<PAGE> 1
As filed with the Securities and Exchange Commission on January 30, 1998
Registration No. 333-42521
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 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.
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.
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CALCULATION OF REGISTRATION FEE
================================================================================
Title of each Proposed Proposed
class of offering aggregate Amount of
securities to Amount to be price per offering registra-
be registered registered share(1) price(1) tion fee
- --------------------------------------------------------------------------------
Common Stock 507,926 $4.67 (x) $2,372,014 $ 817.94
(2) shares
- --------------------------------------------------------------------------------
Common Stock 65,000 $7.94 $ 516,000 $ 177.97
(3) shares
- --------------------------------------------------------------------------------
Common Stock 101,566 $7.94 $ 806,434 $ 278.08
(4) shares
- --------------------------------------------------------------------------------
Warrants (5) 50,783 $3.13(y) $ 158,951 $ 54.81
Warrants
- --------------------------------------------------------------------------------
Common 50,783 $7.94 $ 404,217 $ 139.04
Stock (6) shares
- --------------------------------------------------------------------------------
Common Stock 16,072 $7.94 $ 127,612 $ 44.00
(7) shares
================================================================================
TOTAL PAID: $1,511.84
(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 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 Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the 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> 3
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED January 30, 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 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
<PAGE> 4
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 65,00 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 and the Redeemable Public Warrants are traded
on The Nasdaq SmallCap Stock Market under the symbols "GTAX" and "GTAX-W,"
respectively. As of January 23, 1998, the trading price for shares of the
Company's Common Stock was $7.38 per share and for Redeemable Public Warrants
was $2.88 per warrant.
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 [ ].
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<PAGE> 5
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.
----------
================================================================================
Underwriting
Price to Discounts and Proceeds to
Public(1) Commissions(2) Issuer(3)
- --------------------------------------------------------------------------------
Per Share of
Common Stock
507,926 Shares $4.67(4) $-0- $2,372,014
- --------------------------------------------------------------------------------
Total......... $2,372,014
================================================================================
(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 has retained First Colonial Securities,
Inc. as advisor in connection with this offering, has paid a $35,000
advance fee under such arrangement and has agreed to pay $100,000 plus
$25,000 for non accountable expenses upon completion of the exercise of
Redeemable Public Warrants.
(3) All expenses of this registration other than commissions and concessions
are payable by the Company and are estimated at $220,000, 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:
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....................... 20,000
Blue Sky Fees and Expenses......................... -0-
Printing Expenses ................................. 10,000
First Colonial Securities Group, Inc............... 160,000
Legal Fees......................................... 20,000
Miscellaneous...................................... 7,489
TOTAL.................................... $220,000
========
(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> 6
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:
================================================================================
Underwriting
Price Paid to Discounts and Proceeds to
Issuer Commissions(1) Issuer(2)
- --------------------------------------------------------------------------------
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
================================================================================
(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 $220,000
(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.
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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
<PAGE> 7
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.
The Date of This Prospectus is ____________, 1998.
<PAGE> 8
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
Position on and Directors
Indemnification
for Securities Act
Liabilities
15. Organization within Last Not Applicable
Five Years
<PAGE> 9
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
Operation Condition and Results of
Operations
18. Description of Property Description of
Property
19. Certain Relationships and Certain Relationships and
Related Transactions Related 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 Financial Disclosure and Financial Disclosure
<PAGE> 10
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 and investment advisor, 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 received by the
Company's wholly owned subsidiary, JT Securities, Inc. (a registered securities
broker/dealer) ("JT Securities") in consideration of providing office space,
clerical support and client references to the financial planners who are
registered representatives of Royal Alliance.
1
<PAGE> 11
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 52% of the Company's business is tax preparation services;
approximately 37% of the Company's business is commission sharing on financial
planning services (with approximately 23% from securities transactions and 14%
from mortgage brokerage, insurance and other related services); and
approximately 11% of the Company's business is direct mail and related services.
The Company has a total of one hundred twenty one offices: forty one in
New York, sixteen in New Jersey, nine in Florida, nine in Arizona, nine in Ohio,
seven in Maryland, seven in Connecticut, seven in Washington, six in
Massachusetts, five in Nevada, two in California, two in Pennsylvania and one in
Kentucky, 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: 53 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 53 offices); and 68 offices provide both tax preparation and regular
financial planning services.
Out of the 68 offices that provide both tax preparation and financial
planning services: 28 of these offices have only one person who provides both
tax preparation and financial planning services; and 40 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 1996 (closing four in the
first half of 1996), eight new offices in 1997 and seven new offices in 1998.
2
<PAGE> 12
The Offering
Securities Outstanding:
Before the Offering................. 5,588,913 shares
of Common Stock (1)
507,926 Redeemable
Public Warrants
After the Offering.................. 6,314,188 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."(5) The Company
could receive $826,234 of
gross proceeds from the
exercise of the
outstanding options, the
Underwriter's Warrants and
the Redeemable Public
Warrants issuable upon
exercise of the
Underwriter's
3
<PAGE> 13
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
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
- ----------
(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
280,081 shares of Common Stock issuable upon the exercise of options at $2.60
per share, and 139,921 shares of Common Stock issuable upon the exercise of
options at $3.65 per share, all granted under the Company's 1993 Joint Incentive
and
4
<PAGE> 14
Non-Qualified Stock Option Plan (the "Plan"). Does not include 340,000 shares of
Common Stock issuable upon the exercise of options at $3.50 per share, 253,000
shares of Common Stock issuable upon the exercise of options at $2.75 per share,
20,000 shares of Common Stock issuable upon the exercise of options at $2.00 per
share, 11,000 shares of Common Stock issuable upon the exercise of options at
$1.75 per share and 7,000 shares of Common Stock issuable upon the exercise of
options at $1.75 per share, all granted under non-plan employee stock option
agreements. Does not include 100,000 shares of Common Stock at $4.75 per share,
561,000 shares of Common Stock at $5.00 per share, 152,000 shares of Common
Stock at $6.00 per share, 100,000 shares of Common Stock at $6.00 per share,
245,000 shares of Common Stock at $7.00 per share, 100,000 shares of Common
Stock at $7.50 per share, 50,000 shares of Common Stock at $9.50 per share, and
50,000 shares of Common Stock at $11.50, which will be included in a
registration statement on Form S-8 to be 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 280,081 shares of Common Stock issuable upon the exercise of
options at $2.60 per share, and 139,921 shares of Common Stock issuable upon the
exercise of options at $3.65 per share, all granted under the Company's 1993
Joint Incentive and Non-Qualified Stock Option Plan (the "Plan"). Does not
include 340,000 shares of Common Stock issuable upon the exercise of options at
$3.50 per share, 253,000 shares of Common Stock issuable upon the exercise of
options at $2.75 per share, 20,000 shares of Common Stock issuable upon the
exercise of options at $2.00 per share, 11,000 shares of Common Stock issuable
upon the exercise of options at $1.75 per share and 7,000 shares of Common Stock
issuable upon the exercise of options at $1.75 per share, all granted under
non-plan employee stock option agreements. Does not include 100,000 shares of
Common Stock at $4.75 per share, 561,000 shares of Common Stock at $5.00 per
share, 152,000 shares of Common Stock at $6.00 per share, 100,000 shares of
Common Stock at $6.00 per share, 245,000 shares of Common Stock at $7.00 per
share, 100,000 shares of Common Stock
5
<PAGE> 15
at $7.50 per share, 50,000 shares of Common Stock at $9.50 per share, 50,000
shares of Common Stock at $11.50, which will be included in a registration
statement on Form S-8 to be filed with the Commission.
(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.
6
<PAGE> 16
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 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.
7
<PAGE> 17
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
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.
8
<PAGE> 18
6. The Company's Dependence Upon its Four 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, Gary Besmer, its 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.
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
9
<PAGE> 19
'
employs only one full-time certified public accountant, who does not work as a
tax preparer, 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."
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. In addition, JT Securities registered as an investment
advisor with the Commission and with the appropriate authorities in New York
State and Florida on June 8, 1995. 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 or as an investment adviser.
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, and if the Company was acting as an investment
adviser, then it would have been required to register as such with the
Commission and 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
10
<PAGE> 20
additional costs on the Company and limitations on its manner of doing business.
The Company derives a material portion of its revenues from JT Securities,
which earns a share of commissions accruing to Royal Alliance's registered
representatives Alliance who also have entered into commission sharing
agreements with the Company and perform financial planning in the Company's
offices. JT Securities is registered as a securities broker/dealer and an
investment advisor 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 or investment advisor 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 or investment advisor
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 or investment advisor 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 + CiociaR" 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 + CiociaR"
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
Independent Contractors. 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 51% of the Outstanding Common Stock of the
11
<PAGE> 21
Company. The current management of the Company owns or could acquire
approximately 51% 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 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 51% 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 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
current market price of $7.38 and assuming that all outstanding options are
exercised and shares of Common Stock are sold, purchasers of Common Stock will
experience
12
<PAGE> 22
a dilution of $5.80.(1) If the Company were to be liquidated, then shareholders
would almost certainly receive less than $1.58 for each share of Common Stock
purchased for $7.38.
