================================================================================
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 September 30, 2000.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
Commission File Number 000-22996
GILMAN + CIOCIA, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-2587324
(State or jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1311 Mamaroneck Ave. Suite 160, White 10605
Plains, NY (Zip Code)
(address of principal executive offices)
(914) 397-4829
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed 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 November 3,
2000, 7,767,945 shares of the issuer's common equity were outstanding.
================================================================================
PART I-FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS Page
Consolidated Balance Sheets as of September 30, 2000 3
and June 30, 2000
Consolidated Statements of Operations for the Three Months
Ended September 30, 2000 and 1999 4
Consolidated Statements of Cash Flows for the Three Months
Ended September 30, 2000 and 1999 5-6
Consolidated Statements of Stockholders' Equity for the
Year Ended June 30, 2000 and the Quarter Ended September
30, 2000 7-8
Notes to Consolidated Financial Statements 9-11
Gilman + Ciocia, Inc. and Subsidiaries
Consolidated Balance Sheets
ASSETS September 30, June 30,
-------------- ------------
2000 2000
---- ----
(unaudited) (audited)
CURRENT ASSETS:
Cash and cash equivalents $ 3,239,517 $ 4,561,293
Marketable securities 11,442 73,044
Accounts receivable, net of allowance for
doubtful accounts of $187,500 as of
September 30, 2000 and June 30, 2000 6,846,438 6,355,115
Receivables from officers and stockholders,
current portion 601,568 709,538
Prepaid expenses and other current assets 903,485 1,210,611
Income taxes receivable 2,440,545 3,134,824
Deferred tax assets 1,459,107 690,000
------------ -----------
Total current assets 15,502,102 16,734,425
Property and equipment, net of accumulated
depreciation of $3,714,339
and $ 3,172,897 as at September 30, 2000
and June 30, 2000, respectively 4,321,744 4,423,455
Intangible assets, net of accumulated amortization
of $3,580,894 and $3,172,897 as at
September 30, 2000 and June 30, 2000,
respectively 21,187,532 21,260,307
Receivables from officers and stockholders,
net of current portion - 17,590
Security deposits 842,775 658,818
Other assets 667,247 810,583
----------- -----------
Total assets $ 42,521,400 $ 43,905,178
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 3,395,800 $ 9,112,734
Accounts payable and accrued expenses 9,897,704 9,233,127
------------ -------------
Total current liabilities 13,293,504 18,345,861
Long-term debt-net of current portion 6,000,845 826,476
Deferred tax liability 20,000 20,000
------------- -------------
Total liabilities 19,314,349 19,192,337
------------- -------------
COMMITMENTS AND CONTINGENCIES (Note 3)
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; 8,083,529 shares and 8,030,834
shares issued and outstanding as at September
30, 2000 and June 30, 2000, respectively 80,835 80,308
Paid-in capital 24,236,592 23,976,897
Retained earnings 363,099 1,772,766
------------ ------------
24,680,526 25,829,971
Less-treasury stock, at cost (1,368,475) (1,012,130)
Note receivable for shares sold (105,000) (105,000)
------------- ------------
Total stockholders' equity 23,207,051 24,712,841
------------- ------------
Total liabilities and stockholders' equity $ 42,521,400 $ 43,905,178
============= =============
The accompanying notes are an integral part of these consolidated
balance sheets.
