<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
X EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED 12/31/96
- -----
TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM ________ TO ________
Commission file number 000-22996
GILMAN & CIOCIA, INC.
(Name of small business issuer in its charter)
Delaware 11-2587324
- ------------------------- -------------------------
( State of jurisdiction ( I.R.S. Employer
of incorporation or Identification No.)
organization)
475 Northern Boulevard, Great Neck, NY 11021
- -------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(516) 482-4860
------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months ( or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for past 90 days.
Yes X No
---------- ----------
State the number of shares outstanding of each class of the issuer's
classes of common equity, as of the latest practicable date. As of February 18,
1997, 5,579,236 shares of the issuer's common equity were outstanding.
<PAGE> 2
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Balance Sheets as of December 31, 1996 and
June 30, 1996 F-1 - F-2
Consolidated Statements of Loss for the six and three-months
ended December 31, 1996 and 1995
F-3
Consolidated Statements of Stockholders' Equity for the six months
ended December 31, 1996 and 1995
F-4
Consolidated Statements of Cash Flows for the six months ended December 31, 1996
and 1995 F-5 - F-6
Notes to Consolidated Financial Statements
F-7
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
PLAN OF OPERATION
Over the past two fiscal years, the Company opened 74 new offices which
represents 60% of all offices at December 31, 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, use of its short-term line of credit and the
availability of additional funds through the exercise of outstanding options
and warrants. However, there can be no assurance 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
operations. 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
2
<PAGE> 3
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 December 31,
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
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 COMPARED.
The Company's revenues for the six months ended December 31, 1996 were
$4,613,770 as compared to revenues of $3,358,980 for the comparable period of
the prior year. The increase in revenues of 37.4% for the six months ended
December 31, 1996 from the comparable period of the prior year is attributable
to the opening of forty-four new offices (the "1996 New Offices") in January
1996 (which generated tax preparation revenues that contributed approximately
$86,000 of the increase in tax preparation revenues in the six months ended
December 31, 1996) and to the existing offices (which accounted for $39,000 of
additional tax preparation revenues), increased financial planning revenues of
approximately $891,000 (which was primarily generated in the pre-1996 offices),
and increased revenues of approximately $240,000 from the direct mail division.
The Company's total revenues for the six months ended December 31, 1996
consist of $368,102 for tax preparation services, $3,199,228 for financial
planning services, and $1,046,440 for direct mail services. The Company's total
revenues for the six months ended December 31, 1995 consist of $243,582 for tax
preparation services, $2,308,586 for financial planning services and $806,812
for direct mail division.
The increase in the Company's financial planning revenues for the six
months ended December 31, 1996 compared to the six months ended December 31,
1995 of approximately 38.5% was substantially the same as the Company's overall
37.4% 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 $365,787 increase in revenues attributable to Gilbert Financial in
the six months ended December 31, 1996 over revenues attributable to Gilbert
Financial in the comparable period of the prior year, and ordinary growth in the
Company's operations.
Despite an increase of only 37.4% in revenues, the Company's operating
expenses primarily increased by approximately $2,109,121 or 49.5% 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
3
<PAGE> 4
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 the six months ended December 31st), 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 $365,000; 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 six months ended December 31,
1996 were $6,373,252 as compared to operating expenses of $4,264,131 for the
comparable period of the prior year. The 49.5% increase in the Company's
operating expenses for its six months ended December 31, 1996 from the
comparable period of the prior year was attributable to $946,019 in salaries and
commissions; $331,121 in general and administrative expenses; $192,740 for
direct mail costs; $342,260 for rent; $167,361 for depreciation and
amortization, and $125,000 as a result of the Company having not received a
reimbursement of financial planning expenses in the six months ended December
31, 1996.
