<PAGE> 1
As filed with the Securities and Exchange Commission on February 13, 1997
Registration No. 33-80627
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No.5 to
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
GILMAN & CIOCIA, INC.
----------------------------------------------
(Name of small business issuer in its charter)
Delaware 7291 11-2587324
- ---------------------- ---------------------- ----------------
(State or jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classifica- Identification
organization) tion Code Number) No.)
475 Northern Boulevard, Great Neck, NY 11021, (516) 482-4860
- --------------------------------------------------------------------------------
(Address and telephone number of principal executive offices)
475 Northern Boulevard, Great Neck, NY 11021
- --------------------------------------------------------------------------------
(Address or principal place of business or intended principal
place of business)
Mr. James Ciocia
----------------
Gilman & Ciocia, Inc.
475 Northern Boulevard
Great Neck, NY 11021, (516) 482-4860
---------------------------------------------------------
(Name, Address and telephone number of agent for service)
With copies to:
Seth A. Akabas, Esq.
Akabas & Cohen
488 Madison Avenue, 6th Floor
New York, NY 10022
(212) 308-8505
---------------------------
Approximate date of proposed sale to the public: As soon as practicable after
the effective date of this Registration Statement.
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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<S> <C> <C> <C> <C>
Title of each Proposed Proposed
class of offering aggregate Amount of
securities to Amount to be price per offering registra-
be registered registered share(1) price(1) tion fee
- -------------------------------------------------------------
Common 239,975 $7.00 $1,679,825 $ 579.25
Stock(2) shares
- -------------------------------------------------------------
Common 101,566 $7.00 $ 710,962 $ 245.16
Stock(3) shares
- -------------------------------------------------------------
Warrants(4) 50,783 $2.44 $ 123,911 $ 42.73
Warrants
- -------------------------------------------------------------
Common 50,783 $7.00 $ 355,481 $ 122.58
Stock(5) shares
- -------------------------------------------------------------
Common 507,926 $4.67 $2,372,014 $ 817.94
Stock (6) shares
- -------------------------------------------------------------
Common 315,000 $7.00 $2,205,000 $ 760.35
Stock (7) shares
- -------------------------------------------------------------
Common 420,002 $2.63 $1,104,605 $ 380.90
Stock (8) shares
- -------------------------------------------------------------
Common Stock 16,072 $2.63 $ 42,269 $ 14.58
(9) shares
=============================================================
</TABLE>
<TABLE>
<S> <C>
TOTAL: $2,963.49
AMOUNT PREVIOUSLY PAID: $4,140.96
---------
AMOUNT CURRENTLY OWED: $ 0.00
</TABLE>
(1) Estimated using the market price of the Company's Common Stock
solely for the purpose of determining the registration fee.
(2) Issuable upon exercise of the bridge loan Class B Warrants
outstanding.
(3) Issuable upon exercise of the Underwriter's Warrants
outstanding.
(4) Issuable upon exercise of the Underwriter's Warrants
outstanding.
(5) Issuable upon exercise of the Redeemable Public Warrants that
are issuable upon exercise of the Underwriter's Warrants,
assuming all of the Underwriter's Warrants are exercised.
(6) Issuable upon exercise of all of the outstanding Redeemable
Public Warrants.
(7) Issuable upon exercise of stock options outstanding.
(8) 420,002 shares are issuable upon exercise of employee stock
options outstanding.
(9) Outstanding shares of Common Stock owned by an employee of the
Company.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission (the
"Commission"), acting pursuant to said Section 8(a), may determine.
<PAGE> 3
GILMAN & CIOCIA, INC.
Cross-Reference Sheet
Item Caption Location
1. Forepart of Registration Outside Front Cover Page
Statement and Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Inside Front and Outside
Back Cover Pages of Back Cover Pages
Prospectus
3. Summary Information and Prospectus Summary; Risk
Risk Factors Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Not Applicable
Price
6. Dilution Not Applicable
7. Selling Securityholders Selling Securityholders
8. Plan of Distribution Plan of Distribution; Selling
Securityholders
9. Legal Proceedings Business--Legal Proceedings
10. Directors, Executive Management
Officers, Promoters and
Control Persons
11. Security Ownership of Principal Stockholders
Certain Beneficial Owners
and Management
12. Description of Securities Description of Securities
13. Interest of Named Experts Legal Matters
and Counsel
14. Disclosure of Commission Remuneration of Officers
Position on and Directors
Indemnification
for Securities
15. Organization within Last Not Applicable
Five Years
<PAGE> 4
16. Description of Business Business; Risk Factors;
Financial Statements;
Prospectus Summary; Market
Information; Use of Proceeds
17. Management's Discussion Management's Discussion
and Analysis or Plan of and Analysis of Financial
Operation Condition and Results of
Operations
18. Description of Property Business--Facilities
19. Certain Relationships and Certain Transactions
Related Transactions
20. Market for Common Equity Market Information;
and Related Stockholder Prospectus Summary
Matters
21. Executive Compensation Remuneration of Officers and
Directors
22. Financial Statements Financial Statements
<PAGE> 5
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED FEBRUARY 13, 1997
GILMAN & CIOCIA, INC.
507,926 SHARES OF COMMON STOCK
--------------------
1,143,398 SHARES OF COMMON STOCK BY SELLING SECURITYHOLDERS
--------------------
50,783 REDEEMABLE COMMON STOCK PURCHASE WARRANTS BY SELLING
SECURITYHOLDERS
This Prospectus relates to the offering by the Company (the "Offering")
of 507,926 shares of common stock (the "Common Stock"), par value $.01 per
share, of Gilman & Ciocia, Inc., a Delaware corporation (the "Company").
This Prospectus also relates to the offering (the "Offering") by
holders or prospective holders of securities of the Company including officers
and directors (the "Selling Securityholders") of shares of Common Stock issuable
upon the exercise of outstanding warrants and options, and 50,783 warrants (the
"Redeemable Public Warrants") for the purchase of Common Stock at an exercise
price of $4.67 per share (the "Redeemable Public Warrant Exercise Price"),
expiring on September 8, 1997. Each Redeemable Public Warrant is redeemable at a
price of $.01 per warrant, provided that (i) notice of redemption is given to
the Redeemable Public Warrantholders not less than 30 days prior to redemption;
(ii) the average of the closing bid and asked quotations of the Common Stock
shall have been at least 25% above the Redeemable Public Warrant Exercise Price
for the 20 trading days ending on the third day prior to the day on which notice
of redemption is given; and (iii) holders of Redeemable Public Warrants shall be
entitled to exercise Redeemable Public Warrants until the close of business on
the day prior to the date fixed for redemption.
In addition, this Prospectus also relates to the offering by an
employee of 16,072 shares of Common Stock.
Shares underlying the Redeemable Public Warrants will be sold as
warrants are exercised. Such Common Stock and other Common Stock being sold by
Selling Securityholders may be sold by the Selling Securityholders, from time to
time, in transactions on the over-the-counter market, in negotiated
transactions, or through a combination of such methods of sale, at fixed prices,
which may be changed. The Company or the Selling Securityholders, as the case
<PAGE> 6
may be may effect such transactions by selling the Common Stock or Redeemable
Public Warrants to or through broker-dealers, and such broker-dealers may
receive compensation in the form of discounts, concessions or commissions from
the Company or the Selling Securityholders, as the case may be, and/or the
purchasers of the Common Stock or Redeemable Public Warrants for whom such
broker-dealers may act as agent or to whom they may sell as principal, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions). See "PLAN OF DISTRIBUTION" and "SELLING
SECURITYHOLDERS."
None of the proceeds of the sale of the shares of Common Stock or the
Redeemable Public Warrants by the Selling Securityholders will be received by
the Company. The Company could receive approximately $6,470,293 of gross
proceeds from the exercise of all of the currently outstanding Redeemable
Warrants, the bridge loan Class B Warrants, the Underwriter's Warrants, the
Redeemable Public Warrants issuable upon the exercise of the Underwriter's
Warrants and outstanding options. However, such exercise of any of the
outstanding options and warrants is not assured.
The shares of Common Stock and the Redeemable Public Warrants are
traded on The NASDAQ SmallCap Stock Market under the symbols "GTAX" and
"GTAX-W," respectively. As of February 3, 1997, the trading price for shares of
the Company's Common Stock was $3.50 per share and $.4375 per Redeemable Public
Warrant.
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE, INVOLVE A HIGH DEGREE OF
RISK AND SHOULD BE PURCHASED ONLY BY INVESTORS ABLE TO SUSTAIN A TOTAL LOSS OF
THEIR INVESTMENT. Prospective purchasers should carefully consider the matters
discussed under the caption "RISK FACTORS" located on page 5.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Company's fiscal year ends on June 30th. The Company is currently a
reporting company under the Securities Exchange Act of 1934, as amended. The
Company will provide without charge to each shareholder a copy of all reports
filed thereunder. Such requests should be addressed to the Company at 475
Northern Boulevard, Great Neck, NY 11021, telephone number (516) 482-4860,
Attention: Secretary. Such reports will also be available for inspection at The
NASDAQ Stock Market at 1735 K Street, N.W., Washington, D.C. 20006. In addition,
such reports and other information will be available for inspection at the
public reference facilities of the Securities and Exchange Commission in
Washington DC, and at its regional offices at 7 World Trade Center, New York, NY
10048 and at the Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
IL 60604, and copies of such materials could be obtained from the Public
Reference Section of the Securities and Exchange Commission (the "Commission")
in Washington, D.C. at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. Copies of this filing, reports, proxy and information
statements and other information regarding the Company are available on the
Commission's website at http://www.sec.gov.
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is intended only to summarize certain material in
this Registration. This summary is qualified in its entirety by the detailed
information and financial statements that appear elsewhere herein.
THE COMPANY
Gilman & Ciocia, Inc. (the "Company") was incorporated under the laws
of the State of Delaware on September 3, 1993 and is the successor in interest
to Gilman & Ciocia, Inc., a New York corporation organized on November 4, 1981,
and is a preparer of federal, state and local income tax returns. The Company
also earns revenues from acting as an insurance agent and mortgage broker. In
addition, the Company's wholly owned subsidiary, JT Securities, Inc. (a
registered securities broker/dealer and a registered investment advisor)("JT
Securities"), earns a significant portion of the Company's revenues by effecting
limited transactions in securities for its clients, and by providing office
space, clerical support and client references to registered representatives of
another registered securities broker/dealer. Such registered representatives are
employees or affiliated financial planners of the Company and effect
transactions in securities on behalf of clients of the Company. JT Securities
also acts as an investment advisor in conjunction with other investment advisors
to manage clients' funds. The Company recently began a division operating as a
direct mail service.
The Company has a total of one hundred and twenty-three offices:
forty-three in New York, sixteen in New Jersey, nine in Florida, nine in
Arizona, nine in Ohio, seven in Maryland, seven in Connecticut, seven in
Washington, six in Massachusetts, five in Nevada, two in California, two in
Pennsylvania and one in Kentucky, and it maintains its principal executive
office at 475 Northern Boulevard, Great Neck, NY 11021, telephone (516)
482-4860.
The Company opened fifteen offices in January 1994, twenty-two offices
in January 1995 and forty-four offices in 1996, closing five in 1996, and opened
eight in January 1997.
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THE OFFERING
Securities Outstanding:
Before the Offering.............. 5,550,582 shares
of Common Stock (1)
507,926 Redeemable
Common Stock Purchase
Warrants
After the Offering............... 7,185,434 shares of
Common Stock (2)
Securities Offered........................ 1,651,324 shares of
Common Stock (3)
50,783 Redeemable
Common Stock Purchase
Warrants (4)
Use of Proceeds........................... The Company will not
receive any of the
proceeds from the
sale of shares of
Common Stock by the
Selling
Securityholders; all
proceeds will be
paid directly to the
Selling
Securityholders. See
"SELLING
SECURITYHOLDERS."(5)
The Company could
receive $6,470,293
of gross proceeds
from the exercise of
the Redeemable
Public Warrants, the
bridge loan Class B
Warrants, the
Underwriter's
Warrants, the
Redeemable Public
Warrants issuable
upon exercise of the
Underwriter's
Warrants and the
outstanding options
described herein.
However, such
exercise of any of
the outstanding
options and warrants
is not assured. The
2
<PAGE> 9
Company will use such
proceeds for working
capital purposes.
Risk Factors.............................. An investment in the
Common Stock offered
hereby involves a
high degree of risk
and immediate
dilution. Common
Stock should not be
purchased by a
person who cannot
afford the loss of
his or her entire
investment. A
prospective
purchaser of Common
Stock should
carefully consider
the factors
discussed under the
caption "RISK
FACTORS."
The Company's NASDAQ Symbols:
Common Stock........................... GTAX
Redeemable Warrants.................... GTAX-W
(1) Does not include 239,975 shares of Common Stock issuable upon the exercise
of bridge loan Class B Warrants at an exercise price of $3.13 per share, 101,566
shares of Common Stock and 50,783 Redeemable Public Warrants, all issuable
pursuant to the Underwriter's Warrants to acquire up to 50,783 Units at an
exercise price of $8.40 per Unit. See "RISK FACTORS--Underwriter's Warrants and
Other Warrants Subject to Registration." Does not include 65,000 shares of
Common Stock issuable upon the exercise of options at $2.50 per share, 280,081
shares of Common Stock issuable upon the exercise of options at $2.60 per share,
and 139,921 shares of Common Stock issuable upon the exercise of options at
$3.65 per share,, all granted under the Company's 1993 Joint Incentive and
Non-Qualified Stock Option Plan (the "Plan"). Does not include 340,000 shares of
Common Stock issuable upon the exercise of options based on market price at
various vesting dates, 5,000 shares of Common Stock issuable upon the exercise
of options at $1.75 per share, 6,000 shares of Common Stock issuable upon the
exercise of options at exercise of options at $3.38 per share, 84,000 shares of
Stock issuable upon the exercise of options at 50% of market price at various
vesting dates, 10,000 shares of Common Stock issuable at $3.38 per share, 10,000
shares of Common Stock issuable upon the exercise of options at $1.75 per share
and 10,000
3
<PAGE> 10
shares of Common Stock issuable upon the exercise of options at $2.62 per share,
all granted under non-plan employee and independent contractor stock option
agreements. Does not include 100,000 shares of Common Stock issuable on the
exercise of options at $5.125 per share or 150,000 shares of Common Stock
issuable on the exercise of options at $5.13 per share.
(2) Assumes the issuance of 239,975 shares of Common Stock issuable upon the
exercise of bridge loan Class B Warrants, 101,566 shares of Common Stock
issuable pursuant to the Underwriter's Warrants, 50,783 shares of Common Stock
issuable upon the exercise of the Redeemable Public Warrants that are issuable
upon exercise of the Underwriter's Warrants, 65,000 shares of Common Stock
issuable on the exercise of options at $2.50 per share, 100,000 shares of Common
Stock issuable on the exercise of options at $5.125 per share, 150,000 shares of
Common Stock issuable on the exercise of options at $5.13 per share, 139,921
shares of Common Stock issuable upon the exercise of options at $3.65 per share,
280,081 shares of Common Stock issuable upon the exercise of options at $2.60
per share,and 507,926 shares of Common Stock issuable on the exercise of public
redeemable warrants at $4.67 per share. Does not include 340,000 shares of
Common Stock issuable upon the exercise of options based on market price at
various vesting dates, 5,000 shares of Common Stock issuable upon the exercise
of options at $1.75 per share, 6,000 shares of Common Stock issuable upon the
exercise of options at $3.38 per share, 84,000 shares of Common Stock issuable
upon the exercise of options at 50% of market price at various vesting dates,
10,000 shares of Common Stock issuable at $3.38 per share, 10,000 shares of
Common Stock issuable upon the exercise of options at $1.75 per share and 10,000
shares of Common Stock issuable upon the exercise of options at $2.62 per share,
all granted under non-plan employee stock agreements.
(3) The Common Stock offered hereunder will be issued in connection with the
exercise of the outstanding Redeemable Public Warrants, the Underwriter's
Warrants, the Redeemable Public Warrants issuable on exercise of Underwriter's
Warrants, the bridge loan Class B Warrants and certain other outstanding
options.
(4) Assumed to be exercised in connection with the offering.
(5) The Redeemable Public Warrants registered hereunder are issuable upon, and
assume the exercise of, the Underwriter's Warrants.
4
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RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree
of risk. Common Stock should not be purchased by a person who cannot afford the
loss of his or her entire investment. The following risks, in addition to those
discussed elsewhere in this Prospectus, should be considered carefully in
evaluating the Company and its business prior to purchasing any of the Units
offered hereby.
1. Costs and Material Effects of Rapid Expansion. In order to open new
offices, the Company incurs significant expenses to purchase furniture,
equipment and supplies. The Company has found that a new office usually suffers
a loss in its first year of operation, shows no material profit or loss in its
second year of operation and does not attain profitability, if ever, until its
third year of operation. Therefore, the Company's operating income may be
reduced in any year that the Company opens a number of new offices that is
significant in relation to the number of its existing older offices. The Company
opened 15 new offices in January 1994, and during its 1994 fiscal year, the
Company earned $687,159 from operations. In January 1995 the Company opened 22
new offices, and in its 1995 fiscal year, the Company earned $583,164 from
operations, a decrease of 15% as compared to 1994. In addition, the Company
believes that income from offices opened in 1994 had begun to contribute to the
Company's earnings in 1995. In January 1996, the Company opened 44 new offices
and closed five by the end of the year, generating for the 1996 fiscal year,
$594,529 in operating income. In January 1997, the Company opened 8 new offices.
A rapid expansion of offices may, therefore, reduce the Company's
short-term net income or result in losses. No assurance, however, can be given
that new offices will ultimately operate profitably and increase the Company's
net income in the long term.
In addition, the Company plans to acquire small tax preparation
practices. The success of the Company will in large part be dependent upon the
successful operation of the practices acquired. No assurance can be given that
the Company will be able to successfully operate the practices that it acquires.
2. Seasonality and Need for Additional Financing. If the Company
encounters more difficulty in the acceptance of its services or in other areas,
or if the financial planners whom the Company recruits or the practices that it
acquires are not as successful as the Company anticipates, then the Company may
require additional financing for marketing and sales, the opening of new
offices, and/or general working capital. The Company also plans to fund any
additional capital requirements of JT Securities, its wholly owned subsidiary,
which is registered as a securities broker/dealer, from its profits, cash
reserves and borrowings. JT Securities, as a registered broker/dealer and
registered investment advisor, will be subject to regulations requiring it to
maintain
5
<PAGE> 12
certain net capital amounts, and the expenses of establishing a broker/dealer
cannot be predicted with certainty. The Company will also require approximately
$2,000,000 of financing each year to fund its operations during tax season,
particularly because, in the past, the Company experiences quarterly losses from
July 1st to December 31st each year. No assurance can be given that such
financing will be available to the Company, or, if it is available, that it will
be on terms favorable to the Company.
