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 09/30/99
- ---
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
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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 130, White Plains, NY 11021
- ------------------------------------------------ -----
(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
---------- -----------
This is the registrant's initial Form 10 Q report. Form 10QSB was filed in
all applicable preceding quarters.
State the number of shares outstanding of each class of the issuer's
classes of common equity, as of the latest practicable date. As of November 12,
1999, 7,578,809 shares of the issuer's common equity were outstanding.
PART I
ITEM 1. Consolidated Financial Statements. Page
----
Consolidated Balance Sheets as of September 30, 1999 F-1-F-2
And June 30, 1999
Consolidated Statements of Operations for the three-months
Ended September 30, 1999 and 1998 F-3
Consolidated Statement of Stockholders' Equity for the three months
Ended September 30, 1999 F-4
Consolidated Statements of Cash Flows for the three months ended
September 30, 1999 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
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 offerings of equity securities, if any,
operating profits and use of its credit facility.
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 per-office by taking advantage of economies of scale .The Company's direct
mail division operates as an independent division and solicits its own customers
for its direct mail services.
Results of Operations
Three Months ended September 30, 1999 and 1998 Compared.
The Company's revenues for the three months ended September 30, 1999
were $12,736,729 as compared to revenues of $5,764,434 for the comparable period
of the prior year. This increase was attributable primarily to increased
commissions from increased sales of financial planning services, additional
financial planners, and commissions resulting from acquisitions in fiscal 1999
of Prime Capital Services, Inc. ("Prime") and North Ridge Securities Corp.
("North Ridge").
2
The Company's total revenues for the quarter ended September 30, 1999
consist of $377,870 for tax preparation services, $12,100,140 for financial
planning services, and $258,719 for direct mail services. The Company's total
revenues for its quarter ended September 30, 1998 consist of $241,191 for tax
preparation services, $5,179,966 for financial planning services and $343,277
for direct mail services.
The increase in the Company's financial planning revenues for the
quarter ended September 30, 1999 compared to the prior year's first quarter was
approximately 134%. 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 the acquisitions of Prime and North Ridge.
The Company's operating expenses for the quarter ended September 30,
1999 were $15,665,658 as compared to operating expenses of $6,004,295 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
$7,163,660, an increase in general and administrative expenses of $1,666,631, an
increase in rent expense of $316,474, an increase in advertising expenses of
$341,588, and an increase in depreciation and amortization of $290,488. These
increases in operating expenses were offset by a decrease in direct mail costs
of $117,478.
The increase in operating expenses was primarily attributable to the
costs associated with an increase of financial planning services (including the
number of financial planners and the overall financial planning revenues).
The increase in salaries and commissions is primarily due to an
increase in commissions payable to financial planners as a result of the
increased sales of financial planning services and the addition of financial
planners.
The increase in general and administrative expenses is due primarily to
the Company's expansion of operations from the opening of seven new offices in
fiscal 1999 and from the acquisitions of Prime and North Ridge. This expansion
resulted in an increase in office expenses for the quarter ended September 30,
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 three months ended September 30, 1999
was $1,627,952 as compared to a net loss of $122,467 for the three months ended
September 30, 1998. The increase is primarily due to higher operating costs
associated with salaries and commissions and general and administrative
expenses.
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 currently or in
the foreseeable future.
3
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 flow used in operating activities was $1,405,389 and
$198,082 for the three months ended September 30, 1999 and 1998, respectively.
The increase of $1,207,307 is due primarily to a decrease in earnings from
operations for the period.
Net cash used in investing activities was $394,690 and $918,360 for the
three months ended September 30, 1999 and 1998, respectively. The decrease of
$523,670 is primarily due to a decrease in purchases of businesses of $798,105
and an increase in net loans to related parties of $85,801. These decreases in
net cash used in investing activities were offset by an increase in capital
expenditures of $335,092.
Net cash provided by financing activities was $1,674,392 and $0 for the
three months ended September 30, 1999 and 1998, respectively. The increase in
net cash provided by financing activities of $1,674,392 is primarily due to an
increase in the proceeds from bank loans of $5,524,392 and an increase in the
proceeds from the issuance of stock of $150,000. These increases in net cash
provided by financing activities were offset by an increase in repayments of
bank loans of $4,000,000.
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
$4,000,000 and two revolver loans for a total of $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 $1,250,000 each. The
outstanding balances at September 30, 1999 under the line of credit and the
revolving loan facility were $3,000,000 and $2,500,000, respectively.
Year 2000 Compliance
The Company completed the installation of the Great Plains accounting
system, which is 2000 compliant. The Company does not anticipate any material
additional costs with regard to its year 2000 compliance. The year 2000 issue is
not expected to affect the systems of various entities with which the Company
interacts. However, there can be no assurance that the systems of other
companies on which the Company relies will be timely converted, or that a
failure by another Company's systems to be year 2000 compliant would not have a
material adverse effect on the Company.