The increase in operating expenses of approximately $2,109,000 is
attributed as follows: $606,000 to the 1996 New Offices; $365,000 to Progressive
(includes overall costs, most of which is due to costs incurred for Progressive
services to third parties); $1,013,000 to pre-1996 Offices and $125,000 increase
as a result of the Company having not received a reimbursement of financial
planning expenses for the six months ended December 31, 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 $106,000, increased salaries and commissions for personnel working
at existing offices of approximately $748,000 (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 $127,000 related to the
amortization of advances to financial planners made when they joined the
Company), and approximately $92,000 in salaries for increased personnel working
in the direct mailing division (which expanded its operations from the six
months ended December 31, 1995, the first six months in which the Company
operated a direct mail division).
The increase of approximately $331,000 in general and administrative
expenses is primarily due to increases of approximately: $148,000 in office
expenses, $94,000 in telephone, $25,000 in utilities, $67,000 in professional
fees incurred in connection with the Company's registration of shares of common
stock on Form SB-2 effective as of February 14, 1997.
4
<PAGE> 5
Approximately $165,000 of the increase is directly attributable to the 1996 New
Offices, $118,000 to the pre-existing offices related to normal cost increases
required to support expanded operations at existing offices and $48,000 to the
Company's direct mail division.
The 93.9% increase in depreciation and amortization (approximately
$66,000 for the 1996 New Offices and $93,000 for existing offices) is due
primarily to acquisitions of approximately $2,400,000 in fixed assets and
intangibles made during the Company's last two fiscal years plus the $705,000
made in the first six months of the Company's 1997 fiscal year. The increase in
rent is due to the 1996 New Offices in the amount of approximately $263,000 and
to normal increases of approximately $54,000 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 $323,930 or 115.7% is primarily due to
the decrease of approximately $207,000 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
six months ended December 31, 1996 as compared to appreciation in the comparable
period of the prior year) and a decrease of approximately $86,000 in realized
gains on the sale of marketable securities.
The Company's loss before income tax benefit for the six months
ended December 31, 1996 is $1,803,534 as compared to $625,273 for the six months
ended December 31, 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
six months ended December 31. Therefore, the 1996 New Offices opened in January
1996 aggravated the Company's seasonal revenue trough for the six months ended
December 31. Second, the Company's operating costs of existing offices increased
due to normal cost increases. Third, the decrease of other income of
approximately $324,000 (as discussed above) accounts for 27.4% of the increase
in loss before income tax benefit from the prior period.
5
<PAGE> 6
THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995 COMPARED.
The Company's revenues for the three months ended December 31, 1996
were $2,453,970 as compared to revenues of $1,530,576 for the comparable period
of the prior year. The increase in revenues of 60.3% for the quarter ended
December 31, 1996 from the comparable period of the prior year is attributable
to the opening of forty-four new offices (the "1996 New Offices") in January
1996 (which generated tax preparation revenues that contributed approximately
$40,000 of the increase in tax preparation revenues in the quarter ended
December 31, 1996) and to the existing offices (which accounted for $27,000 of
additional tax preparation revenues), increased financial planning revenues of
approximately $687,000 (which was primarily generated in the pre-1996 offices),
and increased revenues of approximately $169,000 from the direct mail division.
The Company's total revenues for the quarter ended December 31, 1996
consist of $134,109 for tax preparation services, $1,830,807 for financial
planning services, and $489,054 for direct mail services. The Company's total
revenues for its quarter ended December 31, 1995 consist of $66,639 for tax
preparation services, $1,144,360 for financial planning services and $319,577
for direct mail division.
The increase in the Company's financial planning revenues for the
quarter ended December 31, 1996 compared to the three months ended December 31,
1995 were approximately 59.9% was substantially the same as the Company's
overall 60.3% 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 $317,000 increase in revenues attributable to Gilbert
Financial in the quarter ended December 31, 1996 over revenues attributable to
Gilbert Financial in the comparable quarter of the prior year, and ordinary
growth in the Company's operations.
Despite an increase of only 60.3% in revenues, the Company's operating
expenses primarily increased by approximately $988,000 or 42.1% 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 the quarter ended December
31st), 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 $152,000; and other increases in general and
administrative expenses related to efforts to expand office practices such as
telemarketing.
