U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly report under Section 13 or 15 (d) of the Securities
X Exchange Act of 1934 For the quarterly period ended 12/31/99
- ---
Transition report under Section 13 or 15 (d) of the Securities
Exchange Act of 1934 (No fee required)
- ---
For the transition period from to
-------- --------
Commission file number 000-22996
---------
GILMAN & CIOCIA, INC.
(Name of small business issuer in its charter)
Delaware 11-2587324
- ------------------------- -------------------------
(State of jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
1311 Mamaroneck Ave., Suite 160, White Plains, NY 10605
- ------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(914) 397-4829
------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months ( or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for past 90 days.
Yes X No
----- -----
State the number of shares outstanding of each class of the issuer's
classes of common equity, as of the latest practicable date. As of February 11,
2000, 7,689,033 shares of the issuer's common equity were outstanding.
<PAGE>
PART I
ITEM 1. Consolidated Financial Statements. Page
----
Consolidated Balance Sheet as of December 31, 1999
And June 30, 1999 F-1 - F-2
Consolidated Statements of Operations for the three and six-months
Ended December 31, 1999 and 1998 F-3
Consolidated Statements of Stockholders' Equity for the six months
Ended December 31, 1999 F-4
Consolidated Statements of Cash Flows for the six months ended
December 31, 1997 and 1998 F-5 - F-6
Notes to Consolidated Financial Statements F-7 - F-8
ITEM 2. Management's Discussion and Analysis
Plan of Operation
Gilman & Ciocia, Inc. is the first publicly traded company to combine
financial planning and tax preparation services. Gilman & Ciocia now has over
200,000 clients and over 150 offices in 17 states. The Company's E1040.com web
site enables clients to complete tax returns on line. During the six months
ended December 31, 1999, the Company purchased four new tax practices, one of
which is located in Florida, two in Colorado and another in Michigan. The
Company also acquired an asset management company which employs financial
planners located in New York.
These acquisitions represent an important step in our growth strategy to
establish a nationwide presence as a leading provider of tax preparation,
financial planning, estate planning and mortgage lending services.
The Company plans to continue its tax practice expansion and recruit
successful financial planners. In addition, the Company anticipates that it may
acquire existing securities broker/dealers, insurance agencies, and mortgage
bankers to increase the number of financial planners who provide financial
planning services to clients of the company.
The Company anticipates funding this growth from the proceeds of future
equity offerings, if any, operating profits and use of its current debt
facility.
In November, 1998, the Company acquired all of the outstanding stock of
North Ridge Securities Corp., ("North Ridge") a securities broker/dealer, and
North Shore Capital Management Corp., ("North Shore"), a company that supplies
management services to North Ridge for $5,250,000 in cash and short-term notes.
The acquired companies are a full-service financial organization, which provides
its clients with a wide range of financial investment services. The acquisition
has been accounted for by the purchase method. The results of operations of
North Shore and North Ridge have been included in the Company's operations from
November 1, 1998.
2
<PAGE>
In April, 1999, the Company acquired all of the outstanding stock of Prime
Capital Services, Inc. and Asset and Financial Planning Ltd. as well as certain
assets of Prime Financial Services, Inc. in exchange for 751,004 shares of the
Company's common stock. The three acquisitions which are collectively referred
to as "Prime", have been accounted for using the purchase method of accounting.
The results of operations of Prime have been included in the Company's
operations from April 1, 1999. Effective June 30, 1999, the Company terminated
its relationship with Royal Alliance Associates, Inc., an independent registered
broker/dealer, which had previously been referred clients by the Company and
which had retained approximately six percent (6%) of the total securities
commissions generated by financial planners to whom the Company had referred
clients.
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 by taking advantage of economies of scale .The
Company's direct mail division operates as an independent division and solicits
its own customers for its direct mail services.
Results of Operations
Six Months ended December 31, 1999 and 1998 Compared.
The Company's revenues for the six months ended December 31, 1999 were
$27,074,295 as compared to revenues of $11,857,351 for the comparable period of
the prior year. This increase was attributable primarily to increased
commissions from increased sales of financial planning services and additional
financial planners resulting from acquisitions in Fiscal 1999 of Prime which was
acquired in April of 1999 and North Ridge which was acquired in November 1998.
