<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB/A
Amendment No. 1
X Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934 (Fee required) For the fiscal year ended June 30, 1997.
__ Transition report under Section 13 or 15(d) of the Securities Exchange Act of
1934 (No fee required)
For the transition period from _______ to _______
Commission file number 000-22996
GILMAN & CIOCIA, INC.
(Name of small business issuer in its charter)
Delaware 11-2587324
(State or jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
475 Northern Boulevard, Great Neck, NY 11021
(Address of principal executive offices) (Zip Code)
(516) 482-4860
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Securities registered under Section 12(g) of the Act:
Title of each class Name of each exchange
on which registered
Common Stock, par value
$.01 Per share N/A
Redeemable Warrants to purchase
Common Stock N/A
Check whether the issuer: (1) filed reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for past 90 days. Yes X No ____
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. X
State issuer's revenues for its most recent fiscal year. $19,071,889
The aggregate market value of the voting stock held by non-affiliates
as of September 30, 1997 was $15,128,289 based on a sale price of $5.0625.
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 January 29,
1998, 5,588,913 shares of the issuer's common equity were outstanding.
Transitional Small Business Disclosure Format (check one): Yes__ No X
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-3
FINANCIAL STATEMENTS:
Consolidated Balance Sheet F-4
Consolidated Statements of Income F-5
Consolidated Statements of Stockholders' Equity F-6
Consolidated Statements of Cash Flows F-7 - F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-9 - F-20
</TABLE>
<PAGE> 3
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Gilman & Ciocia, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Gilman & Ciocia,
Inc. and subsidiaries as of June 30, 1997, 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 financial statements referred to above present fairly, in
all material respects, the financial position of Gilman & Ciocia Inc. and
subsidiaries as of June 30, 1997 and the results of their operations and their
cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen, LLP
New York, New York
October 13, 1997
F-3
<PAGE> 4
GILMAN & CIOCIA, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
ASSETS
<TABLE>
<CAPTION>
<S> <C>
CURRENT ASSETS:
Cash $ 2,920,489
Marketable securities 49,658
Accounts receivable, net of allowance
for doubtful accounts of $87,500 1,109,535
Receivables from related parties, current portion 373,039
Prepaid expenses and other current assets 451,968
-------------
Total current assets 4,904,689
PROPERTY AND EQUIPMENT, net 1,679,106
Intangible assets, net of accumulated amortization of $468,249 1,147,297
Advances and notes receivable from financial planners, net of current portion 169,239
Receivables from related parties, net of current portion 447,806
Deferred tax assets 27,899
Other assets 649,540
-------------
Total assets $ 9,025,576
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 899,487
Accounts payable 168,210
Accrued expenses and other current liabilities 318,690
Income taxes payable 68,200
-------------
Total current liabilities 1,454,587
-------------
LONG-TERM LIABILITIES:
Long-term borrowings 552,000
-------------
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY:
Preferred stock - $.001 par value - shares authorized
100,000; none issued and outstanding -
Common stock - $.01 par value - shares authorized
9,000,000; issued and outstanding 5,578,913 55,789
Paid-in capital 6,231,555
Retained earnings 1,593,369
Less- Treasury Stock, at cost; 157,433 shares (638,556)
-------------
7,242,157
Stock subscriptions and accrued interest receivable (223,168)
-------------
Total stockholders' equity 7,018,989
-------------
Total liabilities and stockholders' equity $ 9,025,576
=============
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
F-4
<PAGE> 5
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
REVENUES:
Tax preparation fees $ 9,921,967 $ 8,147,986
Financial planning commissions 6,961,602 5,671,905
Direct mail services 2,188,320 2,689,786
------------ ------------
Total revenues 19,071,889 16,509,677
------------ ------------
OPERATING EXPENSES:
Salaries and commissions 7,581,136 6,690,091
General and administrative expenses 3,572,901 3,054,568
Advertising 2,819,941 2,585,125
Direct mail costs 1,136,347 1,682,108
Rent 1,884,768 1,502,788
Depreciation and amortization 785,922 525,468
Reimbursement of financial planning expenses -- (125,000)
------------ ------------
Total operating expenses 17,781,015 15,915,148
------------ ------------
Operating income 1,290,874 594,529
------------ ------------
OTHER INCOME (EXPENSES):
Income from investment in partnership 73,127 198,165