6
<PAGE> 7
The Company's operating expenses for the quarter ended December 31,
1996 were $3,331,958 as compared to operating expenses of $2,344,289 for the
comparable period of the prior year. The 42.1% increase in the Company's
operating expenses for its quarter ended December 31, 1996 from the comparable
period of the prior year was attributable to $414,833 in salaries and
commissions; $199,726 in general and administrative expenses; $152,236 for
direct mail costs; $155,195 for rent and $68,448 for depreciation and
amortization.
The increase in operating expenses of approximately $988,000 is
attributed as follows: $267,000 to the 1996 New Offices; $246,000 to Progressive
(includes overall costs, most of which is due to costs incurred for Progressive
services to third parties); $475,000 to pre-1996 Offices.
The increase in salaries and commissions is due to increased salaries
and commissions for the personnel working at the 1996 New Offices of
approximately $54,000, increased salaries and commissions for personnel working
at existing offices of approximately $392,000 (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 $44,000 related to the
amortization of advances to financial planners made when they joined the
Company), and approximately $35,000 in salaries for increased personnel working
in the direct mailing division (which expanded its operations from the quarter
ended December 31, 1995).
The increase of approximately $200,000 in general and administrative
expenses is primarily due to an increase of approximately $224,000 in office
expenses in connection with the Company's expansion. Approximately $57,000 of
the increase is directly attributable to the 1996 New Offices, $111,000 to the
pre-existing offices related to normal cost increases required to support
expanded operations at existing offices and $32,000 to the Company's direct
mail division.
The 65.4% increase in depreciation and amortization (approximately
$30,000 for the 1996 New Offices and $38,000 for existing offices) is due
primarily to acquisitions of fixed assets and intangibles made during the
Company's last two fiscal years plus the $440,000 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 $126,000 and to normal increases of
approximately $29,000 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.
7
<PAGE> 8
The decrease in other income of $91,766 or 69.8% is primarily due to
the decrease of approximately $71,000 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 December 31, 1996 as compared to appreciation in the comparable quarter of
the prior year) and a decrease of approximately $22,000 in realized gains on the
sale of marketable securities.
The Company's loss before income tax benefit for the three months
ended December 31, 1996 is $838,351 as compared to $682,311 for the three months
ended December 31, 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 December 31. Therefore, the 1996 New Offices opened in January
1996 aggravated the Company's seasonal revenue trough for the quarter ended
December 31. Second, the Company's operating costs of existing offices increased
due to normal cost increases. Third, the decrease of other income of
approximately $92,000 (as discussed above) accounts for 59% of the increase in
loss before income tax benefit from the prior quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flows used in operating activities increased
approximately $916,000 for the six months ended December 31, 1996 from
$1,055,982 for the six months ended December 31, 1995. The increase is primarily
due to the proceeds from the sale of marketable securities of approximately
$402,000 (which occurred during the six months ended December 31, 1995 as the
Company liquidated its portfolio to finance its 1996 expansion) and an incease
in the increase in prepaid expenses and other current assets of approximately
$570,000 primarily due to additional prepaid advertising costs of approximately
$220,000 incurred in connection with advertising for the 1997 tax season for
the 44 new offices and increased tax benefits of approximately $139,000 due to
the increase in loss before income tax benefit.
Net cash used in investing activities was $515,130 and $1,282,752 for
the six months ended December 31, 1996 and 1995, respectively. The decrease of
approximately $768,000 is primarily due to the investment in partnership of
approximately $349,000, increased proceeds from related party transactions of
approximately $267,000 and a decrease in capital expenditures of approximately
$101,000 due to purchase for the opening of only eight new offices in early 1997
and forty-four new offices in early 1996.
8
<PAGE> 9
Net cash provided by financing activities increased by $95,414 to
$2,049,913 from $1,954,499 due to increased proceeds from bank loan transactions
of approximately $1,119,000 offset by acquisitions of treasury stock of
approximately $638,000 and payments of bank loan transactions of approximately
$597,000.
