<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB/A
Amendment No. 2
X Annual report under Section 13 or 15(d) of the Securities Exchange Act of
- --- 1934 (Fee required)
For the fiscal year ended June 30, 1996.
- --- Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 (No fee required)
For the transition period from to
Commission file number 000-22996
GILMAN & CIOCIA, INC.
(Name of small business issuer in its charter)
Delaware 11-2587324
(State or jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
475 Northern Boulevard, Great Neck, NY 11021
(Address of principal executive offices) (Zip Code)
(516) 482-4860
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Securities registered under Section 12(g) of the Act:
Title of each class Name of each exchange
------------------- on which registered
-------------------
Common Stock, par value
$.01 Per share N/A
Redeemable Warrants to purchase
Common Stock N/A
Check whether the issuer: (1) filed reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for past 90 days. Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.
State issuer's revenues for its most recent fiscal year. $16,509,677
The aggregate market value of the voting stock held by non-affiliates as
of September 30, 1996 was $16,003,526 based on a sale price of $5.50.
State the number of shares outstanding of each class of the issuer's
classes of common equity, as of the latest practicable date. As of September 30,
1996, 5,550,582 shares of the issuer's common equity were outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
<PAGE> 2
Gilman + Ciocia, Inc.
Amendment No.1 to Form 10-KSB
For the Fiscal Year Ended June 30, 1996
PART II
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS.
RESULTS OF OPERATIONS: 1996 AND 1995 FISCAL YEARS COMPARED
PLAN OF OPERATION
Over the past two fiscal years, the Company opened 66 new offices which
represents 56% of all offices at June 30, 1996. The Company plans to continue
its expansion and open new offices during the next year (although no specific
target has been set), recruit successful financial planners and acquire existing
tax preparation practices. The Company anticipates funding this growth through
operating profits and use of its short-term line of credit but anticipates the
availability of additional funds through the exercise of outstanding options and
warrants because the sale and/or resale of the common stock underlying such
securities is currently being registered pursuant to this registration. However,
there can be no assurance that the offering will be consummated or that any of
such options or warrants will be exercised.
The Company anticipates that opening new offices will increase its
revenues, but will involve a substantial increase in costs. The Company has no
basis to predict whether its new offices will have a material effect on its net
income. The Company believes that its new offices can ultimately be operated
profitably, but expansion may initially reduce the Company's profits or result
in an overall loss in future years.
During the Company's 1996 fiscal year, the Company commenced operations
of a direct mail division in order to control the substantial costs of
advertising its many offices. The Company believes that the direct mail division
will eventually result in lower advertising costs on per-office basis, as the
Company takes advantage of economies of scale. The Company intends for its
direct mail division to operate as an independent division and solicit its own
customers for its direct mail services.
RESULTS OF OPERATIONS
1996 and 1995 Fiscal Years Compared
The Company's revenues for the fiscal year ended June 30, 1996 were
$16,509,677 as compared to revenues of $9,932,161 for the prior fiscal year. The
increase in revenues for its 1996 fiscal year from its 1995 fiscal year is
attributable to: (1) the Company's opening of forty four new offices in January
1996 (the "1996 New Offices") and the acquisition of ten customer lists which
resulted in increased revenues from tax preparation services of $1,041,000; (2)
continued growth of the existing offices which resulted in increased revenues
from tax preparation services, of approximately $450,000; (3) increased
financial planning revenues of approximately $2,400,000 over all offices; and
(4) revenues of approximately $2,690,000 from its direct mailing services which
were not offered by the Company in its 1995 fiscal year.
The Company's total revenues for the year ended June 30, 1996 consist of
$8,147,986 for tax preparation services, $5,671,905 for financial planning
services and $2,689,786 for direct mailing services. The Company's total
revenues for the year ended June 30, 1995 consist of $6,657,520 for tax
preparation
1
<PAGE> 3
services and $3,274,541 for financial planning services; and $0 for direct
mailing services, which were not offered by the Company in its 1995 fiscal year.
The rapid growth in financial planning revenues compared to tax return
preparation services is primarily the result of the acquisition of Gilbert
Financial Services, Inc. ("Gilbert Financial"), which accounted for $1,200,000
of the growth in financial planning revenues. Gilbert Financial, the business of
which is now conducted in one of the Company's pre-1996 Offices, is the only
company that the Company has acquired in the past three years that concentrated
on financial planning services. The Company plans to continue to expand this
segment of the business because the Company believes that this segment has the
most earnings potential.
The remaining growth in financial planning revenues is a result of the
Company's benefiting from a year of rapidly rising equity security prices in the
marketplace, which induced clients to invest funds with the Company, generating
commission revenues for the Company. Any reduction in the rate of increase of
equity securities' prices in the marketplace could reduce the increase in
investments that the Company's clients make through the Company, and falling
market prices of securities could result in a reduction that would offset other
sources of growth in the Company's financial planning revenues. The 1996 growth
of the financial planning services was not significantly affected by the opening
of the 1996 New Offices. The Company has normally experienced a 6 to 12 month
delay after the opening of a new office before such office generates significant
financial planning revenues.
The Company's operating expenses for the 1996 fiscal year were
$15,915,148 as compared to operating expenses of $9,348,997 for the 1995 fiscal
year. The increase of 70.2% in the Company's operating expenses for its 1996
fiscal year from its 1995 fiscal year was attributable to $2,774,128 in salaries
and commissions; $791,916 in general and administrative expenses; $539,947 in
advertising; $1,682,108 for direct mail costs; $590,223 in rent; and $312,829 in
depreciation and amortization, offset by a reimbursement of financial planning
expenses of $125,000.
The increases in operating expenses are primarily the result of the
commencement of operations of the Company's Progressive Mailing division
("Progressive"), which accounted for the direct mail costs of $1,682,000,
salaries of direct mail division personnel of $626,000 and other expenses of the
division of approximately $384,000. Such expenses were incurred by Progressive
in performing services for third parties. The Company, however, began a direct
mail division in order to eventually reduce its own mailing costs for
advertising at its many offices by obtaining those services at direct cost from
its own division. As the Company continues to add offices, the Company believes
that the operation of Progressive will decrease its advertising costs on a per
office basis.
Other reasons for the increases in operating expenses are the increase in
financial planning services, the addition of the 1996 New Offices and having a
full year of operating expenses for the 22 offices opened in January of 1995.
The increase in salaries and commissions is due to increased financial
planning activities (which generates commissions that are generally shared with
the Company's employees and independent contractors) in the amount of
approximately $950,000, a non-cash compensation charge of approximately $437,000
related to the issuance of stock options, the amortization of advances to
financial planners and the forgiveness of officers' loans, $626,000 in salaries
for the direct mailing division and approximately $530,000 in salaries and
commissions for personnel working at the 1996 New Offices. The increase in
salaries and commissions that resulted from increased financial planning
activities is predominantly the result of increased investments by clients that
resulted in increased commissions.
The increase in depreciation and amortization is due primarily to the
acquisition of ten customer lists for approximately $730,000 and the capital
expenditures the Company made during the last two fiscal years. The increase in
advertising is primarily due to the 1996 New Offices. The increase in rent is
due to approximately $247,000 for the 1996 New Offices, approximately $94,000
for the direct mail division
2
<PAGE> 4
(which did not operate in the Company's 1995 fiscal year) and approximately
$249,000 in existing offices.