Gilman + Ciocia, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Three Months Ended September 30,
2000 1999
---- ----
Revenues:
Tax preparation fees $ 1,609,442 $ 636,589
Financial planning services 19,730,338 12,100,140
------------ -----------
Total revenues 21,339,780 12,736,729
------------ -----------
Operating expenses:
Salaries and commissions 18,573,357 11,120,811
General and administrative expenses 1,935,662 2,262,286
Advertising 402,722 600,819
Brokerage fees & licenses 404,705 364,904
Rent 1,186,029 773,526
Depreciation and amortization 823,734 543,312
------------ ------------
Total operating expenses 23,326,209 15,665,658
------------ ------------
Operating loss (1,986,429) (2,928,929)
------------ -------------
Other income (expense):
Interest and investment income 66,390 31,687
Interest expense (253,706) (61,642)
Other income (5,029) 104,080
------------ -------------
Total other income (expense) (192,345) 74,125
------------ -------------
Loss before income tax benefit (2,178,774) (2,854,804)
Income tax benefit (769,107) (1,226,852)
------------ -------------
Net Loss $ (1,409,667) $ (1,627,952)
============== =============
Net loss per share:
Basic and Diluted $ (0.18) $ (0.22)
Weighted average shares:
Basic and Diluted 7,798,813 7,320,866
The accompanying notes are an integral part of these consolidated statements.
Gilman + Ciocia, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Three Months Ended September 30,
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,409,667) $ (1,627,952)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 823,734 543,312
Deferred tax benefit (769,107) (1,226,852)
Gain on sale of marketable securities - (15,432)
Amortization of deferred and other
compensation expense (52,058) 530,289
Interest on stock subscriptions - (2,701)
Income tax refund 609,254 -
Changes in:
Accounts receivable (491,323) (1,918,953)
Prepaid expenses and other current assets 403,196 65,763
Advances to financial planners - (32,098)
Security deposits and other assets (183,958) (44,750)
Accounts payable and accrued expenses 664,578 2,273,553
Income taxes payable 85,024 9,194
---------- -----------
Net cash used in operating activities (320,327) (1,446,627)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (214,701) (384,072)
Cash payments for acquisitions - net of cash
acquired (75,000) -
Marketable securities 61,602 41,238
Proceeds from sale of investments - (13,803)
Loan repayments from officers and stockholders 125,560 3,185
---------- -----------
Net cash used in investing activities (102,539) (353,452)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Acquisition of treasury stock (356,345) -
Proceeds from bank and other loans 7,335 5,524,392
Payments of bank and other loans (549,900) (4,000,000)
and exercise of stock options and warrants - 150,000
---------- -----------
Net cash provided by
(used in) financing activities (898,910) 1,674,392
---------- -----------
Net decrease in cash (1,321,776) (125,687)
Cash, and cash equivalents beginning of 4,561,293 3,453,354
the period ----------- -----------
Cash, and cash equivalents end of the period $3,239,517 $3,327,667
=========== ============
The accompanying notes are an integral part of these consolidated statements.
Gilman + Ciocia, Inc. and Subsidiaries
Consolidated Statements Of Cash Flows-Continued
For the Three Months Ended September 30,
2000 1999
---- ----
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the three months ended for-
Interest $ 163,254 $ 61,642
Income taxes 55,861 225,311
Noncash transactions-
Issuance of common stock as
consideration in business combination 260,222 -
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Details of business combinations:
Fair value of assets acquired 335,222 -
Less: Stock issued (260,222) -
----------- -----------
Cash paid for acquisitions 75,000 -
Cash acquired in acquisitions _ -
------------ -----------
Net cash paid for acquisitions $ 75,000 $ -
============= ============
The accompanying notes are an integral part of these consolidated statements.