3. Competition. The income tax preparation and financial planning
services industry is highly competitive. The Company's competitors include
companies specializing in income tax preparation as well as companies that
provide general financial services. Many of these, which include H+R Block,
Inc., H.D. Vest, Inc., Jackson Hewitt Tax Service, Inc. and Triple Check Income
Tax Service, Inc. in the tax preparation field, and many well-known brokerage
and other firms in the financial services field, have significantly greater
financial and other resources than the Company. No assurance can be given that
the Company will be able to compete successfully with other older, more
established companies. See "BUSINESS--Competition."
In addition, the Company may suffer from competition from departing
employees and affiliated financial planners. Although the Company attempts to
restrict such competition contractually, as a practical matter, enforcement of
contractual provisions prohibiting small-scale competition by individuals is
difficult. In the past, departing employees and affiliated financial planners
have competed with the Company. They have the advantage of knowing the Company's
methods and, in some cases, having access to the Company's clients. No assurance
can be given that the Company will be able to retain its most important
employees and financial planners or that the Company will be able to prevent
competition from them or successfully compete against them.
4. Profit Sharing with Managers. Approximately 19 of the managers of
offices of the Company, who manage approximately 35 of the Company's offices,
have profit sharing arrangements with the Company by which managers of an office
are paid a bonus equal to a specified percentage, approximately 40% of the
pre-tax income attributable to such office during each calendar year. In
addition, if a manager operates an office that generates a loss, that loss is
applied against income from any other office managed by such manager and then
against any future income of the office, to be absorbed in full before said
manager may receive any bonus. The participation of such managers in the profits
of the offices owned by the Company, which the Company views as important
incentive compensation, may nonetheless result in an increase in compensation
expenses as the Company's offices become more profitable and such bonuses to
such managers proportionally increase. This is an upside risk, which dampens the
Company's profits and may operate to inhibit growth in the Company's overall
profitability. The Company paid $20,402 and $37,873 in such bonus compensation
for calendar years 1995 and 1994, respectively. No executive officer of the
6
<PAGE> 13
Company receives such compensation. The Company, in some circumstances, plans to
enter into such profit sharing arrangements with managers of its future offices.
5. Dependence Upon Key Personnel. The Company is dependent upon the
services of James Ciocia, its President, Thomas Povinelli, its Executive Vice
President, Gary Besmer, its Vice President, and Kathryn Travis, its Secretary.
The loss or interruption of the services of any of these individuals would have
a material adverse effect on the Company. The Company carries life insurance for
Thomas Povinelli and is in the process of obtaining life insurance for James
Ciocia. Although the Company does not carry life insurance for the rest of the
officers, such officers own large holdings of Common Stock of the Company and
therefore have a substantial interest in the success of the Company.
6. Potential Civil and Criminal Liabilities. The Company's business
preparing tax returns subjects it to potential civil liabilities under the
Internal Revenue Code and the regulations promulgated thereunder. Civil
penalties, ranging from $50 to $10,000 per violation, could be assessed against
the Company for failure to observe certain ministerial requirements, failure to
keep required records, improper disclosure of taxpayer records, or failure to
maintain required ethical standards with respect to the accuracy of the returns
and the positions taken therein regarding taxpayer liability for taxes. In
addition, because none of the full-time employees of the Company is an attorney,
and only one is a certified public accountant or otherwise enrolled to practice
before the IRS, the employees of the Company are strictly limited as to the
roles they may take in assisting a client in an audit with the IRS. Although the
Company has not been assessed with material civil penalties or fines, and
although the Company intends to comply with all applicable laws and regulations,
no assurance can be given that the Company will never incur any material fines
or penalties. The Company does not maintain any professional liability or
'malpractice' insurance policy. The Company has never been the subject of a
malpractice claim, but if many such claims were made, they could adversely
affect the Company.
In addition, making fraudulent statements on a tax return, willfully
delivering fraudulent documents to the IRS and unauthorized disclosure of
taxpayer information can constitute criminal offenses. Criminal penalties for
such offenses range from $1,000 and/or one year of imprisonment to $500,000
and/or three years of imprisonment per violation. The Company has never been
charged with a criminal offense.
7. Potential Liability for Failure to Register as a Broker/Dealer or an
Investment Adviser. As of July 1, 1994, all of the Company's business
relationships with registered representatives of an unaffiliated securities
broker/dealer have been transacted through the Company's wholly owned
subsidiary, JT Securities, a registered securities broker/dealer. In addition,
JT Securities registered as an investment advisor with the Commission
7
<PAGE> 14
and with the appropriate authorities in New York State and Florida on June 8,
1995. The Company believes that, prior to the registration of JT Securities, the
Company's business activities did not constitute it as a broker/dealer of
securities or as an investment adviser.
Prior to such registrations, if the Company was acting as a
broker/dealer, then it would have been required to register as such with the
Commission, with the National Association of Securities Dealers, Inc. ("NASD"),
and possibly with various state authorities, and if the Company was acting as an
investment adviser, then it would have been required to register as such with
the Commission and with various state authorities. In addition, the fact that
the Company has not registered in the past could subject it to civil
liabilities, and, possibly, a final order barring the participation of the
Company and its principals in the securities industry, in the case that it is
determined by an appropriate governmental authority that such registration was
required. Registration and the related reporting obligations impose additional
costs on the Company and limitations on its manner of doing business.
The Company derives a material portion of its revenues from JT
Securities, which earns a share of commissions with an unaffiliated
broker/dealer and a share of money management fees from registered investment
advisors. JT Securities is registered as a securities broker/dealer and an
investment advisor with the Securities and Exchange Commission and is a member
of the NASD. JT Securities is also registered as a broker/dealer in New York
State, and a registered investment advisor in New York State and Florida, but is
not currently registered as a broker/dealer or investment advisor in any of the
other states in which the Company has offices. The Company does not believe that
JT Securities is required to register as a broker/dealer or investment advisor
in such other states based upon its current activities, however, no assurance
can be given that state securities officials would not consider JT Securities to
be acting as an unregistered broker/dealer or investment advisor in such states.
The Company does intend to cause JT Securities to register in other states to
enable it to expand the scope of its business there.
8. Potential Liability for New York State Unemployment Insurance
Contributions. The New York State Department of Labor, in connection with an
audit of the Company's unemployment insurance contributions for the period from
January 1, 1986 through September 30, 1989, has assessed approximately $30,000,
plus interest and penalties, based on the claim that tax preparers and financial
planners reported by the Company to be independent contractors were employees.
After a hearing, the initial determination of the audit was sustained by an
administrative law judge. The Company contested this assessment through an
appeal, which was denied in January 1996. The Company has determined not to
pursue the appeal process and has recorded a liability of $81,679. The Company
believes that no claim will be made by the Internal Revenue Service
8
<PAGE> 15
based on the claimed status of such independent contractors because the
applicable statute of limitations has expired for an assessment on the
collection of taxes during the relevant period. From and after September 30,
1989, the Company treated its independent contractors as employees for
unemployment insurance purposes, and the Company has been paying unemployment
insurance since September 30, 1989 for these individuals and, as of the date of
this Prospectus, is current with its payments.
9. Trademark. The Company has registered its "Gilman + CiociaR"
trademark with the U.S. Patent and Trademark Office. No assurance can be given
that the Company would be able successfully to defend its trademark if forced to
litigate its enforceability. The Company believes that its trademark "Gilman +
CiociaR" constitutes a valuable marketing factor. If the Company were to lose
the use of such trademark, its sales could be adversely affected.
10. Expansion into Financial Planning. The Company plans to expand into
the area of financial planning and recruit financial planners, which would
require offering guaranteed salaries and bonuses. The success of the Company
will in large part be dependent upon the successful operation of the financial
planners who are recruited. No assurance can be given that such financial
planners will be successful in their ventures.
11. Control by Management. The current management of the Company owns
approximately 51% of the outstanding Common Stock of the Company. No cumulative
voting is in effect for the election of directors of the Company, and no such
arrangement is currently contemplated. The current management will, therefore,
be able to elect all of the directors and thereby effectively continue to
control the Company. See "DESCRIPTION OF SECURITIES."
12. Preferred Stock May Inhibit Change of Control. The Company has
authorized 100,000 shares of Preferred Stock, which may be issued, without
approval by the shareholders of the Company, by the Board of Directors of the
Company in such classes, with such designations, rights and preferences and at
such prices as the Board of Directors determines to be in the best interest of
the Company. Holders of such Preferred Stock so issued could have preferential
rights over the holders of Common Stock in a liquidation of the Company. In
addition, although management of the Company will control approximately 51% of
the outstanding Common Stock, if at any time in the future management does not
control a majority of the outstanding Common Stock, then Preferred Stock with
special voting or other rights could be issued that could entrench current
management and adversely affect any proposed change of control of the Company.
13. Management Discretion in Use of Proceeds. The proceeds of the
Offering will be utilized predominately for the opening of new offices,
recruiting financial planners, acquiring existing tax preparation practices,
marketing and sales, general and
9
<PAGE> 16
administrative expenses and working capital requirements. However,
management will have broad discretion over the application and
allocation of the use of the net proceeds. See "USE OF PROCEEDS."
14. Immediate Dilution. At the current market price of $3.88 and
assuming that all outstanding options are exercised and shares of Common Stock
are sold, purchasers of Common Stock will experience a dilution of $2.32.(1)
15. No Dividends. Since its initial public offering of securities in
1994, the Company has paid no dividends, and it does not plan to pay dividends
in the foreseeable future. The Company currently intends to retain any earnings
to finance the growth of the Company.
16. Potential Future Sales pursuant to Rule 144. Of the 5,550,582
shares of Common Stock currently issued and outstanding 3,500,000 shares are
"restricted securities" as that term is defined under the Securities Act of
1933, as amended (the "Act"). In general, under Rule 144 promulgated under the
Act, a person who has satisfied a two-year holding period may, under certain
circumstances, sell, within any three-month period, a number of shares that does
not exceed the greater of one percent of the then outstanding shares of Common
Stock or the average weekly trading volume of such shares during the four
calendar weeks prior to such sale. Rule 144 also permits, under certain
circumstances, the sale of shares of Common Stock by a person who is not an
"affiliate" of the Company (as defined in Rule 144) and who has satisfied a
three-year holding period, without any volume or other limitation. Of the shares
of Common Stock currently outstanding, almost all of the "restricted" shares
have already been held for the two-year holding period mentioned above and
606,603 of the "restricted" shares have been held for longer than three years
and are not owned by control shareholders. The shareholders holding 3,911,037
shares of Common Stock at the time of the Company's initial public offering of
securities agreed with the underwriter of the Company's initial public offering,
Patterson Travis, Inc. ("Patterson Travis"), not to sell their Common Stock for
a period of two years after September 9, 1994, however, such agreement has
expired.
The Company has granted 705,000 options to purchase shares of the
Company's Common Stock to three individuals and two consultants in addition to
the 485,002 granted to employees in conjunction with its 1993 Joint Incentive
and Non-qualified Stock Option Plan, of which 65,000 were sold to an outside
party. The shares issuable upon exercise of such options would be eligible for
resale under Rule 144 after two years following the exercise of such options or
earlier if the underlying Common Stock were registered by the Company.
- --------
(1) This calculation assumes that the following shares of common stock,
options and warrants will be fully exercised: 507,926 Redeemable Public
Warrants, 50,783 Redeemable Public Warrants issuable upon the exercise of
underwriter's warrants, 50,783 underwriter's warrants, 239,975 Class B bridge
warrants, 250,000 options to various consultants to the Company, 65,000 options
to an outside party and 1,087,002 options to various employees of the Company,
of which 212,000 options have terminated.
10
<PAGE> 17
The sale of restricted Common Stock in the future, or even the
possibility that it may be sold, may have an adverse affect on the market price
for the Common Stock.
17. Underwriter's Warrants, Other Warrants and Certain Options Being
Registered. The Company is registering for sale up to 507,926 shares underlying
the Redeemable Public Warrants and 101,566 shares of Common Stock issuable
pursuant to the Underwriter's Warrants, 50,783 shares of Common Stock issuable
upon the exercise of Redeemable Public Warrants that are issuable upon exercise
of the Underwriter's Warrants, 239,975 shares issuable upon the exercise of
Class B Warrants to purchase Common Stock at $3.13 per share, 100,000 shares of
Common Stock issuable upon the exercise of options at $5.125 per share, 150,000
shares issuable upon exercise of options at $5.13 per share, 65,000 shares
issuable upon exercise of options at $2.50 per share, 139,921 shares of Common
Stock issuable upon the exercise of options at $3.65 per share, and 280,081
shares of Common Stock issuable upon the exercise of options at $2.60 per share.
Exercise of such Redeemable Class B Warrants and the Underwriter's Warrants, as
well as options granted to employees and consultants of the Company, could occur
at a time that the Company could probably obtain financing on better terms, and
such exercise would likely dilute the percentage ownership interest of holders
of Common Stock. In addition, the offering for sale of some or all of such
underlying Common Stock, or even the possibility of such sale, may have an
adverse affect on the market price for the Common Stock. See "DESCRIPTION OF
SECURITIES" and "PLAN OF DISTRIBUTION."
This prospectus does not include the registration of 340,000 shares of
Common Stock issuable upon the exercise of options based on market price at
various vesting dates, 5,000 shares of Common Stock issuable upon the exercise
of options at $1.75 per share, 6,000 shares of Common Stock issuable upon the
exercise of options at exercise of options at $3.38 per share, 84,000 shares of
Common Stock issuable upon the exercise of options at 50% of market price at
various vesting dates, 10,000 shares of Common Stock issuable at $3.38 per
share, 10,000 shares of Common Stock issuable upon the exercise of options at
$1.75 per share and 10,000 shares of Common Stock issuable upon the exercise of
options at $2.62 per share, which were all included in a registration statement
on Form S-8 that was filed with the Commission on October 28, 1996.
18. Rules Limiting Broker-Dealer Sales of Company Shares. It is
possible that the Company's Common Stock will be covered by a Commission rule
that imposes additional sales practice requirements on broker-dealers who sell
such securities to persons other than established customers and accredited
investors (generally institutions with assets in excess of $5,000,000 or
individuals with net worth in excess of $1,000,000 or annual income exceeding
$200,000, or $300,000 jointly with their spouse). For transactions covered by
the rule, the broker-dealer must make a special suitability determination for
the purchaser and receive the
11
<PAGE> 18
purchaser's written agreement to the transaction prior to the sale.
In addition, it is possible that an underwriter's participation in the
trading market of the Common Stock and the Redeemable Warrants will be covered
by a Commission rule that imposes additional disclosure requirements on
broker-dealers in "penny stock" transactions. Although the Common Stock is
currently outside the definition of a "penny stock" under the applicable rules,
in the event the Common Stock were subsequently to become characterized as a
"penny stock," as a result of being delisted from The NASDAQ SmallCap Stock
Market or otherwise, broker/dealers effecting transactions for clients in the
Common Stock will be required to make extensive disclosures to such clients in
certain circumstances regarding the Common Stock, including bid, offer and other
pricing information relating to the Common Stock, such broker/dealer's
compensation and the compensation of associated persons in connection with the
transaction, and such client's specific account information. Such additional
burdens imposed upon broker/dealers may discourage broker/dealers from effecting
transactions in the Common Stock. Consequently, these rules may affect the
ability of broker-dealers to sell the Company's securities and also may affect
the ability of purchasers of Common Stock to sell their securities in the
secondary market.
19. Limitation on Directors' Liabilities under Delaware Law. Pursuant
to the Company's Certificate of Incorporation and under Delaware law, directors
of the Company are not liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty, except for liability in connection with a
breach of duty of loyalty, for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, for dividend
payments or stock repurchases illegal under Delaware law or any transaction in
which a director has derived an improper personal benefit. See "MANAGEMENT."
12
<PAGE> 19
MARKET INFORMATION
The Principal market on which the Company's Common Stock trades is The
NASDAQ SmallCap Stock Market under the symbol "GTAX." Prior to December 1994 no
public market existed for the Company's securities.
The following table sets forth the high and low sales prices for the
Common Stock during the period indicated:
<TABLE>
<CAPTION>
Sales Prices
------------
Quarter Ended High Low
- ------------- ---- ---
<S> <C> <C>
December 31, 1994 $ 3 3/4 $ 3 1/2
March 31, 1995 $ 4 $ 2 1/4
June 30, 1995 $ 4 1/8 $ 2 1/4
September 30, 1995 $ 5 5/8 $ 3 1/8
December 31, 1995 $ 7 1/2 $ 5 1/4
March 31, 1996 $ 7 7/16 $ 5 1/2
June 30, 1996 $ 7 1/4 $ 5 3/8
September 30, 1996 $ 6 1/2 $ 5 1/4
December 31, 1996 $ 3 1/2 $ 2
</TABLE>
As of January 31, 1997, the approximate number of holders of record of
the Common Stock was 325.
The Company has not paid dividends to its shareholders since its
initial public offering and does not plan to pay dividends in the foreseeable
future. The Company currently intends to retain any earnings to finance the
growth of the Company.
The Company's NASDAQ symbols are:
Common Stock........................... GTAX
Redeemable Warrants.................... GTAX-W
13
<PAGE> 20
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of
shares of Common Stock by the Selling Securityholders; all proceeds will be paid
directly to the Selling Securityholders. See "SELLING SECURITYHOLDERS." The
Company could receive $6,470,293 of gross proceeds from the exercise of all of
the currently outstanding Redeemable Warrants, the bridge loan Class B Warrants,
the Underwriter's Warrants, the Redeemable Public Warrants issuable upon
exercise of the Underwriter's Warrants and 947,002 additional shares of Common
Stock issuable upon the exercise of options. However, such exercise of any of
the outstanding options and warrants is not assured.
The Company estimates that it will incur approximately $70,000 in
expenses relating to this offering and intends to use the net proceeds for
working capital purposes. Such funds will not be kept separate from other funds
of the Company and collectively will be used to pay all obligations of the
Company including compensation to the officers. No proceeds are allocated
specifically to any other payment, directly or indirectly, to directors,
officers or their affiliates. The officers of the Company have broad discretion
over the use of proceeds. See Risk Factors -- Management Discretion in Use of
Proceeds.
The sale and issuance of securities upon the exercise of Redeemable
Public Warrants will result in proceeds directly to the Company as follows:
<TABLE>
<CAPTION>
=================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) ISSUER(3)
- -----------------------------------------------------------------
<S> <C> <C> <C>
Per Share of Common Stock
507,926 Shares $4.67(4) $-0- $2,372,014
- -----------------------------------------------------------------
TOTAL......... $2,372,014
=================================================================
</TABLE>
- ----------
(1) The 507,926 shares of Common Stock issuable at $4.67 per share
consist of the shares issuable upon the exercise of the 507,926
currently outstanding Redeemable Public Warrants.
(2) The securities registered hereunder will not be sold through an
underwriter.
(3) All expenses of this registration other than commissions and
concessions are payable by the Company, and are estimated at $70,000.
(4) The warrant exercise price is the price warrantholders may buy Common
Stock upon the exercise of Redeemable Public Warrants.
