<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 24, 1998
REGISTRATION NO. 33-80627
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 4 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.
<PAGE> 2
Akabas & Cohen
488 Madison Avenue, 11th 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.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. / /
<PAGE> 3
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Proposed Proposed
Title of each class of Amount to be offering price aggregate Amount of
securities to be registered registered per share(1) offering price(1) registration fee
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock (2) 507,926 shares $4.67 (x) $2,372,014 $ 817.94
- ----------------------------------------------------------------------------------------------------------------
Common Stock (3) 65,000 shares $7.94 $ 516,100 $ 177.97
- ----------------------------------------------------------------------------------------------------------------
Common Stock (4) 101,566 shares $7.94 $ 806,434 $ 278.08
- ----------------------------------------------------------------------------------------------------------------
Warrants (5) 50,783 Warrants $3.13 (y) $ 158,951 $ 54.81
- ----------------------------------------------------------------------------------------------------------------
Common Stock (6) 50,783 shares $7.94 $ 403,217 $ 139.04
- ----------------------------------------------------------------------------------------------------------------
Common Stock (7) 16,072 shares $7.94 $ 127,612 $ 44.00
- ----------------------------------------------------------------------------------------------------------------
TOTAL PAID: $ 1,511.84
</TABLE>
(1) Estimated using the market price of the Company's Common Stock
or Warrants (except as noted in footnote (x) below) solely for
the purpose of determining the registration fee.
(2) Issuable upon exercise of all of the outstanding Redeemable
Public Warrants.
(3) Issuable upon exercise of stock options outstanding.
(4) Issuable upon exercise of the Underwriter's Warrants
outstanding.
(5) Issuable upon exercise of the Underwriter's Warrants
outstanding.
(6) 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 and the Redeemable
Public Warrants issuable thereon are exercised.
(7) Outstanding shares of Common Stock owned by an employee of the
Company.
(x) Based on exercise price of the Redeemable Public Warrants and
not the market price of the Company's Common Stock.
(y) Based on market price of the Redeemable Public Warrants.
The Registrant hereby amends this Amendment to 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
Amendment to Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until this
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> 4
GILMAN & CIOCIA, INC.
Cross-Reference Sheet
Item Caption Location
1. Front of Registration Outside Front Cover Page
Statement and Outside Front
Cover 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 Security Holders Selling Security Holders
8. Plan of Distribution Plan of Distribution; Selling
Security Holders
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; Experts
and Counsel
14. Disclosure of Commission Remuneration of Officers
<PAGE> 5
Position on and Directors
Indemnification
for Securities Act
Liabilities
15. Organization within Last Not Applicable
Five Years
<PAGE> 6
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 Condition
Operation and Results of Operations
18. Description of Property Description of Property
19. Certain Relationships and Certain Relationships and Related
Related Transactions 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
23. Changes in and Changes in and
Disagreements with Disagreements with
Accountants on Accounting Accountants on Accounting and
and Financial Disclosure Financial Disclosure
<PAGE> 7
SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED SEPTEMBER , 1998
GILMAN & CIOCIA, INC.
507,926 SHARES OF COMMON STOCK
233,421 SHARES OF COMMON STOCK BY SELLING SECURITY HOLDERS
50,783 REDEEMABLE PUBLIC WARRANTS BY SELLING SECURITY HOLDERS
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"),
issuable upon the exercise of the Company's outstanding redeemable public
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, 1998. 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.
This Prospectus also relates to the offering (the "Offering") by
holders or prospective holders of securities of the Company (the "Selling
Security Holders") of: (i) 65,000 shares of Common Stock issuable upon the
exercise of outstanding options; (ii) 101,566 shares issuable upon the exercise
of the 50,783 Underwriter's Warrants (the "Underwriter's Warrants") for the
purchase of Units (each "Unit" consisting of two shares of Common Stock and one
Redeemable Public Warrant), which Underwriter's Warrants were
(Continued on next page)
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 6.
<PAGE> 8
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 Date of This Prospectus is September , 1998.
<PAGE> 9
issued to the underwriter of the Company's initial public offering of Units;
(iii) 50,783 Redeemable Public Warrants issuable upon the exercise of the
Underwriter's Warrants; (iv) 50,783 shares of Common Stock issuable upon the
exercise of the Redeemable Public Warrants that are issuable upon the exercise
of the Underwriter's Warrants; and (v) 16,072 shares of Common Stock held by an
employee of the Company.
Shares underlying the Redeemable Public Warrants will be offered by the
Company immediately upon effectiveness of this Registration Statement and will
be sold as Redeemable Public Warrants are exercised.
The Common Stock and 50,783 Redeemable Public Warrants to be sold by
Selling Security Holders will be offered immediately upon effectiveness of this
Registration Statement, but the Selling Security Holders have not yet determined
any specific plan of distribution. Such Common Stock and Redeemable Public
Warrants may be sold by the Selling Security Holders in transactions on the
over-the-counter market, in negotiated transactions, or through a combination of
such methods of sale, or at fixed prices, which may be changed. The Selling
Security Holders 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 Selling Security Holders 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 SECURITY HOLDERS."
None of the proceeds of the sale of the shares of Common Stock or the
Redeemable Public Warrants by the Selling Security Holders will be received by
the Company. The Company could receive approximately $3,198,248 of gross
proceeds from the exercise of the currently outstanding Redeemable Public
Warrants, as well as the 65,000 outstanding stock options, the Underwriter's
Warrants, and the Redeemable Public Warrants issuable upon the exercise of the
Underwriter's Warrants. However, the exercise of any of such options and
warrants is not assured.
The shares of Common Stock are traded on The Nasdaq National Market
System under the symbol "GTAX", and the Redeemable Public Warrants are traded on
The Nasdaq SmallCap Stock Market under the symbol "GTAX-W," respectively. As of
September 15, 1998, the
<PAGE> 10
trading price for shares of the Company's Common Stock was $9.00 per share and
for Redeemable Public Warrants was $4.25 per warrant.
<PAGE> 11
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
PRICE TO Underwriting Discounts
PUBLIC(1) and Commissions(2) Proceeds to 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, however, the Company paid to First Colonial Securities,
Inc. as advisor in connection with this offering a $35,000 advance fee,
although such engagement has expired.
(3) All expenses of this registration other than commissions and
concessions are payable by the Company and are estimated at $350,000,
which is cross-referenced at footnote 2 in the following chart. The
Selling Security Holders are not paying any of the costs associated
with this registration. The expenses payable by the Company in
connection with the issuance and distribution of the securities being
registered are as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission Fees............ $ 1,511
NASDAQ Stock Market listing fees................... -0-
Transfer/Warrant Agent's Fee and Expenses.......... 1,000
Accounting Fees and Expenses....................... 240,000
Blue Sky Fees and Expenses......................... 5,000
Printing Expenses ................................. 10,000
First Colonial Securities Group, Inc............... 40,000
Legal Fees......................................... 50,000
Miscellaneous...................................... 2,489
TOTAL............................ $350,000
========
</TABLE>
(4) The price received by the Company is the price at which warrantholders
may buy Common Stock upon the exercise of Redeemable Public Warrants.
<PAGE> 12
The sale of securities of Security Holders 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>
- --------------------------------------------------------------------------------------------------------------------
PRICE PAID TO Underwriting Discounts Proceeds to
ISSUER and Commissions(1) Issuer(2)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share of
Common Stock
65,000
Shares $ 2.50 (3) $-0- $ 162,500
101,566
Shares $ 4.20 (4) $-0- $ 426,577
50,783 $ 4.67 (5) $-0- $ 237,157
Shares
Per Redeemable
Public Warrant
50,783 $ -0- (6) $-0- $ -0-
Warrants
- --------------------------------------------------------------------------------------------------------------------
Total......... $-0- $ 826,234
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The securities registered hereunder will not be sold through an
underwriter.
(2) All expenses of this registration other than commissions and
concessions are payable by the Company, and are estimated at $350,000
(cross-referenced in the previous chart footnote 3, which also provides
detail of such expenses). The Selling Security Holders are not paying
any of the expenses associated with this registration.
(3) Shares of Common Stock issuable upon the exercise of outstanding
options.
(4) The 101,566 shares of Common Stock issuable at $4.20 per share are the
shares of Common Stock issuable upon the exercise of the Underwriter's
Warrants.
(5) The 50,783 Shares of Common Stock issuable at $4.67 per share are the
shares issuable upon exercise of those Redeemable Public Warrants that
are issuable on the exercise of the Underwriter's Warrants.
(6) 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.
<PAGE> 13
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 D.C., 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> 14
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, 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 for individuals
predominantly in middle and upper income brackets.
The preparation of a tax return by the Company usually involves a
personal meeting at the office between a client and an employee of the Company.
In addition, while preparing tax returns, clients often consider other aspects
of their financial needs, such as insurance, investments, pension and estate
planning. The Company capitalizes on this situation by providing financial
planning questionnaires to all of its tax preparation clients.
After review of such questionnaires by financial planners, if
appropriate, financial planners will recommend the tax preparer to introduce the
tax preparation client to a financial planner. Each of the financial planners to
which a client might be introduced is a registered representative of an
independent registered securities broker/dealer, Royal Alliance Associates, Inc.
("Royal Alliance"), and each has agreed to share commissions with the Company.
In approximately 20% of the cases, such financial planner is the tax preparer
himself.
If such clients do utilize the financial planners to assist them on
their other financial needs, the Company earns commissions (depending on what
service is provided) from the services that the financial planners provide to
the client. More than 99% of the financial planners are also authorized agents
of insurance underwriters, and approximately 2% of the financial planners are
also authorized to act as mortgage brokers, and thus, the Company also earns
revenues from commissions for acting as an insurance agent and a mortgage
broker.
1
<PAGE> 15
All commissions on sales and purchases of securities are earned by
the Company's wholly owned subsidiary, JT Securities, Inc. (a registered
securities broker/dealer)("JT Securities").
Royal Alliance, unaffiliated with the Company, is a corporation which
is a registered securities broker/dealer and a member of the National
Association of Security Dealers, Inc. ("NASD").
The Company also has a division operating as a direct mail service. It
assembles, packages and mails, but does not design, create or draft the test for
direct mail materials, however, it provides limited consulting services in these
areas.
Based on the Company's total revenues during its 1997 fiscal year,
approximately 40% of the Company's business is tax preparation services;
approximately 51% of the Company's business is commission sharing on financial
planning services (with approximately 32% from securities transactions and 19%
from mortgage brokerage, insurance and other related services); and
approximately 9% of the Company's business is direct mail and related services.
The Company has a total of one hundred twenty eight offices: forty
three in New York, fifteen in New Jersey, fourteen in Florida, nine in Arizona,
nine in Ohio, seven in Maryland, seven in Connecticut, seven in Washington,
seven in Massachusetts, five in Nevada, two in Pennsylvania, one in Virginia,
one in Illinois and one in Georgia and it maintains its principal executive
office at 475 Northern Boulevard, Great Neck, NY 11021, telephone (516)
482-4860.
Out of the total number of offices: 34 offices provide predominantly
tax preparation services and have no regular financial planner associated with
them (although financial planners from other offices do work with clients from
all of such 34 offices); and 94 offices provide both tax preparation and regular
financial planning services.
Out of the 94 offices that provide both tax preparation and financial
planning services: 21 of these offices have only one person who provides both
tax preparation and financial planning services; and 73 of these offices have
two or more persons who
2
<PAGE> 16
perform tax preparation and financial planning services. No office has more than
a total of ten tax preparers and financial planners.
The Company opened fifteen new offices in January 1994, twenty two new
offices in January 1995, forty four new offices in 1996 (closing four in the
first half of 1996), eight new offices in 1997 and seven new offices in 1998.
3
<PAGE> 17
THE OFFERING
<TABLE>
<S> <C>
Securities Outstanding:
Before the Offering................. 5,606,913 shares of Common Stock(1)
507,926 Redeemable
Public Warrants
After the Offering.................. 6,332,188 shares of Common Stock (2)
Securities Offered........................... 741,347 shares of Common Stock (3)
50,783 Redeemable
Public Warrants (4)(5)
Use of Proceeds.............................. The Company would receive
$2,372,014 from the exercise of the
outstanding Redeemable Public
Warrants. Such exercise, however,
is not assured.
The Company will not receive any of
the proceeds from the sale of shares
of Common Stock or Redeemable Public
Warrants by the Selling Security Holders;
all proceeds will be paid directly to
the Selling Security Holders. See
"SELLING SECURITY HOLDERS." The Company
could receive $826,234 of gross proceeds from
</TABLE>
4
<PAGE> 18
<TABLE>
<S> <C>
the exercise of the outstanding options, the
Underwriter's Warrants and the Redeemable
Public Warrants issuable upon exercise of
the Underwriter's Warrants described herein.
However, such exercise of any of the
outstanding options and warrants is not
assured. The 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 substantial 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
</TABLE>
5
<PAGE> 19
(1) Does not include 65,000 shares of Common Stock issuable upon the exercise of
options at $2.50 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, each Unit consisting of two shares of Common Stock, par
value $.01 per share, of the Company and one redeemable warrant ("Redeemable
Public Warrant" as defined above) at an exercise price of $8.40 per Unit. See
"RISK FACTORS--The Sale of Underwriter's Warrants, Other Warrants and Certain
Options and Shares being Registered in this Registration Statement May have an
Adverse Affect on the Market Price of the Company's Common Stock and Dilute the
Percentage Ownership Interest of Holders of Common Stock." Does not include
options to purchase a total of 2,738,779 shares of Common Stock at prices
ranging from $2.00 per share to $20.00 per share, some as granted under the
Company's 1993 Joint Incentive and Non-Qualified Stock Option Plan (the "Plan"),
and some granted under non-Plan employee stock option agreements. All such
options (other than options held by directors of the Company to acquire in the
aggregate 420,002 shares of Common Stock and options recently granted to
acquire 895,000 shares of Common Stock) have been included in registration
statements on Form S-8 filed with the Commission.
(2) Assumes the issuance of 507,926 shares of Common Stock issuable on the
exercise of Public Redeemable Warrants at $4.67 per share, 65,000 shares of
Common Stock issuable on the exercise of options at $2.50 per share, 101,566
shares of Common Stock issuable pursuant to the Underwriter's Warrants, and
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.
Does not include options and warrants to purchase a total of 2,738,779 shares of
Common Stock at prices ranging from $2.00 per share to $20.00 per share, some as
granted under the Company's 1993 Joint Incentive and Non-Qualified Stock Option
Plan (the "Plan"), and some granted under non-Plan employee stock option
agreements. All such options and warrants (other than options to acquire an
aggregate of 420,002 shares of Common Stock and options recently granted to
acquire 895,000 shares of Common Stock) have been included in registration
statements on Form S-8 filed with the Commission.
6
<PAGE> 20
(3) The Common Stock offered hereunder will be issued in connection with the
exercise of the outstanding Redeemable Public Warrants, outstanding options, the
Underwriter's Warrants, and the Redeemable Public Warrants issuable on exercise
of Underwriter's Warrants.
(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.
7
<PAGE> 21
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 are all of the
principal risk factors and should be considered carefully in evaluating the
Company and its business prior to purchasing any of the securities offered
hereby.
1. The High Expense and Initial Non-Profitability of Opening New
Offices Each Year Could Result In Losses. 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, and the Company generated for the 1996 fiscal year $594,529 in
operating income. In January 1997, the Company opened 8 new offices and
generated for the 1997 fiscal year $875,994 from operations, an increase of
67.9% as compared to 1996.
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.
If the Company continues to open new offices and if such offices do not
become profitable, losses at such offices could depress future earnings or
result in charges of expenses to close such offices.
2. The Acquisition of Small Tax Preparation Practices Could Result in
Losses. In 1997, the Company acquired two tax preparation practices. As part of
its plan of operations, the
8
<PAGE> 22
Company plans to continue to acquire small tax preparation practices. The
success of the Company will in 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.
If the Company continues to acquire tax preparation practices, and if
such practices do not operate profitably, losses at such practices could depress
future earnings or result in charges of expenses to close such offices.
3. The Seasonality of the Company's Business Requires Additional
Financing. The Company will 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.
If the Company cannot secure sufficient seasonal financing, the Company
may be required to curtail its operations.
4. Strong Competition from Other Companies Offering Tax Preparation and
Financial Planning Services Could Adversely Affect Company's Growth. 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." If the Company cannot effectively compete with other
companies, the Company will not be able to maintain its rate of growth of new
clients, which will adversely affect the Company.
5. Potential Competition from Departing Employees and Affiliated
Financial Planners May Divert Business from Company's Clients. 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
9
<PAGE> 23
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.
Departing employees may attract clients away from the Company, which
will result in a reduction of revenues and will adversely affect the Company.
6. The Company's Dependence Upon its Three Executive Officers Makes It
Vulnerable to the Loss of any such Officers. The Company is dependent upon the
services of James Ciocia, its President, Thomas Povinelli, its Executive Vice
President, and Kathryn Travis, its Secretary. The loss or interruption of the
services of any of these individuals, would result in a material loss of
efficiency and productivity and would have a material adverse affect on the
Company.