The increase of $791,916 in general and administrative expenses from the
Company's 1995 to its 1996 fiscal years resulted from the Company's expansion of
operations. Such increase was primarily the result of the inclusion of six
months of expenses for the 44 new offices opened in January 1996, as well as a
full year of expenses for the 22 new offices opened in January 1995. These
offices generated increases of approximately $72,000 in office supplies,
$147,000 in office expenses and $118,000 in telephone charges. In addition,
increased financial planning activities resulted in an increase of approximately
$151,000 in clearing fees, and the direct mail division (which had no operations
during the Company's 1995 fiscal year) incurred $250,000 of general and
administrative expenses during the Company's 1996 fiscal year.
Such increase in general and administrative expenses of approximately 35%
was significantly less than the approximately 66% increase in revenues between
the two fiscal years. The reasons for the discrepancy are, one, that the
revenues increased based on the inclusion of the high tax season revenues from
44 1996 New Offices but only half (January through June) of the annual expenses
associated with such offices, and, two, while the Company realized significant
growth in revenues related to Gilbert Financial, the increase in general and
administrative expenses related to such growth was nominal.
The increase in other income of $242,475 or 481% is due to the Company's
investment in partnership and an increase in realized gains of approximately
$76,000 on the sale of marketable securities. In July 1995, the Company,
together with an officer of the Company and one of its former officers, formed
an investment partnership, which yielded income of approximately $198,000 during
the Company's 1996 fiscal year. In addition, during the Company's 1996 fiscal
year, the Company liquidated marketable securities of $2,095,750 to fund its
expansion resulting in a realized gain of approximately $91,000.
The Company's income before provision for income taxes for its 1996
fiscal year is $887,373 as compared to $633,533 for its 1995 fiscal year. The
increase of 40.1% is primarily attributable to income from the investment in
partnership of approximately $198,000 and an increase in the realized gain from
sale of marketable securities of approximately $76,000. The income before
provision for income taxes of the Company's tax preparation and financial
planning segments remained approximately constant and the Company's direct mail
division operated on a break-even basis in the Company's 1996 fiscal year.
Taxes on income decreased as a percentage of income before taxes as a
result of the Company's filing consolidated tax returns for its 1996 fiscal
year. During the Company's 1995 fiscal year, the Company and JT Securities filed
separate tax returns. The Company changed its tax reporting year from a calendar
year to a fiscal year which resulted in two tax closings during its 1995 fiscal
year.
The Company's business is highly seasonal, with the majority of its
revenue earned in the first four months of the calendar year. The effect of
inflation has not been significant to the Company's business in recent years.
The segment financial information in this Prospectus should not be
construed to imply that the Company's financial planning business could be
operated as a stand alone business without the Company's tax return preparation
business as a lead in. The Company's tax return preparation business and its
financial planning business are closely linked together in that such various
lines of business generally use the same employees, assets, marketing and
facilities and can not be easily separated. The Company believes that its tax
return preparation business is inextricably intertwined with, and a necessary
adjunct to, its financial planning activities and that the two segments can be
viewed meaningfully only as a whole.
3
<PAGE> 5
LIQUIDITY AND CAPITAL RESOURCES
1996 and 1995 Fiscal Years Compared
The Company's cash flows provided by (used in) operating activities was
$2,621,862 and ($2,512,849) for the years ended June 30, 1996 and 1995,
respectively. The increase of approximately $5,134,711 is due primarily to an
increase in net income plus non-cash adjustments of approximately $667,000 and
an increase in accounts payable, accrued expenses and other current liabilities
of approximately $1,011,000 as a result of the Company's expansion,
approximately $2,200,000 in proceeds from the sale of marketable securities and
a decrease in the purchase of marketable securities of approximately $2,100,000.
These increases were offset by approximately $654,000 in advances to financial
planners and an increase in accounts receivable of approximately $168,000 as a
result of the Company's expansion. The increase in net income plus non-cash
adjustments consists primarily of increases in depreciation and amortization of
approximately $313,000 as a result of customer list acquisitions totaling
approximately $730,000, capital expenditures of approximately $900,000 and
increased compensation expense recognized in connection with the issuance of
stock and stock options of approximately $202,000.
Net cash used in investing activities was $2,420,386 and $1,134,377 for
the years ended June 30, 1996 and 1995, respectively. The increase of
approximately $1,286,000 is primarily due to increases in capital expenditures
of approximately $282,000 and acquisitions of intangible assets of approximately
$546,000 and an investment in partnership of approximately $448,000.
Net cash provided by financing activities decreased by $3,122,006 from
$3,806,563 to $684,557 due to proceeds of approximately $3,900,000 in connection
with the consummation of the Company's IPO in December 1994 and additional
issuances of stock.
The Company has two credit facilities with a bank. The first facility is
a line of credit for up to $2,500,000 which expires on October 31, 1997.
Borrowings under this line are in the form of short-term notes with interest
charged monthly at the bank's prime lending rate plus 1 1/2 %. At June 30, 1996,
the Company had an outstanding principal balance of $500,000.
The second credit facility is an installment note in the principal amount
of $1,000,000. The note is payable in 36 equal monthly installments of
approximately $28,000, plus interest at the bank's prime lending rate plus 1
3/4%. The final installment is due December, 1999. At June 30, 1996, the note
had an outstanding principal balance amounting to $180,556.
In July 1996, the Company acquired a building to house one of its offices
in Babylon, NY for approximately $221,000.
The Company believes that it could continue to operate without any
additional financing (other than its seasonal bank loans) during the next 12
months. The Company anticipates that it will not pay dividends on its Common
Stock in the foreseeable future, but will apply any profits to fund the
Company's expansion.
RECENT ACCOUNTING PRONOUNCEMENTS
In March, 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 121, "Accounting For the
Impairment of Long Lived Assets and for Long Lived Assets to be Disposed Of",
which is effective for fiscal years beginning after December 15, 1995. The
Company's adoption of SFAS No. 121 as of July 1, 1996, did not have a material
impact on its results of operations, financial position or cash flows.
In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation", which is effective for transactions entered into for fiscal years
that begin after December 15, 1995. SFAS
4
<PAGE> 6
No. 123 establishes a fair value method for accounting for stock-based
compensation plans either through recognition or disclosure. The Company's
adoption of the employee stock-based compensation provisions of SFAS No. 123 as
of July 1, 1996 will require disclosure of the pro forma net income and pro
forma net income per share amounts assuming the fair value method was adopted
July 1, 1995. The adoption of this standard will not impact the Company's
consolidated results of operations, financial position or cash flows.
5
<PAGE> 7
GILMAN & CIOCIA, INC.
AND SUBSIDIARIES
================================================================================
CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-KSB/A - ITEM 7
YEARS ENDED JUNE 30, 1996 AND 1995
F-1
<PAGE> 8
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
INDEX
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
FOR THE YEAR ENDED JUNE 30, 1996 F-3
INDEPENDENT ACCOUNTANTS' REPORT FOR THE YEAR ENDED
JUNE 30, 1995 F-4
FINANCIAL STATEMENTS:
Consolidated balance sheet as of June 30, 1996 F-5 - F-6
Consolidated statements of income for the
years ended June 30, 1996 and 1995 F-7
Consolidated statements of stockholders' equity
for the years ended June 30, 1996 and 1995 F-8 - F-9
Consolidated statements of cash flows for the
years ended June 30, 1996 and 1995 F-10- F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-12 - F-32
F-2
<PAGE> 9
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Gilman & Ciocia, Inc.
Great Neck, New York
We have audited the accompanying consolidated balance sheet of Gilman & Ciocia,
Inc. and subsidiaries as of June 30, 1996, and the related consolidated
statements of income, stockholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Gilman
& Ciocia, Inc. and subsidiaries at June 30, 1996 and the consolidated results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ BDO SEIDMAN, LLP
BDO Seidman, LLP
New York, New York
September 30, 1996
F-3
<PAGE> 10
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors
Gilman & Ciocia, Inc.
