U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
X Quarterly report under Section 13 or 15 (d) of the Securities Exchange Act
of 1934 for the quarterly period ended 3/31/00
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
---------
G + C, INC. f/k/a
-----------------
GILMAN + CIOCIA, INC.
---------------------
(Name of small business issuer in its charter)
Delaware 11-2587324
-------------------------------------- -----------------------------------
(State of jurisdiction of incorporation (I.R.S. Employer Identification No.)
or 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 May 17, 2000,
7,919,802 shares of the issuer's common equity were outstanding.
PART I
ITEM 1. Consolidated Financial Statements. Page
Consolidated Balance Sheet as of March 31, 2000 9-10
And June 30, 1999
Consolidated Statements of Operations for the three and nine-months
Ended March 31, 2000 and 1999 11
Consolidated Statements of Stockholders' Equity for the nine months
Ended March 31, 2000 12
Consolidated Statements of Cash Flows for the nine months ended
March 31, 2000 and 1999 13-14
Notes to Consolidated Financial Statements 15-16
ITEM 2. Management's Discussion and Analysis
Plan of Operation
G+C, Inc. f/k/a/ Gilman + Ciocia, Inc. is the first publicly traded
company to combine financial planning and tax preparation services. G + C now
has over 350,000 clients and over 150 offices in 19 states. The Company's
E1040.com web site enables clients to complete tax returns on line. During the
nine months ended March 31, 2000, the Company purchased thirteen new tax
practices, five of which are located in Florida, two each in Colorado, New York
and Massachusetts, one in Texas and another in Michigan. The Company also
acquired two financial planning businesses located in New York and Florida.
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 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 offers
insurance services and 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
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
Nine Months ended March 31, 2000 and 1999 compared.
The Company's revenues for the nine months ended March 31, 2000 were
$63,627,124 as compared to revenues of $31,994,678 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 the acquisitions of Prime and North Ridge.
The Company's total revenues for the nine months ended March 31, 2000
consist of $13,532,277 for tax preparation services, $49,103,056 for financial
planning services, and $991,791 for direct mail services. The Company's total
revenues for the nine months ended March 31, 1999 consist of $10,829,435 for tax
preparation services, $20,027,735 for financial planning services and $1,137,508
for direct mail services.
The increase in the Company's financial planning revenues for the nine
months ended March 31, 2000 compared to the prior year's period is approximately
145%. 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
acquisitions of Prime and North Ridge.
The Company's operating expenses for the nine months ended March 31, 2000
were $69,732,413 as compared to operating expenses of $26,430,080 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
$28,705,835, an increase in general and administrative expenses of $6,287,336,
an increase in advertising expenses of $5,470,143, an increase in depreciation
and amortization of $1,065,427, an increase in rent expense of $821,182, and an
increase in brokerage fees of $952,410.
3
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
acquisitions of North Ridge and Prime.
The increase in general and administrative expenses is primarily due to
the inclusion of a full reported period of Prime and the further expansion of
our e1040.com online tax preparation Company.
Advertising costs increased due to expenses associated with further
establishing our e1040.com online tax preparation Web site and 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 nine months ended March 31, 2000 was
$3,097,363 as compared to a net profit of $3,244,308 for the nine months ended
March 31, 1999. The loss is primarily due to operating costs associated with
advertising, salaries and commissions and general and administrative expenses
for e1040.com.
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 March 31, 2000 and 1999 Compared
The Company's revenues for the three months ended March 31, 2000 were
$36,552,830 as compared to revenues of $20,137,326 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 the acquisitions of Prime and North Shore.
The Company's total revenues for the quarter ended March 31, 2000 consist
of $12,948,801 for tax preparation services, $23,096,241 for financial planning
services, and $507,788 for direct mail services. The Company's total revenues
for the quarter ended March 31, 1999 consist of $10,402,562 for tax preparation
services, $9,375,196 for financial planning services and $359,568 for direct
mail services.
The increase in the Company's financial planning revenues for the quarter
ended March 31, 2000 compared to the prior year's period is approximately 146%.
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.