7. Potential Civil and Criminal Liabilities under the Internal Revenue
Code because of the Company's Business of Preparing Tax Returns May Result in
Material Liabilities. The Company's business of 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. 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
such claims were made, they would require significant expenses for legal fees
and other costs in defense and could result in significant liability and could
adversely affect the Company by damaging its reputation.
10
<PAGE> 24
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. If the Company were to be charged with a
criminal offense and found guilty or if any of its employees or executives were
convicted of a criminal offense, in addition to the costs of defense and
possible fines set forth above, the Company would likely experience an adverse
affect to its reputation, which could directly lead to a decrease in revenues
from the loss of clients.
8. Inability of the Company to Provide Services of a Certified Public
Accountant may Hamper Company's Marketing and/or Increase Risk of Liability. The
Company earns almost $10 million in revenues related to tax preparation
services, however, the Company employs only two full-time certified public
accountants, who do not work as tax preparers, and the Company does not employ
any full-time tax attorneys to provide advice to tax preparers in connection
with the proper preparation of returns.
Ninety three percent of the tax preparation services are conducted by
seasonal employees who are not certified public accountants or tax attorneys.
Under state law, the Company is not allowed to provide legal tax advice, and the
Company does not employ nor does it retain any tax attorneys on a full-time
basis. Because most of the Company's employees who prepare tax returns are not
certified public accountants, tax attorneys or otherwise enrolled to practice
before the IRS, such employees of the Company are strictly limited as to the
roles they may take in assisting a client in an audit with the IRS. These
limitations on services that the Company may provide could hinder the Company's
ability to market its services.
Furthermore, the small percentage of certified public accountants or
tax attorneys to provide assistance and guidance to the Company's tax preparers
may increase the risk of the improper preparation of tax returns by the Company.
The improper preparation of tax returns could result in significant defense
expenses and civil liability as discussed in "RISK FACTORS -- Potential Civil
and Criminal Liabilities under the Internal Revenue Code because of the
Company's Business of Preparing Tax Returns May Result in Material Liabilities."
11
<PAGE> 25
9. Failure to Register as a Broker/Dealer or an Investment Adviser
before the Formation of JT Securities, Inc. May Result in Enforcement Actions.
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. 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.
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. 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.
JT Securities, a subsidiary of the Company, earns a material portion
of consolidated revenue from commissions remitted by Royal Alliance in
connection with transactions by financial planners who have entered into
commission sharing agreements with the Company. JT Securities is registered as a
securities broker/dealer 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 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 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 in such states, which could subject the Company to fines,
enforcement actions and related defense costs.
10. Trademark Infringements and Loss of Trademark Could Damage the
Company's Marketing. The Company has registered its "Gilman + Ciocia(R)"
trademark with the U.S. Patent and Trademark Office. No
12
<PAGE> 26
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.
If another entity utilizes the Company's trademark and the Company
cannot enforce its trademark against such entity, then the Company may lose
clients to the infringing entity, which would adversely affect the Company
revenues and profitability.
11. Continued Expansion into Financial Planning and the Dependance on
Individual Financial Planners Makes the Company Vulnerable to Lack of Success of
Financial Planners. The Company plans to continue to expand into the area
of financial planning and recruit financial planners. 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. The financial planning segment of
the Company's business has generated an increasing portion of the Company's
revenues during the past few years, and if such segment does not continue to be
successful, the Company's rate of growth may decrease.
12. Control of the Company by Current Management which Owns or Could
Acquire 42.4% of the Outstanding Common Stock of the Company. The current
management of the Company owns or could acquire approximately 42.4% 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. Current
management, therefore, through its share ownership of the Company could pose an
obstacle to a purchase of the Company that might be desirable to other
shareholders and/or to a change in management if the Company is not operating
profitably in the future. See "DESCRIPTION OF SECURITIES."
13. The Issuance of Preferred Stock that does not Require Approval of
the Shareholders May Inhibit Change of Control. The Company has authorized
100,000 shares of Preferred Stock (see "DESCRIPTION OF SECURITIES"), which may
be issued, without approval by the shareholders of the Company, by the Board of
Directors of
13
<PAGE> 27
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 does or could control
approximately 42.4% 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.
Current management, therefore, through the issuance of Preferred Stock
of the Company could pose an obstacle to a purchase of the Company that might be
desirable to other shareholders and/or to a change in management if the Company
is not operating profitably in the future.
14. Management's Broad Discretion over the Allocation of the Company's
Proceeds Means that Proceeds Could be Used for Risky Ventures Not Approved by
Shareholders. 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 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." The Company's management is not restricted in the use of
the proceeds, which may be utilized for risky ventures and in ways that may not
be productive for the Company.
15. Immediate Substantial Dilution of the Company's Common Stock Means
that the Net Book Value of a Share of Common Stock Is Far Less than its Market
Price. At the market price on September 15, 1998 of $9.00 and assuming that all
outstanding warrants and options registered hereby are exercised and shares of
Common Stock are sold, purchasers of Common Stock will experience a substantial
dilution of $7.17.(1) If the Company were to be liquidated, then
- -------
(1) This calculation assumes that the following shares of common stock and
warrants will be fully exercised: 507,926 Redeemable Public Warrants, 65,000
options to an outside party, 50,783 Underwriter's Warrants and 50,783 Redeemable
Public Warrants issuable upon the exercise of Underwriter's Warrants.
14
<PAGE> 28
shareholders would almost certainly receive less than approximately $1.83 for
each share of Common Stock purchased for $9.00.
16. Dividends have not been distributed by the Company. 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. It is very likely that no dividends will be distributed in the near
future, which may reduce the marketability of the Company's Common Stock.
17. Contingent Tax Liability May Be Imposed in respect of Past
Compensation Paid to Financial Planners Affiliated with the Company. Of the
financial planners affiliated with the Company, approximately 66% also perform
tax preparation, managerial or other services for the Company and receive
compensation as employees of the Company for such services
("Employee/Planners"). Three Employee/Planners also received compensation from
the Company for tax preparation, managerial and/or other services as independent
contractors. If the Internal Revenue Service were to consider these three
Employee/Planners as employees, then the Company may have tax liabilities in
connection with past compensation paid to such three Employee/Planners. The
Company believes that it is unlikely that such contingent tax liabilities, if
any, would have a material effect on the financial position, results of
operations or cash flows of the Company.
The financial planners affiliated with the Company receive their share of
commissions directly from Royal Alliance as independent contractors and
registered representatives of Royal Alliance. The Company's opinion is that this
tax reporting method is appropriate.
15
<PAGE> 29
No assurance can be given that the U.S. Internal Revenue Service or State
authorities will not attempt to assert payroll tax claims in respect of such
commissions, and if such claims were ultimately decided against the Company, the
payment of such tax liabilities could have a material adverse affect on the
Company's financial condition.
18. Potential Future Sales of Restricted Stock pursuant to Rule 144 May
Have an Adverse Affect on the Market Price of the Company's Common Stock. Of the
5,606,913 shares of Common Stock currently issued and outstanding approximately
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 one-year holding period
may, under certain circumstances, sell, within any three-month period, a number
of shares of "restricted securities" 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 two-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 one-year holding
period mentioned above, and about 1,400,000 of the "restricted" shares have been
held for longer than two years and are not owned by "affiliates" of the Company
shareholders.
The Company has granted 2,666,000 options to purchase shares of the
Company's Common Stock to 28 individuals in addition to the 402,002 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
one year following the exercise of such options or earlier if the underlying
Common Stock were registered by the Company. Certain shares are registered in
the Company's registration statements on Form S-8 filed on October 28, 1996 and
April 13, 1998 and certain shares are registered in the Company's registration
statement of which this prospectus is a part.
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 and reduce the marketability of the Common Stock.
16
<PAGE> 30
19. The Sale of Underwriter's Warrants, Other Warrants and Certain
Options and Shares Being Registered in this Registration Statement May Have an
Adverse Affect on the Market Price of the Company's Common Stock and Dilute the
Percentage Ownership Interest of Holders of Common Stock. The Company is
registering for sale up to 507,926 shares underlying the Redeemable Public
Warrants, 65,000 shares issuable upon exercise of options at $2.50 per share,
101,566 shares of Common Stock issuable pursuant to the Underwriter's Warrants,
50,783 Public Redeemable Warrants issuable upon exercise of 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,
and 16,072 shares held by an employee. Exercise of such Underwriter's Warrants
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 and reduce the
marketability of the Company's Common Stock. See "DESCRIPTION OF SECURITIES" and
"PLAN OF DISTRIBUTION."
This prospectus does not include options to purchase a total of
2,738,779 shares of Common Stock at prices ranging from $2.00 per share to
$20.00 per share, some as granted under the Company's 1993 Joint Incentive and
Non-Qualified Stock Option Plan (the "Plan"), and some granted under non-Plan
employee stock option agreements. All such options (other than options held by
directors of the Company to acquire in the aggregate 420,002 shares of Common
Stock and options recently granted to acquire 895,000 shares of Common Stock)
have been included in registration statements on Form S-8 filed with the
Commission.
A sale of such securities, or even the possibility of such sale, may
have an adverse affect on the market price for the Common Stock and reduce the
marketability of the Company's Common Stock.
20. The Imposition of Additional Rules Limiting Broker/Dealer Sales of
Shares of Common Stock May Adversely Affect the Company's Ability to Sell its
Securities and Discourage Broker/Dealers from Effecting Transactions in the
Company's Common Stock. The Company's Common Stock is not currently covered by,
but it is possible that the Company's Common Stock, if its market price were to
fall substantially, in the future might come to be covered by a Commission rule
that imposes additional sales practice requirements
17
<PAGE> 31
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 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 Public 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.
21. Directors of the Company are Generally Not Individually Liable for
Monetary Damages to the Company or to its Stockholders for Decisions Made by the
Board with Limited Exceptions 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." Because of
the lack of individual liability of the Directors, the
18
<PAGE> 32
Directors have broad discretion over what actions shall be made on behalf of the
Company, which actions may by ill-advised and may adversely affect the Company
without resulting in any liability on the part of Directors to compensate the
Company for such adverse results.
19
<PAGE> 33
MARKET INFORMATION
The Principal market on which the Company's Common Stock trades is The
NASDAQ Stock Market under the symbol "GTAX." Prior to August 28, 1998, the
Company's Common Stock traded on the Nasdaq SmallCap Stock Market.
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
March 31, 1997 $ 2 3/16 $ 2 1/16
June 30, 1997 $ 2 1/16 $ 1 15/16
September 30, 1997 $ 5 1/8 $ 4 1/8
December 31, 1997 $ 8 3/8 $ 4 3/8
March 31, 1998 $ 14 7/8 $ 7
June 30, 1998 $ 24 1/2 $ 13 3/4
</TABLE>
20
<PAGE> 34
Since December 1997, the market price of the Common Stock of the
Company has tripled and fallen to approximately its December 1997 range. The
Company, however, has no basis for knowing the cause of such volatility or how
long it will continue, and no assurance can be given that the Company's
performance during recent periods is predictive of its future performance.
As of September 15, 1998, the approximate number of holders of record
of the Common Stock was 263.
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
21
<PAGE> 35
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of
shares of Common Stock by the Selling Security holders; all proceeds will be
paid directly to the Selling Security Holders. See "SELLING SECURITY HOLDERS."
The Company could receive up to $3,198,248 of gross proceeds from the exercise
of all of the currently outstanding Redeemable Public Warrants, 65,000 options
currently outstanding for the purchase of Common Stock, the Underwriter's
Warrants, and the Redeemable Public Warrants issuable upon exercise of the
Underwriter's Warrants. However, such exercise of any of the outstanding options
and warrants is not assured.
The Company estimates that it will incur approximately $350,000 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's Broad Discretion
Over the Allocation of the Company's Proceeds Means that Proceeds Could Be Used
for Risky Ventures Not Approved by Shareholders. "
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>
- -----------------------------------------------------------------------------------------------------------------
PRICE TO Underwriting Discounts
PUBLIC(1) and Commissions(2) Proceeds to 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.
22
<PAGE> 36
(2) The securities registered hereunder will not be sold through an
underwriter, however, the Company paid to First Colonial Securities,
Inc. as advisor in connection with this offering a $35,000 advance
fee, although such engagement has expired.
(3) All expenses of this registration other than commissions and
concessions are payable by the Company, and are estimated at
$350,000, which is cross-referenced at footnote number 2 for the
following chart. The Selling Security Holders are not paying any of
the costs associated with this registration. The expenses payable by
the Company in connection with the issuance and distribution of the
securities being registered are as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission Fees............ $ 1,511
NASDAQ Stock Market listing fees................... -0-
Transfer/Warrant Agent's Fee and Expenses.......... 1,000
Accounting Fees and Expenses....................... 240,000
Blue Sky Fees and Expenses......................... 5,000
Printing Expenses ................................. 10,000
First Colonial Securities Group, Inc............... 40,000
Legal Fees......................................... 50,000
Miscellaneous...................................... 2,489
TOTAL................................... $350,000
========
</TABLE>
(4) The price received by the Company is the price at which
warrantholders may buy Common Stock upon the exercise of Redeemable
Public Warrants.
The sale of securities by Security Holders will not result in any
proceeds to the Company. However, it presumes exercise of outstanding warrants
and options, and proceeds to the issuer as follows:
23
<PAGE> 37
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
PRICE PAID TO Underwriting Discounts Proceeds to
ISSUER and Commissions(1) Issuer(2)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share of
Common Stock
65,000
Shares $ 2.50 (3) $-0- $ 162,500
101,566
Shares $ 4.20 (4) $-0- $ 426,577
50,783 $ 4.67 (5) $-0- $ 237,157
Shares
Per Redeemable
Public Warrant
50,783 $ -0-(6) $-0- $ -0-
Warrants
- -----------------------------------------------------------------------------------------------------------
Total......... $-0- $826,234
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) The securities registered hereunder will not be sold through an
underwriter.
(2) All expenses of this registration other than commissions and
concessions are payable by the Company, and are estimated at $260,000
(cross-referenced in the previous chart footnote 3 which also provides
detail of such expenses). The Selling Security Holders are not paying
any of the expenses associated with this registration.
(3) Shares of Common Stock issuable upon the exercise of outstanding
options.
(4) The 101,566 shares of Common Stock issuable at $4.20 per share are the
shares of Common Stock issuable upon the exercise of the Underwriter's
Warrants.
(5) The 50,783 Shares of Common Stock issuable at $4.67 per share are the
shares issuable upon exercise of those Redeemable Public Warrants that
are issuable on the exercise of the Underwriter's Warrants.
(6) 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.
24
<PAGE> 38
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Gilman & Ciocia, Inc. (the "Company") is a preparer of federal, state
and local income tax returns for individuals predominantly in middle and upper
income brackets. In addition, while preparing tax returns, clients often
consider other aspects of their financial needs, such as insurance, investments,
pension and estate planning. The Company capitalizes on this situation by making
available affiliated financial planners. These financial planners are registered
representatives of an independent registered securities broker/dealer, Royal
Alliance Associates, Inc. ("Royal Alliance"), and each has agreed to share
commissions with the Company.
More than 99% of the affiliated financial planners are also
authorized agents of insurance underwriters and approximately 2% of the
financial planners are authorized to act as mortgage brokers, and thus the
Company also earns revenues from commissions for acting as an insurance agent
and a mortgage broker.
The Company earns a share of commissions (depending on what service
is provided) from the services that the financial planners provide to the
clients in transactions for securities, insurance and related products.
The Company also has a division operating as a direct mail service.
During its 1997 fiscal year, approximately 40% of the Company's
revenues were earned from tax preparation services; 51% were earned from all
financial planning and related services (with 32% from securities transactions
and 19% from mortgage brokerage, insurance and other related services); and 9%
were earned from direct mail and related services.
Direct mail services have not historically made any material
contribution to the Company's net income. 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 individuals, assets,
marketing and facilities. The Company believes that its tax return preparation
business is inextricably intertwined with, and a necessary adjunct
25
<PAGE> 39
to, its financial planning activities, that neither segment would operate
profitably by itself and that the two segments can be viewed meaningfully only
as a whole.
The Company opened fifteen new offices in January 1994, twenty two
new offices in January 1995, forty four new offices in 1996 (closing four in the
first half of 1996), eight new offices in 1997 and seven new offices in 1998.
PLAN OF OPERATION
Tax Preparation and Financial Planning
During the 1996 and 1997 fiscal years, the Company opened 48 new
offices, which represents 40% of all offices at June 30, 1997. New offices
attract more potential tax preparation clients, resulting in increased revenues
and contributing to the Company's growth. In addition, an increase in the
clients for whom the Company prepares tax returns also directly increases the
potential for the Company to earn a share of commissions from financial planning
for such clients. 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 that additional funds may be
available through the exercise of outstanding options and warrants because the
sale and/or resale of the common stock underlying such securities has been
registered under the registration statement of which this prospectus is a part.