We have audited the accompanying consolidated statements of income,
stockholders' equity and cash flows of Gilman & Ciocia, Inc. and subsidiaries
for the year ended June 30, 1995. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and
cash flows of Gilman & Ciocia, Inc. and subsidiaries for the year ended June 30,
1995, in conformity with generally accepted accounting principles.
As described in Note 13(a), the Company restated its June 30, 1995 consolidated
financial statements to correct and increase its tax liability as of June 30,
1995 by approximately $145,000.
/s/ WEINICK & SANDERS & CO. LLP
Weinick & Sanders & Co. LLP
New York, New York
August 7, 1995
(Except for Note 7(d) as to which
the date is September 22, 1995)
F-4
<PAGE> 11
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
================================================================================
June 30, 1996
- --------------------------------------------------------------------------------
<S> <C>
ASSETS
CURRENT:
Cash $2,221,795
Accounts receivable, net of allowance for doubtful accounts of
$45,974 976,686
Receivables from related parties, current portion 403,545
Prepaid expenses and other current assets 100,866
- --------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 3,702,892
PROPERTY AND EQUIPMENT, AT COST, LESS ACCUMULATED
DEPRECIATION AND AMORTIZATION 1,501,701
INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION OF
$192,282 1,030,820
INVESTMENT IN PARTNERSHIP 646,525
ADVANCES AND NOTES RECEIVABLE FROM FINANCIAL PLANNERS 501,531
SECURITY DEPOSITS 209,852
RECEIVABLES FROM RELATED PARTIES, NET OF CURRENT PORTION 139,595
DEFERRED TAX ASSETS 133,585
- --------------------------------------------------------------------------------
$7,866,501
================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 12
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
============================================================================================
June 30, 1996
- --------------------------------------------------------------------------------------------
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Short-term borrowings $ 680,556
Accounts payable 291,554
Accrued expenses and other current liabilities 395,450
- --------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,367,560
- --------------------------------------------------------------------------------------------
COMMITMENT AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock - $.001 par value - shares authorized 100,000; issued and
outstanding, none --
Common stock - $.01 par value - shares authorized 9,000,000; issued and
outstanding 5,550,582 55,505
Paid-in capital 6,184,075
Retained earnings 717,375
- --------------------------------------------------------------------------------------------
6,956,955
Stock subscriptions and accrued interest receivable (458,014)
- --------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 6,498,941
- --------------------------------------------------------------------------------------------
$7,866,501
============================================================================================
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 13
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
================================================================================
<TABLE>
<CAPTION>
(Restated)
Year Ended June 30, 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES:
Tax preparation fees $ 8,147,986 $ 6,657,620
Financial planning commissions 5,671,905 3,274,541
Direct mail services 2,689,786 --
- ------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 16,509,677 9,932,161
- ------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Salaries and commissions 6,690,091 3,915,963
General and administrative expenses 3,054,568 2,262,652
Advertising 2,585,125 2,045,178
Direct mail costs 1,682,108 --
Rent 1,502,788 912,565
Depreciation and amortization 525,468 212,639
Reimbursement of financial planning expenses (125,000) --
- ------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 15,915,148 9,348,997
- ------------------------------------------------------------------------------------------------------------
OPERATING INCOME 594,529 583,164
- ------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSES):
Income from investment in partnership 198,165 --
Interest income 91,435 97,894
Interest expense (107,111) (91,359)
Rental income 19,180 12,275
Realized gain on sale of marketable securities 91,175 15,343
Unrealized gain on marketable securities -- 16,216
- ------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME (EXPENSES) - NET 292,844 50,369
- ------------------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES 887,373 633,533
PROVISION FOR INCOME TAXES 352,647 386,030
- ------------------------------------------------------------------------------------------------------------
NET INCOME $ 534,726 $ 247,503
============================================================================================================
NET INCOME PER SHARE $ 0.10 $ 0.05
============================================================================================================
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES:
Primary 5,916,044 4,716,106
Fully diluted 5,916,044 4,882,737
============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 14
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
===================================================================================================================
Stock
Common Stock Subscriptions and
----------------------- Additional Retained Accrued Interest
Year Ended June 30, 1995 Shares Amount Paid-in Capital Earnings Receivable
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, July 1, 1994 4,114,465 $ 41,144 $1,396,825 $ 714,923 $(694,148)
Collection of common stock
subscriptions and accrued
interest receivable -- -- -- -- 97,012
Sale of common stock, net 1,015,852 10,158 3,076,520 -- --
Acquisition of treasury stock - at
cost -- -- -- -- --
Issuance of common stock for
cash and subscriptions
receivable 80,261 803 242,697 -- (115,000)
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) --
Compensation expense
recognized in connection with
issuance of stock options -- -- 30,875 -- --
Exercise of bridge warrants 360,000 3,600 745,200 -- --
Issuance of common stock, in
connection with the
acquisition of intangible assets 64,286 643 224,357 -- --
Accrued interest receivable -- -- -- -- (61,844)
Net income (Restated) -- -- -- 247,503 --
- -------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1995 5,634,864 $ 56,348 $5,815,194 $ 660,838 $(773,980)
===================================================================================================================
<CAPTION>
====================================================================================
Treasury Stock Total
----------------------- Stockholders'
Year Ended June 30, 1995 Shares Amount Equity
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, July 1, 1994 -- $ -- $1,458,744
Collection of common stock
subscriptions and accrued
interest receivable -- -- 97,012
Sale of common stock, net -- -- 3,086,678
Acquisition of treasury stock - at
cost 20,000 (72,500) (72,500)
Issuance of common stock for
cash and subscriptions
receivable -- -- 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 -- -- --
Compensation expense
recognized in connection with
issuance of stock options -- -- 30,875
Exercise of bridge warrants -- -- 748,800
Issuance of common stock, in
connection with the
acquisition of intangible assets -- -- 225,000
Accrued interest receivable -- -- (61,844)
Net income (Restated) -- -- 247,503
- ------------------------------------------------------------------------------------
Balance, June 30, 1995 116,964 $ (411,875) $5,346,525
====================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 15
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
================================================================================================================
Stock
Common Stock Subscriptions and
----------------------- Additional Retained Accrued Interest
Year Ended June 30, 1996 Shares Amount Paid-in Capital Earnings Receivable
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, July 1, 1995 5,634,864 $ 56,348 $5,815,194 $ 660,838 $(773,980)
Purchase of treasury stock -- -- -- -- 67,590
Retirement of treasury stock (127,558) (1,276) -- (478,189) --
Issuance of common stock 26,307 263 53,063 -- --
Exercise of stock options 10,000 100 23,100 -- --
Compensation recognized in
connection with the issuance
of stock options -- -- 232,782 -- --
Repayments of stock
subscriptions -- -- -- -- 310,809
Issuance of stock subscriptions 6,969 70 39,930 -- (40,000)
Accrued interest income -- -- -- -- (22,433)
Income tax benefit related to
exercise of common stock
options -- -- 20,006 -- --
Net income -- -- -- 534,726 --
- ----------------------------------------------------------------------------------------------------------------
Balance, June 30, 1996 5,550,582 $ 55,505 $6,184,075 $ 717,375 $(458,014)
================================================================================================================
<CAPTION>
====================================================================================
Treasury Stock Total
----------------------- Stockholders'
Year Ended June 30, 1995 Shares Amount Equity
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, July 1, 1995 116,964 $ (411,875) $ 5,346,525
Purchase of treasury stock 10,594 (67,590) --
Retirement of treasury stock (127,558) 479,465 --
