<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB/A
Amendment No. 1
X Annual report under Section 13 or 15(d) of the Securities Exchange Act of
- --- 1934 (Fee required) For the fiscal year ended June 30, 1995.
-------------
Transition report under Section 13 or 15(d) of the Securities Exchange Act
- --- of 1934 (No fee required)
For the transition period from to
------- -------
Commission file number 000-22996
---------
GILMAN & CIOCIA, INC.
(Name of small business issuer in its charter)
Delaware 11-2587324
- --------------------------------- -------------------
(State or jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
475 Northern Boulevard, Great Neck, NY 11021
- ---------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(516) 482-4860
------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Securities registered under Section 12(g) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange
------------------- on which registered
---------------------
<S> <C>
Common Stock, par value
- ------------------------------- ---------------------
$.01 Per share NA
- ------------------------------- ---------------------
Redeemable Warrants to purchase
- ------------------------------- ---------------------
Common Stock NA
- ------------------------------- ---------------------
</TABLE>
Check whether the issuer: (1) filed reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for past 90 days. Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.
-----
State issuer's revenues for its most recent fiscal year. $9,932,161
----------
The aggregate market value of the voting stock held by non-affiliates as
of September 21, 1995 was $10,688,057 based on a sale price of $4.25.
State the number of shares outstanding of each class of the issuer's
classes of common equity, as of the latest practicable date. As of September 21,
1995, 5,539,091 shares of the issuer's common equity were outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
<PAGE> 2
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
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 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
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<PAGE> 3
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.
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
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
2
<PAGE> 4
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).
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 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
3
<PAGE> 5
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.
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. The purchase consisted of certain equipment having a fair
market value of $56,000 and a customer list valued at $384,000. 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 was $450,000. 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.
4
<PAGE> 6
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 June 30, 1995, the Company had an outstanding note
in the amount of $50,000, maturing July 31, 1995.
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 June 30, 1995 the note had
an outstanding principal balance amounting to $333,333.
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.
PLAN OF OPERATION
The Company plans to open up to twenty new 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.
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.
5
<PAGE> 7
ITEM 7. FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
Report of Independent Certified Public Accountants
Weinick, Sanders & Co. LLP.................................. F-2
Consolidated Balance Sheet as of June 30,1995
(Audited)................................................... F-3 - F-4
Consolidated Statements of Operations
For the Years Ended June 30, 1995 and 1994 (Audited)........ F-5
Consolidated Statements of Stockholders' Equity
For the Years Ended June 30, 1995 and 1994 (Audited)........ F-6
Consolidated Statements of Cash Flows
For the Years Ended June 30, 1995 and 1994 (Audited)........ F-7 - F-10
Notes to Consolidated Financial Statements........................... F-11 - F-22
</TABLE>
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<PAGE> 8
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GILMAN + CIOCIA, INC.
By: /s/ Ralph V. Esposito
------------------------------------------
Ralph V. Esposito, Chief Financial Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
<TABLE>
<S> <C> <C>
President and Director
- ------------------------------------
James Ciocia
/s/ Thomas Povinelli Chief Operating Officer
- ------------------------------------ and Director May 7, 1996
Thomas Povinelli
/s/ Gary Besmer Vice President and Director May 7, 1996
- ------------------------------------
Gary Besmer
/s/ Kathryn Travis Secretary, Vice President and Director May 7, 1996
- ------------------------------------
Kathryn Travis
/s/ Ralph V. Esposito Treasurer, Vice President and May 7, 1996
- ------------------------------------ Chief Financial Officer
Ralph V. Esposito
/s/ Seth Akabas Director May 7, 1996
- ------------------------------------
Seth Akabas
Director
- ------------------------------------
Louis P. Karol
</TABLE>
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<PAGE> 9
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
JUNE 30, 1995
I N D E X
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
INDEPENDENT ACCOUNTANTS' REPORT ......................... F-2
FINANCIAL STATEMENTS:
Consolidated Balance Sheet as at June 30, 1995 ... F-3 to F-4
Consolidated Statements of Operations
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 ..... F-6
Consolidated Statements of Cash Flows