4
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 intends to defend 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 Gilman & Ciocia, Inc. - Financial Data Schedule, Dated
September 30, 1999.
(b) Reports on Form 8-K
No Reports on Form 8-K have been filed during the quarter
ended September 30, 1999.
5
SIGNATURE
In accordance with Section 13 or 15 (d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: November 18, 1999
GILMAN & CIOCIA, INC.
By/s/Thomas Povinelli
- -----------------------
Thomas Povinelli
Chief Operating Officer
By/s/Stephen B. Sacher
- ------------------
Stephen B. Sacher
Chief Financial Officer
And Chief Accounting Officer
6
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
SEPTEMBER 30, JUNE 30,
1999 1999
---- ----
(UNAUDITED) (AUDITED)
----------- ---------
CURRENT ASSETS:
CASH $ 3,327,667 $ 3,453,354
MARKETABLE SECURITIES 334,678 316,937
ACCOUNTS RECEIVABLE, NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS
OF $87,500 5,504,471 3,585,518
RECEIVABLE FROM RELATED PARTIES, CURRENT PORTION 655,266 568,233
PREPAID EXPENSES AND OTHER CURRENT ASSETS 789,576 983,130
PREPAID INCOME TAXES 2,851,228 1,460,259
DEFERRED TAX ASSETS, CURRENT PORTION 204,000 183,000
------------ -----------
TOTAL CURRENT ASSETS 13,666,886 10,550,431
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PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION 2,574,694 2,372,174
------------ ----------
OTHER ASSETS:
INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION 17,014,396 17,387,317
RECEIVABLES FROM RELATED PARTIES, NET OF CURRENT
PORTION 963,163 1,570,964
SECURITY DEPOSITS 419,098 374,348
DEFERRED TAX ASSETS 41,000 10,000
OTHER ASSETS 663,254 733,746
------------ -----------
TOTAL OTHER ASSETS 19,100,911 20,076,375
------------ -----------
TOTAL ASSETS $ 35,342,491 $ 32,998,980
======================================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
SEPTEMBER 30, JUNE 30,
1999 1999
---- ----
(UNAUDITED) (AUDITED)
----------- ---------
CURRENT LIABILITIES:
CURRENT PORTION OF LONG-TERM DEBT $ 3,225,414 $ 1,695,529
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 5,878,939 3,605,386
------------ ------------
TOTAL CURRENT LIABILITIES 9,104,353 5,300,915
------------ ------------
LONG-TERM DEBT - NET OF CURRENT PORTION 2,732,631 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 7,520,511 AND 7,508,266, SEPTEMBER 30, 1999
AND JUNE 30, 1999, RESPECTIVELY 75,205 75,083
PAID-IN-CAPITAL 20,203,296 20,027,444
RETAINED EARNINGS 4,157,906 5,785,858
------------ ------------
24,436,407 25,888,385
LESS- TREASURY STOCK, AT COST: 199,645 SHARES (777,039) (777,039)
STOCK SUBSCRIPTIONS AND ACCRUED INTEREST RECEIVABLE (162,347) (159,646)
ACCUMULATED COMPREHENSIVE INCOME:
UNREALIZED GAIN ON MARKETABLE SECURITIES, NET OF
TAXES 8,486 8,241
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 23,505,507 24,959,941
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 35,342,491 $ 32,998,980
============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-2
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
AND 1998
(UNAUDITED)
1999 1998
---- ----
REVENUES:
TAX PREPARATION FEES $ 377,870 $ 241,191
FINANCIAL PLANNING SERVICES 12,100,140 5,179,966
DIRECT MAIL SERVICES 258,719 343,277
------------ -----------
TOTAL REVENUES 12,736,729 5,764,434
------------ -----------
OPERATING EXPENSES:
SALARIES AND COMMISSIONS 11,120,811 3,957,151
GENERAL AND ADMINISTRATIVE EXPENSES 2,528,604 861,973
ADVERTISING 600,819 259,231
DIRECT MAIL COSTS 98,586 216,064
RENT 773,526 457,052
DEPRECIATION AND AMORTIZATION 543,312 252,824
------------ -----------
TOTAL OPERATING EXPENSES 15,665,658 6,004,295
------------ -----------
OPERATING LOSS (2,928,929) (239,861)
------------ -----------
OTHER INCOME (EXPENSE):
INTEREST AND INVESTMENT INCOME 31,687 25,043
INTEREST EXPENSE (61,642) (1,139)
OTHER INCOME 104,080 8,386
------------ -----------
TOTAL OTHER INCOME 74,125 32,290
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LOSS BEFORE INCOME TAXES (BENEFIT) (2,854,804) (207,571)
INCOME TAXES (BENEFIT) (1,226,852) (85,104)
------------ -----------
NET LOSS $ (1,627,952) $ (122,467)
============ ===========
NET LOSS PER SHARE, BASIC AND DILUTED $ (0.22) $ (0.02)