14
<PAGE> 21
The sale of securities of Securityholders does not result in
any proceeds to the Company. However, it presumes exercise of
outstanding warrants and options, and proceeds to the issuer as
follows:
<TABLE>
<CAPTION>
==========================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1)(2) COMMISSIONS(3) ISSUER(4)
- ----------------------------------------------------------
<S> <C> <C> <C>
Per Share of
Common Stock
50,783
Shares $ 4.67 (1) $-0- $ 237,157
101,566
Shares $ 4.20 (1) $-0- $ 426,577
239,975 $ 3.13 (2) $-0- $ 751,122
Shares
100,000 $ 5.125 (2) $-0- $ 512,500
Shares
65,000 $ 2.50 (2) $-0- $ 162,500
Shares
150,000 $ 5.13 (2) $-0- $ 769,500
Shares
139,921 $ 3.65 (2) $-0- $ 510,712
Shares
280,081 $ 2.60 (2) $-0- $ 728,211
Shares
Per Redeemable
Public Warrant
50,783 $ -0-(5) $-0- $ -0-
Warrants
- ----------------------------------------------------------
Total......... $-0- $ 4,098,279
==========================================================
</TABLE>
- ----------
(1) The 50,783 Shares of Common Stock issuable at $4.67 per share consist
of the shares issuable upon exercise of those Redeemable Public
Warrants that are issuable in connection with the exercise of the
Underwriter's Warrants. The 101,566 shares of Common Stock issuable at
$4.20 per share consist of the shares of Common Stock issuable upon the
exercise of the
15
<PAGE> 22
Underwriter's Warrants. The 239,975 shares of Common Stock issuable
at $3.13 per share consist of the shares of Common Stock issuable
upon the exercise of the outstanding bridge loan Class B Warrants.
(2) Shares of Common Stock issuable upon the exercise of
outstanding options.
(3) The securities registered hereunder will not be sold
through an underwriter.
(4) All expenses of this registration other than
commissions and concessions are payable by the Company,
and are estimated at $70,000.
(5) The 50,783 Redeemable Public Warrants are issuable upon the exercise
of the Underwriter's Warrants. For the purposes of this chart, the
entire exercise price of the Underwriter's Warrants has been
allocated to the Common Stock issuable thereon.
16
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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.
No events or transactions have occurred subsequent to September 30,
1996, and the Company is not aware of any material trend, that would materially
affect an investor's understanding of the Company's financial condition or its
results of operations.
RESULTS OF OPERATIONS
1996 and 1995 Fiscal Years Compared
The Company's revenues for the fiscal year ended June 30, 1996 were
$16,509,677 as compared to revenues of $9,932,161 for the prior fiscal year. The
increase 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
17
<PAGE> 24
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 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
18
<PAGE> 25
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 (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.
19
<PAGE> 26
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
20
<PAGE> 27
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.
Quarters Ended September 30, 1996 and September 30, 1995
Compared
The Company's revenues for the three months ended September 30, 1996
were $ 2,159,800 as compared to revenues of $1,828,404 for the comparable period
of the prior year. The increase in revenues of 18.1% for the quarter ended
September 30, 1996 from the comparable period of the prior year is attributable
to the opening of the 1996 New Offices (which generated tax preparation revenues
that contributed approximately $43,000 of the increase in tax preparation
revenues in the quarter ended September 30, 1996) and to the existing offices
(which accounted for $14,500 of additional tax preparation revenues), increased
financial planning revenues of approximately $204,000 (which was primarily
generated in the pre-1996 offices), and increased revenues of approximately
$70,000 from the direct mail division.
The Company's total revenues for the quarter ended September 30, 1996
consist of $233,943 for tax preparation services, $1,368 ,421 for financial
planning services, and $557,386 for direct mail services. The Company's total
revenues for its quarter ended September 30, 1995 consist of $176,943 for tax
preparation services, $1,164,226 for financial planning services and $487,235
for direct mail division.
The increase in the Company's financial planning revenues for the
quarter ended September 30, 1996 compared to the prior year's first quarter of
approximately 17.5% was substantially the same as the Company's overall 18.1%
growth in revenues between the two periods. The increase in such financial
planning revenues is attributable to the integration of 15 additional financial
planners, a $50,000 increase in revenues attributable to Gilbert Financial in
the quarter ended September 30, 1996 over revenues attributable to Gilbert
Financial in comparable quarter of the prior year, and ordinary growth in the
Company's operations.
Despite an increase of only 18.1% in revenues, the Company's
operating expenses primarily increased by approximately $1,121,000 or 58.4% as a
result of the 1996 New Offices and the seasonality of the Company's business.
Offices opened in January generally do not generate significant financial
planning revenues during the same calendar year. The 44 1996 New Offices
represented approximately a 50% increase in offices, however, these offices,
while contributing comparatively little to the Company's financial planning
revenues (the source of the vast majority of revenues for
21
<PAGE> 28
the quarter ended September 30th), contributed significantly to operating
expenses. Other reasons for such a large percentage increase in expenses as
compared to such percentage increase in revenues are: the expansion of the
Company's direct mail services, which resulted in increased costs of
approximately $108,000; the absence of a one-time $125,000 cost reimbursement by
a financial planner; and other increases in general and administrative expenses
related to efforts to expand office practices such as telemarketing.
The Company's operating expenses for the quarter ended September 30,
1996 were $3,041,294 as compared to operating expenses of $1,919,842 for the
comparable period of the prior year. The 58.4% increase in the Company's
operating expenses for its quarter ended September 30, 1996 from the comparable
period of the prior year was attributable to $464,848 in salaries and
commissions; $197,733 in general and administrative expenses; $40,504 for direct
mail costs; $187,000 for rent; $99,000 for depreciation and amortization and
$125,000 as a result of the Company having not received a reimbursement of
financial planning expenses in the three months ended September 30, 1996 (see
notes to consolidated financial statements).
The increase in operating expenses of approximately $1,121,000 is
attributed as follows; $325,000 to the 1996 New Offices; $108,000 to Progressive
(includes overall costs, most of which is due to costs incurred for Progressive
services to third parties); $563,000 to pre-1996 Offices and $125,000 increase
as a result of the Company having not received a reimbursement of financial
planning expenses in the three months ended September 30, 1996.
The increase in salaries and commissions is due to increased salaries
and commissions for the personnel working at the 1996 New Offices of
approximately $47,000, increased salaries and commissions for personnel working
at existing offices of approximately $361,000 (the increase in salaries and
commissions at existing offices being the result primarily of increased
financial planning activities because of increased investments by clients that
resulted in increased commissions and approximately $30,000 related to the
amortization of advances to financial planners made when they joined the
Company), and approximately $57,000 in salaries for increased personnel working
in the direct mailing division (which expanded its operations from the quarter
ended September 30, 1995, the first quarter in which the Company operated a
direct mail division).
The increase of approximately $198,000 in general and administrative
expenses is primarily due to increases of approximately: $56,000 in telephone,
$32,000 in repairs and maintenance, $17,000 in utilities, $13,000 in insurance,
$32,000 in professional fees incurred in connection with the Company's
registration related to this prospectus, and $25,000 recorded as a general
provision for bad debts. Approximately $106,000 of the
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increase is directly attributable to the 1996 New Offices, approximately $80,000
to the pre-existing offices related to normal cost increases required to support
expanded operations at existing offices and approximately $10,000 to the
Company's direct mail division.
The 134% increase in depreciation and amortization (approximately
$38,000 for the 1996 New Offices and $61,000 for existing offices) is due
primarily to acquisitions of fixed assets and intangibles made during the
Company's last two fiscal years plus the $270,000 made in the first quarter of
the Company's 1997 fiscal year. The increase in rent is due to the 1996 New
Offices in the amount of approximately $132,000 and to normal increases of
approximately $55,000 in rent for existing offices.
The increase in direct mail costs is primarily the result of costs
incurred for Progressive services to third parties. The Company plans to
continue utilizing Progressive to meet its mailing demands for its own offices,
but at the same time, expand its clientele of independent third parties.
The decrease in other income of $232,165 or 156.4% is primarily due
to the decrease of approximately $136,000 in income from the Company's
investment in partnership (such partnership, a private investment partnership
that invests in fluctuating marketable securities, and in which the Company has
invested certain available funds, experienced a decline in its portfolio value
during the quarter ended September 30, 1996 as compared to appreciation in the
comparable quarter of the prior year) and a decrease of approximately $65,000 in
realized gains on the sale of marketable securities.
The Company's loss before credit for income taxes for the three
months ended September 30, 1996 is $965,183 as compared to income before
provision for income taxes of $57,038 for the three months ended September 30,
1995. The increased loss is attributable to three factors. First, the opening of
the 1996 New Offices in January primarily generates revenues from tax
preparation services because the Company typically needs six to twelve months
from the time a new office begins operations before the office begins to
generate revenues from financial planning services. Consequently, the 1996 New
Offices will not show any significant financial planning revenue in the quarter
ended in September 30. Therefore, the 1996 New Offices opened in January 1996
aggravated the Company's seasonal revenue trough for the quarter ended September
30. Second, the Company's operating costs of existing offices increased due to
normal cost increases. Third, the decrease of other income of approximately
$232,000 (as discussed above) accounts for 23% of the decrease in income before
provision for income taxes from the prior quarter.
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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.
Quarters ended September 30, 1996
and September 30, 1995 Compared
The Company's cash flows used in operating activities increased
approximately $2,415,000 to $433,780 for the three months ended September 30,
1996 from the $1,980,826 provided by operations for the three months ended
September 30, 1995. The increase is primarily due to an increase in net loss
plus non-cash adjustments of approximately $282,000, the proceeds from the sale
of marketable securities of $2,160,000 (which occurred during the quarter ended
September 30, 1995 as the Company liquidated its portfolio to finance its 1996
expansion), and a decrease in the increase in accounts receivable, prepaid
expenses and other current assets of approximately $86,000. The increase in net
loss plus non-cash adjustments is primarily comprised of increased depreciation
and
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amortization expense of approximately $96,000 and an increase in net loss of
approximately $632,000, both resulting from the Company's expansion.
Net cash used in investing activities was $246,921 and $535,099 for
the three months ended September 30, 1996 and 1995, respectively. The decrease
of approximately $288,000 is primarily due to increases in capital expenditures
of approximately $233,000 (due to the purchase of a building), offset by
increased proceeds from the repayment of related party loans of approximately
$216,000 and no additional investment in the limited partnership in the first
quarter of the Company's 1997 fiscal year.
Net cash used in financing activities increased by $227,019 to
$278,547 from $1,528 due to increased payments of bank loan transactions of
approximately $514,000 offset by proceeds from bank loan transactions and notes
payable of approximately $250,000.
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 September 30,
1996, the Company had an outstanding principal balance of $150,000.
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 September 30, 1996, the
note had an outstanding principal balance amounting to $138,887.
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
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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'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.
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BUSINESS
GENERAL
Gilman & Ciocia, Inc. (the "Company") was incorporated under the laws
of the State of Delaware on September 3, 1993 and is the successor in interest
to Gilman & Ciocia, Inc., a New York corporation organized on November 4, 1981,
and is a preparer of federal, state and local income tax returns. The Company
also earns revenues from acting as an insurance agent and mortgage broker. In
addition, the Company's wholly owned subsidiary, JT Securities, Inc. (a
registered securities broker/dealer and a registered investment advisor)("JT
Securities"), earns a significant portion of the Company's revenues by effecting
limited transactions in securities for its clients, and it earns revenues by
providing office space, clerical support and client references to registered
representatives of another registered securities broker/dealer. Such registered
representatives are employees or affiliated financial planners of the Company
and effect transactions in securities on behalf of clients of the Company. JT
Securities also acts as an investment advisor in conjunction with other
investment advisors to manage clients' funds. The Company recently began a
division operating as a direct mail service.
The Company has a total of one hundred and twenty-three offices:
forty-three in New York, sixteen in New Jersey, nine in Florida, nine in
Arizona, nine in Ohio, seven in Maryland, seven in Connecticut, seven in
Washington, six in Massachusetts, five in Nevada, two in California, two in
Pennsylvania and one in Kentucky, and it maintains its principal executive
office at 475 Northern Boulevard, Great Neck, NY 11021, telephone (516)
482-4860.
HISTORY
Following its organization in 1981, most of the Company's expansion
was effected through separate corporations under common control with the
Company. In December 1992, the Company merged with fifteen of such affiliated
corporations conducting the same business as the Company, each of which was
controlled by the then four sole shareholders of the Company. Prior to such
merger, the Company conducted many of its operations jointly with such other
affiliated corporations (such as licensing of computer software, ordering and
purchasing of furniture, equipment, supplies, accounting, legal and advertising
services), so that the merger did not materially affect the Company's
operations. In addition to the merger and on its effective date, the Company
acquired the assets of another similarly affiliated entity, a joint
proprietorship under common control with the Company, in exchange for Common
Stock. Several of such affiliated corporations, which did not participate in the
merger, were liquidated prior to such merger. Their clients and territories were
absorbed by other nearby offices of the Company. The Company opened 15 new
offices in January 1994, 22 offices in January 1995, and 44 offices at the
beginning of
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1996, closing five in 1996, and opened eight new offices in 1997. The Company
now has a total of 123 locations.
On December 13, 1994, the Company successfully completed its initial
public offering ("IPO") of securities. The Company sold 507,926 Units (the
"Units"), including the underwriter's overallotment option, of its securities to
the public at $7.00 per Unit. Each unit consisted of two shares of Common Stock
and one warrant to buy one share of Common Stock at $4.67 per share. Proceeds of
the offering less underwriting discounts of approximately $278,000 were
approximately $3,277,000. Expenses for the IPO totaled approximately $190,000,
resulting in net proceeds to the Company of approximately $3,087,000. In
connection with the IPO, the Company issued warrants to purchase 50,783 units to
the underwriter.
On February 10, 1995, the Company acquired all the outstanding
capital stock of Gilbert Financial Services Inc. ("Gilbert"), a Florida
corporation, in exchange for 203,428 shares of the Company's Common Stock. The
acquisition by the Company of Gilbert has been accounted for as a combination of
companies under common control in a manner similar to a pooling of interests.
The services that Gilbert formerly provided were a complement to the Company's
business and, as of the date of this Prospectus, are performed by the Company.
In May 1995, all of the Company's Class A Bridge Loan Warrants were
exercised at $2.08 per share, generating additional capital of $748,800 for the
Company.
On June 30, 1995, the Company acquired certain assets in order to
commence a direct mail service business under the name of "Progressive Mailing".
The Company uses direct mail as its main form of advertising and plans to expand
its Progressive Mailing operations into an independent business.
MARKET AND STRATEGIC OVERVIEW
The Company believes that most middle and upper income Americans
require services for preparing income tax returns. Other financial services,
such as brokerage for mutual fund investment and the sale of insurance products,
have historically been supplied by segmented firms, but the Company believes
that the current trend to multiservice firms that provide clients with the
convenience of personalized, "one-stop" financial shopping will enable the
Company to extend the services that it delivers to its existing tax preparation
clients and to attract more clients for its full range of services.
TAX RETURN PREPARATION
The Company prepares federal, state and local income tax returns for
individuals, predominantly in the middle and upper income brackets.
Approximately 50% of the Company's revenues are
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derived from fees for the preparation and filing of tax returns. All tax returns
are prepared by employees of the Company. The preparation of a tax return by the
Company usually involves a personal meeting at the office between a prospective
client and an employee of the Company. At the meeting the Company's employee
solicits from the client the information on income and deductions and family
status necessary to prepare the client's tax return. After the meeting, drafts
of the client's tax returns are prepared. After review and final correction by
the tax preparer, the returns are delivered to the client for filing. The client
then meets with a financial planner. See "BUSINESS--Financial Planning
Services".
In keeping with the trend toward increasingly automated filing of
income tax returns, the Company offers to clients the option of filing their
federal income tax returns electronically. Under this system, the final federal
income tax return is transmitted to the Internal Revenue Service ("IRS") through
a publicly available software package.
Refund Anticipation Loans are also available to the clients of the
Company through arrangements with approved banking institutions. Using this
service, a client is able to receive a check in the amount of his federal
refund, drawn on an approved bank, at the office where he or she had his or her
return prepared. The Company acts only as a facilitator between the client and
the bank in preparing and submitting the loan documentation and receives a fee
for these services payable upon consummation of the loan. The Company has no
liability in connection with these loans. The Company makes no loans, and its
funds are not disbursed in any fashion to reimburse customers.
None of the Company's full-time tax preparers is a certified public
accountant, and, therefore, they are limited in the representation that they can
provide to clients of the Company on an audit by the IRS.
The Company's business of preparing income tax returns subjects it to
potential civil liabilities under the Internal Revenue Code (the "Code").
Although the Company believes that it complies with all applicable laws and
regulations, no assurance can be given that the Company will never incur any
material fines or penalties.
In addition, the Company does not maintain any professional liability
or malpractice insurance policy. Although the Company complies with all
applicable laws and regulations, no assurance can be given that the Company will
not be subject to professional liability or malpractice suits.
The Company uses publicly available computer software packages for
the processing of tax returns. The Company pays standard licensing fees and
royalties for such software.
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SEASONALITY
The Company's tax return preparation business is conducted
predominantly in the months of February, March and April when most individuals
prepare their federal, state and local income tax returns. To prepare for the
demand during such periods, the Company, as much as possible, uses its existing
employees by offering incentives. The Company has avoided opening offices
especially for the tax season and closing them after the peak period. The
Company also hires approximately 350 seasonal employees for its peak demand
periods. The Company organizes its own training seminars for seasonal tax
preparers. The training consists of a biweekly tax course that runs from
September through December from 9 a.m. - 4 p.m. on Saturdays. This course covers
all aspects of tax return preparation. In addition a one-day seminar is given in
January, which covers all new tax law changes as well as a general review of the
process of tax return preparation.
To assist in maintaining operations and carrying out its expansion
plans during the off season the Company has a credit facility in the form of a
line of credit for up to $2,000,000. Borrowings under this line are in the form
of short-term notes with interest charged monthly at the bank's prime lending
rate plus 1-1/2%.
BROKER/DEALER SUBSIDIARY
The Company has organized a wholly owned subsidiary, JT Securities,
Inc., a New York corporation ("JT Securities"). JT Securities is registered as a
securities broker/dealer under the Securities Exchange Act of 1934, as amended,
and has been a member of the National Association of Securities Dealers, Inc.
("NASD") since July 1994. In addition, JT Securities has effected all filings
under New York and Florida law to register as a securities broker/dealer in New
York and Florida. In 1995, JT Securities registered with the Securities and
Exchange Commission (the "Commission") and with the states of New York and
Florida as an investment advisor. See "BUSINESS--Regulation."
The Company originally funded JT Securities with a capital
contribution of $150,000. If JT Securities requires additional funding, the
Company intends to provide such funding from its cash reserves, profits and
borrowings.
