.
-11-
<PAGE> 19
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 56% 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 56% 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 allocated predominately for the opening of new offices,
recruiting financial planners and acquiring existing tax preparation practices,
for marketing and sales, and for general and administrative and working capital
purposes. 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> 20
15. Immediate Dilution. At the current market price of $7.00 and
assuming that all outstanding options are exercised and shares of Common Stock
are sold, purchasers of Common Stock will experience a dilution of $5.39 and for
Public Redeemable Warrants, a dilution of $3.06 in the net tangible book value
per share of Common Stock that they acquire.(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 5,576,430
shares of Common Stock currently issued and outstanding 4,185,324 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, upon consent
of Patterson Travis and the Company, such period could be reduced or eliminated.
Patterson Travis has released 261,380 shares from such lock-up arrangement.
The Company has issued to employees and consultants of the Company and
has available to issue options to acquire a total of 816,000 shares of Common
Stock under its 1993 Joint Incentive and
- --------
(1) This calculation assumes that the following shares of common stock,
options and warrants will be fully exercised: 507,926 redeemable public
warrants, 101,566 shares of underwriter's warrants, 50,783 underwriter's
warrants, 239,975 Class B bridge warrants, 250,000 options to various
consultants to the Company, and 759,002 options to various employees of the
Company.
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<PAGE> 21
Non-qualified Stock Option Plan, of which options to acquire 792,002 shares have
been granted. In addition, the Company has granted options to acquire 590,000
shares of Common Stock apart from such plan. The shares issuable upon exercise
of such options would be eligible for resale under 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 Public Redeemable 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 Public Redeemable 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, and 178,000 shares of Common Stock issuable upon the exercise of options
at prices based on market price per share at time of vesting. Exercise of such
Redeemable Public 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 Securities and
Exchange 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
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<PAGE> 22
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 Redeemable Warrants will be covered
by a Securities and Exchange 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
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> 23
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 $ 3 15/16 $ 3 1/4
June 30, 1995 $ 4 1/8 $ 2 1/4
September 30, 1995 $ 5 1/4 $ 5
December 29, 1995 $ 6 7/8 $ 6 3/4
March 31, 1996 $ 7 7/16 $ 5 1/2
</TABLE>
As of April 30, 1996, the approximate number of holders of record of
the Common Stock was 332.
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> 24
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 $7,580,577 of gross proceeds from the exercise of all of
the currently outstanding Public Redeemable Warrants, the bridge loan Class B
Warrants, the Underwriter's Warrants, the Public Redeemable Warrants issuable
upon exercise of the Underwriter's Warrants and 947,002 additional Common Stock
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 options
and warrants, and proceeds to the issuer as follows:
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<PAGE> 25
<TABLE>
<CAPTION>
============================================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND ISSUER(3)
PUBLIC(1) COMMISSIONS(2)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share of
Common Stock
50,783
Shares $ 4.67 $-0- $ 237,157
101,566
Shares $ 4.20 $-0- $ 426,577
239,975
Shares $ 3.13 $-0- $ 751,122
100,000
Shares $ 5.125 $-0- $ 512,500
65,000
Shares $ 2.50 $-0- $ 162,500
150,000
Shares $ 5.13 $-0- $ 769,500
144,001
Shares $ 3.65 $-0- $ 525,604
288,001
Shares $ 2.60 $-0- $ 748,803
10,000
Shares $ 3.00 $-0- $ 30,000
12,000
Shares $ 4.00 $-0- $ 48,000
178,000
Shares(4) $ 5.60 $-0- $ 996,800
Per Redeemable
Public Warrant $-0-(5) $-0- $ -0-
50,783
Warrants
- ------------------------------------------------------------------------------------------------------------
Total.................. $-0- $5,208,563
============================================================================================================
</TABLE>
-18-
<PAGE> 26
(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
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. The 100,000 shares of Common Stock issuable at $5.125 per
share consist of the shares of Common Stock issuable upon the exercise
of outstanding options. The 65,000 shares of Common Stock issuable at
$2.50 per share consist of the shares of Common Stock issuable upon the
exercise of outstanding options. The 150,000 shares of Common Stock
issuable at $5.13 per share consist of the shares of Common Stock
issuable upon the exercise of outstanding options. The 144,001 shares
of Common Stock issuable at $3.65 per share consist of the shares of
Common Stock issuable upon the exercise of outstanding options. The
288,001 shares of Common Stock issuable at $2.60 per share consist of
the shares of Common Stock issuable upon the exercise of outstanding
options. The 10,000 shares of Common Stock issuable at $3.00 per share
consist of the shares of Common Stock issuable upon the exercise of
outstanding options. The 12,000 shares of Common Stock issuable at
$4.00 per share consist of the shares of Common Stock issuable upon the
exercise of outstanding options. The 178,000 shares of Common Stock
issuable at $5.60 per share consist of the shares of Common Stock
issuable upon the exercise of outstanding options.
(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) Estimated based on current market price of $7.00. Option exercise price
depends on market price on the date of vesting.
(5) 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> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1995 AND 1994 FISCAL YEARS COMPARED
The Company's revenues for the fiscal year ended June 30, 1995 were
$9,932,161 as compared to revenues of $7,525,671 for its prior fiscal year. The
increase of 32.0% in revenues for its 1995 fiscal year from its 1994 fiscal year
is attributable to the Company's opening 22 new offices in January 1995,
acquisitions of other tax practices, as well as the continued growth at the
existing offices and the increased financial planning revenue. Such 22 new
offices generated $550,000 of revenues for the Company's fiscal year ended June
30, 1995.
The Company's revenues generated from tax preparation services for the
fiscal year ended June 30, 1995 were $6,657,620 as compared to $4,860,665 for
its prior year. Direct costs for tax preparation services increased from
$5,018,244 for the 1994 fiscal year to $6,871,972 for the 1995 fiscal year,
resulting in operating losses from tax preparation services of ($214,352) for
the fiscal year ended June 30, 1995 and ($157,579) for its prior fiscal year.
The Company's revenues generated from financial planning services were
$3,274,541 for the fiscal year ended June 30, 1995 as compared to $2,665,006 for
the fiscal year ended June 30, 1994. Direct costs for financial planning
services increased from $1,820 268 for the 1994 fiscal year to $2,477,025 for
the 1995 fiscal year, resulting in operating profits from financial planning
services of $797,516 for the fiscal year ended June 30, 1995 and $844,738 for
its prior fiscal year.
The Company's operating expenses for the 1995 fiscal year were
$9,348,997 as compared to operating expenses of $6,838,512 for its 1994 fiscal
year. The increase of 36.7% in the Company's operating expenses for its 1995
fiscal year from its 1994 fiscal year was attributable to increases in
advertising of $743,283, increases in salaries and commissions of $851,220,
increases in rent of $229,025 and increases in general and administrative
expenses of $649,017. These increases resulted from recurring expenses related
to the opening of 22 new offices in the Company's 1995 fiscal year and to normal
increases in business at the Company's existing offices.
The Company's interest income during its 1995 fiscal year increased
36.0% to $97,894 from $71,973 during its 1994 fiscal year. This increase
resulted from the temporary investment of excess cash from the net proceeds of
the Company's initial public offering in December 1994. The Company's interest
expense for its
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<PAGE> 28
1995 fiscal year increased 4.7% to $91,359 from $87,240 for its 1994 fiscal
year. The increase resulted primarily from increased short-term seasonal loans
to fund the Company's expanded business operations during its 1995 fiscal year.
The Company's income before provision for income taxes for its 1995
fiscal year was 633,533 as compared to $525,161 of income before provision for
income taxes for its fiscal year ended June 30, 1994. This increase of 20.6% is
primarily due to reduced financing costs as well as realized and unrealized
gains on temporary investments of the net proceeds of the Company's initial
public offering of securities.
In calculating the provision for income taxes-historical for fiscal
1994 the Company's net income for the second half of fiscal 1994 (January though
June) was not reduced by its seasonal operating losses for the first half of
such fiscal year (July through December) because the Company was an "S"
Corporation for the first half of such fiscal year and terminated its election
as an "S" corporation for federal and state tax purposes as of January 1, 1994.
The proforma income tax credit for fiscal 1994 is the adjustment to the income
tax provision which would result if the Company had been a "C" corporation for
the entire fiscal year.
Nineteen of the managers of offices of the Company, who manage 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 earned in a profitable office managed
by such manager or any future income of the specific office, to be absorbed in
full before said manager may receive any bonus.
The Company's business is seasonal, and the Company has seasonal
financial needs. The Company historically has positive cash flows in the third
and fourth quarters of its fiscal year and loses money in the first half of the
fiscal year. However, the company is hiring additional financial planners to
increase revenues and make the Company's business less seasonal. See
Management's Discussion and Analysis of Financial Conditions and Results of
Operations -- Liquidity and Capital Resources -- Working Capital Financing.
SIX MONTHS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994 COMPARED
The Company's revenues for the six months ended December 31, 1995
increased 78.5% to $2,908,980 as compared to $1,630,011
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<PAGE> 29
for the six months ended December 31, 1994. The increase in revenues for the six
months ended December 31, 1995 is primarily attributable to the opening of 22
new offices in January 1995, the continued growth of existing offices and
increased financial planning revenues which are not confined to the Company's
traditional tax return preparation "season".
The total revenues for the six months ended December 31, 1995 consist
of $243,582 in Tax Preparation, $2,308,586 in Financial Planning Services and
$356,812 in Direct Mailing Services. Total revenue for the six months ended
December 31, 1994 consist of $71,498 in Tax Preparation and $1,558,513 in
Financial Planning Services. From six months ended December 31, 1994 to six
months ended December 31, 1995: Tax Preparation revenues increased $172,084 due
to the opening of 22 new offices and expansion of the existing offices;
Financial Planning Services revenues increased $750,073 due to the opening of 22
new offices, expansion of existing offices and continual marketing of Financial
Planning Services; and Direct Mail Services revenues increased from $0 to
$356,812 because of the inception of a direct mail division in July 1995.
Direct costs for tax preparation services increased from $1,832,677 for
the six months ended December 31, 1994 to $2,254,183 for the six months ended
December 31, 1995, resulting in operating losses from tax preparation services
of ($2,010,601) for the six months ended December 31, 1995 and ($1,761,179) for
the six months ended December 31, 1994.
Direct costs for financial planning services increased from $833,750
for the six months ended December 31, 1994 to $1,145,668 for the six months
ended December 31, 1995, resulting in operating profits from financial planning
services of $1,162,918 for the six months ended December 31, 1995 and $724,763
for the six months ended December 31, 1994.
The Company's operating expenses for the six months ended December 31,
1995 increased 43.0% to $3,814,131 as compared to $2,666,427 for the six months
ended December 31, 1994. The increase in the Company's operating expenses is
primarily attributable to increased rent of $199,339, additional salaries
(including officers' salaries) and commissions of $811,981, increased
depreciation and amortization expense of $87,747, and increased general and
administrative expenses of $283,021. The increase in operating expenses is
primarily due to the opening of 22 new offices since January 1995 and the growth
of existing offices. The increase in salaries and commissions is due to
increased financial planning activities as well as $235,514 in additional
payroll for employees of the Direct Mail Division.
The Company's interest income for the six months ended December 31,
1995 increased 83.8% to $66,015, from $35,922 for
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<PAGE> 30
the six months ended December 31, 1994. The increase is primarily due to
interest from outstanding subscriptions receivable, marketable securities
consisting of the investment of the proceeds of the Company's initial public
offering, and other notes receivable. The Company's interest expense for the six
months ended December 31, 1995 increased 30.7% to $30,673 for $23,467 for the
six months ended December 31, 1994. The increase is primarily due to the
increase in bank obligations to fund the Company's expanded operations. The
Company increased its other income in the six months ended December 31, 1995
through gains from marketable securities of $86,342 and income from investment
in partnership of $149,660.
The Company's net loss before credit for income taxes for the six
months ended December 31, 1995 decreased by 39.3% to ($600,673) from ($990,161)
for the six months ended December 31, 1994. This decrease is primarily due to
the gain on investment in marketable securities of $86,342, the income from
investment in partnership of $149,660 and, as per an agreement more fully
described in the notes to the financial statements, an expense reimbursement
from a manager of the company of $125,000 for expenses paid on his behalf.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW ANALYSIS FOR FISCAL YEAR 1995
At June 30, 1995, the Company had working capital of $4,154,433
compared to working capital of $815,632 at June 30, 1994. The increase in
working capital is primarily due to the Company's initial public offering in
December 1994. The Company invested the proceeds from its initial public
offering in U.S. Treasury and other investment grade securities, which totaled
$2,095,750 at fair market value on June 30, 1995.
At June 30, 1995, the Company had commission income receivable of
$494,076 which is included in accounts receivable that was earned during the
1995 fiscal year and that was subsequently collected. This receivable amount
resulted from financial planning business earned in June 1995.
Cash used in operating activities in the Company's 1995 fiscal year
consisted primarily of an increase in accounts receivable of $273,401, a
decrease in accounts payable of $140,692 and a decrease in taxes payable of
$437,343.
The negative cash flow from operations during the first half of the
fiscal year is attributable to prepaid expenses, comprised mainly of advertising
costs and prepaid and refundable income taxes, which are expensed during the
second half of the fiscal year. Because the business is seasonal, the Company
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<PAGE> 31
historically has a positive cash flow for the last half of the fiscal year. As
long as the business remains seasonal, this pattern will be repeated.
The negative cash flow between fiscal years ended June 1994 and June
1995 is primarily attributable to the net changes in the following three
categories: income taxes payable of $726,000, accounts payable of $307,000 and
accounts receivable of $237,000, amounting to approximately $1,300,000 of the
$1,500,000 net decrease in cash flow from operations. However, expected future
variances among these particular items are not expected to be as substantial as
those reflected in the fiscal 1995 cash flows. The Company presently pays its
estimated tax liability through quarterly installments which creates less impact
on the cash flow. As for accounts payable, the negative cash flow will be
reversed as the second half of the fiscal year brings in the positive cash flow.
Accounts receivable consists substantially of commissions due from financial
planning activities. These commissions are earned more evenly throughout the
year. Furthermore, the Company typically receives such payments within thirty
days after completion of the transaction. Therefore, it is anticipated that the
impact on cash flows will be minimized in future periods. However, it is
anticipated that as the Company continues its expansion plans, this expansion
will have a negative impact on the Company's cash flow.