Issuance of common stock -- -- 53,326
Exercise of stock options -- -- 23,200
Compensation recognized in
connection with the issuance
of stock options -- -- 232,782
Repayments of stock
subscriptions -- -- 310,809
Issuance of stock subscriptions -- -- --
Accrued interest income -- -- (22,433)
Income tax benefit related to
exercise of common stock
options -- -- 20,006
Net income -- -- 534,726
- ------------------------------------------------------------------------------------
Balance, June 30, 1996 -- $ -- $ 6,498,941
====================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE> 16
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
(Restated)
Year Ended June 30, 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 534,726 $ 247,503
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Compensation expense recognized in connection
with the issuance of stock options 232,782 30,875
Depreciation and amortization 525,468 212,639
Income from investment in partnership (198,165) --
Increase in deferred tax asset (133,585) --
Compensation expense recognized in connection
with the forgiveness of officers' loans 123,899 --
Gain on sale of marketable securities (91,175) --
Compensation expense recognized in connection
with amortization of advances to financial
planners 79,851 --
Provisions for doubtful accounts 99,175 --
Interest on stock subscriptions (22,433) --
Gain on disposal of property and equipment (9,000) --
Unrealized gain on marketable securities -- (16,216)
(Increase) decrease in:
Proceeds from sale of marketable securities 2,186,925 --
Purchase of marketable securities -- (2,079,534)
Accounts receivable (441,136) (273,401)
Advances to financial planners (653,768) --
Security deposits (100,486) (10,065)
Prepaid expenses and other current assets 26,786 (75,481)
Increase (decrease) in:
Accounts payable, accrued expenses and other
current liabilities 461,998 (549,169)
- ----------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES 2,621,862 (2,512,849)
- ----------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (900,385) (618,744)
Acquisition of intangible assets (730,076) (184,028)
Investment in partnership (448,360) --
Proceeds from related party transactions 152,655 3,907
Payments to related parties (494,220) (335,512)
- ----------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES $(2,420,386) $(1,134,377)
- ----------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE> 17
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
(Restated)
Year Ended June 30, 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Acquisition of treasury stock $ -- $ (72,500)
Proceeds from short-term borrowings 2,297,222 1,000,000
Payments of short-term borrowings (2,000,000) (1,116,666)
Proceeds from sale of common stock and exercise
of stock options 76,526 3,452,555
Proceeds from stock subscriptions 310,809 73,024
Incurrence of deferred registration costs -- (3,632)
Decrease in note payable - officer -- (72,150)
S Corporation dividend distribution -- (202,868)
Exercise of bridge warrants -- 748,800
- -----------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 684,557 3,806,563
- -----------------------------------------------------------------------------------
NET INCREASE IN CASH 886,033 159,337
CASH AT BEGINNING OF YEAR 1,335,762 1,176,425
- -----------------------------------------------------------------------------------
CASH AT END OF YEAR $ 2,221,795 $ 1,335,762
===================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE> 18
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
1. SUMMARY OF ACCOUNTING POLICIES
(a) Business
Gilman & Ciocia, Inc. (the "Company"), which is incorporated in Delaware,
is a provider of income tax preparation and financial planning services
to individuals and businesses. The Company also provides direct mail
services through its Progressive Mailing Services ("Progressive")
division. The Company has three wholly-owned subsidiaries. They are as
follows:
JT Securities, Inc. ("JT") is a registered broker-dealer and investment
advisor, pursuant to the provisions of the Securities Exchange Act of
1934 and the Investment Advisers Act of 1940, respectively.
Gilbert Financial Services, Inc. ("Gilbert"), which was acquired
effective November 1, 1994, is also in the business of providing
financial services. The Company acquired the outstanding common stock of
Gilbert in exchange for 203,428 shares of the Company. Gilbert is
presently inactive.
B.T. Telemarketing, Inc. ("BT") is a telemarketing company. BT is
presently inactive.
The majority of the Company's revenues are earned from January through
June.
(b) Basis of Financial Statement Presentation
The consolidated financial statements include the accounts of the Company
and its three wholly-owned subsidiaries JT, BT and Gilbert, and have been
prepared as if the entities had operated as a single consolidated group
since their respective dates of incorporation. All significant
intercompany accounts and transactions have been eliminated in
consolidation. The investment in partnership has been accounted for under
the equity method.
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that effect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of
the financial statements and revenues and expenses during the reporting
period. Actual results could differ from those estimates.
F-12
<PAGE> 19
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(c) Fair Value of Financial Instruments
The carrying amounts of financial instruments, including cash, accounts
receivable, notes receivable, accounts payable and short-term borrowings,
approximated fair value as of June 30, 1996, because of the relatively
short-term maturity of these instruments.
(d) Impairment of Loans
The Company has adopted Statement of Financial Accounting Standard
("SFAS") No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures", as of July 1, 1995. The adoption of
SFAS No.118 did not have a material impact on its results of operations,
financial position or cash flows.
(e) Property and Equipment
Property and equipment are recorded at cost. Depreciation and
amortization is calculated using straight-line or accelerated methods
over the estimated useful lives of the assets or, for leasehold
improvements, over the lease terms which range from one to seven years.
(f) Advances to Financial Planners
The Company entered into three year agreements with independent financial
planners ("Planners"), which require the Planners to become captive
agents of the Company. In connection therewith, the Company advances
funds to financial planners. The agreements require the advances to be
forgiven in three years as long as the Planners remain independent
contractors of the Company. As such, all advances are amortized on a
straight-line basis over three years.
(g) Intangible Assets
Intangible assets include the costs of $1,223,102 to acquire lists of
customer accounts and non-competition agreements.
Amortization is computed on a straight-line basis over a period of five
years and amounted to $190,817 and $1,465 for the years ended June 30,
1996 and 1995, respectively.
F-13
<PAGE> 20
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The Company's operational policy for the assessment and measurement of
any impairment in the value of the intangible assets acquired which is
other than temporary is to evaluate the recoverability and remaining life
of the intangible assets and determine whether the intangible assets
should be completely or partially written-off or the amortization period
accelerated. The Company will recognize an impairment in the value of the
intangible assets if the estimated future operating cash flows of the
intangible assets are determined to be less than their carrying amount.
If the Company determines that impairment has occurred, the measurement
of the impairment will be equal to the excess of the carrying amount of
the intangible assets over the amount of the undiscounted estimated
operating cash flows.
(h) Deferred Rent
The Company recognizes rent expense on a straight line basis over the
minimum term of the lease. The effect of such adjustment for the years
ended June 30, 1996 and 1995, was approximately $54,000 and $0,
respectively.
(i) Revenue Recognition
The Company recognizes all revenues upon completion of the services
associated with income tax preparation and direct mail services.
Securities transactions and related commission revenue and expenses are
recorded on a trade date basis.
JT utilizes financial planners that are independent contractors of the
Company pursuant to which the Company receives a portion of the
commission revenues generated by these individuals in exchange for
providing client referrals, office space, and clerical and secretarial
support.
(j) Advertising
The Company expenses advertising costs as incurred.
(k) Reimbursement of Financial Planning Expenses
Based on an employment agreement between the Company and one of its
managers, the manager is required to reimburse the Company for certain
expenses incurred on behalf of the Company should he fail to achieve
certain gross revenue criteria. Based on these criteria, the Company is
entitled to be reimbursed for $125,000 of these expenses in fiscal 1996.
The Company will offset the manager's future earnings by this amount by
December 31, 1996.
F-14
<PAGE> 21
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(l) Income Taxes
Deferred tax assets and liabilities are recorded for the estimated future
tax effects attributable to temporary differences between the basis of
assets and liabilities recorded for financial and tax reporting purposes
(Note 11).