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. 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
5,588,913 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, but only about 606,603 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 671,000 options to purchase shares of the
Company's Common Stock to fourteen individuals in addition to the 485,002
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 statement on Form S-8 filed on
October 28, 1996 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
- ----------
(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.
13
<PAGE> 23
market price for the Common Stock and reduce the marketability of the Common
Stock.
18. 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 the registration of 340,000 shares of
Common Stock issuable upon the exercise of options at $3.50 per share, 11,000
shares of Common Stock issuable upon the exercise of options at $1.75 per share,
10,000 shares of Common Stock issuable at $1.75 per share, 10,000 shares of
Common Stock issuable upon the exercise of options at $2.62 per share and 10,000
shares of Common Stock issuable upon the exercise of options at $2.32 per share,
which were all included in a registration statement on Form S-8 that was filed
with the Commission on October 28, 1996.
This prospectus does not include 100,000 shares of Common Stock at $4.75
per share, 561,000 shares of Common Stock at $5.00 per share, 152,000 shares of
Common Stock at $6.00 per share, 100,000 shares of Common Stock at $6.00 per
share, 245,000 shares of Common Stock at $7.00 per share, 100,000 shares of
Common Stock at $7.50 per share, 50,000 shares of Common Stock at $9.50 per
share, 50,000 shares of Common Stock at $11.50, which will be included in a
registration statement on Form S-8 to be 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.
19. 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
14
<PAGE> 24
Stock. It is possible that the Company's Common Stock will be covered by a
Commission rule that imposes additional sales practice requirements 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.
20. 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 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.
15
<PAGE> 25
MARKET INFORMATION
The Principal market on which the Company's Common Stock trades is The
NASDAQ SmallCap Stock Market under the symbol "GTAX." 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:
Sales Prices
------------
Quarter Ended High Low
- ------------- ---- ---
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
- ----------------- -------- ---------
As of January 27, 1998, the approximate number of holders of record of the
Common Stock was 344.
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
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<PAGE> 26
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 $220,000 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:
================================================================================
Underwriting
Price to Discounts and Proceeds to
Public(1) Commissions(2) Issuer(3)
- --------------------------------------------------------------------------------
Per Share of
Common Stock
507,926 Shares $4.67(4) $-0- $2,372,014
- --------------------------------------------------------------------------------
Total......... $2,372,014
================================================================================
(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 has retained First Colonial Securities,
Inc. as advisor in connection with this offering, has paid a $35,000
advance fee under such arrangement and has agreed to pay $100,000 plus
$25,000 for non accountable expenses upon completion of the exercise of
Redeemable Public Warrants.
(3) All expenses of this registration other than commissions and concessions
are payable by the Company, and are estimated at $220,000, which is
cross-referenced at footnote number 2 for the
17
<PAGE> 27
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:
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....................... 20,000
Blue Sky Fees and Expenses......................... -0-
Printing Expenses ................................. 10,000
First Colonial Securities Group, Inc............... 160,000
Legal Fees......................................... 20,000
Miscellaneous...................................... 7,489
TOTAL.................................... $220,000
========
(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:
================================================================================
Underwriting
Price Paid to Discounts and Proceeds to
Issuer Commissions(1) Issuer(2)
- --------------------------------------------------------------------------------
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
================================================================================
(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 $220,000
(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.
18
<PAGE> 28
(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.
19
<PAGE> 29
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 and
investment advisor, 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 52% of the Company's revenues
were earned from tax preparation services; 37% were earned from all financial
planning and related services (with 23% from securities transactions and 14%
from mortgage brokerage, insurance and other related services); and 11% 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 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.
20
<PAGE> 30
Plan of Operation
Tax Preparation and Financial Planning
Over the past two 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 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.
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No events or transactions have occurred subsequent to September 30,
1997, 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
$19,071,889 as compared to revenues of $16,509,677 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 $1,290,000 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.
The Company's total revenues for the year ended June 30, 1997 consist of
$9,921,967 for tax preparation services, $6,961,602 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 $5,671,905 for financial planning services; and
$2,689,786 for direct mailing services.
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 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 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
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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 $17,781,015
as compared to operating expenses of $15,915,148 for the 1996 fiscal year. The
increase of 11.7% in the Company's operating expenses for its 1997 fiscal year
from its 1996 fiscal year was attributable to increases of $891,045 in salaries
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 Companyand 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 clearing fees, and the direct mail division incurred $350,000 of general and
administrative expenses during the Company's 1997 fiscal year.
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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 the Company expects that the investment of the
Partnership will be fully liquidated during the Company's 1998 fiscal year.
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.
Quarters Ended September 30, 1997 and September 30, 1996 Compared
The Company's revenues for the three months ended September 30, 1997
were $2,441,460 as compared to revenues of $2,159,800 for the comparable period
of the prior year. The increase in revenues of 13.0% for the quarter ended
September 30, 1997 from revenues during the comparable period of the prior year
is attributable to the opening of the 1997 New Offices (which generated tax
preparation revenues that contributed approximately $46,000 of the increase in
tax preparation revenues in the quarter ended September 30, 1997) and to the
existing offices (which accounted for $[14,500] of additional tax preparation
revenues), increased financial planning revenues of approximately $433,251
(which was
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primarily generated in the pre-1997 offices), offset by decreased revenues of
$197,542 from the direct mail division.
The Company's total revenues for the quarter ended September 30, 1997
consist of $279,944 for tax preparation services, $1,801,672 for financial
planning services, and $359,844 for direct mail services. The Company's total
revenues for its quarter ended September 30, 1996 consist of $233,993 for tax
preparation services, $1,368,421 for financial planning services and $577,386
for direct mail services.
The increase in the Company's financial planning revenues for the
quarter ended September 30, 1997 compared to the prior year's first quarter was
approximately 32%. The increase in such financial planning revenues is
attributable to the continued 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 period of rapidly rising activities in the
marketplace, which induced clients to invest funds through the Company,
generating commission revenues for the Company.
The decrease in the Company's direct mail services for the quarter ended
September 30, 1997 compared to the comparable quarter of the prior year was
approximately 35%, resulting from the loss of a few customers.
The Company's operating expenses for the quarter ended September 30,
1997 were $2,615,144 as compared to operating expenses of $3,041,294 for the
comparable period of the prior year. The decrease of 14% in the Company's
operating expenses for the quarter ended September 30, 1997 from the comparable
period of the prior year was attributable to a decrease in salaries and
commissions in the amount of $253,908; a decrease in general and administrative
expenses of $40,649; and a decrease in direct mail costs of $177,106 offset by
an increase advertising expenses of $6,493; an increase in rent expense of
$17,710; and an increase in depreciation and amortization of $21,311. Salaries
and commissions decreased 19.5% for the quarter ended September 30, 1997 as
compared to the quarter ended September 30, 1996 due to personnel changes.
The Company's general and administrative expenses for the three months
ended September 30, 1997 were $656,502 as compared to $697,151 for the three
months ended September 30, 1996. The decrease of approximately is primarily due
to a write-off of bad debt expense in the amount of $150,000 during the quarter
ended September 30, 1996 and also a decrease in miscellaneous other expenses in
the amount of approximately $44,000. These decreases were offset by an increase
in telephone expenses of $50,000, an increase in expenses of professional fees
for $83,000, and an increase in filing fees of $21,000.
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The reduction in direct mail costs of approximately $177,000 resulted
primarily from the decrease in sales volume.
The net increase in other income of approximately $107,000 is due
primarily to the Company's investment in a partnership. See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS".
The Company's net loss for the three months ended September 30, 1997 is
$112,640 as compared to $587,098 for the three months ended September 30, 1996.
The decrease of approximately 81% is primarily attributable to the increase in
financial planning revenue of approximately $434,000.
Liquidity and Capital Resources
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 decrease 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.
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Quarters ended September 30, 1997
and September 30, 1996 Compared
The Company's cash flows used in operating activities was $281,843 and
$433,780, for the three months ended September 30, 1997 and 1996,
respectively.The decrease of approximately $152,000 is due primarily to a
decrease in net loss plus non-cash adjustments of approximately $293,000, an
increase in the proceeds from the sale of marketable securities of approximately
$22,000, a decrease of approximately $107,000 in advances to financial planners,
a decrease in security deposits of approximately $5,200, and a decrease in
prepaid expenses and other current assets of approximately $198,000. These
decreases in net cash used in operating activities were offset by an increase in
accounts receivable of approximately $300,000 and a decrease in accounts payable
and other accrued expenses of approximately $175,000.
Net cash provided by (used in) investing activities was $59,812 and
$(246,921) for the three months ended September 30, 1997 and 1996, respectively.
The increase of approximately $307,000 is primarily due to decreases in capital
expenditures of approximately $216,000, and a decrease in acquisition of
intangible assets of approximately $153,000. These increases were offset by an
increase in investments and marketable securities of approximately $62,000.