Cash used in investing activities consisted of the purchase of property
and equipment of $618,744, the purchase of marketable securities of $2,079,534
and the increase in accrued interest and other receivables due from stockholders
of $335,512 for the year ended June 30, 1995.
Cash provided by financing activities for the year ended June 30, 1995,
consisted primarily of proceeds from the sale of common stock in the amount of
$3,452,555 net of underwriting costs. The Company also received cash in the
amount of $748,800 for the exercise of bridge warrants, $1,000,000 in additional
notes payable to the bank and $73,024 from Common Stock subscriptions collected.
The primary uses of cash in financing activities were the repayment of notes
payable to the bank of $1,116,666, acquisition of $72,500 of treasury stock,
decrease in notes payable to officers of $72,150, and "S" Corporation dividend
distributions of $202,868 paid to the former shareholder of Gilbert Financial
Services (which are included in the Company's financial statements as a result
of the pooling treatment of the Company's acquisition of Gilbert Financial
Services).
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CASH FLOW ANALYSIS FOR SIX MONTHS ENDED DECEMBER 31, 1995
At December 31, 1995, the Company had a working capital of $2,768,451
compared to working capital of $4,154,433 at June 30, 1995. The decrease in
working capital for the six months ended December 31, 1995 is primarily due to
the increase in short-term borrowings of $1,880,555, the investment in
partnership of $348,360 which was transferred from marketable securities and the
purchase of intangible assets of $276,735 consisting of Customer Lists
amortizable over a period of five years from the date of acquisition.
Cash used in operating activities in the Company's fiscal period
consisted primarily of an increase in prepaid expenses of $1,103,000 and an
increase in prepaid and refundable income taxes of $350,296.
Cash used in investing activities consists primarily of the investment
in partnership of $348,360 and the purchase of property and equipment of
$228,656.
Cash provided by financing activities were primarily due to short-term
borrowings net of repayments of $1,880,555.
NONRECURRING TRANSACTIONS
On August 19, 1993, the Company acquired 6,996 shares of its Common
Stock (not adjusted for the subsequent stock splits) from a former minority
shareholder. The Company (as a standard part of its termination procedure) also
received a general release from all claims. The Company paid for such shares in
the aggregate amount of $121,737, consisting of $40,000 in cash, $47,500 through
the cancellation of a note receivable that was reflected on the Company's
balance sheet as a stock subscription receivable and $34,237 through the
cancellation of a loan receivable from such former shareholder.
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 1993. The
purchasers of this unregistered stock would be entitled to recision and could
subject the Company
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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 shares. Because
the shareholders purchased such shares at half of the current market price and,
further, had ample time and notice of the possible argument supporting
rescission and have all chosen not to make any claim to rescind the subscription
for their shares, it is the opinion of management that the likelihood of these
shareholders seeking recision in the future is negligible.
In August 1993, the Company purchased certain computer equipment and
programming services invoiced at $126,319 from a vendor. The vendor was to
receive shares of Common Stock and options to purchase Common Stock in payment
for such invoice. The Company believed that it did not receive fair value for
the stock and stock options and had voided the issuance of such Common Stock and
the grant of such stock options and intended to return the equipment to the
vendor. On September 22, 1994, the parties reached an agreement, and the vendor
adjusted the invoice to the amount of $85,000 and accepted an additional $28,809
in settlement of all consulting fees. This settlement transaction has been
reflected as of June 30, 1994.
In April 1994, the Company repurchased 19,339 shares of Common Stock
from two former shareholders of the Company in connection with the settlement of
disputes regarding the operation of one of the Company's offices. The aggregate
purchase price of such shares was $60,000 and was paid in part by cash, in part
by cancellation of subscription receivables and in part by offset of other
claims that the Company had against such former shareholders. These shares were
retired to authorized but unissued common stock as of June 30, 1994.
In December 1994, the Company sold 507,926 Units of its securities in
an initial public offering for $7.00 per Unit. Each Unit consisted of two shares
of Common Stock and a redeemable warrant to purchase another share of Common
Stock at $4.67 per share. The Company raised $3,554,649 before underwriting
costs of $278,094 and deferred registration costs of $189,877.
In December 1994, the Company repurchased 20,000 shares of its common
stock at a cost of $72,500 from an individual who is an employee of the
Company's underwriter.
On December 28, 1994, the Company entered into a joint venture
agreement with Midwood Tax Service, Inc. ("Midwood"). The parties to the
agreement agreed to share all profits and losses from the existing tax practice
equally for the 1995 tax season. The Company, according to the terms of the
agreement, has the option to acquire 50% of the issued and outstanding
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capital stock of Midwood in each of the fiscal years ended June 30, 1996 and
1997.
The Company's share of the results of operations from the joint venture
have been included with the Company's results of operations for the year ended
June 30, 1995 and are not considered material in relation to the Company's
overall results of operations taken as a whole.
From December 1994 through April 1995, the Company sold 70,161 shares
of Common Stock in private placement sales to employees of the Company at prices
ranging from $3.07 to $3.50, for a total price of approximately $243,500. During
the same period, the Company also issued 10,100 shares of Common Stock to
employees and others as performance bonuses.
In January and July 1995, the four principal stockholders agreed to
surrender 96,964 shares of Common Stock in lieu of repayment of certain loans
due the Company. For purposes of the transaction, the shares were valued at the
approximate fair market value at the time of the transaction of $3.50 per share
for an aggregate value of $339,375. Of the 96,964 shares, 85,930 were
surrendered to treasury stock in August 1995. The remaining 11,034 shares were
surrendered to treasury stock in September 1995. The shares have been reflected
as treasury stock in the financial statements presented herein as at and for the
year ended June 30, 1995.
In addition, in February 1995, the Company issued 203,428 shares of
Common Stock in connection with the Company's acquisition of Gilbert Financial
Services, Inc. ("Gilbert Financial") and granted options to purchase 400,000
shares of Common Stock in connection with an employment agreement with Mr.
Steven Gilbert. 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, and accordingly, the historical basis of the
assets and liabilities has been recorded by the Company. The results of
operations of this acquisition have been included in the results of operations
for the year ended June 30, 1994. At the end of the 1995 fiscal year, options to
purchase 60,000 shares of Common Stock granted during such year were rescinded
pursuant to a preexisting agreement.
In May 1995, all of the Company's Class A Bridge Warrants were
exercised. The 360,000 warrants were exercised at $2.08 per share, generating
additional capital of $748,800 for the Company.
In July 1995, the Company acquired certain assets of its direct mail
services vendor for use in a direct mail services business to enable the Company
to perform such services in-house. The transaction was deemed to be effective as
of June 30, 1995.
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The purchase consisted of certain equipment having a fair market value of
$56,000 and a customer list valued at $15,000. The principal stockholder of the
seller also agreed to work for the Company and to comply with a non-competition
covenant to which the Company attributed a value of $10,000. In exchange, the
Company paid $175,000 in cash and delivered a promissory note in the principal
sum of $50,000 and 64,286 shares of Common Stock valued at $225,000. The total
purchase price of $450,000 resulted in the creation of goodwill in the amount of
$369,000. For the year ended June 30, 1995, the Company recognized no
depreciation or amortization in connection with the acquisition of such direct
mail services equipment.
In October 1995, the Company sold a total of 20,000 shares of Common
Stock to a key financial planning independent contractor of the Company for an
aggregate purchase price of $40,650 pursuant to a previous agreement with such
individual.
WORKING CAPITAL FINANCING
The Company's business is seasonal with the majority of tax return
preparation performed from January through June, and the Company operates with
losses for the six months ending by December 31. The Company is financed
seasonally with bank loans which are typically repaid in full by June 30.
The Company has two credit facilities with a bank. The first facility
is a line of credit renewable annually. Borrowings under this line are in the
form of short-term notes with interest charged monthly at the bank's prime
lending rate plus 1.5 %. At December 31, 1995, the Company had an outstanding
note in the amount of $2,000,000, which matures October 31, 1996. As of the date
of this Prospectus, the Company has a $2,000,000 line of credit that is used for
advertising, to set up new offices, and other seasonal and growth related
expenses.
The second credit facility is an installment note in the original
principal amount of $500,000. This note is payable in 36 equal monthly
installments of $13,889, plus interest at the bank's prime lending rate plus
1.75%. The final installment is due June 30, 1997. At December 31, 1995 the note
had an outstanding principal balance amounting to $263,889.
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.
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PLAN OF OPERATION
The Company plans to open up additional offices during its next fiscal
year, recruit successful financial planners and acquire existing tax preparation
practices.
The expenses required for implementing such a plan include direct mail
marketing for new offices and other expenses involved in the development of new
offices, such as negotiating leases and paying security deposits and rent prior
to the inception of revenues, purchasing furniture, office equipment and
supplies, and recruiting staff. Additional funds will be required for
acquisitions and recruiting independent financial planners.
The Company anticipates funding this growth through operating profits
and use of its short-term line of credit. In addition, the Company anticipates
that some or all of the public redeemable warrants, the bridge loan Class B
Warrants, the Underwriter's Warrants and the redeemable warrants issuable upon
exercise of the Underwriter's Warrants and the other stock options described
herein will be exercised upon the effectiveness of the registration of which
this Prospectus is a part.
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 during the 1996 fiscal year or in future fiscal years.
The Company also intends to develop an independent direct mail division
that will solicit its own customers for its direct mail services.
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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.
The Company is engaged in the business of the preparation 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), earns a significant portion of the Company's
revenues. JT Securities effects 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 119 offices: 44 in New York, 16 in New Jersey, seven in
Connecticut, nine in Florida, nine in Arizona, five in Nevada, nine in Ohio, two
in California, eight in Maryland, seven in Washington, one in Kentucky and two
in Pennsylvania, 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. See "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS." 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
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were absorbed by other nearby offices of the Company. The Company opened an
additional 15 new offices in January 1994, and 22 offices in January 1995. At
the end of the 1995 fiscal year, three offices in New York were closed. At the
beginning of 1996, the Company opened an additional 44 offices and closed one.
The Company now has a total of 119 locations.
On December 13, 1994 the Company successfully completed its initial
public offering of securities. The Company sold 507,926 Units (the "Units") of
its securities to the public at $7.00 per Unit to raise $3,554,649 before
underwriting costs of $278,094 and registration costs of $189,877. Each unit
consisted of two shares of Common Stock and one warrant to buy one share of
Common Stock at $4-5/8 per share.
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 income brackets.
Approximately 65% of the Company's revenues are derived from fees for the
preparation and filing of tax returns.
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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 often 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 began offering to clients in 1989 the option of
filing their federal income tax returns electronically. Under this system, the
final federal income tax return is transmitted to the 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 does not
maintain professional liability or "malpractice" insurance.
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.
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
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own training seminars for seasonal tax preparers. The training consists of a
biweekly tax course that runs from September through December from 9:30 a.m. -
4:30 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 1.5%.
BROKER/DEALER SUBSIDIARY
The Company has organized a wholly owned subsidiary, JT Securities,
Inc., a New York corporation ("JT Securities"). JT Securities registered as a
securities broker/dealer under the Securities Exchange Act of 1934, as amended,
and became a member of the National Association of Securities Dealers, Inc.
("NASD") in 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 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 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 financial planner himself) who
is an authorized agent of an insurance underwriter. If clients seek
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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
financial planner 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, one of the Company's full-time employees (its 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 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.
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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 the individual
Registered Representative 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 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.
The Company has no written or oral 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 New York and
Florida law.
Each of the insurance agents (except the Company's officers) has
entered into an independent contractor's agreement with the Company. Each such
agreement generally provides that a specified percentage of the commissions
earned by the agent is paid to the Company as compensation for the Company's
supplying to such agent office space, clerical and secretarial support and
references of clients. The agreements also contain covenants requiring the agent
to maintain strict confidentiality and to refrain from certain competition with
the Company. Each
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agreement with an insurance agent has a duration of 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 75%. In addition, the Company markets its
services principally through direct mail and promotions.
Direct Mail. Each year prior to the "tax season" when individuals
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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. 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.
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Promotions. The Company offers a $50 U.S. Savings Bond to any client
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that refers another two clients to the Company. The program has worked
effectively in the past and has resulted in approximately 250 new clients per
year, which constitutes less than 5% of the total new clients served by the
Company each year.
Online. In October 1995, the Company obtained two web sites on the
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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 older, more established companies.
In addition, the Company may suffer from competition from departing
employees and affiliated financial planners. Although the Company attempts to
restrict such competition contractually,
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as a practical matter, enforcement of contractual provisions prohibiting small
scale competition by individuals is difficult.
TRADEMARKS
The Company has registered its "Gilman + CiociaR" 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 + CiociaR"
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. It does not
generally design, create or draft the text for direct mail materials, however,
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.
The Company intends to apply for registration of its "Progressive
Mailing" service mark with the U.S. Patent and Trademark Office. Even if such
service mark is registered, no assurance can be given that the Company would be
able to
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<PAGE> 46
successfully defend its mark if forced to litigate its enforceability.
At April 30, 1996, the Company employed 16 persons on a full-time basis
in its Progressive Mailing division, including one executive manager, two
clerical personnel, and thirteen staff personnel.
SMALL BUSINESS ACCOUNTING
The Company earned approximately $34,000 in revenues during its 1995
fiscal year for accounting and bookkeeping services rendered to small
businesses. The Company expects to continue this area of the Company's business.
PUBLIC RELATIONS AND INVESTMENT BANKING AGREEMENTS
On October 9, 1995, the Company entered into a consulting agreement
with EuroMarket Advisory, Inc. ("Euromarket") for the development of
relationships with European investors. The Company, according to the terms of
the agreement, has granted options to purchase 150,000 shares of Common Stock in
the Company at a price of $5.13 per share. Euromarket subsequently assigned
50,000 of such options to Cascade Corporation and 50,000 of such options to
Deborah A. Picou, the President of Euromarket.
On November 17, 1995, the Company entered into an investment banking
agreement with Texas Capital Securities Inc. ("Texas Capital") to provide
merchant banking advisor services to the Company. The Company, according to the
terms of the agreement, granted options to purchase 100,000 shares of Common
Stock in the Company at a price of $5.125 per share. Texas Capital subsequently
assigned 85,000 of such options to Harbor Financial Inc.