FINANCIAL PLANNING SERVICES
While preparing tax returns, clients often consider other aspects of
their financial needs, such as insurance, investments and pension and estate
planning. The Company attempts to capitalize on this situation by introducing
clients in its tax preparation business, through its wholly owned subsidiary, JT
Securities, to its employees and affiliated financial planners who are
registered representatives of JT Securities or another
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registered securities broker/dealer and/or authorized agents of insurance
carriers.
Most middle and upper income individuals require a variety of
financial planning services. If clients seek insurance products in connection
with the creation of a financial plan, they are referred to an employee or
affiliated financial planner of the Company (who may be the tax preparer
himself) who is an authorized agent of an insurance underwriter. If clients seek
mutual fund products or other securities for investment, they are referred to an
employee or affiliated financial planner of the Company (who may be the tax
preparer himself) who is a registered representative of a securities
broker/dealer, either the Company's wholly owned subsidiary or another broker
dealer. If clients seek money management services, they are referred to an
investment advisor of JT Securities. See "BUSINESS --Relationship with
Registered Representatives of Broker/Dealers; --Relationship with Authorized
Agents of Insurance Underwriters; and -- Relationship with Investment Advisors."
RELATIONSHIP WITH REGISTERED REPRESENTATIVES OF BROKER/DEALERS
A number of the Company's full-time employees and affiliated
financial planners are registered representatives ("Registered Representatives")
of Royal Alliance Associates, Inc., an unaffiliated corporation ("Royal
Alliance"), which is a registered securities broker/dealer and a member of the
NASD. Four of such full-time employees (all of whom are officers of the Company)
are also Registered Representatives of JT Securities, the Company's wholly owned
subsidiary. In addition, the Company's Chief Financial Officer is a Registered
Representative of JT Securities and is not a Registered Representative of Royal
Alliance.
Registered Representatives who work with only one firm are supervised
by such firm. Registered Representatives who work with Royal Alliance and JT
Securities are supervised in general by both firms and with regards to any
particular transaction by the firm through which the transaction is effected.
Such firms are exclusively responsible for all supervision and record keeping in
connection with the Registered Representatives and their activities.
If clients of the Company inquire about the acquisition or sale of
investment securities, they are directed to one of such Registered
Representatives, which may be the tax preparer himself/herself. Such Registered
Representatives are able, through Royal Alliance or JT Securities, to effect
transactions in such securities at the request of clients and retain a certain
percentage of the commissions earned on such transactions. Royal Alliance has
licensed principals in all areas of the securities business. JT Securities has
licensed principals in selected areas of the securities business. The securities
transactions effected by Registered Representatives who are either employed by
or affiliated with the Company, involve interests in mutual funds,
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variable annuities, corporate equities and bonds, and other securities.
All security transactions are introduced and cleared on a fully
disclosed basis through a correspondent broker that is a member of the New York
Stock Exchange.
For a securities transaction effected through Royal Alliance, Royal
Alliance retains approximately 6% of the total commission, and a majority of the
individual Registered Representatives and JT Securities each receives
approximately 47% of the total commission. Each of the Registered
Representatives except the officers of the Company has entered into an
independent contractor's agreement with the Company, which generally provides
that a specified percentage of the commissions earned by the Registered
Representative is paid to JT Securities as compensation for supplying to such
Registered Representative office space, clerical and secretarial support and
references of clients. All Registered Representatives have agreements that
contain covenants requiring them to maintain strict confidentiality and to
refrain from certain competition with the Company. Each agreement with a
Registered Representative has a duration of no more than one year from the date
of the agreement; however, because the agreements were executed on different
dates, the agreements expire at different times and a uniform expiration
schedule cannot be provided.
The Company has no written agreement with Royal Alliance, and either
the Company or Royal Alliance could terminate their relationship at any time.
The Company believes that other broker/dealers, including JT Securities, could
be found to affiliate with and supervise the Registered Representatives if the
Company's relationship with Royal Alliance were terminated.
RELATIONSHIP WITH AUTHORIZED AGENTS OF INSURANCE UNDERWRITERS
Certain of the Company's full-time employees and affiliated financial
planners are authorized agents of insurance underwriters. If clients of the
Company inquire about insurance products, then they are directed to one of such
authorized agents which may be the tax preparer himself/herself. Such agents are
able, through several insurance underwriters, to sell insurance products at the
request of clients and retain a certain percentage of the commissions earned on
such sales. The Company is an authorized insurance agent under both New York and
Florida law.
Each of the insurance agents (except the Company's officers) has
entered into an independent contractor's agreement with the Company. Each such
agreement generally provides that a specified percentage of the commissions
earned by the agent is paid to the Company as compensation for the Company's
supplying to such agent office space, clerical and secretarial support and
references of clients. The agreements also contain covenants requiring the agent
to maintain strict confidentiality and to refrain from certain competition with
the Company. Each agreement with an insurance
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agent has a duration of no more than one year; however, because the agreements
were executed on different dates, the agreements expire at different times and a
uniform expiration schedule cannot be provided.
RELATIONSHIP WITH INVESTMENT ADVISORS
JT Securities also provides investment advisory services in
conjunction with other investment advisors to manage clients' funds and
accounts. In these activities, such other investment advisors manage client
funds on a discretionary basis, and JT Securities continues to offer investment
advisory services to such other investment advisors, but does not have
discretion over the accounts.
Fees are quoted based upon the amount of funds under management.
Investment advisory and review services are shared as are the fees. Currently JT
Securities has such an arrangement with three investment advisors.
JT Securities through its qualified investment advisors provides
financial plans, retirement plans, financial planning consultations, insurance
analyses, business planning, children's education planning, estate planning,
mortgage refinance consultation, mortgage prepayment planning, and investment
counseling to individuals, businesses, personal trusts, and pension and profit
sharing plans.
JT Securities has also begun to provide exclusive management services
for clients' funds invested in mutual funds and annuities and expects to expand
such business in the near future.
MARKETING
Most of the Company's clients are repeat clients from prior years.
The majority of clients in each office return to the Company for tax return
preparation services during the following years, and in most offices the
retention rate is approximately 70%. In addition, the Company markets its
services principally through direct mail and promotions.
Direct Mail. Each year prior to the "tax season" when individuals
prepare federal income tax returns, the Company sends direct mail
advertisements. The direct mail advertising solicits business principally for
the Company's tax preparation services. A large majority of the Company's new
clients each year are first introduced to the Company through its direct mail
advertising. The Company utilizes the customer lists purchased for direct mail
during the remainder of the year to solicit the financial planning services.
Promotions. The Company offers a $50 U.S. Savings Bond to any client
that refers another two clients to the Company. The
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program has worked effectively in the past and has resulted in approximately 300
new clients per year.
Online. The Company currently has two web sites on the America Online
Inc. (AOL) network: http://www.cfonews.com/taxadv.html for income tax and
financial planning advice and http://www.cfonews.com/gtax for 10K/Q information
and the latest news releases.
Other Marketing. The Company also prints and distributes brochures
and flyers about its services. In addition, the Company markets its services
through prerecorded taped descriptions of its services, which are played
automatically for incoming callers while "on hold."
The Company believes that its most promising market for expansion may
lie in areas where Americans and other nationals are migrating. Individuals
usually retain a local tax preparer in connection with their personal tax
returns. When people move, therefore, they usually seek to find a new income tax
preparer. At or shortly after the time that they move, therefore, individuals
are most susceptible to the direct mail advertising of the Company's tax
preparation services. Although the Company has not conducted any analysis of
demographic data or any formal market surveys, the Company believes that these
demographic factors have led to the strong success of its new offices in Arizona
and Nevada.
COMPETITION
The income tax return preparation industry and the financial planning
services industry are both highly competitive. The Company's competitors include
companies specializing in income tax return preparation as well as companies
that provide general financial services. Many of these competitors, which
include H + R Block, Inc., HD Vest, Inc., Jackson Hewitt Tax Service, Inc. and
Triple Check Income Tax Service, Inc. in the tax preparation field and many
well-known brokerage firms in the financial services field, have significantly
greater financial and other resources than the Company. The Company believes
that the primary elements of competition are convenience, quality of service and
price. No assurance can be given, however, that the Company will be able to
compete successfully with other larger and more established companies.
In addition, the Company may suffer from competition from departing
employees and affiliated financial planners. Although the Company attempts to
restrict such competition contractually, as a practical matter, enforcement of
contractual provisions prohibiting small scale competition by individuals is
difficult.
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TRADEMARKS
The Company has registered its "Gilman + Ciocia(R)" trademark with
the U.S. Patent and Trademark Office. No assurance can be given that the Company
would be able successfully to defend its trademark if forced to litigate its
enforceability. The Company believes that its trademark "Gilman + Ciocia(R)"
constitutes a valuable marketing factor. If the Company were to lose the use of
such trademark, its sales could be adversely affected.
SUPPLIERS
The Company depends upon a variety of suppliers for office supplies
and printed forms. All of such raw materials are available from many suppliers,
and the loss of any one supplier would not materially adversely affect the
business of the Company.
DIRECT MAIL DIVISION
The Company commenced operations of a direct mail service division in
July 1995 under the name "Progressive Mailing." The Progressive Mailing division
uses equipment acquired from a liquidated company and is operated by certain
personnel hired from that company. Progressive Mailing principally provides
services in the areas of printing addresses on envelopes, inserting mailing
materials, sorting mailings by zip codes, stamping and mailing. Progressive
Mailing does not design, create or draft the text for direct mail materials, but
it does provide limited consulting services in these areas.
The Company's principal marketing medium is direct mail solicitation,
and the Company's solicitations constitute the majority of Progressive Mailing's
services. Currently, Progressive Mailing is soliciting business solely through
word of mouth and referrals. The Company plans to hire a salesperson to help
market its services.
The direct mail business is highly competitive with many large and
small entities competing for business. The principal factors of competition are
timeliness, accurate service and price.
At December 31, 1996, the Company employed 29 persons on a full-time
basis in its Progressive Mailing division, including one executive manager,
three clerical personnel, and twenty five staff personnel.
PUBLIC RELATIONS AND INVESTMENT BANKING AGREEMENTS
On October 9, 1995, the Company entered into a consulting agreement
with EuroMarket Advisory, Inc. ("Euromarket") for the development of
relationships with European investors. The Company, according to the terms of
the agreement, has granted options to purchase Common Stock in the Company at a
price of $5.13 per share at the rate of 75,000 per year for each of the two
years pursuant
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to such agreement. Euromarket subsequently assigned the right to 50,000 of such
options to Cascade Corporation and the right to 50,000 of such options to
Deborah A. Picou, the President of Euromarket. Such agreement is cancelable with
30 days notice by either party.
On November 17, 1995, the Company entered into an investment banking
agreement with Texas Capital Securities Inc. ("Texas Capital") to provide
merchant banking advisor services to the Company. The Company, according to the
terms of the agreement, granted options to purchase Common Stock in the Company
at a price of $5.125 per share at the rate of 50,000 per year for each of two
years pursuant to such agreement. Texas Capital subsequently assigned the right
to 85,000 of such options to Harbor Financial Inc. Such agreement is cancelable
with 30 days notice by either party.
REGULATION
The Company, as a preparer of federal income tax returns, is subject
to the regulations of the Internal Revenue Code and regulations promulgated
thereunder (collectively, the "Code"). The Code requires, for example, that tax
preparers comply with certain ministerial requirements with respect to the
preparation and filing of tax returns and rules on the maintenance of taxpayer
records. The Code also imposes regulations relating to the truthfulness of the
contents of tax returns, the confidentiality of taxpayer information, and the
proper methods of negotiating taxpayer refund checks. Penalties for violations
are specified in the Code.
To represent a taxpayer before the U.S. Internal Revenue Service
("IRS") after the initial audit, an individual must meet certain requirements.
Only an attorney, a certified public accountant or a person specifically
enrolled to practice before the IRS can represent a taxpayer in such
circumstances. Some of the employees of the Company meets such requirements.
Most of the full-time employees of the Company, therefore, are limited in that
they may appear as a representative of a taxpayer only through the stage of an
audit examination at the office of a District Director, and then only upon
complying with applicable regulations. See "RISK FACTORS--Potential Civil and
Criminal Liabilities."
Tax preparers are prohibited by regulations promulgated by the IRS
from using information on a taxpayer's tax return for certain purposes involved
in the solicitation of other business from such taxpayer without the consent of
such taxpayer. In addition some uses of such information is prohibited even if
the taxpayer consents. The Company believes that it complies with all such
applicable IRS regulations.
With the exception of the qualified advisors of JT Securities, which
is a registered investment advisor, neither the employees of the Company nor its
affiliated financial planners generally give investment advice about particular
investments to
36
<PAGE> 43
clients. Instead, financial planning services involve instead making clients
aware of the types of vehicles available for savings, investment and planning
for retirement and death, disability and other contingencies. Furthermore, any
advice given by employees of the Company or affiliated financial planners who
are Registered Representatives of a broker/dealer is incidental to their work as
Registered Representatives of a broker/dealer in connection with the purchases
and sales of mutual fund shares and other securities. They are Registered
Representatives of a broker/dealer and work under the supervision of such
broker/dealer. Accordingly, the Company does not believe that it or any of its
employees (other than qualified advisors of JT Securities, a registered
investment advisor) is required to register as an investment adviser with the
Commission or any applicable state agency. In 1992, the staff of the Commission
made written inquiries to the Company regarding a possible requirement for it to
register as an investment adviser. The Company responded to such inquiries in
March 1993 and has not received any other communication from the Commission on
this subject. Since such date, JT Securities has registered as an investment
advisor.
If the Commission were to determine that, prior to the registration
of the Company's wholly owned subsidiary, JT Securities, Inc., a New York
corporation ("JT Securities"), as a securities broker/dealer and as an
investment adviser, the Company was required to register as a broker/dealer
and/or as an investment adviser, then the Company may be subject to regulatory
action. See "RISK FACTORS -- Potential Liability If Company was Required to
Register as a Broker/Dealer or an Investment Adviser."
The Registered Representatives themselves are, moreover, strictly
regulated in their activities as Registered Representatives of a securities
broker/dealer under the Securities Act of 1934, as amended, and the rules and
regulations promulgated thereunder, state regulation, the rules of the National
Association of Securities Dealers, Inc. (the "NASD") and by the rules and
regulations of the broker/dealer. Such rules and regulations impose burdens in
terms of record keeping and reporting.
The Company's subsidiary, JT Securities, is a registered
broker/dealer under the Securities Exchange Act of 1934, as amended, and a
member of the NASD, it is also a registered investment advisor under the
Investment Advisors Act of 1940, as amended, and under New York State and
Florida laws. It is subject, therefore, to detailed rules and regulations,
including extensive record keeping requirements, incumbent upon registered
broker/dealers and investment advisors.
JT Securities has not registered as a broker/dealer in any states
other than New York State and Florida, although the Company has offices in ten
other states. The Company does not believe that JT Securities is currently
required to so register, however, the Company intends to cause JT Securities to
register as a
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<PAGE> 44
broker/dealer in other states so that it can expand the scope of its business.
EMPLOYEES
At December 31, 1996, the Company employed 119 persons on a full-time
basis, including the Company's four officers. See "MANAGEMENT." The Company's
full-time employees include 24 professional tax preparers, 44 clerical and
support staff persons, and 22 administrative personnel, who include the
Company's executive officers. In addition, 29 employees are part of the
Company's direct mail services division. During peak season the Company employs
approximately 500 full-time employees.
The Company also utilizes approximately 115 independent contractors
who serve as registered representatives of Royal Alliance and/or as insurance
agents as well as seasonal employees. See "BUSINESS--Seasonality."
The Company's offices are partially staffed by financial planners who
are affiliated with the Company as independent contractors, particularly during
the non tax season. The Company also retains seasonal employees. See "BUSINESS
- -- Seasonality." During a portion of the year, approximately ten of the
Company's offices are not staffed full-time by employees and/or full-time
financial planning affiliates of the Company. During such periods, such offices
are staffed part-time by affiliated financial planners and calls to such offices
when no personnel are present are forwarded automatically to an office of the
Company that is fully staffed.
DESCRIPTION OF PROPERTY
The Company provides services to its clients at 123 local offices in
twelve states: Forty-three in New York, sixteen in New Jersey, nine in Arizona,
nine in Florida, nine in Ohio, seven in Maryland, seven in Connecticut, seven in
Washington, six in Massachusetts, five in Nevada, two in Pennsylvania, two in
California and one in Kentucky. Forty-four of such offices opened in January
1996 and eight opened in January 1997. A majority of the offices are leased in
commercial office buildings. Most of the Company's offices are leased pursuant
to standard form office leases, although seven offices are leased on an oral
month-to-month basis. The remaining leases range in terms from one to seven
years. The Company's rental expense during its fiscal year ended June 30, 1996
was $1,502,788. The Company believes that any of its offices could be replaced
with comparable office space, however location and convenience is an important
factor in marketing the Company's services to its clients. Since the Company
advertises in the geographic area surrounding the office location, the loss of
such a office that is not replaced with a nearby office could adversely affect
the Company's business at that office.
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<PAGE> 45
The Company needs less than 1,000 square feet of usable floor space
to operate an office, and its needs can be flexibly met in a variety of real
estate environments. Therefore, the Company believes that its facilities are
adequate for its current needs.
The Company also owns a building housing one of its offices in
Babylon, New York.
LEGAL PROCEEDINGS
There are no material proceedings currently pending against the
Company.
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<PAGE> 46
MANAGEMENT
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
EXECUTIVE
OFFICER OR
DIRECTOR
NAME AGE POSITION SINCE
- ---- --- -------- ----------
<S> <C> <C> <C>
James Ciocia 41 Chief Executive Officer, 11/81
President and Director
Thomas Povinelli 37 Chief Operating Officer, 11/84
Chief Financial Officer
and Director
Gary Besmer 56 Vice President and Director 11/84
Kathryn Travis 49 Secretary, Vice President
and Director 11/89
Seth A. Akabas 40 Director 4/95
Louis P. Karol 38 Director 4/95
</TABLE>
James Ciocia, Chief Executive Officer, President and Director
Mr. Ciocia is a principal founder of the Company. He opened his first
office in 1981 and has served in his current capacity since that time. In
addition to serving the company as its Chief Executive Officer, he prepares tax
returns, serves as a life insurance agent and sells life and other insurance
products to clients of the Company. Mr. Ciocia is a Registered Representative of
JT Securities and is a Registered Representative of Royal Alliance. A graduate
of St. John's University with a B.S. degree in accounting, he is a member of the
International Association for Financial Planners.
Thomas Povinelli, Chief Operating Officer, Chief Financial Officer and Director
Mr. Povinelli began his tenure with the Company as an accountant in
1983 and has served as an executive officer since November 1984. In addition to
supervising the opening of all new offices, he prepares tax returns, serves as a
life insurance agent, selling life and other insurance products to clients as
well as effecting transactions in mutual funds shares and other securities. Mr.
Povinelli is a Registered Representative of JT Securities and Royal Alliance. He
graduated from Iona College with a B.S. in accounting.