However, there can be no assurance that the offering will be consummated or that
any of such options or warrants will be exercised.
During the 1996 and 1997 fiscal year, in connection with the
acquisitions of two practices, the Company bought the building in which the
practice had offices. The Company may purchase other real estate in connection
with future acquisitions but it has no plans to invest in real estate apart from
its other businesses.
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
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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.
Direct Mail Division
During the Company's 1997 fiscal year, the Company continued its
operations of a direct mail division in order to control the substantial costs
of advertising its many offices. This division was acquired to specifically
reduce the costs of advertising for the Company. The Company believes that the
direct mail division results in lower advertising costs on a per-office basis,
as the Company takes advantage of economies of scale. The Company's direct mail
division operates as an independent division and solicits its own customers for
its direct mail services. From the first quarter to the second quarter of 1998,
the direct mail division has experienced a 250% increase in revenues due to new
accounts of unrelated parties.
No events or transactions have occurred subsequent to March 31, 1998,
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
1997 and 1996 Fiscal Years Compared
The Company's revenues for the fiscal year ended June 30, 1997 were
$24,574,571 as compared to revenues of $21,521,537 for the prior fiscal year.
The increase in revenues for its 1997 fiscal year from its 1996 fiscal year is
attributable to: (1) the Company's opening of eight new offices in January 1997
(the "1997 New Offices") and the acquisition of ten customer lists which
resulted in increased revenues from tax preparation services of $476,518; (2)
continued growth of the existing offices which resulted in increased revenues
from tax preparation services of approximately $1,297,000; and (3) increased
financial planning revenues of approximately $1,780,000 over all offices; offset
partially by (4) a decrease of revenues of approximately $502,000 from its
direct mailing services resulting from the loss of a few customers.
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The Company's total revenues for the year ended June 30, 1997 consist
of $9,921,967 for tax preparation services, $12,464,284 for financial planning
services and $2,188,320 for direct mailing services. The Company's total
revenues for the year ended June 30, 1996 consist of $8,147,986 for tax
preparation services and $10,683,765 for financial planning services; and
$2,689,786 for direct mailing services.
The consolidated statements of operations for the years ended June
30, 1997 and 1996 have been restated to reflect the total of the commission
revenue received by the Company and the commissions paid by Royal Alliance
directly to the financial planners (who are registered representatives of Royal
Alliance but are affiliated with the Company) as the Company's revenue from
financial planning services. The resulting increase in commission revenue is
offset by an increase in commission expense equal to the same amount.
Accordingly, this restatement had no effect on the Company's consolidated
financial position, net income (loss) or cash flows.
The growth in the tax preparation segment is primarily attributable
to the additional revenues generated by the 1997 New Offices, the continual
growth of the existing offices, and the increase of production from the tax
preparers. The growth in the financial planning segment is also attributable to
the continual growth of the existing offices and the increase of production from
the acquisition of new financial planners.
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 financial planners
affiliated 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 financial planners affiliated with 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 1997 growth of the
financial planning services was not significantly affected by the opening of the
1997 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 1997 fiscal year were
$23,283,697 as compared to operating expenses of $20,927,008
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for the 1996 fiscal year. The increase of 11.3% in the Company's operating
expenses for its 1997 fiscal year from its 1996 fiscal year was attributable to
increases of $1,381,867 and commissions; $518,333 in general and administrative
expenses; $234,816 in advertising; $381,980 in rent; and $260,454 in
depreciation and amortization; and the absence of any reimbursement of financial
planning expenses ($125,000 in 1996); and offset by a reduction in direct mail
costs of $545,761.
The reasons for the increases in operating expenses are the increase
in financial planning services, the addition of the 1997 New Offices and having
a full year of operating expenses for the 40 net new offices opened in January
of 1996.
The increase in salaries and commissions is due to increased tax
preparation salaries and financial planning activities (which generate
commissions that are generally shared between the Company and those affiliated
financial planners that have entered into commission sharing agreements with the
Company). The increase in salaries and commissions pertains to the personnel
working at the 1997 New Offices as well as the commissions that resulted from
increased financial planning activities, which are 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 $487,000 and the capital
expenditures of approximately $592,000 made during the Company's 1997 fiscal
year including the purchase of two buildings. The increase in advertising is
primarily due to the 1997 New Offices. The increase in rent is due to
approximately $46,000 for the 1997 New Offices, approximately $17,000 for the
direct mail division and approximately $319,000 for existing offices.
The increase of $518,333 in general and administrative expenses from
the Company's 1996 to its 1997 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 eight new offices opened in January 1997, as
well as a full year of expenses for the 40 net new offices opened in January
1996. These offices generated increases of approximately $15,000 in office
supplies, $14,000 in office expenses and $19,000 in telephone charges. In
addition, increased financial planning activities resulted in an increase of
approximately $120,000 in
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clearing fees, and the direct mail division incurred $350,000 of general and
administrative expenses during the Company's 1997 fiscal year.
The decrease in other income of $314,124 or 107% is due to the
decrease in income from the Company's investment in partnership of approximately
$125,000, a decrease in realized gains of approximately $84,000 on the sale of
marketable securities and an increase in interest expense of approximately
$95,000. 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 $73,000 during the Company's 1997 fiscal year as
compared to $198,000 for the 1996 fiscal year. Such partnership began
liquidating its investments and distributing its assets to its partners in the
Company's 1997 fiscal year, and is in the process of liquidating its remaining
investments.
The Company's income after provision for income taxes for its 1997
fiscal year is $875,994 as compared to $534,726 for its 1996 fiscal year. The
increase of 63.8% is primarily attributable to increases in the Company's tax
preparation segment of approximately $396,000 and financial planning segment of
approximately $367,000. These increases are offset by a decrease in the
Company's direct mail division of approximately $68,000 and by a decrease in
other income of approximately $314,000.
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.
Nine Months ended March 31, 1998 and 1997 Compared
The Company's revenues for the nine months ended March 31, 1998 were
$21,710,413 as compared to revenues of $18,342,712 for the comparable period of
the prior year. The increase in revenues of 18.4% for the nine months ended
March 31, 1998 from the comparable period of the prior year is attributable
partly to the opening of seven new offices in January 1998 (resulting in an
increase in tax preparation revenues of approximately $235,000), and the
remaining one hundred twenty one offices which accounted for additional tax
preparation revenues of approximately $497,000. Financial planning revenues
increased by approximately $2,849,000 (which was primarily generated in the
pre-1998 offices). These
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increases were offset by a decrease of approximately $213,000 in revenues from
the direct mail division due to a lower customer base.
The Company's total revenues for the nine months ended March 31, 1998
consisted of $8,718,884 for tax preparation services, $11,429,991 for financial
planning services, and $1,561,538 for direct mail services. The Company's total
revenues for the nine months ended March 31, 1997 consisted of $7,987,260 for
tax preparation services, $8,580,847 for financial planning services and
$1,774,605 for direct mail services.
The consolidated statements of operations for the nine months ended
March 31, 1998 and 1997 have been restated to reflect the total of the
commission revenue received by the Company and the commissions paid by Royal
Alliance directly to the financial planners (who are registered representatives
of Royal Alliance but are affiliated with the Company) as the Company's revenue
from financial planning services. The resulting increase in commission revenue
is offset by an increase in commission expense equal to the same amount.
Accordingly, this restatement had no effect on the Company's consolidated
financial position, net income (loss) or cash flows.
The increase in the Company's financial planning revenues for the
nine months ended March 31, 1998 compared to the nine months ended March 31,
1997 was an increase of 33.2%. The increase in such financial planning revenues
is attributable to additional financial planners which resulted in an
approximately $1,250,000 increase in insurance commissions for the nine months
ended March 31, 1998 compared to the comparable nine month period of the prior
year. The remaining increase of approximately $1,600,000 in financial planning
revenues resulted from a period of rising market prices which induced clients to
increase their security transaction activities. This resulted in additional
commissions earned by the Company.
The Company's operating expenses for the nine months ended March 31,
1998 were $18,980,802 as compared to operating expenses of $18,441,431 for the
comparable period of the prior year. The increase of 2.9% in the Company's
operating expenses for its nine months ended March 31, 1998 from the comparable
period of the prior year was attributable to an increase in salaries and
commissions of $702,271, a decrease of $241,369 for direct mail costs and a
decrease in advertising costs of $184,639. These decreases
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in operating expenses were offset by increases in other expenses as follows: an
increase in rent expense of $116,291, an increase in depreciation and
amortization expense of $9,642, and an increase in general and administrative
expenses of $137,175.
The increase in operating expenses of $539,372 is due to a decrease
in salaries and commissions of 7.1% due to an increase in financial planning
business, a decrease in advertising costs of 6.7% due to a reduction in direct
mail advertising and a decrease in direct mail division costs of 33.5% due to
reduced customer base. These decreases in operating expenses were offset by an
increase in depreciation and amortization expenses of 1.6% due to additions to
property, plant and equipment of approximately $700,000 during 1998. Rent
expense increased 8.2% due to additional offices opened in January 1998.
The increase of $137,175 in general and administrative expenses for
the nine months ended March 31, 1998 as compared with the comparable period of
the prior year resulted from the Company's expansion of operations. Such
increase was primarily the result of the inclusion of nine months of expenses
for the seven new offices opened in January 1998. These offices generated
increases of $11,412 in telephone charges, $14,601 in office expense and $2,049
in utilities. The remaining increase of $109,113 in general and administrative
expenses resulted from a general increase in costs generated from the other one
hundred twenty-one offices.
The decrease in other expenses of $6,395 or 12.4% was due to an
increase in income of $2,167 from the Company's investment in a partnership,
additional other income of $32,088 earned during the period and an increase in
rental income of $921. These decreases in other expenses were offset by a net
increase in interest expense of $5,938, an unrealized loss on marketable
securities of $6,630, and a realized loss on sale of marketable securities of
$16,213.
The Company's net income for the nine months ended March 31, 1998 was
$1,651,557 as compared to a net loss of $(92,551) for the nine months ended
March 31, 1997. The increase in net income of approximately $1,744,000 was
primarily attributable to higher net operating income generated from financial
services, tax preparation and direct mail services.
LIQUIDITY AND CAPITAL RESOURCES
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1997 and 1996 Fiscal Years Compared
The Company's cash flows provided by operating activities was
$1,516,445 and 2,621,862 for the years ended June 30, 1997 and 1996,
respectively. The decrease of approximately $1,105,000 is due primarily to a
decrease in proceeds from the sale of marketable securities of approximately
$2,154,000, an increase in prepaid expenses and other current assets of
approximately $142,000, a decrease in accounts payable, accrued expenses and
other current liabilities, and income taxes payable of approximately $566,000.
This decrease was offset by an increase in net income plus non-cash adjustments
of approximately $576,000 in advances to financial planners, a decrease in
accounts receivable of approximately $267,000 and a decrease in security
deposits of approximately $84,000.
Net cash used in investing activities was $1,129,500 and $2,420,386
for the years ended June 30, 1997 and 1996, respectively. The decrease of
approximately $1,290,000 is primarily due to decreases in capital expenditures
of approximately $308,000, due to a decrease in acquisitions of intangible
assets of approximately $243,000 and a increase in investment in partnership of
$378,000 and by an increase in proceeds from related party transactions of
approximately $246,000. The decrease is offset by an increase in payments of
related parties of approximately $182,000.
Net cash provided by financing activities decreased by $372,808 from
$684,557 to $311,749 due to the acquisition of treasury stock for approximately
$733,000 and a decrease in net proceeds from the issuance of common stock and
collections of stock subscriptions totaling approximately $86,000. The decrease
is offset by an increase in net borrowings of approximately $446,000.
Nine Months ended March 31, 1998 and 1997 Compared
The Company's cash flows used in operating activities was $666,351
and $839,952 for the nine months ended March 31,1998 and 1997, respectively. The
decrease in cash flows used in operating activities of approximately $174,000 is
primarily due to an increase in net income plus non-cash adjustments of
approximately $1,329,000, a decrease in advances to financial planners of
approximately $104,000, an increase in accounts payable and accrued
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expenses of approximately $1,008,000 and an increase in the proceeds from the
sale of marketable securities of approximately $22,000. These decreases in cash
flows used in operating activities were off-set by a increase in accounts
receivable of approximately $1,442,000, an increase in security deposits of
approximately $18,000 and an increase in prepaid expenses and other current
assets of approximately $830,000.
Net cash used in investing activities was $741,543 and $552,574 for
the nine months ended March 31, 1998 and 1997, respectively. The increase of
approximately $189,000 is primarily due to increases in capital expenditures of
approximately $99,000, an increase in investments of approximately $266,000 and
a net increase in notes receivable from related parties of approximately
$84,000. These increases in net cash used in investing activities were offset by
a decrease in the acquisition of intangible assets of approximately $260,000.
Net cash provided by financing activities was $646,976 and $2,544,402
for the nine months ended March 31, 1998 and 1997, respectively. The decrease in
net cash provided by financing activities of approximately $1,897,000 is
primarily due to a net decrease in net borrowings from bank and other notes
payable amounting to approximately $700,000, a decrease in the proceeds of stock
subscriptions and exercise of stock options of approximately $210,000, and an
increase in payments of bank and other loans of approximately $1,527,000. These
decreases were offset by a decrease in acquisitions of treasury stock of
approximately $538,000.
Financial Condition
The Company has two credit facilities with State Bank of Long Island.
The first facility is a line of credit for up to $2,500,000, which expires on
October 31, 1998. 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
March 31, 1998, the Company had an outstanding principal balance of $1,500,000.
The second credit facility is an installment note in the principal amount of
$1,000,000. The note is payable in 36 equal monthly installments of
approximately $28,000, plus interest at the bank's prime lending rate plus
1 3/4%. The final installment is due December 1999. At March 31, 1998, the note
had an outstanding principal balance amounting to $583,336.
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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 any dividends on its Common
Stock in the foreseeable future, but will apply any profits to fund the
Company's expansion.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, FASB issued Statement No. 128, "Earnings Per
Share," which is effective for periods ending after December 15, 1997. The
Company has adopted Statement No. 128 for the nine months ended March 31,1998
and has restated its weighted-average shares for all prior periods represented.
YEAR 2000 COMPLIANCE
The Company is currently in the process of installing the Great
Plains accounting system, which is year 2000 compliant. The Company does not
anticipate any material additional costs with regard to its year 2000
compliance. The year 2000 issue is expected to affect the systems of various
entities with which the Company interacts. However, there can be no assurance
that the systems of other companies on which the Company relies will be timely
converted, or that a failure by another company's systems to be year 2000
compliant would not have a material adverse effect on the Company.
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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, 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 for individuals
predominantly in middle and upper income brackets.
The preparation of a tax return by the Company usually involves a
personal meeting at the office between a client and an employee of the Company.
In addition, while preparing tax returns, clients often consider other aspects
of their financial needs, such as insurance, investments, pension and estate
planning. The Company capitalizes on this situation by providing financial
planning questionnaires to all of its tax preparation clients.
After review of such questionnaires by financial planners, if
appropriate, financial planners will recommend the tax preparer to introduce the
tax preparation client to a financial planner. Each of the financial planners to
which a client might be introduced is a registered representative of an
independent registered securities broker/dealer, Royal Alliance Associates, Inc.
("Royal Alliance"), and each has agreed to share commissions with the Company.
In approximately 22% of the cases, such financial planner is the tax preparer
himself.
If such clients do utilize the financial planners to assist them on
their other financial needs, the Company earns commissions (depending on what
service is provided) from the services that the financial planners provide to
the client. More than 99% of the financial planners are also authorized agents
of insurance underwriters, and approximately 2% of the financial planners are
also authorized to act as mortgage brokers, and thus, the Company also earns
revenues from commissions for acting as an insurance agent and a mortgage
broker.
All commissions on sales and purchases of securities are earned by
the Company's wholly owned subsidiary, JT Securities, Inc. (a registered
securities broker/dealer)("JT Securities").
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Royal Alliance, unaffiliated with the Company, is a corporation which
is a registered securities broker/dealer and a member of the National
Association of Security Dealers, Inc. ("NASD").
The Company also has a division operating as a direct mail service.
It assembles, packages and mails, but does not design, create or draft the test
for direct mail materials, however, it provides limited consulting services in
these areas.
Based on the Company's total revenues during its 1997 fiscal year,
approximately 40% of the Company's business is tax preparation services;
approximately 51% of the Company's business is commission sharing on financial
planning services (with approximately 32% from securities transactions and 19%
from mortgage brokerage, insurance and other related services); and
approximately 9% of the Company's business is direct mail and related services.
The Company has a total of one hundred twenty eight offices: forty
three in New York, fifteen in New Jersey, fourteen in Florida, nine in Arizona,
nine in Ohio, seven in Maryland, seven in Connecticut, seven in Washington,
seven in Massachusetts, five in Nevada, two in Pennsylvania, one in Virginia,
one in Illinois and one in Georgia, and it maintains its principal executive
office at 475 Northern Boulevard, Great Neck, NY 11021, telephone (516) 482-
4860.