The Company's total revenues for the six months ended December 31, 1999
consist of $583,476 for tax preparation services, $26,006,815 for financial
planning services, and $484,004 for direct mail services. The Company's total
revenues for the six months ended December 31, 1998 consist of $426,872 for tax
preparation services, $10,652,539 for financial planning services and $777,940
for direct mail services.
The increase in the Company's financial planning revenues for the six
months ended December 31, 1999 compared to the prior year's period is
approximately 144%. The increase in such financial planning revenues is
attributable to the continued growth of the existing offices and the increase of
production from new financial planners. The remaining growth in financial
planning revenues is a result of increased securities and insurance transactions
attributable to existing financial planners and additional revenues generated
from the acquisition of Prime and North Ridge.
The Company's operating expenses for the six months ended December 31,
1999 were $32,586,580 as compared to operating expenses of $12,202,153 for the
comparable period of the prior year. The increase in operating expenses was
attributable to an increase in salaries and commissions in the amount of
$15,086,185, an increase in general and administrative expenses of $2,443,498,
an increase in advertising expenses of $695,749, an increase in depreciation and
amortization of $684,655, an increase in rent expense of $606,385, and an
increase in brokerage fees of $867,955.
3
<PAGE>
The increase in operating expenses was primarily attributable to the costs
associated with an increase of financial planning services (including the number
of financial planners and the overall financial planning revenues). This
resulted in an increase in salaries and commissions primarily due to an increase
in commissions payable to financial planners as a result of the increased sales
of financial planning services and the addition of financial planners from the
acquisition of North Ridge and Prime.
The increase in general and administrative expenses is due primarily to
the Company's expansion of operations from the opening of seven new offices in
Fiscal 1999 and from the acquisitions of Prime and North Ridge. This expansion
resulted in an increase in office expenses for the six months ended December 31,
1999.
Advertising costs increased due to expenses associated with the mailing
costs relating to newsletters and financial planning seminars.
The increase in depreciation and amortization expense is due primarily to
the depreciation of new computer equipment and the amortization of additional
intangible assets from the acquisitions of Prime and North Ridge.
The Company's net loss for the six months ended December 31, 1999 was
$3,133,728 as compared to $197,923 for the six months ended December 31, 1998.
The increase is primarily due to higher operating costs associated with salaries
and commissions and general and administrative expenses for E1040.
The Company's business is highly seasonal, with the majority of its tax
revenue earned in the first four months of the calendar year. The Company does
not consider inflation to be a risk to the cost of doing business in the current
or foreseeable future.
Three Months Ended December 31, 1999 and 1998 Compared
The Company's revenues for the three months ended December 31, 1999 were
$14,337,566 as compared to revenues of $6,092,917 for the comparable period of
the prior year. This increase was attributable primarily to increased
commissions from increased sales of financial planning services and additional
financial planners resulting from acquisitions in Fiscal 1999 of Prime and North
Ridge.
The Company's total revenues for the quarter ended December 31, 1999
consist of $205,606 for tax preparation services, $13,906,675 for financial
planning services, and $225,285 for direct mail services. The Company's total
revenues for the quarter ended December 31, 1998 consist of $185,681 for tax
preparation services, $5,472,573 for financial planning services and $434,663
for direct mail services.
The increase in the Company's financial planning revenues for the quarter
ended December 31, 1999 compared to the prior year's period is approximately
154%. The increase in such financial planning revenues is attributable to the
continued growth of the existing offices and the increase of production from new
financial planners. The remaining growth in financial planning revenues is a
result of increased securities and insurance transactions attributable to
existing financial planners and additional revenues generated from the
acquisition of North Ridge and Prime.
The Company's operating expenses for the quarter ended December 31, 1999
were $16,920,922 as compared to operating expenses of $6,197,858 for the
comparable period of the prior year. The increase in operating expenses was
attributable to an increase in salaries and commissions in the amount of
$7,922,525, an increase in general and administrative expenses of $1,256,364, an
increase in advertising expenses of $354,161, an increase in rent expense of
$289,911, an increase in depreciation and amortization of $394,167, and an
increase in brokerage fees of $505,936.
4
<PAGE>
The increase in operating expenses was primarily attributable to the costs
associated with an increase of financial planning services (including the number
of financial planners and the overall financial planning revenues).