For the Years Ended June 30, 1995 and 1994 ..... F-7 to F-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS .............. F-11 to F-26
</TABLE>
F-1
<PAGE> 10
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
-----------------------------
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> 11
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1995
A S S E T S
(Note 9)
<TABLE>
<S> <C> <C>
Current assets:
Cash (Note 11) $1,335,762
Investment in marketable securities (Note 4) 2,095,750
Accounts receivable, net of allowance for
doubtful accounts of $23,685 (Notes 5 and 11) 562,339
Notes receivable - stockholders,
current portion (Note 6) 44,625
Other receivables - stockholders (Note 14) 180,895
Note receivable - former stockholder,
current portion (Note 7) 4,242
Prepaid and refundable income taxes (Note 3) 118,589
Prepaid expenses and other current assets (Note 3) 127,652
----------
Total current assets $4,469,854
Property and equipment - net of accumulated
depreciation and amortization of $617,768
(Notes 3 and 8) 926,967
Other assets:
Notes receivable - stockholders,
net of current portion (Note 6) 72,569
Notes receivable - former stockholder,
net of current portion (Note 7) 23,143
Intangible assets, net of accumulated
amortization of $20,467 (Note 3) 471,561
Investment in joint venture (Note 2) 20,000
Security deposits 109,366
----------
Total other assets 696,639
----------
$6,093,460
==========
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE> 12
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Current liabilities:
Accounts payable $ 34,248
Notes payable - bank, current portion (Note 9) 216,667
Note payable - other, current portion (Note 10) 21,807
Accrued payroll and payroll taxes 38,979
Accrued expenses and other current liabilities 95,809
----------
Total current liabilities $ 407,510
Long-term debt:
Note payable - bank, net of current portion (Note 9) 166,667
Note payable - other, net of current portion (Note 10) 28,193
----------
Total long-term debt 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 - 5,634,864 shares 56,348
Paid-in capital - common stock 5,767,039
Paid-in capital - warrants and options 48,155
Retained earnings 805,403
----------
6,676,945
Less: Stock subscriptions and accrued interest receivable 773,980
Treasury stock - at cost, 116,964 shares (Note 12) 411,875
Total stockholders' equity 5,491,090
----------
$6,093,460
==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 13
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended
June 30,
------------------------
1995 1994
---------- ----------
<S> <C> <C>
Net revenues (Notes 3, 5 and 14) $9,932,161 $7,525,671
---------- ----------
Operating expenses:
Salaries and commissions 3,915,963 3,064,743
Advertising 2,045,178 1,301,895
Rent 912,565 683,540
Depreciation and amortization 212,639 174,699
General and administrative expenses 2,262,652 1,613,635
---------- ----------
Total operating expenses 9,348,997 6,838,512
---------- ----------
Income from operations 583,164 687,159
---------- ----------
Other income (expenses):
Loss reimbursement for certain locations -- 17,600
Interest income 97,894 71,973
Interest expense (91,359) (87,240)
Rental income 12,275 8,781
Realized gain on sale of marketable securities 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 50,369 (161,998)
---------- ----------
Income before provision for
income taxes - historical 633,533 525,161
Provision for income taxes - historical (Note 3) 241,465 395,037
---------- ----------
Net income historical 392,068 130,124
Pro forma provision (credit) for income
taxes - unaudited (Note 3) 119,439 (197,896)
---------- ----------
Net income - unaudited, pro forma $ 272,629 $ 328,020
========== ==========
Earnings per share (Note 3):
Primary net income per common shares:
Historical $ 0.08 $ 0.03
========== ==========
Proforma (Note 13) $ 0.06 $ 0.08
========== ==========
Fully diluted net income per common share -
Historical $ 0.08 $ 0.03
========== ==========
Proforma (Note 13) $ 0.06 $ 0.08
========== ==========
Weighted average number of shares outstanding 4,716,016 4,084,485
========== ==========
Fully diluted weighted average number of
shares outstanding 4,882,737 4,230,096
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 14
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1995 AND 1994
<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
========= ======= ========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
Subscriptions
and Accrued Treasury Stock Total
Interest ------------------- 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
========= ======== ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 15
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
June 30,
----------------------------
1995 1994
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 392,068 $ 130,124
----------- -----------
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Allowance for doubtful accounts -- 13,830
Depreciation and amortization 212,639 174,699
Amortization of deferred financing costs -- 221,300
Compensatory element of stock options granted 30,875 17,280
Gain on disposal of property and equipment -- (16,745)
Unrealized gain on marketable securities (16,216) --
Increase (decrease) in cash flows as
a result of changes in asset and
liability account balances:
Accounts receivable (273,401) (36,431)
Prepaid expenses (75,481) (25,298)
Security deposits (10,065) (39,696)
Accounts payable (140,692) 166,698
Income taxes payable (437,343) 288,244
Accrued payroll and payroll taxes (103,277) 75,748
Accrued expenses and other
current liabilities (12,422) 52,175
----------- -----------
Total adjustments (825,383) 891,804
----------- -----------
Net cash provided by (used in)
operating activities (433,315) 1,021,928