WEIGHTED AVERAGE SHARES,
BASIC AND DILUTED 7,320,866 5,395,598
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-3
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
STOCK
SUBSCRIPTIONS ACCUMULATED
AND ACCRUED OTHER TREASURY STOCK
COMMON STOCK PAID-IN RETAINED INTEREST COMPREHENSIVE SHARES AMOUNT
SHARES AMOUNT CAPITAL EARNINGS RECEIVABLE INCOME
---------------------------------------------------------------------------------------------------
C>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1999
BALANCE AT JULY 1, 1999 7,508,266 $ 75,083 $20,027,444 $ 5,785,858 $ (159,646) $ 8,241 199,645 $ (777,039)
ISSUANCE OF COMMON STOCK 12,245 122 149,878
ACCRUED INTEREST INCOME (2,701)
DEFERRED COMPENSATION 25,974
COMPREHENSIVE INCOME:
UNREALIZED GAIN ON
MARKETABLE
SECURITIES 245
NET LOSS (1,627,952)
------------- --------
TOTAL COMPREHENSIVE INCOME (1,627,952) 245
---------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30,
1999 7,520,511 $ 75,205 $20,203,296 $ 4,157,906 $ (162,347) $ 8,486 199,645 $ (777,039)
===================================================================================================
TOTAL STOCK-
HOLDERS'
EQUITY
---------------
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1999
BALANCE AT JULY 1, 1999 $ 24,959,941
ISSUANCE OF COMMON STOCK 150,000
ACCRUED INTEREST INCOME (2,701)
DEFERRED COMPENSATION 25,974
COMPREHENSIVE INCOME:
UNREALIZED GAIN ON
MARKETABLE
SECURITIES 245
NET LOSS (1,627,952)
--------------
TOTAL COMPREHENSIVE INCOME (1,627,707)
--------------
BALANCE AT SEPTEMBER 30,
1999 $ 23,505,507
==============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-4
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS $ (1,627,952) $ (122,467)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
(USED IN) OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 543,312 252,824
GAIN ON SALE OF MARKETABLE SECURITIES (15,432) -
COMPENSATION EXPENSE 530,289 43,010
PREPAID INCOME TAXES (1,217,658)
INTEREST ON STOCK SUBSCRIPTIONS (2,701) -
PROCEEDS FROM SALE OF MARKETABLE SECURITIES 41,238 -
(INCREASE) DECREASE IN:
ACCOUNTS RECEIVABLE (1,918,953) (82,689)
ADVANCES TO FINANCIAL PLANNERS (32,098) 1,266
SECURITY DEPOSITS (44,750) (103,410)
PREPAID EXPENSES AND OTHER CURRENT ASSETS 65,763 (550,510)
INCREASE IN:
ACCOUNTS PAYABLE,ACCRUED EXPENSES, AND OTHER CURRENT LIABILITIES 2,273,553 363,894
------------- ----------
NET CASH USED IN OPERATING ACTIVITIES (1,405,389) (198,082)
------------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
CAPITAL EXPENDITURES (384,072) (48,980)
PAYMENTS ON BUSINESS COMBINATIONS (798,105)
INVESTMENTS (13,803) (474)
LOAN REPAYMENTS FROM OFFICERS AND STOCKHOLDERS 3,185 6,399
DEFERRED ACQUISITION COSTS 15,000
LOANS TO RELATED PARTIES (92,200)
------------- ----------
NET CASH USED IN INVESTING ACTIVITIES (394,690) (918,360)
------------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
PROCEEDS FROM ISSUANCE OF COMMON STOCK 150,000 -
PAYMENTS OF BANK LOANS (4,000,000) -
PROCEEDS FROM LOANS 5,524,392 -
------------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,674,392 0
------------- -----------
NET DECREASE IN CASH (125,687) (1,116,442)
CASH AT BEGINNING OF PERIOD 3,453,354 1,705,831
------------- -----------
CASH AT END OF PERIOD $ 3,327,667 $ 589,389
============= ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-5
GILMAN & CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: 1999 1998
---- ----
CASH PAYMENTS FOR THE PERIOD:
INTEREST $ 61,642 -0-
-------- ---
INCOME TAXES $225,311 $401,506
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-6
GILMAN & CIOCIA, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 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
September 30, 1999 and for the three months ended September 30, 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 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 intends to defend such suit
vigorously.
F-7
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
$4,000,000 and two revolver loans for a total of $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 $1,250,000 each. The
outstanding balances at September 30, 1999 under the line of credit and the
revolving loan facilities were $3,000,000 and $2,500,000, respectively.
F-8