<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
/X/ EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED 09/30/98
TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
/ / ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM ________ TO ________
Commission file number 000-22996
GILMAN & CIOCIA, INC.
(Name of small business issuer in its charter)
Delaware 11-2587324
(State of jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
475 Northern Boulevard, Great Neck, NY 11021
(Address of principal executive offices) (Zip Code)
(516) 482-4860
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months ( or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for past 90 days.
Yes /X/ No / /
State the number of shares outstanding of each class of the issuer's
classes of common equity, as of the latest practicable date. As of November 13,
1998, 6,382,812 shares of the issuer's common equity were outstanding.
<PAGE> 2
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.
Page
Consolidated Balance Sheets as of September 30, 1998 F-1 - F-2
Consolidated Statements of Operations for the three-months
Ended September 30, 1998 and 1997 F-3
Consolidated Statements of Stockholders' Equity for the three months
Ended September 30, 1998 F-4
Consolidated Statements of Cash Flows for the three months ended
September 30, 1998 and 1997 F-5 - F-6
Notes to Consolidated Financial Statements F-7 - F-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
PLAN OF OPERATION
Over the past three fiscal years, the Company opened 62 new offices,
which represents 47% of all offices at September 30, 1998. During the quarter
ended September 30, 1998, the Company purchased four new tax practices, two of
which are located in Florida and two are located in New York. The Company plans
to continue its tax practice expansion and recruit successful financial planners
. In addition, the Company anticipates that it may acquire existing securities
broker/dealers to increase the number of financial planners who provide
financial planning services to clients of the Company. The Company anticipates
funding this growth from the proceeds of future offerings of equity securities,
if any, the proceeds received in October 1998 pursuant to the exercise of the
Company's public and underwriter warrants, operating profits and use of its
short-term line of credit.
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 by taking 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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 COMPARED.
2
<PAGE> 3
The Company's revenues for the three months ended September 30, 1998
were $5,764,434 as compared to revenues of $3,996,094 for the comparable period
of the prior year. This increase was attributable primarily to increased
commissions from increased sales of financial planning services and additional
affiliated financial planners.
The Company's total revenues for the quarter ended September 30, 1998
consist of $241,191 for tax preparation services, $5,179,966 for financial
planning services, and $343,277 for direct mail services. The Company's total
revenues for its quarter ended September 30, 1997 consist of $279,944 for tax
preparation services, $3,356,306 for financial planning services and $359,844
for direct mail services.
The consolidated statement of operations for the three months ended
September 30, 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
quarter ended September 30, 1998 compared to the prior year's first quarter was
approximately 54% . The increase in such financial planning revenues is
attributable to the continued growth of the existing offices and the increase of
production from new financial planners. The remaining growth in financial
planning revenues is a result of increased securities and insurance transactions
attributable to existing financial planners.
The Company's operating expenses for the quarter ended September 30,
1998 were $6,004,295 as compared to operating expenses of $4,169,778 for the
comparable period of the prior year. The increase in operating expenses was
attributable to an increase in salaries and commissions in the amount of
$1,354,996, an increase in general and administrative expenses of $205,471, an
increase in direct mail costs of $13,960, an increase in advertising expenses of
$230,044, and an increase in depreciation and amortization of $59,037. These
increases in operating expenses were offset by a decrease in rent expenses of
$28,991.
The increase in operating expenses was primarily attributable to the
costs associated with an increase of financial planning services (including the
number of financial planners and the overall financial planning revenues).
The increase in salaries and commissions is primarily due to an
increase in commissions payable to financial planners as a result of the
increased sales of financial planning services and the addition of financial
planners.
The increase in general and administrative expenses is due primarily to
the Company's expansion of operations from the opening of seven new offices in
January 1998. This resulted in an increase in office expenses for the quarter
ended September 30, 1998.
Advertising costs increased due to expenses associated with the mailing
costs relating to newsletters and financial planning seminars.
3
<PAGE> 4
The increase in depreciation and amortization expense is due primarily
to the depreciation of new computer equipment and the amortization of additional
intangible assets.
