<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSBA
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES
X EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED 03/31/98
---
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 May 18, 1998,
5,606,913 shares of the issuer's common equity were outstanding.
<PAGE> 2
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.
Page
----
Consolidated Balance Sheets as of March 31, 1998 and
March 31, 1997 F-1-F-2
Consolidated Statements of Operations for the nine and three-months
ended March 31, 1998 and 1997 F-3
Consolidated Statements of Stockholders' Equity for the nine months
ended March 31, 1998 F-4
Consolidated Statements of Cash Flows for the nine months ended
March 31, 1998 and 1997 F-5 - F-6
Notes to Consolidated Financial Statements F-7 - F-11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Since January of 1996, the Company has opened 54 new offices which
represents 41% of all offices at March 31, 1998. The Company plans to continue
its expansion and open new offices (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.
The Company anticipates that opening new offices will increase its
revenues, but will involve a substantial increase in costs. The Company has no
basis to predict whether its new offices will have a material effect on its net
income. The Company believes that its new offices can ultimately be operated
profitably, but expansion may initially reduce the Company's profits or result
in an overall loss in future years.
During the Company's 1996 fiscal year, the Company commenced operations
of a direct mail division in order to control the substantial costs of
advertising its many offices. The Company's direct mail division operates as an
independent division and also solicits its own customers for its direct mail
services.
2
<PAGE> 3
RESULTS OF OPERATIONS
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 $18,342,782 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 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 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, 1997 have been restated to reflect the total of the commission revenue
received and the commissions paid by Royal Alliance directly to the financial
planners 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, 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.
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 approximately
$1,250,000 increase from insurance commissions for the nine months ended March
31, 1998 compared to the 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.
3
<PAGE> 4
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 and 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. These increases were offset
by a decrease of $241,369 for direct mail costs and a decrease in advertising
costs of $184,639.
The increase in operating expenses of $539,371 is due to an increase 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 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 prior period 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, management
fee 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.
4
<PAGE> 5
THREE MONTHS ENDED MARCH 31, 1998 AND 1997 COMPARED
The Company's revenues for the three months ended March 31, 1998 were
$13,098,387 as compared to revenues of $11,437,259 for the comparable period of
the prior year. The increase in revenues of 14.5% for the quarter ended March
31, 1998 as compared to the comparable period of the prior year resulted from an
increase in financial planning revenues of $1,608,504, an increase in revenues
from the tax preparation segment of $655,610 and a decrease in revenues from the
direct mail service division of $602,986. This reduction in direct mail revenues
was due to a large Company mailing during the third quarter of fiscal 1998, and
a similar mailing during the second quarter of fiscal 1997.
The Company's total revenues for the quarter ended March 31,1998
consisted of $8,274,768 for tax preparation services, $4,698,440 for financial
planning services and $125,179 for direct mail services. The Company's total
revenues for the quarter ended March 31, 1997 consisted of $7,619,158 for tax
preparation services, $3,089,936 for financial planning services and $728,165
for the direct mail services.
The consolidated statements of operations for the three months ended March
31, 1997 have been restated to reflect the total of the commission revenue
received and the commissions paid by Royal Alliance directly to the financial
planners as the Company's revenue from financial planning services. The increase
in commission revenue $2,165,338 and $1,624,001 for the three months ended March
31, 1998 and 1997, 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.
The increase in the Company's financial planning revenues for the quarter
ended March 31, 1998 compared to the three months ended March 31, 1997 was
$1,068,504. The increase in such financial planning revenues is partly
attributable to additional financial planners, which generated an increase in
insurance commissions from financial planning of approximately $485,000. The
remaining increase of approximately $584,000 resulted from additional
commissions earned from clients on investment transactions during the period.
Revenues from tax preparation increased by $655,610 for the three months ended
March 31, 1998 as compared to the prior period . The increase in tax preparation
revenue of approximately $235,000 is attributable to the opening of the seven
new seven offices in January 1998. The remaining one hundred twenty-one offices
accounted for the balance of the increase in tax preparation revenue of
approximately $421,000.