REGULATION
The Company, as a preparer of federal income tax returns, is subject to
the regulations of the 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
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<PAGE> 47
accountant or a person specifically enrolled to practice before the IRS can
represent a taxpayer in such circumstances. Only one of the employees of the
Company meets such requirements. 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."
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. 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 Securities and Exchange Commission or any applicable
state agency. In 1992, the staff of the Securities and Exchange Commission
("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
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<PAGE> 48
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.
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 nine 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 April 30, 1996, the Company employed 115 persons on a full-time
basis, including the Company's five officers. The Company's full-time employees
include 53 professional tax preparers, 31 clerical and support staff persons,
and 15 administrative personnel, who include the Company's executive officers.
In addition, 16 employees are part of the Company's direct mail services
division.
The Company also utilizes approximately 103 independent contractors who
serve as Registered Representatives of Royal Alliance and/or as insurance agents
as well as seasonal employees. During peak tax season, the Company employs
approximately 350 full-time employees. This is reduced to approximately 100
employees during the off-season period. 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."
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<PAGE> 49
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.
FACILITIES
The Company provides services to its clients at 119 offices in 12
states. Each of these offices is leased in a commercial office building or in a
retail store area. Most of these offices are leased under standard form office
leases, although several offices are leased on an oral month-to-month basis. The
leases range in remaining terms from one month to five years. The Company's
rental expense during its fiscal year ended June 30, 1995 was $912,565.
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.
LEGAL PROCEEDINGS
In Gilman & Ciocia, Inc. v. Alan Guttentag, the Company is being sued
in state court in Arizona by a former employee for alleged libel and other
wrongs. The Company has vigorously denied the allegations, has moved for a stay
or dismissal of the action pending arbitration, and has commenced arbitration
proceedings before the American Arbitration Association ("AAA") pursuant to
Guttentag's agreement with the Company, alleging various breaches of the
agreement by Guttentag. Guttentag has procured a stay of the AAA arbitration in
the Arizona court, and has recently filed for protection under Chapter 7 of the
bankruptcy law. The Company is currently reviewing its options.
In Gilman & Ciocia, Inc. v. Leslie Powers, the Company is being sued in
state court in Florida by a former independent contractor, Leslie Powers, for
alleged torts, and the Company has commenced an arbitration proceeding before
the American Arbitration Association ("AAA") against Powers pursuant to Power's
agreement with the Company, alleging various breaches of the agreement by
Powers. The Company is also seeking a stay or dismissal of the Florida action
based upon the pendency of the AAA arbitration.
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<PAGE> 50
MANAGEMENT
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
EXECUTIVE
OFFICER OR
DIRECTOR
NAME AGE POSITION SINCE
- ---- --- -------- -----
<S> <C> <C> <C>
James Ciocia 39 President and Director 11/81
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 39 Director 4/95
Louis P. Karol 37 Director 4/95
</TABLE>
James Ciocia, 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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<PAGE> 51
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
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<PAGE> 52
in economics and a graduate of Columbia University Schools of Law and
Journalism.
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, each filed two reports of ownership of securities on
Form 4 required by Section 16(a) of the Securities Act of 1934 late during the
Company's 1995 fiscal year. Each such report reported one transaction.
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<PAGE> 53
REMUNERATION OF OFFICERS AND DIRECTORS
MANAGEMENT
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Name and Principal Fiscal Options
Position Year Salary Bonus (Shares)
<S> <C> <C> <C> <C>
James Ciocia 1993 $159,900 -0- 125,370
President and 1994 $200,000 -0- -0-
Director 1995 $267,200(1) -0- 18,850
Thomas Povinelli 1993 $143,300 -0- 125,370
Chief Operating Officer 1994 $200,000 -0- -0-
and Director 1995 $259,600(2) -0- 18,850
Gary Besmer 1993 $ 75,600 -0- 75,223
Vice President and 1994 $150,000 -0- -0-
Director 1995 $156,100(3) -0- 11,310
Kathryn Travis 1993 $ 52,923 -0- 94,039
Secretary, Vice President 1994 $150,000 -0- -0-
and Director 1995 $156,300(4) -0- 14,170
Ralph V. Esposito 1993 $ 75,000 -0- 12,000
Chief Financial Officer, 1994 $ 90,000 -0- -0-
Vice President and 1995 $101,400(5) -0- 201,820
Treasurer
</TABLE>
- ------------------
(1) Includes a 6.9% adjustment for cost of living expenses calculated on a
$250,000 base salary.
(2) Includes a 3.8% adjustment for cost of living expenses calculated on a
$250,000 base salary.
(3) Includes a 4.0% adjustment for cost of living expenses calculated on a
$150,000 base salary.
(4) Includes a 4.2% adjustment for cost of living expenses calculated on a
$150,000 base salary.
(5) Includes a 1.4% adjustment for cost of living expenses calculated on a
$100,000 base salary.
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<PAGE> 54
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Shares Unexercised in-the-Money
Acquired Option/SARs Options/SARs
on Value at FY-End (#) at FY-End ($)
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
---- -------- -------- ------------- -------------
<S> <C> <C> <C> <C>
James Ciocia -0- -0- 125,370* $507,775
Thomas Povinelli -0- -0- 125,370* $507,775
Gary Besmer -0- -0- 75,223* $304,668
Kathryn Travis -0- -0- 94,039* $380,876
Ralph Esposito -0- -0- 34,000* $124,516
178,000** $249,200***
</TABLE>
- ---------------
* Such options are exercisable.
** Such options are not exercisable.
*** Based on current market price of $7.00 discounted by 20% in
accordance with the terms of the options.
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<PAGE> 55
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Name and Principal Percent Exercise Expiration
Position Options of Total * Price Date
- -------- ------- ---------- ----- ----
<S> <C> <C> <C> <C>
James Ciocia 18,850 2.8% $ 2.50 7/4/99
President and
Director
Thomas Povinelli 18,850 2.8% $ 2.50 7/4/99
Chief Operating Officer
and Director
Gary Besmer 11,310 1.7% $ 2.50 7/4/99
Vice President and
Director
Kathryn Travis, Vice 14,170 2.1% $ 2.50 7/4/99
President, Secretary
and Director
Director
Ralph V. Esposito 200,000 30.1% ** **
Chief Financial Officer, 1,820 0.3% $ 2.50 7/4/99
Vice President and
Treasurer
</TABLE>
- ----------
* 60,000 options out of 465,000 options granted during such year were
rescinded pursuant to a preexisting incentive compensation agreement
and would thereby increase proportionally percentages in table.
** Options were granted on May 19, 1995 and vest as follows: on the
date of grant -- 22,000; on anniversary no. 1 - - 14,000; on
anniversary no. 2 -- 15,000; on anniversary no. 3 -- 45,000; on
anniversary no. 4 --54,000; on anniversary no. 5 -- 25,000; and on
anniversary no. 6 -- 25,000. The exercise price depends upon the date
of vesting, as follows: on the date of grant -- 10,000 at $3.00 and
12,000 at $4.00; thereafter at the market price on the date of vesting
less a discount equal to 20%. Options expire 5 years after the date of
vesting. See "-- Stock Option Plan."
Messrs. Ciocia, Povinelli 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 TRANSACTIONS."
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<PAGE> 56
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 a Stock Option Committee of the Board of
Directors of the Company, which has authority to determine the persons to whom
the options may be granted, the number of shares of Common Stock to be covered
by each option, the time or times at which the options may be granted or
exercised, whether the options will be Incentive Options or Non-Qualified
Options, and other terms and provisions of the options. The exercise price of
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 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
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<PAGE> 57
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. The
Company has also granted to its Controller options to purchase up to 95,000
shares of Common Stock vesting over several years and exercisable at 50% of the
market price of the Common Stock on specified dates. In total the Company has
granted the option to purchase 792,002 shares and options to purchase 23,998
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> 58
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of April 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
Beneficial Owner Beneficial Ownership Percent of Class
<S> <C> <C>
James Ciocia 1,163,843 (1) 20.5%
17 Folgers Lane
Dix Hills, NY 11746
Thomas Povinelli 1,163,843 (2) 20.5%
3427 Bayfront Place
Baldwin, NY 11510
Gary Besmer 698,503 (3) 12.4%
35 Deer Run
East Islip, NY 11730
Kathryn Travis 451,603 (4) 8.0%
31 Wood Lane
Lattingtown, NY 11560
Ralph V. Esposito 51,778 (5) .8%
854 Beckman Drive
No. Bellmore, NY 11710
Seth Akabas 8,081 (6) .2%
245 West 107th Street
New York, NY 10025
Louis Karol 1,530 .03%
28 Fairview Avenue
East Williston, NY 11596
Steven Gilbert 486,154 (7) 8.0%
2420 Enterprise Road; Suite 100
Clearwater, FL 34623
All directors and officers
as a group (7 persons) 3,532,783 55.5%
</TABLE>
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<PAGE> 59
(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 22,000 shares of Common Stock issuable upon
the exercise of currently exercisable options at a price of $3.00. Does not
include 178,000 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 203,428 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> 60
CERTAIN TRANSACTIONS
In October and November 1993, the Company obtained bridge loans in the
aggregate amount of $750,000 from 11 individuals in a private placement
offering. Under the terms of such bridge loans, the Company borrowed an
aggregate of $750,000, which was due and payable upon the earlier of 14 months
or the closing of the Offering. The loans provided for interest at the floating
rate of prime plus 1.5% per annum. In connection with the bridge loans, the
Company issued Class A Warrants to purchase 360,000 shares of Common Stock at
$2.08 per share and Class B Warrants to purchase 239,97 shares of Common Stock
at $3.13 per share. The shares of Common Stock underlying such Class A Warrants
and such Class B Warrants were registered under the registration statement for
the Company's initial public offering of securities (the "IPO"). The
registration statement from the Company's IPO expired, and the Company is
required to register the shares issuable under the Class B Warrants. Thomas
Povinelli's father (Thomas Povinelli, Sr.) subscribed to $100,000 of such bridge
loans and received 48,000 Class A Warrants and 31,997 Class B Warrants; Kathryn
Travis's mother (Paula Sclafani) subscribed to $56,358 of such bridge loans and
received 27,052 Class A Warrants and 18,033 Class B Warrants; and Gary Besmer's
stepdaughter (Ilia Walsh) subscribed to $100,000 of such bridge loans and
received 48,000 Class A Warrants and 31,997 Class B Warrants. Certain of the
individual lenders of the bridge loans had previously advanced funds to the
Company, evidenced by demand promissory notes. Such individuals effected the
bridge loan by cancellation of their demand promissory notes. One bridge lender
is Ralph Esposito, the Chief Financial Officer of the Company. On May 8, 1995
Judah Wernick, an employee of the underwriter of the IPO, purchased all 360,000
Class A Warrants.
From October 1993 to January 1994, the Company issued a total of
186,197 shares in a private placement of Common Stock to 18 individuals and the
law firm serving as counsel to the Company. Each of such purchasers, except the
law firm, is 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. In some instances, such purchasers advanced
the purchase price to the Company at the time the applicable office was opened
several months before the private placement of Common Stock. Such advances were
reflected as loans payable to stockholders in the Company's financial statements
and were applied to the purchase price in the private placement of Common Stock.
One of such managers is Dominick Ciocia, James Ciocia's brother, who acquired
7,803 shares for $24,000. Seth Akabas, a director of the Company, is a partner
of the law firm that acquired 8,081 shares of Common Stock in such private
placement.
James Ciocia, Thomas Povinelli, Gary Besmer and Kathryn Travis, each an
officer, director and principal shareholder of the Company, had a financial
interest in the merger that took place on December 31, 1992 among the Company
and 15 other corporations pursuant to an Amended and Restated Agreement and Plan
of Merger (the "Plan of Merger"). Each of
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such individuals owned shares of each of the 15 other corporations that were
merged into the Company pursuant to the Plan of Merger, and collectively they
owned at least half and, in some cases, all of the shares of such other
corporations as follows: Together they owned 100% of the Company; Gilman &
Ciocia of the Bronx, Inc.; Gilman & Ciocia of Boca Raton, Inc.; and Gilman &
Ciocia of Las Vegas, Inc. They also owned 95% of Gilman & Ciocia of Prospect
Park, Inc. and 80% of Gilman, Ciocia F.P.S. Inc. In addition, they owned 51% of
Gilman, Ciocia & O'Connell, Inc.; Gilman , Ciocia & Araneo, Inc.; Gilman &
Ciocia of Hollis, Inc.; Gilman, Ciocia & Maiorano, Inc.; Gilman & Ciocia of
Babylon, Inc.; Gilman & Ciocia of Hauppauge, Inc.; Gilman & Ciocia of
Bronxville, Inc.; and Gilman & Ciocia & Gilbert, Inc. Finally, they owned 50% of
Gilman, Ciocia and Brower, Inc. and Gilman, Ciocia & Pasatieri, Inc.
In such merger, Mr. Ciocia and Mr. Povinelli each received 417,118
shares of Common Stock in the aggregate in respect of his shares of stock in the
15 other participating corporations; Mr. Besmer received 250,259 shares of
Common Stock in the aggregate in respect of his shares of stock in the 15 other
participating corporations; and Ms. Travis received 139,029 shares of Common
Stock in the aggregate in respect of her shares of stock in the 15 other
participating corporations. In connection with such merger, the Company had
agreed to pay merger advisory fees to Messrs. Ciocia, Povinelli and Besmer and
Ms. Travis in the amounts of $44,318, $26,590 and $14,774, respectively, which
fees were subsequently waived orally by such individuals. In each of these other
corporations, James Ciocia, Thomas Povinelli, Gary Besmer and Kathryn Travis
constituted the majority of the Board of Directors.
At the time of the merger, certain of the shareholders in such
corporations, including Kathryn Travis who at the time of the merger owed
$340,000, had not paid in full notes aggregating approximately $630,000 that
they had delivered to the participating corporations at the time of the original
issuance of their shares. At the time of the merger, the shares issued in the
merger to any shareholder who had not fully paid all notes receivable that were
held by the Company after the merger were pledged to secure such notes and
delivered to the Company pursuant to such pledge. In October 1993, the shares so
pledged, totaling 523,494 shares, were placed in escrow with counsel to the
Company to be released to the shareholder when such shareholder's notes are paid
in full and to be canceled pro rata for any unpaid balance of such shareholder's
notes.