The Company's operating expenses for the quarter ended March 31, 2000 were
$37,145,834 as compared to operating expenses of $14,227,927 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 $13,619,649, an
increase in general and administrative expenses of $3,478,935, an increase in
advertising expenses of $4,774,395, an increase in rent expense of $214,797, an
increase in depreciation and amortization of $380,772, and an increase in
brokerage fees of $915,159.
4
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 Prime.
The increase in general and administrative expenses is primarily due to
the inclusion of Prime and the further expansion of our e1040.com online tax
preparation Company.
Advertising costs increased due to expenses associated with further
establishing our e1040.com online tax preparation Web site.
The Company's net profit for the three months ended March 31, 2000 was
$43,782 as compared to $3,442,230 for the three months ended March 31, 1999. The
decrease is primarily due to higher operating costs associated with advertising,
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 (provided by) operating activities were
$6,363,791 and ($191,082) for the nine months ended March 31, 2000 and 1999,
respectively. The increase of cash flows used in operating activities were
$6,554,873. This increase was primarily due to an increase in net losses for the
period and offset by increases in accounts payable and other current liabilities
for the period.
Net cash used in investing activities was $621,690 and $8,851,735 for the
nine months ended March 31, 2000 and 1999, respectively. The decrease of
$8,230,045 is primarily due to a decrease in purchases of businesses of
$5,353,546 and a decrease in notes receivable from related parties of
$1,601,338 and an increase in proceeds from sale of investments of $1,307,987.
Net cash provided by financing activities was $7,581,082 and $9,739,863 for
the nine months ended March 31, 2000 and 1999, respectively. The decrease in net
cash provided by financing activities of $2,158,781 is primarily due to a
decrease in the proceeds from sale of stock and exercise of stock options and
warrants of $2,302,882.
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
5
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
balance at March 31, 2000 under the credit facility is $9,135,972. The loan
agreements contain certain negative covenants that require the Company to
maintain, among other things, specific minimum net tangible worth and maximum
debt to tangible net worth at March 31, 2000. As of that date, the Company was
not in compliance with these two covenants, and, accordingly, has classified all
debt due to Merrill Lynch as a current liability.
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
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 G + C, Inc. (f/k/a/ Gilman + Ciocia, Inc.) - Financial Data
Schedule, Dated March 31, 2000.
(b) Reports on Form 8-K
No Reports on Form 8-K have been filed during the quarter ended March 31,
2000.
6
ITEM 3. Quantitative and Qualitative Disclosures about 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 March 31, 2000 and are sensitive to the above market risks. As of March 31,
2000 the financial instruments subject to this risk were the line of credit and
two revolver loans outstanding at March 31, 2000 with interest at the 30 day
commercial paper rate plus a spread.
7
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: May 22, 2000
G + C, INC.
By /s/Thomas Povinelli
- ------------------------
Thomas Povinelli
Chief Operating Officer
By /s/Stephen B. Sacher
- -----------------------
Stephen B. Sacher
Chief Financial Officer
8
G + C, INC. (f/k/a GILMAN + CIOCIA, INC.) AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
MARCH 31, JUNE 30,
2000 1999
(UNAUDITED) (AUDITED)
----------- ---------
CURRENT ASSETS:
CASH $ 4,048,955 $ 3,453,354