The Company's operating expenses for the quarter ended March 31, 1998 were
$10,120,986 as compared to operating expenses of $9,776,490 for the comparable
period of the prior year. The 3.5% increase in the Company's operating expenses
for its quarter ended March 31, 1998 from the comparable period of the prior
year was attributable to an increase in salaries and commissions of $595,076,
additional rent expense of $36,136 and an increase in general and administrative
expenses of $112,792. These increases in operating expenses were offset by a
decrease in advertising costs of $184,955, and a decrease of $95,851 in direct
mail costs.
5
<PAGE> 6
The increase in operating expenses of $344,490 is mainly due to an
increase in salaries and commissions which increased by $595,076 primarily due
to the new offices opened in January 1998 and an increase in financial planning
businesses. The increase in general and administrative expenses of $112,792 was
the result of the inclusion of three months of expenses for the seven new
offices opened in January 1998, which accounted for approximately $28,000. The
remaining balance of the increase in general & administrative expenses amounting
to approximately $85,000 resulted from a general increase in costs generated
from the one hundred-twenty one other offices. These increases in operating cost
were offset by a decrease in advertising and direct-mail costs of $184,955 and
$95,851, respectively. This decrease in costs resulted from a reduction in
direct mail advertising costs.
The increase in other expenses of $18,493 was primarily
due to a decrease in income of $50,913 from the Company's investment in
partnership and an additional unrealized loss of $4,082 on marketable securities
This increase in other expenses was offset by a decrease in net interest expense
of $34,550 and an increase in rental income of $1,952.
The Company's net income for the three months ended March 31, 1998 was
$1,834,231 as compared to $980,199 for the three months ended March 31, 1997.
The increase in net income of approximately 87% was primarily attributable to
higher net operating income generated from tax preparation fees and financial
planning services.
LIQUIDITY AND CAPITAL RESOURCES
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 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 offset by a increase in accounts receivable of
6
<PAGE> 7
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.
The Company has two credit facilities with a bank. The first facility
is a line of credit for up to $2,500,000, which expires on October 31, 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.
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 quarter ended December 31, 1997. The adoption
of this
7
<PAGE> 8
standard did not affect the Company's income per share for the three and nine
months ended March 31, 1998.
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 rely on 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.
8
<PAGE> 9
PART II
ITEM 1. 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 150,00 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 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 100,000
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.
ITEM 6. EXHIBITS; LISTS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Registrant's Articles of Incorporation, as amended,
incorporated by reference to the like numbered exhibit in the
Registrant's Registration Statement on Form SB-2 under the
Securities Act of 1933, as amended, File No. 33-70640-NY
3.2 Registrant's by-laws, incorporated by reference to the
like-numbered exhibit in the Registrant's Registration
Statement on Form SB-2 under the Securities Act of 1933, as
amended, File No. 33-70640-NY
4.3 Form of Redeemable Warrant included in Units, incorporated by
reference to the like- numbered exhibit in the Registrant's
Registration Statement on Form SB-2 under the Securities Act
of 1933, as amended, File No. 33-70604-NY
4.4 Form of Purchase Option for Underwriter's Warrants,
incorporated by
9
<PAGE> 10
reference to the like-numbered exhibit in the Registrant's
Registration Statement on Form SB-2 under the Securities Act
of 1933, as amended, File No. 33-70604-NY
27 Gilman & Ciocia, Inc. - Financial Data Schedule, Dated
March 31, 1998.
(b) Reports on Form 8-K
No current report on Form 8-K was filed by the Company during the
quarter ended March 31, 1998.
10
<PAGE> 11
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: September 22, 1998
GILMAN & CIOCIA, INC.