The increase in salaries and commissions is primarily due to an increase
in commissions payable to financial planners as a result of the increased sales
of financial planning services and the addition of financial planners from the
acquisition of North Ridge and Prime.
The increase in general and administrative expenses is due primarily to
the Company's expansion of operations from the opening of seven new offices in
Fiscal 1999. This expansion resulted in an increase in office expenses for the
quarter ended December 31, 1999.
Advertising costs increased due to expenses associated with the mailing
costs relating to newsletters and financial planning seminars.
The Company's net loss for the three months ended December 31, 1999 was
$1,505,776 as compared to $75,456 for the three months ended December 31, 1998.
The increase is primarily due to higher operating costs associated with salaries
and commissions and general and administrative expenses for E1040.
The Company's business is highly seasonal, with the majority of its tax
revenue earned in the first four months of the calendar year. The Company does
not consider inflation to be a risk to the cost of doing business in the current
or foreseeable future.
Liquidity and Capital Resources
The Company's revenues have been, and are expected to be, highly seasonal.
As a result, the Company must generate sufficient cash during the tax season, in
addition to its available bank credit facility to fund its operations.
Operations during the non-tax season are primarily focused on financial planning
services.
The Company's cash flows used in operating activities were $2,662,961 and
$3,507,359 for the six months ended December 31, 1999 and 1998, respectively.
The decrease of cash flows used in operating activities of $844,398 is due
primarily to an increase in accounts payable and other current liabilities and
offset by an increase in net losses for the period.
Net cash used in investing activities was $1,285,212 and $5,452,924 for
the six months ended December 31, 1999 and 1998, respectively. The decrease of
$4,167,712 is primarily due to a decrease in purchases of businesses of
$3,957,980 and a decrease in notes receivable from related parties of $130,498.
Net cash provided by financing activities was $4,408,012 and $8,453,913
for the six months ended December 31, 1999 and 1998, respectively. The decrease
in net cash provided by financing activities of $4,045,901 is primarily due to a
decrease in the proceeds from sale of stock and exercise of stock options and
warrants of $2,452,722 and a decrease in net borrowings from bank loans of
$1,613,070.
5
<PAGE>
During September 1999, the Company refinanced its credit facilities with
Merrill Lynch. The new facility provides for borrowings up to $10,000,000 and is
apportioned into three separate loans as follows: a line of credit of up to
$4,000,000 and two revolver loans aggregating up to $6,000,000. The interest
rate on the line of credit is 2.9% plus the 30-day commercial paper rate. The
line of credit facility expires on June 30, 2000. The interest rate on the two
revolver loans is 3.15% plus the 30-day commercial paper rate. The terms of the
two revolving loan facilities are sixty months from the date fully drawn. The
loans are collateralized by all of the Company's assets and are guaranteed by
each of the three principal officers of the company up to $1,750,000 each. The
outstanding balances at December 31, 1999 under the line of credit and the
revolving loan facilities were $2,567,651 and $4,573,266, respectively.
Year 2000 Compliance
The Company completed the installation of the Great Plains accounting
system, which is year 2000 compliant. The Company did not experience any unusual
year 2000 compatibility matters, and does not anticipate any material additional
costs with regard to its year 2000 compliance.
PART II
ITEM 1. Legal Proceedings
In August 1998, a legal action was instituted against the Company
pertaining to a wrongful death matter allegedly sustained in a Company
automobile more than nine years ago. The complaintant seeks indemnification in
the amount of up to $3.5 million. The allegations in the complaint are based
upon a $1.7 million payment made by the plaintiffs plus an additional $1.8
million payment for which plaintiffs ultimately may be held liable. An
additional action is currently pending to determine the liability allocation.
The Company answered the complaint by asserting numerous defenses which it
believes are meritorious. The Company is unable to determine at this time the
ultimate success of any asserted allegation or defense.
In addition, in July 1999, a lawsuit was initiated against the Company by
a consultant demanding the issuance of 150,000 warrants to purchase the
Company's common stock at $5.13 per share, alleged to have been issuable under a
consulting agreement pursuant to which the consultant was to have provided
consulting services to the Company. The Company believes that the consultant
defaulted under such agreement and provided no material service to the Company.
The Company has answered the complaint and is defending such suit vigorously.