The Company's net loss for the three months ended September 30, 1998
was $122,467 as compared to $112,640 for the three months ended September 30,
1997. The increase of approximately 9% is primarily due to the operating results
of the direct mail division.
The Company's business is highly seasonal, with the majority of its revenue
earned in the first four months of the calendar year. The Company does not
consider inflation to be a risk to the cost of doing business in the current or
foreseeable future.
LIQUIDITY AND CAPITAL RESOURCES
The Company's revenues have been, and are expected to be, highly
seasonal. As a result, the Company must generate sufficient cash during the tax
season, in addition to its available bank credit facility to fund its
operations. Operations during the non-tax season are primarily focused on
financial planning services.
The Company's cash flows used in operating activities was $852,761 and
$281,843 for the three months ended September 30, 1998 and 1997, respectively.
The increase of $570,918 is due primarily to an increase in payments due to
former owners of acquired businesses.
Net cash (used in) provided by investing activities was ($263,681) and
$59,812 for the three months ended September 30, 1998 and 1997, respectively.
The increase of $323,493 is primarily due to an increase in purchases of
businesses of $129,045 and an increase in net loans to related parties of
$276,447. These increases were offset by a decrease in the purchase of
investments and securities of $61,242 and an increase in deferred acquisition
costs of $15,000.
Net cash used in financing activities was $0 and $174,143 for the
three months ended September 30, 1998 and 1997, respectively. The decrease in
net cash used in financing activities of $174,143 is primarily due to a decrease
in the payments of bank and other loans of $101,487 and a decrease in the
acquisition of treasury stock of $151,395. These decreases in net cash used in
financing activities were offset by a decrease in proceeds from stock
subscriptions of $30,614 and a decrease in deferred registration costs of
$30,000.
The Company has a credit facility with a bank. The facility is a line
of credit for up to $2,500,000 which expires on December 30, 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 September 30, 1998,
the Company had no outstanding principal balance on this line of credit.
The Company believes that it could continue to operate without any
additional financing (other than its seasonal bank loans) during the next 12
months. The Company anticipates that it will not pay dividends on its Common
Stock in the foreseeable future, but will apply any profits to fund the
Company's expansion.
4
<PAGE> 5
During October and November 1998, the Company's public and underwriter
warrants and the exercise of stock options for 65,000 shares were exercised
resulting in gross proceeds of approximately $3,115,000.
YEAR 2000 COMPLIANCE
The Company has finalized the installation of the Great Plains
accounting system, which is 2000 compliant. The Company does not anticipate any
material additional costs with regard to its year 2000 compliance. The year 2000
issue is not 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
5
<PAGE> 6
Company's systems to be year 2000 compliant would not have a material adverse
effect on the Company.
PART II
ITEM 1. LEGAL PROCEEDINGS
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 $5.13 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 is
defending 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.
In August 1998, a legal action was instituted against the Company pertaining to
a wrongful death matter allegedly sustained in a Company automobile more than
nine years ago. The complaint seeks indemnification in the amount of up to $3.5
million. The allegations in the complaint are based upon a $1.7 million payment
made by the plaintiffs plus an additional $1.8 million payment for which
plaintiffs ultimately may be held liable. An additional action is currently
pending to determine the liability allocation. The Company answered the
complaint by asserting numerous defenses which it believes are meritorious. The
case is currently entering the discovery phase, and, therefore, the Company is
unable to determine at this time the ultimate success of any asserted allegation
or defense.
ITEM 6. EXHIBITS; LISTS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Registrant's Articles of Incorporation, as amended,
incorporated by reference to the like-numbered exhibit in the
Registrant's Registration Statement on Form SB-2 under the
Securities Act of 1933, as amended, File No. 33-70640-NY
3.2 Registrant's by-laws, incorporated by reference to the
like-numbered exhibit in the Registrant's Registration
Statement on Form SB-2 under the Securities Act of 1933, as
amended, File No. 33-70640-NY
6
<PAGE> 7
27 Gilman & Ciocia, Inc. - Financial Data Schedule, Dated
September 30, 1998.