MARKETABLE SECURITIES $ 8,142 316,937
ACCOUNTS RECEIVABLE, NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS
OF $87,500 $11,259,122 3,585,518
RECEIVABLE FROM RELATED PARTIES, CURRENT PORTION $ 529,793 568,233
PREPAID EXPENSES AND OTHER CURRENT ASSETS $ 1,011,899 983,130
PREPAID INCOME TAXES $ 4,191,061 1,460,259
DEFERRED TAX ASSETS, CURRENT PORTION $ 198,000 183,000
----------- -----------
TOTAL CURRENT ASSETS $21,246,972 10,550,431
----------- -----------
PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION $ 3,368,308 2,372,174
----------- -----------
OTHER ASSETS:
INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION $21,900,911 17,387,317
RECEIVABLES FROM RELATED PARTIES, NET OF CURRENT
PORTION $ 538,880 1,570,964
SECURITY DEPOSITS $ 622,917 374,348
DEFERRED TAX ASSETS $ 25,000 10,000
OTHER ASSETS $ 463,373 733,746
----------- -----------
TOTAL OTHER ASSETS $23,551,081 20,076,375
----------- -----------
TOTAL ASSETS $48,166,361 $32,998,980
=========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9
G + C, INC. (f/k/a GILMAN + CIOCIA, INC.) AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
MARCH 31, JUNE 30,
2000 1999
------------ ------------
(UNAUDITED) (AUDITED)
CURRENT LIABILITIES:
CURRENT PORTION OF LONG-TERM DEBT $ 11,517,863 $ 1,695,529
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 12,468,283 3,605,386
------------ ------------
TOTAL CURRENT LIABILITIES $ 23,986,146 5,300,915
------------ ------------
LONG-TERM DEBT - NET OF CURRENT PORTION $ -- 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 7,791,061 SHARES (MARCH 31, 2000) AND 7,508,266,
SHARES (JUNE 30, 1999) $ 77,911 75,083
PAID-IN-CAPITAL $ 22,376,405 20,027,444
RETAINED EARNINGS $ 2,688,495 5,785,858
------------ ------------
$ 25,142,811 25,888,385
LESS- TREASURY STOCK, AT COST: 200,295 SHARES (MARCH 31, 2000 )
ANDN199,6454SHARESE(JUNEN30,01999)9) $ (800,249) (777,039)
STOCK SUBSCRIPTIONS AND ACCRUED INTEREST RECEIVABLE $ (162,347) (159,646)
ACCUMULATED COMPREHENSIVE INCOME:
UNREALIZED GAIN ON MARKETABLE SECURITIES, NET OF
TAXES $ -- 8,241
------------ ------------
TOTAL STOCKHOLDERS' EQUITY $ 24,180,215 24,959,941
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 48,166,361 $ 32,998,980
============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10
G + C, INC. (f/k/a GILMAN + CIOCIA, INC.) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended For the Nine Months Ended
March 31 March 31
2000 1999 2000 1999
---- ---- ---- ----
REVENUES:
TAX PREPARATION FEES $ 12,948,801 $ 10,402,562 $ 13,532,277 $ 10,829,435
FINANCIAL PLANNING SERVICES 23,096,241 9,375,196 49,103,056 20,027,735
DIRECT MAIL SERVICES 507,788 359,568 991,791 1,137,508
------------ ------------ ------------ ------------
TOTAL REVENUES 36,552,830 20,137,326 63,627,124 31,994,678
------------ ------------ ------------ ------------
OPERATING EXPENSES:
SALARIES AND COMMISSIONS 22,562,186 8,942,537 45,796,856 17,091,021
GENERAL AND ADMINISTRATIVE EXPENSES 5,407,195 1,928,260 10,229,090 3,941,754
ADVERTISING 7,087,547 2,313,152 8,290,072 2,819,929
BROKERAGE FEES 449,359 -- 952,410 --
RENT 915,159 700,362 2,554,043 1,732,861
DEPRECIATION AND AMORTIZATION 724,388 343,616 1,909,942 844,515
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 37,145,834 14,227,927 69,732,413 26,430,080
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) (593,004) 5,909,399 (6,105,289) 5,564,598
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
INTEREST AND INVESTMENT INCOME 1,026,330 11,627 1,265,226 61,952
INTEREST EXPENSE (372,920) (96,301) (621,179) (145,722)
OTHER INCOME 16,405 5,450 53,296 13,886
------------ ------------ ------------ ------------
TOTAL OTHER INCOME (EXPENSE) 669,815 (79,224) 697,343 (69,884)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAX 76,811 5,830,175 (5,407,946) 5,494,714
INCOME TAX (BENEFIT) 33,029 2,387,945 (2,310,583) 2,250,406
------------ ------------ ------------ ------------