Net cash used in financing activities was $174,143 and $278,547 for the
three months ended September 30, 1997 and 1996, respectively. The decrease in
net cash used in financing activities of approximately $104,000 is primarily due
to a decrease in the payments to State Bank of Long Island and other loans of
approximately $446,000, an increase in the proceeds from stock subscriptions
receivable of approximately $11,000, a decrease in deferred registration costs
of $30,000 and the exercise of stock options of approximately $18,000. These
decreases in net cash used in financing activities were offset by a decrease in
proceeds from a bank loan of $250,000 and an increase in the acquisition of
treasury stock of approximately $151,000.
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
September 30, 1997, the Company had an outstanding principal balance of
$500,000.
The second credit facility is an installment note in the principal amount
of $1,000,000 with State Bank of Long Island. 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
September
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30, 1997, the note had an outstanding principal balance amounting to $750,000.
The Company believes that it could continue to operate without any
additional financing (other than its seasonal bank loans) during the next 12
months. The Company anticipates that it will not pay dividends on its Common
Stock in the foreseeable future, but will apply any profits to fund the
Company's expansion.
Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per
Share." This Statement establishes new standards for computing and presenting
earnings per share ("EPS"), replacing the presentation of currently required
primary EPS with a presentation of basic EPS. For entities with complex capital
structures, the statement requires the dual presentation of both basic EPS and
diluted EPS on the face of the statement of operations. Under this new standard,
basic EPS is computed based on weighted average shares outstanding and excludes
any potential dilution. Diluted EPS reflects potential dilution from the
exercise or conversion of securities into common stock or from other contracts
to issue common stock. SFAS 128 is effective for financial statements issued for
periods ending after December 15, 1997, and earlier application is not
permitted. When adopted, the Company will be required to restate its EPS data
for all prior periods presented. The Company does not expect the impact of the
adoption of this statement to be material to previously reported EPS amounts.
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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 and investment advisor, 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 received by the
Company's wholly owned subsidiary, JT Securities, Inc. (a registered securities
broker/dealer) ("JT Securities") in consideration of providing office space,
clerical support and client references to the financial planners who are
registered representatives of Royal Alliance.
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").
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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 52% of the Company's business is tax preparation services;
approximately 37% of the Company's business is commission sharing on financial
planning services (with approximately 23% from securities transactions and 14%
from mortgage brokerage, insurance and other related services); and
approximately 11% of the Company's business is direct mail and related services.
The Company has a total of one hundred twenty one offices: forty one in
New York, sixteen in New Jersey, nine in Florida, nine in Arizona, nine in Ohio,
seven in Maryland, seven in Connecticut, seven in Washington, six in
Massachusetts, five in Nevada, two in California, two in Pennsylvania and one in
Kentucky, 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: 53 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 53 offices); and 68 offices provide both tax preparation and regular
financial planning services.
Out of the 68 offices that provide both tax preparation and financial
planning services: 28 of these offices have only one person who provides both
tax preparation and financial planning services; and 40 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 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
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offices in 1996 (closing four in the first half of 1996), and eight in 1997. 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 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
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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 one full-time certified public accountant, 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.
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.
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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 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 $3,500,000 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. In 1995, JT Securities was
registered with the Securities and Exchange Commission (the "Commission") and
with the states of New York and Florida as an investment advisor. JT Securities
intends to withdraw its registrations as an investment advisor. 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,
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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, 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 79% 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 mutual fund
products or other securities for investment, they are
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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: 53 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 53 offices); and 68 offices provide both tax preparation and regular
financial planning services.
Out of the 68 offices that provide both tax preparation and financial
planning services: 28 of these offices have only one person who provides both
tax preparation and financial planning services; and 40 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's offices 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
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, an investment advisor and a
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<PAGE> 45
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.
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%
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<PAGE> 46
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 to JT Securities as compensation for supplying
to such Registered Representative office space, clerical and secretarial support
and references of clients. 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 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 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 as compensation for the Company's supplying to such
agent office space, clerical and secretarial support and references of clients.
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.
Marketing
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<PAGE> 47
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.
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 two web sites on the Internet:
http://www.gtax.com and http://www.ssnn.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.
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<PAGE> 48
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.
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 30, 1997, the Company employed twenty one 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 respect to the preparation and filing of tax returns and rules
on the maintenance of taxpayer records. The Code also imposes
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<PAGE> 49
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. Accordingly,
the Company does not believe that it or any of its employees is required to
register as an investment adviser with the Commission or any applicable state
agency. In 1992, the staff of the Commission made written inquiries to the
Company regarding a possible requirement for it to register as an investment
adviser. The Company responded to such inquiries in March 1993 and has not
received any other communication from the Commission on this subject. Since such
date, JT Securities registered as an investment advisor, but intends to withdraw
such registration.
If the Commission were to determine that, prior to the registration of
JT Securities, as a securities broker/dealer and as an investment adviser, the
Company was required to be registered as a broker/dealer and/or as an investment
adviser, then the Company may be subject to regulatory action.
The registered representatives themselves are strictly regulated in
their activities as registered representatives of a securities broker/dealer
under the Securities Act of 1934, as
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<PAGE> 50
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 and investment advisors. JT Securities
is also registered as an investment adviser under the Investment Advisers Act of
1940, and is subject, therefore, to the detailed rules and regulations
promulgated thereunder. JT Securities intends to withdraw its registration as an
investment adviser.
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 30, 1997, the Company employed 219 persons on a full-time
basis, including the Company's four officers. See "DIRECTORS, EXECUTIVE
OFFICERS, PROMOTERS AND CONTROL PERSONS." The Company's full-time employees
include 110 professional tax preparers, 40 clerical and support staff persons,
and 48 administrative personnel (who include the Company's executive officers),
and 21 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."
The Company also utilizes approximately 114 financial planners who have
entered into commission sharing agreements with the Company and who also serve
as registered representatives of Royal Alliance and/or as insurance agents. Of
such 114 financial planners, 24 do only financial planning, and the others also
serve separately as employees of the Company. Of the total number of financial
planners who have entered into the commission sharing agreements with the
Company, 90 also do tax preparation.
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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 121 local offices in
thirteen states: Forty one in New York, sixteen in New Jersey, nine in Arizona,
nine in Florida, nine in Ohio, seven in Maryland, seven in Connecticut, seven in
Washington, six in Massachusetts, five in Nevada, two in Pennsylvania, two in
California and one in Kentucky. 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 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
There are no material proceedings currently pending against the Company.
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MANAGEMENT
Directors and Officers
Executive
Officer or
Director
Name Age Position Since
- ---- --- -------- ----------
James Ciocia 41 Chief Executive Officer, 11/81
President and Director
Thomas Povinelli 37 Chief Operating Officer, 11/84
Chief Financial Officer
and Director
Gary Besmer 56 Vice President and Director 11/84
Kathryn Travis 49 Secretary, Vice President
and Director 11/89
Seth A. Akabas 41 Director 4/95
Louis P. Karol 39 Director 4/95
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, Chief Financial Officer and Director
Mr. Povinelli began his tenure with the Company as an 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.
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<PAGE> 53
Gary Besmer, Vice President and Director
Mr. Besmer joined the company as an accountant in 1983 after retiring from
the New York City Police Department. He has served as an executive officer and a
director of the company since November 1984. Mr. Besmer prepares tax returns and
manages the company's Rockville Centre office. Mr. Besmer is a Registered
Representative of JT Securities and Royal Alliance. He is a graduate of the New
York Institute of Technology with a B.A. in behavioral science and a minor 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.
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
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 option plan committee and an audit committee
of its Board of Directors. The Company has no nominating, compensation or other
committees. The Stock Option Plan Committee administers the Company's 1993 joint
incentive and NonQualified Stock Option Plan and the 1997 Common Stock and
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<PAGE> 54
Incentive and Non-Qualified Stock Option Plan of Gilman & Ciocia, Inc. The audit
committee is responsible for carrying out the functions specified in Section 6
of Schedule E of the NASD by-laws. These functions 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
Name and Principal Fiscal Annual Other Options
Position Year Salary Bonus* Compensation (Shares)
---- ------ ------ ------------ --------
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 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 President 1996 $166,200 $ 19,000 $49,300(7) -0-
and Director 1997 $142,149 $ 3,000 $ 7,149(8) 10,000
- ----------
* Represents commission earned from non-affiliated entities.
(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 $8,100 for health insurance.
(8) Auto expense.
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AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs at Options/SARs
Fiscal Year-End(#) Fiscal Year-End($)
Name Exercisable/Unexercisable Exercisable/Unexercisable (1)
- ---------------- ------------------------- -----------------------------
James Ciocia 133,370 / - $279,200 / -
Thomas Povinelli 135,370 / - 279,200 / -
Gary Besmer 85,223 / - 175,772 / -
Kathryn Travis 104,039 / - 214,580 / -
(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 earn 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
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
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<PAGE> 57
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. In total, the Company has granted options to
purchase 485,002 shares and options to purchase 330,998 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.
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 NonQualified 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
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<PAGE> 58
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 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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PRINCIPAL STOCKHOLDERS
The following table sets forth, as of January 27, 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 548,480 (3) 9.7%
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
All directors and officers
as a group (6 persons) 3,070,357 50.8%
</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.