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 December 31,
1996, the Company had an outstanding principal balance of $2,000,000.
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 December 31, 1996, the
note had an outstanding principal balance amounting to $1,000,000.
In July 1996, the Company acquired a building to house one of its
offices in Babylon, NY for approximately $221,000.
The Company believes that it could continue to operate without any
additional financing (other than its seasonal bank loans) during the next 12
months. The Company anticipates that it will not pay dividends on its Common
Stock in the foreseeable future, but will apply any profits to fund the
Company's expansion.
RECENT ACCOUNTING PRONOUNCEMENTS
In March, 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard ("SFAS") No. 121, "Accounting
For the Impairment of Long Lived Assets and for Long Lived Assets to be Disposed
Of", which is effective for fiscal years beginning after December 15, 1995. The
Company's adoption of SFAS No. 121 as of July 1, 1996, did not have a material
impact on its results of operations, financial position or cash flows.
In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation", which is effective for transactions entered into for fiscal years
that begin after December 15, 1995. SFAS 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
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<PAGE> 10
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.
PART II
ITEM 6. EXHIBITS; LISTS AND REPORTS ON FORM 8-K
(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 Form of Class A Warrant delivered to 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
4.2 Form of Class B Warrant delivered to 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 Redeemable 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. 33-70604-NY
4.4 Form of Purchase Option for Underwriter's Warrants, 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. 33-70604-NY
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<PAGE> 11
(b) Reports on Form 8-K
No Report on Form 8-K was filed by the Company during the quarter ended
December 31, 1996.
11
<PAGE> 12
SIGNATURE
In accordance with Section 13 or 15 (d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: February 19, 1997
GILMAN & CIOCIA, INC.
By/s/Thomas Povinelli
- --------------------
Thomas Povinelli
Chief Financial Officer
12
<PAGE> 13
GILMAN + CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1996
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(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
CASH & CASH EQUIVALENTS $1,784,676 $2,221,795
ACCOUNTS RECEIVABLE, NET 728,924 976,686
RECEIVABLE FROM RELATED PARTIES, CURRENT PORTION 337,207 403,545
PREPAID EXPENSES AND OTHER CURRENT ASSETS 1,946,279 100,866
---------- ----------
TOTAL CURRENT ASSETS 4,797,086 3,702,892
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PROPERTY & EQUIPMENT, NET 1,611,374 1,501,701
---------- ----------
OTHER ASSETS:
INTANGIBLE ASSETS, NET 1,279,590 1,030,820
INVESTMENT IN PARTNERSHIP 589,197 646,525
ADVANCES AND NOTES RECEIVABLE FROM FINANCIAL
PLANNERS 442,095 501,531
SECURITY DEPOSITS 221,606 209,852
RECEIVABLES FROM RELATED PARTIES, NET OF CURRENT
PORTION 15,938 139,595
DEFERRED TAX ASSETS 217,296 133,585
---------- ----------
TOTAL OTHER ASSETS 2,765,722 2,661,908
---------- ----------
TOTAL ASSETS $9,174,182 $7,866,501
========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
<PAGE> 14
GILMAN + CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1996