ITEM 2. Exhibits; Lists and Reports on Form 8-K
(a) Exhibits
3.1 Registrant's Articles of Incorporation, as amended, incorporated by
reference to the like-numbered exhibit in the Registrant's
Registration Statement on Form SB-2 under the Securities Act of 1933,
as amended, File No. 33-70640-NY
6
<PAGE>
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
27 Gilman & Ciocia, Inc. - Financial Data Schedule, Dated December 31,
1999
(b) Reports on Form 8-K
No Reports on Form 8-K have been filed during the quarter ended
December 31, 1999.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
Market Risks and Sensitivity Analysis
The Company is exposed to various market risks, including changes in
interest rates. This analysis presents the hypothetical loss in earnings, cash
flows and fair values of the financial instruments which are held by the Company
at December 31, 1999, and are sensitive to the above market risks. As of
December 31, 1999 the financial instruments subject to this risk were the line
of credit and two revolving loans outstanding at December 31, 1999 with interest
at the 30 day commercial paper rate plus spread. See discussion of refinancing
in the notes to the consolidated financial statements.
7
<PAGE>
SIGNATURE
In accordance with Section 13 or 15 (d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: February 14, 2000
GILMAN & CIOCIA, INC.
By/s/Thomas Povinelli
- --------------------
Thomas Povinelli
Chief Operating Officer
By/s/Stephen B. Sacher
- ------------------
Stephen B. Sacher
Chief Financial Officer
8
<PAGE>
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 1999
---- ----
(UNAUDITED) (AUDITED)
----------- ---------
<S> <C> <C>
CURRENT ASSETS:
CASH $ 3,913,193 $ 3,453,354
MARKETABLE SECURITIES 398,973 316,937
ACCOUNTS RECEIVABLE, NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS
OF $87,500 4,153,999 3,585,518
RECEIVABLE FROM RELATED PARTIES, CURRENT PORTION 1,166,559 568,233
PREPAID EXPENSES AND OTHER CURRENT ASSETS 3,095,905 983,130
PREPAID INCOME TAXES 4,082,436 1,460,259
DEFERRED TAX ASSETS, CURRENT PORTION 198,000 183,000
----------- -----------
TOTAL CURRENT ASSETS 17,009,065 10,550,431
----------- -----------
PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION 2,817,811 2,372,174
----------- -----------
OTHER ASSETS:
INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION 20,479,216 17,387,317
RECEIVABLES FROM RELATED PARTIES, NET OF CURRENT
PORTION 73,652 1,570,964
SECURITY DEPOSITS 596,737 374,348
DEFERRED TAX ASSETS 25,000 10,000
OTHER ASSETS 785,521 733,746
----------- -----------
TOTAL OTHER ASSETS 21,960,126 20,076,375
----------- -----------
TOTAL ASSETS $41,787,002 $32,998,980
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
<PAGE>
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 1999
---- ----
(UNAUDITED) (AUDITED)
----------- ---------
<S> <C> <C>
CURRENT LIABILITIES:
CURRENT PORTION OF LONG-TERM DEBT $ 2,671,134 $ 1,695,529
DUE TO FORMER OWNERS OF ACQUIRED BUSINESSES 2,831,265 --
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 7,527,632 3,605,386
------------ ------------
TOTAL CURRENT LIABILITIES 13,030,031 5,300,915
------------ ------------
LONG-TERM DEBT - NET OF CURRENT PORTION 5,918,060 2,738,124
------------ ------------
STOCKHOLDERS' EQUITY:
PREFERRED STOCK-$.001 PAR VALUE - SHARES AUTHORIZED
100,000: NONE ISSUED AND OUTSTANDING -- --
COMMON STOCK - $.01 PAR VALUE - SHARES AUTHORIZED
20,000,000: ISSUED 7,614,011 SHARES (DECEMBER 31, 1999) AND 7,508,266,
SHARES (JUNE 30, 1999) 76,140 75,083
PAID-IN-CAPITAL 20,976,736 20,027,444
RETAINED EARNINGS 2,652,130 5,785,858
------------ ------------
23,705,006 25,888,385
LESS-TREASURY STOCK, AT COST: 204,645 SHARES (DECEMBER 31, 1999)
AND 199,645 SHARES (JUNE 30,1999) (822,543) (777,039)