Out of the total number of offices: 34 offices provide predominantly
tax preparation services and have no regular financial planner associated with
them (although financial planners from other offices do work with clients from
all of such 34 offices); and 94 offices provide both tax preparation and regular
financial planning services.
Out of the 94 offices that provide both tax preparation and financial
planning services: 21 of these offices have only one person who provides both
tax preparation and financial planning services; and 73 of these offices have
two or more persons who perform tax preparation and financial planning services.
No office has more than a total of ten tax preparers and financial planners.
The Company opened fifteen new offices in January 1994, twenty two
new offices in January 1995, forty four new offices in
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1996 (closing four in the first half of 1996), eight new offices in 1997 and
seven new offices in 1998.
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. 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 fifteen offices in
January 1994, twenty two offices in January 1995, forty four offices in 1996
(closing four in the first half of 1996), eight in 1997 and seven in 1998. The
Company now has a total of 121 offices.
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 to the underwriter at an exercise price of
$8.40.
On February 10, 1995, effective November 1, 1994, the Company
acquired all the outstanding stock of Gilbert Financial Services Inc. (a Florida
corporation) in exchange for 203,428 shares of the Company's common stock.
In May 1995, all of the Company's class a bridge loan warrants
("Class A Bridge Loan Warrants"), which were registered under the Company's IPO,
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
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form of advertising and has expanded 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. 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 Company employs only two full-time certified public accountants,
and only approximately 7% of the Company's seasonal tax preparers are certified
public accountants or tax attorneys. Most of the Company's tax preparers are,
therefore, limited in the representation that they can provide to clients of the
Company on an audit by the IRS. See "RISK FACTORS -- Inability of the Company to
Provide Services of a Certified Public Accountant may Hamper Company's Marketing
and/or Increase Risk of Liability." Ninety-nine percent of the Company's
professional tax preparers have a college degree or its equivalent and two years
of tax preparation experience, and each one is specifically tested and trained
by the Company to meet the required level of expertise to properly prepare tax
returns.
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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.
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.
SEASONALITY
The Company's tax 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. The Company hires approximately 300
seasonal employees in conjunction with the utilization of its existing employees
to meet the demand imposed during those months, and as a result, has avoided
opening offices especially for tax season and closing them after the peak
period. Approximately 75% of the Company's seasonal employees return in the next
year, and the Company uses
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predominantly advertisements in local newspapers to recruit the remainder its
seasonal work force.
To assist in funding operations during the off season and to
facilitate its plans for expansion, the Company has a credit facility in the
form of a line of credit up to $2,500,000 with State Bank of Long Island.
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% to 1-3/4%.
BROKER/DEALER SUBSIDIARY
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 State law to
register as a broker/dealer in New York and Florida. See "DESCRIPTION OF
BUSINESS--Regulation."
JT Securities receives the commission sharing payments from Royal
Alliance (approximately 47% of the total commissions) that are generated from
commissions earned by financial planners providing services at the Company's
offices. Prior to January 1, 1998, three of the Company's officers acted as
registered representatives (each financial planner is a registered
representative -- for an explanation of the role of registered representatives,
see "--Relationship With Registered Representatives of Broker/Dealer" below) of
JT Securities in providing financial planning and brokerage services directly to
a limited number of clients of the Company.
Such services provided by JT Securities in the aggregate have never
been material to the Company's overall operations, and effective January 1,
1998, all financial planning services and securities transactions in connection
with clients of the Company have been and will be effected by registered
representatives of Royal Alliance and not JT Securities. JT Securities, however,
will continue to receive the commission sharing payments from Royal Alliance
that are generated from commissions earned by financial planners providing
services at the Company's offices.
Although Royal Alliance is not affiliated with the Company by
contract, ownership, common directors or officers,
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approximately 90, or 82%, of the Company's full-year tax-preparer employees are
also registered representatives of Royal Alliance. Such individuals, who have
two separate roles, divide their time based upon the needs of clients who come
to the offices of the Company with which they are affiliated. They are
compensated by the Company based on the hours they work preparing tax returns
and on the number of returns prepared, and they are compensated by Royal
Alliance based on approximately 47% of the total commissions earned on
transactions effected for clients of the Company. Almost all of the registered
representatives of Royal Alliance who are affiliated with the Company through
commission sharing agreements work exclusively in connection with the offices of
the Company. For a detailed breakdown of the different services by the number of
employees see "BUSINESS -- Employees".
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 offering to
every client the opportunity to complete a questionnaire that requests
information on his/her financial situation. These questionnaires are
subsequently reviewed by financial planners (who are have entered into
commission sharing agreements with the Company and who are registered
representatives of Royal Alliance) to evaluate if the client may need financial
planning services. If the financial planners recommend that these clients be
referred to a financial planner and if the clients agree, the Company introduces
such clients of its tax preparation business to one of the financial planners
who are registered representatives of Royal Alliance and/or authorized agents of
insurance carriers. In approximately 22% of the cases of tax preparation clients
referred to financial planners, the tax preparer and the financial
planner/registered representative are the same person. Of all of the financial
planners affiliated with the Company, approximately 66% also perform tax
preparation services as employees of the Company.
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
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<PAGE> 56
mutual fund products or other securities for investment, they are referred to an
affiliated financial planner of the Company (who may be the tax preparer
himself) who is a registered representative of Royal Alliance, an independent
securities broker/dealer. The financial planners affiliated with the Company do
not effect transactions in securities of individual issuers, but rather deal
only with packaged products such as mutual funds and annuities. See "DESCRIPTION
OF BUSINESS-- Relationship with Registered Representatives of Broker/Dealer;"
and "--Relationship with Authorized Agents of Insurance Underwriters."
Out of the total number of offices: 34 offices provide predominantly
tax preparation services and have no regular financial planner associated with
them (although financial planners from other offices do work with clients from
all of such 34 offices); and 94 offices provide both tax preparation and regular
financial planning services.
Out of the 94 offices that provide both tax preparation and financial
planning services: 21 of these offices have only one person who provides both
tax preparation and financial planning services; and 73 of these offices have
two or more persons who perform tax preparation and financial planning services.
No office has more than a total of ten tax preparers and financial planners.
The financial planners affiliated with the Company perform all
financial planning services as registered representatives of Royal Alliance.
(For an explanation of the role of registered representatives, see
"--Relationship With Registered Representatives of Broker/Dealer" below.) In
order to maintain the financial planning services of Royal Alliance's registered
representatives separate from the Company, such registered representatives
orally explain to clients that their services as financial planners are
delivered on behalf of Royal Alliance. In addition, Royal Alliance maintains a
separate telephone number at each office and a separate nameplate or sign on the
door of each office, uses separate stationery and deposits all revenues in
separate bank accounts. For further information on the number of employees and
those employees that have entered into commission sharing agreements with the
Company see "BUSINESS -- Employees."
RELATIONSHIP WITH REGISTERED REPRESENTATIVES OF BROKER/DEALER
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<PAGE> 57
The Company's affiliated financial planners are all registered
representatives ("Registered Representatives") of Royal Alliance Associates,
Inc. ("Royal Alliance"), an unaffiliated corporation, which is a registered
securities broker/dealer and a member of the NASD. Registered Representatives
are the general employees of a securities brokerage firm that are authorized to
broker securities transactions for clients on behalf of the firm. To become a
registered representative, a person must pass one or more of a series of
qualifying exams administered by the NASD that test the person's knowledge of
securities and related regulations.
Registered Representatives who work with Royal Alliance are
supervised by Royal Alliance with regard to all regulatory matters. Royal
Alliance is 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. Such Registered Representatives are able, through Royal
Alliance, 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.
When a client of the Company requests to meet with a financial
planner, as part of the financial planner's discussion with such client, the
financial planner may initiate a discussion regarding the purchase of securities
as part of the client's overall financial investment plan, but not in regard to
a particular security of an issuer. Ninety-nine percent of the securities
transactions effected by Registered Representatives who are affiliated with the
Company, involve packaged products, including interests in mutual funds and
variable annuities, and do not involve corporate equities and bonds and other
securities of operating issuers. Registered Representatives do not provide
advice regarding particular securities nor do they transact any investments in
such particular securities except in very limited cases on the specific
initiative and request of a client.
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.
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<PAGE> 58
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
commission sharing agreement with the Company, which generally provides that a
specified percentage of the commissions earned by the Registered Representative
(generally one-half, or 47% of the total commission) is paid by Royal Alliance
at the direction of such financial planner to JT Securities. 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.
The financial planners are paid their share of securities commissions
directly by Royal Alliance and therefore do not receive compensation either as
employees or independent contractors of the Company in regard to their receipt
of a share of securities commissions. Of the financial planners affiliated with
the Company, approximately 66% also perform tax preparation, managerial or other
services for the Company and receive compensation as employees of the Company
for such services ("Employee/Planners").
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. 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
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under both New York and Florida law. In approximately 22% of the cases where a
tax preparation client of the Company is referred to an insurance agent, such
authorized agent is the same person as the tax preparer working with such
client.
Each of the insurance agents (except the Company's officers) has
entered into an commission sharing 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. 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
agent has a duration of no greater than one year from the date of the agreement.
CREDIT CARDS
The Company recently entered into a Bankcard Agreement with First USA
Bank (the "Credit Card Bank") for the Credit Card Bank to issue MasterCard
and/or Visa credit cards denominated as "Gilman & Ciocia" credit cards. Pursuant
to such agreement, the Company will supply a list of the names and addresses of
its customers for the purpose of the Credit Card Bank's doing a direct mail
solicitation for applications for such credit cards, and the Company will
receive, among other consideration, $15.00 for each "Gilman & Ciocia" credit
card issued under a Credit Card Bank marketing plan, $30.00 for each "Gilman &
Ciocia" credit card issued under a Company marketing plan, plus 5% of all
finance charges collected by the Credit Card Bank from holders of such "Gilman &
Ciocia" credit cards. The Company bears no risk of loss from default on any of
the cards issued under this agreement. The Company cannot at this time estimate
the amount of revenues that may result from such agreement, however, the Company
does not anticipate that any material cost will be imposed on the Company in
connection with such agreement.
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 preparation
services during the following years, and the retention rate is approximately
75%. In addition, the Company markets its services principally through direct
mail and promotions.
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<PAGE> 60
Direct Mail. Each year prior to the "tax season" when individuals
file federal, state and local 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.
Promotions. The Company offers a $50 U.S. Savings Bond to any client
that refers another two clients to the Company. The program has resulted in
approximately 300 new clients per year.
Online. The Company currently has a web site on the Internet:
http://www.gtax.com for income tax and financial planning advice, 10K/Q
information and the latest news releases.
Other Marketing. The Company also prints and distributes brochures
and flyers about its services.
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. The Company has not conducted any analysis of demographic
data or any formal market surveys.
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 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
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" 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"
constitutes a valuable marketing factor. If the Company were to lose the use of
such trademark, its sales could be adversely affected.
DIRECT MAIL DIVISION
The Company commenced operations of a direct mail service division in
July 1995 under the name "Progressive Mailing". Progressive Mailing does not
design, create or draft the text for direct mail materials, but does provide
limited consulting services in these areas. The Progressive Mailing division
uses equipment acquired from a liquidated company and is operated by certain
personnel hired from that company.
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 has hired 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 September 1, 1998, the Company employed twenty nine persons on a
full-time basis in its Progressive Mailing division: one executive person, one
clerical personnel, and nineteen staff personnel.
REGULATION
The Company, as a preparer of federal income tax returns, is subject
to the regulations of the Code and regulations promulgated thereunder. The Code
requires, for example, that tax preparers comply with certain ministerial
requirements with
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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 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. None of the full-year employees and
only several of the employees of the Company meet 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.
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. The Company believes that it complies with all applicable IRS
regulations.
Neither the employees of the Company nor its affiliated financial
planners generally give investment advice about particular investments to
clients. Instead, financial planning services involve 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 is
incidental to their work 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.
If the Commission were to determine that, prior to the registration
of JT Securities as a securities broker/dealer , the Company was required to be
registered as a broker/dealer, then the Company may be subject to regulatory
action.
The registered representatives themselves are strictly regulated in
their activities as registered representatives of a
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securities broker/dealer under the Securities Act of 1934, as amended, and the
rules and regulations promulgated thereunder, state regulation, the rules of the
NASD and by the rules and regulations of the broker/dealer.
JT Securities, is a registered broker/dealer under the Securities
Exchange Act of 1934, as amended, and a member of the NASD, is subject to
detailed rules and regulations, including extensive record keeping requirements,
incumbent upon registered broker/dealers.
JT Securities has not registered as a broker/dealer in any states
other than New York and Florida, although the Company has offices in 11 other
states. The Company does not believe that JT Securities is currently required to
so register. The State of Washington made written inquiries in 1996 regarding
possible requirements for JT Securities to register as a securities
broker/dealer in the State of Washington. The Company responded to such
inquiries and has not received any further communication from the State of
Washington in this regard.
EMPLOYEES
At September 1, 1998, the Company employed 183 persons on a full-time
full-year basis, including the Company's four officers. See "DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS." The Company's full-time
employees include 50 professional tax preparers, 81 clerical and support staff
persons (which includes persons performing clerical work while in training for
other positions), and 23 administrative personnel (who include the Company's
executive officers), and 29 employees who are part of the Company's direct mail
services division. During peak season the Company employs approximately 500
full-time employees, of which approximately 300 of these employees are seasonal
and do only tax preparation. Approximately 75% of the Company's seasonal
employees return the following year, and the Company uses advertisements in the
local newspapers to meet the balance of its recruiting needs. The minimum
requirements for a tax preparer at the Company are generally a college degree or
its equivalent, two years of tax preparation experience and a passing grade of
an examination given by the Company. See "BUSINESS-- Seasonality."
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The Company also is affiliated with approximately 138 financial
planners who have entered into commission sharing agreements with the Company
while serving as registered representatives of Royal Alliance and/or as
insurance agents. Of such 138 financial planners, 47 do only financial planning,
and the others serve separately as employees of the Company performing tax
preparation, managerial and other services for the Company. Of the total number
of financial planners who have entered into the commission sharing agreements
with the Company, 91 do tax preparation, management and other services for the
Company ("Employee/Planners").
The Company's offices are partially staffed by financial planners who
have entered into commission sharing agreements with the Company, particularly
during the off season. 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/or 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 128 local offices in
fourteen states: Forty three in New York, fifteen in New Jersey, nine in
Arizona, fourteen in Florida, nine in Ohio, seven in Maryland, seven in
Connecticut, seven in Washington, seven in Massachusetts, five in Nevada, two in
Pennsylvania, one in Virginia, one in Illinois and one in Georgia. Seven of such
offices opened in January 1998. 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 ten offices are leased on an oral
month-to-month basis. The leases range in remaining terms from one to seven
years. The Company's rental expense during its fiscal year ended June 30, 1997
was $1,884,768. 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
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is not replaced with a nearby office could adversely affect the Company's
business at that office.
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 two buildings housing two of its offices, one
in Babylon, New York and the other in Palmer, Massachusetts.
LEGAL PROCEEDINGS
In April 1998, Texas Capital Securities, Inc. and its assignee,
Harbor Financial, Inc. instituted a suit in the U.S. District Court in Austin,
Texas, demanding issuance, collectively, of 100,000 warrants to purchase the
Company's common stock at $5.125 per share (alleged to have been issuable under
an investment banking agreement pursuant to which Texas Capital Securities, Inc.
was to have provided investment banking services to the Company), as well as
attorney's fees and exemplary damages. The Company believes, among other
defenses, that Texas Capital Securities, Inc. defaulted under such agreement and
provided no material services to the Company. The Company has answered the
complaint and intends to defend such suit vigorously. In addition, the Company
has received a demand letter from Euromarket Advisory, Inc. (an entity believed
to be affiliated with Texas Capital Securities, Inc.) demanding the issuance of
150,000 warrants to purchase the Company's common stock at $5.13 per share,
alleged to have been issuable under a consulting agreement pursuant to which
Euromarket Advisory, Inc. was to have provided consulting services to the
Company. The Company believes that Euromarket Advisory, Inc. defaulted under
such agreement and provided no material services to the Company. The Company has
denied such demand. While the ultimate results of the matters described above
cannot be determined, management does not expect that they will have a material
adverse effect on the Company's results of operations or financial position.
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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
and Director
Kathryn Travis 49 Secretary, Vice President
and Director 11/89
Stephen B. Sacher 38 Chief Financial Officer 1/98
Seth A. Akabas 41 Director 4/95
Louis P. Karol 39 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, and Director
Mr. Povinelli began his tenure with the Company as an
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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.
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.
Stephen B. Sacher, Chief Financial Officer
Mr. Sacher joined the Company as its Chief Financial Officer in
January 1998. Mr Sacher is a Certified Public Accountant and has been practicing
in the public accounting profession since 1981. He is a graduate of Queens
College of the City University of New York with a B.A. in accounting. He is a
member of the SEC Committee of the New York State Society of Certified Public
Accountants and a Member of the American Institute of Certified Public
Accountants.