(m) Net Income Per Share
Primary and fully diluted earnings per share are computed using the
treasury stock method, modified for stock options and warrants
outstanding in excess of 20% of the total outstanding shares of common
stock. Under this method, the aggregate number of shares outstanding
reflects the assumed use of proceeds from the hypothetical exercise of
the outstanding options and warrants, unless the effect on earnings is
anti-dilutive. The assumed proceeds are used to repurchase shares of
common stock at the average market value during the period to a maximum
of 20% of the shares outstanding. The balance of the proceeds, if any,
are used to reduce outstanding debt with the assumed interest expense
savings being added to the results of operations for the reported period.
Fully diluted earnings per share also reflects the assumed use of
proceeds from the hypothetical exercise of options and warrants to
purchase common stock at the ending market price for the reported period.
(n) Reclassifications
Certain amounts as previously reported have been reclassified to conform
to the June 30, 1996 representation.
(o) Recent Accounting Pronouncements
In March, 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 121, "Accounting For the Impairment of Long Lived Assets and for
Long Lives Assets to the Disposed Of", which is effective for fiscal
years beginning after December 15, 1995. The Company will adopt SFAS No.
121 as of July 1, 1996 and does not expect the adoption of SFAS No. 121
to have a material impact on its results of operations, financial
position or cash flows.
F-15
<PAGE> 22
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation", which is effective for transactions entered into for
fiscal years that begin after December 15, 1995. SFAS No. 123 establishes
a fair value method for accounting for stock-based compensation plans
either through recognition or disclosure. The Company intends to adopt
the employee stock-based compensation provisions of SFAS No. 123 as of
July 1, 1996 by disclosing the pro forma net income and pro forma net
income per share amounts assuming the fair value method was adopted July
1, 1995. The adoption of this standard will not impact the Company's
consolidated results of operations, financial position or cash flows.
2. ACQUISITIONS
(a) Intangible Assets
During fiscal 1996 and 1995, the Company acquired customer lists and
entered into non-competition agreements for approximately $730,000
and $459,000, respectively. Included in the intangibles acquired
during fiscal 1995 was a customer list and a non-competition
agreement with the former principal stockholder of Progressive.
Pro forma financial information for these acquisitions has not been
provided because they were not deemed to be material to the
consolidated results of operations of the Company.
(b) Gilbert
On February 10, 1995, the Company acquired all of the issued and
outstanding capital stock of Gilbert in exchange for 203,428 shares
of the Company's common stock. The acquisition was effective as of
November 1, 1994 and has been accounted for as a pooling of
interests.
F-16
<PAGE> 23
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
3. RECEIVABLES FROM RELATED PARTIES
Receivables from related parties consist of the following:
<TABLE>
<CAPTION>
June 30, 1996
----------------------------------------------------------------------
<S> <C>
Non-interest bearing note receivable from
officers/stockholders of the Company that is due on
demand $150,000
Notes receivable from independent contractor/stockholder
of the Company due on June 30, 1997 and October 8,
1997. Interest is charged at a rate of 8% per annum 214,219
Receivable from independent contractor/stockholder of the
Company, payable in monthly installments of $15,625
through December 1, 1996 94,750
Other 84,171
----------------------------------------------------------------------
543,140
Less: current portion 403,545
----------------------------------------------------------------------
$139,595
======================================================================
</TABLE>
For the years ended June 30, 1996 and 1995, interest income from these
receivables was approximately $12,662 and $11,226, respectively.
4. ADVANCES AND NOTES RECEIVABLE - FINANCIAL PLANNERS
Advances and notes receivable - financial planners consist of the
following:
<TABLE>
<CAPTION>
June 30, 1996
----------------------------------------------------------------
<S> <C>
Non-interest bearing advances to financial planners
amortized over three years $451,531
Note receivable from financial planner due
December 4, 1998. Interest is payable at 6% per
annum 50,000
----------------------------------------------------------------
$501,531
================================================================
</TABLE>
F-17
<PAGE> 24
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
5. PROPERTY AND EQUIPMENT
Major classes of property and equipment consist of the following:
<TABLE>
<CAPTION>
June 30, 1996
-------------------------------------------------------------
<S> <C>
Equipment $1,911,788
Furniture and fixtures 342,206
Leasehold improvements 147,157
-------------------------------------------------------------
2,401,151
Less Accumulated depreciation and amortization 899,450
-------------------------------------------------------------
$1,501,701
=============================================================
</TABLE>
6. SHORT-TERM BORROWINGS
The Company has a bank line of credit which provides for borrowings up to
a maximum amount of $2,000,000 and expires on October 31, 1996. The line
of credit is guaranteed by the four principal stockholders of the
Company. At June 30, 1996, the Company had borrowings of $500,000
outstanding under this line of credit. Interest is charged at the prime
rate (8.25% at June 30, 1996) plus 1.5%.
The Company also has a $500,000 term loan with the bank which requires
monthly payments of $13,889 (plus interest at the prime rate, 8.25% at
June 30, 1996 plus 1.75%) through June 30, 1997. The loan is secured by
all of the Company's assets. At June 30, 1996, the Company's outstanding
balance under this loan was $180,556.
F-18
<PAGE> 25
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
7. COMMITMENTS AND CONTINGENCIES
(a) Leases
The Company is obligated under various noncancelable lease agreements
for the rental of office space and equipment through 2001. The lease
agreements for office space contain escalation clauses based
principally upon real estate taxes, building maintenance and utility
costs. The following is a schedule by year of future minimum rental
payments required under operating leases:
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------------------------------------------
<S> <C>
1997 $1,531,446
1998 1,265,843
1999 850,731
2000 541,008
2001 254,061
Thereafter 36,743
------------------------------------------------------------------
$4,479,832
==================================================================
</TABLE>
(b) Internal Revenue Code Provisions for Penalties of Tax Preparers
The Company's business of preparing income tax returns subjects it to
potential civil liabilities under the Internal Revenue Code. Although
the Company believes it complies with all applicable laws and
regulations, no assurance can be given that the Company will never
incur any material fines or penalties.
F-19
<PAGE> 26
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(c) Professional Liability or Malpractice Insurance
The Company does not maintain any professional liability or
malpractice insurance policy. Although the Company believes it
complies with all applicable laws and regulations, no assurance can
be given that the Company will not be subject to professional
liability or malpractice suits.
(d) Clearing Agreement
All securities transactions are introduced and cleared on a fully
disclosed basis through a correspondent broker that is a member of
the New York Stock Exchange, Inc. (the "Broker") pursuant to a
clearing agreement (the "Agreement"). Accordingly, JT operates under
the exemptive provisions of Securities Exchange Commission ("SEC")
Rule 15c3-3(k)(2)(ii).
The Agreement provides the Broker with liens upon all cash and
receivables held by the Broker which totalled approximately $46,000
at June 30, 1996. These liens secure the liabilities and obligations
of the Company to the Broker.
(e) Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash and accounts
receivable. The Company maintains its temporary cash investments with
high quality financial institutions. The highly seasonal nature of
the Company's business results in the periodic accumulation of cash
in amounts in excess of the FDIC insurance limits. The Company
utilizes several financial institutions at these times to minimize
the exposure for potential losses.
(f) Net Capital Requirements
JT is subject to the Uniform Net Capital Rule of the SEC, which
requires the maintenance of minimum regulatory net capital and
requires that the ratio of aggregate indebtedness to net capital,
both as defined, shall not exceed 15 to 1. At June 30, 1996, JT had
net capital of $1,861,884 and a net capital requirement of $25,000.