Interest income 77,162 91,435
Interest expense (201,534) (107,111)
Rental income 16,557 19,180
Realized gain on sale of marketable securities 6,580 91,175
Unrealized gain on marketable securities 6,828 --
------------ ------------
Total other income (expense) (21,280) 292,844
------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES 1,269,594 887,373
PROVISION FOR INCOME TAXES 393,600 352,647
------------ ------------
Net income $ 875,994 $ 534,726
============ ============
NET INCOME PER SHARE $ 0.16 $ 0.10
============ ============
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES:
Primary 5,572,854 5,916,044
Fully diluted 5,572,854 5,916,044
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 6
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
Stock
Subscriptions
and
Common Stock Additional Retained Accrued Interest
Shares Amount Paid-in Capital Earnings Receivable
------ ------ --------------- -------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, July 1, 1995 5,634,864 $ 56,348 $ 5,815,194 $ 660,838 $(773,980)
Purchase of treasury stock -- -- -- -- 67,590
Retirement of treasury stock (127,558) (1,276) -- (478,189) --
Issuance of common stock 26,307 263 53,063 -- --
Exercise of stock options 10,000 100 23,100 -- --
Compensation recognized in connection
with the issuance of stock options -- -- 232,782 -- --
Repayments of stock subscriptions -- -- -- -- 310,809
Issuance of stock subscriptions 6,969 70 39,930 -- (40,000)
Accrued interest income -- -- -- -- (22,433)
Accrued 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)
Purchase of treasury stock -- -- -- -- --
Reissuance of treasury stock -- -- (53,093) -- --
Issuance of common stock 28,331 284 100,573 -- --
Repayments of stock subscriptions -- -- -- -- 261,954
Accrued interest income -- -- -- -- (27,108)
Net income -- -- -- 875,994 --
---------- -------- ----------- ----------- ---------
BALANCE, June 30, 1997 5,578,913 $ 55,789 $ 6,231,555 $ 1,593,369 $(223,168)
========== ======== =========== =========== =========
</TABLE>
<TABLE>
<CAPTION>
Total
Treasury Stock Stockholder's
Shares Amount Equity
------ ------ ------
<S> <C> <C> <C>
BALANCE, July 1, 1995 116,964 $(411,875) $ 5,346,525
Purchase of treasury stock 10,594 (67,590) --
Retirement of treasury stock (127,558) 479,465 --
Issuance of common stock -- -- 53,326
Exercise of stock options -- -- 23,200
Compensation recognized in connection
with the issuance of stock options -- -- 232,782
Repayments of stock subscriptions -- -- 310,809
Issuance of stock subscriptions -- -- --
Accrued interest income -- -- (22,433)
Accrued tax benefit related to exercise
of common stock options -- -- 20,006
Net income -- -- 534,726
-------- --------- -----------
BALANCE, June 30, 1996 -- $ -- 6,498,941
Purchase of treasury stock 175,900 (733,200) (733,200)
Reissuance of treasury stock (18,467) 94,644 41,551
Issuance of common stock -- -- 100,857
Repayments of stock subscriptions -- -- 261,954
Accrued interest income -- -- (27,108)
Net income -- -- 875,994
-------- --------- -----------
BALANCE, June 30, 1997 157,433 $(638,556) $ 7,018,989
======== ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE> 7
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 875,994 $ 534,726
Adjustments to reconcile net income to net cash
provided by operating activities:
Compensation expense recognized in connection 41,551 232,782
with the reissuance of treasury stock and the issuance
of stock options
Depreciation and amortization 785,922 525,468
Income from investment in partnership (73,127) (198,165)
Deferred tax provision (benefit) 105,686 (133,585)
Compensation expense recognized in connection -- 123,899
with the forgiveness of officers' loans
Gain on sale of marketable securities (6,580) (91,175)
Compensation expense recognized in connection 235,013 79,851
with amortization of advances to financial planners
Provisions for doubtful accounts 41,526 99,175
Interest on stock subscriptions (27,108) (22,433)
Gain on disposal of property and equipment -- (9,000)
Unrealized gain on marketable securities (6,828) --
(Increase) decrease in:
Proceeds from sale of marketable securities 32,580 2,186,925
Accounts receivable (174,375) (441,136)
Advances to financial planners (78,214) (653,768)
Security deposits (16,872) (100,486)
Prepaid expenses and other current assets (115,009) 26,786
Accounts payable, accrued expenses and other (109,312) 461,998
current liabilities
Income taxes payable 5,598 --
----------- -----------
Net cash provided by operating activities 1,516,445 2,621,862
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (592,362) (900,385)
Acquisition of intangible assets (487,442) (730,076)
Investments (150,000) (448,360)
Proceeds from sales of investments 378,009 --
Proceeds from related party transactions 398,545 152,655
Payments to related parties (676,250) (494,220)
----------- -----------