In December, 1992, the Company acquired all of the assets subject to
all of the liabilities of a tax preparation and financial planning business in
New Jersey operated by Messrs. Ciocia, Povinelli and Besmer, Ms. Travis and
another individual, Jack Kaplan, as a joint proprietorship. Such business was
under common control with the Company and had conducted operations in common
with the Company, and its operations have historically been included in the
results of operations of the Company for financial reporting purposes. In
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exchange for the assets of such business, the Company issued 121,393 shares of
Common Stock, of which Messrs. Ciocia, Povinelli and Besmer and Ms. Travis
received 60,694 shares. The value of the assets of the joint proprietorship were
determined based on historical cost. The transaction was approved by the
shareholders of the Company.
In October 1993, the Company, with the consent of the individuals
involved, rescinded all options previously granted to the officers and directors
of the Company and granted five-year options to purchase Common Stock at
exercise prices of $2.60 and $3.65 per share under its 1993 Joint Incentive and
Non-Qualified Stock Option Plan to its executive officers and directors as
follows: James Ciocia--83,604 at $2.60 per share and 41,766 at $3.65 per share;
Thomas Povinelli-- 83,604 at $2.60 per share and 41,766 at $3.65 per share; Gary
Besmer-- 50,163 at $2.60 per share and 25,060 at $3.65 per share; Kathryn
Travis--62,710 at $2.60 per share and 31,329 at $3.65 per share; and Ralph
Esposito--7,920 at $2.60 per share and 4,080 at $3.65 per share. In July 1994,
the Company granted additional options to purchase shares of Common Stock at
$2.50 per share to such officers and directors as follows: James Ciocia--18,850,
Thomas Povinelli--18,850, Gary Besmer-- 11,310, Kathryn Travis--14,170 and Ralph
V. Esposito--1,820.
Royal Alliance, the securities broker/dealer for whom approximately 85
employees and affiliated financial planners of the Company act as Registered
Representatives, shares commissions with its Registered Representatives. Prior
to July 1, 1994, the commissions owing to Registered Representatives who were
employees or affiliated financial planners of the Company were paid directly to
such individuals, except that such commissions were reduced by the amount
payable by the Registered Representatives to the Company for the Company's
compensation in connection with its providing office space and secretarial and
clerical support and its reference of clients to the Registered Representatives.
At the request of Royal Alliance, the aggregate amount of such reduction for the
Company's compensation was paid to Thomas Povinelli (a Registered Representative
of Royal Alliance and the Chief Operating Officer and Treasurer, a director and
a principal shareholder of the Company) as an escrow agent. Upon each payment,
Mr. Povinelli then transferred the entire balance to the Company. The Company
has terminated such arrangement and all payments are now made to JT Securities
Inc., the Company's wholly-owned broker/dealer subsidiary.
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 $234,000 in the Company's 1995 fiscal year and $327,000 in the
Company's 1994 fiscal year and paid approximately $100,000 and $141,000 in such
years, respectively, to the Company for clerical, support staff, office space
and client references.
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Mr. Povinelli earned gross commissions from sales of securities and
insurance products in connection with his work with the Company equal to
approximately $250,000 in the Company's 1995 fiscal year and $276,000 in the
Company's 1994 fiscal year and paid approximately $107,000 and $119,000 in such
years, respectively, 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 $21,000 in the Company's 1995 fiscal year and paid approximately
$9,000 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 $12,000 in the Company's 1995 fiscal year and $15,000 in the
Company's 1994 fiscal year and paid approximately $5,000 and $7,000 in such
years, respectively, to the Company for clerical, support staff, office space
and client references.
In 1991, the four principle shareholders, Messrs. Ciocia, Povinelli and
Besmer and Ms. Travis, personally agreed to purchase the Common Stock of a
former stockholder and executed and delivered a promissory note in the original
principal amount of $360,000 in connection with such purchase. From 1991 through
1994, annual payments thereunder, in the amount of approximately $75,000 with
interest, were advanced by the Company, and each shareholder's allocable portion
thereof was deducted from his or her salary that would otherwise be payable by
the Company. In January 1995, the Company paid such former shareholder in full
on behalf of the four principal shareholders. In January and July 1995, the four
principal shareholders agreed to surrender a total of 96,964 shares of Common
Stock in lieu of repayment of such loans advances by the Company. In such
transactions, such Common Stock was valued at its market price.
In January 1995, two officers of the Company, Kathryn Travis and Ralph
Esposito, purchased 22,759 shares of common stock that 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 $2,253.73, with balloon payments due August 15, 1997 totaling
$11,299.24.
Each year the Company borrows funds to finance its seasonal tax
preparation activities. During the 1995 fiscal year the Company had a
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line of credit for up to $1,000,000 (which has been increased to $2,000,000 for
the 1996 fiscal year), which it borrows from to finance its off season activity
and growth. The four principle shareholders, Messrs. Ciocia, Povinelli and
Besmer and Ms. Travis, personally guaranteed the repayment of the Company's line
of credit as well as its long-term loan in the original 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.
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.
The Company holds demand loans due from stockholders aggregating
$180,895, of which $127,395 was due from directors and was previously agreed to
be repaid by June 30, 1995 through salary deductions or cash repayments. These
loans were in default although the Company made no demand for repayment until
March 1996. On March 8, 1996, the demand loans amounting to $127,395 were
converted to notes receivable. The remaining loans aggregating $53,500 are due
from various minority stockholders on demand.
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PLAN OF DISTRIBUTION
The Common Stock and Public 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 Public Redeemable Warrants at a price of $.01 per share,
provided that warrantholders will have 30 days to exercise in the case of such
redemption. If the Company redeems the Public 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 Public 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 assigned to
Rummco, 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, 178,000 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 Public Redeemable 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 Public Redeemable
Warrants that are issuable upon exercise of the Underwriter's 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.
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<PAGE> 66
<TABLE>
<CAPTION>
Amount of Percentage
Common Amount of Common
Selling Stock of Stock
Securityholder owned Common owned
and Position before Stock after
to Company offering offered offering(>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,
President and Director 1,163,843 125,370 14%
Thomas Povinelli,
Chief Operating Officer and Director 1,163,843 125,370 14%
Gary Besmer,
Vice President and Director 698,503 75,223 8.4%
Kathryn Travis,
Secretary, Vice President and Director 451,603 94,039 5%
Ralph Esposito, 229,778 229,778 -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., 786,111 152,349(1) 6.9%
underwriter of Company's
initial public offering
EuroMarket Advisory, Inc. 50,000 50,000 -0-
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-
</TABLE>
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<PAGE> 67
<TABLE>
<S> <C> <C> <C>
Rummco, Ltd. 65,000 65,000 -0-
</TABLE>
<TABLE>
<CAPTION>
Amount of Percentage of
Public Public
Redeemable Redeemable Amount of Redeemable
Selling Warrants Public Warrants
Securityholder owned Redeemable owned
and Position before Warrants after
to Company offering offered offering(>1%)
- ---------- -------- ------- -------------
<S> <C> <C> <C>
Patterson Travis, Inc. 53,000 50,783 2,217
underwriter of Company's
initial public offering
</TABLE>
(1) Includes 50,783 shares of Common Stock issuable upon exercise of
the Public Redeemable Warrants that are issuable upon exercise of the
Underwriter's Warrants.
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 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).
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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 initial public offering
have 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. In December 1995, 261,380 shares of Common Stock were released pursuant to
a Lock-up Release Letter by Patterson Travis, Inc. dated January 10, 1996. The
shares released are owned by the following executive officers in the following
amounts: James Ciocia 80,000 shares, Thomas Povinelli 90,000 shares, Gary Besmer
52,000 shares, Kathryn Travis 28,000 shares and Ralph Esposito 11,380 shares.
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. The Units are no longer traded as units,
and the Common Stock and Redeemable Warrants composing the Units are separately
transferrable.
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<PAGE> 69
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 seventy six
thousand, four hundred thirty (5,576,430) 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.
PUBLIC REDEEMABLE WARRANTS
Each Redeemable Warrant entitles the holder thereof to purchase one
share of Common Stock at an exercise price of $4.67 per share, subject to
adjustment in the event of certain occurrences, such as stock dividends, splits
and combinations. The Redeemable Warrants are exercisable for a period of three
years after the date of this Prospectus, by surrendering the certificate
representing the Redeemable Warrant to the Company, or its authorized transfer
agent, with the subscription form attached thereto properly completed and
executed together with payment in full by certified or bank teller's check of
the aggregate exercise price of all the Redeemable Warrants then exercised. The
Redeemable Warrants are redeemable by the Company at a price of one cent ($.01)
per Redeemable Warrant, provided that (i) notice of redemption is given to the
Redeemable 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 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 Warrants shall be entitled to exercise Redeemable Warrants until
the close of business on the day prior to the date fixed for redemption.
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<PAGE> 70
The Company may at any time, and from time to time, extend the exercise
period of the Redeemable Warrants provided that written notice of such extension
is given to the Redeemable Warrantholders prior to the expiration date then in
effect. Also, the Company may reduce the exercise price of the Redeemable
Warrants for limited periods of time through the end of the exercise period.
Changes in the terms of outstanding Redeemable 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 Warrantholders. The Company does not
currently contemplate an extension of the exercise period or a reduction of the
exercise price.
Each Redeemable 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 Warrants will continue. Upon the
expiration of the Redeemable Warrants following the exercise period referred to
above, any market that might have existed for the Redeemable Warrants will
terminate.
The exercise price of the Redeemable 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 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 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
Warrants is a summary of the rights and privileges of Redeemable Warrantholders,
does not purport to be complete and is qualified in its entirety by reference to
the Warrant
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<PAGE> 71
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 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."
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
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<PAGE> 72
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.
EXPERTS
The financial statements of the Company for the two-year period 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.
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.
-65-
<PAGE> 73
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS
DECEMBER 31,1995
<PAGE> 74
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
DECEMBER 31, 1995
I N D E X
Page No.
--------
FINANCIAL STATEMENTS:
Independent Accountants' Report ............................ F-2
Consolidated Balance Sheets as at December 31, 1995
(Unaudited) and June 30, 1995 .......................... F-3 to F-4
Consolidated Statements of Operations
For the Six Months Ended December 31, 1995
and 1994 (Unaudited) and For The Years
Ended June 30, 1995 and 1994 ........................... F-5
Consolidated Statements of Stockholders' Equity
For the Years Ended June 30, 1995 and 1994
and For the Six Months Ended December 31, 1995
(Unaudited)............................................. F-6
Consolidated Statements of Cash Flows
For the Six Months Ended December 31, 1995
and 1994 (Unaudited) and For The Years
Ended June 30, 1995 and 1994 ........................... F-7 to F-10
Notes to Consolidated Financial Statements ................. F-11 to F-27
F-1
<PAGE> 75
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors
Gilman & Ciocia, Inc.
We have audited the accompanying consolidated balance sheet of Gilman & Ciocia,
Inc. and subsidiaries as at June 30, 1995, and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
ended June 30, 1995 and 1994. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Gilman & Ciocia,
Inc. and subsidiaries as at June 30, 1995, and the results of its operations,
changes in stockholders' equity and its cash flows for the years ended June 30,
1995 and 1994, in conformity with generally accepted accounting principles.
/s/ Weinick, Sanders & Co. LLP
New York, N. Y.