(b) Reports on Form 8-K
The Company filed current reports on Form 8-K dated August 31, 1998 and
September 23, 1998 in connection with extensions to the expiration of
the Company's redeemable public warrants.
7
<PAGE> 8
SIGNATURE
In accordance with Section 13 or 15 (d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: November 16, 1998
GILMAN & CIOCIA, INC.
By/s/Thomas Povinelli
- - --------------------
Thomas Povinelli
Chief Operating Officer
By/s/Stephen B. Sacher
- - ------------------
Stephen B. Sacher
Chief Financial Officer
8
<PAGE> 9
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
UNAUDITED
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
----------
<S> <C>
CURRENT ASSETS:
CASH $ 589,389
MARKETABLE SECURITIES 115,828
ACCOUNTS RECEIVABLE, NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS
OF $87,500 2,333,800
RECEIVABLE FROM RELATED PARTIES, CURRENT PORTION 494,339
PREPAID EXPENSES AND OTHER CURRENT ASSETS, NET OF ALLOWANCE FOR
DOUBTFUL ACCOUNTS OF $100,000 1,623,562
DEFERRED TAX ASSETS, CURRENT PORTION 85,000
----------
TOTAL CURRENT ASSETS 5,241,918
----------
PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION OF $1,955,336 1,858,077
----------
OTHER ASSETS:
INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION OF $917,343 1,638,628
RECEIVABLES FROM RELATED PARTIES, NET OF CURRENT
PORTION 769,722
DEFERRED TAX ASSETS 66,899
OTHER ASSETS 419,565
----------
TOTAL OTHER ASSETS 2,894,814
----------
TOTAL ASSETS $9,994,809
==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
<PAGE> 10
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
UNAUDITED
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
-----------
<S> <C>
CURRENT LIABILITIES:
SHORT-TERM BORROWINGS $ 50,000
DUE TO FORMER OWNER'S OF ACQUIRED BUSINESSES 558,105
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 489,389
-----------
TOTAL CURRENT LIABILITIES 1,097,494
-----------
COMMITMENTS AND CONTINGENCIES
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 56,069
PAID-IN-CAPITAL 6,377,334
RETAINED EARNINGS 3,482,247
-----------
9,915,650
LESS- TREASURY STOCK, AT COST: 211,315 SHARES (784,782)
STOCK SUBSCRIPTIONS AND ACCRUED INTEREST RECEIVABLE (148,845)
ACCUMULATED COMPREHENSIVE INCOME:
UNREALIZED LOSS ON MARKETABLE SECURITIES, NET OF
TAXES (84,708)
-----------
TOTAL STOCKHOLDERS' EQUITY 8,897,315
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,994,809
===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-2
<PAGE> 11
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997.