STOCK SUBSCRIPTIONS AND ACCRUED INTEREST RECEIVABLE (162,347) (159,646)
ACCUMULATED COMPREHENSIVE INCOME:
UNREALIZED GAIN ON MARKETABLE SECURITIES, NET OF
TAXES 118,795 8,241
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 22,838,911 24,959,941
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 41,787,002 $ 32,998,980
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-2
<PAGE>
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
December 31 December 31
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
TAX PREPARATION FEES $ 205,606 $ 185,681 $ 583,476 $ 426,872
FINANCIAL PLANNING SERVICES 13,906,675 5,472,573 26,006,815 10,652,539
DIRECT MAIL SERVICES 225,285 434,663 484,004 777,940
------------ ------------ ------------ ------------
TOTAL REVENUES 14,337,566 6,092,917 27,074,295 11,857,351
------------ ------------ ------------ ------------
OPERATING EXPENSES:
SALARIES AND COMMISSIONS 12,113,858 4,191,333 23,234,669 8,148,484
GENERAL AND ADMINISTRATIVE EXPENSES 2,191,821 935,457 4,456,992 2,013,494
ADVERTISING 601,707 247,546 1,202,526 506,777
BROKERAGE FEES 505,936 -- 867,955 --
RENT 865,358 575,447 1,638,884 1,032,499
DEPRECIATION AND AMORTIZATION 642,242 248,075 1,185,554 500,899
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 16,920,922 6,197,858 32,586,580 12,202,153
------------ ------------ ------------ ------------
OPERATING (LOSS) (2,583,356) (104,941) (5,512,285) (344,802)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
INTEREST AND INVESTMENT INCOME 207,209 25,281 238,896 50,324
INTEREST EXPENSE (186,617) (48,281) (248,259) (49,420)
OTHER INCOME (EXPENSE) (67,188) 50 36,892 8,436
------------ ------------ ------------ ------------
TOTAL OTHER INCOME (EXPENSE) (46,596) (22,950) 27,529 9,340
------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAX (BENEFIT) (2,629,952) (127,891) (5,484,756) (335,462)
INCOME TAX BENEFIT (1,124,176) (52,435) (2,351,028) (137,539)
------------ ------------ ------------ ------------
NET LOSS $ (1,505,776) $ (75,456) $ (3,133,728) $ (197,923)
============ ============ ============ ============
BASIC AND DILUTED NET LOSS PER SHARE $ (0.20) $ (0.01) $ (0.43) $ (0.03)
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES:
BASIC AND DILUTED 7,371,827 6,052,768 7,349,693 5,724,183
============ ============ ============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-3
<PAGE>
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
STOCK
SUBSCRIPTION
AND ACCRUED
COMMON STOCK PAID-IN RETAINED INTEREST
SHARES AMOUNT CAPITAL EARNINGS RECEIVABLE
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED
DECEMBER 31, 1999
BALANCE AT JULY 1, 1999 7,508,266 $ 75,083 $20,027,444 $ 5,785,858 $ (159,646)
ISSUANCE OF COMMON STOCK ON EXERCISE
OF STOCK OPTIONS 45,745 457 296,918
ISSUANCE OF COMMON STOCK UPON
BUSINESS COMBINATIONS 60,000 600 539,400
INCOME TAX BENEFIT UPON EXERCISE
OF STOCK OPTIONS 65,000
PURCHASE OF TREASURY STOCK
ACCRUED INTEREST INCOME (2,701)
DEFERRED COMPENSATION 47,974
COMPREHENSIVE INCOME:
UNREALIZED GAIN ON MARKETABLE
SECURITIES
NET LOSS (3,133,728)
-----------
TOTAL COMPREHENSIVE INCOME (3,133,728)
---------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 7,614,011 $ 76,140 $20,976,736 $ 2,652,130 $ (162,347)
=================================================================================
<CAPTION>
ACCUMULATED TOTAL STOCK-
OTHER TREASURY STOCK HOLDERS'
COMPREHENSIVE SHARES AMOUNT EQUITY
INCOME
---------------------------------------------------
FOR THE SIX MONTHS ENDED
DECEMBER 31, 1999
<S> <C> <C> <C> <C>
BALANCE AT JULY 1, 1999 $ 8,241 199,645 $ (777,039) $24,959,941
ISSUANCE OF COMMON STOCK ON EXERCISE
OF STOCK OPTIONS 297,375
ISSUANCE OF COMMON STOCK UPON
BUSINESS COMBINATIONS 540,000
INCOME TAX BENEFIT UPON EXERCISE
OF STOCK OPTIONS 65,000