Net cash (used in) investing activities $(1,129,500) $(2,420,386)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE> 8
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Acquisition of treasury stock $ (733,200) $ --
Proceeds from bank and other loans 3,602,000 2,297,222
Payments of bank and other loans (2,859,262) (2,000,000)
Proceeds from sale of common stock 100,857 76,526
and exercise of stock options
Proceeds from stock subscriptions 261,954 310,809
Incurrence of deferred registration costs (60,600) --
----------- -----------
Net cash provided by financing activities 311,749 684,557
----------- -----------
Net increase in cash 698,694 886,033
CASH, beginning of year 2,221,795 1,335,762
----------- -----------
CASH, end of year $ 2,920,489 $ 2,221,795
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash paid during the year for-
Interest $ 196,405 $ 107,184
Income taxes 439,724 449,276
Noncash transactions-
Liquidation of investment in partnership into 68,830 --
marketable securities
Reissuance of treasury stock at fair value 94,644 --
Issuance of common stock in exchange for stock subscriptions
receivable -- 40,000
Acquisition of treasury stock and write-off of stock subscriptions -- 67,590
receivable
Retirement of all outstanding treasury stock -- 479,465
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-8
<PAGE> 9
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
1. ORGANIZATION AND
NATURE OF BUSINESS
Business
Gilman & Ciocia, Inc. and subsidiaries (the "Company"), which is incorporated in
Delaware, provides income tax preparation and financial planning services to
individuals and businesses as well as direct mail services through its
Progressive Mailing Services ("Progressive") division. The Company has three
wholly owned subsidiaries, two of which are inactive. The active subsidiary, 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 Advisors Act of 1940.
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of all majority-owned
subsidiaries. All significant intercompany transactions have been eliminated.
The Company's investments in 20% to 50% owned companies in which it has the
ability to exercise significant influence over operating and financial policies
are accounted for on the equity method. Accordingly, the Company's share of the
earnings of these companies is included in consolidated net income.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
Marketable Securities
The Company has classified its short-term investments in debt instruments as
trading securities which are reported at fair value with unrealized gains and
losses included in earnings.
F-9
<PAGE> 10
Advances to Financial Planners
The Company entered into agreements with independent financial planners
("Planners"), which require the Planners to become captive agents of the
Company. In connection therewith, the Company advanced funds to financial
planners. The agreements require the advances to be forgiven over three years as
long as the Planners remain with the Company. As such, all advances are
amortized on a straight-line basis over three years.
Property and Equipment
Property and equipment are carried at cost. Depreciation and amortization are
determined 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.
Intangible Assets
Intangible assets represent the costs of $1,615,546 to acquire lists of customer
accounts and related covenants not to compete. Amortization is computed on a
straight-line basis over a period of five years and amounted to $274,613 and
$190,817 for the years ended June 30, 1997 and 1996, respectively.
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 relevant assets acquired 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.
During fiscal 1997 and 1996, the Company acquired customer lists and entered
into non-competition agreements for approximately $487,000 and $730,000,
respectively.
Impairment of Long-Lived Assets
During March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of." The Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that full recoverability is questionable. Management
evaluates the recoverability of its intangible assets and other long-lived
assets and several factors are used in the valuation including, but not limited
to, management's plans for future operations, recent operating results and
projected cash flows. The Company adopted SFAS No. 121 in fiscal 1997, the
adoption of which did not have any effect on the results of operations or
financial condition.
Deferred Rent
Certain of the Company's lease agreements provide for scheduled rent increases
during the lease term or for rental payments commencing at a date other than
initial occupancy. Provision has
F-10
<PAGE> 11
been made for the excess of operating lease rental expense, computed on a
straight-line basis over the lease term, over cash rentals paid.
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 recognized on a trade date
basis.