Seth A. Akabas, Director
Since June 1991, Mr. Akabas has been a partner at the law firm of
Akabas & Cohen. 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.
Louis P. Karol, Director
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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.
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 options include: (i) review of
the scope of each audit of the Company, (ii) review, with the independent
auditors, of the Company's accounting practices and policies, (iii) review, with
the independent auditors, of their final report, (iv) review of the Company's
overall accounting and financial controls with internal and independent
auditors, and (v) consultation, as needed, with the independent auditors.
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REMUNERATION OF OFFICERS AND DIRECTORS
MANAGEMENT
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Name and Principal Fiscal Annual Other Options
Position Year Salary Bonus* Compensation (Shares)
- -------- ---- ------ ------ ------------ --------
<S> <C> <C> <C> <C> <C>
James Ciocia 1995 $267,200 $163,000 -0- 18,850
Chief Executive 1996 $267,200 $240,000 $30,500(1) -0-
Officer, 1997 $251,200 $240,000 $9,580(2) 10,000
President and Director
Thomas Povinelli 1995 $259,600 $125,000 -0- 18,850
Chief Operating Officer, 1996 $339,300 $145,000 $78,600(3) -0-
and Director 1997 $199,951 $210,000 $ 9,951(4) 10,000
Gary Besmer (9) 1995 $145,100 $ 2,000 -0- 11,310
Vice President and 1996 $168,800 $ 3,000 $19,000(5) -0-
Director 1997 $142,149 $ 1,000 $ 7,149(6) 10,000
Kathryn Travis 1995 $156,300 $ 4,000 -0- 14,170
Secretary, Vice Pres. 1996 $166,200 $ 19,000 $49,300(7) -0-
and Director 1997 $142,149 $ 3,000 $ 7,149(8) 10,000
</TABLE>
* Represents commission earned from non-affiliated entities. See Certain
Relationships and Related Transactions
(1) Includes $11,000 for auto expense and $19,500 for
forgiveness of loan.
(2) Auto expense.
(3) Includes $18,600 for auto expense and $60,000 for
forgiveness of loan.
(4) Auto expense.
(5) Includes $7,000 for auto expense and $12,000 for
forgiveness of loan.
(6) Auto expense.
(7) Includes $8,900 for auto expense, $32,300 for forgiveness
of loan and $8,100 for health insurance.
(8) Auto expense.
(9) On May 19, 1998 Mr. Besmer announced that he was retiring
from the Company effective immediately.
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AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs at Options/SARs
Fiscal Year-End(#) Fiscal Year-End($)
Name Exercisable/Unexercisable Exercisable/Unexercisable (1)
- ---- ------------------------- -----------------------------
<S> <C> <C>
James Ciocia 133,370 / - $279,200 / -
Thomas Povinelli 135,370 / - 279,200 / -
Gary Besmer 85,223 / - 175,772 / -
Kathryn Travis 104,039 / - 214,580 / -
</TABLE>
(1) Based on a year-end fair market value of the underlying securities equal to
$2 1/16.
Messrs. Ciocia, Povinelli and Besmer and Ms. Travis earned
commissions from the sale of securities and insurance products to clients of JT
Securities out of which commissions such individuals compensate JT Securities
for clerical and support services and client references. See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS."
DIRECTORS
Directors of the Company receive no compensation for serving as a
director.
STOCK OPTION PLAN
On September 14, 1993, the Company adopted the Company's 1993 Joint
Incentive and Non-Qualified Stock Option Plan, as amended October 14, 1993 (the
"Plan"), pursuant to which the Company may grant options to purchase up to an
aggregate of 816,000 shares. Such options may be intended to qualify as
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, or they may be intended not to qualify under
such Section ("Non-Qualified Options").
The Plan is administered by the committee of two independent
directors of the Board of Directors of the Company, which has authority to
determine the persons to whom the options may be granted, the number of shares
of Common Stock to be covered by each option, the time or times at which the
options may be
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granted or exercised, whether the options will be Incentive Options or
Non-Qualified Options, and other terms and provisions of the options. The
exercise price of the Incentive Stock Options granted under the Plan may not be
less than the fair market value of a share of Common Stock on the date of grant
(110% of such value if granted to a person owning in excess of ten percent of
the Company's securities). Options granted under the Plan may not have a term
longer than 10 years from the date of grant (five years if granted to a person
owning in excess of ten percent of the Company's securities) and may not be
granted more than ten years from the date of adoption of the Plan.
To the date of this Prospectus, Non-Qualified Options to purchase
83,604 shares, 83,604 shares, 50,163 shares, and 62,710 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. The company has granted
Incentive Options to purchase 20,000 shares at $7.00, 20,000 shares at $7.50,
20,000 shares at $8.00, 20,000 shares at $8.50, 20,000 shares at $9.00, 20,000
shares at 9.50 and 100,000 shares at $20.00 to Stephen Sacher. Mr. Besmer's
options expired subsequent to his resignation as a director of the Company. In
total, the Company has granted options that are still outstanding to purchase
629,779 shares and options to purchase 186,221 shares remain to be granted under
the Plan.
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"). Under the 1997 Plan, the Company may issue shares of Common Stock
and 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.
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<PAGE> 72
The 1997 Plan is administered by the committee of two independent
directors of the Board of Directors of the Company, which has authority to
determine the persons to whom stock is issued, the persons to whom the options
may be granted, the number of shares of Common Stock to be covered by each
option, the time or times at which the options may be granted or exercised,
whether the options will be Incentive Options or Non-Qualified Options, and
other terms and provisions of the options. The exercise price of the Incentive
Stock Options granted under the Plan may not be less than the fair market value
of a share of Common Stock on the date of grant. Options granted under the Plan
may not have a term longer than 10 years from the date of grant and may not be
granted more than ten years from the date of adoption of the Plan.
The Company recently adopted a program under the 1997 Plan that will
entitle each employee and those affiliated financial planners who have entered
into commission sharing agreements with the Company, including officers and
directors, to be granted options to purchase 100 shares of Common Stock for each
whole $25,000 of revenues for tax preparation and commissions generated by such
individual for the Company in 1998, 1999 and 2000. Each option will be
exercisable for a period of five years to acquire one share of Common Stock at
the market price on the date of grant of the option. Options will be granted
following the end of each calendar year. The Company anticipates that it will
grant between 50,000 and 100,000 options per year under this program.
INDEMNIFICATION
The Company's Certificate of Incorporation includes a provision that
eliminates or limits the personal financial liability of the Company's
directors, except in situations where there has been a breach of the duty of
loyalty, failure to act in good faith, intentional misconduct or violation of
the law.
In addition, the Company's By-laws include provisions to indemnify
its officers and directors and other persons against expenses, judgments, fines
and amounts paid in settlement in connection with threatened, pending or
completed suits or proceedings against such persons by reason of serving or
having served as officers, directors or in other capacities, except in relation
to matters with respect to which persons shall be
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<PAGE> 73
determined to have acted not in good faith, unlawfully or not in the best
interests of the Company. With respect to matters as to which the Company's
officers and directors and others are determined to be liable for misconduct or
negligence in the performance of their duties, the Company's By-laws provide for
indemnification only to the extent that the Company determines that such person
acted in good faith and in a manner not opposed to the best interests of the
Company.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE
SECURITIES ACT OF 1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS
CONTROLLING THE COMPANY PURSUANT TO THE FOREGOING PROVISIONS, THE COMPANY HAS
BEEN INFORMED THAT IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION,
SUCH INDEMNIFICATION IS AGAINST PUBLIC POLICY AS EXPRESSED IN THE ACT AND IS
THEREFORE UNENFORCEABLE.
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<PAGE> 74
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of September 1, 1998, 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 1,050,473 (1) 18.4%
17 Folgers Lane
Dix Hills, NY 11746
Thomas Povinelli 1,093,473 (2) 19.1%
3427 Bayfront Place
Baldwin, NY 11510
Gary Besmer 405,580(3) 7.2%
35 Deer Run
East Islip, NY 11730
Kathryn Travis 368,185 (4) 6.5%
31 Wood Lane
Lattingtown, NY 11560
Seth Akabas 8,966 (5) .2%
245 West 107th Street
New York, NY 10025
Louis Karol 780 .01%
28 Fairview Avenue
East Williston, NY 11596
Steven Gilbert 686,154 (6) 11.4%
2420 Enterprise Road; Suite 100
Clearwater, FL 34623
Stephen Sacher 20,000 (7) .4%
</TABLE>
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<PAGE> 75
<TABLE>
<CAPTION>
<S> <C> <C>
2677 Broadview Drive
Yorktown Heights, NY 10598
All directors and officers
as a group (6 persons) 2,541,877 42.4%
</TABLE>
(1) Includes 83,604 shares, 41,766 shares and 10,000 shares of Common
Stock issuable upon the exercise of currently exercisable options at prices of
$2.60, $3.65 and $2.75, respectively.
(2) Includes 83,604 shares, 41,766 shares and 10,000 shares of Common
Stock issuable upon the exercise of currently exercisable options at prices of
$2.60, $3.65 and $2.75, respectively.
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<PAGE> 76
(3) Does not include any shares of Common Stock issuable upon the
exercise of options that expired subsequent to Mr. Besmer's resignation as a
director of the Company.
(4) Includes 62,710 shares, 31,329 shares and 10,000 shares of
Common Stock issuable upon the exercise of currently exercisable options at
prices of $2.60, $3.65 and $2.75, 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
340,000 shares issuable upon exercise of options at $3.50 per share and 100,000
shares issuable upon exercise of options at $4.75 per share.
(7) Includes 20,000 shares issuable upon exercise of currently
exercisable options at $7.00 per share.
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<PAGE> 77
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Each of James Ciocia, Thomas Povinelli, and Kathryn Travis, acts,
and Gary Besmer while he was a director of the Company acted, 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 $271,000 in the Company's 1997 fiscal year and $250,000 in the
Company's 1996 fiscal year and paid approximately $103,000 and $95,000 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 $210,000 in the Company's 1997 fiscal year and $145,000 in the
Company's 1996 fiscal year and paid approximately $80,000 and $55,000 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 $1,000 in the Company's 1997 fiscal year and $3,000 in the
Company's 1996 fiscal year and paid approximately $500 and $1,000 in such years
to the Company for clerical, support staff, office space and client references.
On May 19,1998 Mr. Besmer announced that he was retiring from the Company
effective immediately.
Ms. Travis earned gross commissions from sales of securities and
insurance products in connection with her work with the Company equal to
approximately $3,000 in the Company's 1997 fiscal year and $19,000 in the
Company's 1996 fiscal year and paid approximately $1,000 and $7,000 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 advanced by the Company. In such
transactions, such Common Stock was valued at its then current market price.
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<PAGE> 78
The four principal 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 as well
as the seasonal loans in the form of lines of credit as described in the
Management's Discussion and Analysis Section. 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, the wife of the former Chief
Financial Officer - $196,000, Anna Saras, the wife of the present Chief
Operating Officer - $198,000, Thomas Povinelli, Sr., father of the present Chief
Operating 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. At June 30, 1997,
the Company had a 41% interest in the Partnership and recognized income of
approximately $73,000 and $198,000 from the Partnership for the years ended June
30, 1997 and 1996. During fiscal year 1997 the Partnership began liquidating its
investments and distributing its assets to its partners. The liquidation of the
Partnership is expected to be completed during fiscal year 1998.
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 shares 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 term loans due from officers/stockholders
aggregating $350,000. These loans are due in fully amortizing biweekly
installments (including interest at 7% per annum) commencing October 3, 1997
through maturity on June 30, 2000.
In December 1997, the Company loaned $450,000 to two
officers/stockholders. These loans are non-interest bearing loans and have been
repaid by such officers/stockholders in March 1998.
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<PAGE> 79
PLAN OF DISTRIBUTION
The 507,926 shares of Common Stock issuable upon exercise of the currently
outstanding Redeemable Public Warrants and registered hereby will be issued by
the Company to the holders of the Redeemable Public Warrants upon the exercise
thereof by such holders. Upon the effectiveness of the registration of which
this Prospectus is a part, the Company currently intends to notify holders of
the effectiveness of such registration, and, because the Redeemable Public
Warrants expire shortly, the Company believes, most of the Redeemable Public
Warrants will be promptly exercised, and, therefore, the Company currently has
no plans to actively solicit the exercise of the Redeemable Public Warrants.
Under some circumstances, however, 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. Upon exercise, the
Common Stock issuable upon exercise of the Redeemable Public Warrants will be
held by such holders and any further distribution will not be in the Company's
control.
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<PAGE> 80
SELLING SECURITY HOLDERS
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 Security Holders") are intended to be offered to the public
immediately upon effectiveness. The Selling Security Holders 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 Security
Holders, may be acquired by them as follows: 65,000 shares at an exercise price
of $2.50 pursuant to outstanding employee options sold to Rozel International
Holding, Ltd., 101,566 shares of Common Stock and 50,783 Redeemable Public
Warrants issuable to LCP Capital Corp. 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 LCP Capital
Corp. upon exercise of the Redeemable Public Warrants that are issuable upon
exercise of the Underwriter's Warrants may be acquired at a price of $4.67. As
of the date of this Prospectus, no Selling Security Holder has exercised any of
the warrants or options described above.
<TABLE>
<CAPTION>
Amount of Percentage
Common Amount of Common
Selling Stock of Stock
Security Holder owned Common owned
and Position before Stock after
to Company offering offered offering(>1%)
- --------------- ---------- ------- -------------
<S> <C> <C> <C>
LCP Capital Corp. 101,566 101,566(1) -0-
underwriter of Company's
initial public offering
Rozel International Holding, Ltd. 65,000 65,000 -0-
</TABLE>
<TABLE>
<CAPTION>
Percentage
of
Public Public
Redeemable Amount of Redeemable
Selling Warrants Public Warrants
Security Holder owned Redeemable owned
and Position before Warrants after
to Company offering offered offering(>1%)
- --------------- ---------- ---------- -------------
<S> <C> <C> <C>
LCP Capital Corp. 50,783 50,783 -0-
</TABLE>
- ----------
(1) Issuable upon exercise of the Redeemable Public Warrants that are
issuable upon exercise of the Underwriter's Warrants.
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<PAGE> 81
<TABLE>
<CAPTION>
Selling Stock Stock
Security Holder owned owned
and Position before Stock after
to Company offering offered offering(>1%)
- --------------- -------- ------- -------------
<S> <C> <C> <C>
Edward Haas, employee 64,286 16,072 -0-
</TABLE>
PLAN OF DISTRIBUTION BY SELLING SECURITY HOLDERS
All of the shares of Common Stock (collectively, the "Shares")
offered herein for the accounts the Selling Security Holders are intended to be
offered to the public immediately upon effectiveness of the registration
statement of which this prospectus is a part. Currently, no underwriter is
involved in the distribution of the securities that may be owned by the Selling
Security Holders, but rather sales will be made by the Selling Security Holders
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 Security Holder, 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 Security Holder 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 buyer and seller.
Broker/dealers through which the Selling Security Holders effect sales of the
Shares may receive compensation in the form of discounts, concessions or
commissions from the Selling Security Holders 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). No Selling Security Holder has any plans
currently with any particular broker/dealer.
The Selling Security Holders 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.
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<PAGE> 82
The Redeemable Public Warrants offered herein for the accounts the
Selling Security Holders are intended to be offered to the public immediately
upon effectiveness of the registration statement of which this prospectus is a
part. The holder of the Underwriter's Warrants, on the exercise of which such
Redeemable Public Warrants are issuable, has not determined yet whether it will
sell such Redeemable Public Warrants publicly or whether it will exercise them
and sell the Shares issuable upon such exercise to the Public. If it determines
to sell the Redeemable Public Warrants publicly, they will be sold in a manner
similar to the sale of the Shares described above.
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 Security Holders will be subject to applicable provisions of the
Exchange Act and the rules and regulations promulgated thereunder, including,
without limitation, Regulation M 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 Security Holders.
The Selling Security Holders 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 Security Holders' shares, the Company will pay for all
expenses of the offering and will furnish current prospectuses to the Selling
Security Holders at their request.
DESCRIPTION OF SECURITIES
UNITS
Each Unit (a "Unit") issued upon the exercise of an Underwriter's
Warrant consists of two shares of Common Stock, par value $.01 per share, of the
Company and one redeemable warrant (each a "Redeemable Public Warrant"), each
Redeemable Public 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.
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<PAGE> 83
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, six hundred and six
thousand, nine hundred thirteen (5,606,913) 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 $4.67 per share,
subject to adjustment in the event of certain occurrences, such as stock
dividends, splits and combinations. The Redeemable Public Warrants are
exercisable until September 28, 1998, by surrendering the certificate
representing the Redeemable Public Warrant to the Company, or its authorized
transfer agent, with the subscription form attached thereto properly completed
and executed together with payment in full by certified or bank teller's check
of the aggregate exercise price of all the Redeemable Public Warrants then
exercised. The Redeemable Public Warrants are redeemable by the Company at a
price of one cent ($.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
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<PAGE> 84
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.