By/s/Thomas Povinelli
- ---------------------
Thomas Povinelli
Chief Operating Officer
By/s/ Stephen B. Sacher
- -----------------------
Stephen B. Sacher
Chief Financial Officer
11
<PAGE> 12
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH JUNE 30,
1998 1997
---- ----
(UNAUDITED)
-----------
<S> <C> <C>
CURRENT ASSETS:
CASH $ 2,159,571 $ 2,920,489
MARKETABLE SECURITIES 49,658 18,350
ACCOUNTS RECEIVABLE, NET 5,069,590 1,109,535
RECEIVABLE 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
----------- -----------
OTHER ASSETS:
INTANGIBLE ASSETS, NET 1,104,203 1,147,297
ADVANCES AND NOTES RECEIVABLE FROM FINANCIAL
PLANNERS, NET OF CURRENT PORTION 169,239
89,427
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 OTHER ASSETS 2,486,748 2,441,781
----------- -----------
TOTAL ASSETS $13,224,419 $ 9,025,576
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
<PAGE> 13
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
MARCH JUNE 30,
1998 1997
---- ----
(UNAUDITED)
------------
<S> <C> <C>
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
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 (MARCH 31, 1998) 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) (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>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-2
<PAGE> 14
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Nine Months Ended March 31 For the Three Months Ended March 31
1998 1997 1998 1997
---- ---- ---- ----
(Restated) (Restated) (Restated) (Restated)
<S> <C> <C> <C> <C>
REVENUES:
TAX PREPARATION FEES $ 8,718,884 $ 7,987,260 $ 8,274,768 $ 7,619,158
FINANCIAL PLANNING SERVICES 11,429,991 8,580,847 4,698,440 3,089,936
DIRECT MAIL SERVICES 1,561,538 1,774,605 125,179 728,165
------------ ------------ ------------ ------------
TOTAL REVENUES 21,710,413 18,342,712 13,098,387 11,437,259
------------ ------------ ------------ ------------
OPERATING EXPENSES:
SALARIES AND COMMISSIONS 10,667,524 9,965,253 5,387,074 4,791,998
GENERAL AND ADMINISTRATIVE
EXPENSES 2,902,443 2,765,268 1,415,655 1,302,863
ADVERTISING 2,551,734 2,736,373 2,481,118 2,666,073
DIRECT MAIL COSTS 720,411 961,780 184,163 280,014
RENT 1,529,682 1,413,391 517,900 481,764
DEPRECIATION AND AMORTIZATION 609,008 599,366 135,076 253,784
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 18,980,802 18,441,431 10,120,986 9,776,496
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) 2,729,611 (98,719) 2,977,401 1,660,763
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
INCOME FROM INVESTMENT IN PARTNERSHIP 29,129 26,962 33,377 84,290
INTEREST INCOME 61,151 47,332 20,338 13,864
INTEREST EXPENSE (152,679) (132,922) (78,223) (106,299)
RENTAL INCOME 8,100 7,179 2,700 748
REALIZED LOSS ON SALE OF MARKETABLE
SECURITIES (16,213) -- -- --
UNREALIZED LOSS ON MARKETABLE
SECURITIES (6,630) -- (4,082) --
OTHER INCOME 32,088 -- -- --
------------ ------------ ------------ ------------
TOTAL OTHER INCOME (EXPENSE) (45,054) (51,449) (25,890) (7,397)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 2,684,557 (150,168) 2,951,511 1,653,366
PROVISION FOR INCOME TAXES 1,033,000 (57,617) 1,117,280 673,167
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 1,651,557 $ (92,551) $ 1,834,231 $ 980,199
============ ============ ============ ============
NET INCOME (LOSS) PER SHARE:
BASIC $ 0.31 $ (0.02) $ 0.34 $ 0.18
DILUTED 0.28 (0.02) 0.28 0.18
WEIGHTED AVERAGE SHARES:
BASIC 5,377,010 5,492,696 5,384,808 5,447,255
DILUTED 5,975,024 5,492,696 6,456,176 5,466,626
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-3
<PAGE> 15
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
STOCK
SUBSCRIPTIONS -
AND ACCRUED
COMMON STOCK PAID-IN RETAINED INTEREST
SHARES AMOUNT CAPITAL EARNINGS RECEIVABLE
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE NINE MONTHS ENDED
MARCH 31, 1998
BALANCE AT JULY 1, 1997 5,578,913 $55,789 $6,231,555 $1,593,369 $(223,168)
REPAYMENTS/CANCELLATIONS OF STOCK
SUBSCRIPTIONS 75,847
PURCHASE OF TREASURY STOCK
COMPENSATION RECOGNIZED IN CONNECTION WITH
REISSUANCE OF TREASURY STOCK 28,934
ISSUANCE OF COMMON STOCK 28,000 280 53,845
ACCRUED INTEREST INCOME (7,643)
NET INCOME 1,651,557