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<PAGE> 60
(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.
(3) Includes 50,163 shares, 25,060 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.
(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.
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<PAGE> 61
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Each of James Ciocia, Thomas Povinelli, Gary Besmer and Kathryn Travis,
acts 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.
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.
The four principal shareholders, Messrs. Ciocia, Povinelli and Besmer and
Ms. Travis, personally guaranteed the repayment of
52
<PAGE> 62
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
Financial Officer - $198,000, Thomas Povinelli, Sr., father of the present Chief
Financial 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.
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. The Company has the right to redeem Redeemable Public
Warrants at a price of $.01 per share, provided that Redeemable
53
<PAGE> 63
Public Warrantholders will have 30 days to exercise in the case of such
redemption. Upon the effectiveness of the registration of which this Prospectus
is a part, the Company currently intends to notice redemption of the Redeemable
Public Warrants, in which case, 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.
The Company has retained First Colonial Securities Group Inc. ("First
Colonial") pursuant to a letter agreement (the "Letter Agreement") dated October
31, 1997 to provide investment banking advisory services to the Company in
connection with the registration of which this prospectus is a part and the
possible solicitation of warrantholders and other steps to induce them to
exercise such warrants, including, without limitation, the possible redemption
of the Redeemable Public Warrants. The Letter Agreement provides for a fee of
$135,000, $35,000 of which has already been paid, and $100,000 of which will be
due and payable upon the redemption of the Redeemable Public Warrants or the
exercise of a majority of the Redeemable Public Warrants, in either case on or
before June 30, 1998. If the $100,000 becomes due and payable, then the Company
will also pay to First Colonial a nonaccountable expense allowance equal to
$25,000. If First Colonial's engagement is terminated on or after June 30, 1998,
then the Company will reimburse First Colonial for its reasonable expenses
incurred in connection with its performance.
The Letter Agreement also provides for the Company to indemnify First
Colonial from any liability arising in the course of its performance except to
the extent a liability arises out of First Colonial's negligence or misconduct.
SELLING SECURITY HOLDERS
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<PAGE> 64
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 Patterson Travis, Inc. 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 Patterson Travis, Inc.
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.
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%)
- --------------- -------- ------- -------------
Patterson Travis, Inc., 273,888 101,566(1) 2.2%
underwriter of Company's
initial public offering
Rozel International Holding, Ltd. 65,000 65,000 -0-
- --------------------------------------------------------------------------------
Percentage
Amount of 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%)
- -------------- -------- ------- -------------
Patterson Travis, Inc. 50,783 50,783 -0-
original underwriter of Company's
initial public offering
- ----------
(1) Issuable upon exercise of the Redeemable Public Warrants that are
issuable upon exercise of the Underwriter's Warrants.
- --------------------------------------------------------------------------------
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<PAGE> 65
Selling Stock Stock
Security Holder owned owned
and Position before Stock after
to Company offering offered offering(>1%)
- -------------- -------- ------- -------------
Edward Haas, employee 64,286 16,072 -0-
- --------------------------------------------------------------------------------
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> 66
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, Rules 10b-6 and 10b-7 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> 67
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, five hundred eighty-eight
thousand, nine hundred twelve (5,588,912) 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 $4.67 per share, subject to
adjustment in the event of certain occurrences, such as stock dividends, splits
and combinations. The Redeemable Public Warrants are exercisable September 9,
1998, by surrendering the certificate representing the Redeemable Public Warrant
to the Company, or its authorized transfer agent, with the subscription form
attached thereto properly completed and executed together with payment in full
by certified or bank teller's check of the aggregate exercise price of all the
Redeemable Public Warrants then exercised. The Redeemable Public Warrants are
redeemable by the Company at a price of one cent ($.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> 68
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. The Company does not currently contemplate an
extension of the exercise period or a reduction of the exercise price.
Each Redeemable Public Warrant will be separable from the Units upon
issuance and will be 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 are being issued pursuant to a Warrant
Agreement between the Company and Corporate Stock
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<PAGE> 69
Transfer, Inc., as Warrant agent. Corporate Stock Transfer, Inc. will also act
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 the Company's shareholders, has the power to
authorize the issuance of Preferred Stock with voting and conversion rights
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<PAGE> 70
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.
EXPERTS
The financial statements of the Company for the year ended June 30, 1996
included in this Prospectus have been included herein in reliance on the report
by BDO Seidman, 330 Madison Avenue, New York, NY 10022, appearing elsewhere in
this Prospectus and upon the authority of such firm as experts in auditing and
accounting.
The financial statements for the year ended June 30, 1997 included in this
Prospectus constituting a part of this Registration Statement have been audited
by Arthur Andersen, LLP, independent certified public accountants, to the extent
and for the period set forth in their report appearing elsewhere herein and in
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<PAGE> 71
the Registration Statement, and are included in reliance upon such report given
upon the authority of said firm as experts in giving such report.
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.
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<PAGE> 72
INDEX
Page
----
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
FINANCIAL STATEMENTS:
Consolidated Balance Sheet F-3
Consolidated Statements of Income F-4
Consolidated Statements of Cash Flows F-5 - F-6
Consolidated Statements of Stockholders' Equity F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-9 - F-20
F-1
<PAGE> 73
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Gilman & Ciocia, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Gilman &
Ciocia, Inc. and subsidiaries as of June 30, 1997, and the related consolidated
statements of income, stockholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The consolidated financial statements of Gilman &
Ciocia, Inc. and subsidiaries as of June 30, 1996, were audited by other
auditors whose report dated September 30, 1996, expressed an unqualified opinion
on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Gilman & Ciocia, Inc. and
subsidiaries as of June 30, 1997 and the results of their operations and their
cash flows for the year then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
October 13, 1997
F-2
<PAGE> 74
GILMAN & CIOCIA, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
ASSETS 1997 1997
----------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 2,524,315 $ 2,920,489
Marketable securities 66,568 49,658
Accounts receivable, net of allowance for doubtful accounts of $87,500 1,229,192 1,109,535
Receivables from related parties, current portion 394,296 373,039
Prepaid expenses and other current assets 351,027 451,968
----------- -----------
Total current assets 4,565,398 4,904,689
PROPERTY AND EQUIPMENT, net 1,625,774 1,679,106
INTANGIBLE ASSETS, net of accumulated amortization of $472,449
(September 30, 1997) and $468,249 (June 30, 1997) 1,075,737 1,147,297
ADVANCES AND NOTES RECEIVABLE FROM FINANCIAL PLANNERS,
net of current portion 83,952 169,239
RECEIVABLES FROM RELATED PARTIES, net of current portion 402,295 447,806
DEFERRED TAX ASSETS 27,889 27,899
OTHER ASSETS 715,767 649,540
----------- -----------
Total assets $ 8,496,812 $ 9,025,576
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 883,333 $ 899,487
Accounts payable 190,089 168,210
Accrued expenses and other current liabilities 157,641 318,690
Income taxes payable -- 68,200
----------- -----------
Total current liabilities 1,231,063 1,454,587
----------- -----------
LONG-TERM LIABILITIES:
Long-term borrowings 466,667 552,000
----------- -----------
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 5,588,913 shares (September 30, 1997) and 5,578,913 shares
(June 30, 1997) 55,889 55,789
Paid-in capital 6,249,580 6,231,555
Retained earnings 1,480,729 1,593,369
Less- Treasury Stock, at cost; 213,733 shares (September 30, 1997) and
157,433 shares (June 30, 1997) (789,951) (638,556)
----------- -----------
6,996,247 7,242,157
Stock subscriptions and accrued interest receivable (197,165) (223,168)
----------- -----------
Total stockholders' equity 6,799,082 7,018,989
----------- -----------
Total liabilities and stockholders' equity $ 8,496,812 $ 9,025,576
=========== ===========
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
F-3
<PAGE> 75
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months ended September Years ended June 30,
30,
------------------------- ---------------------------