August 7, 1995
(Except for Note 12(d) as to which
the date is September 22, 1995)
F-2
<PAGE> 76
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
A S S E T S
(Note 9)
<TABLE>
<CAPTION>
December 31,
1995
(Unaudited -
Note 17) June 30, 1995
------------- -------------
<S> <C> <C>
Current assets:
Cash (Note 11) $ 951,527 $1,335,762
Investment in marketable securities (Note 4) 1,698,839 2,095,750
Accounts receivable, net of allowance for
doubtful accounts of $45,974 and $23,685,
respectively (Notes 5 and 11) 534,575 562,339
Notes receivable - stockholders,
current portion (Note 6) 101,942 44,625
Other receivables - stockholders (Note 14) 239,794 180,895
Note receivable - former stockholder,
current portion (Note 7) 4,503 4,242
Prepaid and refundable income taxes (Note 3) 468,885 118,589
Prepaid expenses and other current assets (Note 3) 1,109,652 127,652
---------- ----------
Total current assets 5,109,717 4,469,854
---------- ----------
Property and equipment - net of accumulated
depreciation and amortization of $719,851
and $617,768, respectively (Notes 3 and 8) 1,225,231 926,967
---------- ----------
Other assets:
Notes receivable - stockholders,
net of current portion (Note 6) 226,088 72,569
Notes receivable - former stockholder,
net of current portion (Note 7) 21,148 23,143
Intangible assets, net of accumulated
amortization of $80,691 and $20,467,
respectively (Note 3) 688,072 471,561
Investment in partnership (Note 14) 498,020 -
Investment in joint venture - 20,000
Security deposits 184,655 109,366
---------- ----------
Total other assets 1,617,983 696,639
---------- ----------
$7,952,931 $6,093,460
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 77
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31,
1995
(Unaudited -
Note 17) June 30, 1995
--------------- -------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 200,985 $ 34,248
Notes payable - bank, current portion (Note 9) 2,166,667 216,667
Note payable - other, current portion (Note 10) 34,479 21,807
Accrued payroll and payroll taxes 62,573 38,979
Accrued expenses and other current liabilities 107,726 95,809
---------- ----------
Total current liabilities 2,572,430 407,510
---------- ----------
Long-term debt:
Note payable - bank, net of current portion (Note 9) 97,222 166,667
Note payable - other, net of current portion (Note 10) 15,521 28,193
---------- ----------
Total long-term debt 112,743 194,860
---------- ----------
Commitments and contingencies (Note 11) - -
Stockholders' equity (Notes 2 and 12):
Preferred stock - $.001 par value
Authorized - 100,000 shares
Issued - none
Common stock - $.01 par value
Authorized - 9,000,000 shares
Issued - 5,678,140 and 5,634,864 shares,
respectively 56,781 56,348
Paid-in capital - common stock 5,969,222 5,767,039
Paid-in capital - warrants and options 48,155 48,155
Retained earnings 405,130 805,403
---------- ----------
6,479,288 6,676,945
Less: Stock subscriptions and accrued interest receivable 799,655 773,980
Treasury stock - at cost, 116,964 shares (Note 12) 411,875 411,875
---------- ----------
Total stockholders' equity 5,267,758 5,491,090
---------- ----------
$7,952,931 $6,093,460
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 78
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Six
Months Ended For the Years Ended
December 31, June 30,
--------------------------- ---------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
(Unaudited - Note 17)
<S> <C> <C> <C> <C>
Net revenues (Notes 3, 5 and 14) $ 2,908,980 $ 1,630,011 $ 9,932,161 $ 7,525,671
----------- ----------- ----------- -----------
Operating expenses:
Salaries and commissions 1,935,553 1,123,572 3,915,963 3,064,743
Advertising 65,681 175,065 2,045,178 1,301,895
Rent 589,367 390,028 912,565 683,540
Depreciation and amortization 178,220 90,473 212,639 174,699
General and administrative expenses 1,170,310 887,289 2,262,652 1,613,635
Expense reimbursement for financial
planning (Note 3) (125,000) -- -- --
----------- ----------- ----------- -----------
Total operating expenses 3,814,131 2,666,427 9,348,997 6,838,512
----------- ----------- ----------- -----------
Income (loss) from operations (905,151) (1,036,416) 583,164 687,159
----------- ----------- ----------- -----------
Other income (expenses):
Loss reimbursement for certain locations -- -- -- 17,600
Income from investment in partnership 149,660 -- -- --
Interest income 66,015 35,922 97,894 71,973
Interest expense (30,673) (23,467) (91,359) (87,240)
Rental income 8,534 2,925 12,275 8,781
Realized gain on sale of marketable securities 86,342 -- 15,343 --
Unrealized gain on marketable securities -- -- 16,216 --
Amortization of deferred financing costs (Note 3) -- -- -- (221,300)
Gain on disposal of property and equipment -- -- -- 16,745
Other income -- -- -- 31,443
----------- ----------- ----------- -----------
Total other income (expenses) - net 279,878 15,380 50,369 (161,998)
----------- ----------- ----------- -----------
Income (loss) before provision for
income taxes - historical (625,273) (1,021,036) 633,533 525,161
Provision (credit) for income taxes -
historical (Note 3) (225,000) (485,779) 241,465 395,037
----------- ----------- ----------- -----------
Net income (loss) historical (400,273) (535,257) 392,068 130,124
Pro forma provision (credit) for income
taxes - unaudited (Note 3) -- 119,439 119,439 (197,896)
----------- ----------- ----------- -----------
Net income (loss) - unaudited, pro forma $ (400,273) $ (654,696) $ 272,629 $ 328,020
=========== =========== =========== ===========
Earnings per share (Note 3): Primary - net income
per share:
Historical $ (.07) $ (.13) $ 0.08 $ 0.03
=========== =========== =========== ===========
Pro forma (Note 13) $ (.07) $ (.16) $ 0.06 $ 0.08
=========== =========== =========== ===========
Fully diluted net income per share:
Historical $ -- $ -- $ 0.08 $ 0.03
=========== =========== =========== ===========
Pro forma (Note 13) $ -- $ -- $ 0.06 $ 0.08
=========== =========== =========== ===========
Weighted average number of shares
outstanding 5,648,684 4,221,401 4,716,016 4,084,485
=========== =========== =========== ===========
Fully diluted weighted average number of
shares outstanding -- -- 4,882,737 4,230,096
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 79
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Paid-in
Capital
Additional Warrants
Paid-in and Retained
Shares Amount Capital Options Earnings
--------- ------ ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance as of July 1, 1993 4,053,775 $40,537 $1,119,166 $ -- $ 458,318
Collection of common stock subscriptions and accrued
interest receivable -- -- -- -- --
Issuance of warrants in connection with bridge loan
notes payable -- -- -- 208,800 --
Granting of stock options to key employees for past
services rendered -- -- -- 17,280 --
The termination of the Subchapter "S" election by
the Company on December 31, 1993 and the transfer
of the accumulated deficit at that date (Note 3) -- -- (337,439) -- 337,439
S Corporation dividend distribution -- -- -- -- (210,958)
Issuance of common stock for cash and subscriptions receivable 186,197 1,862 574,472 -- --
Acquisition of treasury stock at cost, subsequently
retired to common stock (125,507) (1,255) (185,454) -- --
Accrued interest receivable -- -- -- -- --
Net income -- -- -- -- 130,124
---------- ------- ---------- --------- ---------
Balance at of June 30, 1994 4,114,465 41,144 1,170,745 226,080 714,923
Collection of common stock subscriptions and accrued
interest receivable -- -- -- -- --
Proceeds from public offering 1,015,852 10,158 3,544,491 -- --
Less: Underwriting costs -- -- (278,094) -- --
Deferred registration costs (Note 3) -- -- (189,877) -- --
Acquisition of treasury stock -- at cost -- -- -- -- --
Issuance of common stock for cash and subscriptions receivable 80,261 803 242,697 -- --
Receipt of stock in lieu of repayment of officers'
loans receivable -- -- -- -- --
S Corporation dividend distributions -- -- -- -- (202,868)
Termination of subchapter "S" election by
Gilbert Financial Corp. and transfer of
retained earnings to paid-in capital -- -- 98,720 -- (98,720)
Compensating element on variance of stock options
issued between market price and excerise price -- -- -- 30,875 --
Exercise of bridge warrants 360,000 3,600 954,000 (208,800) --
Issuance of common stock, note payable and cash
for the acquisition of assets 64,286 643 224,357 -- --
Accrued interest receivable -- -- -- -- --
Net income -- -- -- -- 392,068
---------- ------- ---------- --------- ---------
Balance as of June 30, 1995 5,634,864 56,348 5,767,039 48,155 805,403
Collection of stock subscription and accrued
interest receivable (unaudited - Note 17) -- -- -- -- --
Common stock issuance (unaudited - Note 17) 42,821 428 159,690 -- --
Cancellation of common stock previously issued
(unaudited - Note 17) (10,000) (100) (17,400) -- --
Issuance of common stock for cash and
subscriptions receivable (unaudited - Note 17) 10,455 105 59,893 -- --
Accrued interest receivable (unaudited - Note 17) -- -- -- -- --
Net loss for the six months ended December 31, 1995
(unaudited - Note 17) -- -- -- -- (400,273)
---------- ------- ---------- --------- ---------
Balance December 31, 1995 (unaudited - Note 17) 5,678,140 $56,781 $5,969,222 $ 48,155 $ 405,130
========== ======= ========== ========= =========
<CAPTION>
Total
Subscriptions Treasury Stock Stockholders'
Receivable Shares Value Equity
------------- ------ ------ -------------
<S> <C> <C> <C> <C>
Balance as of July 1, 1993 $(618,972) -- $ -- $ 999,049
Collection of common stock subscriptions and accrued
interest receivable 22,331 -- -- 22,331
Issuance of warrants in connection with bridge loan
notes payable -- -- -- 208,800
Granting of stock options to key employees for past
services rendered -- -- -- 17,280
The termination of the Subchapter "S" election by
the Company on December 31, 1993 and the transfer
of the accumulated deficit at that date (Note 3) -- -- -- --
S Corporation dividend distribution -- -- -- (210,958)
Issuance of common stock for cash and subscriptions receivable (189,763) -- -- 386,571
Acquisition of treasury stock at cost, subsequently
retired to common stock 77,500 -- -- (109,209)
Accrued interest receivable 14,756 -- -- 14,756
Net income -- -- -- 130,124
--------- ------- --------- ----------
Balance at of June 30, 1994 (694,148) -- -- 1,458,744
Collection of common stock subscriptions and accrued
interest receivable 97,012 -- -- 97,012
Proceeds from public offering -- -- -- 3,554,649
Less: Underwriting costs -- -- -- (278,094)
Deferred registration costs (Note 3) -- -- -- (189,877)
Acquisition of treasury stock -- at cost -- 20,000 (72,500) (72,500)
Issuance of common stock for cash and subscriptions receivable (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)
Termination of subchapter "S" election by
Gilbert Financial Corp. and transfer of
retained earnings to paid-in capital -- -- -- --
Compensating element on variance of stock options
issued between market price and excerise price -- -- -- 30,875
Exercise of bridge warrants -- -- -- 748,800
Issuance of common stock, note payable and cash
for the acquisition of assets -- -- -- 225,000
Accrued interest receivable (61,844) -- -- (61,844)
Net income -- -- -- 392,068
--------- ------- --------- ----------
Balance as of June 30, 1995 (773,980) 116,964 (411,875) 5,491,090
Collection of stock subscription and accrued
interest receivable (unaudited - Note 17) 44,184 -- -- 44,184
Common stock issuance (unaudited - Note 17) -- -- -- 160,118
Cancellation of common stock previously issued
(unaudited - Note 17) -- -- -- (17,500)
Issuance of common stock for cash and
subscriptions receivable (unaudited - Note 17) (40,000) -- -- 19,998
Accrued interest receivable (unaudited - Note 17) (29,859) -- -- (29,859)
Net loss for the six months ended December 31, 1995
(unaudited - Note 17) -- -- -- ( 400,273)
--------- ------- --------- ----------
Balance December 31, 1995 (unaudited - Note 17) $(799,655) 116,964 $(411,875) $5,267,758
========= ======= ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 80
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six
Months Ended For the Years Ended
December 31, June 30,
------------------------ ----------------------------
1995 1994 1995 1994
------------ ----------- ----------- -----------
(Unaudited - Note 17)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (400,273) $ (535,257) $ 392,068 $ 130,124
----------- ----------- ----------- -----------
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Allowance for doubtful accounts 22,289 - - 13,830
Depreciation and amortization 178,220 90,473 212,639 174,699
Amortization of deferred financing costs - - - 221,300
Compensatory element of stock
options granted 113,474 30,875 30,875 17,280
Gain on disposal of property and equipment - - - (16,745)
Unrealized gain on marketable securities (5,463) - (16,216) -
Expense reimbursement for
financial planning (125,000) - - -
Income from investment in partnership (149,660) - - -
Increase (decrease) in cash flows as
a result of changes in asset and
liability account balances:
Accounts receivable 74,947 42,427 (273,401) (36,431)
Prepaid expenses (982,000) (1,093,233) (75,481) (25,298)
Prepaid and refundable income taxes (293,772) - - -
Security deposits (75,289) (4,020) (10,065) (39,696)
Accounts payable 166,737 (84,733) (140,692) 166,698
Income taxes payable - (122,746) (437,343) 288,244
Accrued payroll and payroll taxes 23,594 (105,726) (103,277) 75,748
Accrued expenses and other
current liabilities 11,915 (38,755) (12,422) 52,175
----------- ----------- ----------- ----------
Total adjustments (1,040,008) (1,285,438) (825,383) 891,804
----------- ----------- ----------- ----------
Net cash provided by (used in)
operating activities (1,440,281) (1,820,695) (433,315) 1,021,928
----------- ----------- ----------- ----------
Cash flows from investing activities:
Investment in partnership (348,360) - - -
Cash surrender value - officers'
life insurance - - - (45,215)
Acquisition of property and equipment (409,656) (206,105) (618,744) (407,818)
Proceeds from (purchase of) marketable
securities 402,374 (1,450,418) (2,079,534) -
Acquisition of intangible assets (276,735) (31,993) (164,028) (15,000)
Receipts on notes from stockholders (83,441) - - -
Increase in accrued interest - stockholders (18,075) (7,912) (37,856) (14,756)
Increase in other receivables - stockholders (186,294) (75,602) (297,656) (184,168)
Investment in joint venture 20,000 - (20,000) -
----------- ----------- ----------- ----------
Net cash used in investing activities (900,187) (1,772,030) (3,217,818) (666,957)
----------- ----------- ----------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 81
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six
Months Ended For the Years Ended
December 31, June 30,
--------------------------- ----------------------------
1995 1994 1995 1994
---------- ---------- ----------- ----------
(Unaudited - Note 17)
<S> <C> <C> <C> <C>
Cash flows from financing activities:
Acquisition of treasury stock $ - $ (72,500) $ (72,500) $ (70,000)
Decrease in demand loans payable - - - (15,000)
Receipts on notes from former stockholder 1,734 1,910 3,907 42,680
Borrowings under notes payable from bank 1,880,555 916,667 1,000,000 500,000
Repayments of notes payable to bank - - (1,116,666) (60,586)
Incurrence of deferred registration costs - (3,632) (3,632) (148,614)
(Decrease) increase in note payable - officer - - (72,150) 72,150
Incurrence of deferred financing costs - - - (12,500)
Issuance of common stock - - 128,500 326,037
Common stock subscriptions collected
(incurred) (7,600) 55,024 73,024 51,843
Proceeds from sale of common stock -
net of underwriting costs 81,544 3,324,055 3,324,055 -
S Corporation dividend distribution - (275,017) (202,868) (423,625)
Exercise of Bridge warrants - - 748,800 -
---------- ---------- ----------- ----------
Net cash provided by financing activities 1,956,233 3,946,507 3,810,470 262,385
---------- ---------- ----------- ----------
Net increase (decrease) in cash (384,235) 353,782 159,337 617,356
Cash at beginning of year 1,335,762 1,176,425 1,176,425 559,069
---------- ---------- ----------- ----------
Cash at end of year $ 951,527 $1,530,207 $ 1,335,762 $1,176,425
========== ========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 82
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six
Months Ended For the Years Ended
December 31, June 30,
------------------------- ------------------------
1995 1994 1995 1994
--------- -------- ---------- --------
(Unaudited - Note 17)
<S> <C> <C> <C> <C>
Supplemental Disclosure of Cash Flow Information:
Cash payments for the period:
Interest $ 25,531 $ 11,522 $ 78,402 $ 86,964
======== ======== ======== ========
Income taxes $122,834 $ 32,704 $543,890 $ 75,600
======== ======== ======== ========
Non-cash transactions for the year:
Deferred registration costs which were charged to
additional paid-in capital upon the completion
of the public offering in December 1994 $ - $ - $186,245 $ -
========== ========== ======== ========
Issuance of common stock subject to recision
in exchange for common stock subscriptions
receivable $ - $ - $ 20,000 $189,763
========== ========== ======== ========
Issuance of common stock subsequent to completion
of the public offering in exchange for common
stock subscriptions receivable $ - $ - $ 95,000 $ -
========== ========== ======== ========
Transfer of paid-in capital - warrants and options
to additional paid-in capital upon exercising of
bridge warrants $ - $ - $208,800 $ -
========== ========== ======== ========
Receipts of 96,964 shares of stock to treasury in
lieu of repayment of officers' loans receivable $ - $ - $339,375 $ -
========== ========== ======== ========
Acquisition of intangible asset in connection with
the acquisition of assets from Progressive Mailing
Services, Inc. in exchange for a $50,000
promissory note and 64,286 shares of the Company's
common stock, valued at $225,000 $ - $ - $275,000 $ -
========== ========== ======== ========
Acquisition of Gilbert Financial Services, Inc. in
February 1995 in exchange for 203,428 shares
of the Company's common stock, accounted for
as a pooling of interests $ - $ - $108,231 $(11,711)
========== ========== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE> 83
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six
Months Ended For the Years Ended
December 31, June 30,
------------------------- ---------------------
1995 1994 1995 1994
---------- -------- ------- --------
(Unaudited - Note 17)
<S> <C> <C> <C> <C>
Non-cash transactions for the period:
Acquisition of 27,295 shares of treasury stock
for a total of $121,737, including:
Cancellation of a subscription receivable $ - $ - $ - $ 20,000
========== ======== ======= ========
Forgiveness of loan and interest receivable $ - $ - $ - $ 34,237
========== ======== ======= ========
Issuance of common stock in exchange for
common stock subscriptions receivable $ - $ - $ - $189,763
========== ======== ======= ========
Acquisition of certain intangible assets in
exchange for common stock $ - $ - $ - $ 38,000
========== ======== ======= ========
Issuance of common stock in lieu of payment
for certain legal services performed $ - $ - $ - $ 21,130
========== ======== ======= ========
Acquisition of 19,339 shares of treasury stock
for a total of $60,000, including the
cancellation of a subscription receivable $ - $ - $ - $ 30,000
========== ======== ======= ========
Stock options granted to certain officers'
of the Company which resulted in additional
compensation $ - $ - $ - $ 17,280
========== ======== ======= ========
Issuance of warrants at a discount in connection
with the bridge loan notes payable accounted
for as deferred financial costs $ - $ - $ - $208,800
========== ======== ======= ========
Issuance of common stock and compensatory
element of stock options granted $113,474 $30,875 $30,875 $ -
======== ======= ======= ========
Increase in investment in partnership
resulting from income for the period $149,660 $ - $ - $ -
======== ======== ======= ========
Conversion of advances to stockholders
into notes receivable $127,395 $ - $ - $ -
======== ========== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE> 84
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(The information as at and for the six months ended
December 31, 1995 and 1994 is unaudited)
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS.