Gilman + Ciocia, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
For the year ended June 30, 2000 and the quarter ended September 30, 2000
Common Stock Paid-In Deferred Retained Treasury Stock
------------ ---------------
Shares Amount Capital Compensation Earnings Shares Amount
---------------------------------------------------------------------------------------
Balance at July 1, 1999 7,508,266 $ 75,083 $ 20,054,853 $ (27,409) $ 5,785,858 199,645 $ (777,039)
Purchase of treasury stock 52,600 (257,385)
Reissuance of treasury stock 8,156 (4,350) 22,294
Issuance of common stock on
exercise of stock options 107,081 1,071 568,805
Issuance of common stock upon
business combinations 385,487 3,854 3,216,164
Amortization of deferred compensation 27,409
Shares issued upon settlement
of litigation 30,000 300 6,281
Income tax benefit upon exercise
of stock options 122,638
Payment/write-off of stock
subscriptions receivable
Issuance of note receivable for shares
sold
Comprehensive income:
Unrealized gain on marketable securities
Net loss (4,013,092)
- ---------------------------------------------------------------------------------------------------------------------------
Total comprehensive loss (4,013,092)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2000 8,030,834 $ 80,308 $ 23,976,897 $ - $ 1,772,766 247,895 $ (1,012,130)
===========================================================================================================================
Balance at July 1, 2000 8,030,834 $ 80,308 $ 23,976,897 $ - $ 1,772,766 247,895 $ (1,012,130)
Purchase of treasury stock 81,300 (356,345)
Issuance of common stock upon
business combinations 52,695 527 259,695
Net loss (1,409,667)
- ---------------------------------------------------------------------------------------------------------------------------
Total comprehensive loss (1,409,667)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 2000 8,083,529 $ 80,835 $ 24,236,592 $ - $ 363,099 329,195 $ (1,368,475)
The accompanying notes are an integral part of these consolidated statements.
Gilman + Ciocia, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity -Continued
For the year ended June 30, 2000 and the quarter ended September 30, 2000
Stock
Subscriptions/ Accumulated
Note Other Total
Receivable for Comprehensive Stockholders'
Shares Sold Income Equity
- --------------------------------------------------------------------------------
Balance at July 1, 1999 $ (159,646) $ 8,241 $ 24,959,941
Purchase of treasury stock (257,385)
Reissuance of treasury stock 30,450
Issuance of common stock on
exercise of stock options 569,876
Issuance of common stock upon
business combinations 3,220,018
Amortization of deferred compensation 27,409
Shares issued upon settlement of litigation 6,581
Income tax benefit on exercise
of stock options 122,638
Payment/write-off of stock
subscriptions receivable 159,646 159,646
Issuance of note receivable for
shares sold (105,000) (105,000)
Comprehensive income:
Unrealized gain on
marketable securities (8,241) (8,241)
Net loss (4,013,092)
- --------------------------------------------------------------------------------
Total comprehensive loss (4,103,092)
- --------------------------------------------------------------------------------
Balance at June 30, 2000 $ (105,000) $ - $24,712,841
================================================================================
Balance at July 1, 2000 $ (105,000) $ - $24,712,841
Purchase of treasury stock (356,345)
Issuance of common stock upon
business combinations 260,222
Net loss (1,409,667)
- --------------------------------------------------------------------------------
Total comprehensive loss (1,409,667)
- --------------------------------------------------------------------------------
Balance at September 30, 2000 $ (105,000) $ - $23,207,051
================================================================================
The accompanying notes are an integral part of these consolidated statements.
Gilman + Ciocia, Inc. and Subsidiaries
--------------------------------------
Notes to Consolidated Financial Statements
------------------------------------------
Unaudited
---------
1. ORGANIZATION AND
NATURE OF BUSINESS
------------------
Business
- --------
Gilman + Ciocia, Inc. and subsidiaries (the "Company" or "G+C"), which is
incorporated in Delaware, provides income tax preparation and financial planning
services to individuals and businesses. The Company has six active wholly owned
subsidiaries, Prime Capital Services, Inc ("PCS") and North Ridge Securities,
Inc. ("North Ridge"), which are registered broker-dealers pursuant to the
provisions of the Securities Exchange Act of 1934; Prime Financial Services,
Inc. ("PFS") and North Shore Capital Management, Inc. ("North Shore"), which
manage PCS and North Ridge, respectively, as well as sell life insurance and
fixed annuities; Asset and Financial Planning, Ltd. ("AFP"), an asset management
business; and e1040.com, Inc. ("e1040") an internet tax preparation business.
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
-------------------
The Consolidated Balance Sheet as of September 30, 2000, the Consolidated
Statements of Operations for the three months ended September 30, 2000 and 1999,
and the Consolidated Statements of Cash Flows for the three months ended
September 30, 2000 and 1999 have been prepared by the Company, without audit. In
the opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows at September 30, 2000 and for all periods presented
have been made.