F-20
<PAGE> 27
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(g) Financial Instruments with Off-balance Sheet Risk
In the normal course of business, JT executes, as an agent,
transactions on behalf of customers. If the agency transactions do
not settle because of failure to perform by either the customer or
the counterpart, JT may be obligated to discharge the obligation of
the nonperforming party and, as a result, may incur a loss if the
market value of the security is different from the contract amount of
the transactions.
JT does not anticipate nonperformance by customers or counterparties
in the above situation. JT's policy is to monitor its market exposure
and counterpart risk. In addition, JT has a policy of reviewing, as
considered necessary, the credit standing of each counterpart and
customer with which it conducts business.
(h) Litigation
The Company is a defendant in various lawsuits which are in the early
stages of discovery and therefore no conclusion can be made by legal
counsel as to the outcome. It is the opinion of management that the
outcome of the pending lawsuits will not materially affect the
operations, cash flows or financial condition of the Company.
8. STOCKHOLDERS' EQUITY
(a) Public Offering
In December 1994, the Company consummated its initial public offering
("IPO") of 507,926 units, including the underwriter's overallotment
option, of its securities to the public for $7.00 per unit. Each unit
consisted of two shares of the Company's common stock and a warrant
to purchase another share of common stock at $4.67 per share.
Proceeds of the offering less underwriting discounts of approximately
$278,000 were approximately $3,277,000. Expenses for the IPO totaled
approximately $190,000, resulting in net proceeds to the Company of
approximately $3,087,000.
In connection with the IPO, the Company issued warrants to purchase
50,783 units of common stock to the underwriter.
F-21
<PAGE> 28
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(b) Warrants
(i) 239,975 Class B warrants outstanding were originally issued in
connection with a private placement financing that took place
in fiscal 1994 and are held by the Company's warrantholders.
Each warrant grants the holder the right to purchase one share
of common stock at an exercise price of $3.13 per share and
expires in September 2003.
(ii) The remaining 507,926 and 50,783 warrants outstanding consist
of those issued to the public and the underwriter,
respectively, in connection with the IPO. Each warrant issued
to the public grants the holder the right to purchase one share
of common stock at an exercise price of $4.67 and expires in
September 1997. The warrants issued to the underwriter grant
the holder the right to purchase two shares of common stock and
a warrant to purchase another share of common stock at a
exercise price of $4.67 and expire in September 1999. These
warrants are to be registered in connection with the Company's
outstanding Registration Statement with the SEC (Note 8(f)).
(c) Stock Option Agreements and Stock Option Plan
The Company has granted 695,000 options to purchase shares of the
Company's common stock to three individuals and two consultants. The
vesting period of such options ranges from upon grant to 8.5 years
from the date of grant. The options expire 3 - 14.5 years from the
date of grant. Of these options, 571,000 options were exercisable at
June 30, 1996.
In September 1993, the Company's Board of Directors and Stockholders
adopted the Company's Joint Incentive and Non-Qualified Stock Option
Plan, (the "Option Plan"). The Option Plan provides for the granting,
at the discretion of the Board of Directors, of: (i) options that are
intended to qualify as incentive stock options, within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended, to
employees and (ii) options not intended to so qualify to employees,
officers and directors. The total number of shares of common stock
for which options may be granted under the Option Plan is 816,000
shares.
The number of shares granted, price, terms of exercise, and
expiration dates are determined by the Board of Directors. The Plan
will terminate in September 2003.
F-22
<PAGE> 29
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
At June 30, 1996, 697,002 options have been granted under the Option
Plan. Of these options 511,335 options are exercisable and 118,998
options remain available for future grants under the Option Plan.
The Company recorded compensation expense of $232,782 and $30,875 for the
years ended June 30, 1996 and 1995, respectively, in connection with the
issuance of stock options.
Changes in options and warrants outstanding are summarized as follows:
<TABLE>
<CAPTION>
Options Warrants
-----------------------------------------------------------
Shares Exercise Price Shares Exercise Price
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, July 1, 1994 432,002 $2.60 - $3.65 599,975 $2.08 - $3.13
Granted 678,000 $2.32 - $5.20 * 558,709 $ $4.67
Exercised - - (360,000) $ 2.08
- ----------------------------------------------------------------------------------
Balance, June 30, 1995 1,110,002 $2.32 - $5.20 798,684 $3.13 - $4.67
Cancelled (63,000) $ 3.50 - - -
Granted 355,000 $1.75 - $5.13 - - -
Exercised (10,000) $ 2.32 - - -
- ----------------------------------------------------------------------------------
Balance, June 30, 1996 1,392,002 $1.75 - $5.20 798,684 $3.13 - $4.67
==================================================================================
</TABLE>
* Including 50,783 warrants issued to the underwriter which entitled
the holder to two shares of the Company's common stock and a
warrant to purchase another share of common stock.
F-23
<PAGE> 30
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(d) Treasury Stock
In December 1994, the Company acquired 20,000 shares of its common
stock at a cost of $72,500.
In January and July 1995, the Board of Directors resolved to accept
85,930 and 11,034 shares, respectively, of the Company's common stock
from four officers in lieu of repayment of certain loans due to the
Company. The shares were valued at the approximate fair market value
of $3.50 per share for an aggregate value of $339,375. Of the 96,964
shares, 85,930 were returned to treasury stock on August 23, 1995.
The remaining 11,034 shares were returned to treasury stock on
September 22, 1995.
On January 19, 1996, the Board of Directors of the Company resolved
to cancel and return all existing shares of the Company's treasury
stock to authorized and unissued shares of common stock.
(e) Stock Subscriptions and Accrued Interest Receivable
Stock subscriptions receivable of $424,988 bear interest at a rate of
9% per annum. For the years ended June 30, 1996 and 1995, the Company
recognized interest income of $35,879 and $64,143, respectively. At
June 30, 1996 accrued interest receivable was $22,433.
The Company is holding in escrow all of the shares of its common
stock related to the stock subscriptions receivable. The shares will
be released when the stock subscriptions receivables are paid.
F-24
<PAGE> 31
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The following is a schedule by year of principal payments to be received:
<TABLE>
<CAPTION>
Year Ending June 30,
------------------------------------------------------------------
<S> <C>
1997 $165,506
1998 125,232
1999 75,250
2000 59,000
------------------------------------------------------------------
$424,988
==================================================================
</TABLE>
(f) Registration Statement on Form SB-2
On May 8, 1996, the Company filed a Form SB-2, as amended, with the
SEC relating to the offering of 507,926 shares of common stock by the
Company issuable upon exercise of all of the outstanding public
redeemable warrants, 1,350,706 shares of common stock by selling
stockholders and 50,783 redeemable common stock purchase warrants by
selling stockholders. The filing has not been declared effective and
will be amended to incorporate the consolidated financial statements
of the Company for the year ended June 30, 1996.
9. RELATED PARTY TRANSACTIONS
(a) Investment in Partnership
In July, 1995, the Company, together with one of its officers and
five individuals who are relatives of the officers of the Company
formed ATM Partners, LP (the "Partnership"). All investment
transactions are executed through JT by an officer of the Company. At
June 30, 1996, the Company had a 35.62% interest in the Partnership
and recognized income of approximately $198,000 from the Partnership
for the year then ended.