NET INCOME (LOSS ) $ 43,782 $ 3,442,230 $ (3,097,363) $ 3,244,308
============ ============ ============ ============
NET INCOME (LOSS) PER SHARE :
BASIC $ 0.01 $ 0.54 $ (0.42) $ 0.55
DILUTED $ 0.01 $ 0.48 $ (0.42) $ 0.49
WEIGHTED AVERAGE COMMON SHARES:
BASIC 7,484,164 6,391,077 7,392,884 5,939,851
DILUTED 7,862,338 7,139,860 7,392,884 6,677,458
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11
G + C, INC. (f/k/a GILMAN + CIOCIA, INC.) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
STOCK
SUBSCRIPTION ACCUMULATED
AND ACCRUED OTHER
COMMON STOCK PAID-IN RETAINED INTEREST COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS RECEIVABLE INCOME
-----------------------------------------------------------------------------------
FOR THE NINE MONTHS ENDED
MARCH 31, 2000
BALANCE AT JULY 1, 1999 7,508,266 $ 75,083 $20,027,444 $ 5,785,858 $ (159,646) $ 8,241
ISSUANCE OF COMMON STOCK ON EXERCISE
OF STOCK OPTIONS 97,081 971 541,405
ISSUANCE OF COMMON STOCK UPON
BUSINESS COMBINATIONS 185,714 1,857 1,637,388
INCOME TAX BENEFIT UPON EXERCISE
OF STOCK OPTIONS 114,038
RE-ISSUANCE OF TREASURY STOCK 8,156
PURCHASE OF TREASURY STOCK
ACCRUED INTEREST INCOME (2,701)
DEFERRED COMPENSATION 47,974
COMPREHENSIVE INCOME:
UNREALIZED GAIN ON MARKETABLE
SECURITIES (8,241)
NET LOSS (3,097,363)
----------- -----------
TOTAL COMPREHENSIVE INCOME (3,097,363) (8,241)
- - ---------------------------------------------------------------------------------------
BALANCE AT March 31, 2000 7,791,061 $ 77,911 $22,376,405 $ 2,688,495 $ (162,347) $ --
=======================================================================================
TOTAL STOCK-
TREASURY STOCK HOLDERS'
SHARES AMOUNT EQUITY
--------------------------------------
FOR THE NINE MONTHS ENDED
MARCH 31, 2000
BALANCE AT JULY 1, 1999 199,645 $ (777,039) $24,959,941
ISSUANCE OF COMMON STOCK ON EXERCISE
OF STOCK OPTIONS 542,376
ISSUANCE OF COMMON STOCK UPON
BUSINESS COMBINATIONS 1,639,245
INCOME TAX BENEFIT UPON EXERCISE
OF STOCK OPTIONS 114,038
RE-ISSUANCE OF TREASURY STOCK (4,350) 22,294 30,450
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 (8,241)
NET LOSS (3,097,363)
-----------
TOTAL COMPREHENSIVE INCOME (3,105,604)
--------------------------------------
BALANCE AT March 31, 2000 200,295 $ (800,249) $24,180,215
======================================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12
G + C, INC. (f/k/a GILMAN + CIOCIA, INC.) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
MARCH 31,
----------------------------------
2000 1999
---- ----
CASH FLOW FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ (3,097,363) $ 3,244,308
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
COMPENSATION EXPENSE 188,298 191,875
DEPRECIATION AND AMORTIZATION 1,909,942 844,514
GAIN ON SALE OF MKT SEC (999,192)
DEFERRED TAX BENEFIT (93,101)
UNREALIZED LOSS ON MARKETABLE SECURITIES 2,331
WRITE-OFF NOTES RECEIVABLE 775,000
INTEREST ON STOCK SUBSCRIPTIONS (2,701) (8,100)
(INCREASE) DECREASE IN:
ACCOUNTS RECEIVABLE (8,097,858) (6,014,708)
ADVANCES TO FINANCIAL PLANNERS (96,332) 5,764
SECURITY DEPOSITS (248,569) (147,368)
PREPAID EXPENSES AND OTHER ASSETS (2,413,672) (821,609)
INCREASE IN:
ACCOUNTS PAYABLE,ACCRUED EXPENSES, AND OTHER CURRENT LIABILITIES 5,718,656 2,987,176
============ ============
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (6,363,791) 191,082
============ ============
CASH FLOW FROM INVESTING ACTIVITIES:
CAPITAL EXPENDITURES (1,193,745) (1,174,971)
ACQUISITION OF INTANGIBLE ASSETS (1,437,834) (1,122,582)
ACQUISITION OF NORTH SHORE CAPITAL MANAGEMENT CORP
AND NORTH RIDGE SECURITIES CORP
-NET OF CASH ACQUIRED (5,353,546)
PROCEEDS FROM SALE OF INVESTMENTS 1,307,987 (1,200)
REPAYMENT OF NOTES RECEIVABLE FROM RELATED PARTIES 806,902 1,096
NOTES RECEIVABLE FROM RELATED PARTIES (105,000) (1,200,532)
============ ============