Each Redeemable Public Warrant is 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 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 have been issued pursuant to a
Warrant Agreement between the Company and Corporate Stock Transfer, Inc., as
Warrant agent. Corporate Stock Transfer, Inc.
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<PAGE> 85
acts 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 conversion; and (g) voting rights, if any. The Board of
Directors, without the approval of
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<PAGE> 86
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--The Issuance of Preferred Stock
that does not Require Approval of the Shareholders."
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
BDO Seidman, LLP was dismissed as the independent accountants of the
Company as of September 16, 1997. Such former independent accountants' report on
the financial statements of the Company for the prior year 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 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
September 16, 1997, the Company engaged Arthur Andersen, 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, 11th floor, New York, NY
10022. Akabas & Cohen is the beneficial and record owner of 8,081 shares, and
Seth Akabas is the beneficial and record owner of 885 shares, of the Company's
Common Stock. Seth Akabas, a partner in the law firm of Akabas & Cohen, is a
director of the Company.
In addition, in regard to questions as to whether the Company has
properly treated affiliated financial planners who serve the Company as common
law employees, the Company has relied in part on the authority of its counsel,
Akabas & Cohen, which has prepared an opinion to such effect, a copy of which is
filed as an exhibit to the registration statement of which this Prospectus is a
part.
EXPERTS
The financial statements included in this registration statement
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect
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<PAGE> 87
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said reports.
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.
74
<PAGE> 88
INDEX
Page
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
FINANCIAL STATEMENTS:
Consolidated Balance Sheet F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Cash Flows F-5-F-6
Consolidated Statements of Stockholders' Equity F-7-F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-9-F-23
F-1
<PAGE> 89
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 operations, stockholders' equity and cash flows for the years
ended June 30, 1997 and 1996 as restated-see Note 2(i). 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the 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 years ended June 30, 1997 and 1996 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
April 3, 1998 (except with respect to
the matter discussed in Note 2(i), as
to which the date is September 15, 1998).
<PAGE> 90
GILMAN & CIOCIA, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, June 30,
ASSETS 1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 2,159,571 $ 2,920,489
Marketable securities 18,350 49,658
Accounts receivable, net of allowance for doubtful accounts of $100,000
(March 31, 1998)and $87,500 (June 1997) 5,069,590 1,109,535
Receivables from related parties, current portion 250,074 373,039
Prepaid expenses and other current assets 1,231,083 451,968
------------ ------------
Total current assets 8,728,668 4,904,689
PROPERTY AND EQUIPMENT, net 2,009,003 1,679,106
INTANGIBLE ASSETS, net of accumulated amortization of $655,518 (March
31, 1998) and $468,249 (June 30, 1997) 1,104,203 1,147,297
ADVANCES AND NOTES RECEIVABLE FROM FINANCIAL PLANNERS,
Net of current portion 89,427 169,239
RECEIVABLES FROM RELATED PARTIES, net of current portion 439,903 447,806
DEFERRED TAX ASSETS 167,899 27,899
OTHER ASSETS 685,316 649,540
------------ ------------
Total assets $ 13,224,419 $ 9,025,576
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 1,883,331 $ 899,487
Accounts payable 310,708 168,210
Accrued expenses and other current liabilities 1,161,247 318,690
Income taxes payable 943,548 68,200
------------ ------------
Total current liabilities 4,298,834 1,454,587
------------ ------------
LONG-TERM LIABILITIES:
Long-term borrowings 250,002 552,000
------------ ------------
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 5,606,913 shares (March 31, 1998) and 5,578,913 shares
(June 30, 1997) 56,069 55,789
Paid-in capital 6,314,334 6,231,555
Retained earnings 3,244,926 1,593,369
Less- Treasury Stock, at cost; 211,315 shares (March 31, 1998) and 157,433
shares (June 30, 1997) (784,782) (638,556)
------------ ------------
8,830,547 7,242,157
Stock subscriptions and accrued interest receivable (154,964) (223,168)
------------ ------------
Total stockholders' equity 8,675,583 7,018,989
------------ ------------
Total liabilities and stockholders' equity $ 13,224,419 $ 9,025,576
============ ============
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
F-3
<PAGE> 91
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months ended March 31, Years ended June 30,
----------------------------- -----------------------------
1998 1997 1997 1996
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
Restated Restated Restated Restated
<S> <C> <C> <C> <C>
REVENUES:
Tax preparation fees $ 8,718,884 $ 7,987,260 $ 9,921,967 $ 8,147,986
Financial planning commissions 11,429,991 8,580,847 12,464,284 10,683,765
Direct mail services 1,561,538 1,774,605 2,188,320 2,689,786
------------ ------------ ------------ ------------
Total revenues 21,710,413 18,342,712 24,574,571 21,521,537
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Salaries and commissions 10,667,524 9,965,253 13,083,818 11,701,951
General and administrative expenses 2,902,443 2,765,268 3,572,901 3,054,568
Advertising 2,551,734 2,736,373 2,819,941 2,585,125
Direct mail costs 720,411 961,780 1,136,347 1,682,108
Rent 1,529,682 1,413,391 1,884,768 1,502,788
Depreciation and amortization 609,008 599,366 785,922 525,468
Reimbursement of financial planning expenses -- -- -- (125,000)
------------ ------------ ------------ ------------
Total operating expenses 18,980,802 18,441,431 23,283,697 20,927,008
------------ ------------ ------------ ------------
Operating income (loss) 2,729,611 (98,719) 1,290,874 594,529
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSES):
Income(loss) from investment in partnership 29,129 26,962 73,127 198,165
Interest income 61,151 47,332 77,162 91,435
Interest expense (152,679) (132,922) (201,534) (107,111)
Rental income 8,100 7,179 16,557 19,180
Realized gain(loss) on sale of marketable
securities (16,213) -- 6,580 91,175
Unrealized gain (loss) on marketable securities (6,630) -- 6,828 --
Other income 32,088 -- -- --
------------ ------------ ------------ ------------
Total other income (expense) (45,054) (51,449) (21,280) 292,844
------------ ------------ ------------ ------------
INCOME(LOSS) BEFORE PROVISION FOR INCOME TAXES 2,684,557 (150,168) 1,269,594 887,373
PROVISION FOR INCOME TAXES 1,033,000 (57,617) 393,600 352,647
------------ ------------ ------------ ------------
Net income (loss) $ 1,651,557 $ (92,551) $ 875,994 $ 534,726
============ ============ ============ ============
NET INCOME(LOSS) PER SHARE:
BASIC $ 0.31 $ (0.02) $ .16 $ .10
DILUTED 0.28 (0.02) .16 .09
WEIGHTED AVERAGE SHARES:
Basic 5,377,010 5,492,696 5,479,611 5,606,804
Diluted 5,975,024 5,492,696 5,572,854 6,168,870
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE> 92
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months ended March 31, Years ended June 30,
--------------------------- ---------------------------
1998 1997 1997 1996
----------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,651,557 $ (92,551) $ 875,994 $ 534,726
Adjustments to reconcile net income (loss) to net cash
Provided by (used in) operating activities:
Compensation expense recognized in connection
With the reissuance of treasury stock and the issuance
of stock options 47,550 17,463 41,551 232,782
Depreciation and amortization 550,068 599,366 785,922 525,468
(Income) loss from investment in partnership (9,379) 26,962 (73,127) (198,165)
Deferred tax (benefit) provision (140,000) (100,344) 105,686 (133,585)
Compensation expense recognized in connection with the
forgiveness of officers' loans -- 121,953 -- 123,899
Loss (gain) on sale of marketable securities 16,213 -- (6,580) (91,175)
Compensation expense recognized in connection with
amortization of advances to financial planners 119,004 209,032 235,013 79,851
Provisions for doubtful accounts 12,500 147,188 41,526 99,175
Interest on stock subscriptions (7,643) (23,725) (27,108) (22,433)
Gain on disposal of property and equipment -- (9,000)
Unrealized (gain) loss on marketable securities 6,692 -- (6,828) --
Proceeds from sale of marketable securities 22,323 -- 32,580 2,186,925
(Increase) decrease in:
Accounts receivable (3,972,555) (2,518,402) (174,375) (441,136)
Advances to financial planners (1,169) (105,615) (78,214) (653,768)
Security deposits (26,397) (8,781) (16,872) (100,486)
Prepaid expenses and other current assets (795,456) 34,693 (115,009) 26,786
Accounts payable, accrued expenses and other
Current liabilities 1,860,341 852,809 (109,312) 461,998
Income taxes payable 5,598 --
----------- ----------- ----------- -----------
Net cash (used in) provided by operating activities (666,351) (839,952) 1,516,445 2,621,862
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
</TABLE>
F-5
<PAGE> 93
<TABLE>
<S> <C> <C> <C> <C>
Capital expenditures (692,696) (593,762) (592,362) (900,385)
Acquisition of intangible assets (144,176) (404,065) (487,442) (730,076)
Investments (13,858) -- (150,000) (448,360)
Investment in partnership 252,323
Proceeds from sales of investments -- -- 378,009 --
Proceeds from related party transactions 109,187 271,930 398,545 152,655
Payments to related parties (79,000) (676,250) (494,220)
----------- ----------- ----------- -----------
Net cash (used in) investing activities (741,543) (552,574) (1,129,500) (2,420,386)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Acquisition of treasury stock (146,226) (684,513) (733,200) --
Proceeds from bank and other loans 3,000,000 3,700,000 3,602,000 2,297,222
Payments of bank and other loans (2,318,154) (791,450) (2,859,262) (2,000,000)
Proceeds from sale of common stock
And exercise of stock options 35,508 92,012 100,857 76,526
Proceeds from stock subscriptions 75,848 228,353 261,954 310,809
Incurrence of deferred registration costs -- -- (60,600) --
----------- ----------- ----------- -----------
Net cash provided by financing activities 646,976 2,544,402 311,749 684,557
----------- ----------- ----------- -----------
Net (decrease) increase in cash (760,918) 1,151,876 698,694 886,033
CASH, beginning of period 2,920,489 2,221,795 2,221,795 1,335,762
----------- ----------- ----------- -----------
CASH, end of period $ 2,159,571 $ 3,373,671 $ 2,920,489 $ 2,221,795
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash paid during the period for-
Interest $ 152,679 $ 132,752 $ 196,405 $ 107,184
Income taxes 35,940 439,724 449,276
224,235
Noncash transactions-
Liquidation of investment in partnership into
Marketable securities -- -- 68,830 --
Reissuance of treasury stock at fair value 32,897 -- 94,644 --
Issuance of common stock in exchange for stock
subscriptions receivable -- -- -- 40,000
Acquisition of treasury stock and write-off of stock
subscriptions receivable -- -- -- 67,590
Retirement of all outstanding treasury stock -- -- -- 479,465
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE> 94
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
-----------------------
Stock
Subscriptions
Additional and
Paid-in Retained Accrued Interest
Shares Amount 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)
Repayments of stock subscriptions -- -- -- -- 75,847
Purchase of treasury stock -- -- -- -- --
Compensation recognized in connection
with reissuance of common stock 28,934
Exercise of stock options 28,000 280 53,845 -- --
Accrued interest income -- -- -- -- (7,643)
Net Income -- -- -- 1,651,557 --
--------- ----------- ----------- ----------- -----------
BALANCE, March 31, 1998
(unaudited) 5,606,913 $ 56,069 $ 6,314,334 $ 3,244,926 $ (154,964)
========= =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Treasury Stock
------------------------
Total
Stockholders'
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 -- -- 232,782
with the issuance of stock options
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
Repayments of stock subscriptions -- -- 75,847
Purchase of treasury stock 60,700 (179,123) (179,123)
Compensation recognized in connection
with reissuance of common stock (6,818) 32,897 61,831
Exercise of stock options -- -- 54,125
Accrued interest income -- -- (7,643)
Net Income -- -- 1,651,557
------- ----------- -----------
BALANCE, March 31, 1998
(unaudited) 211,315 $ (784,782) $ 8,675,583
======= =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE> 95
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE NINE-MONTH PERIODS ENDED MARCH 31, 1998
AND 1997 IS UNAUDITED)
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 pursuant to the
provisions of the Securities Exchange Act of 1934.
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(a) 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.
(b) 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.
(c) Marketable Securities
The Company has classified its short-term investments in debt instruments as
trading securities that are reported at fair value with unrealized gains and
losses included in earnings.
F-9
<PAGE> 96
(d) 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.
(e) 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.
(f) Intangible Assets
Intangible assets represent the costs of $1,759,721 and $1,615,546 for March 31,
1998 and June 30, 1997, respectively, to acquire lists of customer accounts and
related covenants not to compete. Amortization expense is computed on a
straight-line basis over a period of five years, and amounted to $188,269,
$299,183, $274,613, $190,817 for the nine-month periods ended March 31, 1998 and
1997 and 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 impairment in the value of the intangible assets if the undiscounted
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
discounted estimated operating cash flows.
For the nine month periods ended March 31, 1998 and 1997 and the years ended
June 30, 1997 and 1996, the Company acquired customer lists and entered into
non-competition agreements for approximately $145,000, $315,000, $487,000 and
$730,000, respectively.
(g) 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
F-10
<PAGE> 97
the results of operations or financial condition.
(h) 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 been made for the excess of operating lease
rental expense, computed on a straight-line basis over the lease term, over cash
rentals paid.
(i) Revenue Recognition
The Company recognizes all revenues upon completion of the services associated
with income tax preparation and direct mail services. Commission revenue on
securities transactions are on a trade date basis.
The consolidated statements of operations for the nine months ended March 31,
1998 and 1997 and the years ended June 30, 1997 and 1996 have been restated to
reflect the total of the commission revenue received (approximately 47%) and the
commissions paid by Royal Alliance, Inc. ("Royal") directly to the financial
planners (approximately 53%) as the Company's revenue from financial planning
services. The increase in commission revenue of $4,776,344 and $3,915,684 for
the nine months ended March 31, 1998 and 1997, respectively, and $5,502,682 and
$5,011,860 for the years ended June 30, 1997 and 1996, respectively, is offset
by an increase in commission expense by the same amount. Accordingly, this
restatement had no effect on the Company's consolidated financial position, net
income (loss) or cash flows.
(j) Advertising
Costs to develop advertising are accumulated and expensed upon the first mailing
of such advertising in accordance with SOP 93-7. Costs to develop the program
and associated printing and paper costs are deferred in the first and second
fiscal quarters and expensed in the third fiscal quarter upon the first use of
such advertisement in the advertising program.
(k) Reimbursement of Financial Planning Expenses
Based on an employment agreement between the Company and one of its managers,
the manager
F-11
<PAGE> 98
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.
(l) 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.
(m) 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 and non-employee financial
planners is measured at the date of grant based on the fair value of the award
using the Black-Scholes option pricing model. (Note 9).
(n) Net Income Per Share
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 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 periods ending after December 15,
1997, and earlier application is not permitted. The Company has adopted
Statement No. 128 for the nine month period ended March 31, 1998 and has
restated its weighted-average shares for all prior periods presented.
A reconciliation between the numerators and denominators of the basic and
diluted EPS computations for net earnings is as follows:
F-12
<PAGE> 99
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31, 1998 NINE MONTHS ENDED MARCH 31, 1997
------------------------------------- -------------------------------------
Per Share Per Share
Net Income Shares Amounts Net Loss Shares Amounts
---------- ------ --------- -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS $1,651,557 5,377,010 $ 0.31 $ (92,551) 5,492,696 $ (0.02)
Dilutive Stock
Options & warrants 598,014
--------- ---------
Diluted EPS $1,651,557 5,975,024 $ 0.28 $ (92,551) 5,492,696 $ (0.02)
========= =========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1997 YEAR ENDED JUNE 30, 1996
---------------------------------- ------------------------------------
Per Share Per Share
Net Income Shares Amounts Net Income Shares Amounts
---------- ------ --------- ---------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS $ 875,994 5,479,611 $ 0.16 $ 534,726 5,606,804 $ 0.10
DILUTIVE STOCK OPTIONS & WARRANTS 93,243 562,066
--------- --------
DILUTIVE EPS $ 875,994 5,572,854 $ 0.16 $ 534,726 6,168,870 $ 0.09
========= =========
</TABLE>
The potentially dilutive shares that were not included in the computation of
diluted earnings per share because to do so would be antidilutive consist of
stock options and warrants as follows:
Options/Warrants
----------------
Nine Months Ended March 31, 1998 590,000
Nine Months Ended March 31, 1997 2,006,277
Year Ended June 30, 1997 2,026,277
Year Ended June 30, 1996 2,282,277
(o) 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 March 31, 1998 and June 30, 1997,
because of the relatively short-term maturity of these instruments and their
market interest rates.