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(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
SHORT-TERM BORROWINGS $ 2,416,665 $ 680,556
ACCOUNTS PAYABLE 181,108 291,554
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES 920,195 395,450
----------- -----------
TOTAL CURRENT LIABILITIES 3,517,968 1,367,560
----------- -----------
NOTE PAYABLE - BANK, NET OF CURRENT PORTION 666,666 0
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
PREFERRED STOCK - $.001 PAR VALUE
AUTHORIZED - 100,000 SHARES
ISSUED - NONE
COMMON STOCK - $.01 PAR VALUE
AUTHORIZED - 9,000,000 SHARES
ISSUED AND OUTSTANDING
-5,579,236 and 5,550,582
SHARES RESPECTIVELY 55,792 55,505
PAID IN CAPITAL 6,297,926 6,184,075
RETAINED EARNINGS (DEFICIT) (355,375) 717,375
----------- -----------
5,998,344 6,956,955
STOCK SUBSCRIPTIONS AND ACCRUED
INTEREST RECEIVABLE (370,595) (458,014)
TREASURY STOCK, 131,900 SHARES AT COST (638,200) 0
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 4,989,548 6,498,941
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,174,182 $ 7,866,501
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-2
<PAGE> 15
GILMAN + CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF LOSS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months Ended For the Three Months Ended
DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
TAX PREPARATION FEES $ 368,102 $ 243,582 $ 134,109 $ 66,639
FINANCIAL PLANNING SERVICES 3,199,228 2,308,586 1,830,807 1,144,360
DIRECT MAIL SERVICES 1,046,440 806,812 489,054 319,577
----------- ----------- ----------- -----------
TOTAL REVENUES 4,613,770 3,358,980 2,453,970 1,530,576
----------- ----------- ----------- -----------
OPERATING EXPENSES:
SALARIES & COMMISSIONS 2,881,572 2,001,891 1,580,142 1,165,309
GENERAL AND ADMINISTRATIVE EXPENSES 1,064,946 1,064,946 765,254 565,528
DIRECT MAIL COSTS 681,766 489,026 302,556 150,320
RENT 931,627 589,367 463,295 308,100
DEPRECIATION & AMORTIZATION 345,582 178,220 173,105 104,657
ADVERTISING 70,300 65,681 47,606 50,375
REIMBURSEMENT OF FINANCIAL PLANNING EXPENSES 0 (125,000) 0 0
----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 6,373,252 4,264,131 3,331,958 2,344,289
----------- ----------- ----------- -----------
OPERATING LOSS (1,759,482) (905,151) (877,988) (813,713)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSES):
INCOME (LOSS) FROM INVESTMENT IN PARTNERSHIP (57,328) 149,660 35,259 106,326
INTEREST INCOME 33,469 66,015 12,554 26,977
INTEREST EXPENSE (26,623) (30,673) (9,686) (25,535)
RENTAL INCOME 6,430 8,534 1,510 1,955
REALIZED GAIN ON SALE OF MARKETABLE SECURITIES 0 86,342 0 21,679
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSES) (44,052) 279,878 39,637 131,402
----------- ----------- ----------- -----------
LOSS/INCOME TAX BENEFIT (1,803,534) (625,273) (838,351) (682,311)
INCOME TAX BENEFIT (730,784) (225,000) (352,699) (237,252)
----------- ----------- ----------- -----------
NET LOSS ($1,072,750) ($ 400,273) ($ 485,652) $ (445,059)
=========== =========== =========== ===========
NET LOSS PER SHARE ($.19) ($.07) ($.09) ($.08)
=========== =========== =========== ===========
PRIMARY AND FULLY DILUTED WEIGHTED AVERAGE
COMMON AND COMMON EQUIVALENT SHARES 5,556,486 5,648,684 5,562,390 5,656,219
=========== =========== =========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-3
<PAGE> 16
GILMAN + CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON STOCK PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT)
--------- -------- ----------- -----------
<S> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED
DECEMBER 31, 1996
BALANCE AT JULY 1,1996 5,550,582 $ 55,505 $ 6,184,075 $ 717,375
REPAYMENTS OF STOCK
SUBSCRIPTIONS
ISSUANCE OF COMMON STOCK 28,654 287 91,725
COMPENSATION RECOGNIZED IN
CONNECTION WITH THE
ISSUANCE OF STOCK OPTIONS 22,126
ACQUISITION OF TREASURY STOCK
ACCRUED INTEREST INCOME
NET LOSS (1,072,750)
--------- -------- ----------- -----------
BALANCE AT DECEMBER 31,1996 5,579,236 $ 55,792 $ 6,297,926 ($ 355,375)
========= ======== =========== ===========
FOR THE SIX MONTHS ENDED
DECEMBER 30,1995
BALANCE AT JULY 1,1995 5,634,864 $ 56,348 $ 5,815,194 $ 805,403
REPAYMENTS OF STOCK
SUBSCRIPTIONS
CANCELLATION OF COMMON
STOCK
PREVIOUSLY ISSUED (10,000) (100) (17,400)
ISSUANCE OF STOCK SUBSCRIPTIONS 10,455 105 59,893
ISSUANCE OF COMMON STOCK 42,821 428 159,690
ACCRUED INTEREST INCOME
NET LOSS (400,273)
--------- -------- ----------- -----------
BALANCE AT DECEMBER 31, 1995 5,678,140 $ 56,781 $ 6,017,377 $ 405,130
========= ======== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
STOCK
SUBSCRIPTIONS TOTAL STOCK-
AND ACCRUED TREASURY STOCK HOLDERS
INTEREST SHARES AMOUNT EQUITY
RECEIVABLE
----------- ------- --------- -----------
<S> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED
DECEMBER 31, 1996
BALANCE AT JULY 1,1996 ($458,014) 0 $ 0 $ 6,498,941
REPAYMENTS OF STOCK
SUBSCRIPTIONS 105,998 105,998
ISSUANCE OF COMMON STOCK 92,012
COMPENSATION RECOGNIZED IN
CONNECTION WITH THE
ISSUANCE OF STOCK OPTIONS 22,126
ACQUISITION OF TREASURY STOCK 131,900 (638,200) (638,200)
ACCRUED INTEREST INCOME (18,579) (18,579)
NET LOSS (1,072,750)
--------- ------- --------- -----------
BALANCE AT DECEMBER 31,1996 ($370,595) 131,900 ($638,200) $ 4,989,548
========= ======= ========= ===========
FOR THE SIX MONTHS ENDED
DECEMBER 30,1995
BALANCE AT JULY 1,1995 ($773,980) 116,964 ($411,875) $ 5,491,090
REPAYMENTS OF STOCK
SUBSCRIPTIONS 44,184 44,184
CANCELLATION OF COMMON
STOCK
PREVIOUSLY ISSUED (17,500)
ISSUANCE OF STOCK SUBSCRIPTIONS (40,000) 19,998
ISSUANCE OF COMMON STOCK 160,118
ACCRUED INTEREST INCOME (29,859) (29,859)
NET LOSS (400,273)
--------- ------- --------- -----------
BALANCE AT DECEMBER 31, 1995 ($799,655) 116,964 ($411,875) $ 5,267,758
========= ======= ========= ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 17
GILMAN + CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
------------------------------
1996 1995
------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS $(1,072,750) $ (400,273)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED IN
OPERATING ACTIVITIES:
COMPENSATION EXPENSE RECOGNIZED IN CONNECTION WITH THE
ISSUANCE OF STOCK OPTIONS 22,126 113,474
DEPRECIATION AND AMORTIZATION 346,682 178,220
LOSS FROM INVESTMENT IN PARTNERSHIP 57,328 (149,660)
INCREASE IN DEFERRED TAX ASSETS (83,711) 0
GAIN ON SALE OF MARKETABLE SECURITIES 0 (5,463)
EXPENSE REIMBURSEMENT FOR FINANCIAL PLANNING 0 (125,000)
COMPENSATION EXPENSE RECOGNIZED IN CONNECTION WITH AMORTIZATION
OF ADVANCES TO FINANCIAL PLANNERS 165,676 0
PROVISIONS FOR DOUBTFUL ACCOUNTS 25,000 22,289
INTEREST ON STOCK SUBSCRIPTIONS (18,579) (18,075)
(INCREASE) DECREASE IN:
PROCEEDS FROM SALE OF MARKETABLE SECURITIES 0 402,374
ACCOUNTS RECEIVABLE 222,762 74,947
ADVANCES TO FINANCIAL PLANNERS (106,240) 0
SECURITY DEPOSITS (11,754) (75,289)
PREPAID EXPENSES AND OTHER CURRENT ASSETS (1,845,413) (1,275,772)
INCREASE (DECREASE) IN:
ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT (326,971) 202,246
LIABILITIES
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (1,971,902) (1,055,982)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