F-25
<PAGE> 32
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The following are the condensed financial statements of the Partnership:
ATM Partners, LP
Balance Sheet
<TABLE>
<CAPTION>
June 30, 1996
------------------------------------------------------------------
<S> <C>
ASSETS
CURRENT:
Marketable securities $2,163,664
------------------------------------------------------------------
$2,163,664
==================================================================
LIABILITIES AND PARTNERS' CAPITAL
CURRENT:
Due to clearing broker $ 561,342
Due to partner 68,000
------------------------------------------------------------------
Total current liabilities 629,342
Partners' capital 1,534,322
------------------------------------------------------------------
$2,163,664
==================================================================
</TABLE>
[CAPTION]
ATM Partners, LP
Statement of Income
<TABLE>
Year Ended June 30, 1996
------------------------------------------------------------------
<S> <C>
Realized gain on sale of marketable securities $749,896
Unrealized loss on marketable securities 8,293
Commission expense 185,270
------------------------------------------------------------------
Net income $556,333
==================================================================
</TABLE>
F-26
<PAGE> 33
(b) Commissions Earned by Officers
The Company's principle officers/stockholders act as registered
representatives of the Broker and authorized agents of insurance
carriers. During fiscal 1996 and 1995, these individuals earned gross
commissions of approximately $582,000 and $517,000, respectively,
from sales of securities and insurance products, and paid the Company
approximately $180,000 and $221,000 as reimbursement for client
referrals, office space and clerical and secretarial support.
(c) Sale of Options by Officers/Stockholders
In November 1995, five executive officers sold options to purchase a
total of 65,000 shares of the Company's common stock for $2.00 per
option to Rummco, Ltd. ("Rummco"), a Cayman Islands company. In
connection with such sale, the Company agreed to consent to such sale
and register shares underlying such options in connection with the
Company's Registration Statement on Form SB-2 (Note 8(f)). These
options to purchase shares of common stock were subsequently sold to
Rozel International Holding, Ltd. ("Rozel") for $4.50 per option, in
an agreement dated June 10, 1996. Both Rummco and Rozel are
independent of the Company.
(d) Forgiveness of Indebtedness of Officers/Stockholders
The four principal stockholders/officers were indebted to the Company
under demand loans totalling $123,899. The loans were converted to
notes receivable upon the Company's demand for repayment in March
1996, and then subsequently forgiven and charged to compensation.
10. SEGMENTS OF BUSINESS
The Company is a provider of income tax preparation and financial
planning services to individuals and businesses in various states across
the country. Direct mail services are provided primarily to businesses
and individuals in the New York metropolitan area.
F-27
<PAGE> 34
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The following presents financial information by segment for the years
ended June 30, 1996 and 1995:
<TABLE>
<CAPTION>
Year Ended Tax Financial
June 30, 1996 Preparation Planning Direct Mail Eliminations Consolidation
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues from
unaffiliated customers $8,147,986 $5,671,905 $ 2,689,786 $ -- $ 16,509,677
Intersegment revenues -- -- 2,000,000 (2,000,000) --
----------------------------------------------------------------------------------------------------------
Total revenues 8,147,986 5,671,905 4,689,786 (2,000,000) 16,509,677
Direct costs 4,260,631 3,052,737 4,429,177 (2,000,000) 9,742,545
Depreciation and
amortization 302,304 210,076 13,088 -- 525,468
General corporate
expenses 3,182,122 2,215,025 249,988 -- 5,647,135
----------------------------------------------------------------------------------------------------------
Operating income $ 402,929 $ 194,067 $ (2,467) $ -- $ 594,529
----------------------------------------------------------------------------------------------------------
Interest expense $ -- $ -- $ -- $ -- $ 107,111
----------------------------------------------------------------------------------------------------------
Identifiable assets $5,519,630 $2,048,485 $ 298,386 $ -- $ 7,866,501
----------------------------------------------------------------------------------------------------------
Capital expenditures $ 813,750 $ -- $ 86,635 $ -- $ 900,385
----------------------------------------------------------------------------------------------------------
Direct costs consist of the
following:
Direct mail costs $ -- $ -- $ 1,682,108 $ -- $ 1,682,108
Advertising 1,509,001 1,048,628 2,027,496 (2,000,000) 2,585,125
Rent 831,303 577,685 93,800 -- 1,502,788
Salaries and
commissions 1,920,327 1,426,424 625,773 -- 3,972,524
----------------------------------------------------------------------------------------------------------
Total direct costs $4,260,631 $3,052,737 $ 4,429,177 $ (2,000,000) $ 9,742,545
==========================================================================================================
<CAPTION>
Year Ended Tax Financial
June 30, 1995 Preparation Planning Consolidated
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $6,657,620 $3,274,541 $9,932,161
Direct costs 3,106,057 1,435,170 4,541,227
Depreciation and
amortization 142,468 70,171 212,639
General corporate
expense 3,080,159 1,514,972 4,595,131
----------------------------------------------------------------------------------------------------------
Operating income $ 328,936 $ 254,228 $ 583,164
----------------------------------------------------------------------------------------------------------
Interest expense $ -- $ -- $ 91,359
----------------------------------------------------------------------------------------------------------
Identifiable assets $5,226,071 $ 867,389 $6,093,460
----------------------------------------------------------------------------------------------------------
Capital expenditures $ 414,558 $ 204,186 $ 618,744
----------------------------------------------------------------------------------------------------------
Direct costs consist of the
following:
Advertising $1,370,269 $ 674,909 $2,045,178
Rent 611,419 301,146 912,565
Salaries and
commissions 1,124,369 459,115 1,583,484
----------------------------------------------------------------------------------------------------------
Total direct costs $3,106,057 $1,435,170 $4,541,227
==========================================================================================================
</TABLE>
Intersegment sales are recognized upon the completion of the services
associated with direct mail services.
F-28
<PAGE> 35
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
11. TAXES ON INCOME
Provisions for income taxes in the consolidated financial statements
consist of the following:
<TABLE>
<CAPTION>
Year Ended June 30, 1996 1995
--------------------------------------------------------------------
<S> <C> <C>
Current:
Federal $ 362,297 $118,038
State and local 123,935 267,992
--------------------------------------------------------------------
Total current 486,232 386,030
--------------------------------------------------------------------
Deferred:
Federal (103,483) --
State and local (30,102) --
--------------------------------------------------------------------
Total deferred (133,585) --
--------------------------------------------------------------------
$ 352,647 $386,030
====================================================================
</TABLE>
Deferred tax assets consist of the following:
<TABLE>
<CAPTION>
June 30, 1996
-----------------------------------------------------------
<S> <C>
Compensation expense recognized for financial $ 60,000
reporting purposes in connection with
common stock option grants issued at below
market value
Book amortization of intangibles in excess of
tax 53,000
Provision for bad debts 22,000
Provision for deferred rent liability 22,000
Book depreciation in excess of tax (23,415)
-----------------------------------------------------------
$ 133,585
===========================================================
</TABLE>
No valuation allowance has been established against the deferred tax
assets because management believes that all of the deferred tax assets
will be realized.
F-29
<PAGE> 36
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
A reconciliation of the Federal statutory rate to the provision for
income taxes is as follows:
<TABLE>
<CAPTION>
Year Ended June 30, 1996 1995
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal income taxes computed at
statutory rates $301,706 34.0% $ 215,401 34.0%
State and local taxes, net of
Federal tax benefit 44,225 5.0 176,875 27.9
Other 6,716 .7 (6,246) (1.0)
--------------------------------------------------------------------------------
$352,647 39.7% $ 386,030 60.9%
================================================================================
</TABLE>
F-30
<PAGE> 37
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
12. STATEMENTS OF CASH FLOWS - SUPPLEMENTAL DISCLOSURES
<TABLE>
<CAPTION>
Year Ended June 30, 1996 1995
---------------------------------------------------------------------
<S> <C> <C>
Cash payments for:
Interest $107,184 $ 78,402
Income taxes $449,276 $543,890
---------------------------------------------------------------------
Non-cash transactions:
Deferred registration
costs which were
charged to
additional paid-in
capital upon the
completion of the
public offering in
December 1995 $ -- $186,245
Issuance of common
stock in exchange
for stock
subscriptions
receivable $ 40,000 $ 20,000
Issuance of common
stock subsequent to
completion of the
public offering in
exchange for
common stock
subscriptions
receivable $ -- $ 95,000
Receipt of 96,964
shares of stock to
treasury in lieu of
repayment of
officers' loans
receivable $ -- $339,375
Acquisition of
Progressive $ -- $275,000
Acquisition of Gilbert $ -- $108,231
Acquisition of treasury
stock and write-off
of stock
subscriptions
receivable $ 67,590 $ --
Retirement of all
outstanding treasury
stock $479,465 $ --
===============================================================
</TABLE>
F-31
<PAGE> 38
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. RESTATEMENTS
Fiscal 1995 Financial Information
The financial position and results of operations, as of June 30, 1995
and for the year then ended, have been restated to increase the
Company's tax liability and provision by approximately $145,000 to
correctly reflect its liability as of that date.