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
(Restated)
<S> <C> <C>
REVENUES:
TAX PREPARATION FEES $ 241,191 $ 279,944
FINANCIAL PLANNING SERVICES 5,179,966 3,356,306
DIRECT MAIL SERVICES 343,277 359,844
----------- -----------
TOTAL REVENUES 5,764,434 3,996,094
----------- -----------
OPERATING EXPENSES:
SALARIES AND COMMISSIONS 3,957,151 2,602,155
GENERAL AND ADMINISTRATIVE EXPENSES 861,973 656,502
ADVERTISING 259,231 29,187
DIRECT MAIL COSTS 216,064 202,104
RENT 457,052 486,043
DEPRECIATION AND AMORTIZATION 252,824 193,787
----------- -----------
TOTAL OPERATING EXPENSES 6,004,295 4,169,778
----------- -----------
OPERATING (LOSS) (239,861) (173,684)
----------- -----------
OTHER INCOME (EXPENSE):
INTEREST AND INVESTMENT INCOME 25,043 27,316
INTEREST EXPENSE (1,139) (38,653)
OTHER INCOME 8,386 34,788
----------- -----------
TOTAL OTHER INCOME 32,290 23,451
----------- -----------
LOSS BEFORE INCOME TAXES (BENEFIT) (207,571) (150,233)
INCOME TAXES BENEFIT (85,104) (37,593)
----------- -----------
NET LOSS $ (122,467) $ (112,640)
=========== ===========
BASIC AND DILUTED NET LOSS PER SHARE $ (0.02) $ (0.02)
=========== ===========
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES:
BASIC AND DILUTED 5,395,598 5,374,241
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-3
<PAGE> 12
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
STOCK
SUBSCRIPTION
AND ACCRUED
COMMON STOCK PAID-IN RETAINED INTEREST
SHARES AMOUNT CAPITAL EARNINGS RECEIVABLE
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1998
BALANCE AT JULY 1, 1998 5,606,913 $ 56,069 $ 6,377,334 $ 3,604,714 $ (148,845)
COMPREHENSIVE INCOME:
UNREALIZED GAIN ON MARKETABLE
SECURITIES --
NET (LOSS) (122,467)
-----------
TOTAL COMPREHENSIVE INCOME (122,467)
-----------
BALANCE AT SEPTEMBER 30, 1998 5,606,91 $ 56,069 $ 6,377,334 $ 3,482,247 $ (148,845)
======== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED TOTAL STOCK-
OTHER TREASURY STOCK HOLDERS'
COMPREHENSIVE SHARES AMOUNT EQUITY
INCOME
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1998
BALANCE AT JULY 1, 1998 $ (86,903) 211,315 $ (784,782) $ 9,017,587
COMPREHENSIVE INCOME:
UNREALIZED GAIN ON MARKETABLE
SECURITIES 2,195 2,195
NET (LOSS) (122,467)
----------- -----------
TOTAL COMPREHENSIVE INCOME 2,195 (120,272)
----------- -----------
BALANCE AT SEPTEMBER 30, 1998 $ (84,708) 211,31 $ (784,782) $ 8,897,315
=========== ====== =========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-4
<PAGE> 13
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET (LOSS) $ (122,467) $ (112,640)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
(USED IN) OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 252,824 158,500
(INCOME) LOSS FROM INVESTMENT -- (20,913)
LOSS ON SALE OF MARKETABLE SECURITIES -- 16,213
UNREALIZED (GAIN) LOSS ON MARKETABLE SECURITIES 726 (1,157)
DEFERRED COMPENSATION EXPENSE 43,010 35,287
INTEREST ON STOCK SUBSCRIPTIONS -- (4,611)
PROCEEDS FROM SALE OF MARKETABLE SECURITIES -- 22,323
(INCREASE) DECREASE IN:
ACCOUNTS RECEIVABLE (82,689) (119,657)
ADVANCES TO FINANCIAL PLANNERS 1,266 54,662
SECURITY DEPOSITS (103,410) (2,367)
PREPAID EXPENSES AND OTHER CURRENT ASSETS (550,510) (60,891)
INCREASE (DECREASE) IN:
ACCOUNTS PAYABLE,ACCRUED EXPENSES, AND OTHER CURRENT LIABILITIES 363,894 (246,592)
PURCHASES OF BUSINESSES (655,405)
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (852,761) (281,843)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
CAPITAL EXPENDITURES (48,980) (54,737)
PURCHASES OF BUSINESSES (142,700) (13,655)
INVESTMENTS (1,200) (39,394)
PURCHASE OF MARKETABLE SECURITIES -- (23,048)
LOAN REPAYMENTS FROM RELATED PARTIES 6,399 190,646
DEFERRED ACQUISITION COSTS 15,000
LOANS TO RELATED PARTIES (92,200) --
----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (263,681) 59,812
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
ACQUISITION OF TREASURY STOCK -- (151,395)
PROCEEDS FROM SALE OF COMMON STOCK & EXERCISE OF STOCK OPTIONS -- 18,125
PAYMENTS OF BANK AND OTHER LOANS -- (101,487)
PROCEEDS FROM STOCK SUBSCRIPTIONS -- 30,614
DECREASE IN INCURRENCE OF DEFERRED REGISTRATION COSTS -- 30,000
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES 0 (174,143)
----------- -----------
NET DECREASE IN CASH (1,116,442) (396,174)
CASH AT BEGINNING OF PERIOD 1,705,831 2,920,489
----------- -----------
CASH AT END OF PERIOD $ 589,389 $ 2,524,315
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-5
<PAGE> 14
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
(UNAUDITED)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: 1998 1997
-------- -------
<S> <C> <C>
CASH PAYMENTS FOR THE PERIOD:
INTEREST $ -0- $34,012
-------- -------
INCOME TAXES $401,506 $58,830
-------- -------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-6
<PAGE> 15
GILMAN & CIOCIA, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
NOTE 1 - BASIS OF FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of Gilman & Ciocia,
Inc. and its wholly owned subsidiaries. All intercompany balances and
transactions have been eliminated.