Reclassifications have been made to prior year amounts to conform with the
current year presentation.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These consolidated financial statements should
be read in conjunction with the financial statements and notes thereto included
in the Company's June 30, 2000 Annual Report to Shareholders.
Operating revenues are seasonal in nature with peak revenues occurring in the
months of January through April. Thus, the three-month results are not
indicative of results to be expected for the year.
3. 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
twelve years ago. The complainant (an insurance company) 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 complainant (a former defendant to a
suit with another insurance company) plus an additional $1.8 million payment for
which the complainant ultimately may be held liable (for payments made by the
other insurance company). On January 29, 1999, the complainant filed a motion
for summary judgment, and on February 19, 1999, the Company filed a cross-motion
for summary judgment. The court has not yet made a ruling on either of the
motions. However in October 2000, in an action to determine the liability
allocation between the two insurance companies that made payments related to the
automobile accident, the other insurance company was ordered to pay the
complainant $857,000. This payment should reduce the complainant's total
indemnification claim against the Company to an amount less than $900,000.
In July 1999, a lawsuit was initiated against the Company by Euromarket
Advisory, Inc., 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). This action was settled in April 2000 in a
settlement agreement under which the Company issued an aggregate of 30,000
shares of the newly issued common stock of the Company. The expense associated
with this settlement had been accrued during Fiscal 1999.
The Company is also engaged in other lawsuits in the ordinary course of business
that it believes will not have a material effect on its financial position.
4. DEBT
----
The Company had a $10,000,000 credit facility with Merrill Lynch. This facility
consisted of 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 was 2.9% plus the 30-day commercial paper rate. The interest rate on the
two revolver loans was 3.15% plus the 30-day commercial paper rate. The terms of
the two revolving loan facilities were sixty months, and the line of credit
facility expired on June 30, 2000. Both facilities were secured by a pledge of
all of the business assets of the Company and guaranteed by each of the three
principal officers of the Company up to $1,750,000. The outstanding principal
and interest balance at September 30, 2000 under the credit facility was
$6,825,191.
The loan agreements contained certain negative covenants that required the
Company to maintain, among other things, specific minimum net tangible worth and
a maximum ratio of debt to tangible net worth. The Company fell out of
compliance with two covenants, and, accordingly, had classified all debt due to
Merrill Lynch as a current liability at June 30, 2000. After the default, on
June 15, 2000, Merrill Lynch elected to forbear from exercising its remedies
under the loan documents until November 30, 2000 in order to allow the Company
to seek a replacement lending facility.
On November 1, 2000, the Company closed an $11,000,000 financing to replace the
Merrill Lynch credit facility. The new financing consists of a $5,000,000 debt
financing ("debt facility") with Travelers Insurance Company and a $6,000,000
senior credit facility ("senior credit facility") with European American Bank.
The interest rate on the senior credit facility is either LIBOR plus 275 basis
points on draw-downs with three-day advance notice or Prime plus .75% otherwise.
The term of the senior credit facility is twelve months. The interest rate on
the debt facility will range from Prime plus or minus 1% and has a term of five
years.
On the September 30, 2000 Consolidated Balance Sheet, $5,000,000 of the Merrill
Lynch debt classified as short term at June 30, 2000 was reclassified to long
term based on the subsequent use of the debt facility, which has a five-year
term, to repay Merrill Lynch.
5. SEGMENTS OF BUSINESS
--------------------
The Company's reportable segments are strategic business units that offer
different products and services or are managed separately because the business
requires different technology and marketing strategies. The Company has three
reportable segments: income tax preparation, financial planning services and
e1040.com.
Income tax preparation is predominantly a seasonal business that focuses on a
broad marketing program in a face to face fashion. Financial planning services
is a year-round business with a targeted marketing strategy that is serviced by
registered representatives dealing in a highly regulated environment. e1040.com
is an online tax preparation service that resides in an on-line technology
platform and requires consistent monitoring of software, systems and strategies
and provides the service to the clients in an on-line fashion.