------------------------------------------------------------------
BALANCE AT MARCH 31, 1998 5,606,913 $56,069 $6,314,334 $3,244,926 $(154,964)
==================================================================
<CAPTION>
TOTAL STOCK-
TREASURY STOCK HOLDERS'
SHARES AMOUNT EQUITY
----------------------------------
<S> <C> <C> <C>
FOR THE NINE MONTHS ENDED
MARCH 31, 1998
BALANCE AT JULY 1, 1997 157,433 $(638,556) $7,018,989
REPAYMENTS/CANCELLATIONS OF STOCK
SUBSCRIPTIONS 75,847
PURCHASE OF TREASURY STOCK 60,700 (179,123) (179,123)
COMPENSATION RECOGNIZED IN CONNECTION WITH
REISSUANCE OF TREASURY STOCK (6,818) 32,897 61,831
ISSUANCE OF COMMON STOCK 54,125
ACCRUED INTEREST INCOME (7,643)
NET INCOME 1,651,557
----------------------------------
BALANCE AT MARCH 31, 1998 211,315 $(784,782) $8,675,583
==================================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-4
<PAGE> 16
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
--------------------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 1,651,557 $ (92,551)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH
(USED IN) OPERATING ACTIVITIES:
COMPENSATION EXPENSE RECOGNIZED IN CONNECTION WITH THE
ISSUANCE OF STOCK OPTIONS 47,550 17,463
DEPRECIATION AND AMORTIZATION 550,068 599,366
LOSS FROM INVESTMENT (9,379) 26,962
LOSS ON SALE OF MARKETABLE SECURITIES 16,213 --
DEFERRED TAX BENEFIT (140,000) (100,344)
UNREALIZED LOSS ON MARKETABLE SECURITIES 6,692 --
COMPENSATION EXPENSE RECOGNIZED IN CONNECTION WITH FORGIVNESS
OF LOANS TO RELATED PARTIES -- 121,953
COMPENSATION EXPENSE RECOGNIZED IN CONNECTION WITH AMORTIZATION
OF ADVANCES TO FINANCIAL PLANNERS 119,004 209,032
PROVISION FOR DOUBTFUL ACCOUNTS -- 147,188
INTEREST ON STOCK SUBSCRIPTIONS (7,643) (23,725)
PROCEEDS FROM SALE OF MARKETABLE SECURITIES 22,323 --
(INCREASE) IN:
ACCOUNTS RECEIVABLE (3,960,055) (2,518,402)
ADVANCES TO FINANCIAL PLANNERS (1,169) (105,615)
SECURITY DEPOSITS (26,397) (8,781)
PREPAID EXPENSES AND OTHER CURRENT ASSETS (795,456) 34,693
INCREASE(DECREASE)IN:
ACCOUNTS PAYABLE,ACCRUED EXPENSES, AND OTHER CURRENT LIABILITIES 1,860,341 852,809
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (666,351) (839,952)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
CAPITAL EXPENDITURES (692,696) (593,762)
ACQUISITION OF INTANGIBLE ASSETS (144,176) (404,065)
INVESTMENTS (13,858) --
INVESTMENT IN PARTNERSHIP -- 252,323
COLLECTIONS OF NOTES RECEIVABLE FROM RELATED PARTIES 109,187 271,930
NOTES RECEIVABLE FROM RELATED PARTIES -- (79,000)
----------- -----------
NET CASH (USED IN) INVESTING ACTIVITIES (741,543) (552,574)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
ACQUISITION OF TREASURY STOCK (146,226) (684,513)
PROCEEDS FROM BANK AND OTHER LOANS 3,000,000 3,700,000
PROCEEDS FROM SALE OF COMMON STOCK & EXERCISE OF STOCK OPTIONS 35,508 92,012
PAYMENTS OF BANK AND OTHER LOANS (2,318,154) (791,450)
COLLECTION FROM STOCK SUBSCRIPTIONS
75,848 228,353
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 646,976 2,544,402
----------- -----------
NET INCREASE ( DECREASE) IN CASH (760,918) 1,151,876
CASH AT BEGINNING OF PERIOD 2,920,489 2,221,795
----------- -----------
CASH AT END OF PERIOD $ 2,159,571 $ 3,373,671
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-5
<PAGE> 17
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
1998 1997
-----------------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAYMENTS FOR THE PERIOD:
INTEREST $152,679 $132,752
======== ========
INCOME TAXES $224,235 $ 35,940
======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-6
<PAGE> 18
GILMAN + CIOCIA, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 related notes thereto as of
March 31, 1998 and for the three months and nine months ended March 31, 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 consists solely of normal recurring accruals. These interim
financial statements are not necessarily indicative of the results for any
future periods. The consolidated balance sheet information for June 30, 1997 was
derived from the audited financial statements included in the Company's Form
10-KSB. This Form 10-QSB should be read in conjunction with the Company's Form
10-KSB for June 30, 1997.