JT utilizes financial planners who enter into commission sharing agreements with
the Company pursuant to arrangements under 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.
The portion of the commission revenues received by the Company averages
approximately 47%.
Advertising
The cost of advertising is expensed as incurred.
Reimbursement of Financial Planning Expenses
Based on an employment agreement between the Company and one of its managers,
the manager was 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 was entitled to be reimbursed for
$125,000 of these expenses in fiscal 1996. The Company offset the manager's
earnings by this amount in fiscal 1997.
Income Taxes
Income taxes have been provided using the liability method in accordance with
SFAS No. 109 "Accounting for Income Taxes." Under SFAS 109, deferred tax assets
and liabilities are determined based on differences between the financial
reporting and tax basis of assets and liabilities and are measured by applying
estimated tax rates and laws to taxable years in which such differences are
expected to reverse.
Stock-based Compensation
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock Based Compensation," encourages, but does not require companies to record
compensation cost for stock-based employee compensation plans at fair value. The
Company has chosen to continue to account for stock-based compensation awards to
employees using the intrinsic value method prescribed in Accounting Principles
Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees," and
related Interpretations. Accordingly, compensation cost for stock options
awarded to key employees and directors is measured as the excess, if any, of the
quoted market price of the Company's stock at the date of grant over the amount
an employee or director must pay to acquire the stock.
As required, the Company has adopted SFAS No. 123 to account for stock-based
compensation awards to outside consultants. Accordingly, compensation costs for
stock option awards granted to outside consultants is measured at the date of
grant based on the fair value of the award using the Black-Scholes option
pricing model. (Note 9).
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
F-11
<PAGE> 12
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.
Fair Value of Financial Instruments
The carrying amounts of financial instruments, including cash, marketable
securities, accounts receivable, notes receivable, accounts payable and
borrowings, approximated fair value as of June 30, 1997, because of the
relatively short-term maturity of these instruments and their market interest
rates.
Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share." This
statement establishes new standards for computing and presenting earnings per
share (EPS), replacing the presentation of currently required primary EPS with a
presentation of basic EPS. For entities with complex capital structures, the
statement requires the dual presentation of both basic EPS and diluted EPS on
the face of the statement of operations. Under this new standard, basic EPS is
computed based on weighted average shares outstanding and excludes any potential
dilution. Diluted EPS reflects potential dilution from the exercise or
conversion of securities into common stock or from other contracts to issue
common stock. SFAS 128 is effective for financial statements issued for years
ending after December 15, 1997, and earlier application is not permitted. When
adopted, the Company will be required to restate its EPS data for all prior
periods presented. The Company does not expect the impact of the adoption of
this statement to be material to previously reported EPS amounts.
3. RECEIVABLES FROM RELATED PARTIES
<TABLE>
<CAPTION>
<S> <C>
Notes receivable from officers/stockholders of the Company that are due
in aggregate bi-weekly installments of $2,295 (including interest at
7% per annum) commencing October 3, 1997 through June 30, 2000.
$350,000
Notes receivable of $52,250 and $100,000 from independent contractors/stockholders of 152,250
the Company due on December 18, 1997 and June 19, 1999, respectively. Interest
is charged at 9% and 6% per annum, respectively.
Receivable from stockholder of the Company, due in bi-weekly installments of $3,156
through June 15, 1999. 147,362
Note receivable from stockholder of the Company due on October 9, 1997. Interest is
charged at 8% per annum. 113,989
Other 57,244
--------
820,845
Less- Current portion 373,039
--------
$447,806
========
</TABLE>
F-12
<PAGE> 13
For the years ended June 30, 1997 and 1996, interest income from these
receivables was approximately $10,000 and $13,000, respectively.
4. ADVANCES AND NOTES RECEIVABLE-
FINANCIAL PLANNERS
Advances and notes receivable - financial planners consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Unamortized portion of non-interest bearing advances $ 287,232
to financial planners.
Notes receivable from financial planner due December 4, 1998. Interest
is charged at 6% per annum. 57,500
----------
344,732
Less- Current portion 175,493
----------
$ 169,239
==========
</TABLE>
5. PROPERTY AND EQUIPMENT
Major classes of property and equipment consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Buildings $ 402,367
Equipment 2,038,237
Furniture and fixtures 367,484
Leasehold improvements 183,415
----------
2,991,503
Less- Accumulated depreciation and amortization 1,312,397
----------
$1,679,106
==========
</TABLE>
For the years ended June 30, 1997 and 1996, depreciation and amortization
expense from property and equipment was approximately $394,000 and $321,000,
respectively.
6. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Investment in ATM Partners, LP (Note 10) $ 271,870
Security deposits 226,724
Other assets 150,946
----------
$ 649,540
==========
</TABLE>
7. BANK DEBT
Bank debt consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Bank line of credit $ 500,000
Term loan 833,333
Notes payable - other 118,154
----------
1,451,487
Less- Short-term borrowings 899,487
----------
$ 552,000
==========
</TABLE>
F-13
<PAGE> 14
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, 1997. The line of credit
is guaranteed by the four principal stockholders of the Company. At June 30,
1997, the Company had borrowings of $500,000 outstanding under this line of
credit. Interest is charged at the prime rate (8.5% at June 30, 1997) plus 1.5%.
The Company also has a $1,000,000 term loan with the bank which requires monthly
payments of $27,778 plus interest at the prime rate (8.5% at June 30, 1997) plus
1.75% through December 17, 1999. The loan is collateralized by all of the
Company's assets. At June 30, 1997, the Company's outstanding balance under this
loan was $833,333.
8. COMMITMENTS AND CONTINGENCIES
Leases
The Company is obligated under various noncancelable lease agreements for the
rental of office space and equipment through 2002. 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>
<S> <C> <C>
1998 $ 1,512,988
1999 1,059,640
2000 723,293
2001 415,111
2002 129,104
--------------
$ 3,840,136
==============
</TABLE>
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.
Clearing Agreements
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"). The Agreement states that JT will assume customer obligations
should a customer of JT default. At June 30, 1997, approximately $25,000 of cash
is held as a deposit requirement by the Broker.
Net Capital Requirements
JT is subject to the SEC's Uniform Net Capital Rule 15c 3-1, 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, 1997, JT had net capital of $2,007,331, which was $1,982,331 in
excess of its required net capital of $25,000.
F-14
<PAGE> 15
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 counterparties, 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 counterparty
risk. In addition, JT has a policy of reviewing, as considered necessary, the
credit standing of each counterparty and customer with which it conducts
business.
9. STOCKHOLDERS' EQUITY
Warrants
The Company has 507,926 and 50,783 warrants outstanding pertaining to those
issued to the public and the underwriter, respectively, in connection with the
Initial Public Offering in 1994. 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 1998. For an exercise price of $8.40 per warrant,
each of the warrants issued to the underwriter gives the holder two shares of
common stock and a warrant to purchase another share of common stock at an
exercise price of $4.67 and expires in September 1999.
Stock Option Agreements
and Stock Option Plan
The Company has granted stock options to employees, directors and consultants
pursuant to individual agreements or to its incentive and non-qualified stock
option plan.
In September 1993, the Company's Board of Directors and Stockholders adopted the
Company's Joint Incentive and NonQualified 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, prices, terms of exercise, and expiration dates are
determined by the Board of Directors. The Plan will terminate in September 2003.
At June 30, 1997, 420,002 options have been granted and are outstanding under
the Option Plan.
The Company charged earnings for compensation expense of $232,782, for the year
ended June 30, 1996, in connection with the issuance of stock options. There
were no compensatory stock options issued during fiscal 1997.
F-15
<PAGE> 16
The table below summarizes plan and nonplan stock option activity for the past
two years:
<TABLE>
<CAPTION>
Number of Weighted Average
Shares Exercise Price
------ --------------
<S> <C> <C>
Outstanding, July 1, 1995 1,110,002 $3.48
Granted 355,000 4.43
Exercised (10,000) 2.00
Canceled (63,000) 3.50
---------
Outstanding, June 30, 1996 1,392,002 3.89
Granted 273,000 2.70
Canceled (299,000) 4.21
---------
Outstanding, June 30, 1997 1,366,002 3.59
=========
Exercisable, June 30, 1997 1,093,002 3.81
=========
</TABLE>
The weighted average grant date fair value of options granted during the year
ended June 30, 1997 is $.16 per option.