SEGMENT REPORTING: Tax Financial
- ------------------ Preparation Planning e1040.com Elimination's Consolidation
-------------------------------------------------------------------------
Quarter ended September 30, 2000
- --------------------------------
Revenues $1,562,535 $19,730,338 $46,907 $21,339,780
---------- ----------- ------- ------------- -----------
Direct Costs 1,434,315 16,033,009 120,473 17,587,797
Depreciation and Amortization 161,250 621,163 41,321 823,734
General Corporate Expenses 2,563,915 2,342,733 8,030 4,914,678
---------- ----------- ------- ------------- -----------
Operating Income (loss) (2,596,945) 733,433 (122,917) (1,986,429)
---------- ----------- -------- ------------- -----------
Interest Expense 12,476 96,378 144,852 253,706
Identifiable assets 6,384,785 59,158,661(6,683,322) (18,799,268) 40,060,856
Capital expenditures 130,350 28,674 55,677 214,702
Direct costs consist of the following:
Direct mail costs 102,527 102,527
Advertising 49,846 346,973 5,903 402,722
Rent 387,755 793,643 4,631 1,186,029
Salaries and commissions 894,187 14,892,393 109,939 15,896,519
--------- ---------- ------- ------------ ----------
Total Direct Costs 1,434,315 16,033,009 120,473 - 17,587,797
--------- ---------- ------- ------------ ----------
Quarter ended September 30, 1999
- --------------------------------
Revenues $ 612,086 $ 12,100,140 $ 24,503 $ 12,736,729
----------- ------------ ------- ------------ ----------
Direct Costs 793,945 10,107,379 19,904 10,921,228
Depreciation and Amortization 107,588 431,339 4,385 543,312
General Corporate Expenses 2,611,499 1,572,341 17,278 4,201,118
----------- ------------ ------- ------------ ----------
Operating loss (2,900,946) (10,919) (17,064) (2,928,929)
----------- ------------ ------- ------------ ----------
Interest Expense 12,264 49,379 - 61,642
Identifiable assets 9,660,047 42,006,538 347,689 (19,523,010) 32,491,264
Capital expenditures 292,003 82,822 9,246 384,071
Direct costs consist of the following:
Direct mail costs 98,586 98,586
Advertising 46,563 549,082 5,174 600,819
Rent 215,709 556,437 1,380 773,526
Salaries and commissions 433,087 9,001,860 13,350 9,448,297
---------- ------------ ------- ------------ -----------
Total Direct Costs 793,945 10,107,379 19,904 - 10,921,228
---------- ------------ ------- ------------ ------------
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
For the three months ended September 30, 2000 and 1999, compared.
The information contained in this Form 10-Q and the exhibits hereto may
contain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Such statements are based upon current information, expectations, estimates and
projections regarding the Company, the industries and markets in which the
Company operates, and management's assumptions and beliefs relating thereto.
Words such as "will," "plan," "expect," "remain," "intend," "estimate,"
"approximate," and variations thereof and similar expressions are intended to
identify such forward-looking statements. These statements speak only as of the
date on which they are made, are not guarantees of future performance, and
involve certain risks, uncertainties and assumptions that are difficult to
predict. Therefore, actual outcomes and results could materially differ from
what is expressed, implied or forecast in such forward-looking statements. Such
differences could be caused by a number of factors including, but not limited
to, the uncertainty of laws, legislation, regulations, supervision and licensing
by federal, state and local authorities and their impact on the lines of
business in which the Company's subsidiaries are involved; unforeseen compliance
costs; changes in economic, political or regulatory environments; changes in
competition and the effects of such changes; the inability to implement the
Company's strategies; changes in management and management strategies; the
Company's inability to successfully design, create, modify and operate its
computer systems and networks; litigation involving the Company and risks
described from time to time in reports and registration statements filed by the
Company and its subsidiaries with the Securities and Exchange Commission.