1997 1996 1997 1996
----------- ----------- ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Tax preparation fees $ 279,944 $ 233,993 $ 9,921,967 $ 8,147,986
Financial planning commissions 1,801,672 1,368,421 6,961,602 5,671,905
Direct mail services 359,844 557,386 2,188,320 2,689,786
----------- ----------- ------------ ------------
Total revenues 2,441,460 2,159,800 19,071,889 16,509,677
----------- ----------- ------------ ------------
OPERATING EXPENSES:
Salaries and commissions 1,047,521 1,301,430 7,581,136 6,690,091
General and administrative expenses 656,502 697,151 3,572,901 3,054,568
Advertising 29,187 22,694 2,819,941 2,585,125
Direct mail costs 202,104 379,210 1,136,347 1,682,108
Rent 486,043 468,333 1,884,768 1,502,788
Depreciation and amortization 193,787 172,476 785,922 525,468
Reimbursement of financial planning expenses -- (125,000)
----------- ----------- ------------ ------------
Total operating expenses 2,615,144 3,041,294 17,781,015 15,915,148
----------- ----------- ------------ ------------
Operating income (173,684) (881,494) 1,290,874 594,529
----------- ----------- ------------ ------------
OTHER INCOME (EXPENSES):
Income(loss) from investment in partnership 20,913 (92,587) 73,127 198,165
Interest income 21,459 20,915 77,162 91,435
Interest expense (38,653) (16,937) (201,534) (107,111)
Rental income 2,700 4,920 16,557 19,180
Realized gain(loss) on sale of marketable securities (16,213) 6,580 91,175
Unrealized gain on marketable securities 1,157 6,828 --
Other income 32,088
----------- ----------- ------------ ------------
Total other income (expense) 23,451 (83,689) (21,280) 292,844
----------- ----------- ------------ ------------
INCOME(LOSS) BEFORE PROVISION FOR
INCOME TAXES (150,233) (965,183) 1,269,594 887,373
PROVISION FOR INCOME TAXES (37,593) (378,085) 393,600 352,647
----------- ----------- ------------ ------------
Net income (loss) $ (112,640) $ (587,098) $ 875,994 $ 534,726
=========== =========== ============ ============
NET INCOME(LOSS) PER SHARE $ (0.02) $ (0.11) $ 0.16 $ 0.10
=========== =========== ============ ============
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES:
Primary 5,461,216 5,550,582 5,572,854 5,916,044
Fully diluted 5,558,296 5,550,582 5,572,854 5,916,044
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE> 76
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
------------
Stock Subscriptions
and
Additional Retained Accrued Interest
Shares Amount Paid-in Capital Earnings Receivable
------ ------ --------------- -------- -------------------
<S> <C> <C> <C> <C> <C>
BALANCE, July 1, 1995 5,634,864 $ 56,348 $ 5,815,194 $ 660,838 $(773,980)
Purchase of treasury stock -- -- -- -- 67,590
Retirement of treasury stock (127,558) (1,276) -- (478,189) --
Issuance of common stock 26,307 263 53,063 -- --
Exercise of stock options 10,000 100 23,100 -- --
Compensation recognized in connection
with the issuance of stock options -- -- 232,782 -- --
Repayments of stock subscriptions -- -- -- -- 310,809
Issuance of stock subscriptions 6,969 70 39,930 -- (40,000)
Accrued interest income -- -- -- -- (22,433)
Accrued tax benefit related to exercise
of common stock options -- -- 20,006 -- --
Net income -- -- -- 534,726 --
-------------------------------------------------------------------
BALANCE, June 30, 1996 5,550,582 55,505 6,184,075 717,375 (458,014)
Purchase of treasury stock -- -- -- -- --
Reissuance of treasury stock -- -- (53,093) -- --
Issuance of common stock 28,331 284 100,573 -- --
Repayments of stock subscriptions -- -- -- -- 261,954
Accrued interest income -- -- -- -- (27,108)
Net income -- -- -- 875,994 --
-------------------------------------------------------------------
Unaudited:
BALANCE, June 30, 1997 5,578,913 55,789 6,231,555 1,593,369 (223,168)
Repayments of stock subscriptions -- -- -- -- 25,117
</TABLE>
Treasury Stock
--------------
Total Stockholders'
Shares Amount Equity
------ ------ -------------------
BALANCE, July 1, 1995 116,964 $(411,875) $ 5,346,525
Purchase of treasury stock 10,594 (67,590) --
Retirement of treasury stock (127,558) 479,465 --
Issuance of common stock -- -- 53,326
Exercise of stock options -- -- 23,200
Compensation recognized in connection
with the issuance of stock options -- -- 232,782
Repayments of stock subscriptions -- -- 310,809
Issuance of stock subscriptions -- -- --
Accrued interest income -- -- (22,433)
Accrued tax benefit related to exercise
of common stock options -- -- 20,006
Net income -- -- 534,726
---------------------------------------
BALANCE, June 30, 1996 -- -- 6,498,941
Purchase of treasury stock 175,900 (733,200) (733,200)
Reissuance of treasury stock (18,467) 94,644 41,551
Issuance of common stock -- -- 100,857
Repayments of stock subscriptions -- -- 261,954
Accrued interest income -- -- (27,108)
Net income -- -- 875,994
---------------------------------------
Unaudited:
BALANCE, June 30, 1997 157,433 (638,556) 7,018,989
Repayments of stock subscriptions -- -- 25,117
F-5
<PAGE> 77
<TABLE>
<CAPTION>
Common Stock
------------
Stock Subscriptions
and
Additional Retained Accrued Interest
Shares Amount Paid-in Capital Earnings Receivable
------ ------ --------------- -------- -------------------
<S> <C> <C> <C> <C> <C>
Purchase of treasury stock -- -- -- -- --
Exercise of stock options 10,000 100 18,025 -- --
Accrued interest income -- -- -- -- 886
Net (loss) -- -- -- (112,640) --
-------------------------------------------------------------------
BALANCE, September 30, 1997 5,588,913 $ 55,889 $ 6,249,580 $ 1,480,729 $(197,165)
===================================================================
</TABLE>
Treasury Stock
--------------
Total Stockholders'
Shares Amount Equity
------ ------ -------------------
Purchase of treasury stock 56,300 (151,395) (151,395)
Exercise of stock options -- -- 18,125
Accrued interest income -- -- 886
Net (loss) -- -- (112,640)
---------------------------------------
BALANCE, September 30, 1997 213,733 $(789,951) $ 6,799,082
=======================================
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE> 78
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months ended Years ended June 30,
------------------ --------------------
September 30,
-------------
1997 1996 1997 1996
----- ----- ----- ----
(unaudited) (unaudited)
------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (112,640) $ (587,098) $ 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 -- 27,735 41,551 232,782
Depreciation and amortization 158,500 172,464 785,922 525,468
(Income) loss from investment in partnership (20,913) 92,587 (73,127) (198,165)
Deferred tax provision (benefit) -- (57,417) 105,686 (133,585)
Compensation expense recognized in connection with the
forgiveness of officers' loans -- -- -- 123,899
(Gain) loss on sale of marketable securities 16,213 -- (6,580) (91,175)
Compensation expense recognized in connection with
amortization of advances to financial planners 35,287 115,210 235,013 79,851
Provisions for doubtful accounts -- 25,000 41,526 99,175
Interest on stock subscriptions (4,611) (10,305) (27,108) (22,433)
Gain on disposal of property and equipment -- (9,000)
Unrealized gain on marketable securities (1,157) -- (6,828) --
Proceeds from sale of marketable securities 22,323 -- 32,580 2,186,925
(Increase) decrease in:
Accounts receivable (119,657) 178,595 (174,375) (441,136)
Advances to financial planners 54,662 (51,989) (78,214) (653,768)
Security deposits (2,367) (7,548) (16,872) (100,486)
Prepaid expenses and other current assets (60,891) (258,880) (115,009) 26,786
Accounts payable, accrued expenses and other
current liabilities (246,592) (72,134) (109,312) 461,998
Income taxes payable -- -- 5,598 --
----------- ----------- ----------- -----------
Net cash provided by (used in) operating activities (281,843) (433,780) 1,516,445 2,621,862
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (54,737) (270,516) (592,362) (900,385)
Acquisition of intangible assets (166,865) (487,442)
(13,655) (730,076)
</TABLE>
F-7
<PAGE> 79
<TABLE>
<S> <C> <C> <C> <C>
Investments (39,394) -- (150,000) (448,360)
Purchase of marketable securities (23,048) -- -- --
Proceeds from sales of investments -- -- 378,009 --
Proceeds from related party transactions 190,646 219,460 398,545 152,655
Payments to related parties -- (29,000) (676,250) (494,220)
----------- ----------- ----------- -----------
Net cash provided by (used in) investing activities 59,812 (246,921) (1,129,500) (2,420,386)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Acquisition of treasury stock (151,395) -- (733,200) --
Proceeds from bank and other loans -- 250,000 3,602,000 2,297,222
Payments of bank and other loans (101,487) (547,934) (2,859,262) (2,000,000)
Proceeds from sale of common stock
and exercise of stock options 18,125 -- 100,857 76,526
Proceeds from stock subscriptions 30,614 19,387 261,954 310,809
Incurrence of deferred registration costs 30,000 -- (60,600) --
----------- ----------- ----------- -----------
Net cash provided by (used in) financing activities (174,143) (278,547) 311,749 684,557
----------- ----------- ----------- -----------
Net increase (decrease) in cash (396,174) (959,248) 698,694 886,033
CASH, beginning of period 2,920,489 2,221,795 2,221,795 1,335,762
----------- ----------- ----------- -----------
CASH, end of period $ 2,524,315 $ 1,262,547 $ 2,920,489 $ 2,221,795
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash paid during the period for-
Interest $ 34,012 $ 16,937 $ 196,405 $ 107,184
Income taxes 58,830 22,515 439,724 449,276
Noncash transactions-
Liquidation of investment in partnership into
Marketable securities -- -- 68,830 --
Reissuance of treasury stock at fair value -- -- 94,644 --
Issuance of common stock in exchange for stock
subscriptions receivable -- -- -- 40,000
Acquisition of treasury stock and write-off of stock
subscriptions receivable -- -- -- 67,590
Retirement of all outstanding treasury stock -- -- -- 479,465
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-8
<PAGE> 80
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE THREE-MONTH PERIODS ENDED SEPTEMBER 30,
1997 AND 1996 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 ("JT"), is a registered broker-dealer and investment advisor,
pursuant to the provisions of the Securities Exchange Act of 1934 and the
Investment Advisors Act of 1940.