40
<PAGE> 47
Gary Besmer, Vice President and Director
Mr. Besmer joined the company as an accountant in 1983 after retiring
from the New York City Police Department. He has served as an executive officer
and a director of the company since November 1984. Mr. Besmer prepares tax
returns and manages the company's Rockville Centre office. Mr. Besmer is a
Registered Representative of JT Securities and Royal Alliance. He is a graduate
of the New York Institute of Technology with a B.A. in behavioral science and a
minor in accounting.
Kathryn Travis, Secretary, Vice President and Director
Ms. Travis began her career with the Company in 1986 as an accountant
and has served as Vice President and a director since November 1989. She
prepares tax returns and manages the company's Great Neck office. She also
serves as President, a director and a Registered Representative of JT Securities
and is a Registered Representative of Royal Alliance. Ms. Travis graduated from
the College of New Rochelle with a B.A. in mathematics.
Louis P. Karol, Director
Mr. Karol has been a partner of the law firm of Karol, Hausman &
Sosnick and its predecessors for more than the prior five years. Mr. Karol is a
graduate of George Washington University and a graduate of Cardozo Law School
and has received an LLM degree in Taxation from New York University School of
Law. Mr. Karol is a Certified Public Accountant. Mr. Karol is on the Board of
Directors of the Long Island Chapter of the International Association of
Financial Planning.
Seth A. Akabas, Director
Since June 1991, Mr. Akabas has been a partner at the law firm of
Akabas & Cohen. Prior to June 1991, he was associated with the law firm of
Spengler Carlson Gubar Brodsky & Frischling. Mr. Akabas is a graduate of
Princeton University with a BA degree in economics and a graduate of Columbia
University Schools of Law and Journalism.
BOARD OF DIRECTORS
Each director is elected for a period of one year at the Company's
annual meeting of stockholders and serves until his or her successor is duly
elected by the stockholders. Officers are elected by and serve at the will of
the Board of Directors. The Company has a Stock Option Plan Committee and an
audit committee of its board of Directors. The Company has no nominating,
compensation or other committees. The Stock Option Plan Committee administers
the Company's 1993 Joint Incentive and Non-Qualified
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<PAGE> 48
Stock Option Plan. The audit committee will be responsible for carrying out the
functions specified in Section 6 of Schedule E of the NASD by-laws. These
functions include: (i) review the scope of each audit of the Company, (ii)
review, with the independent auditors, the Company's accounting practices and
policies, (iii) review, with the independent auditors, their final report, (iv)
review the Company's overall accounting and financial controls with internal and
independent auditors, and (v) consult, as needed, with the independent auditors.
James Ciocia, Thomas Povinelli, Gary Besmer and Kathryn Travis, each
an officer and director of the Company, have delinquently filed four reports,
three reports, four reports and one report, respectively, disclosing ownership
of securities on Form 4 required by Section 16(a) of the Securities Act of 1934
in the past fiscal year. Each such report reported one transaction.
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<PAGE> 49
REMUNERATION OF OFFICERS AND DIRECTORS
MANAGEMENT
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 1995 $267,200 $ 4,318 -0- 18,850
Officer, 1996 $251,200 $ 28,588 $30,500(1) -0-
President and Director
Thomas Povinelli 1994 $200,000 $180,263 -0- -0-
Chief Operating Officer, 1995 $259,600 $ 65,321 -0- 18,850
Chief Financial Officer 1996 $339,300 $115,595 $78,600(2) -0-
and Director
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-
former 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 $8,100 for health insurance.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs at Options/SARs
Fiscal Year-End(#) Fiscal Year-End($)
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*
former Treasurer, Vice President
and Chief Financial Officer
</TABLE>
* All such options have since been terminated.
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<PAGE> 50
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' COMPENSATION
Directors of the Company receive no compensation for serving as a
director.
STOCK OPTION PLAN
On September 14, 1993, the Company adopted its 1993 Joint Incentive
and Non-Qualified Stock Option Plan, as amended October 14, 1993 (the "Plan"),
pursuant to which the Company may now grant options to purchase up to an
aggregate of 816,000 shares. Such options may be intended to qualify as
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, or they may be intended not to qualify under
such Section ("Non-Qualified Options").
The Plan is administered by Seth Akabas and Louis Karol, the
committee of independent directors of the Board of Directors of the Company (the
"Stock Option Committee"), which has authority to determine the persons to whom
the options may be granted, the number of shares of Common Stock to be covered
by each option, the time or times at which the options may be granted or
exercised, whether the options will be Incentive Options or Non-Qualified
Options, and other terms and provisions of the options. The exercise price of
Incentive Stock Options granted under the Plan may not be less than the fair
market value of a share of Common Stock on the date of grant (110% of such value
if granted to a person owning in excess of ten percent of the Company's
securities). Options under the Plan may not have a term longer than 10 years
from the date of grant (five years if granted to a person owning in excess of
ten percent of the Company's securities) and may not be granted more than ten
years from the date of adoption of the Plan.
The Stock Option Committee consists of disinterested directors and
administers the Plan for the purpose of complying with Rule 16(b)(3) under the
Securities Exchange Act of 1934, as amended, with respect to grants under the
Plan.
To the date of this Prospectus, Non-Qualified Options to purchase
83,604 shares, 83,604 shares, 50,163 shares, and 62,710
44
<PAGE> 51
shares of Common Stock at the price of $2.60 per share have been granted under
the Plan to James Ciocia, Thomas Povinelli, Gary Besmer and Kathryn Travis,
respectively; Non-Qualified Options to purchase 41,766 shares, 41,766 shares,
25,060 shares, and 31,329 shares of Common Stock at the price of $3.65 per share
have been granted under the Plan to James Ciocia, Thomas Povinelli, Gary Besmer
and Kathryn Travis, respectively; Non-Qualified Options to purchase 18,850
shares, 18,850 shares, 11,310 shares, and 14,170 shares of Common Stock at the
price of $2.50 per share have been granted under the Plan to James Ciocia,
Thomas Povinelli, Gary Besmer and Kathryn Travis, respectively; Non-Qualified
Options to purchase 1,820 shares of Common Stock at the price of $2.50 per
share, 7,920 shares of Common Stock at the price of $2.60 per share and 4,080
shares of Common Stock at the price of $3.65 per share were granted under the
Plan to the person, who was at the time, the Chief Financial Officer of the
Company. In addition, the Company granted to such individual options to purchase
up to 200,000 shares of Common Stock vesting over several years and exercisable
at a 20% discount from the market price of the Common Stock. However, all the
options that have been granted to such former Chief Financial Officer have since
been terminated and may be reissued under the Plan. In total, the Company has
granted options to purchase 485,002 shares and options to purchase 330,998
shares remain to be granted under the Plan.
INDEMNIFICATION
The Company's Certificate of Incorporation includes a provision that
eliminates or limits the personal financial liability of the Company's
directors, except in situations where there has been a breach of the duty of
loyalty, failure to act in good faith, engaging in intentional misconduct or
knowing violation of the law.
In addition, the Company's By-Laws include provisions to indemnify its
officers and directors and other persons against expenses, judgments, fines and
amounts paid in settlement in connection with threatened, pending or completed
suits or proceedings against such persons by reason of serving or having served
as officers, directors or in other capacities, except in relation to matters
with respect to which such persons shall be determined to have acted not in good
faith, unlawfully or not in the best interest of the Company. With respect to
matters as to which the Company's officers and directors and others are
determined to be liable for misconduct or negligence in the performance of their
duties, the Company's By-Laws provide for indemnification only to the extent
that the Company determines that such person acted in good faith and in a manner
not opposed to the best interests of the Company.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES
ACT OF 1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING THE
COMPANY PURSUANT TO THE FOREGOING PROVISIONS, THE COMPANY HAS BEEN INFORMED THAT
IN THE OPINION OF
45
<PAGE> 52
THE SECURITIES AND EXCHANGE COMMISSION, SUCH INDEMNIFICATION IS AGAINST PUBLIC
POLICY AS EXPRESSED IN THE ACT AND IS THEREFORE UNENFORCEABLE.
46
<PAGE> 53
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of December 31, 1996, to the extent
known to the Company, the ownership of the Company's Common Stock, par value
$.01 per share, by (i) each person who is known by the Company to own of record
or beneficially more than 5% of the issued and outstanding Common Stock, (ii)
each of the Company's directors and executive officers, and (iii) all directors
and executive officers as a group. Except as otherwise indicated, the
stockholders listed in the table have sole voting and investment powers with
respect to the shares indicated.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership Class
- ------------------- -------------------- ----------
<S> <C> <C>
James Ciocia 1,040,473 (1) 18.3%
17 Folgers Lane
Dix Hills, NY 11746
Thomas Povinelli 1,083,473 (2) 19.1%
3427 Bayfront Place
Baldwin, NY 11510
Gary Besmer 538,480 (3) 9.6%
35 Deer Run
East Islip, NY 11730
Kathryn Travis 358,185 (4) 6.4%
31 Wood Lane
Lattingtown, NY 11560
Seth Akabas 8,081 (5) .1%
245 West 107th Street
New York, NY 10025
Louis Karol 780 .01%
28 Fairview Avenue
East Williston, NY 11596
Steven Gilbert 486,154 (6) 8.4%
2420 Enterprise Road; Suite 100
Clearwater, FL 34623
All directors and officers
as a group (6 persons) 3,029,472 50.7%
</TABLE>
- ----------
(1) Includes 83,604 shares and 41,766 shares of Common Stock issuable
upon the exercise of currently exercisable options at prices of $2.60 and $3.65,
respectively.
(2) Includes 83,604 shares and 41,766 shares of Common Stock issuable
upon the exercise of currently exercisable options at prices of $2.60 and $3.65,
respectively.
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<PAGE> 54
(3) Includes 50,163 shares and 25,060 shares of Common Stock issuable
upon the exercise of currently exercisable options at prices of $2.60 and $3.65,
respectively.
(4) Includes 62,710 shares and 31,329 shares of Common Stock issuable
upon the exercise of currently exercisable options at prices of $2.60 and $3.65,
respectively.
(5) Includes 8,081 shares owned by the law firm of Akabas & Cohen of
which Mr. Akabas is a partner.
(6) Includes 246,154 shares owned by the Gilbert Family Limited
Partnership of which Steven Gilbert is a 97% beneficiary. In addition, includes
240,000 shares issuable upon exercise of options at $3.50 per share. Does not
include 100,000 shares issuable at $3.50 per share that are not exercisable
within 60 days.
48
<PAGE> 55
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Each of James Ciocia, Thomas Povinelli, Gary Besmer and Kathryn Travis,
acts as a Registered Representative for Royal Alliance and as an authorized
agent for insurance carriers.
Mr. Ciocia earned gross commissions from sales of securities and
insurance products in connection with his work with the Company equal to
approximately $280,000 in the Company's 1996 fiscal year and $234,000 in the
Company's 1995 fiscal year and paid approximately $108,000, and $100,000 in such
years to the Company for clerical, support staff, office space and client
references.
Mr. Povinelli earned gross commissions from sales of securities and
insurance products in connection with his work with the Company equal to
approximately $260,000 in the Company's 1996 fiscal year, $250,000 in the
Company's 1995 fiscal year and paid approximately $62,200 and $107,000 in such
years to the Company for clerical, support staff, office space and client
references.
Mr. Besmer earned gross commissions from sales of securities and
insurance products in connection with his work with the Company equal to
approximately $14,000 in the Company's 1996 fiscal year and $21,000 in the
Company's 1995 fiscal year and paid approximately $1,200 and $9,000 in such
years to the Company for clerical, support staff, office space and client
references.
Ms. Travis earned gross commissions from sales of securities and
insurance products in connection with her work with the Company equal to
approximately $28,000 in the Company's 1996 fiscal year and $12,000 in the
Company's 1995 fiscal year and paid approximately $8,300 and $5,000 in such
years to the Company for clerical, support staff, office space and client
references.
In 1991, the four principal shareholders, Messrs. Ciocia, Povinelli and
Besmer and Ms. Travis, personally agreed to purchase the Common Stock of a
former stockholder and executed and delivered a promissory note in the original
principal amount of $360,000 in connection with such purchase. From 1991 through
1994, annual payments thereunder, in the amount of approximately $75,000 with
interest, were advanced by the Company, and each shareholder's allocable portion
thereof was deducted from his or her salary that would otherwise be payable by
the Company. In January 1995, the Company paid such former shareholder in full
on behalf of the four principal shareholders. In January and July 1995, the four
principal shareholders agreed to surrender a total of 96,964 shares of Common
Stock in lieu of repayment of such loans advances by the Company. In such
transactions, such Common Stock was valued at its market price.
In January 1995, Kathryn Travis, as officer and director of the Company
and Ralph Esposito, then an officer of the Company, purchased 22,759 shares of
common stock that had been canceled due
49
<PAGE> 56
to non-payment by a private placement investor. The purchase price of $3.07 per
share was the price to be paid by such investor.
In March 1995, the Company transferred ownership of certain life
insurance policies that it maintained on key officers to the officers
themselves. These policies had cumulative cash values of $117,194 on the books
of the Company. On August 18, 1995, the officers gave the Company promissory
notes in principal amounts equal to the recorded cash values. The notes are
payable in 52 equal bi-weekly installments (including interest at 9% per annum)
each totaling $1,700, with balloon payments totaling $8,434 due August 15, 1997.
The four principle shareholders, Messrs. Ciocia, Povinelli and Besmer
and Ms. Travis, personally guaranteed the repayment of the Company's long-term
loan in the amount of $500,000 from State Bank of Long Island. Such shareholders
received no consideration for such guarantees other than their salaries and
other compensation.
On July 1, 1995, the Company, Ralph Esposito, who was then its Chief
Financial Officer, Kathryn Travis, a executive officer of the Company, four
individuals who are relatives of the officers and an employee of the Company
formed ATM Partners, LP (the "Partnership"). Such individuals and their initial
investments are as follows: Madeline Esposito, wife of former Chief Financial
Officer - $196,000, Anna Saras, wife of the present Chief Financial Officer -
$198,000, Thomas Povinelli, Sr., father of the present Chief Financial Officer -
$71,000, Tracy Ciocia, wife of the President - $150,000, and Joseph Bonocore, an
employee - $10,000. The Company's initial investment was $348,000 and Kathryn
Travis' initial investment was $6,000. All investment transactions are executed
through JT Securities. At December 30, 1996, the Company had a 40% interest in
the Partnership and recognized income of approximately $198,000 from the
Partnership for the year ended June 30, 1996.
In November 1995, the four executive officers and Ralph Esposito, then
the Company's chief financial officer, sold options to purchase a total of
65,000 share at $2.50 per share to Rummco, Ltd., a Cayman Islands company. In
connection with such sale, the Company agreed to consent to such sale and
register shares underlying such options with the registration statement of which
this Prospectus is a part. These options to purchase shares of common stock were
subsequently sold to Rozel International Holding, Ltd. in an agreement dated
June 10, 1996.
The Company holds demand loans due from stockholders aggregating
$180,895, of which $127,395 was due from directors and was previously agreed to
be repaid by June 30, 1995 through salary deductions or cash repayments. These
loans were in default although the Company made no demand for repayment until
March 1996. On March 8, 1996, the demand loans amounting to $127,395 were
converted to notes receivable. The remaining loans aggregating $53,500 are due
from various minority stockholders (who are not
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<PAGE> 57
officers or directors) on demand. The Company subsequently forgave the loans for
the following individuals in the following amounts: James Ciocia $19,580; Thomas
Povinelli $60,004; Gary Besmer $12,009; and Kathryn Travis $32,306, for a
aggregate total of $123,899. The difference of $3,496 had already been repaid by
James Ciocia.
PLAN OF DISTRIBUTION
The Common Stock and Redeemable Warrants registered hereby will be
issued by the Company to the holders of the applicable convertible security upon
the exercise thereof by such holders. The Company may engage in solicitations
through its officers and directors or through placement agents to induce the
holders of such securities to exercise them. In addition, the Company has the
right to redeem Redeemable Warrants at a price of $.01 per share, provided that
Redeemable Warrantholders will have 30 days to exercise in the case of such
redemption. If the Company redeems the Redeemable Warrants however, the volume
of warrantholders exercising the warrants may depress the market price of the
Common Stock. Upon exercise, the Common Stock and Redeemable Warrants will be
held by such holders and any further distribution will not be in the Company's
control.
SELLING SECURITYHOLDERS
All of the shares of Common Stock (collectively, the "Shares") offered
herein for the accounts of the persons identified in the following table (the
"Selling Securityholders") may be sold from time to time. The Selling
Securityholders and the amount of securities that may be acquired by each are
set forth below.
All of the Shares, which will be offered by the Selling
Securityholders, may be acquired by them as follows: 239,975 shares at an
exercise price per share of $3.13 from the Company pursuant to the exercise of
Class B Warrants that were granted in October and November 1993 in connection
with the Company's private placement offering of debt securities, 100,000 shares
at an exercise price of $5.125 pursuant to outstanding options, 150,000 shares
at an exercise price of $5.13 pursuant to outstanding options, 65,000 shares at
an exercise price of $2.50 pursuant to outstanding employee options sold to
Rozel International Holding, Ltd., 139,921 shares of Common Stock at an exercise
price of $3.65 per share pursuant to outstanding employee options, 280,081
shares of Common Stock at an exercise price of $2.60 pursuant to outstanding
employee options, 101,566 shares of Common Stock and 50,783 Redeemable Public
Warrants issuable to Patterson Travis, Inc. may be acquired at a price of $8.40
per unit, each unit consisting of two shares of Common Stock and one Public
Redeemable Warrant, and 50,783 shares of Common Stock issuable to Patterson
Travis, Inc. upon exercise of the Redeemable Public Warrants that are issuable
upon exercise of the Underwriter's Warrants may be
51
<PAGE> 58
acquired at a price of $4.67. As of the date of this Prospectus, no Selling
Securityholder has exercised any of the warrants or options described above.
<TABLE>
<CAPTION>
Amount of Percentage
Common Amount of Common
Selling Stock of Stock
Securityholder owned Common owned
and Position before Stock after
to Company offering offered offering(greater than 1%)
- --------------- -------- ------- -------------------------
<S> <C> <C> <C>
Paula Sclafani, 18,035 18,035 -0-
mother of Kathryn Travis,
Secretary, Vice President
and Director
Thomas Povinelli, Sr., 49,595 49,595 -0-
father of Thomas Povinelli,
Chief Operating Officer,
Chief Financial Officer and Director
Joseph Cifarelli 1,600 1,600 -0-
Samuel Bernthal 10,762 10,762 -0-
Carmela Ciocia 41,596 41,596 -0-
Ilia Walsh,
stepdaughter of Gary Besmer,
Vice President and Director 31,997 31,997 -0-
James Ciocia,
Chief Executive Officer,
President and Director 1,040,473 125,370 16.1%
Thomas Povinelli,
Chief Operating Officer, 1,083,473 125,370 16.9%
Chief Financial Officer and Director
Gary Besmer,
Vice President and Director 538,480 75,223 8.2%
Kathryn Travis,
Secretary, Vice President and Director 358,185 94,039 4.7%
Ralph Esposito, 17,779 -0- -0-
former Chief Financial Officer,
Vice President and Treasurer
John Schnitzler 35,996 35,996 -0-
Garo Armen 35,996 35,996 -0-
Michael Howard 8,000 8,000 -0-
Patterson Travis, Inc., 273,888 101,566(1) 2.2%
underwriter of Company's
initial public offering
EuroMarket Advisory, Inc. 50,000 50,000 -0-
Cascade Corporation 50,000 50,000 -0-
Deborah A. Picou 50,000 50,000 -0-
</TABLE>
52
<PAGE> 59
<TABLE>
<S> <C> <C> <C>
Texas Capital Securities, Inc. 15,000 15,000 -0-
Harbor Financial Inc. 85,000 85,000 -0-
Rozel International Holding, Ltd. 65,000 65,000 -0-
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amount of Percentage of
Public Public
Redeemable Amount of Redeemable
Selling Warrants Public Warrants
Securityholder owned Redeemable owned
and Position before Warrants after
to Company offering offered offering(greater than 1%)
- -------------- -------- ------- -------------------------
<S> <C> <C> <C>
Patterson Travis, Inc. 50,783 50,783 -0-
original underwriter of Company's
initial public offering
- -------------
(1) Issuable upon exercise of the Redeemable Public Warrants that are
issuable upon exercise of the Underwriter's Warrants.