----------- -----------
Cash flows from investing activities:
Cash surrender value - officers'
life insurance -- (45,215)
Acquisition of property and equipment (618,744) (407,818)
Purchase of marketable securities (2,079,534) --
Acquisition of intangible assets (164,028) (15,000)
Increase in accrued interest - stockholders (37,856) (14,756)
Increase in other receivables - stockholders (297,656) (184,168)
Investment in joint venture (20,000) --
----------- -----------
Net cash used in investing activities (3,217,818) (666,957)
----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 16
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
June 30,
----------------------------
1995 1994
----------- -----------
<S> <C> <C>
Cash flows from financing activities:
Acquisition of treasury stock $ (72,500) $ (70,000)
Decrease in demand loans payable -- (15,000)
Receipts on notes from former stockholder 3,907 42,680
Borrowings under notes payable from bank 1,000,000 500,000
Repayments of notes payable to bank (1,116,666) (60,586)
Incurrence of deferred registration costs (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 73,024 51,843
Proceeds from sale of common stock -
net of underwriting costs 3,324,055 --
S Corporation dividend distribution (202,868) (423,625)
Exercise of Bridge warrants 748,800 --
----------- -----------
Net cash provided by financing activities 3,810,470 262,385
----------- -----------
Net increase in cash 159,337 617,356
Cash at beginning of year 1,176,425 559,069
----------- -----------
Cash at end of year $ 1,335,762 $ 1,176,425
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE> 17
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
June 30,
-----------------------
1995 1994
--------- ---------
<S> <C> <C>
Supplemental Disclosure of Cash Flow Information:
Cash payments for the year:
Interest $ 78,402 $ 86,964
========= =========
Income taxes $ 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)
========= =========
Compensatory element on stock options granted $ 30,875 $ --
========= =========
</TABLE>
See notes to consolidated financial statements.
F-9
<PAGE> 18
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
June 30,
-----------------------
1995 1994
--------- ---------
<S> <C> <C>
Non-cash transactions for the year: (Continued)
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
========= ========
Acquisition of certain intangible assets in
exchange for common stock $ -- $ 38,000
========= ========
Issuance of common stock in exchange for
common stock subscriptions receivable $ -- $189,763
========= ========
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
========= ========
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE> 19
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
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.
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> 20
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 and Gilbert Financial Services, Inc. (Fla.),
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> 21
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. In addition, JT
Securities, Inc. 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 SFAS No. 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> 22
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 Years Ended
June 30,
-------------------
1995 1994
---- ----
<S> <C> <C>
Federal statutory rate 34.0% 34.0%
State and local income taxes
net of federal tax benefit 5.1% 5.0%
Tax benefit adjustment on unrealized
gain of marketable securities (1.0%) --
Adjustment required for partial
year Subchapter "S" status of
corporation -- 36.2
---- ----
Actual tax rate 38.1% 75.2%
==== ====
</TABLE>
(f) Per Share Data:
Net income 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 years 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> 23
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
June 30, 1995 prepaid expenses and other current assets amounted to
$127,652, respectively. The components are approximately as follows:
<TABLE>
<CAPTION>
June 30,
1995
--------
<S> <C>
Prepaid rent $ 10,000
Prepaid supplies 17,000
Service contracts 16,000
Clearing deposit receivable 25,000
Prepaid insurance 48,000
Sundry 12,000
--------
$128,000
========
</TABLE>
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> 24
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 on behalf of the Company should he fail to
achieve certain gross revenue criteria. Based on these criteria, the
Company is entitled to be reimbursed for $125,000 of these expenses.
The Company will offset the managers future earnings to collect this
reimbursement. The Company expects to receive repayment of 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 June 30, 1995,
the investment in marketable securities at fair market value amounted
to $2,095,750. Of the total, $1,931,125 was invested in U.S. Treasury
securities and $164,625 was invested in marketable equity securities.
NOTE 5 - ACCOUNTS RECEIVABLE.
The Company through its 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 June 30, 1995, accounts receivable
includes $494,076 due from these sources for the aforementioned
services.
NOTE 6 - NOTES RECEIVABLE - STOCKHOLDERS.
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 June 30, 1995 are as
follows:
<TABLE>
<CAPTION>
Years Ending
June 30,
------------
<S> <C>
1996 $ 44,625
1997 54,710
1998 17,859
--------
117,194
Less: Current maturities 44,625
--------
$ 72,569
========
</TABLE>
F-16
<PAGE> 25
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
June 30, 1995 the balance due to the Company amounted to $27,385, of
which $4,242 is due within the subsequent twelve month period.
NOTE 8 - PROPERTY AND EQUIPMENT.