Gilman & Ciocia, Inc. (the "Company") was incorporated in the
State of New York in 1981 and is engaged in the business of providing
income tax preparation and financial planning services to individuals and
businesses. The Company also provides direct mail services. On
September 3, 1993, a corporation was formed in the State of Delaware for
the purpose of a migratory merger of the Company into the newly formed
Delaware corporation. The surviving corporation is Gilman & Ciocia,
Inc., a Delaware corporation. A substantial portion of its yearly
revenues are earned from January through June. The Company has three
wholly-owned subsidiaries. JT Securities, Inc. (J.T.) is a registered
broker-dealer and registered investment advisor, engaged primarily in
financial planning services. Gilbert Financial Services, Inc. (Gilbert)
is also in the business of providing financial planning services. B.T.
Telemarketing, Inc. (B.T.) is a telemarketing company. Gilbert and B.T.
are presently inactive.
NOTE 2 - MERGERS AND ACQUISITIONS.
On December 28, 1994, the Company entered into joint venture
agreement with Midwood Tax Service, Inc. (Midwood). The parties to the
agreement agreed to share all profits and losses from the existing tax
practice equally for the 1995 tax season. The Company, according to the
terms of the agreement, has the option to acquire 50% of the issued and
outstanding capital stock of Midwood in each of the fiscal years ended
June 30, 1996 and 1997.
The Company's share of the results of operations from the joint
venture have been included with the Company's results of operations for
the year ended June 30, 1995 and are not considered material in relation
to the Company's overall results of operations taken as a whole.
On September 18, 1995, the Company acquired seventy-five percent
interest of the outstanding common stock of Midwood. The results of
operations for the six months ended December 31, 1995 have been included
in the financial statements presented herein. Due to the immaterial
amount of the loss and the stockholders equity of Midwood, the financial
statements do not reflect the minority interest.
On February 10, 1995, the Company acquired all of the issued and
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 was effective as of November 1, 1994. The Company
has accounted for the acquisition as a pooling of interests. The
financial statements presented herein have been restated to reflect the
acquisition as if it had taken place at the beginning of all periods
presented.
F-11
<PAGE> 85
NOTE 2 - MERGERS AND ACQUISITIONS. (Continued)
On June 30, 1995, the Company acquired certain assets of
Progressive Mailing Services, Inc. (Progressive). The purchase consisted
of certain equipment having a fair market value of $56,000 and a customer
list valued at $384,000. In addition, the principal stockholder of
Progressive agreed to a non-competitive covenant to which the Company
attributed a value of $10,000.
In exchange, the Company gave Progressive $175,000 in cash, a
promissory note in the principal sum of $50,000 and 64,286 shares of the
Company's common stock which it valued at $225,000, for a total purchase
price of $450,000.
For the year ended June 30, 1995, the Company has recognized no
depreciation or amortization in connection with the Progressive
transaction.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
(a) Principles of Consolidation:
The consolidated financial statements include the accounts of the
Company, its three wholly-owned subsidiaries (JT Securities, Inc. was
incorporated in the State of New York on May 7, 1993. BT Telemarketing,
Inc. was incorporated in the State of New York on January 28, 1994.
Gilbert Financial Services, Inc. (Fla.) was acquired in a pooling of
interests on February 10, 1995, effective as of November 1, 1994) and its
75% owned subsidiary Midwood Tax Services, Inc. All significant
intercompany transactions have been eliminated in consolidation (see Note
2).
(b) Property and Equipment:
Property and equipment are stated at cost. Depreciation of
property and equipment is computed on the straight-line and accelerated
methods over their estimated useful lives ranging from 5 to 31.5 years.
Maintenance and repairs are charged to expense; expenditures for
betterments and renewals are capitalized. The cost of assets sold or
retired and the accumulated depreciation thereon are eliminated from the
accounts and any gain or loss is reflected in operations.
(c) Deferred Registration Costs:
The costs principally for underwriting, accounting and legal fees
were incurred in connection with the proposed public offering of the
Company. Such costs were charged to additional paid-in capital upon the
completion of the public offering.
F-12
<PAGE> 86
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(d) Revenues:
The Company derives the majority of its revenues from the business
of providing income tax preparation which revenue is recognized at the
completion of services. In addition, the Company's subsidiary has entered
into agreements with independent contractors (registered representatives
of a securities broker/dealer and insurance agents) pursuant to which the
Company receives revenues for providing office space, clerical and
secretarial support and references of clients to such independent
contractors. The revenues are generated based on a specified percentage
of the commissions earned by the independent contractors. The Company
recognizes all revenues upon completion of the services associated with
broker/dealer transactions and financial service planning.
(e) Income Taxes:
For calendar year 1993, the Company and certain of the affiliated
companies filed as "S" corporations for federal income tax purposes.
Under these elections the tax consequences for corporate gains or losses
became the responsibility of the individual stockholders. Certain other
affiliated companies filed as regular "C" corporations. Effective January
1, 1994, the Company terminated its election to be treated as an "S"
Corporation. Gilbert Financial Services, Inc. which was acquired
effective November 1, 1994 had previously elected "S" Corporation status.
That election was terminated on the effective date of acquisition.
The historical financial statements include a provision for income
taxes for certain state and local income taxes, as well as a federal tax
provision for certain affiliated "C" corporations and for the Company for
the periods presented herein. A pro forma provision for income taxes has
been made, which represents the taxes which would have been accrued, or
an over accrual that would have been credited, had the business been
operated as a "C" corporation for the entire period or periods presented.
The Company adopted Statement of Financial Accounting Standards
No. 109 ("SFAS 109"), Accounting for Income Taxes. Under SFAS 109, the
deferred tax provision is determined under the liability method. Under
this method, deferred tax assets and liabilities are recognized based on
differences between the financial statement carrying amount and the tax
basis of assets and liabilities using presently enacted tax rates.
The adoption of SFAS 109 does not have a material effect on the
consolidated financial statements presented herein.
F-13
<PAGE> 87
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(e) Income Taxes: (Continued)
A reconciliation between the actual income tax expense (credit)
and the federal statutory rate applied to the statement of operations is
as follows:
<TABLE>
<CAPTION>
For the Six Months Ended For the Years Ended
December 31, June 30,
------------------------ -------------------
1995 1994 1995 1994
------ ------ ----- -----
<S> <C> <C> <C> <C>
Federal Statutory Rate (34.0%) (34.0%) 34.0% 34.0%
State and local income taxes
net of federal tax benefit (2.0) (1.6) 5.1 5.0
Tax benefit adjustment on
unrealized gain of market-
able securities - - (1.0) -
Adjustment required for partial
year Subchapter "S" status
of corporation - (12.0) - 36.2
----- ----- ----- ----
Actual tax rate (36.0%) (47.6%) 38.1% 75.2%
===== ===== ===== ====
</TABLE>
(f) Per Share Data:
Net income (loss) per common share was computed by retroactively
giving effect for the acquisition of Gilbert Financial Services, Inc.,
accounted for as a pooling of interests, as if it had taken place at the
beginning of all periods presented. Common stock equivalents, when
dilutive, are shown after giving retroactive effect to the issuance of
the underlying shares as if such shares were outstanding for all periods
presented.
(g) Intangible Assets:
Intangible assets consist of the following:
(i) Several customer lists, the costs of which are being amortized on
a straight-line basis over a period of five years.
(ii) A non-compete agreement in connection with the acquisition of
selected assets as more fully described in Note 2, the cost of which is
being amortized on a straight-line basis over a period of five years.
F-14
<PAGE> 88
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(h) Prepaid Expenses and other Current Assets:
The Company prepays certain expenses which are expected to provide
an economic benefit in future periods. The economic benefits are
generally realized within the subsequent twelve month period. At December
31, 1995 and June 30, 1995 prepaid expenses and other current assets
amounted to $1,109,652 and $127,652, respectively. The components are
approximately as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1995
---------- --------
<S> <C> <C>
Prepaid advertising $ 927,000 $ -
Prepaid rent 22,000 10,000
Prepaid supplies 39,000 17,000
Service contracts 66,000 16,000
Clearing deposit receivable 25,000 25,000
Prepaid insurance 6,000 48,000
Sundry 25,000 12,000
---------- --------
$1,110,000 $128,000
========== ========
</TABLE>
Prepaid advertising, represent costs incurred in connection with
the Company's direct mail program.
Historically, the Company amortized these advertising costs over
the six months ended June 30, matching the period during which the
corresponding revenues were generated. Commencing July 1, 1995, the
Company adopted the guidelines under Statement of Position 93-7 ("SOP
93-7") Reporting on Advertising Costs. The Company believes that
advertising costs expended on new offices have an economic benefit of
more than one year. The Company is developing a statistical model for
application to these costs. Advertising costs expended on pre-existing
offices will continue to be amortized in a manner consistent with prior
periods.
(i) Amortization of Deferred Financing Costs:
The deferred financing costs were to be amortized over the earlier
of (i) the term of the bridge loan notes (14 months) or (ii) the
prepayment of the bridge loan. In May 1994, the bridge loans were paid
and the remaining deferred finance costs were charged to operations.
(j) Use of Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those
estimates.
F-15
<PAGE> 89
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(k) Expense Reimbursement for Financial Planning:
As per an employment agreement between the Company and one of its
managers, the manager is required to reimburse the Company for certain
expenses incurred in 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. The Company
will offset the managers future earnings to collect this reimbursement.
The Company expects to collect the amount in full by December 31, 1996.
NOTE 4 - INVESTMENT IN MARKETABLE SECURITIES.
The Company periodically invests excess cash funds in marketable
debt and equity securities which it classifies as trading securities. The
securities are generally instruments issued by the U.S. Treasury, or
other high grade investment quality securities. At December 31, 1995 and
June 30, 1995, the investment in marketable securities at fair market
value amounted to $1,698,839 and $2,095,750, respectively. Of the total,
$1,698,839 and $1,931,125 was invested in U.S. Treasury securities and
$-0- and $164,625 was invested in marketable equity securities,
respectively.
NOTE 5 - ACCOUNTS RECEIVABLE.
The Company through it's wholly owned subsidiary receives revenues
for providing office space, secretarial and clerical support and for
client referrals to independent contractors who are registered
representatives of a securities broker-dealer as well as other financial
planners. At December 31, 1995 and June 30, 1995, accounts receivable
includes $327,267 and $494,076, respectively, due from these sources for
the aforementioned services other than tax preparation fees.
NOTE 6 - NOTES RECEIVABLE - STOCKHOLDERS.
Notes Receivable - Stockholders Consists of the Following:
(a) In March, 1995, the Company transferred ownership of certain life
insurance policies which it maintained on key officers to the officers
themselves. These policies had cumulative cash values of $117,194 on the
books of the Company.
On August 18, 1995, the officers gave the Company promissory notes
in principal amounts equal to the recorded cash surrender values. The
notes are payable in 52 equal bi-weekly installments (including interest
at 9% per annum), with balloon payments due on August 15, 1997.
The annual principal maturities as of December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
Years Ending
December 31,
------------
<S> <C>
1996 $52,021
1997 46,795
-------
$98,816
=======
</TABLE>
F-16
<PAGE> 90
NOTE 6 - NOTES RECEIVABLE - STOCKHOLDERS. (Continued)
Notes Receivable - Stockholders Consists of the Following:
(Continued)
(b) On October 9, 1995, the Company loaned a stockholder the principal
sum of $100,000 and received a promissory note payable two years from the
date thereof with interest accrued on the principal balance @ 8% per
annum. At December 31, 1995, the Company has included this note, together
with accrued interest, in the non-current portion of notes
receivable-stockholders in the amount of $101,819.
(c) On March 8, 1996, the Company agreed to convert certain advances
to officers totalling $127,395 into installment notes receivable. The
notes are payable in 52 equal bi-weekly installments, including interest
at 5% per annum. Payments are to be effected through payroll deductions.