Readers should take these factors into account in evaluating any such
forward-looking statements. The Company undertakes no obligation to update
publicly or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
Overview
Gilman + Ciocia, Inc. provides federal, state and local tax
preparation and financial planning services to individuals predominantly in the
middle and upper income brackets. The Company currently has 145 offices
operating in 17 states. To complement its tax preparation services, the Company
also provides financial planning services to its tax preparation clients and
others. These financial planning services include securities brokerage services,
insurance and mortgage agency services.
The Company opens new tax offices and acquires existing tax preparation
and financial planning businesses. New offices have historically attracted more
potential tax preparation clients, which have resulted in increased revenues and
have contributed to the Company's growth. In addition, each of the new tax
preparation clients is a potential new financial planning client. The Company
plans to continue to expand and acquire tax preparation and financial planning
practices during the next year (although no specific target has been set),
recruit successful financial planners and acquire existing securities
broker/dealers. The Company anticipates funding this growth through the senior
and subordinate debt financing, possible private placement of equity and
operating cash flow.
In Fiscal 2000, the Company formalized an acquisition model requiring
each acquired practice to commit to delivering a minimum level of profitability
in the first year of post acquisition operations. These minimum future
performance and profitability targets, established at the closing, limit future
purchase payments unless the targets are met, as well as help to keep the
principals of the acquired practices focused on delivering profitability that is
accretive to the Company's earnings. In addition to establishing contingent
purchase price performance criteria, the Company generally uses its stock as a
significant component of the initial and future purchase price.
In Fiscal 1999, the Company formed its subsidiary e1040.com, which
acquired all of the assets of an existing on-line tax preparation business. The
Company does not expect to make significant capital investments or incur
extraordinary marketing expenses in future years related to expanding e1040.com.
With an established on-line tax platform already in place, future marketing
initiatives are expected to be in the form of strategic partnerships and revenue
sharing arrangements with brick and morter or other on-line entities who are
looking for consumer-oriented content and services like e1040.com has to offer.
Results of Operations
Three Months ended September 30, 2000 and 1999 compared.
The Company's revenues for the three months ended September 30, 2000
were $21,339,780 compared to $12,736,729 for the three months ended September
30, 1999, an increase of $8,603,051 or 68%. This increase was primarily
attributed to an increase in financial planning services as well as increasing
revenue from tax and accounting practices, which were acquired in mid-Fiscal
2000.
The Company's total revenues for the three months ended September 30,
2000 consisted of $1,609,442 for tax preparation/accounting services and
$19,730,338 for financial planning services. Tax preparation services
represented 8% and financial planning services represented 92% of the Company's
total revenues for the first three months in Fiscal 2001. The Company's total
revenues for the three months ended September 30, 1999 consisted of $636,589 for
tax preparation services and $12,100,141 for financial planning services. Tax
preparation services represented 5% and financial planning services represented
95% of the Company's total revenues for the three months in Fiscal 2000.
The Company's operating expenses for the three months ended September
30, 2000 were $23,326,209, or 109% of revenues, an increase of $7,660,550, or
49%, compared to $15,665,659, or 123% of revenues, for the three months ended
September 30, 1999. The increase in operating expenses was attributed to an
increase of $7,452,546 in salaries and commissions associated with higher
financial planning revenue and the additional salaries from tax/accounting
practices acquired; $412,503 in rent associated with new and acquired offices;
$280,422 in depreciation and amortization associated with increased tangible and
intangible assets; and $39,801 in brokerage fees and licenses from adding
registered financial planners.
Salaries and Commissions increased $7,452,546, or 67%, in the three
months ended September 30, 2000 to $18,573,357 from $11,120,811 in the three
months ended September 30, 1999. The increase in Salaries and Commission expense
is primarily attributed to more commissions paid to financial planners from the
increased sales of financial planning services, the additional head count in
tax/accounting offices from acquisitions, and adding corporate staff to manage
the increased number of field offices.
The increase in rent expense of $412,503 or 53% is primarily
attributed to the inclusion of seventeen acquired offices during Fiscal 2000 and
the increase in rent associated with the Company's new corporate office in White
Plains, New York.