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of all majority-owned
subsidiaries. All significant intercompany transactions have been eliminated.
The Company's investments in 20% to 50% owned companies in which it has the
ability to exercise significant influence over operating and financial policies
are accounted for on the equity method. Accordingly, the Company's share of the
earnings of these companies is included in consolidated net income.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
Marketable Securities
The Company has classified its short-term investments in debt instruments as
trading securities that are reported at fair value with unrealized gains and
losses included in earnings.
F-9
<PAGE> 81
Advances to Financial Planners
The Company entered into agreements with independent financial planners
("Planners"), which require the Planners to become captive agents of the
Company. In connection therewith, the Company advanced funds to financial
planners. The agreements require the advances to be forgiven over three years as
long as the Planners remain with the Company. As such, all advances are
amortized on a straight-line basis over three years.
Property and Equipment
Property and equipment are carried at cost. Depreciation and amortization are
determined using straight-line or accelerated methods over the estimated useful
lives of the assets or, for leasehold improvements, over the lease terms which
range from one to seven years.
Intangible Assets
Intangible assets represent the costs of $1,548,186 and $1,615,546 for September
30, 1997 and June 30, 1997, respectively, to acquire lists of customer accounts
and related covenants not to compete. Amortization is computed on a
straight-line basis over a period of five years and amounted to $85,714,
$70,777, $274,613, $190,817 for the three-month periods ended September 30, 1997
and 1996 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 estimated
future operating cash flows of the relevant assets acquired are determined to be
less than their carrying amount. If the Company determines that impairment has
occurred, the measurement of the impairment will be equal to the excess of the
carrying amount of the intangible assets over the amount of the undiscounted
estimated operating cash flows.
For the three-month periods ended September 30, 1997 and 1996 and the years
ended June 30, 1997 and 1996, the Company acquired customer lists and entered
into non-competition agreements for approximately $14,000, $167,000, $487,000
and $730,000, respectively.
Impairment of Long-Lived Assets
During March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of." The Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that full recoverability is questionable. Management
evaluates the recoverability of its intangible assets and other long-lived
assets and several factors are used in the valuation including, but not limited
to, management's plans for future operations, recent operating results and
projected cash flows. The Company adopted SFAS No. 121 in fiscal 1997, the
adoption of which did not have any effect on the results of operations or
financial condition.
Deferred Rent
F-10
<PAGE> 82
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.
Revenue Recognition
The Company recognizes all revenues upon completion of the services associated
with income tax preparation and direct mail services. Securities transactions
and related commission revenue and expenses are recognized on a trade date
basis.
JT utilizes financial planners who enter into commission sharing agreements with
the Company pursuant to which the Company receives a portion of the commission
revenues generated by these individuals in exchange for providing client
referrals, office space, and clerical and secretarial support. The portion of
the commission revenues received by the Company averages approximately 47%.
Advertising
The cost of advertising is expensed as incurred.
Reimbursement of Financial Planning Expenses
Based on an employment agreement between the Company and one of its managers,
the manager was required to reimburse the Company for certain expenses incurred
on behalf of the Company should he fail to achieve certain gross revenue
criteria. Based on these criteria, the Company was entitled to be reimbursed for
$125,000 of these expenses in fiscal 1996. The Company offset the manager's
earnings by this amount in fiscal 1997.
Income Taxes
Income taxes have been provided using the liability method in accordance with
SFAS No. 109 "Accounting for Income Taxes." Under SFAS 109, deferred tax assets
and liabilities are determined based on differences between the financial
reporting and tax basis of assets and liabilities and are measured by applying
estimated tax rates and laws to taxable years in which such differences are
expected to reverse.
Stock-based Compensation
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock Based Compensation," encourages, but does not require companies to record
compensation cost for stock-based employee compensation plans at fair value. The
Company has chosen to continue to account for stock-based compensation awards to
employees using the intrinsic value method prescribed in Accounting Principles
Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees," and
related Interpretations. Accordingly, compensation cost for stock options
awarded to key employees and directors is measured as the excess, if any, of the
quoted market price of the Company's stock at the date of grant over the amount
an employee or director must pay to acquire the stock.
F-11
<PAGE> 83
As required, the Company has adopted SFAS No. 123 to account for stock-based
compensation awards to outside consultants. Accordingly, compensation costs for
stock option awards granted to outside consultants is measured at the date of
grant based on the fair value of the award using the Black-Scholes option
pricing model. (Note 9).
Net Income Per Share
Primary and fully diluted earnings per share are computed using the treasury
stock method, modified for stock options and warrants outstanding in excess of
20% of the total outstanding shares of common stock. Under this method, the
aggregate number of shares outstanding reflects the assumed use of proceeds from
the hypothetical exercise of the outstanding options and warrants, unless the
effect on earnings is anti-dilutive. The assumed proceeds are used to repurchase
shares of common stock at the average market value during the period to a
maximum of 20% of the shares outstanding. The balance of the proceeds, if any,
are used to reduce outstanding debt with the assumed interest expense savings
being added to the results of operations for the reported period.
Fully diluted earnings per share also reflects the assumed use of proceeds from
the hypothetical exercise of options and warrants to purchase common stock at
the ending market price for the reported period.
Fair Value of Financial Instruments
The carrying amounts of financial instruments, including cash, marketable
securities, accounts receivable, notes receivable, accounts payable and
borrowings, approximated fair value as of September 30, 1997 and June 30, 1997,
because of the relatively short-term maturity of these instruments and their
market interest rates.
Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share." This
statement establishes new standards for computing and presenting earnings per
share (EPS), replacing the presentation of currently required primary EPS with a
presentation of basic EPS. For entities with complex capital structures, the
statement requires the dual presentation of both basic EPS and diluted EPS on
the face of the statement of operations. Under this new standard, basic EPS is
computed based on weighted average shares outstanding and excludes any potential
dilution. Diluted EPS reflects potential dilution from the exercise or
conversion of securities into common stock or from other contracts to issue
common stock. SFAS 128 is effective for financial statements issued for periods
ending after December 15, 1997, and earlier application is not permitted. When
adopted, the Company will be required to restate its EPS data for all prior
periods presented. The Company does not expect the impact of the adoption of
this statement to be material to previously reported EPS amounts.
Interim Periods Presented
The interim consolidated financial statements for the three months ended
September 30, 1997 and 1996 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-12
<PAGE> 84
three month period ended September 30, 1997, are not necessarily indicative of
the results that may be expected for the year ending June 30, 1998.
3. RECEIVABLES FROM RELATED PARTIES
September 30, June 30,
1997 1997
-------- --------
Notes receivable from officers/stockholders of the
Company that are due in aggregate bi-weekly
installments of $2,295 (including interest at 7%
per annum) commencing October 3, 1997 through June
30, 2000. $350,000 $350,000
Notes receivable of $52,250 and $100,000 from
independent contractors/stockholders of the
Company due on December 18, 1997 and June 19,
1999, respectively. Interest is charged at 9% and
6% per annum, respectively. 152,250 152,250
Receivable from stockholder of the Company, due in
bi-weekly installments of $3,156 through June 15,
1999. 131,340 147,362
Note receivable from stockholder of the Company
due on October 9, 1997. Interest is charged at 8%
per annum. 115,989 113,989
Other 47,012 57,244
-------- --------
796,591 820,845
Less- Current portion 394,296 373,039
-------- --------
$402,295 $447,806
======== ========
Interest income from these receivables was approximately $4,600, $3,200,
$10,000, and $13,000 for the three-month periods ended September 30, 1997 and
1996 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:
September 30, June 30,
1997 1997
-------- --------
Unamortized portion of non-interest bearing
advances to financial planners. $251,945 $287,232
Notes receivable from financial planner due
December 4, 1998.
Interest is charged at 6% per annum. -- 57,500
-------- --------
251,945 344,732
Less- Current portion 167,993 175,493
-------- --------
$ 83,952 $169,239
======== ========
F-13
<PAGE> 85
5. PROPERTY AND EQUIPMENT
Major classes of property and equipment consist of the following:
September 30, June 30,
1997 1997
---------- ----------
Buildings $ 402,367 $ 402,367
Equipment 2,089,904 2,038,237
Furniture and fixtures 370,554 367,484
Leasehold improvements 183,415 183,415
---------- ----------
3,046,240 2,991,503
Less- Accumulated depreciation and amortization 1,420,466 1,312,397
---------- ----------
$1,625,774 $1,679,106
========== ==========
For the three-month periods ended September 30, 1997 and 1996 and the years
ended June 30, 1997 and 1996, depreciation and amortization expense from
property and equipment was approximately $194,000, $172,000, $394,000 and
$321,000, respectively.