At June 30, 1995, the property and equipment is summarized as
follows:
<TABLE>
<S> <C>
Equipment $1,292,982
Furniture and fixtures 192,396
Leasehold improvements 59,357
----------
1,544,735
Less: Accumulated depreciation
and amortization 617,768
----------
$ 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.
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 $1,000,000. Borrowings under
this line are in the form of short-term notes with interest charged
monthly at the bank's prime lending rate plus 1-1/2%. At June 30,
1995, the Company had an outstanding note in the amount of $50,000,
maturing July 31, 1995.
The second credit facility is an installment note in the
principal amount of $500,000. The note is payable in 36 equal monthly
installments of $13,889, plus interest at the bank's prime lending
rate plus 1-3/4%. The final installment is due June 30, 1997. At June
30, 1995 the note had an outstanding principal balance amounting to
$333,333.
Both credit facilities are collateralized by a blanket lien on
all assets of the Company.
F-17
<PAGE> 26
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. Annual principal maturities under
this note at June 30, 1995 are as follows:
<TABLE>
<CAPTION>
Years Ended
June 30,
-----------
<S> <C>
1996 $21,807
1997 25,926
1998 2,267
-------
$50,000
=======
</TABLE>
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 103,000
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.
F-18
<PAGE> 27
NOTE 11 - COMMITMENTS AND CONTINGENCIES. (Continued)
(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 June 30, 1995
approximately 66.1% of the accounts receivable were due from this
entity.
(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 is contesting this assessment through an appeal
and remains convinced that its position is well founded. 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.
F-19
<PAGE> 28
NOTE 11 - COMMITMENTS AND CONTINGENCIES. (Continued)
(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. The purchasers of this unregistered stock would be
entitled to recision and could subject the Company 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> 29
NOTE 12 - STOCKHOLDERS' EQUITY. (Continued)
(b) Common Stock Subscriptions and Accrued Interest Receivable:
Common stock subscriptions receivable consists 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 received and accrued interest received at
June 30, 1995 amounted to $681,891 and $92,089, respectively. For the
years ended June 30, 1995 and 1994, the Company recognized $64,143
and $60,164, respectively, as interest income.
Common stock subscriptions and accrued interest receivable are
scheduled to be paid to the Company as follows:
<TABLE>
<CAPTION>
Years Ending
June 30,
------------
<S> <C>
1996 $408,980
1997 139,750
1998 76,000
1999 72,250
2000 56,000
Thereafter 21,000
--------
$773,980
========
</TABLE>
Included in the amount to be paid for the year ending June 30,
1996 is approximately $171,000 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 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 exercise prices, which are based on the dates of vesting, are as
follows: 10,000 at $3.00 and 12,000 at $4.00 on the date of grant;
thereafter, at the market price on the date of vesting less a
discount equal to 20%.
F-21
<PAGE> 30
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 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.
Stock options granted during the year ended June 30,1995 are as
follows:
<TABLE>
<S> <C>
Options outstanding at
beginning of period $ 432,002
Options granted 668,000
----------
Options outstanding at
end of period $ 1,100,002
===========
Exercise price $2.60-$4.00
===========
</TABLE>
(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.
F-22
<PAGE> 31
NOTE 12 - STOCKHOLDERS' EQUITY. (Continued)
(d) Acquisition of Treasury Stock: (Continued)
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> 32
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 June 30, 1995, other receivables - stockholders, amounted to
$180,895. This balance consists of 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 currently in default although the Company has
not made any demand for repayment. 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.
F-24
<PAGE> 33
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>
June 30, 1995 June 30, 1994
Tax Financial Tax Financial
Preparation 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-25
<PAGE> 34
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 established 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 - 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-26
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1994
<CASH> 1,335,762
<SECURITIES> 2,095,750
<RECEIVABLES> 586,024
<ALLOWANCES> (23,685)
<INVENTORY> 0
<CURRENT-ASSETS> 4,469,854
<PP&E> 1,544,735
<DEPRECIATION> (617,768)
<TOTAL-ASSETS> 6,093,460
<CURRENT-LIABILITIES> 407,510
<BONDS> 0
0
0
<COMMON> 56,348
<OTHER-SE> 5,434,742
<TOTAL-LIABILITY-AND-EQUITY> 6,093,460
<SALES> 9,932,161
<TOTAL-REVENUES> 9,932,161
<CGS> 0
<TOTAL-COSTS> 9,348,997
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 91,359
<INCOME-PRETAX> 633,533
<INCOME-TAX> 241,465
<INCOME-CONTINUING> 392,068
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 392,068
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