PURCHASE OF TREASURY STOCK 5,000 (45,504) (45,504)
ACCRUED INTEREST INCOME (2,701)
DEFERRED COMPENSATION 47,974
COMPREHENSIVE INCOME:
UNREALIZED GAIN ON MARKETABLE
SECURITIES 110,554 110,554
NET LOSS (3,133,728)
--------- ----------
TOTAL COMPREHENSIVE INCOME 110,554 (3,023,174)
--------------------------------------------------
BALANCE AT DECEMBER 31, 1999 $ 118,795 204,645 $ (822,543) $22,838,911
==================================================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-4
<PAGE>
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
----------------------------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET (LOSS) $(3,133,728) $ (197,923)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
(USED IN) OPERATING ACTIVITIES:
COMPENSATION EXPENSE 579,704 141,331
DEPRECIATION AND AMORTIZATION 1,185,554 500,899
GAIN ON SALE OF MKT SEC (19,702) --
DEFERRED TAX BENEFIT (2,587,177) (83,101)
UNREALIZED LOSS ON MARKETABLE SECURITIES -- 2,558
WRITE-OFF NOTES RECEIVABLE 600,976 --
INTEREST ON STOCK SUBSCRIPTIONS (2,701) --
PROCEEDS FROM SALE OF MARKETABLE SECURITIES 49,380 --
(INCREASE) DECREASE IN:
ACCOUNTS RECEIVABLE (743,481) (659,387)
ADVANCES TO FINANCIAL PLANNERS (52,695) 13,763
SECURITY DEPOSITS (222,389) (128,860)
PREPAID EXPENSES AND OTHER CURRENT ASSETS (1,988,348) (1,484,890)
INCREASE(DECREASE)IN:
ACCOUNTS PAYABLE,ACCRUED EXPENSES, AND OTHER CURRENT LIABILITIES 3,671,646 (1,611,749)
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (2,662,961) (3,507,359)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
CAPITAL EXPENDITURES (822,706) (872,478)
ACQUISITION OF INTANGIBLE ASSETS (524,724) (600,042)
ACQUISITION OF NORTH SHORE CAPITAL MANAGEMENT CORP.
AND NORTH RIDGE SECURITIES CORP.
- NET OF CASH ACQUIRED (3,882,662)
INVESTMENTS 25,146 (1,200)
REPAYMENTS OF NOTES RECEIVABLE FROM RELATED PARTIES 37,072 33,956
NOTES RECEIVABLE FROM RELATED PARTIES -- (130,498)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (1,285,212) (5,452,924)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
ACQUISITION OF TREASURY STOCK (45,504) (55,395)
PROCEEDS FROM BANK LOANS 8,155,541 5,758,611
PROCEEDS FROM SALE OF COMMON STOCK, EXERCISE OF STOCK OPTIONS AND WARRANTS 297,975 2,750,697
PAYMENTS OF BANK LOANS (4,000,000) --
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,408,012 8,453,913
----------- -----------
NET INCREASE (DECREASE) IN CASH 459,839 (506,370)
CASH AT BEGINNING OF PERIOD 3,453,354 1,705,831
----------- -----------
CASH AT END OF PERIOD $ 3,913,193 $ 1,199,461
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-5
<PAGE>
GILMAN & CIOCIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
UNAUDITED
1999 1998
---- ----
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAYMENTS FOR THE PERIOD:
INTEREST $ 248,259 $ 48,281
---------- ----------
INCOME TAXES 225,311 402,200
---------- ----------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
DETAILS OF BUSINESS COMBINATIONS:
FAIR VALUE OF ASSETS ACQUIRED $3,895,989 $6,776,899
LESS:
LIABILITIES ASSUMED -- 460,584
ACCRUAL OF INCREMENTAL PURCHASE
PRICE-NON CASH
ACCRUAL OF STOCK TO BE ISSUED AT
FUTURE DATE 2,606,265 --
CASH TO BE PAID AT FUTURE DATE 225,000 1,833,511
--------- ----------
2,831,265 1,833,511
ISSUANCE OF STOCK 540,000 --
NET CASH PAID FOR ACQUISITIONS 524,724 4,482,704
CASH ACQUIRED IN ACQUISITIONS -- 108,727
---------- ----------
CASH PAID FOR ACQUISITIONS $ 524,724 $4,591,431
========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-6
<PAGE>
GILMAN & CIOCIA, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
(Unaudited)
NOTE 1 - BASIS OF FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of Gilman & Ciocia,
Inc. and its wholly owned subsidiaries. All intercompany balances and
transactions have been eliminated.
