================================================================================
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 March 31, 2001.
[ ] 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 May 9, 2001 8,381,931
shares of the issuer's common equity were outstanding.
================================================================================
PART I-FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS Page
Consolidated Balance Sheets as of March 31, 2001 2
and June 30, 2000
Consolidated Statements of Operations for the three and
nine months ended March 31, 2001 and 2000 3
Consolidated Statements of Cash Flows for the nine months
ended March 31, 2001 and 2000 4-5
Consolidated Statements of Stockholders'
Equity for the nine months ended March 31, 2001 6
Notes to Consolidated
Financial Statements 7-10
Gilman + Ciocia, Inc. and Subsidiaries
Consolidated Balance Sheets
ASSETS March 31, 2001 June 30, 2000
Unaudited Audited
________________ _______________
CURRENT ASSETS
Cash and cash equivalents $ 4,622,570 $ 4,561,293
Marketable securities 11,442 73,044
Accounts receivable, net of allowance for
doubtful accounts of $500,000
and $337,500 as of March 31, 2001 and
June 30, 2000, respectively 12,308,855 6,355,115
Receivables from employees, officers
and stockholders, current portion 1,063,931 709,538
Prepaid expenses and other current assets 897,216 1,210,611
Prepaid and income taxes receivable 838,566 3,134,824
Deferred tax assets, current portion 338,097 690,000
________________ _______________
Total current assets 20,080,677 16,734,425
Property and equipment, net of accumulated
depreciation of $4,347,839 4,832,700 4,423,455
Intangible assets, net of accumulated
amortization of $4,397,800 and
$3,172,897 as at March 31, 2001 and
June 30, 2000, respectively 23,884,172 21,260,307
Receivables from employees, officers and
stockholders, net of current portion - 17,590
Deferred tax assets 900,211 -
Security deposits 805,199 658,818
Other assets 1,109,421 810,583
________________ _______________
Total assets $51,612,380 $43,905,178
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 8,236,676 $ 9,112,734
Accounts payable and accrued expenses 10,571,212 9,233,127
________________ _______________
Total current liabilites 18,807,888 18,345,861
Long-term debt-net of current portion and net
of discount of $702,895 5,504,049 826,476
Deferred tax liability - 20,000
________________ _______________
Total liabilities 24,311,937 19,192,337
________________ _______________
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock-$0.01 par value -shares authorized
100,000; none issued and outstanding - -
Common stock-$.01 par value-shares authorized
20,000,000;
8,615,300 shares and 8.030,834 shares issued
and outstanding as at March
31, 2001 and June 30, 2000, respectively 86,152 80,308
Paid-in capital 27,586,636 23,976,897
Retained earnings 1,061,750 1,772,766
________________ _______________
28,734,538 25,829,971
Less-treasury stock, at cost (1,329,095) (1,012,130)
Note receivable for shares sold (105,000) (105,000)
________________ _______________
Total stockholders' equity 27,300,443 24,712,841
________________ _______________
Total liabilities and stockholders' equity $51,612,380 $43,905,178
================ ===============
The accompanying notes are an integral part of these consolidated balance sheets
Gilman + Ciocia, Inc. and Subsidiaries
Consolidated Statements of Operations
Three Months Ended March 31, Nine Months Ended March 31,
2001 2000 2001 2000
___________ ________________ ______________ _______________
Revenues:
Tax preparation fees $12,213.006 $12,367,147 $14,722,951 $12,915,107
Financial planning
services 20,210,337 23,096,241 57,804,188 49,103,057
e1040.com 379,972 581,654 445,280 617,169
Third party direct
mail services 97,858 507,788 717,823 991,791
____________ _______________ _______________ _______________
Total revenues 32,901,173 36,552,830 73,690,242 63,627,124
Operating expenses:
Salaries and
commissions 20,967,470 24,039,893 56,121,900 47,498,196
General and
administrative
expenses 3,272,197 3,980,055 7,294,559 8,023,759
Advertising 2,382,819 7,082,980 3,088,647 8,710,063
Brokerage fees &
licenses 545,763 449,359 1,396,705 952,410
Rent 1,373,121 915,159 3,795,604 2,554,043
Depreciation and
amortization 889,790 678,388 2,500,005 1,993,942
_________ _______________ _______________ _______________
Total operating
expenses 29,431,160 37,145,835 74,197,420 69,732,413
___________ _______________ _______________ _______________
Operating income
(loss) 3,470,013 (593,004) (507,178) (6,105,289)
___________ _______________ _______________ _______________
Other income/(expense):
Interest and
investment income 437,316 1,016,815 628,235 1,249,674
Interest expense (411,764) (372,920) (979,501) (621,179)
Other income 32,781 25,920 51,616 68,849
___________ _______________ _______________ _______________
Total other income 58,333 669,815 (299,650) 697,343