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Selling Stock Stock
Securityholder owned owned
and Position before Stock after
to Company offering offered offering(greater than 1%)
- -------------- -------- ------- -------------------------
<S> <C> <C> <C>
Edward Haas, employee 64,286 16,072 -0-
</TABLE>
- --------------------------------------------------------------------------------
PLAN OF DISTRIBUTION BY SELLING SECURITYHOLDERS
No underwriter is involved in the distribution of the securities that
may be owned by the Selling Securityholders, but rather sales will be made by
the Selling Securityholders either directly or through one or more securities
brokers or dealers in over-the-counter transactions on The NASDAQ Stock Market,
or in privately negotiated transactions. At the time that a particular offer of
any of the Shares is made by or on behalf of a Selling Securityholder, to the
extent required, a Prospectus Supplement will be distributed that will set forth
the number of Shares being offered and the terms of the offering, including the
name or names of any underwriters, dealers or agents, the purchase price paid by
any underwriter for Shares purchased from the Selling Securityholder and any
discounts, commissions or concessions allowed or reallowed or paid to dealers,
and the proposed selling price to the public.
Shares sold in over-the-counter transactions will be sold at the
current market prices at the time of sale, and any Shares sold in private
transactions will be sold at prices acceptable to the
53
<PAGE> 60
buyer and seller. Broker-dealers through which the Selling Securityholders
effect sales of the Shares may receive compensation in the form of discounts,
concessions or commissions from the Selling Securityholders and/or the
purchasers of the Shares for whom such broker-dealers may act as agent or to
whom they sell as principal, or both (which compensation as to a particular
broker-dealer may be in excess of customary compensation).
The Selling Securityholders and any broker-dealers who act in
connection with the sale of Shares hereunder may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act of 1933, as amended
(the "Securities Act"), and any commissions received by them and profit on any
resale of the Shares as principal might be deemed to be underwriting discounts
and commissions under the Securities Act.
Under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the regulations promulgated thereunder, any person engaged in a
distribution of Common Stock offered by this Prospectus may not simultaneously
engage in market-making activities with respect to the Common Stock during the
applicable "cooling off" period (9 days) prior to the commencement of such
distribution. In addition, and without limiting the foregoing restriction, the
Selling Securityholders will be subject to applicable provisions of the Exchange
Act and the rules and regulations promulgated thereunder, including, without
limitation, Rules 10b-6 and 10b-7 in connection with transactions in the Shares,
which provisions may limit the timing of purchases and sales of shares of Common
Stock by the Selling Securityholders.
The Selling Securityholders will receive the entire proceeds from the
sale of their Shares, less any commissions paid to brokers or dealers for
executing such offers. Although the Company will not receive any funds from the
sale of the Selling Securityholders' shares, the Company will pay for all
expenses of the offering and will furnish current prospectuses to the Selling
Securityholders at their request.
LOCK-UP AGREEMENTS
All shareholders of the Company prior to its IPO agreed not to sell any
Common Stock without the prior written consent of the underwriter of the
Company's initial public offering until September 9, 1996, but such agreement
has now expired.
54
<PAGE> 61
DESCRIPTION OF SECURITIES
UNITS
Each Unit (a "Unit") offered hereby consists of two shares of the
Common Stock, par value $.01 per share, of the Company and one redeemable
warrant (each a "Redeemable Warrant"), each Redeemable Warrant to purchase one
additional share of such Common Stock at an exercise price of $4.67 per share.
The Units are no longer traded as units, and the Common Stock and Redeemable
Public Warrants composing the Units are separately transferrable.
COMMON STOCK
The Company, a Delaware corporation, is authorized to issue nine
million (9,000,000) shares of Common Stock, par value $.01 per share. At the
date of this Prospectus the Company has five million, five hundred fifty
thousand, five hundred eighty-two (5,550,582) shares of Common Stock
outstanding. Upon payment in full of the subscription price therefor, the shares
of Common Stock are not subject to further assessment or call.
The following summary description of the Common Stock is qualified in
its entirety by reference to the Company's Certificate of Incorporation, as
amended. The holders of the Common Stock are entitled to one vote for each share
held of record on each matter submitted to a vote of stockholders. There is no
cumulative voting for election of directors. Subject to the prior rights of any
series of Preferred Stock that may from time to time be outstanding, if any,
holders of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor, and,
in the event of liquidation, dissolution or winding up of the Company, are
entitled to share ratably in all assets remaining after payment of liabilities.
Holders of Common Stock have no preemptive rights and have no rights to convert
their Common Stock into any other securities. The outstanding Common Stock is,
and the Common Stock to be outstanding upon completion of this offering will be,
validly issued, fully paid and nonassessable.
REDEEMABLE PUBLIC WARRANTS
Each Redeemable Public Warrant entitles the holder thereof to purchase
one share of Common Stock at an exercise price of $4.67 per share, subject to
adjustment in the event of certain occurrences, such as stock dividends, splits
and combinations. The Redeemable Public Warrants are exercisable for a period of
three years after the date of this Prospectus, by surrendering the certificate
representing the Redeemable Public Warrant to the Company, or its authorized
transfer agent, with the subscription form attached thereto properly completed
and executed together with payment in full by certified or bank teller's check
of the aggregate exercise price of all the Redeemable Public Warrants then
exercised. The Redeemable Public Warrants are redeemable by the
55
<PAGE> 62
Company at a price of one cent ($.01) per Redeemable Public Warrant, provided
that (i) notice of redemption is given to the Redeemable Public Warrantholder
not less than thirty days prior to the date fixed for redemption; (ii) the
aggregate average of the closing bid and asked quotations of the Common Stock
shall have been at least 25% above the Redeemable Public Warrant Exercise Price
per share for the twenty trading days ending on the third day prior to the day
on which notice of redemption is given; and (iii) holders of the Redeemable
Public Warrants shall be entitled to exercise Redeemable Public Warrants until
the close of business on the day prior to the date fixed for redemption.
The Company may at any time, and from time to time, extend the exercise
period of the Redeemable Public Warrants provided that written notice of such
extension is given to the Redeemable Public Warrantholders prior to the
expiration date then in effect. Also, the Company may reduce the exercise price
of the Redeemable Public Warrants for limited periods of time through the end of
the exercise period. Changes in the terms of outstanding Redeemable Public
Warrants may constitute an offering of a new security for which an appropriate
registration statement (or post-effective amendment to the registration
statement of which this Prospectus is a part) would have to be filed and
declared effective prior to any exercise under such changed terms. In addition,
the Company may be deemed to be engaged in a self tender offer or a going
private transaction, which would result in additional required filings. The
Company must give notice of any reduction of the exercise price to the
Redeemable Public Warrantholders. The Company does not currently contemplate an
extension of the exercise period or a reduction of the exercise price.
Each Redeemable Public Warrant will be separable from the Units upon
issuance and will be separately traded and quoted. No assurance can be given,
however, that any trading market for the Redeemable Public Warrants will
continue. Upon the expiration of the Redeemable Public Warrants following the
exercise period referred to above, any market that might have existed for the
Redeemable Public Warrants will terminate.
The exercise price of the Redeemable Public Warrants and the number of
shares issuable upon exercise will be adjusted upon the occurrence of certain
events, including (a) the issuance of dividends payable in Common Stock, (b)
subdivisions or combinations of the Common Stock, (c) the issuance of rights or
options entitling the holder to acquire shares of Common Stock at less than the
then current market price and the then current Redeemable Warrant Exercise
Price, and (d) the issuance of shares of Common Stock or of obligations or other
securities convertible into or exchangeable for shares of Common Stock, in each
case for a consideration less than the then current market price and the then
current Redeemable Warrant Exercise Price; provided that no adjustment will be
required for the issuance of shares upon the exercise of conversion, option,
warrant or other rights currently outstanding and described elsewhere in this
Prospectus, and no
56
<PAGE> 63
adjustment will be required in the event that a merger or acquisition is
undertaken by the Company, and no adjustment will be required upon the issuance
or exercise of options under a bona fide employee stock option plan and in
certain other circumstances.
The Redeemable Public Warrants are being issued pursuant to a Warrant
Agreement between the Company and Corporate Stock Transfer, Inc., as Warrant
agent. Corporate Stock Transfer, Inc. will also act as the Company's transfer
agent for its Common Stock. The foregoing brief description of the Redeemable
Public Warrants is a summary of the rights and privileges of Redeemable Public
Warrantholders, does not purport to be complete and is qualified in its entirety
by reference to the Warrant Agreement, a copy of the form of which is an exhibit
to the Registration Statement of which this Prospectus forms a part.
UNDERWRITER'S WARRANTS
The Company granted to the underwriter of its initial public offering
of securities five-year Underwriter's Warrants to purchase up to 50,783 Units
exercisable until September 9, 1999, at $8.40 per Unit, subject to adjustment in
the event of certain occurrences, such as stock dividends, splits and
combinations. The Underwriter's Warrants also contain certain provisions further
protecting the holder against dilution.
The Underwriter's Warrants may be exercised by surrendering the
certificate representing the Underwriter's Warrants to the Company, or its
authorized transfer agent, with the subscription form attached thereto properly
completed and executed together with payment in full of the aggregate exercise
price. The Underwriter's Warrants and the securities underlying them are covered
by the Registration Statement of which this Prospectus is a part.
PREFERRED STOCK
The Company is authorized to issue 100,000 shares of Preferred Stock,
none of which is outstanding, and the Company has no current understanding to
issue any of such Preferred Stock. The Board of Directors of the Company is
vested with authority to divide the authorized shares of Preferred Stock into
one or more series of such shares and to fix and determine the relative rights
and preferences of any such series. A series of such shares may, among other
matters, establish (a) the number of shares of Preferred Stock to constitute
such series and the designations thereof; (b) the rate and preference of
dividends, if any, the time of payment of dividends, whether dividends are
cumulative and the date from which any dividend shall accrue; (c) whether
Preferred Stock may be redeemed, and, if so, the redemption price and the terms
and conditions of redemption; (d) the liquidation preferences payable on
Preferred Stock in the event of liquidation; (e) sinking fund or other
provisions, if any, for redemption or purchase of such shares; (f) the terms and
conditions by which Preferred Stock may be converted, if the series is issued
with the privilege of
57
<PAGE> 64
conversion; and (g) voting rights, if any. The Board of Directors, without the
approval of the Company's shareholders, has the power to authorize the issuance
of Preferred Stock with voting and conversion rights that could adversely affect
the voting power of the Common Stock. See "RISK FACTORS--Preferred Stock May
Inhibit Change of Control."
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Weinick, Sanders & Co., L.L.P. was dismissed as the independent
accountants of the Company as of June 25, 1996. Such former independent
accountants' report on the financial statements of the Company for either of the
prior two years did not contain an adverse opinion or disclaimer of opinion, and
was not modified as to uncertainty, audit scope or accounting principles. The
decision to replace the Company's independent accountants was made by the
executive officers of the Company without action by the Company's Board of
Directors. There was no disagreement with the former accountants, either that
was resolved or that remained unresolved, on any matter of accounting principles
or practices, financial statement disclosure or auditing scope or procedure. On
June 25, 1996, the Company engaged BDO Seidman, LLP as its new independent
certified public accountants.
LEGAL MATTERS
The legality of the securities offered hereby will be passed on for the
Company by Akabas & Cohen, 488 Madison Avenue, 6th floor, New York, NY 10022.
Akabas & Cohen is the beneficial and record owner of 8,081 shares of the
Company's Common Stock. Seth Akabas, a partner in the law firm of Akabas &
Cohen, is a director of the Company.
EXPERTS
The financial statements of the Company for the year ended June 30,
1995 included in this Prospectus have been included herein in reliance on the
report by Weinick, Sanders & Co., L.L.P., 1515 Broadway, New York, NY 10036,
appearing elsewhere in this Prospectus and upon the authority of such firm as
experts in auditing and accounting.
The financial statements for the year ended June 30, 1996 included in
this Prospectus constituting a part of this Registration Statement have been
audited by BDO Seidman, LLP, independent certified public accountants, to the
extent and for the period set forth in their report appearing elsewhere herein
and in the Registration Statement, and are included in reliance upon such report
given upon the authority of said firm as experts in auditing and accounting.
58
<PAGE> 65
ADDITIONAL INFORMATION
The Company has filed with the office of the Securities and Exchange
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, its Registration
Statement on Form SB-2 (Registration No. 33-80627 under the Securities Act of
1933, with respect to the securities offered hereby (the "Registration
Statement"). This Prospectus does not contain all of the information set forth
in the Registration Statement and the exhibits and schedules thereto. For
further information, reference is hereby made to the Registration Statement.
Statements contained in the Prospectus as to the contents of any document are
not necessarily complete, and in each instance reference is made to the copy of
such document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. Copies of the
Registration Statement and such other reports filed by the Company may be
inspected without charge at the Public Reference Section of the Commission in
Washington D.C. at the address set forth above, at the Commission's regional
office in the Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, IL
60604, and at the Commission's office at 7 World Trade Center, New York, NY
10048, and copies of all or any part thereof may be obtained from the Commission
at prescribed rates. Copies of this filing, reports, proxy and information
statements and other information regarding the Company are available on the
Commission's website at http://www.sec.gov.
Any document or part thereof which is incorporated by reference within
this Prospectus and not delivered herewith, will be provided, without charge, to
each person, including any beneficial owner, to whom a Prospectus is delivered,
upon written or oral request of such person; however, exhibits to documents that
are incorporated by reference shall not be furnished unless such exhibits are
specifically incorporated by reference into the information that the Prospectus
incorporates. Such information may be obtained by writing the Company at 475
Northern Boulevard, Great Neck, NY 11021, telephone (516) 482-4860, Attn:
Secretary.