The consolidated financial statements and the related notes thereto as of
December 31, 1999 and for the three months and six months ended December 31,
1999 and 1998 are presented as unaudited, but in the opinion of management
include all adjustments necessary to present fairly the information set forth
therein. These adjustments consist solely normal recurring accruals. These
interim financial statements are not necessarily indicative of the results for
any future periods. This Form 10-Q should be read in conjunction with the
Company's Form 10-KSB for June 30, 1999.
The Company's business is highly seasonal, with a majority of its tax revenue
earned in the first four months of the calendar year. In preparing financial
statements in conformity with generally accepted accounting principles,
management is required to make estimates and assumptions that effect the
reported amounts of assets and liabilities and the disclosures of contingent
assets and liabilities at the date of the financial statements and revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
NOTE 2 - CONTINGENCIES
In August 1998, a legal action was instituted against the Company pertaining to
a wrongful death matter allegedly sustained in a Company automobile more than
ten years ago. The complaintant seeks indemnification in the amount of up to
$3.5 million. The allegations in the complaint are based upon a $1.7 million
payment made by the plaintiffs plus an additional $1.8 million payment for which
plaintiffs ultimately may be held liable. An additional action is currently
pending to determine the liability allocation. The Company answered the
complaint by asserting numerous defenses which it believes are meritorious. The
Company is unable to determine at this time the ultimate success of any asserted
allegation or defense.
In addition, in July 1999, a lawsuit was initiated against the Company by a
consultant demanding the issuance of 150,000 warrants to purchase the Company's
common stock at $5.13 per share, alleged to have been issuable under a
consulting agreement pursuant to which the consultant was to have provided
consulting services to the Company. The Company believes that the consultant
defaulted under such agreement and provided no material service to the Company.
The Company has answered the complaint and is defending such suit vigorously.
F-7
<PAGE>
NOTE 3 - CREDIT AGREEMENTS
During September 1999, the Company refinanced its credit facilities with Merrill
Lynch. The new facility provides for borrowings up to $10,000,000 and is
apportioned into three separate loans as follows: a line of credit of up to
$4,000,000 and two revolver loans aggregating up to $6,000,000. The interest
rate on the line of credit is 2.9% plus the 30-day commercial paper rate. The
line of credit facility expires on June 30, 2000. The interest rate on the two
revolver loans is 3.15% plus the 30-day commercial paper rate. The terms of the
two revolving loan facilities are sixty months from the date fully drawn. The
loans are collateralized by all of the Company's assets and are guaranteed by
each of the three principal officers of the company up to $1,750,000 each. The
outstanding balances at December 31, 1999 under the line of credit and the
revolving loan facilities were $2,567,651 and $4,573,266, respectively.
F-8
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,913,193
<SECURITIES> 398,973
<RECEIVABLES> 4,241,499
<ALLOWANCES> 87,500
<INVENTORY> 0
<CURRENT-ASSETS> 17,009,065
<PP&E> 5,615,666
<DEPRECIATION> 2,797,856
<TOTAL-ASSETS> 41,787,002
<CURRENT-LIABILITIES> 13,030,031
<BONDS> 0
0
0
<COMMON> 76,140
<OTHER-SE> 22,762,771
<TOTAL-LIABILITY-AND-EQUITY> 41,787,002
<SALES> 27,074,295
<TOTAL-REVENUES> 27,074,295
<CGS> 0
<TOTAL-COSTS> 32,586,580
<OTHER-EXPENSES> (275,788)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 248,259
<INCOME-PRETAX> (5,484,756)
<INCOME-TAX> (2,351,028)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,351,028)
<EPS-BASIC> (.43)
<EPS-DILUTED> (.43)
</TABLE>