Options outstanding and exercisable at June 30, 1997 and related weighted
average exercise price and life information follows:
<TABLE>
<CAPTION>
Fiscal Year Options Outstanding Options Exercisable Remaining
Grant Date Shares Price Shares Price Life (Years)
---------- ------ ----- ------ ----- ------------
<S> <C> <C> <C> <C> <C>
1994 420,002 $2.95 420,009 $2.95 1
1995 405,000 3.34 405,000 3.34 6
1996 268,000 4.88 268,000 4.88 3
1997 273,000 2.70 - - 4
</TABLE>
The Company has adopted the disclosure-only provision of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation."
Accordingly, no compensation cost has been recognized for the employee stock
options. Had compensation cost for the Company's employee stock options been
determined based on the fair value at the grant date for options granted in
fiscal years 1997 and 1996 consistent with the provisions of SFAS No. 123, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net income, as reported $875,994 $534,726
Net income, pro forma 832,418 101,098
Earnings per share, as reported .16 .10
Earnings per share, pro forma .15 .02
</TABLE>
F-16
<PAGE> 17
The pro forma effect on net income for fiscal years 1997 and 1996 does not take
into consideration pro forma compensation expense related to grants made prior
to fiscal year 1996.
The fair value of options at date of grant was estimated using the Black-Scholes
model with the following weighted average assumptions:
<TABLE>
<CAPTION>
<S> <C> <C>
Expected life (years) 3
Interest rate 7.00%
Volatility 61.9%
Dividend yield 0%
</TABLE>
On May 19, 1997, the Company adopted the Company's 1997 Common Stock and
Incentive and Non-Qualified Stock Option Plan of Gilman & Ciocia, Inc. (the
"1997 Plan"), pursuant to which the Company may grant options to purchase up to
an aggregate of 300,000 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 ("Incentive Options"), or they may be intended
not to qualify under such Section ("Non-Qualified Options"). No Incentive
Options will be issued pursuant to the 1997 Plan until such 1997 Plan is
approved by the shareholders of the Company.
Treasury Stock
During fiscal 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.
During fiscal 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.
During fiscal 1997, the Company acquired 175,900 shares of its common stock for
an aggregate cost of $733,200 and reissued 18,467 of these shares to employees
and consultants. The reissuance gave rise to the recognition of compensation
expense in the amount of $41,551 representing the excess of the fair value of
these shares at reissuance over their cost.
Stock Subscriptions and
Accrued Interest Receivable
Stock subscriptions receivable of $223,168 bear interest at a rate of 9% per
annum. For the years ended June 30, 1997 and 1996, the Company recognized
interest income of $27,108 and $35,879, respectively. At June 30, 1997 accrued
interest receivable was $23,518.
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 collected.
The following is a schedule by year of principal payments to be received:
<TABLE>
<CAPTION>
Year ending June 30:
<S> <C> <C>
1998 $ 90,013
1999 64,387
2000 45,250
--------
$199,650
========
</TABLE>
F-17
<PAGE> 18
10. RELATED PARTY TRANSACTIONS
Investment in ATM Partners, L.P.
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"). At June 30, 1997 and 1996, the Company had
approximately 41% and 35%, respectively, interest in the Partnership and
recognized income of approximately $73,000 and $198,000 respectively from the
Partnership for the years then ended. Such Partnership began liquidating its
investment and distributing its assets to its partners in the Company's 1997
fiscal year, and the Company expects that the investment of the Partnership will
be fully liquidated during the Company's 1998 fiscal year.
Commissions Earned by Officers
The Company's principal officers/stockholders act as registered representatives
of the Broker and authorized agents of insurance carriers. During fiscal 1997
and 1996, these individuals earned commissions of approximately $302,000
and $402,000 respectively, from sales of securities and insurance products.
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 $2.50 per option to Rummco, Ltd.
("Rummco"), a Cayman Islands company. In connection with such sale, the Company
agreed to consent to such sale. 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.
Forgiveness of Indebtedness
of Officers/Stockholders
The four principal stockholders/officers were indebted to the Company under
demand loans totaling $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.
11. SEGMENTS OF BUSINESS
The Company is a provider of income tax preparation and financial planing
services to individuals and business in various states across the country.
Direct mail services are provided primarily to businesses and individuals in the
New York metropolitan area.