The consolidated financial statements and the related notes thereto as of
September 30, 1998 and for the three months ended September 30, 1998 and 1997
are presented as unaudited, but in the opinion of management include all
adjustments necessary to present fairly the information set forth therein. These
adjustments consist solely normal recurring accruals. These interim financial
statements are not necessarily indicative of the results for any future periods.
This Form 10-QSB should be read in conjunction with the Company's Form 10-KSB
for June 30, 1998.
The Company's business is highly seasonal, with a majority of its revenue earned
in the first four months of the calendar year.
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that effect the reported amounts of assets and liabilities and the disclosures
of contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
In February 1997, FASB issued Statement No. 128, "Earnings Per Share," which is
effective for periods ending after December 15, 1997. The Company adopted
Statement No. 128 for the year ending June 30, 1998 and has restated its
weighted-average shares for all prior periods presented.
The consolidated statement of operations for the three months ended September
30, 1997 has been restated to reflect the total of the commission revenues
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.
NOTE 2 - CONTINGENCIES
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 $5.13 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 is
defending such suit vigorously.
F-7
<PAGE> 16
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.
In August 1998, a legal action was instituted against the Company pertaining to
a wrongful death matter allegedly sustained in a Company automobile more than
nine years ago. The complaint seeks indemnification in the amount of up to $3.5
million. The allegations in the complaint are based upon a $1.7 million payment
made by the plaintiffs plus an additional $1.8 million payment for which
plaintiffs ultimately may be held liable. An additional action is currently
pending to determine the liability allocation. The Company answered the
complaint by asserting numerous defenses which it believes are meritorious. The
case is currently entering the discovery phase, and, therefore, the Company is
unable to determine at this time the ultimate success of any asserted allegation
or defense.
NOTE 3 - SUBSEQUENT EVENTS
During October and November of 1998, the Company's public and underwriters
warrants and Stock options amounting to 65,000 shares were exercised resulting
in gross proceeds of approximately $3,115,000 and the issuance of 775,899
shares of the Company's common stock.
F-8
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 589,389
<SECURITIES> 115,828
<RECEIVABLES> 2,421,300
<ALLOWANCES> 87,500
<INVENTORY> 0
<CURRENT-ASSETS> 5,241,918
<PP&E> 3,813,413
<DEPRECIATION> 1,955,336
<TOTAL-ASSETS> 9,994,809
<CURRENT-LIABILITIES> 1,097,494
<BONDS> 0
0
0
<COMMON> 56,069
<OTHER-SE> 8,841,246
<TOTAL-LIABILITY-AND-EQUITY> 9,994,809
<SALES> 5,764,434
<TOTAL-REVENUES> 5,764,434
<CGS> 0
<TOTAL-COSTS> 6,004,295
<OTHER-EXPENSES> (33,429)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,139
<INCOME-PRETAX> (207,571)
<INCOME-TAX> (85,104)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (122,467)
<EPS-PRIMARY> (0.02)
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</TABLE>