(expense)
___________ _______________ _______________ _______________
Income (loss) before
income taxes (benefit) 3,528,346 76,811 (806,828) (5,407,946)
Income taxes (benefit) 1,902,441 33,029 (95,812) (2,310,583)
____________ _______________ _______________ _______________
Net income (loss) $1,625,905 $ 43,782 $ (711,016) $(3,097,363)
============= =============== =============== ===============
Net income (loss)
per share,
Basic $ 0.20 $ 0.01 $ (0.09) $ (0.42)
Diluted $ 0.20 $ 0.01 $ (0.09) $ (0.42)
Weighted average shares,
Basic 8,271,768 7,484,164 7,996,235 7,392,884
Diluted 8,315,316 7,862,338 7,996,235 7,392,884
Gilman & Ciocia, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Nine Months Ended March 31, 2001
2001 2000
______ ________
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $ (711,016)$(3,097,363)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 2,500,005 1,909,942
Deferred tax benefit (568,308) (2,760,802)
Gain on sale of marketable securities - (999,192)
Amortization of deferred and other
compensation expense 68,286 1,533,939
Interest on stock subscriptions - (2,701)
Changes in:
Net accounts receivable (5,953,740) (8,097,858)
Prepaid expenses and other current assets 367,435 347,130
Advances to employees, officers and
stockholders (1,278,485) (201,332)
Security deposits and other assets (112,168) (248,569)
Accounts payable and accrued expenses 1,338,085 5,766,660
Prepaid and income tax receivable 2,296,258 -
_____________ _____________
Net cash used in operating activities (2,053,648) (5,850,146)
_____________ _____________
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (905,506) (1,193,745)
Cash payments for acquisitions-net of cash acquired (1,046,785)(1,437,834)
Proceeds from sale of investments 61,602 1,307,987
Loan repayments from officers and stockholders 395,346 188,257
_______________ ________________
Net cash used in investing activities (1,495,343)(1,135,335)
_______________ ________________
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 30,205 542,376
Acquisition of treasury stock (648,503) (45,504)
Reissuance of treasury stock 177,808 -
Proceeds from bank and other loans 11,810,706 11,084,210
Payments of bank and other loans (7,759,948)(4,000,000)
_______________ ________________
Net cash provided by financing activities 3,610,268 7,581,082
_______________ ________________
Net increase in cash 61,277 595,601
CASH, and cash equivalents beginning of year 4,561,293 3,453,354
_______________ ________________
CASH, and cash equivalents end of year $ 4,622,570 $4,048,955
=============== ================
The accompanying notes are an integral part of these consolidated statements.
Gilman & Ciocia, Inc. and Subsidiaries
Consolidated Statements of Cash Flows-Continued
For the Nine Months Ended March 31,
2001 2000
______ ________
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for-
Interest $ 806,101 $ 621,179
Income taxes 205,683 774
Noncash transactions-
Issuance of common stock as
consideration in business combination 2,801,982 1,639,245
Reissuance of treasury stock at fair value 209,286 -
Issuance of common stock in lieu of cash 52,518 -
Issuance of common stock as bonus 53,130 -
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Details of business combinations:
Fair value of assets acquired 3,848,767 5,752,699
Less: Liabilities assumed - -
Less: Stock issued (2,801,982)(1,639,245)
Accrual of stock to be issued
at a future date - (2,350,620)
Cash to be paid at future date - (325,000)
Cash acquired in acquisitions - -
___________ ____________
Net cash for acquisitions $ 1,046,785 $1,437,834
============ =============
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 Nine months ended March 31, 2001
Common Stock Treasury Stock
Paid Retained
Shares Amount In Capital Earnings Shares Amount
__________________________________________________________________
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 160,439 (648,503)
Reissuance of
treasury stock (200) 1,025
Reissuance of
treasury stock-ESPP (122,252) (70,615) 330,513
Issuance of common
stock upon
business
combinations 555,088 5,551 2,796,431
Issuance of
common
stock in
lieu of
cash payment 5,250 52 52,466
Issuance of
common stock 10,000 100 30,105
Stock based
compensation 14,128 141 52,989
Warrants issued
in connection
with
refinancing 800,000
Net loss (711,016)
___________________________________________________________________
Total
comprehensive
income (711,016)
____________________________________________________________________
Balance at
March 31,
2001 8,615,300 $86,152 $27,586,636 $1,061,750 337,519 $(1,329,095)
========================================================================
Gilman & Ciocia, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity-CONTINUED
For the year ended June 30, 2000 and the Nine months ended March 31, 2001
Note
Receivable Total
for Shares Stockholders'
Sold Equity