(p) Interim Periods Presented
The interim consolidated financial statements for the nine months ended March
31, 1998 and 1997 are unaudited. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for fair
presentation have been included. Operating results for the
F-13
<PAGE> 100
nine month period ended March 31, 1998, are not necessarily indicative of the
results that may be expected for the year ending June 30, 1998.
3. RECEIVABLES FROM RELATED PARTIES
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
--------- --------
<S> <C> <C>
Notes receivable from officers/stockholders of the Company that are $240,813 $350,000
due in aggregate bi-weekly installments of $2,295 (including interest
at 7% per annum) commencing October 3, 1997 through June 30, 2000.
Notes receivable of $52,250 and $100,000 from independent 160,125 152,250
contractors/stockholders of the Company due on December 18, 1998 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 98,284 147,362
installments of $3,156 through June 15, 1999.
Note receivable from stockholder of the Company due on October 8, 119,989 113,989
1999. Interest is charged at 8% per annum.
Other 70,766 57,244
-------- --------
689,977 820,845
Less - Current portion 250,074 373,039
-------- --------
$439,903 $447,806
======== ========
</TABLE>
Interest income from these receivables was approximately $33,000, $10,000,
$10,000, and $13,000 for the nine-month periods ended March 31, 1998 and 1997
and the years ended June 30, 1997 and 1996, respectively.
4. ADVANCES AND NOTES RECEIVABLE-
FINANCIAL PLANNERS
Advances and notes receivable - financial planners consist of the following:
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
-------- --------
<S> <C> <C>
Unamortized portion of non-interest bearing advances to $191,079 $287,232
financial planners
Notes receivable from financial planner due December 4, 1998
Interest is charged at 6% per annum 57,500 57,500
-------- --------
248,579 344,732
Less - Current portion 159,152 175,493
-------- --------
$ 89,427 $169,239
======== ========
</TABLE>
F-14
<PAGE> 101
5. PROPERTY AND EQUIPMENT
Major classes of property and equipment consist of the following:
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
-------------------- ---------------
<S> <C> <C>
Buildings $405,866 $402,367
Equipment 2,677,621 2,038,237
Furniture and fixtures 400,780 367,484
Leasehold improvements 199,932 183,415
-------------------- ---------------
3,684,199 2,991,503
Less- Accumulated depreciation and amortization 1,675,196 1,312,397
-------------------- ---------------
$2,009,003 $1,679,106
==================== ===============
</TABLE>
For the nine-month periods ended March 31, 1998 and 1997 and the years ended
June 30, 1997 and 1996, depreciation and amortization expense from property and
equipment was approximately $421,000, $300,000, $394,000 and $321,000,
respectively.
6. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
------------------ ---------------
<S> <C> <C>
Investment in ATM Partners, LP (Note 10) $256,386 $271,870
Security deposits 253,125 226,724
Other assets 175,805 150,946
------------------ ---------------
$685,316 $649,540
================== ===============
</TABLE>
7. BANK DEBT
Bank debt consists of the following:
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
------------------- ------------------
<S> <C> <C>
Bank line of credit $1,500,000 $500,000
Term loan 583,333 833,333
Notes payable - other 50,000 118,154
------------------- ------------------
2,133,333 1,451,487
Less- Short-term borrowings 1,883,331 899,487
------------------- ------------------
$250,002 $552,000
=================== ==================
</TABLE>
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, 1998. The line of credit
is guaranteed by the four principal stockholders of the Company. At March 31,
1998 and June 30, 1997, the Company had borrowings of $1,500,000 and $500,000
outstanding, respectively, under this line of credit. Interest is charged at the
prime rate (8.5% at March 31, 1998 and 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 March 31, 1998 and
June 30, 1997) plus 1.75%
F-15
<PAGE> 102
through December 17, 1999. The loan is collateralized by all of the Company's
assets. At March 31, 1998 and June 30, 1997, the Company's outstanding balance
under this loan was $583,333 and $833,333, respectively.
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
fiscal year of future minimum rental payments required under operating leases as
of June 30, 1997.
<TABLE>
<S> <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
The clearing agreement with the Broker states that JT will assume customer
obligations should a customer of JT default. At March 31, 1998 and 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 March 31, 1998 and June 30, 1997, JT had net capital of $300,161 and
$2,007,331, respectively, which was $275,161 and $1,982,331, respectively, in
excess of its required net capital of $25,000.
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
F-16
<PAGE> 103
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.
Stock Warrants
In April 1998, an investment banker and its assignee, instituted a suit in the
U.S. District Court in Austin Texas, demanding issuance, collectively, of
100,000 warrants to purchase the Company's common stock at $5.125 per share
(alleged to have been issuable under an investment banking agreement pursuant to
which the investment banker was to have provided investment banking services to
the Company), as well as attorney's fees and exemplary damages. The Company
believes, among other defenses, that the investment banker defaulted under such
agreement and provided no material services to the Company. The Company intends
to defend such suit vigorously. In addition, the Company has received a demand
letter from a consultant (an entity believed to be affiliated with the
investment banker) demanding the issuance of 150,000 warrants to purchase the
Company's common stock at $5.13 per share, alleged to have been issuable under a
consulting agreement pursuant to which the consultant was to have provided
consulting services to the Company. The Company believes that the consultant
defaulted under such agreement and provided no material services to the Company.
The Company has denied such demand. While the ultimate results of the matters
described above cannot be determined, management does not expect that they will
have a material adverse effect on the Company's results of operations or
financial position.
Payroll Taxes
The Company annually provides its employees with form W-2 and its outside
consultants with form 1099 and Royal provides the financial planners with form
1099, all of which are in accordance with tax law and industry practice. While
the Company has not experienced any federal or state payroll tax audits, should
a taxing authority assert that an outside consultant is an employee, the Company
believes that it is unlikely that any such audit would have a material effect on
its consolidated financial position, results of operations or cash flows.
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 expire in September 1999.
F-17
<PAGE> 104
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 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, prices, terms of exercise, and expiration dates are
determined by the Board of Directors. The Plan will terminate in September 2003.
At December 31, 1997 and June 30, 1997, 420,002 options have been granted under
the Option Plan.
The table below summarizes plan and nonplan stock option activity:
<TABLE>
<CAPTION>
Weighted
Number of 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
Granted 1,223,000 6.71
Exercised (28,000) 1.93
Cancelled (250,000) 5.13
---------
Outstanding, March 31, 1998 2,311,002 5.10
=========
Exercisable, June 30, 1997 1,093,002 3.81
=========
Exercisable, March 31, 1998 825,002 3.46
=========
</TABLE>
The weighted average grant date fair value of options granted during the years
ended June 30, 1997 and June 30, 1996 is $1.00 and $2.52 per option,
respectively.
Options outstanding and exercisable at March 31, 1998 and June 30, 1997 and
related weighted average exercise price and life information follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Fiscal Year ----------------------- ---------------------- Remaining
Grant Date Shares Price Shares Price Life (Years)
<S> <C> <C> <C> <C> <C>
1994 420,002 $2.95 420,002 $2.95 1/2
1995 405,000 3.34 405,000 3.34 5
1996 -
1997 273,000 2.70 - - 4
1998 1,213,000 6.75 - - 10
</TABLE>
F-18
<PAGE> 105
Options outstanding and exercisable at June 30, 1997 and related weighted
average exercise price and life information follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Fiscal Year ---------------------- ----------------------- Remaining
Grant Date Shares Price Shares Price Life (Years)
----------- ------ ----- ------ ----- ------------
<S> <C> <C> <C> <C> <C>
1994 420,002 $ 2.9 420,002 $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 since
July 1, 1995 consistent with the provisions of SFAS No. 123, the Company's net
income or loss and earnings or loss per share would have been reduced to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
Nine Months ended March 31, Years ended June 30,
---------------------------------- --------------------------------
1998 1997 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss), as reported $ 1,651,557 $ (92,551) $ 875,994 $ 534,726
Net income (loss), pro forma 710,470 (186,889) 832,418 101,098
Earnings (loss) per share, as reported 0.28 (0.02) 0.16 0.10
Earnings (loss) per share, pro forma 0.12 (0.03) 0.15 0.02
</TABLE>
The pro forma effect on net income or loss 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>
<S> <C>
Expected life (years) 3
Interest rate 7.00%
Volatility:
March 31, 1998 71.2%
June 30, 1997 61.9%
Dividend yield 0%
</TABLE>
During fiscal 1998, the Company granted a total of 1,176,000 non-compensatory
options to thirteen financial planners who also serve the Company in various
employment capacities. Six of these thirteen individuals receiving a total of
362,000 options earn much of their total compensation directly from Royal for
security transactions.
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
F-19
<PAGE> 106
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.
During the nine months ended March 31, 1998, the Company acquired 60,700 shares
of its common stock for an aggregate cost of $179,123 and reissued 6,818 of
these shares to employees and consultants. The reissuance gave rise to the
recognition of compensation expense in the amount of $61,831 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 $154,964 and $223,168 at March 31, 1998 and
June 30, 1997, respectively, bear interest at a rate of 9% per annum. For the
nine-month periods ended March 31, 1998 and 1997 and the years ended June 30,
1997 and 1996, the Company recognized interest income of $7,643, $23,725,
$27,108 and $35,879, respectively. At March 31, 1998 and June 30, 1997 accrued
interest receivable were $20,049 and $23,518, respectively.
The Company is holding in escrow all of the shares of its common stock related
to the stock subscription receivable. The shares will be released when the stock
subscription receivables are collected.
The following is a schedule by year of principal payments to be received:
<TABLE>
<CAPTION>
Year ending June 30:
<S> <C>
1998 $ 90,013
1999 64,387
2000 45,250
--------------
$ 199,650
==============
</TABLE>
F-20
<PAGE> 107
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"), an Investment Partnership. All investment
transactions are executed through JT. At March 31, 1998, June 30, 1997 and 1996,
the Company had approximately 41%, 41% and 35%, respectively, interest in the
Partnership. The Company recognized income (loss) of approximately $(15,000),
$27,000, $73,000 and $198,000 from the Partnership for the nine-month periods
ended March 31, 1998 and 1997 and for the years ended June 30, 1997 and 1996,
respectively. Such partnership began liquidating its investments and
distributing its assets to its partners in the Company's 1997 fiscal year, and
is in the process of liquidating its remaining investments.
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. For the
nine-month periods ended March 31, 1998 and 1997, the individuals earned
commissions of approximately $312,000 and $348,000 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 planning
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-21
<PAGE> 108
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 $ 12,464,204 $ 2,188,320 $ - $ 24,574,571
Intersegment revenues - - 2,275,000 (2,275,000) -
------------- ------------- ------------- ------------- ---------------
Total revenues 9,921,967 12,464,284 4,463,320 (2,275,000) 24,574,571
Direct costs 6,025,407 9,729,797 4,162,670 (2,275,000) 17,642,874
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 7,844,812 618,490 - 11,801,818
------------- ------------- ------------- ------------- ----------
Total direct costs $ 6,025,407 $ 9,729,797 $ 4,162,670 $ (2,275,000) $ 17,642,874
============= ============= ============= ============= =============
</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 $ 10,683,765 $ 2,689,786 $ - $ 21,521,537
Intersegment revenues - - 2,000,000 (2,000,000) -
------------- ------------- ------------- ------------- -------------
Total revenues 8,147,986 10,683,765 4,689,786 (2,000,000) 21,521,537
Direct costs 4,260,631 8,064,597 4,429,177 (2,000,000) 14,754,405
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 6,438,284 625,773 - 8,984,384
------------- ------------- ------------- ------------- -------------
Total direct costs $ 4,260,631 $ 8,064,597 $ 4,429,177 $ (2,000,000) $ 14,754,405
============= ============= ============= ============= =============
</TABLE>
Intersegment sales are recognized upon the completion of the services associated
with direct mail services.
F-22
<PAGE> 109
12. TAXES ON INCOME
Provisions for income taxes in the consolidated financial statements consist of
the following:
<TABLE>
<CAPTION>
June 30, June 30,
1997 1996
<S> <C> <C>
Current:
Federal $ 211,903 $ 362,297
State and local 76,011 123,935
----------- ----------
Total current 287,914 486,232
----------- ----------
Deferred:
Federal 82,025 (103,483)
State and local 23,661 (30,102)
----------- ----------
Total deferred tax (benefit) 105,686 (133,585)
----------- ----------
$ 393,600 $ 352,647
=========== ==========
</TABLE>
Deferred tax assets as of June 30, 1997 consist of the following:
<TABLE>
<S> <C>
Compensation expense recognized for financial reporting purposes in
connection with common stock option grants issued at below
market value $ 93,200
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-23
<PAGE> 110
No dealer, salesman or other person has been authorized to give any information
or to make any representation other than those contained in this Prospectus. If
given or made, such other information or representation must not be relied upon
as having been authorized by the Company or the Underwriter. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof. This Prospectus does not
constitute an offer or solicitation by anyone in any jurisdiction in which such
offer or solicitation may not lawfully be made.
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 Relationships and
Related Transactions ......................................................
Plan of Distribution ......................................................
Selling Securityholders ...................................................
Description of Securities .................................................
Legal Matters .............................................................
Experts ...................................................................
Additional information ....................................................
Dealers and selling securityholders must deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions and
the Company must deliver a prospectus with respect to all sales of the of the
registered securities issued by the Company.
507,926 Shares of Common Stock
($.01 par value)
233,421 Shares of Common Stock
by Selling Security Holders
50,783 Redeemable Public
Warrants by Selling Security
Holders
PROSPECTUS
GILMAN & CIOCIA, INC.
475 Northern Boulevard
Great Neck, NY 11021
September , 1998
75
<PAGE> 111
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
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by this Corporation as authorized in this section. 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.................. $ 1,511
NASDAQ Stock Market listing fees......................... -0-
Transfer/Warrant Agent's Fee and Expenses................ 1,000
Accounting Fees and Expenses............................. 240,000
Blue Sky Fees and Expenses............................... 5,000
Printing Expenses ....................................... 10,000
First Colonial Securities Group, Inc..................... 40,000
Legal Fees............................................... 50,000
Miscellaneous............................................ 2,489
TOTAL............................ $350,000
========
</TABLE>
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ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In May 1995, the Company issued 203,428 restricted shares of Common
Stock in connection with the Company's acquisition of Gilbert Financial
Services, Inc. and granted options to purchase 400,000 restricted 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 Class A Bridge Loan
Warrants, and upon exercise thereof, the Company issued 360,000 restricted
shares of Common Stock for an aggregate purchase price of $748,800.
In June 1995, the Company issued 64,286 restricted shares of Common
Stock at $3.50 per share to Edward Haas pursuant to an asset purchase agreement
in partial consideration for the acquisition of assets used in the direct mail
advertising business.
In August 1995, the Company sold 47,401 restricted shares of Common
Stock to the following employees and financial planners who had commission
sharing agreements with the Company at the following prices for an aggregate
purchase price of approximately $232,000: Ed Dooney - 7,987 shares of common
stock at $3.13 per share for cash and note receivable for the specific financing
of Ed Dooney's opening of a new office in Connecticut; Lee Povinelli - 7,987
shares of common stock at $3.13 per share for cash and a note receivable for the
specific financing of Lee Povinelli's opening of a new office in Connecticut;
Zoe Papathomas - 2,857 shares of common stock at $3.50 per share; Abraham
Dorfman - 2,857 shares of common stock at $3.50 per share; John Osorio - 17,143
shares at $3.50 per share for cash and a note payable for the specific funding
of John Osorio's opening a new office in new York; Alex Morrow - 4,286 shares at
$3.50 per share for printing services rendered; Herb Herzog - 2,571 shares of
common stock at $3.50 per share for phone equipment and services rendered; and
Bob Kelley - 1,714 shares of common stock at $3.50 per share.
During the same period, the Company also issued 10,100 restricted
shares of Common Stock to the following employees and others as performance
bonuses: Scott Fisher - 2,000; Lenny Schrift - 200 shares; Patricia White - 200
shares; Jill Hoenings - 300 shares; Sandy Valle - 200 shares; Georget Czajkowski
- - 200 shares; Rosalie Maiorano - 200 shares; Vinka Pelaic - 200 shares; Abraham
Dorfman -1,000 shares; John Brower - 200 shares; Serafino Maiorano - 200 shares;
Joseph Araneo - 200 shares; Dominick Ciocia - 300 shares; Richard Fusari - 300
shares; Neil Hasset, Jr. - 300 shares; John Osorio - 200 shares; Lee Povinelli -
200 shares; Lorraine
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Buscareno-Smith - 200 shares; Gerald Hoenings - 200 shares; John Lentini - 200
shares; Mario Romilio - 1,000 shares; Deborah O'Connell - 1,000 shares; Robby
Gilman - 200 shares and Jennifer Gilman - 200 shares.
In August 1995, the Company sold 11,380 restricted shares of Common
Stock to Ralph Esposito, a former officer of the Company and 11,379 restricted
shares of Common Stock to Kathryn Travis, an officer, (which shares had been
returned to the Company as a result of a default in the payment of a
subscription receivable) at $3.07 per share.