NET (CASH USED) IN INVESTING ACTIVITIES (621,690) (8,851,735)
============ ============
CASH FLOW FROM FINANCING ACTIVITIES
ACQUISITION OF TREASURY STOCK (45,504) (55,395)
PROCEEDS FROM BANK LOANS 11,084,210 7,000,000
PROCEEDS FROM SALE OF COMMON STOCK, EXERCISE OF STOCK OPTIONS AND WARRANTS 542,376 2,845,258
PAYMENTS OF BANK LOANS (4,000,000) (50,000)
============ ============
NET CASH PROVIDED BY FINANCING ACTIVITIES 7,581,082 9,739,863
============ ============
NET INCREASE IN CASH 595,601 1,079,210
CASH AT BEGINNING OF PERIOD 3,453,354 1,705,831
============ ============
CASH AT END OF PERIOD $ 4,048,955 $ 2,785,041
============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13
G + C, INC. (f/k/a GILMAN + CIOCIA, INC.) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 2000 AND 1999
UNAUDITED
2000 1999
---------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAYMENT FOR THE PERIOD
INTEREST $ 621,179 $ 125,881
---------- ----------
INCOME TAXES $ 774 $ 41,110
---------- ----------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
DETAILS OF BUSINESS COMBINATIONS:
FAIR VALUE OF ASSETS ACQUIRED $5,752,699 $7,845,441
LESS:
LIABILITIES ASSUMED 460,584
ACCRUAL OF INCREMENTAL PURCHASE
PRICE-NON CASH
ACCRUAL OF STOCK TO BE ISSUED AT
FUTURE DATE 2,350,620
CASH TO BE PAID AT FUTURE DATE 325,000 575,000
ISSUANCE OF STOCK 1,639,245 225,002
---------- ----------
NET CASH PAID FOR ACQUISITIONS 1,437,834 6,584,855
LESS CASH ACQUIRED IN ACQUISITIONS 108,727
---------- ----------
CASH PAID FOR ACQUISITIONS $1,437,834 $6,476,128
========== ==========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14
G + C, Inc. (f/k/a GILMAN + CIOCIA, INC.) & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(Unaudited)
NOTE 1 - BASIS OF FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of Gilman + Ciocia,
Inc. and its wholly owned subsidiaries. On May 5, 2000 Gilman + Ciocia, Inc.
changed its name to G + C, inc. All intercompany balances and transactions have
been eliminated.
The consolidated financial statements and the related notes thereto as of March
31, 2000 and for the three months and nine months ended March 31, 2000 and 1999
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.
15
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 balance at March 31, 2000 under the credit facility is $9,135,972.
The loan agreements contain certain negative covenants that require the Company
to maintain, among other things, specific minimum net tangible worth and maximum
debt to tangible net worth at March 31, 2000. As of that date, the Company was
not in compliance with these two covenants, and, accordingly, has classified all
debt due to Merrill Lynch as a current liability.
NOTE 4-EMPLOYEE STOCK PURCHASE PLAN
On May 5, 2000, the Board of Directors of the Company adopted the Company's 2000
Employee Stock Purchase Plan. Under the plan, the Company will sell shares to
participants at a price equal to 85% of the closing price of the Common Stock on
(i) the first business day of the Plan period or (ii) the Exercise Date (the
last day of the Plan Period), whichever closing price shall be less. Plan
Periods are six-month periods commencing January 1st and July 1st. . Such
closing price shall be (a) the closing price of the Common Stock on any national
securities exchange on which the Common Stock is listed, (b) the closing price
of the Common Stock on the NASDAQ National Markets System or (c) the average of
the closing bid and asked prices in the over-the-counter-market, whichever is
applicable, as published in The Wall Street Journal. If no sales of Common Stock
were made on such day, the price of the Common Stock for purposes of clause (a)
and (b) above shall be the reported price for the next preceding day on which
sales were made. The Plan is intended to qualify as an "employee stock purchase
plan" under section 423 of the Internal Revenue Code of 1986, as amended (the
"Code").
16