CAPITAL EXPENDITURES (308,733) (409,656)
ACQUISITION OF INTANGIBLE ASSETS (396,392) (256,735)
INVESTMENT IN PARTNERSHIP 0 (348,360)
PROCEEDS FROM RELATED PARTY TRANSACTIONS 268,995 1,734
PAYMENT TO RELATED PARTIES (79,000) (269,735)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (515,130) (1,282,752)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
PROCEEDS FROM BANK LOAN TRANSACTIONS 3,000,000 1,880,555
PAYMENTS OF BANK LOAN TRANSACTIONS (597,225) 0
PAYMENT OF NOTE PAYABLE (12,672) 0
PROCEEDS FROM NOTE PAYABLE 100,000 0
PROCEEDS FROM ST0CK SUBSCRIPTIONS 105,998 0
PROCEEDS FROM SALE OF COMMON STOCK AND EXERCISE OF
STOCK OPTIONS 92,012 73,944
ACQUISITION OF TREASURY STOCK (638,200) 0
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,049,913 1,954,499
----------- -----------
NET DECREASE IN CASH (437,119) (384,235)
CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD 2,221,795 1,335,762
----------- -----------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 1,784,676 $ 951,527
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-5
<PAGE> 18
GILMAN + CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
------------
1996 1995
----------------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAYMENTS FOR THE PERIOD:
INTEREST $ 26,624 $ 25,531
======== ========
INCOME TAXES $ 22,515 $122,834
======== ========
NON-CASH TRANSACTION:
CONVERSION OF ADVANCES TO SHAREHOLDERS INTO NOTES RECEIVABLE $ 0 $127,395
======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-6
<PAGE> 19
GILMAN + CIOCIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
(Unaudited)
NOTE 1 - BASIS OF FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of Gilman +
Ciocia, Inc. and its three wholly-owned subsidiaries, JT Securities, BT
Telemarketing, Inc. Gilbert Financial Services, Inc., and a 50% owned
subsidiary, Suffolk Service Bureau Corp. ("Suffolk") and have been prepared as
if the entities had operated as a single consolidated group since their
respective dates of incorporation. All intercompany balances and transactions
have been eliminated.
The Company acquired Suffolk 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 consolidated financial statements and related notes thereto as of
December 31, 1996 and for the six and three months ended December 31, 1996 and
1995 are presented as unaudited but in the opinion of management include all
adjustments necessary to present fairly the information set forth therein.
These adjustments consists solely of normal recurring accruals. The
consolidated balance sheet information for June 30, 1996 was derived from the
audited financial statements included in the Company's Form 10-KSB/A. These
interim financial statements are not necessarily indicative of the results for
any future periods.
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 disclosures
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-7
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,784,676
<SECURITIES> 0
<RECEIVABLES> 728,924
<ALLOWANCES> 120,974
<INVENTORY> 0
<CURRENT-ASSETS> 4,797,086
<PP&E> 2,714,608
<DEPRECIATION> 1,103,234
<TOTAL-ASSETS> 9,174,182
<CURRENT-LIABILITIES> 3,517,968
<BONDS> 666,666
0
0
<COMMON> 55,792
<OTHER-SE> 4,933,756
<TOTAL-LIABILITY-AND-EQUITY> 9,174,182
<SALES> 4,613,770
<TOTAL-REVENUES> 4,613,770
<CGS> 0
<TOTAL-COSTS> 6,373,252
<OTHER-EXPENSES> (44,052)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,803,534)
<INCOME-TAX> (730,784)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,072,750)
<EPS-PRIMARY> 5,556,486
<EPS-DILUTED> 0
</TABLE>