The increase in depreciation and amortization of $280,422 or 52% is
primarily attributed to additional purchases of computer equipment during Fiscal
2000 and additional amortization associated with acquired businesses.
The increase in brokerage fees and licenses of $39,801 or 11% is
primarily attributed to the increase in financial planning business and the
addition of financial planners in the three months ended September 30, 2000.
The Company's loss from operations for the three months ending
September 30, 2000 were $1,986,429 as compared to a loss of $2,928,929 for the
three months ended September 30, 1999. This decrease represents an improvement
of $942,500 or 32%. This improvement is attributed to the significant growth in
revenue in financial planning services, the addition of more profitable year
round tax preparation business to offset fixed costs, and reducing our
advertising, general and administrative expenses from consolidating and
streamlining existing offices and advertising campaigns.
The Company's loss after the income tax benefit for the three months ended
September 30, 2000 was $1,409,667 compared to the loss of $1,627,952 for the
three months ended September 30, 1999. This decrease represents an improvement
of $218,285 or 13%. This improvement is attributed to the operational
improvements, highlighted above, offset by an increase in interest expense from
carrying more debt in fiscal 2001 over fiscal 2000 and the reduction of the
Company's effective tax rate to 35.3% for the three months ended September 30,
2000 from 43% for the three months ended September 30, 1999, which lowered the
Company's income tax benefit.
Liquidity and Capital Resources
The Company's revenues have been, and are expected to be, somewhat
seasonal. As a result, the Company must generate sufficient cash during the tax
season, in addition to its available bank credit facility, to fund any operating
cash flow deficits in the first half of the following fiscal year. Operations
during the non-tax season are primarily focused on financial planning services
along with some on-going accounting and corporate tax services. Since its
inception, the Company has utilized funds from operations and proceeds from
public offerings and bank borrowings to support operations, finance working
capital requirements and complete acquisitions. However, the significant recent
growth in financial planning revenue is expected to substantially increase
future operating cash flow in this fiscal year.
The Company's cash flows used in operating activities totaled $320,327
and $1,446,627 for the three months ended September 30, 2000 and 1999,
respectively. The decrease of $1,126,300 in cash used in operating activities is
due primarily to a decrease in deferred tax benefit of $457,745, income tax
refunds of $609,255 received during the quarter ended September 30, 2000, a
decrease in accounts receivable of $1,427,630 and additional depreciation and
amortization of $280,422. These decreases in cash flows used in operating
activities were offset by a decrease in accounts payable and accrued expenses of
$1,608,977.
Net cash used in investing activities totaled $102,539 and $353,452 for
the three months ended September 30, 2000 and 1999, respectively. The decrease
of $250,913 is primarily due to a decrease in capital expenditures of $169,371
and a net increase in loan repayments from officers and stockholders of
$122,375.
Net cash used in financing activities totaled $898,910 for the three
months ended September 30, 2000 compared to net proceeds in financing activities
of $1,674,392 for the three months ended September 30, 1999. The decrease in
cash used in financing activities of $2,573,302 is attributed to a decrease in
the exercise of stock options and warrants of $150,000, purchase of 81,300
treasury stock shares for $356,345 and a net decrease in loan proceeds of
$2,066,957.
The Company had a $10,000,000 credit facility with Merrill Lynch. This
facility consisted of three separate loans as follows: a line of credit of
$4,000,000 and two revolver loans totaling $6,000,000. The interest rate on the
line of credit was 2.9% plus the 30-day commercial paper rate. The interest rate
on the two revolving loans was 3.15% plus the 30-day commercial paper rate. The
terms of the two revolving loan facilities were sixty months, and the line of
credit facility expired on June 30, 2000. Both facilities were secured by a
pledge of all of the business assets of the Company and guaranteed by three
principal officers up to $1,750,000. The outstanding balance at September 30,
2000 under the credit facility was $6,825,191.