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 affect 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.
For interim reporting purposes, certain costs, primarily advertising
costs incurred in the first and second quarters of the fiscal year, are
recognized as an expense in the period the advertisements are mailed, primarily
the third quarter. At March 31, 1998, there are no advertising costs shown on
the balance sheet.
F-7
<PAGE> 19
NOTE 2 - REVENUE RECOGNITION
The Company recognizes all revenues upon completion of the services
associated with income tax preparation and direct mail services. Securities
transactions and related commission revenue and expenses are recognized on a
trade date basis.
The consolidated statements of operations for the three and nine months
ended March 31, 1998 and 1997, respectively, 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 $4,776,344 and $3,915,684 for the nine months
ended March 31, 1998 and 1997, respectively and $2,165,338 and $1,624,001 for
the three months ended March 31, 1998 and 1997, 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.
NOTE 3 - EARNINGS 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 and fully
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 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:
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
March 31, 1998 March 31, 1997
Per Share Per Share
Net Income Shares Amount Net Loss Shares Amount
<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>
Three Months Ended Three Months Ended
March 31, 1998 March 31, 1997
Per Share Per Share
Net Income Shares Amount Net Income Shares Amount
---------- ------ ------ ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $1,834,231 5,384,808 $0.34 $980,199 5,447,255 $0.18
Dilutive Stock
Options & warrants 1,071,368 19,371
--------- ---------
Diluted EPS $1,834,231 6,456,176 $0.28 $980,199 5,466,626 $0.18
========= =========
</TABLE>
F-8
<PAGE> 20
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:
<TABLE>
<CAPTION>
Option/Warrants
---------------
<S> <C>
Nine Months Ended March 31, 1998 690,000
Nine Months Ended March 31, 1997 2,006,277
Three Months Ended March 31, 1998 125,000
Three Months Ended March 31, 1997 1,390,196
</TABLE>
F-9
<PAGE> 21
NOTE 4 - 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
150,000 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
F-10
<PAGE> 22
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 100,000 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.
F-11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GILMAN AND
CIOCIA, INC., CONSOLIDATED FINANCIAL STATEMENTS AT 9/30/97 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,524,315
<SECURITIES> 66,568
<RECEIVABLES> 1,316,692
<ALLOWANCES> 87,500
<INVENTORY> 0
<CURRENT-ASSETS> 4,565,398
<PP&E> 3,046,240
<DEPRECIATION> 1,420,466
<TOTAL-ASSETS> 8,496,812
<CURRENT-LIABILITIES> 1,231,063
<BONDS> 0
55,889
0
<COMMON> 0
<OTHER-SE> 6,743,193
<TOTAL-LIABILITY-AND-EQUITY> 8,496,812
<SALES> 2,441,460
<TOTAL-REVENUES> 2,441,460
<CGS> 0
<TOTAL-COSTS> 2,615,144
<OTHER-EXPENSES> (62,104)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,653
<INCOME-PRETAX> (150,233)
<INCOME-TAX> (37,593)
<INCOME-CONTINUING> (112,640)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (112,640)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 2,159,571
<SECURITIES> 18,350
<RECEIVABLES> 5,169,590
<ALLOWANCES> (100,000)
<INVENTORY> 0
<CURRENT-ASSETS> 8,728,668
<PP&E> 3,684,199
<DEPRECIATION> (1,675,196)
<TOTAL-ASSETS> 13,224,419
<CURRENT-LIABILITIES> 4,298,834
<BONDS> 0
0
0
<COMMON> 56,069
<OTHER-SE> 6,314,334
<TOTAL-LIABILITY-AND-EQUITY> 13,224,419
<SALES> 16,934,069
<TOTAL-REVENUES> 16,934,069
<CGS> 0
<TOTAL-COSTS> 14,204,458
<OTHER-EXPENSES> 107,643
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 152,397
<INCOME-PRETAX> 2,684,557
<INCOME-TAX> 1,033,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,651,557
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.28
</TABLE>