The annual principal maturities as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Years Ending
December 31,
------------
<S> <C>
1996 $ 49,921
1997 64,664
1998 12,810
--------
$127,395
========
</TABLE>
Aggregate annual maturities of notes receivable-stockholder
as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Years Ending
December 31,
------------
<S> <C>
1996 $101,942
1997 213,278
1998 12,810
--------
328,030
Less: Current maturities 101,942
--------
$226,088
========
</TABLE>
NOTE 7 - NOTE RECEIVABLE - FORMER STOCKHOLDER.
The note receivable-former stockholder represents a note, payable
in 84 equal monthly installments including interest at 9% per annum, in
connection with the sale of a certain customer list. At December 31, 1995
and June 30, 1995 the balance due to the Company amounted to $25,651 and
$27,385, of which $4,503 and $4,242, respectively, is due within the
subsequent twelve month period.
F-17
<PAGE> 91
NOTE 8 - PROPERTY AND EQUIPMENT.
Property and equipment is summarized as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1995
----------- ----------
<S> <C> <C>
Equipment $1,509,661 $1,292,982
Furniture and fixtures 221,091 192,396
Leasehold improvements 93,330 59,357
Construction in progress 121,000 -
---------- ---------
1,945,082 1,544,735
Less: Accumulated depreciation
and amortization 719,851 617,768
---------- ----------
$1,225,231 $ 926,967
========== ==========
</TABLE>
At June 30, 1995 property and equipment includes approximately
$91,000 of equipment which was not placed in service and therefore not
depreciated during the year. The depreciation and amortization expense
for the years ended June 30, 1995 and 1994 were $197,472 and $169,399,
respectively, and for the six months ended December 31, 1995 and 1994
were $153,620 and $90,473, respectively.
Costs for construction in progress are transferred to property and
equipment when the new offices open in January, prior to the Company's
peak season. This amount represents deposits for equipment not placed in
service at December 31, 1995.
NOTE 9 - NOTES PAYABLE - BANK.
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 December 31, 1995 and June
30, 1995, the Company had outstanding a note in the amount of $2,000,000
and $50,000, respectively. The note matures on October 30, 1996.
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 December 31, 1995 and June
30, 1995 the note had an outstanding principal balance amounting to
$263,889 and $333,333, respectively.
Both credit facilities are collateralized by a blanket lien on all
assets of the Company.
NOTE 10 - NOTE PAYABLE - OTHER.
As discussed in Note 2 to these financial statements, the Company
acquired certain assets from Progressive Mailing Services, Inc. at a cost
of $450,000. Of the total purchase price, $50,000 was a promissory note.
The note is payable in twenty-four (24) equal monthly installments
including interest at 9% per annum, commencing August 1, 1995 and is
unsecured. In January 1996, the Company paid five monthly installment
payments based on a mutually agreed upon deferral from August 1, 1995.
Annual principal maturities under this note at December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
Years Ended
December 31,
------------
<S> <C>
1996 $34,479
1997 15,521
-------
$50,000
=======
</TABLE>
F-18
<PAGE> 92
NOTE 11 - COMMITMENTS AND CONTINGENCIES.
(a) Leases:
The Company is obligated under various noncancelable lease
agreements for the rental of office space through 2001. The lease
agreements contain escalation clauses based principally upon real
estate taxes, building maintenance and utility costs. Minimum annual
rental commitments are approximately as follows:
<TABLE>
<CAPTION>
Years Ended
June 30,
-----------
<S> <C>
1996 $735,000
1997 511,000
1998 296,000
1999 156,000
2000 94,000
Thereafter 114,000
</TABLE>
Rent expense for the years ended June 30, 1995 and 1994 amounted
to $912,565 and $683,540, respectively, and for the six months ended
December 31, 1995 and 1994 amounted $589,367 and $390,028,
respectively.
(b) Management Agreements:
The Company has management agreements with certain key employees
who manage various locations. These employees receive a performance
bonus on a calendar year basis for each location they are responsible
for. During the years ended June 30, 1995 and 1994, the Company paid
$37,873 and $51,454 in bonuses based on results for calendar years 1994
and 1993, respectively.
(c) Internal Revenue Code Provisions for Penalties of Tax Preparers:
The Company's business of preparing tax returns subjects it to
potential civil liabilities under the Internal Revenue 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. The Company does not maintain any professional
liability or malpractice insurance policy.
(d) 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 which
exceed FDIC insurance limits. The Company utilizes several financial
institutions at these times to minimize the exposure for potential
losses.
Accounts receivable consists primarily of amounts due from an
unrelated registered broker-dealer as well as other financial planning
service entities. These receivables are generally collected in less
than 30 days from the date earned. At December 31, 1995 and June 30,
1995, approximately 61.2% and 66.1%, of the total amounts were due from
this entity, respectively.
F-19
<PAGE> 93
NOTE 11 - COMMITMENTS AND CONTINGENCIES. (Continued)
(e) Tax Examination:
The New York State Department of Labor completed an audit of the
Company regarding unemployment insurance contributions owed by the
Company for the period from January 1, 1986 through September 30, 1989.
The audit resulted in an assessment of 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
has contested this assessment through an appeal. The Company believes
that the Internal Revenue service has no claim in this matter because
the statute of limitations has expired for assessment and collection on
these taxes. At December 31, 1995, the Company accrued $60,000
regarding this matter based on the denial of the Company's appeal in
January 1996.
(f) Common Stock Subject to Recision:
From October 1993 through January 1994, the Company issued a
total of 186,197 shares of common stock for total consideration of
$576,334 in private placement sales. The sales were made concurrent to
the registration by the Company of common stock to be sold in a public
offering. By comment letter, the Securities and Exchange Commission
noted that these shares may have been required to be integrated with
the Company's initial public offering. As such, the private placements
would have constituted an unregistered public offering of securities in
violation of Section 5 of the Securities Act of 1933. In such case, the
purchasers of this unregistered stock may be entitled to recision and
the Company could be subject to a liability under such Section 5.
No provision has been made in these financial statements for any
liability which may arise in connection with these shares. It is the
opinion of management as well as the Company's legal counsel that the
likelihood of these shareholders seeking recision is negligible.
(g) Litigation:
The Company is a defendant in several actions/lawsuits regarding
alleged libel and torts. The management of the Company is of the
opinion that these actions/lawsuits are without merit. In addition, in
the opinion of management the outcome of the actions/lawsuits will not
have a material effect on the financial condition or the results of
operations of the Company.
NOTE 12 - STOCKHOLDERS' EQUITY.
(a) Public Offering:
In December 1994, the Company sold 507,807 units of its
securities to the public for $7.00 per unit. Each unit consisted of two
(2) shares of the Company's common stock and a warrant to purchase
another share of common stock at $4.67 per share. The Company raised
$3,554,649 from its initial public offering before underwriting costs
of $278,094 and deferred registration costs of $189,877.
F-20
<PAGE> 94
NOTE 12 - STOCKHOLDERS' EQUITY. (Continued)
(b) Common Stock Subscriptions and Accrued Interest Receivable:
Common stock subscriptions receivable consist of notes
receivable from various stockholders, delivered at the time of their
purchase of the Company's common stock. Such notes bear interest at 9%
per annum. Subscriptions receivable amounted to $689,491 and $681,891
at December 31, 1995 and June 30, 1995, respectively. Accrued interest
receivable on the notes amounted to $110,164 and $92,089 at the same
dates, respectively. For the six months ended December 31, 1995 and
year ended June 30, 1995, the Company recognized $29,859 and $64,143,
respectively, as interest income on such notes.
Common stock subscriptions and accrued interest receivable are
scheduled to be paid to the Company as follows:
<TABLE>
<CAPTION>
Years Ending
December 31,
------------
<S> <C>
1996 $547,939
1997 156,260
1998 75,456
1999 20,000
--------
$799,655
========
</TABLE>
Included in the amount to be paid for the year ending December
31, 1996 is approximately $211,753 of notes receivable which are
currently past due.
(c) Stock Options:
On September 14, 1993, the Board of Directors adopted a Joint
Incentive and Non-qualified Stock Option Plan, whereby 816,000 shares
of the Company's common stock are reserved for issuance. The number of
shares granted, price, terms of exercise, and expiration dates are to
be decided by the Board of Directors. The Plan will terminate in
September 2003. In October 1993, four officers and two consultants were
granted options to purchase an aggregate of 479,832 shares exercisable
at $.39 to $3.65 per share. In June 1994, the Company canceled stock
options for 23,410 shares at an exercise price of $.39 per share and
stock options for 24,420 shares at an exercise price of $3.13 per
share. In July 1994, the officers of the Company were granted options
to purchase an aggregate of 65,000 shares at $2.50 per share. In May
1995, the chief financial officer was granted options to purchase
200,000 shares.
The options vest as follows: 22,000 on the date of grant;
14,000 on anniversary No. 1; 15,000 on anniversary No. 2; 45,000 on
anniversary No. 3; 54,000 on anniversary No. 4; 25,000 on anniversary
No. 5 and; 25,000 on anniversary No. 6. The excercise prices which are
based on the date of vesting are as follows: 10,000 at $3.00 and
12,000 at $4.00 on the date of grant; there- after at the market price
on the date of vesting less a discount equal to 20%.
F-21
<PAGE> 95
NOTE 12 - STOCKHOLDERS' EQUITY. (Continued)
(c) Stock Options: (Continued)
In June 1995, the Company granted options to an independent
contractor to purchase 3,000 shares of the Company's common stock at an
exercise price of $3.38 per share. In November 1995, the options were
cancelled.
In February 1995, the Company granted options to the selling
shareholder of Gilbert Financial Services, Inc. to acquire 400,000
shares of the Company's common stock at an exercise price of $3.50 per
share. The options were granted as an incentive for the individual to
enter into a two-year employment agreement with the Company. These
options are not covered by the Company's Joint Incentive and
Non-qualified Stock Option Plan. In December 1995, options to acquire
60,000 shares were cancelled.
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 has
granted options to purchase 150,000 shares of common stock at a price
of $5.13 per share.
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 has granted Texas Capital options to purchase 100,000 shares of
its common stock at a price of $5.125 per share.
(c) Stock Options: (Continued)
Stock options granted during the two years ended June 30,1995
and six months ended December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Six Months
Ended Years Ended June 30,
December --------------------------
31, 1995 1995 1994
----------- ----------- ----------
<S> <C> <C> <C>
Options outstanding at
beginning of period 1,100,002 432,002 -
Options granted 250,000 668,000 479,832
Options cancelled (63,000) - (47,830)
Options exercised - - -
----------- ----------- ----------
Options outstanding at
end of period 1,287,002 1,100,002 432,002
=========== =========== ===========
Exercise price $2.60-$5.13 $2.60-$4.00 $2.60-$3.65
=========== =========== ===========
</TABLE>
F-22
<PAGE> 96
NOTE 12 - STOCKHOLDERS' EQUITY. (Continued)
(d) Acquisition of Treasury Stock:
On August 19, 1993, the Company acquired 27,295 shares of its
common stock from a minority shareholder and settled all outstanding
claims for $121,737. The cost consisted of a cash payment of $40,000,
and the cancellation of a stock subscription note receivable of $47,500
and a loan receivable of $34,237 which included accrued interest
through June 30, 1993. The reacquired shares were subsequently retired
to authorized and unissued common stock.
On April 13, 1994, the Company acquired 19,339 shares of its
common stock from two minority shareholders for $60,000. The cost
consisted of a cash payment of $30,000, and the cancellation of two
stock subscription notes receivable totalling $30,000. In addition, the
minority shareholders reimbursed the Company a total of $17,600 for
losses resulting from operations in the office which they managed. The
reacquired shares were subsequently retired to authorized and unissued
common 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 the
Company. For purposes of these transactions, 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. The shares have been
reflected as treasury stock in the financial statements presented
herein as at and for the year ended June 30, 1995.
(e) Common Stock Held in Escrow:
The Company is holding 887,054 shares of its common stock in
escrow to be released when the stock subscription receivables are paid.
The subscribers to these shares do not have voting rights while these
shares are being held in escrow.
(f) Stock Split:
On October 4, 1993, the Board of Directors voted to approve a
stock split of the Company's issued common stock on a basis of 4.064264
shares in exchange for 1 share of common stock. Then on December 1,
1993, the Board of Directors voted to approve a reverse stock split of
the Company's common stock on a basis of .96 shares in exchange for 1
share of common stock. The financial statements as at and for the year
ended June 30, 1994 give effect to the stock splits.
(g) Warrants:
In May 1995, Class "A" warrants to acquire 360,000 shares of the
Company's common stock at $2.08 per share were exercised. The warrants
were originally issued in connection with the bridge notes in October
1993. Upon exercise of the warrants, additional paid-in
capital-warrants and options of $208,800 was transferred to additional
paid-in capital.
F-23
<PAGE> 97
NOTE 13 - NET INCOME PER COMMON SHARE - PRO FORMA - UNAUDITED.
Net income per common share - pro forma, represents the earnings
on a pro forma basis divided by the weighted average number of shares
outstanding.
NOTE 14 - RELATED PARTY TRANSACTIONS.
An officer of the Company previously acted as an escrow agent
with a broker/dealer from which the Company received revenues for
providing office space, secretarial and clerical support and its
reference of clients to the registered representatives of such
broker/dealer. For the year ended June 30, 1994 the revenues amounted
to approximately $1,600,000. As of July 1, 1994, these revenues have
been paid directly to the Company's wholly owned subsidiary, JT
Securities, Inc.
At December 31, 1995 and June 30, 1995, accrued interest and
other receivables - stockholders amounted to $239,794 and $180,895,
respectively. This balance includes certain demand loans due from
stockholders aggregating $180,895, of which $127,395 was agreed to be
repaid by June 30, 1995 through salary reductions or cash repayments
during the year. These loans are technically in default although the
Company has made no demand for repayment. On March 8, 1996, the demand
loans amounting to $127,395 were converted to notes receivable (see
Note 6). The remaining loans aggregating $53,500 are due from various
minority stockholders on demand.
In October 1993, certain individuals who are relatives of the
Company's officers were participants in a bridge loan to the Company.
The amount attributed to those related parties amounted to $386,358.
These related parties received an aggregate of 185,452 Class A Warrants
and 123,623 Class B Warrants to purchase the Company's common stock.
The aforementioned bridge loans were repaid in May 1994.
In January 1994, a brother of an officer of the Company
purchased 7,803 shares for a total purchase price of $24,000.