The loan agreements contained certain negative covenants that required the
Company to maintain, among other things, specific minimum net tangible worth and
a maximum ratio of debt to tangible net worth. At March 31, 2000, the Company
was not in compliance with these two covenants, and, accordingly, classified all
debt due to Merrill Lynch as a current liability at June 30, 2000. On June 15,
2000, Merrill Lynch elected to forbear from exercising its remedies under the
loan documents until November 30, 2000 in order to allow the Company to seek a
replacement credit facility. The forbearance agreement entered into between
Merrill Lynch and the Company obligated the Company to make various repayments.
All payments were satisfactorily made by the Company. On November 1, 2000, the
Company closed an $11,000,000 financing with Travelers Insurance Company and
European American Bank and simultaneously paid Merrill Lynch the entire balance
owed it on the outstanding credit facility.
The Company continues to discuss possible strategic capital investments
with several sources of institutional capital regarding possible capital
investments in the Company to continue to fund acquisitions. The ability of the
Company to secure this additional capital could affect the rate of growth of the
Company. However, additional capital will be obtained primarily associated with
acquisitions that would be structured to be immediately accretive to earnings.
The Company anticipates that it will not pay any dividends on its Common Stock
in the foreseeable future, but will apply any profits to fund the Company's
expansion.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market Risks and Sensitivity Analysis
- -------------------------------------
There have been no material changes in market risk from those reported
at June 30, 2000.
PART II-OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
On August 21, 1998, Mercedes-Benz Credit Corporation, Allianz Insurance
Company, and Allianz Underwriters, Inc. filed a complaint against the Company in
New York Supreme Court, Nassau County. The complaint seeks indemnification in
the amount of up to approximately $3.5 million from Gilman + Ciocia, Inc. The
allegations in the complaint are based upon a $1.7 million payment made by the
complainants in a settlement reached on October 3, 1996 with the estate of
Thomas Gilman in a wrongful death action, plus an additional approximately $1.8
million payment made to the estate in the settlement for which complainants
ultimately may be held liable (for payments made by another insurance company).
On January 29, 1999, the complainants filed a motion for summary judgment and on
February 19, 1999, Gilman + Ciocia, Inc. filed a cross-motion for summary
judgment. The court has not yet made a ruling on either of the motions. However,
in October 2000, in an action in New York Supreme Court Nassau County to
determine the liability allocation between the two insurance company's that
settled with the estate, the other insurance company was ordered to pay the
complainant's $857,000. This order is subject to appeal, but the payment should
reduce the complainant's total indemnification claim against the Company to an
amount less than $900,000.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" in this Quarterly Report
on Form 10-Q above.
Item 6. EXHIBITS 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 Amended Articles of Incorporation,
incorporated by reference to Exhibit A in the
Registrant's Proxy Statement on Form14-A under the
Securities Exchange Act of 1934, as amended, filed
for the annual meeting held on June 22, 1999.
3.3 Registrant's By-Laws, incorporated by reference to
the like numbered exhibit in the Registrant's Regist-
ration Statement on Form SB-2 under the Securities
Act of 1933, as amended, File No. 33-70640-NY.
10.14 Loan Agreement dated November 1, 2000 between The
Travelers Insurance Company and Registrant
10.15 Master Note dated November 1, 2000 from Registrant
to The European American Bank
10.16 Line of Credit Agreement dated October 6, 2000
between The European American Bank and Registrant
10.17 Guaranty dated October 30, 2000 from James Ciocia,
Thomas Povinelli, Michael Ryan and Kathryn Travis to
The European American Bank
10.18 Subordination and Assignment Agreement dated
November 1, 2000 between Thomas Povinelli and The
European American Bank
10.19 Non-Negotiable Promissory Note dated October 31, 2000
from Registrant to Thomas Povinelli
27 Financial Data Schedule
(b) Reports on Form 8-K
None
PART II
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this Quarterly Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: November 14, 2000
GILMAN + CIOCIA, INC.
By: /s/ Thomas Povinelli
- -------------------------------------
Thomas Povinelli
Chief Executive Officer and President
By: /s/ David D. Puyear
- -------------------------------------
David D. Puyear
Chief Financial Officer