59
<PAGE> 66
GILMAN & CIOCIA, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1996 AND 1995
AND FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
<PAGE> 67
GILMAN & CIOCIA, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1996 AND 1995
AND FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
F-1
<PAGE> 68
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 sheets as of June 30, 1996
and September 30, 1996 (unaudited) F-5 - F-6
Consolidated statements of operations for the
years ended June 30, 1996 and 1995 and for the
three months ended September 30, 1996 and 1995
(unaudited) F-7
Consolidated statements of stockholders' equity
for the years ended June 30, 1996 and 1995 and
for the three months ended September 30, 1996
(unaudited) F-8 - F-9
Consolidated statements of cash flows for the years
ended June 30, 1996 and 1995 and for the three
months ended September 30, 1996 and 1995
(unaudited) F-10 - F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-12 - F-33
F-2
<PAGE> 69
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> 70
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> 71
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
1996 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS (Unaudited)
CURRENT:
Cash $2,221,795 $1,262,547
Accounts receivable, net of allowance for doubtful accounts of
$45,974 and $70,974, respectively 976,686 773,091
Receivables from related parties, current portion 403,545 274,752
Prepaid expenses and other current assets 100,866 359,746
- --------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 3,702,892 2,670,136
PROPERTY AND EQUIPMENT, AT COST, LESS ACCUMULATED
DEPRECIATION AND AMORTIZATION 1,501,701 1,672,528
INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION OF
$192,282 AND $263,059, RESPECTIVELY 1,030,820 1,126,910
INVESTMENT IN PARTNERSHIP 646,525 553,938
ADVANCES AND NOTES RECEIVABLE FROM FINANCIAL PLANNERS 501,531 438,310
SECURITY DEPOSITS 209,852 217,400
RECEIVABLES FROM RELATED PARTIES, NET OF CURRENT PORTION 139,595 77,928
DEFERRED TAX ASSETS 133,585 191,002
- --------------------------------------------------------------------------------------------
$7,866,501 $6,948,152
============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 72
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
1996 1996
- ------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
CURRENT:
Short-term borrowings $ 680,556 $ 288,887
Accounts payable 291,554 49,223
Accrued expenses and other current liabilities 395,450 537,454
Note payable - other - 121,928
- ------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,367,560 997,492
- ------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock - $.001 par value - shares authorized
100,000; issued and outstanding, none - -
Common stock - $.01 par value - shares authorized
9,000,000; issued and outstanding 5,550,582 55,505 55,505
Paid-in capital 6,184,075 6,213,810
Retained earnings 717,375 130,277
- ------------------------------------------------------------------------------------
6,956,955 6,399,592
Stock subscriptions and accrued interest receivable (458,014) (448,932)
- ------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 6,498,941 5,950,660
- ------------------------------------------------------------------------------------
$7,886,501 $6,948,152
====================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 73
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
Year Ended June 30, September 30,
- -----------------------------------------------------------------------------------------------
1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES: (Restated) (Unaudited)
Tax preparation fees $ 8,147,986 $6,657,620 $ 233,993 $ 176,943
Financial planning commissions 5,671,905 3,274,541 1,368,421 1,164,226
Direct mail services 2,689,786 - 557,386 487,235
- -----------------------------------------------------------------------------------------------
TOTAL REVENUES 16,509,677 9,932,161 2,159,800 1,828,404
- -----------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Salaries and commissions 6,690,091 3,915,963 1,301,430 836,582
General and administrative expenses 3,054,568 2,262,652 697,151 499,418
Advertising 2,585,125 2,045,178 22,694 15,306
Direct mail costs 1,682,108 - 379,210 338,706
Rent 1,502,788 912,565 468,333 281,267
Depreciation and amortization 525,468 212,639 172,476 73,563
Reimbursement of financial planning
expenses (125,000) - - (125,000)
- -----------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 15,915,148 9,348,997 3,041,294 1,919,842
- -----------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) 594,529 583,164 (881,494) (91,438)
- -----------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSES):
Income (loss) from investment in
partnership 198,165 - (92,587) 43,334
Interest income 91,435 97,894 20,915 39,038
Interest expense (107,111) (91,359) (16,937) (5,138)
Rental income 19,180 12,275 4,920 6,579
Realized gain on sale of marketable
securities 91,175 15,343 - -
Unrealized gain (loss) on marketable
securities - 16,216 - 64,663
- -----------------------------------------------------------------------------------------------
TOTAL OTHER INCOME (EXPENSES) - NET 292,844 50,369 (83,689) 148,476
- -----------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE PROVISION (CREDIT)
FOR INCOME TAXES 887,373 633,533 (965,183) 57,038
PROVISION (CREDIT) FOR INCOME TAXES 352,647 386,030 (378,085) 12,252
- -----------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 534,726 $ 247,503 $ (587,098) $ 44,786
===============================================================================================
NET INCOME (LOSS) PER SHARE $ 0.10 $ 0.05 $ (.11) $ .01
===============================================================================================
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES:
Primary 5,916,044 4,716,106 5,550,582 5,635,213
Fully diluted 5,916,044 4,882,737 5,550,582 5,635,213
===============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 74
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
TWO YEARS ENDED JUNE 30, 1996
AND THREE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Stock Treasury Stock
Common Stock Subscriptions and --------------------
-------------------- Additional Retained Accrued Interest
Shares Amount Paid-in Capital Earnings Receivable Shares Amount
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <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 -- -- -- -- -- 20,000 (72,500)
Issuance of common stock
for cash and
subscriptions
receivable 80,261 803 242,697 -- (115,000) -- --
Receipt of stock in lieu
of officers' loans
receivable -- -- -- -- -- 96,964 (339,375)
S Corporation dividend
distributions -- -- -- (202,868) -- -- --
Termination of subchapter
"S" election of
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) 116,964 $(411,875)
==========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Total
Stockholders'
Equity
- ---------------------------------------------
<S> <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 (72,500)
Issuance of common stock
for cash and subscriptions
receivable 128,500
Receipt of stock in lieu of
repayment of officers'
loans receivable (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 $ 5,346,525
=============================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 75
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
TWO YEARS ENDED JUNE 30 1996 AND
THREE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Stock
Common Stock Subscriptions and Treasury Stock
-------------------- Additional Retained Accrued Interest -----------------------
Shares Amount Paid-in Capita Earnings Receivable Shares Amount
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1995 5,634,864 $ 56,348 $5,815,194 $ 660,838 $(773,980) 116,964 $ (411,875)
Purchase of treasury stock -- -- -- -- 67,590 10,594 (67,590)
Retirement of treasury stock (127,558) (1,276) -- (478,189) -- (127,558) 479,465
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) -- --
Repayments of stock
subscriptions (unaudited) -- -- -- -- 19,387 -- --
Compensation recognized in
connection with the issuance
of stock options (unaudited) -- -- 29,735 -- -- -- --
Accrued interest income
(unaudited) -- -- -- -- (10,305) -- --
Net loss (unaudited) -- -- -- (587,098) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1996
(unaudited) 5,550,582 $ 55,505 $6,213,810 $ 130,277 $(448,932) -- $ --
==================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Total
Stockholders'
Equity
- ------------------------------------------------
<S> <C>
Balance, July 1, 1995 $ 5,346,525
Purchase of treasury stock --
Retirement of treasury stock --
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
Repayments of stock
subscriptions (unaudited) 19,387
Compensation recognized in
connection with the issuance
of stock options (unaudited) 29,735
Accrued interest income
(unaudited) (10,305)
Net loss (unaudited) (587,098)
- ------------------------------------------------
Balance, September 30, 1996
(unaudited) $ 5,950,660
================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE> 76
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Three Months Ended
June 30, September 30,
- ----------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES: (Restated) (Unaudited)
Net income (loss) $ 534,726 $ 247,503 $ (587,098) $ 44,786
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Compensation expense recognized in connection
with the issuance of stock options 232,782 30,875 29,735 5,537
Depreciation and amortization 525,468 212,639 172,464 73,563
(Income) loss from investment in partnership (198,165) - 92,587 (43,334)
Increase in deferred tax assets (133,585) - (57,417) -
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 - 115,210 -
Provisions for doubtful accounts 99,175 - 25,000 -
Interest on stock subscriptions (22,433) - (10,305) (3,572)
Gain on disposal of property and equipment (9,000) - - -
Unrealized gain on marketable securities - (16,216) - (16,216)
(Increase) decrease in:
Proceeds from sale of marketable securities 2,186,925 - - 2,160,413
Purchase of marketable securities - (2,079,534) - -
Accounts receivable (441,136) (273,401) 178,595 (134,032)
Advances to financial planners (653,768) - (51,989) (125,000)
Security deposits (100,486) (10,065) (7,548) (29,938)
Prepaid expenses and other current assets 26,786 (75,481) (258,880) (57,102)
Increase (decrease) in:
Accounts payable, accrued expenses and
other current liabilities 461,998 (549,169) (74,134) 105,721
- ---------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 2,621,862 (2,512,849) (433,780) 1,980,826
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (900,385) (618,744) (270,516) (37,431)
Acquisition of intangible assets (730,076) (184,028) (166,865) (146,500)
Investment in partnership (448,360) - - (305,026)
Proceeds from related party transactions 152,655 3,907 219,460 2,561
Payments to related parties (494,220) (335,512) (29,000) (48,703)
- ---------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (2,420,386) (1,134,377) (246,921) (535,099)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE> 77
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Three Months Ended
June 30, September 30,
---------------------------------------------------
1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES: (Restated) (Unaudited)
Acquisition of treasury stock $ - $ (72,500) $ - $ -
Proceeds from bank loan transactions 2,297,222 1,000,000 150,000 -
Payments of bank loan transactions (2,000,000) (1,116,666) (541,669) (27,778)
Proceeds from sale of common stock and exercise of
stock options 76,526 3,452,555 - -
Proceeds from stock subscriptions 310,809 73,024 19,387 26,250
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 - -
Proceeds from note payable - - 100,000 -
Payments of note payable - - (6,265) -
- ----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 684,557 3,806,563 (278,547) (1,528)
- ----------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 886,033 159,337 (959,248) 1,444,199
CASH AT BEGINNING OF PERIOD 1,335,762 1,176,425 2,221,795 1,335,762
- ----------------------------------------------------------------------------------------------------------
CASH AT END OF PERIOD $2,221,795 $ 1,335,762 $1,262,547 $2,779,961
==========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE> 78
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1995 IS UNAUDITED)
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 Company also has a 50% owned subsidiary, Suffolk Service Bureau
Corp. ("Suffolk"), acquired effective July 1, 1996 over which it
exercises control. Suffolk is a provider of income tax preparation and
financial planning services to individuals and businesses.
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, its four subsidiaries JT, BT, Gilbert and Suffolk 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> 79
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1995 IS UNAUDITED)
(c) Fair Value of Financial Instruments
The carrying amounts of financial instruments, including cash, accounts
receivable, notes receivable, accounts payable and short-term
borrowings and notes payable, approximated fair value as of June 30,
1996 and September 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 and $1,391,620 to
acquire lists of customer accounts, non-competition agreements and
goodwill.
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, and for the three months ended September 30, 1996 and
1995, amortization amounted to $70,777 and $14,653, respectively.
F-13
<PAGE> 80
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1995 IS UNAUDITED)
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. For the three months ended September 30, 1996 and 1995,
the Company recorded an adjustment of approximately $19,000 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> 81
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1995 IS UNAUDITED)
(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. For the quarter ended September 30, 1996, options and warrants
were excluded since they were anti-dilutive.
(n) Reclassifications
Certain amounts as previously reported have been reclassified to
conform to the 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'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.
F-15
<PAGE> 82
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1995 IS UNAUDITED)
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'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 did not have material impact on the Company's consolidated
results of operations, financial position or cash flows.
(p) Interim periods
The financial statements and related notes thereto as of September 30,
1996 and for the three months ended September 30, 1996 and 1995 are
unaudited and have been prepared on the same basis as the audited
financial statements included herein. In the opinion of management,
such unaudited financial statements include all adjustments necessary
to present fairly the information set forth therein. These adjustments
consist solely of normal recurring accruals. The interim results are
not necessarily indicate of the results for any future period.
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. During the
three months ended September 30, 1996 and 1995, the Company
acquired costumer lists for approximately $19,000 and $147,000
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> 83
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1995 IS UNAUDITED)
(c) Suffolk
On July 1, 1996, the Company acquired 50% of the issued and
outstanding capital stock of Suffolk in exchange for $150,000.
The acquisition has been accounted for as a purchase with the
entire amount of proceeds being recorded as goodwill.
Financial information for Suffolk has not been provided due to
immateriality.
3. RECEIVABLES FROM RELATED PARTIES
Receivables from related parties consist of the following:
<TABLE>
<CAPTION>
June 30, September 30,
1996 1996
----------------------------------------------------------------
<S> <C> <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. 214,219 216,220
Receivable from independent
contractor/stockholder of the
Company, payable in monthly
installments of $15,625 through
December 1, 1996. 94,750 47,600
Other 84,171 88,860
----------------------------------------------------------------
543,140 352,680
Less: current portion 403,545 274,752
----------------------------------------------------------------
$139,595 $ 77,928
================================================================
</TABLE>
For the years ended June 30, 1996 and 1995, interest income from these
receivables was approximately $12,662 and $11,226, respectively. For
the three months ended September 30, 1996 and 1995, interest income for
these receivables was approximately $3,220 and $1,517, respectively.
F-17
<PAGE> 84
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1995 IS UNAUDITED)
4. ADVANCES AND NOTES RECEIVABLE - FINANCIAL PLANNERS
Advances and notes receivable - financial planners consist of the
following:
<TABLE>
<CAPTION>
June 30, September 30,
1996 1996
---------------------------------------------------------------
<S> <C> <C>
Non-interest bearing advances to
financial planners amortized over
three years. $451,531 $388,310
Note receivable from financial planner
due December 4, 1998. Interest is
payable at 6% per annum. 50,000 50,000
---------------------------------------------------------------
$501,531 $438,310
===============================================================
</TABLE>
5. PROPERTY AND EQUIPMENT
Major classes of property and equipment consist of the following:
<TABLE>
<CAPTION>
June 30, September 30,
1996 1996
-------------------------------------------------------------
<S> <C> <C>
Building $ - $ 214,237
Equipment 1,911,788 1,948,901
Furniture and fixtures 342,206 347,484
Leasehold improvements 147,157 167,793
-------------------------------------------------------------
2,401,151 2,678,415
Less: Accumulated depreciation and
amortization 899,450 1,005,887
-------------------------------------------------------------
$1,501,701 $1,672,528
=============================================================
</TABLE>
F-18
<PAGE> 85
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1995 IS UNAUDITED)
6. SHORT-TERM BORROWINGS
The Company has a bank line of credit which provides for borrowings up
to a maximum amount of $2,500,000 and expires on October 31, 1996. The
line of credit is guaranteed by the four principal stockholders of the
Company. At June 30, 1996 and September 30, 1996, the Company had
borrowings of $500,000 and $150,000 respectively outstanding under this
line of credit. Interest is charged at the prime rate (8.25% at June
30, 1996 and September 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 and September 30, 1996, plus 1.75%) through June 30,
1997. The loan is secured by all of the Company's assets. At June 30,
1996 and September 30, 1996, the Company's outstanding balance under
this loan was $180,556 and $138,887, respectively.
In December 1996, the Company renegotiated its term loan to increase it
to $1,000,000. The new payment terms call for 36 monthly principal
installments of approximately $28,000 plus interest. The interest rate
on the loan and the security interest remain the same.
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>
F-19
<PAGE> 86
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1995 IS UNAUDITED)
(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.
(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 and $39,000 at September 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-20
<PAGE> 87
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1995 IS UNAUDITED)
(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 and
September 30, 1996, JT had net capital of $1,861,884 and
$1,064,211, respectively. The net capital requirement for JT as of
June 30, 1996 and September 30, 1996 was $25,000.
(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.
F-21
<PAGE> 88
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1995 IS UNAUDITED)
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.
(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 9(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 and September 30, 1996.
F-22
<PAGE> 89
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1995 IS UNAUDITED)
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.
At June 30, 1996 and September 30, 1996, 697,002 options have been granted under
the Option Plan. Of these options 511,335 and 533,002 options are exercisable at
June 30, 1996 and September 30, 1996, respectively, 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. For the three months ended September 30, 1996 and 1995, the
Company recorded approximately $29,735 and $0 respectively as compensation
expense in connection with the issuance of stock options.
F-23
<PAGE> 90
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1995 IS UNAUDITED)
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
and September 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.
(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.
F-24
<PAGE> 91
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1995 IS UNAUDITED)
(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. For the
three months ended September 30, 1996 and 1995, the Company recognized
interest income of $10,305 and $14,006, respectively. At June 30, 1996 and
September 30, 1996 accrued interest receivable was $22,433 and $10,305,
respectively.
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.
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 November 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, 1,366,778 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 but has been amended to
incorporate the consolidated financial statements of the Company for the
year ended June 30, 1996 and the three months ended September 30, 1996.
F-25
<PAGE> 92
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1995 IS UNAUDITED)
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 and September
30, 1996, the Company had a 35.62%, in the Partnership and recognized
income of approximately $198,000 from the Partnership for the year ended
June 30, 1996 and a loss of $92,587 for the three months ended September
30, 1996, respectively.
The following are the condensed financial statements of the Partnership:
ATM Partners, LP
Balance Sheets
<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>
F-26
<PAGE> 93
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1995 IS UNAUDITED)
ATM Partners, LP
Statements of Income
<TABLE>
<CAPTION>
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>
(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. For the three months ended September
30, 1996 and 1995, the individuals earned gross commissions of
approximately $58,000 and $43,000, respectively, from sales of securities
and insurance products, and paid the Company approximately $68,000 and
$27,000 as reimbursement for client referrals, office space and clerical
and secretarial support.
F-27
<PAGE> 94
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1995 IS UNAUDITED)
(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-28
<PAGE> 95
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1995 IS UNAUDITED)
The following presents financial information by segment for the years ended June
30, 1996 and 1995:
<TABLE>
<CAPTION>
Year Ended Tax Financial Direct
June 30, 1996 Preparation Planning 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
============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Year Ended Tax Financial Direct
June 30, 1995 Preparation Planning Mail Eliminations Consolidated
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <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>
F-29
<PAGE> 96
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1995 IS UNAUDITED)
11. TAXES ON INCOME
Provisions for income taxes in the consolidated financial statements consist of
the following:
<TABLE>
<CAPTION>
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, September 30,
1996 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
Compensation expense recognized for
financial reporting purposes in
connection with common stock option
grants issued at below market value $ 60,000 $ 60,000
Book amortization of intangibles in
excess of tax 53,000 77,881
Provision for bad debts 22,000 52,251
Provision for deferred rent liability 22,000 29,159
Book depreciation in excess of tax (23,415) (28,289)
- ------------------------------------------------------------------------------
$133,585 $191,002
==============================================================================
</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-30
<PAGE> 97
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1995 IS UNAUDITED)
A reconciliation of the Federal statutory rate to the provision credit for
income taxes is as follows:
<TABLE>
<CAPTION>
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-31
<PAGE> 98
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1995 IS UNAUDITED)
12. STATEMENTS OF CASH
FLOWS -
SUPPLEMENTAL
DISCLOSURES
<TABLE>
<CAPTION>
Three Months
Year Ended Ended
June 30, September 30,
-----------------------------------------------------
1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash payments for:
Interest $107,184 $ 78,402 $ 16,937 $ 5,138
Income taxes $449,276 $543,890 $ 22,515 $122,034
- ---------------------------------------------------------------------------------------------
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-32
<PAGE> 99
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1995 IS UNAUDITED)
13. RESTATEMENTS
(a) Fiscal 1995 Financial Information
The financial position and results of operations, as of June 30, 1995 and
for the year then ended, have been restated to increase the Company's tax
liability and provision by approximately $145,000 to correctly reflect its
liability as of that date.
F-33
<PAGE> 100
No Person is authorized to give any information or to make any representation
other than those contained in this Prospectus, and if given or made, such
information or representation must not be relied upon as having been
authorized. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the securities
offered by this Prospectus or an offer to sell or a solicitation of an offer to
buy the securities in any jurisdiction to any person to whom it is unlawful to
make such an offer or solicitation in such jurisdiction.
TABLE OF CONTENTS
Page
Prospectus Summary....................................................
Risk Factors..........................................................
Market Information....................................................
Use of Proceeds.......................................................
Management's Discussion and Analysis of Financial Condition and
Results of Operations...............................................
Business..............................................................
Management............................................................
Remuneration of Officers and Directors................................
Principal Stockholders................................................
Certain Transactions..................................................
Plan of Distribution..................................................
Selling Securityholders...............................................
Description of Securities.............................................
Legal Matters.........................................................
Experts...............................................................
Additional Information................................................
Until the conclusion of the distribution of the securities offered hereby,
there is an obligation of dealers to deliver a Prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
507,926 Shares
of Common Stock
1,143,398 Shares
of Common Stock
by Selling Securityholders
50,783 Redeemable
Common Stock
Purchase Warrants
by
Selling Securityholders
GILMAN & CIOCIA, INC
-----------
PROSPECTUS
February 13, 1997
<PAGE> 101
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. Indemnification of Officers and Directors
Article EIGHTH of the Corporation's Certificate of
Incorporation provides:
A director of this Corporation shall not be personally liable
to this Corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to this Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware General Corporation Law, or (iv) for
any transaction from which the director derived any improper personal
benefit. If the Delaware General Corporation Law is hereafter amended
to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of
this Corporation shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
Article NINTH of the Corporation's Certificate of
Incorporation provides:
This Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
complete action, suit or proceeding, whether civil, criminal,
administrative or investigative, or by or in the right of this
Corporation to procure judgment in its favor, by reason of the fact
that he is or was a director or officer, employee or agent of this
Corporation, or is or was serving at the request of this Corporation as
a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best
interests of this Corporation, in accordance with and to the full
extent permitted by statute. Expenses incurred in defending a civil or
criminal action, suit or proceeding may be paid by this Corporation in
advance of the final disposition of such action, suit or proceeding as
authorized by the Board of Directors in the specific case upon receipt
of an undertaking by or on behalf of the director, officer, employee or
agent to repay such amount unless it shall ultimately be determined
that he is entitled to be indemnified by this Corporation as authorized
in this section.
II-1
<PAGE> 102
The indemnification provided by this section shall not be deemed
exclusive of any other rights to which those seeking indemnification
may be entitled under these Articles or any agreement or vote of
stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
Article TENTH of the Company's By-Laws provides as follows:
Any person made a party to any action or proceeding (whether
or not by or in the right of the Corporation to procure a judgment in
its favor or by or in the right of any other corporation) by reason of
the fact that he, his testator or intestate, is or was a director,
officer or employee of the Corporation, or of any corporation which he
served as such at the request of the Corporation, shall be indemnified
by the Corporation against judgments, fines, amounts paid in settlement
and reasonable expenses, including attorneys' fees, actually and
necessarily incurred by him in connection with the defense of or as a
result of such action or proceeding, or in connection with any appeal
therein, to the full extent permitted under the laws of the State of
Delaware from time to time in effect. The Corporation shall have the
power to purchase and maintain insurance for the indemnification of
such directors, officers and employees to the full extent permitted
under the laws of the State of Delaware from time to time in effect.