The Company is a 35.88% partner in a partnership (ATM Partners)
which invests funds in marketable securities. The remaining 64.12% of
the partnership is owned by five individuals, who are relatives of
officers of the Company. The partnership was formed in July 1995. The
partnership reflects its investment at fair market value. The condensed
balance sheet of the partnership at December 31, 1995, is as follows:
<TABLE>
<S> <C>
Investment in marketable securities $1,388,017
==========
Partners capital $1,388,017
==========
</TABLE>
Net income of the partnership for the six months ended December
31, 1995 amounted to $416,993.
F-24
<PAGE> 98
NOTE 15 - SEGMENT REPORTING (UNAUDITED).
The Company is a service business which operates in primarily
two industry segments, Tax Preparation Services and Financial Planning
Services.
(a) Tax Preparation Services:
The Company is engaged in providing tax return preparation,
filing and related services to the general public. This segment of the
Company's business is seasonal and generates most of its revenues
between February and April.
(b) Financial Planning Services:
The Company provides financial services such as insurance,
investments, pensions and estate planning to its existing clients.
Financial information pertaining to the above segments are as
follows:
<TABLE>
<CAPTION>
For the Six Months Ended For the Six Months Ended
December 31, 1995 December 31, 1994
------------------------------------------------- ----------------------------------------
Tax Financial Tax Financial
Preparation Planning Other Consolidated Preparation Planning Consolidated
----------- ---------- -------- ------------ ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 243,582 $2,308,586 $356,812 $2,908,980 $ 71,498 $1,558,513 $ 1,630,011
Direct costs 2,254,183 1,145,668 414,280 3,814,131 1,832,677 833,750 2,666,427
----------- ---------- -------- ---------- ----------- ---------- -----------
Operating profit (loss) $(2,010,601) $1,162,918 $(57,468) $ (905,151) $(1,761,179) $ 724,763 $(1,036,416)
=========== ========== ======== ========== =========== ========== ===========
Identifiable assets $ 6,608,264 $1,273,681 $ 70,986 $7,952,931 $ 5,187,331 $ 435,083 $ 5,622,414
=========== ========== ======== ========== =========== ========== ===========
</TABLE>
Direct costs consist of the following:
<TABLE>
<CAPTION>
For the Six Months Ended For the Six Months Ended
December 31, 1995 December 31, 1994
------------------------------------------------ --------------------------------------
Tax Financial Tax Financial
Preparation Planning Other Consolidated Preparation Planning Consolidated
----------- ---------- -------- ------------ ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Advertising $ 44,247 $ 7,808 $ 13,626 $ 65,681 $ 148,805 $ 26,260 $ 175,065
Rent 356,049 191,718 41,600 589,367 253,518 136,510 390,028
Salaries 1,028,895 671,144 235,514 1,935,553 697,032 426,540 1,123,572
Other 824,992 274,998 123,540 1,223,530 733,322 244,440 977,762
---------- ---------- -------- ---------- ---------- ---------- ----------
Total direct costs $2,254,183 $1,145,668 $414,280 $3,814,131 $1,832,677 $ 833,750 $2,666,427
========== ========== ======== ========== ========== ========== ==========
</TABLE>
F-25
<PAGE> 99
NOTE 15 - SEGMENT REPORTING (UNAUDITED). (Continued)
(b) Financial Planning Services: (Continued)
Direct costs consist of the following:
<TABLE>
<CAPTION>
For the Three Months Ended For the Three Months Ended
December 31, 1995 December 31, 1994
------------------------------------------------- ----------------------------------------
Tax Financial Tax Financial
Preparation Planning Other Consolidated Preparation Planning Consolidated
----------- ---------- -------- ------------ ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 154,718 $1,056,177 $188,874 $1,399,769 $ 35,824 $ 650,881 $ 686,705
Direct costs 1,292,506 657,158 263,818 2,213,482 983,388 418,881 1,402,269
----------- ---------- -------- ---------- ---------- ---------- ----------
Operating profit (loss) (1,137,788) $ 399,019 $(74,944) $ (813,713) $ (947,564) $ 232,000 $ (715,564)
=========== ========== ======== ========== ========== ========== ==========
Identifiable assets $ 6,608,264 $1,273,681 $ 70,986 $7,952,931 $5,187,331 $ 435,083 $5,622,414
=========== ========== ======== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended For the Three Months Ended
December 31, 1995 December 31, 1994
------------------------------------------------- -------------------------------------
Tax Financial Tax Financial
Preparation Planning Other Consolidated Preparation Planning Consolidated
----------- ---------- -------- ------------ ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Advertising $ 34,680 $ 6,120 $ 9,575 $ 50,375 $ 148,805 $ 26,260 $ 175,065
Rent 185,315 99,785 23,000 308,100 253,518 136,510 390,028
Salaries 553,288 378,178 147,505 1,078,971 697,032 426,540 1,123,572
Other 519,223 173,075 83,738 776,036 733,322 244,440 977,762
---------- ---------- -------- ---------- ---------- ---------- ----------
Total direct costs $1,292,506 $ 657,158 $263,818 $2,213,482 $1,832,677 $ 833,750 $2,666,427
========== ========== ======== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
June 30, 1995 June 30, 1994
Tax Financial Tax Financial
Preparatio Planning Consolidated Preparation Planning Consolidated
----------- ---------- ------------ ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $6,657,620 $3,274,541 $9,932,161 $4,860,665 $2,665,006 $7,525,671
Direct costs 6,871,972 2,477,025 9,348,997 5,018,244 1,820,268 6,838,512
---------- ---------- ---------- ---------- ---------- ----------
Operating profit (loss) $ (214,352) $ 797,516 $ 583,164 $ (157,579) $ 844,738 $ 687,159
========== ========== ========== ========== ========== ==========
Identifiable assets $5,226,071 $ 867,389 $6,093,460 $2,624,783 $ 143,790 $2,768,573
========== ========== ========== ========== ========== ==========
</TABLE>
Direct costs consist of the following:
<TABLE>
<CAPTION>
June 30, 1995 June 30, 1994
Tax Financial Tax Financial
Preparation Planning Consolidated Preparation Planning Consolidated
----------- ---------- ------------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Advertising $1,738,401 $ 306,777 $2,045,178 $1,106,611 $ 195,284 $1,301,895
Rent 593,167 319,398 912,565 444,301 239,239 683,540
Salaries 2,683,935 1,232,028 3,915,963 2,126,082 938,661 3,064,743
Other 1,856,468 618,823 2,475,291 1,341,251 447,084 1,788,335
---------- ---------- ---------- ---------- ---------- ----------
Total direct costs $6,871,971 $2,477,026 $9,348,997 $5,018,245 $1,820,268 $6,838,513
========== ========== ========== ========== ========== ==========
</TABLE>
The Company has allocated advertising, rent and other based upon
managements best estimates. The allocation of salaries has been based on
the specific service provided by the employee, except for administrative
costs which have been allocated based upon managements best estimates.
F-26
<PAGE> 100
NOTE 16 - NEW ACCOUNTING STANDARDS.
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 121, accounting
for impairment of long-lived assets and for long-lived assets to be
disposed of, effective for fiscal years beginning after December 15,
1995. The statement establishes accounting standards for long-lived
assets which are impaired and certain identifiable intangibles to be
disposed of. The statement requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. In addition,
certain long-lived assets and intangibles to be disposed of should be
recorded as the lower of the carrying amount or the fair value less any
cost of disposal. The Company does not expect the adoption of SFAS 121
to have a material impact on its results of operations or financial
position. The Company will adopt this accounting standards effective
July 1, 1996, as required.
NOTE 17 - UNAUDITED FINANCIAL STATEMENTS.
The consolidated financial statements as of December 31, 1995 and
for the six months ended December 31, 1995 and 1994, and the information
in notes to consolidated financial statements pertaining thereto, are
unaudited, but include all adjustments, consisting only of normal
recurring adjustments, and disclosures which management of the Company
considers necessary for a fair presentation of its financial position as
at December 31, 1995, and the results of its operations, statement of
stockholders' equity and cash flows for the six months ended December
31, 1995 and 1994.
The results of operations for the six month period are not
necessarily indicative of the results that may be expected for the full
year ending June 30, 1996.
NOTE 18 - RESTATEMENT OF JUNE 30, 1995 FINANCIAL STATEMENTS.
The June 30, 1995 financial have been restated to reflect the following:
(a) The compensatory element of stock options to acquire 65,000 shares
of the Company's common stock granted to certain officers of the Company
amounting to $30,875 resulted in an increase in paid-in capital-warrants
and options and an increase in the provision for historical income taxes
amounting to $10,800.
(b) An additional 238 shares of common stock have been reflected due
to a reconciliation of the shares outstanding. The change did not change
any dollar amounts.
F-27
<PAGE> 101
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
Page
Prospectus Summary.......................
Risk Factors.............................
Market Information.......................
Use of Proceeds..........................
Management's Discussion and Analysis
of Financial Condition and Results of
Operations...............................
Business.................................
Management...............................
Remuneration of Officers
and Directors............................
Principal Stockholders...................
Certain Transactions.....................
Plan of Distribution.....................
Selling Securityholders..................
Description of Securities................
Legal Matters............................
Experts..................................
Additional Information...................
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
1,350,706 Shares
of Common Stock
by Selling Securityholders
50,783 Redeemable
Common Stock
Purchase Warrants
by
Selling Securityholders
GILMAN & CIOCIA, INC
----------
PROSPECTUS
May 8, 1996
<PAGE> 102
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
II-1
<PAGE> 103
ultimately be determined that he is entitled to be indemnified by this
Corporation as authorized in this section. 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............ $ 4,120.99
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
</TABLE>
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<PAGE> 104
<TABLE>
<S> <C>
Legal Fees......................................... $29,000.00
Miscellaneous...................................... $ 879.01
----------
TOTAL.............................. $70,000.00
==========
</TABLE>
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.
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<PAGE> 105
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.
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 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
II-4
<PAGE> 106
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 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 February 1996, the Company issued 15,254 restricted shares of Common
Stock as signing bonuses to the following individuals in the following amounts:
Howard Wilkin 5,405 shares; Alfred Schepis 5,405 shares; and Armando Olivieri
4,444 shares.
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
II-5
<PAGE> 107
Registrant's Registration Statement on Form SB-2 under the
Securities Act of 1933, as amended, File No. 33-70640-NY
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
II-6
<PAGE> 108
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 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
II-7
<PAGE> 109
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 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
II-8
<PAGE> 110
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 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
II-9
<PAGE> 111
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
21 List of Subsidiaries, incorporated by reference to Exhibit
21 in the Company's Annual Report on Form 10-KSB for the
fiscal year ended June 30, 1995
24.1 Included in Exhibit 5
24.2 Consent of Weinick Sanders & Co., L.L.P.
- ------------------------------
* 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
II-10
<PAGE> 112
(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 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> 113
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 May 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 May 7, 1996
- ------------------------ Director
James Ciocia
/s/ Thomas Povinelli Director May 7, 1996
- ------------------------
Thomas Povinelli
/s/ Ralph Esposito Chief Financial May 7, 1996
- ------------------------ Officer
Ralph Esposito
/s/ Gary Besmer Director May 7, 1996
- ------------------------
Gary Besmer
/s/ Kathryn Travis Director May 7, 1996
- ------------------------
Kathryn Travis
Director
- ------------------------
Louis Karol
/s/ Seth Akabas Director May 7, 1996
- ------------------------
Seth Akabas
</TABLE>
II-12
<PAGE> 114
INDEX
<TABLE>
<CAPTION>
Exhibit Description Page
<S> <C> <C>
5 Opinion of Akabas & Cohen
24.2 Consent of Weinick Sanders & Co., L.L.P.
</TABLE>
II-13
<PAGE> 1
EXHIBIT 5
<PAGE> 2
Exhibit 5
[AKABAS & COHEN LETTERHEAD]
May 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") by the Registrant of 507,926
shares of Common Stock, par value $.01 per share (the "Common Stock"), 11,380
shares of Common Stock owned by an employee of the Company, 1,350,706 shares of
Common Stock by selling securityholders and 50,783 redeemable Common Stock
purchase 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 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
<PAGE> 3
[AKABAS & COHEN LETTERHEAD]
May 7, 1996
Gilman & Ciocia, Inc.
Page two
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.
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
------------------
Akabas & Cohen
<PAGE> 1
Exhibit 24.2
<PAGE> 2
Consent of Weinick, Sanders & Co. LLP
(Independent Certified Public Accountants)
We consent to the use in Amendment No. 2 to the Registration Statement on Form
SB-2 under the Securities Exchange Act of 1933 of our report dated August 7,
1995 (except for Note 12(d) as to which the date is September 22, 1995) on the
consolidated balance sheet of Gilman & Ciocia, Inc. as at June 30, 1995 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years ended June 30, 1995 and 1994 and to the reference to our
firm under the heading "Experts" in the Prospectus.
/s/ Weinick, Sanders & Co. LLP
New York, New York
May 6, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> JUN-30-1995 JUN-30-1995
<PERIOD-END> DEC-31-1995 JUN-30-1995
<CASH> 951,527 1,335,762
<SECURITIES> 1,698,839 2,095,750
<RECEIVABLES> 580,549 586,024
<ALLOWANCES> (45,974) (23,685)
<INVENTORY> 0 0
<CURRENT-ASSETS> 5,109,717 4,469,854
<PP&E> 1,945,082 1,544,735
<DEPRECIATION> (719,851) (617,768)
<TOTAL-ASSETS> 7,952,931 6,093,460
<CURRENT-LIABILITIES> 2,572,430 407,510
<BONDS> 0 0
0 0
0 0
<COMMON> 56,781 56,348
<OTHER-SE> 5,210,977 5,434,742
<TOTAL-LIABILITY-AND-EQUITY> 7,952,931 6,093,460
<SALES> 2,908,980 9,932,161
<TOTAL-REVENUES> 2,908,980 9,932,161
<CGS> 0 0
<TOTAL-COSTS> 3,814,131 9,348,997
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 30,673 91,359
<INCOME-PRETAX> (625,273) 633,533
<INCOME-TAX> (225,000) 241,465
<INCOME-CONTINUING> (400,273) 392,068
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (400,273) 392,068
<EPS-PRIMARY> (.07) .08
<EPS-DILUTED> .07 .08
</TABLE>