6. OTHER ASSETS
Other assets consist of the following:
September 30, June 30,
1997 1997
-------- --------
Investment in ATM Partners, LP (Note 10) $281,547 $271,870
Security deposits 212,291 226,724
Other assets 221,929 150,946
-------- --------
$715,767 $649,540
======== ========
7. BANK DEBT
Bank debt consists of the following:
September 30, June 30,
1997 1997
---------- ----------
Bank line of credit $ 500,000 $ 500,000
Term loan 750,000 833,333
Notes payable - other 100,000 118,154
---------- ----------
1,350,000 1,451,487
Less- Short-term borrowings 883,333 899,487
---------- ----------
$ 466,667 $ 552,000
========== ==========
The Company has a bank line of credit which provides for borrowings up to a
maximum amount of $2,500,000 and expires on October 31, 1997. The line of credit
has been renewed through October 31, 1998. The line of credit is guaranteed by
the four principal stockholders of the Company. At September 30, 1997 and June
30, 1997, the Company had borrowings of $500,000 outstanding under this line of
credit. Interest is charged at the prime rate (8.5% at September 30, 1997 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 September 30, 1997
and June 30, 1997) plus 1.75%
F-14
<PAGE> 86
through December 17, 1999. The loan is collateralized by all of the Company's
assets. At September 30, 1997 and June 30, 1997, the Company's outstanding
balance under this loan was $750,000 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.
1998 1,512,988
1999 1,059,640
2000 723,293
2001 415,111
2002 129,104
----------
3,840,136
==========
Professional Liability or Malpractice Insurance
The Company does not maintain any professional liability or malpractice
insurance policy. Although the Company believes it complies with all applicable
laws and regulations, no assurance can be given that the Company will not be
subject to professional liability or malpractice suits.
Clearing Agreements
All securities transactions are introduced and cleared on a fully disclosed
basis through a correspondent broker that is a member of the New York Stock
Exchange, Inc. (the "Broker") pursuant to a clearing agreement (the
"Agreement"). The Agreement states that JT will assume customer obligations
should a customer of JT default. At September 30, 1997 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 June 30, 1997, JT had net capital of $2,007,331, which was $1,982,331 in
excess of its required net capital of $25,000. At September 30, 1997 and June
30, 1997, JT had net capital of $1,469,426 and $2,007,331, respectively, which
was $1,444,426 and $1,982,331, respectively, in excess of its required net
capital of $25,000.
Financial Instruments with
Off-Balance Sheet Risk
F-15
<PAGE> 87
In the normal course of business, JT executes, as an agent, transactions on
behalf of customers. If the agency transactions do not settle because of failure
to perform by either the customer or the counterparties, JT may be obligated to
discharge the obligation of the nonperforming party and, as a result, may incur
a loss if the market value of the security is different from the contract amount
of the transactions.
JT does not anticipate nonperformance by customers or counterparties in the
above situation. JT's policy is to monitor its market exposure and counterparty
risk. In addition, JT has a policy of reviewing, as considered necessary, the
credit standing of each counterparty and customer with which it conducts
business.
9. STOCKHOLDERS' EQUITY
Warrants
The Company has 507,926 and 50,783 warrants outstanding pertaining to those
issued to the public and the underwriter, respectively, in connection with the
Initial Public Offering in 1994. Each warrant issued to the public grants the
holder the right to purchase one share of common stock at an exercise price of
$4.67 and expires in September 1998. For an exercise price of $8.40 per warrant,
each of the warrants issued to the underwriter gives the holder two shares of
common stock and a warrant to purchase another share of common stock at an
exercise price of $4.67 and expire in September 1999.
Stock Option Agreements
and Stock Option Plan
The Company has granted stock options to employees, directors and consultants
pursuant to individual agreements or to its incentive and non-qualified stock
option plan.
In September 1993, the Company's Board of Directors and Stockholders adopted the
Company's Joint Incentive and NonQualified Stock Option Plan (the "Option
Plan"). The Option Plan provides for the granting, at the discretion of the
Board of Directors, of: (i) options that are intended to qualify as incentive
stock options, within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended, to employees and (ii) options not intended to so qualify to
employees, officers and directors. The total number of shares of common stock
for which options may be granted under the Option Plan is 816,000 shares. The
number of shares granted, prices, terms of exercise, and expiration dates are
determined by the Board of Directors. The Plan will terminate in September 2003.
At September 30, 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:
Weighted
Average
Number of Shares Exercise Price
---------------- --------------
Outstanding, July 1, 1995 1,110,002 $3.48
Granted 355,000 4.43
Exercised (10,000) 2.00
F-16
<PAGE> 88
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, September 30, 1997 and June 30, 1997 1,366,002 3.59
=========
Exercisable, September 30, 1997 and June 30, 1997 1,093,002 3.81
=========
The weighted average grant date fair value of options granted during the year
ended June 30, 1997 is $.16 per option.
Options outstanding and exercisable at September 30, 1997 and June 30, 1997 and
related weighted average exercise price and life information follows:
Options Outstanding Options Exercisable
Fiscal Year --------------------- --------------------- Remaining
Grant Date Shares Price Shares Price Life (Years)
- ---------- ------ ----- ------ ----- ------------
1994 420,002 $2.95 420,009 $2.95 1
1995 405,000 3.34 405,000 3.34 6
1996 268,000 4.88 268,000 4.88 3
1997 273,000 2.70 - - 4
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>
Three Months ended September 30, Years ended June 30,
-------------------------------- --------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss), as reported $(112,640) $ (587,098) $ 875,994 $534,726
Net income (loss), pro forma (183,150) (1,034,003) 832,418 101,098
Earnings (loss) per share, as reported (0.02) (0.11) 0.16 0.10
Earnings (loss) per share, pro forma (0.03) (0.19) 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:
Expected life (years) 3
Interest rate 7.00%
F-17
<PAGE> 89
Volatility 61.9%
Dividend yield 0%
On May 19, 1997, the Company adopted the Company's 1997 Common Stock and
Incentive and Non-Qualified Stock Option Plan of Gilman & Ciocia, Inc. (the
"1997 Plan"), pursuant to which the Company may grant options to purchase up to
an aggregate of 300,000 shares. Such options may be intended to qualify as
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended ("Incentive Options"), or they may be intended
not to qualify under such Section ("Non-Qualified Options"). No Incentive
Options will be issued pursuant to the 1997 Plan until such 1997 Plan is
approved by the shareholders of the Company.
Treasury Stock
During fiscal 1995, the Board of Directors resolved to accept 85,930 and 11,034
shares, respectively, of the Company's common stock from four officers in lieu
of repayment of certain loans due to the Company. The shares were valued at the
approximate fair market value of $3.50 per share for an aggregate value of
$339,375. Of the 96,964 shares, 85,930 were returned to treasury stock on August
23, 1995. The remaining 11,034 shares were returned to treasury stock on
September 22, 1995.
During fiscal 1996, the Board of Directors of the Company resolved to cancel and
return all existing shares of the Company's treasury stock to authorized and
unissued shares of common stock.
During fiscal 1997, the Company acquired 175,900 shares of its common stock for
an aggregate cost of $733,200 and reissued 18,467 of these shares to employees
and consultants. The reissuance gave rise to the recognition of compensation
expense in the amount of $41,551 representing the excess of the fair value of
these shares at reissuance over their cost.
For the three months ended September 30, 1997, the Company acquired 56,300
shares of its common stock for an aggregate cost of $151,395.
Stock Subscriptions and
Accrued Interest Receivable
Stock subscriptions receivable of $197,165 and $223,168 at September 30, 1997
and June 30, 1997, respectively, bear interest at a rate of 9% per annum. For
the three-month periods ended September 30, 1997 and 1996 and the years ended
June 30, 1997 and 1996, the Company recognized interest income of $4,288,
$10,305, $27,108 and $35,879, respectively. At September 30, 1997 and June 30,
1997 accrued interest receivable were $22,631 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:
Year ending June 30:
1998 $ 90,013
F-18
<PAGE> 90
1999 64,387
2000 45,250
---------
$ 199,650
=========
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"). All investment transactions are executed
through JT. At September 30, 1997, 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 $21,000, $(93,000), $73,000 and
$198,000 from the Partnership for the three-month periods ended September 30,
1997 and 1996 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 the Company expects that the
investment of the Partnership will be fully liquidated during the Company's 1998
fiscal year.
Commissions Earned by Officers
The Company's principal officers/stockholders act as registered representatives
of the Broker and authorized agents of insurance carriers. During fiscal 1997
and 1996, these individuals earned commissions of approximately $302,000 and
$402,000 respectively, from sales of securities and insurance products. For the
three-month periods ended September 30, 1997 and 1996, the individuals earned
commissions of approximately $131,000 and $58,000 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.
F-19
<PAGE> 91
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.