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, New York, Mamaroneck, New
York and Scarsdale, New York 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 restricted
shares of Common Stock upon exercise of a stock option to Abraham Dorfman, a
financial planner affiliated with the Company, for an aggregate purchase price
of $40,650 pursuant to a previous contract between such individual and the
Company.
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 Jacoes 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 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.
In November 1995, the Company issued 3,688 restricted shares of
Common Stock to Kerry O'Keefe as a performance bonus.
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.
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<PAGE> 115
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 management
agreements as signing bonuses between such individuals and the Company.
In April 1996, the Company issued a total of 3,400 restricted shares
of Common Stock to an employee, Alex Morrow, for services rendered.
In October 1996, the Company sold a total of 10,000 restricted
shares of Common Stock upon exercise of a stock option to Abraham Dorfman, an
affiliated financial planner, for an aggregate purchase price of $23,200
pursuant to a previous contract between such individual and the Company.
In March 1997, the Company granted options to purchase restricted
shares of Common Stock at $2.75 per share to employees and officers as follows:
Serafino Maiorano 75,000; Dominick Ciocia 32,000; Gerald Hoenings 16,000; John
Brower 50,000; Lee Povinelli 40,000; James Ciocia 10,000; Thomas Povinelli
10,000; Gary Besmer 10,000; and Kathryn Travis 10,000.
In June 1997, the Company granted options to purchase 10,000
restricted shares of Common Stock at $2.50 per share to each of Lewis Pasquin
and George Dagher.
In October 1997, the Company sold a total of 10,000 restricted
shares of Common Stock upon exercise of a stock option to Abraham Dorfman, an
affiliated financial planner, for an aggregate purchase price of $18,100
pursuant to a previous contract between such individual and the Company.
In November 1997, the Company granted options to purchase a total of
623,000 restricted shares of Common Stock to the following affiliated financial
planners and employees in the following amounts: Steven Gilbert 100,000 shares
of Common Stock at $4.75 per share; Gerald Hoenings 21,000 shares of Common
Stock at $5.00; Serafino Maiorano 85,000 shares of Common Stock at $5.00 per
share; Dominick Ciocia 45,000 shares of Common Stock at $5.00 per share; John
Brower 75,000 shares of Common Stock at $5.00 per share; Greg Ferone 100,000
shares of Common Stock at $6.00 per share; Dominick Riolo 100,000 shares of
Common Stock at $6.00 per share; Walter Shair 15,000 shares of Common Stock at
$6.00 per share; George
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<PAGE> 116
Dagher 15,000 shares of Common Stock at $6.00 per share; Lewis Pasquin 5,000
shares of Common Stock at $6.00 per share; and Abraham Dorfman 12,000 shares of
Common Stock at $6.00 per share; and to the following independent contractor in
the following amount: Marc Cohen 50,000 shares of Common Stock at $5.00 per
share.
In December 1997, the Company granted options to purchase a total of
245,000 restricted shares of Common Stock to the following affiliated financial
planners and employees in the following amounts: Gerald Hoenings 21,000 shares
of Common Stock at $7.00 per share; Serafino Maiorano 105,000 shares of Common
Stock at $7.00 per share; Dominick Ciocia 44,000 shares of Common Stock at $7.00
per share; and John Brower 75,000 shares of Common Stock at $7.00 per share.
Also in December 1997, the Company issued 10,923 restricted shares
of Common Stock as performance bonuses to the following employees and affiliated
financial planners in the following amounts: Georget Czajkowski 400 shares;
Lenny Schrift 50 shares; Carol Dessuit 50 shares; Charles Bennett 50 shares;
Catherine Roma 100 shares; Linda Badzim 50 shares; Erin Kiley 50 shares; Cathy
Cunha 50 shares; Nicolina Montesano 50 shares; Marsha Dockery 50 shares; Richard
Trent 200 shares; Alex Weissman 100 shares; Dominick Ciocia 100 shares; Daniel
McCarthy 100 shares; Kelly Cortis 100 shares; Kenneth Spielman 100 shares;
Walter Shair 100 shares; Paul Weinberger 1,818 shares; Christopher Kirby 300
shares; Dave Critelli 3,800 shares; Florence Barrest 25 shares; Theresa
Camilleri 50 shares; Susan Garcia 100 shares; Charlene Ladig 25 shares; Ethel
Maleski 25 shares; Cheryl Marengi 50 shares; Jane Shattuck 25 shares; Jeffrey
Vest 25 shares; Kim Young 50 shares; Diana Furman 40 shares; Nicole Summers 100
shares; Patricia Brown 40 shares; Julie Grammatica 50 shares; Scott Fisher 250
shares; Thomas Mallis 50 shares; Sandy Valle 400 shares; Karen Sheppard 50
shares; Thomas Etheridge 100 shares; Robert Hayes 200 shares; Sean O'Keefe 100
shares; Angelo Perna 50 shares; Aaron Seenarine 100 shares; Sandra Solarchik 50
shares; Lance Howard 50 shares; Annemarie Mallin 50 shares; Christine Christofor
100 shares; Sau-Miu Chan 50 shares; Mary Ann Ciaccia 100 shares; Louise Avery 50
shares; Marjorie Kane 50 shares; David Bazemore 250 shares; Richard Locurto 200
shares; Hector Ramos 200 shares; Maurice Smith 200 shares; and Lorraine
Buscareno-Smith 50 shares.
In January 1998, the Company granted options to purchase a total of
345,000 restricted shares of Common Stock to the following affiliated financial
planners and employees in the following amounts: Jeff Altman 37,500 shares of
Common Stock at $7.50 per share; Jeff Altman 18,750 shares of Common Stock at
$9.50 per share; Jeff Altman 18,750 shares of Common Stock at $11.50 per share;
Vernon Lemmon 12,500 shares of Common Stock at $7.50 per share; Vernon Lemmon
6,250 shares of Common Stock at $9.50 per share; Vernon Lemmon 6,250 shares of
Common Stock at $11.50 per share; Steve Hand 125,000 shares of Common Stock at
$10.00 per share and Steve Sacher 20,000 shares of Common Stock at $7.00 per
share, 20,000 shares of Common Stock at $7.50 per share, 20,000 shares of Common
Stock at $8.00 per share, 20,000 shares of Common Stock at
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<PAGE> 117
$8.50 per share, 20,000 shares of Common Stock at $9.00 per share, and 20,000
shares of Common Stock at $9.50 per share.
In April 1998, the Company granted options to purchase a total of
795,000 restricted shares of Common Stock to the following affiliated financial
planners and employees in the following amounts: Tim Bodner 60,000 shares of
Common Stock at $13.75 per share; Dave Burgio 100,000 shares of Common Stock at
$13.75 per share; Daniel McCarthy 20,000 shares of Common Stock at $13.75 per
share; Abe Dorfman 25,000 shares of Common Stock at $13.75 per share; Neil
Hasset 45,000 shares of Common Stock at $13.75 per share; Al Shepis 175,000
shares of Common Stock at $13.75 per share; Howard Wilken 175,000 shares of
Common Stock at $13.75 per share; Steve Gilbert 75,000 shares of Common Stock at
$13.75 per share; and Steve Sacher 100,000 shares of Common Stock at $20.00 per
share.
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 sale 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 Right 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
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<PAGE> 118
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
5.2 Opinion of Akabas & Cohen
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
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<PAGE> 119
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
10.10 Omitted.
10.11 Omitted.
10.12 Documents involved in the repurchase of shares
and settlement with Bernard McGee and Jay Cruice,
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
10.13 Omitted.
10.14 Omitted.
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,
incorporated by reference to exhibit 99.2 to the
Company's Current Report on Form 8-K, dated
February 10, 1995
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<PAGE> 120
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,
incorporated by reference to the like number
exhibit in the Company's Registration Statement
on Form SB-2 under the Securities Act of 1933, as
amended, File No. 33-80627
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, incorporated by reference to the like
numbered exhibit in the Company's Registration
Statement on Form SB-2 under the Securities Act
of 1933, as amended, File No. 33-80627
10.24 Omitted.
10.25 Omitted.
10.26 Agreements dated November , 1995 among Rummco,
Ltd., five executive officers Registrant, and
Registrant in connection with the sale of stock
options, incorporated by reference to the like
numbered exhibit in the Company's Registration
Statement on Form SB-2 under the Securities Act
of 1933, as amended, File No. 33-80627
10.27 Omitted.
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<PAGE> 121
10.28 Employment Agreement dated April 10, 1995 between
Dominick Riolo and Registrant in connection with
the opening of a new office, incorporated by
reference to the like numbered exhibit in the
Company's Registration Statement on Form SB-2
under the Securities Act of 1933, as amended,
File No. 33-80627
10.29 Employment Agreement dated April 10, 1995 between
Gregory Ferone and Registrant in connection with
the opening of a new office, incorporated by
reference to the like numbered exhibit in the
Company's Registration Statement on Form SB-2
under the Securities Act of 1933, as amended,
File No. 33-80627
10.30 Employment Agreement dated April 10, 1995 between
Armando Olivieri and Registrant in connection
with the opening of a new office, incorporated by
reference to the like numbered exhibit in the
Company's Registration Statement on Form SB-2
under the Securities Act of 1933, as amended,
File No. 33-80627
10.31 Independent Employment Contract dated December
1993 between Abraham Dorfman and Registrant,
incorporated by reference to the like numbered
exhibit in the Company's Registration Statement
on Form SB-2 under the Securities Act of 1933, as
amended, File No. 33-80627
10.32 Form of Subscription Letter representing stock
issuances to individuals, incorporated by
reference to the like numbered exhibit in the
Company's Registration Statement on Form SB-2
under the Securities Act of 1933, as amended,
File No. 33-80627
10.33 Independent Contractor's Agreement dated
September 6, 1995 between Howard Wilkin and the
Registrant, incorporated by reference to the like
numbered exhibit in the Company's Registration
Statement on Form SB-2 under the Securities Act
of 1933, as amended, File No. 33-80627
10.34 Independent Contractor's Agreement dated
September 6, 1995 between Alfred Schepis and the
Registrant, incorporated by reference to the like
numbered exhibit in the Company's Registration
Statement on Form SB-2 under the Securities Act
of 1933, as amended, File No. 33-80627
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<PAGE> 122
10.35 Independent Contractor's Agreement dated
September 6, 1995 between Armando Olivieri and
the Registrant, incorporated by reference to the
like numbered exhibit in the Company's
Registration Statement on Form SB-2 under the
Securities Act of 1933, as amended, File No.
33-80627
10.36 Letter of Agreement between dated October 31,
1997 by and between First Colonial Securities
Group Inc. and the Registrant
11.01 Calculation of Net Income Per Share, incorporated
by reference to the like numbered exhibit in the
Company's Registration Statement on Form SB-2
under the Securities Act of 1933, as amended,
File No. 33-80627
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 Arthur Andersen, LLP
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:
(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;
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<PAGE> 123
(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
person 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.
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<PAGE> 124
SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
as amended, 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
Post-Effective Amendment No. 4 to the Registration Statement to be signed on its
behalf by the undersigned, in the City of Great Neck, State of New York, on
September 23, 1998.
GILMAN & CIOCIA, INC.
By /s/ James Ciocia
--------------------------------
James Ciocia,President and Chief
Executive Officer
In accordance with the requirements of the Securities Act of 1933,
as amended, this post-effective amendment to the registration statement was
signed by the following persons in the capacities and on the dates stated.
/s/James Ciocia Director September 23, 1998
- ---------------------
James Ciocia
/s/ Thomas Povinelli Chief Operating September 23, 1998
- --------------------- Officer,
Thomas Povinelli and Director
/s/ Stephen Sacher Chief Financial September 23, 1998
- --------------------- Officer
Stephen Sacher
/s/ Kathryn Travis Vice President, September 23, 1998
- --------------------- Secretary and Director
Kathryn Travis
/s/ Robert Hayes Controller September 23, 1998
- ---------------------
Robert Hayes
/s/ Louis Karol Director September 23, 1998
- ---------------------
Louis Karol
/s/ Seth Akabas Director September 23, 1998
- ---------------------
Seth Akabas
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<PAGE> 125
INDEX
Exhibit Description Page
5.2 Opinion of Akabas & Cohen
23.1+ Consent of Akabas & Cohen (included as part of
Exhibit 5.2)
23.2 Consent of Arthur Andersen, LLP
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<PAGE> 1
Exhibit 5.2
September 23, 1998
Gilman & Ciocia, Inc.
475 Northern Boulevard
Great Neck, NY 11021
Re: Gilman & Ciocia, Inc.
Ladies and Gentlemen:
You have requested our opinion as to whether certain financial planners
affiliated by agreement with Gilman & Ciocia, Inc., a Delaware corporation (the
"Company"), are properly classified as common law employees.
In that capacity, we have reviewed the statements by officers of the
Company, and such other documents as we believe appropriate for rendering the
opinions set forth herein. In our examination of such documents, and in
rendering our opinion herein, we have assumed without investigation (i) the
truth and completeness of certificates of government officials delivered to us,
(ii) the accuracy of the factual statements and representations set forth in any
such documents and the statements of officers of the Company, (iii) the
conformity with the originals of all documents submitted to us as photocopies,
and (iv) the authenticity of all agreements and other documents and certificates
examined by us. In making our examination of agreements, and in rendering any
opinion herein, we have also assumed that such parties thereto, had the
corporate or other power and authority to enter into and perform all obligations
thereunder, and that such documents, and the execution and delivery of such
documents, were duly authorized by all requisite corporate or other action, and
that they are the valid and binding agreements of such parties.
In particular, the Company has represented to us as follows:
1. A certain 13 financial planners affiliated with the Company (the
"Financial Planners") work under the
<PAGE> 2
direction of employees and officers of the Company and work exclusively on
Company matters and exclusively on the Company's clients and/or offices.
2. The Financial Planners conduct their work activities on premises
owned or leased by the Company. The Company provides, free of charge, office
space and clerical support for the use and benefit of the Financial Planners in
their work as employees.
3. The duration of the relationship between the Company and the
Financial Planners extends, in most cases, to a period of several years, and the
Company has granted stock options to many of the Financial Planners with two or
three year vesting periods to induce long-term relationships.
4. The Company maintains regular office hours during which the
Financial Planners are generally required to work.
5. The Company generally hires, pays and fires all assistants to the
Financial Planners in their work as employees.
6. The nature of the work of the financial planners is part of the
regular business operations of the Company.
Classification of the Company's financial planners
The Supreme Court has held that where a statute containing the term
"employee" does not helpfully define it, a common law agency test should be
applied to determine whether an individual is a common law employee. Nationwide
Mut. Ins. Co. v. Darden, 503 U.S. 318 (1992). Under this test, all incidents of
the employment relationship must be assessed and weighed, with no one factor
being decisive, to determine whether an individual is an employee or an
independent contractor. In particular, the Supreme Court has listed 13 separate
factors to consider.
An analysis of these factors with the facts and circumstances of the
Financial Planners, particularly the fact that the Financial Planners work
exclusively on Company matters, on Company premises, on an on-going and
continuing full-time basis constitutes the Financial Planners as common law
employees.
Conclusion
While the lack of case law directly on point does not permit the issue
to be free from doubt, based upon and subject to the matters set forth herein,
we are of the opinion that it is highly probable that, with the argument
<PAGE> 3
properly made, a court of competent jurisdiction would categorize the financial
planners of the Company as common law employees of the Company.
Our opinion is specifically limited to the questions addressed herein,
and to the facts and representations noted in this letter. Any changes in the
facts or the accuracy of the representations upon which we have relied could
result in consequences adverse to the Company.
A statement herein that an assertion is "to the best of our knowledge"
or involves a matter "known to us" or "of which we are aware" or similar import
means that such statement is based solely on the actual knowledge of the
attorneys in our office, and except as otherwise specifically set forth above,
no independent inquiry, investigation or confirmation has been conducted in
connection therewith. We assume no obligation to update or supplement this
opinion to reflect any events or state of facts that may hereafter come to our
attention, or any changes in laws or court decisions that may hereafter occur.
We are qualified to practice law in the State of New York and we
express no opinion with regard to any law other than the law of the State of New
York and the federal laws of the United States.
This opinion is solely for your information and is not to be quoted in
whole or in part, summarized or otherwise referred to without prior written
consent, provided that it may be filed as an exhibit to the Company's
registration statement on Form SB-2. Our firm is the beneficial owner of 8,081
shares, and a Seth A. Akabas, a partner of our firm, is the owner of 995 shares
of Common Stock of the Company, par value $.01 per share.
Very truly yours,
-----------------------------
AKABAS & COHEN
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
included in or made a part of this registration statement, on Post-Effective
Amendment No. 4 to Form SB-2 registering 507,926 shares of Common Stock, 233,421
shares of Common Stock by Selling Security Holders, and 50,783 Redeemable Public
Warrants by Selling Security Holders, and to all references to our Firm included
in this registration statement.
ARTHUR ANDERSEN LLP
New York, New York
September 23, 1998