14. SUBSEQUENT EVENT
On July 30, 1996, the Company acquired a building to house one of its
offices in North Babylon, NY for approximately $221,000.
F-32
<PAGE> 39
PART III
ITEM 10. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Other
Name and Principal Fiscal Annual Options
Position Year Salary Bonus* Compensation (Shares)
- -------- ---- ------ ------ ------------ --------
<S> <C> <C> <C> <C> <C>
James Ciocia 1994 $200,000 $ 10,326 -0- -0-
Chief Executive Officer, 1995 $267,200 $ 4,318 -0- 18,850
President and Director 1996 $251,200 $ 28,588 $30,500(1) -0-
Thomas Povinelli 1994 $200,000 $180,263 -0- -0-
Chief Operating Officer 1995 $259,600 $ 65,321 -0- 18,850
and Director 1996 $339,300 $115,595 $78,600(2) -0-
Gary Besmer 1994 $150,000 $ 2,456 -0- -0-
Vice President and 1995 $156,100 $ 375 -0- 11,310
Director 1996 $168,800 $ 11,197 $19,000(3) -0-
Kathryn Travis 1994 $150,000 $ 1,773 -0- -0-
Secretary, Vice President 1995 $156,300 $ -0- -0- 14,170
and Director 1996 $166,200 $ 8,567 $49,300(4) -0-
Ralph V. Esposito 1994 $ 90,000 $ 1,340 -0- -0-
Treasurer, Vice President 1995 $101,400 $ -0- -0- 201,820
and Chief Financial Officer 1996 $108,000 $ 188 $15,600(5) -0-
</TABLE>
- --------------------
* Represents commission earned from non-affiliated entities.
(1) Includes $11,000 for auto expense and $19,500 for forgiveness of loan.
(2) Includes $18,600 for auto expense and $60,000 for forgiveness of loan.
(3) Includes $7,000 for auto expense and $12,000 for forgiveness of loan.
(4) Includes $8,900 for auto expense, $32,300 for forgiveness of loan and
$8,100 for health insurance.
(5) Includes $7,500 for auto expense and $8,100 for health insurance.
Messrs. Ciocia, Povinelli and Besmer and Ms. Travis earn commissions from
the sale of securities and insurance products to clients of JT securities out of
which commissions such individuals compensate JT Securities for clerical and
support services and client references. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
DIRECTORS
Directors of the Company receive no compensation for serving as a
director.
6
<PAGE> 40
AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs at Options/SARs
Fiscal Year-End(#) Fiscal Year-End($)(1)
Name Exercisable/Unexercisable Exercisable/Unexercisable
- ------------------ ------------------------- -------------------------
<S> <C> <C>
James Ciocia 125,370 / - 398,528 / -
Thomas Povinelli 125,370 / - 398,528 / -
Gary Besmer 75,223 / - 239,119 / -
Kathryn Travis 94,039 / - 298,931 / -
Ralph Esposito 48,000 / 164,000 136,740 / 197,220
</TABLE>
(1) Based on a year-end fair market value of the underlying securities equal to
$6.13.
STOCK OPTION PLAN
On September 14, 1993, the Company adopted the Company's 1993 Joint
Incentive and Non-Qualified Stock Option Plan, as amended October 14, 1993 (the
"Plan"), pursuant to which the Company may grant options to purchase up to an
aggregate of 816,000 shares. Such options may be intended to qualify as
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, or they may be intended not to qualify under
such Section ("Non-Qualified Options").
The Plan is administered by Seth Akabas and Louis Karol, the committee of
independent directors of the Board of Directors of the Company, which has
authority to determine the persons to whom the options may be granted, the
number of shares of Common Stock to be covered by each option, the time or times
at which the options may be granted or exercised, whether the options will be
Incentive Options or Non-Qualified Options, and other terms and provisions of
the options. The exercise price of the Incentive Stock Options granted under the
Plan may not be less than the fair market value of a share of Common Stock on
the date of grant (110% of such value if granted to a person owning in excess of
ten percent of the Company's securities). Options granted under the Plan may not
have a term longer than 10 years from the date of grant (five years if granted
to a person owning in excess of ten percent of the Company's securities) and may
not be granted more than ten years from the date of adoption of the Plan.
INDEMNIFICATION
The Company's Certificate of Incorporation includes a provision that
eliminates or limits the personal financial liability of the Company's
directors, except in situations where there has been a breach of the duty of
loyalty, failure to act in good faith, intentional misconduct or violation of
the law.
In addition, the Company's By-laws include provisions to indemnify its
officers and directors and other persons against expenses, judgments, fines and
amounts paid in settlement in connection with threatened, pending or completed
suits or proceedings against such persons by reason of serving or having served
as officers, directors or in other capacities, except in relation to matters
with respect to which persons shall be determined to have acted not in good
faith, unlawfully or not in the best interests of the Company. With respect to
matters as to which the Company's officers and directors and others are
determined to be liable for misconduct or negligence in the performance of their
duties, the Company's By-laws provide for indemnification only to the extent
that the Company determines that such person acted in good faith and in a manner
not opposed to the best interests of the Company.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES
ACT OF 1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS
7
<PAGE> 41
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.
8
<PAGE> 42
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/ Thomas Povinelli
-----------------------------------------
Thomas Povinelli, Chief Financial Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
<TABLE>
<S> <C> <C>
/s/ James Ciocia Chief Executive Officer, President February 13, 1997
- --------------------- and Director
James Ciocia
/s/ Thomas Povinelli Chief Operating Officer, Chief Financial February 13, 1997
- --------------------- Officer and Director
Thomas Povinelli
/s/ Gary Besmer Vice President and Director February 13, 1997
- ---------------------
Gary Besmer
/s/ Kathryn Travis Secretary, Vice President and Director February 13, 1997
- ---------------------
Kathryn Travis
/s/ Seth Akabas Director February 13, 1997
- ---------------------
Seth Akabas
Director February , 1997
- ---------------------
Louis P. Karol
</TABLE>
9
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<EXCHANGE-RATE> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 2,221,795
<SECURITIES> 0
<RECEIVABLES> 976,686
<ALLOWANCES> 45,974
<INVENTORY> 0
<CURRENT-ASSETS> 3,702,892
<PP&E> 2,401,151
<DEPRECIATION> 899,450
<TOTAL-ASSETS> 7,866,501
<CURRENT-LIABILITIES> 1,367,560
<BONDS> 0
0
0
<COMMON> 55,505
<OTHER-SE> 6,443,436
<TOTAL-LIABILITY-AND-EQUITY> 7,866,501
<SALES> 0
<TOTAL-REVENUES> 16,509,677
<CGS> 0
<TOTAL-COSTS> 12,860,580
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 107,111
<INCOME-PRETAX> 887,373
<INCOME-TAX> 352,647
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 534,726
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