The following presents financial information by segment for the years ended June
30, 1997 and 1996:
<TABLE>
<CAPTION>
Tax Financial
Preparation Planning Direct Mail Eliminations Consolidation
----------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1997:
Revenues from unaffiliated customers $9,921,967 $6,961,602 $ 2,188,320 $ -- $19,071,889
Intersegment revenues -- -- 2,275,000 (2,275,000) --
---------- ---------- ----------- ----------- -----------
Total revenues 9,921,967 6,961,602 4,463,320 (2,275,000) 19,071,889
Direct costs 6,025,407 4,227,115 4,162,670 (2,275,000) 12,140,192
Depreciation and amortization 450,091 315,761 20,070 -- 785,922
General corporate expenses 2,647,426 1,857,300 350,175 -- 4,854,901
---------- ---------- ----------- ----------- -----------
Operating income $ 799,042 561,428 (69,595) -- 1,290,874
========== ========== =========== =========== ===========
Interest expense $ 118,442 $ 83,092 $ -- $ -- $ 201,534
========== ========== =========== =========== ===========
Identifiable assets $7,135,360 $5,005,800 $ 329,938 $(3,376,844) $ 9,094,254
========== ========== =========== =========== ===========
Capital expenditures $ 553,446 $ -- $ 38,916 $ -- $ 592,362
========== ========== =========== =========== ===========
Direct costs consist of the following:
Direct mail costs $ -- $ -- $ 1,136,347 $ -- $ 1,136,347
Advertising 1,642,630 1,152,386 2,299,925 (2,275,000) 2,819,941
Rent 1,044,261 732,599 107,908 -- 1,884,768
Salaries and commissions 3,338,516 2,342,130 618,490 -- 6,299,136
---------- ---------- ----------- ----------- -----------
Total direct costs $6,025,407 $4,227,115 $ 4,162,670 $(2,275,000) $12,140,192
========== ========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Tax Financial
Preparation Planning Direct Mail Eliminations Consolidation
----------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1996:
Revenues from unaffiliated customers $8,147,986 $5,671,905 $ 2,689,786 $ -- $16,509,677
Intersegment revenues -- -- 2,000,000 (2,000,000) --
---------- ---------- ----------- ----------- -----------
Total revenues 8,147,986 5,671,905 4,689,786 (2,000,000) 16,509,677
Direct costs 4,260,631 3,052,737 4,429,177 (2,000,000) 9,742,545
Depreciation and amortization 302,304 210,076 13,088 -- 525,468
General corporate expenses 3,182,122 2,215,025 249,988 -- 5,647,135
---------- ---------- ----------- ----------- -----------
Operating income $ 402,929 $ 194,067 $ (2,467) $ -- $ 594,529
========== ========== =========== =========== ===========
Interest expense $ -- $ -- $ -- $ -- $ 107,111
========== ========== =========== =========== ===========
Identifiable assets $5,519,630 $2,048,485 $ 298,386 $ -- $ 7,866,501
========== ========== =========== =========== ===========
</TABLE>
F-20
<PAGE> 92
<TABLE>
<S> <C> <C> <C> <C> <C>
Capital expenditures $ 813,750 $ -- $ 86,635 $ -- $ 900,385
========== ========== =========== =========== ===========
Direct costs consist of the following:
Direct mail costs $ -- $ -- $ 1,682,108 $ -- $ 1,682,108
Advertising 1,509,001 1,048,628 2,027,496 (2,000,000) 2,585,125
Rent- 831,303 577,685 93,800 -- 1,502,788
Salaries and commissions 1,920,327 1,426,424 625,773 -- 3,972,524
---------- ---------- ----------- ----------- -----------
Total direct costs $4,260,631 $3,052,737 $ 4,429,177 $(2,000,000) $ 9,742,545
========== ========== =========== =========== ===========
</TABLE>
Intersegment sales are recognized upon the completion of the services associated
with direct mail services.
12. TAXES ON INCOME
Provisions for income taxes in the consolidated financial statements consist of
the following:
June 30, June 30,
-------- ---------
1997 1996
-------- ---------
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
======== =========
Deferred tax assets consist of the following:
Compensation expense recognized for financial reporting $ 93,200
purposes in connection with common
stock option grants issued at below market value
Book amortization of intangibles in excess of tax 129,600
Provision for bad debts 35,200
Provision for deferred rent liability 29,200
Book depreciation in excess of tax (139,823)
Investments accounted for under the equity method (119,478)
---------
$ 27,899
=========
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:
1997 1996
------------------ -----------------
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
F-21
<PAGE> 93
Reversal of overaccruals (156,000) (12.3) -- --
Other 41,762 (3.3) 6,716 .7
--------- ------ -------- ------
$ 393,600 31.0% $352,647 39.7%
========= ====== ======== ======
F-22
<PAGE> 94
No Person is authorized to give any information or to make any representation
other than those contained in this Prospectus, and if given or made, such
information or representation must not be relied upon as having been authorized.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any securities other than the securities offered by this Prospectus
or an offer to sell or a solicitation of an offer to buy the securities in any
jurisdiction to any person to whom it is unlawful to make such an offer or
solicitation in such jurisdiction.
TABLE OF CONTENTS
Page
Prospectus Summary..............................................................
Risk Factors....................................................................
Market of Common Equity and Related
Stockholder Matters.............................................................
Use of Proceeds.................................................................
Management's Discussion and Analysis or Plan
of Operation....................................................................
Description of Business.........................................................
Directors, Executive Officers, Promoters and
Control Persons ................................................................
Disclosure of Commission Position on
Indemnification for Securities Act Liabilities..................................
Security Ownership of Certain Beneficial Owners
and Management..................................................................
Executive Compensation..........................................................
Certain Relationships and Related Transactions..................................
Plan of Distribution............................................................
Selling Securityholders.........................................................
Description of Securities.......................................................
Legal Matters...................................................................
Interest of Named Experts and Counsel...........................................
Description of Property.........................................................
Financial Statements............................................................
Additional Information..........................................................
Changes in and Disagreements
with Accountants on Accounting and Financial
Disclosure......................................................................
Until the conclusion of the distribution of the securities offered hereby, there
is an obligation of dealers to deliver a Prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
507,926 Shares
of Common Stock
233,421 Shares
of Common Stock
by Selling Securityholders
50,783 Redeemable
Public Warrants
by
Selling Security Holders
GILMAN & CIOCIA, INC
PROSPECTUS
January 30, 1998
<PAGE> 95
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 by this Corporation as authorized in this section.
II-1
<PAGE> 96
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:
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 .................................. 20,000
Blue Sky Fees and Expenses .................................... -0-
Printing Expenses ............................................. 10,000
First Colonial Securities Group, Inc. ......................... 160,000
Legal Fees .................................................... 20,000
--------
Miscellaneous ................................................. 7,489
--------
TOTAL ............................................. $220,000
========
II-2
<PAGE> 97
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 Buscareno-Smith - 200 shares; Gerald Hoenings - 200 shares;
John Lentini - 200 shares; Mario Romilio - 1,000 shares; Deborah
II-3
<PAGE> 98
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.
II-4
<PAGE> 99
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.
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
868,000 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; Wallace Lau 200,000 shares of Common Stock
at $5.00 per
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share; Thomas Leung 40,000 shares of Common Stock at $5.00 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 20,000
shares of Common Stock at $6.00 per share; George 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
200,000 restricted shares of Common Stock to the following affiliated financial
planners and employees in the following amounts: Jeff Altman 87,500 shares of
Common Stock at $7.50 per
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share; Jeff Altman 43,750 shares of Common Stock at $9.50 per share; Jeff Altman
43,750 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; and Vernon Lemmon 6,250 shares of Common Stock at $11.50 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
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
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<PAGE> 102
SB-2 under the Securities Act of 1933, as amended, File
No. 33-70640-NY
5 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 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
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<PAGE> 103
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
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
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<PAGE> 104
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.
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
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<PAGE> 105
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
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
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<PAGE> 106
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 BDO Seidman, LLP
23.3* Consent of Arthur Andersen, LLP
* To be filed by amendment.
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;
(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
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<PAGE> 107
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> 108
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
Amendment No.1 to the Registration Statement to be signed on its behalf by the
undersigned, in the City of Great Neck, State of New York, on January 30, 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 amendment to the registration statement was signed by the
following persons in the capacities and on the dates stated.
/s/ James Ciocia Director January 30, 1998
- ----------------------
James Ciocia
/s/ Thomas Povinelli Chief Operating January 30, 1998
- ---------------------- Officer, Chief
Thomas Povinelli Financial Officer
and Director
/s/ Gary Besmer Vice President January 30, 1998
- ---------------------- and Director
Gary Besmer
/s/ Kathryn Travis Vice President, January 30, 1998
- ---------------------- Secretary and Director
Kathryn Travis
/s/ Robert Hayes Controller January 30, 1998
- ----------------------
Robert Hayes
/s/ Louis Karol Director January 30, 1998
- ----------------------
Louis Karol
/s/ Seth Akabas Director January 30, 1998
- ----------------------
Seth Akabas
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<PAGE> 109
INDEX
Exhibit Description Page
- ------- ----------- ----
10.36+ Letter of Agreement between dated October 31, 1997
by and between First Colonial Securities Group Inc.
and the Registrant
23.1+ Consent of Akabas & Cohen
23.2* Consent of BDO Seidman, LLP
23.3* Consent of Arthur Andersen, LLP
- --------------------------------------------------------------------------------
* To be filed by amendment
+ Filed previously
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