F-18
<PAGE> 19
The following presents financial information by segment for the years ended June
30, 1997 and 1996:
<TABLE>
<CAPTION>
Tax Financial
Preparation Planning Direct Mail Eliminations Consolidation
----------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1997:
Revenues from unaffiliated customers $9,921,967 $6,961,602 $2,188,320 $ - $19,071,889
Intersegment revenues - - 2,275,000 (2,275,000) -
---------- ---------- ---------- ----------- -----------
Total revenues 9,921,967 6,961,602 4,463,320 (2,275,000) 19,071,889
Direct costs 6,025,407 4,227,115 4,162,670 (2,275,000) 12,140,192
Depreciation and amortization 450,091 315,761 20,070 - 785,922
General corporate expenses 2,647,426 1,857,300 350,175 - 4,854,901
---------- ---------- ---------- ----------- -----------
Operating income $ 799,042 561,428 (69,595) - 1,290,874
========== ========== ========== =========== ===========
Interest expense $ 118,442 $ 83,092 $ - $ - $ 201,534
========== ========== ========== =========== ===========
Identifiable assets $7,135,360 $5,005,800 $ 329,938 $(3,376,844) $ 9,094,254
========== ========== ========== =========== ===========
Capital expenditures $ 553,446 $ - $ 38,916 $ - $ 592,362
========== ========== ========== =========== ===========
Direct costs consist of the following:
Direct mail costs $ - $ - $1,136,347 $ - $ 1,136,347
Advertising 1,642,630 1,152,386 2,299,925 (2,275,000) 2,819,941
Rent 1,044,261 732,599 107,908 - 1,884,768
Salaries and commissions 3,338,516 2,342,130 618,490 - 6,299,136
---------- ---------- ---------- ----------- -----------
Total direct costs $6,025,407 $4,227,115 $4,162,670 $(2,275,000) $12,140,192
========== ========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Tax Financial
Preparation Planning Direct Mail Eliminations Consolidation
----------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1996:
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>
Intersegment sales are recognized upon the completion of the services associated
with direct mail services.
F-19
<PAGE> 20
12. TAXES ON INCOME
Provisions for income taxes in the consolidated financial statements consist of
the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Current:
Federal $378,760 $ 362,297
State and local 66,840 123,935
-------- ---------
Total current 445,600 486,232
-------- ---------
Deferred:
Federal (44,200) (103,483)
State and local (7,800) (30,102)
-------- ---------
Total deferred tax (benefit) (52,000) (133,585)
-------- ---------
$393,600 $ 352,647
======== =========
</TABLE>
Deferred tax assets consist of the following:
<TABLE>
<CAPTION>
1997
----
<S> <C>
Compensation expense recognized for financial reporting purposes in $ 93,200
connection with common stock option grants issued at below
market value
Book amortization of intangibles in excess of tax 129,600
Provision for bad debts 35,200
Provision for deferred rent liability 29,200
Book depreciation in excess of tax (139,823)
Investments accounted for under the equity method (119,478)
---------
$ 27,899
=========
</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.
A reconciliation of the federal statutory rate to the income taxes is as
follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C> <C> <C>
Year ended June 30:
Federal income taxes computed at
statutory rates $ 431,662 34.0% $301,706 34.0%
State and local taxes, net of federal
tax benefit 76,176 6.0 44,225 5.0
Reversal of overaccruals (156,000) (12.3) - -
Other 41,762 (3.3) 6,716 .7
--------- ----- -------- ----
$ 393,600 31.0% $352,647 39.7%
========= ==== ======== ====
</TABLE>
F-20
<PAGE> 21
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this Amendment to this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
GILMAN & CIOCIA, INC.
By: /s/ Thomas Povinelli
-----------------------------------------
Thomas Povinelli, Chief Operating Officer
In accordance with the Exchange Act, this Amendment to this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
<TABLE>
<S> <C>
/s/ James Ciocia Chief Executive Officer, President January 29, 1998
- -------------------------
James Ciocia and Director
/s/ Thomas Povinelli Chief Operating Officer, Chief Financial January 29, 1998
- -------------------------
Thomas Povinelli Officer and Director
/s/ Gary Besmer Vice President and Director January 29, 1998
- -------------------------
Gary Besmer
/s/ Kathryn Travis Secretary, Vice President and Director January 29, 1998
- -------------------------
Kathryn Travis
/s/ Seth Akabas Director January 29, 1998
- -------------------------
Seth Akabas
/s/ Louis P. Karol Director January 29, 1998
- -------------------------
Louis P. Karol
</TABLE>
28