Such right of indemnification shall not be deemed exclusive of any
other rights of indemnification to which such director, officer or
employee may be entitled.
ITEM 25. Other Expenses of Issuance and Distribution
The expenses payable by Registrant in connection with the issuance and
distribution of the securities being registered (other than underwriting
discounts and commissions, and non-accountable expenses of $-0-) are as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission Fees............ $ 4,148.70
NASDAQ Stock Market listing fees................... 1,000.00
Transfer/Warrant Agent's Fee and Expenses.......... 1,000.00
Accounting Fees and Expenses....................... 25,000.00
Blue Sky Fees and Expenses......................... 5,000.00
Printing Expenses ................................. 4,000.00
Legal Fees......................................... 29,000.00
Miscellaneous...................................... 851.30
TOTAL............................ $70,000.00
==========
</TABLE>
II-2
<PAGE> 103
ITEM 26. Recent Sales of Unregistered Securities
In July 1994, the Company granted additional options to purchase shares
of Common Stock at $2.50 per share to officers and directors as follows: James
Ciocia 18,850, Thomas Povinelli 18,850, Gary Besmer 11,310, and Kathryn Travis
14,170, and to the Company's former Chief Financial Officer, Ralph Esposito,
1,820.
In May 1995, the Company issued 203,428 shares of Common Stock in
connection with the Company's acquisition of Gilbert Financial Services, Inc.
and granted options to purchase 400,000 shares of Common Stock in connection
with an employment agreement with Mr. Steven Gilbert. After the end of the 1995
fiscal year, 60,000 options granted to Mr. Gilbert during such year were
rescinded pursuant to a preexisting incentive compensation agreement.
In June 1995, Judah Wernick, an employee of the underwriter in the
Company's initial public offering purchased all outstanding bridge loan Class A
Warrants, and upon exercise thereof, the Company issued 360,000 shares of Common
Stock for an aggregate purchase price of $748,800.
Also, in June 1995, the Company issued 64,286 shares of Common Stock in
partial consideration for the acquisition of assets used in the direct mail
advertising business.
In August 1995, the Company sold 70,161 shares of Common Stock to
employees and independent contractors of the Company at prices ranging from
$3.07 to $3.50, for an aggregate purchase price of approximately $232,000.
During the same period, the Company also issued 10,100 shares of Common Stock to
employees and others as performance bonuses.
Also in August 1995, the Company sold a total of 22,759 shares of its
Common Stock (which had been returned to the Company as a result of a default in
the payment of a subscription receivable) to an officer and a former officer of
the Company for an aggregate purchase price of $69,870.
In addition, in August 1995, the Company issued 25,713 restricted
shares of Common Stock for an aggregate purchase price of $89,995.50 to the
following individuals in the following amounts: Dominick Riolo 8,571 shares;
Gregory Ferone 8,571 shares; and Armando Olivieri 8,571 shares, pursuant to a
contract for the opening of new offices in New City, Mamaroneck and Scarsdale
between such individuals and the Company.
The Company, in August 1995, sold 1,429 restricted shares of Common
Stock to Joseph Jensen for an aggregate purchase price of $5,000.00 pursuant to
a severance compensation package agreement between such individual and the
Company.
In October 1995, the Company sold a total of 20,000 shares of Common
Stock upon exercise of a stock option to one of its key independent contractors
for an aggregate purchase price of $40,650
II-3
<PAGE> 104
pursuant to a previous contract between such individual and the Company.
Also in October 1995, the Company issued 3,050 restricted shares of
Common Stock as performance bonuses to the following individuals in the
following amounts: Neil Hasset 300 shares; Jim Ptacek 100 shares; Carol Livolsi
100 shares; Karen Sheppard 50 shares; Joel Weinberger 50 shares; Jeffrey
Ambrosio 50 shares; Pat Ewing 50 shares; Kerry O'Keefe 50 shares; Richard Boehm
200 shares; Dominick Riolo 100 shares; Joe Jacobs 100 shares; Larry Brenner 100
shares; Dave Burgio 100 shares; Lorraine Buscareno-Smith 100 shares; Dave
Critelli 100 shares; Deborah E. O'Connell 1,200 shares; and Scott Fisher 300
shares.
In addition, in October 1995, the Company granted options to purchase
150,000 shares of Common Stock to EuroMarket Advisory, Inc. ("Euromarket")
pursuant to a consulting agreement. The Company also granted options to purchase
100,000 shares to Texas Capital Securities, Inc. ("Texas Capital") pursuant to
an investment banking agreement.
In November 1995, the Company sold 100 restricted shares of Common
Stock to Gwendolyn Morgan at $4.625 per share for an aggregate purchase of
$462.50 and 5,455 restricted shares of Common Stock to Joel Weinberger at
approximately $5.50 per share for an aggregate purchase price of $30,000.00.
In addition, in November 1995, the Company issued 3,688 restricted
shares of Common Stock to Kerry O'Keefe as a performance bonus.
Also, in November 1995, the Company sold 5,000 restricted shares of
Common Stock to Frank Daguanno at $6.00 per share for an aggregate purchase
price of $30,000.
In December 1995, the Company issued 1,600 restricted shares of Common
Stock as performance bonuses to the following individuals in the following
amounts: Thomas Mallis 100 shares; Carol Sanford 100 shares; Sandy Valle 100
shares; Rosalie Maiorano 100 shares; Angelo Perna 100 shares; Georget Czajkowski
100 shares; Leonard Shrift 100 shares; Patricia White 100 shares; Vinka Pelaic
100 shares; Robert Gilman 100 shares; Jennifer Gilman 100 shares; Debra Seeley
100 shares; Kerry O'Keefe 100 shares; Joel Weinberger 100 shares; Pat Ewing 100
shares; and Tim Bodner 100 shares.
In February 1996, the Company issued 15,254 restricted shares of Common
Stock for an aggregate purchase price of $ 80,000 to the following individuals
in the following amounts: Howard Wilkin 5,405 shares; Alfred Schepis 5,405
shares; and Armando Olivieri 4,444 shares, pursuant to a management agreements
as signing bonuses between such individuals and the Company.
In April 1996, the Company issued a total of 3,400 shares of Common
Stock to an employee for services rendered.
II-4
<PAGE> 105
In October 1996, the Company sold a total of 10,000 shares of Common
Stock upon exercise of a stock option to one of its key independent contractors
for an aggregate purchase price of $78,600 pursuant to a previous contract
between such individual and the Company.
All sales reported under this item were exempt from the registration
requirements of the Securities Act of 1933, as amended, by reason of Section
4(2) thereof and/or the rules and regulations promulgated thereunder as sales of
securities not involving a public offering.
ITEM 27. Exhibits and Financial Statement Schedules
(a) Exhibits
3.1 Registrant's Articles of Incorporation, as
amended, incorporated by reference to the
like numbered exhibit in the Registrant's
Registration Statement on Form SB-2 under
the Securities Act of 1933, as amended, File
No. 33-70640-NY
3.2 Registrant's By-Laws, incorporated by
reference to the like numbered exhibit in
the Registrant's Registration Statement on
Form SB-2 under the Securities Act of 1933,
as amended, File No. 33-70640-NY
4.1 Resolution of Designation, Powers,
Preferences and Rights of Series A Preferred
Stock, incorporated by reference to the like
numbered exhibit in the Registrant's
Registration Statement on Form SB-2 under
the Securities Act of 1933, as amended, File
No. 33-70640-NY
4.2 Form of Warrant of Bridge Loan lenders,
incorporated by reference to the like
numbered exhibit in the Registrant's
Registration Statement on Form SB-2 under
the Securities Act of 1933, as amended, File
No. 33-70640-NY
4.3 Form of Warrant included in Units,
incorporated by reference to the like
numbered exhibit in the Registrant's
Registration Statement on Form SB-2 under
the Securities Act of 1933, as amended, File
No. 33-70640-NY
4.4 Form of Underwriter's Warrant, incorporated
by reference to the like numbered exhibit in
the Registrant's Registration Statement on
Form SB-2 under the Securities Act of 1933,
as amended, File No. 33-70640-NY
5* Opinion of Akabas & Cohen
II-5
<PAGE> 106
10.1 Restated and Amended Agreement and Plan of
Merger dated December 23, 1992 among the
Registrant and 15 participating
corporations, incorporated by reference to
the like numbered exhibit in the
Registrant's Registration Statement on Form
SB-2 under the Securities Act of 1933, as
amended, File No. 33-70640-NY
10.2 Asset Sale Agreement dated December 31,
1992, incorporated by reference to the like
numbered exhibit in the Registrant's
Registration Statement on Form SB-2 under
the Securities Act of 1933, as amended, File
No. 33-70640-NY
10.3 Escrow letter regarding certain shares of
Common Stock of the Registrant, incorporated
by reference to the like numbered exhibit in
the Registrant's Registration Statement on
Form SB-2 under the Securities Act of 1933,
as amended, File No. 33-70640-NY
10.4 Omitted.
10.5 Warrant Agreement dated December 12, 1994
between the Registrant and the Warrant
Agent, incorporated by reference to the like
numbered exhibit in the Registrant's
Registration Statement on Form SB-2 under
the Securities Act of 1933, as amended, File
No. 33-70640-NY
10.6 Omitted.
10.7 1993 Joint Incentive and NonQualified Stock
Option Plan of the Registrant, incorporated
by reference to the like numbered exhibit in
the Registrant's Registration Statement on
Form SB-2 under the Securities Act of 1933,
as amended, File No. 33-70640-NY
10.8 Documents involved in the repurchase of
shares and settlement with Frank Pasatieri,
a former shareholder of the Registrant,
incorporated by reference to the like
numbered exhibit in the Registrant's
Registration Statement on Form SB-2 under
the Securities Act of 1933, as amended, File
No. 33-70640-NY
10.9 Documents involved in the repurchase of
shares and settlement with Alan Grad, a
former shareholder of the Registrant,
incorporated by reference to the like
numbered exhibit in the Registrant's
Registration Statement on Form SB-2 under
the Securities Act of 1933, as amended, File
No. 33-70640-NY
II-6
<PAGE> 107
10.10 Form of Lock-up letter executed by
shareholders of the Registrant prior to the
Registrant's initial public offering,
incorporated by reference to the like
numbered exhibit in the Registrant's
Registration Statement on Form SB-2 under
the Securities Act of 1933, as amended, File
No. 33-70640-NY
10.11 Term-loan Promissory Note to State Bank of
Long Island, incorporated by reference to
the like numbered exhibit in the
Registrant's Registration Statement on Form
SB-2 under the Securities Act of 1933, as
amended, File No. 33-70640-NY
10.12 Documents involved in the repurchase of
shares and settlement with Bernard McGee and
Jay Cruice, former shareholders of the
Registrant, incorporated by reference to the
like numbered exhibit in the Registrant's
Registration Statement on Form SB-2 under
the Securities Act of 1933, as amended, File
No. 33-70640-NY
10.13 Omitted.
10.14 Form of guaranty of Term-loan Promissory
Note to State Bank of Long Island,
incorporated by reference to the like
numbered exhibit in the Registrant's
Registration Statement on Form SB-2 under
the Securities Act of 1933, as amended, File
No. 33-70640-NY
10.15 Agreement among Registrant and James Ciocia,
Thomas Povinelli, Gary Besmer and Kathryn
Travis regarding the repayment of advances,
incorporated by reference to the like
numbered exhibit in the Registrant's
Registration Statement on Form SB-2 under
the Securities Act of 1933, as amended, File
No. 33-70640-NY
10.16 Underwriting Agreement between the
Registrant and Patterson Travis, Inc.,
incorporated by reference to exhibit number
1.1 in the Registrant's Registration
Statement on Form SB-2 under the Securities
Act of 1933, as amended, File No.
33-70640-NY
10.17 Stock Purchase Agreement dated February 10,
1995 between Registrant and Steven Gilbert,
incorporated by reference to exhibit 99.1 to
the Company's Current Report on Form 8-K,
dated February 10, 1995
10.18 Noncompetition Agreement dated February 10,
1995 between Registrant and Steven Gilbert,
II-7
<PAGE> 108
incorporated by reference to exhibit 99.2 to
the Company's Current Report on Form 8-K,
dated February 10, 1995
10.19 Employment Agreement dated February 10, 1995
between Steven Gilbert Financial Corp. and
Steven Gilbert, incorporated by reference to
exhibit 99.3 to the Company's Current Report
on Form 8-K, dated February 10, 1995
10.20 Registration Rights Agreement dated February
10, 1995 between Registrant and Steven
Gilbert, incorporated by reference to
exhibit 99.4 to the Company's Current Report
on Form 8-K, dated February 10, 1995
10.21 Letter Agreement dated April 26, 1995
between and Steven Gilbert, incorporated by
reference to exhibit 10.20 in the Company's
quarterly report on Form 10-Q for the fiscal
quarter ended March 31, 1995
10.22* Joint Venture Agreement dated December 28,
1994 between Midwood Tax Service, Inc. and
Registrant
10.23* Promissory notes delivered by James Ciocia,
Thomas Povinelli, Gary Besmer and Kathryn
Travis in payment for cash value of life
insurance policies held by Registrant on the
lives of such officers
10.24* Consulting Agreement dated October 9, 1995
between EuroMarket Advisory, Inc. and
Registrant
10.25* Investment Banking Agreement dated October
17, 1995 between Texas Capital Securities
Inc. and Registrant
10.26* Agreements dated November , 1995 among
Rummco, Ltd., five executive officers of
Registrant, and Registrant in connection
with the sale of stock options.
10.27* Lock-Up Release Letter by Patterson Travis,
Inc. dated January 10, 1996
10.28* Employment Agreement dated April 10, 1995
between Dominick Riolo and Registrant in
connection with the opening of a new office
10.29* Employment Agreement dated April 10, 1995
between Gregory Ferone and Registrant in
connection with the opening of a new office
II-8
<PAGE> 109
10.30* Employment Agreement dated April 10, 1995
between Armando Olivieri and Registrant in
connection with the opening of a new office
10.31* Independent Employment Contract dated
December , 1993 between Abraham Dorfman and
Registrant
10.32* Form of Subscription Letter representing
stock issuances to individuals
10.33* Independent Contractor's Agreement dated
September 6, 1995 between Howard Wilkin and
the Registrant
10.34* Independent Contractor's Agreement dated
September 6, 1995 between Alfred Schepis and
the Registrant
10.35* Independent Contractor's Agreement dated
September 6, 1995 between Armando Olivieri
and the Registrant
11.01* Calculation of Net Income Per Share
16.01 Letter on Change in Certifying Accountant,
incorporated by reference to exhibit of the
Company's Current Report on Form 8-K dated
July 5, 1996
21 List of Subsidiaries, incorporated by
reference to Exhibit 21 in the Company's
Annual Report on Form 10-KSB for the fiscal
year ended June 30, 1995
23.1* Consent of Akabas & Cohen (Included in
Exhibit 5)
23.2 Consent of Weinick Sanders & Co., L.L.P.
23.3 Consent of BDO Seidman, LLP
- ----------------
* previously filed
ITEM 28. Undertakings
The undersigned Registrant hereby undertakes to:
(a)(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
II-9
<PAGE> 110
(i) Include any prospectus required by section 10(a)(3)
of the Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; and
(iii) Include any additional or changed material
information on the plan of distribution;
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering;
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering; and
(e) If the Registrant requests acceleration of the effective date of
the Registration Statement under Rule 461 under the Securities Act, the
Registrant acknowledges that:
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the
foregoing provisions, or otherwise, the small business issuer has been
advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person
of the small business issuer in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Securities Act and
will be governed by the final adjudication of such issue.
II-10
<PAGE> 111
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB- 2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of Great
Neck, State of New York, on February 13, 1997.
GILMAN & CIOCIA, INC.
By/s/ James Ciocia
-------------------------
James Ciocia,
President
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
/s/ James Ciocia President and February 13, 1997
- ------------------------ Director
James Ciocia
/s/ Thomas Povinelli Chief Operating February 13, 1997
- ------------------------ Officer, Chief
Thomas Povinelli Financial Officer
and Director
/s/ Gary Besmer Director February 13, 1997
- ------------------------
Gary Besmer
/s/ Kathryn Travis Director February 13, 1997
- ------------------------
Kathryn Travis
Director February 13, 1997
- ------------------------
Louis Karol
/s/ Seth Akabas Director February 13, 1997
- ------------------------
Seth Akabas
II-11
<PAGE> 112
INDEX
Exhibit Description Page
- ------- ----------- ----
23.2 Consent of Weinick Sanders & Co., L.L.P.
23.3 Consent of BDO Seidman, LLP
II-12
<PAGE> 1
Consent of Weinick, Sanders & Co. LLP
(Independent Certified Public Accountants)
We consent to the use in Amendment No. 5 to the Registration Statement
on Form SB-2 under the Securities Exchange Act of 1993 of our report dated
August 17, 1995 (except for Note 7(d) as to which the date is September 22,
1995) on the consolidated statements of income, stockholder's equity and cash
flows of Gilman & Ciocia, Inc. for the year ended June 30, 1995 and to the
reference to our firm under the heading "Experts" in the Prospectus.
New York, New York
February 12, 1997
<PAGE> 1
CONSENT OF BDO SEIDMAN, LLP
Gilman & Ciocia, Inc.
Great Neck, New York
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated September 30, 1996, relating to the
consolidated financial statements of Gilman & Ciocia, Inc. and subsidiaries,
which is contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
New York, New York
February 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR OTHER
<FISCAL-YEAR-END> JUN-30-1996 JUN-30-1997
<PERIOD-START> JUL-01-1995 JUL-01-1996
<PERIOD-END> JUN-30-1996 SEP-30-1996
<CASH> 2,221,795 1,262,547
<SECURITIES> 0 0
<RECEIVABLES> 976,686 773,091
<ALLOWANCES> 45,974 70,974
<INVENTORY> 0 0
<CURRENT-ASSETS> 3,702,892 2,670,136
<PP&E> 2,401,151 2,678,415
<DEPRECIATION> 899,450 1,005,887
<TOTAL-ASSETS> 7,866,501 6,948,152
<CURRENT-LIABILITIES> 1,367,560 997,492
<BONDS> 0 0
0 0
0 0
<COMMON> 55,505 55,505
<OTHER-SE> 6,443,436 5,895,155
<TOTAL-LIABILITY-AND-EQUITY> 7,866,501 6,948,152
<SALES> 0 0
<TOTAL-REVENUES> 16,509,677 2,159,800
<CGS> 0 0
<TOTAL-COSTS> 12,860,580 2,344,143
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 107,111 16,937
<INCOME-PRETAX> 887,373 (965,183)
<INCOME-TAX> 352,647 (378,085)
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 534,726 (587,098)
<EPS-PRIMARY> .10 (.11)
<EPS-DILUTED> .10 (.11)
</TABLE>