_______________________________________________________________
Balance at
July 1, 2000 $ (105,000) $ 24,712,841
Purchase of
Treasury
stock (648,503)
Reissuance of
treasury stock 1,025
Reissuance of
treasury stock-ESPP 208,261
Issuance of common
stock upon
business
combinations 2,801,982
Issuance of
common
stock in
lieu of
cash payment 52,518
Issuance of
common stock 30,205
Stock based
compensation 53,130
Warrants issued
in connection
with
refinancing 800,000
Net loss (711,016)
___________________________________________________________________
Total
comprehensive
income (711,016)
____________________________________________________________________
Balance at
March 31,
2001 $(105,000) $27,300,443
====================================================================
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 March 31, 2001, the Consolidated Statements
of Operations for the three and nine months ended March 31, 2001 and 2000, and
the Consolidated Statements of Cash Flows for the nine months ended March 31,
2001 and 2000 have been prepared by the Company. In the opinion of management,
the condensed consolidated financial statements include all adjustments
consisting of only normal recurring adjustments considered necessary to present
fairly the financial position, results of operations and cash flows at March 31,
2001 and for all periods presented. 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 on Form 10-K.
Operating revenues are seasonal in nature with peak revenues occurring in the
months of January through April. Thus, this quarter's three-month and nine-month
results include seasonal revenues but are not indicative of results to be
expected for the entire 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). 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 order is subject to appeal, but the payment
should reduce the principal amount of the complaint's indemnification claim
against the Company to an amount less than $900,000. In addition, in January
2001, the legal action against the Company was dismissed on the Company's motion
for summary judgment based on the court's determination that the indemnification
of an insurance company in this situation would be against the public policy of
New York State. The complaint insurance company in the action against the
Company has filed a notice of appeal from the dismissal.
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
On November 1, 2000 ("effective date"), the Company closed an $11,000,000
financing, which 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 and requires a 30-day clean-up period on the
loan prior to maturity. The interest rate on the debt facility will range from
Prime plus or minus 2.25% and has a term of five years. The outstanding
principal and interest balance at March 31, 2001 under the debt facility and
senior credit facility was $5,243,048 and $6,014,344, respectively.
As part of the debt facility financing with Travelers Insurance Company, the
Company issued warrants to purchase 425,000 and 300,000 shares of the Company's
common stock at $4.23 per share, the average closing price for 20 days before
the effective date. The 425,000 warrants are exercisable between November 1,
2000 and May 2, 2003, and the 300,000 warrants are exercisable between November
1, 2001 and May 2, 2004. The estimated value of these warrants at the date
issued was set at $800,000, subject to a fair market valuation appraisal to be
obtained. The warrant valuation was treated as a debt discount and amortized
over the five-year term of the debt facility. The fiscal 2001 amortization is
$97,107, under the interest rate method.
5. INTANGIBLE ASSETS
Intangible assets consist of the following as of:
March 31, 2001 June 30, 2000
Customer Lists 13,621,992 10,063,224
Broker-Dealer
Registration 200,000 200,000
Non-Compete Contracts 1,090,000 800,000
House Accounts 900,000 900,000
Administrative
Infrastructure 700,000 700,000
Independent
Contractor Agreements 5,700,000 5,700,000
Goodwill 6,069,980 6,069,980
__________ ____________
28,281,972 24,433,204
Less-Accumulated
amortization 4,397,800 3,172,897
___________ _____________
$23,884,172 $21,260,307
___________ _____________
Amortization expense is computed on a straight-line basis over periods ranging
from five to twenty years, and amounted to $1,239,105 and $556,527 for the nine
months ended March 31, 2001 and 2000, respectively.
6. 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
March 31, 2001
Revenues $12,310,864 $20,210,337 $379,972 $32,901,173
____________ ____________ ________ ______________ _____________
Direct Costs 5,492,838 15,862,431 489,469 21,844,738
Depreciation
and Amortization 169,897 654,474 65,419 889,790
General Corporate
Expenses 3,686,732 3,039,930 (30,030) 6,696,632
___________ ____________ ________ ______________ _____________
Operating
Income (loss) 2,961,398 653,502 (144,887) - 3,470,013
___________ ____________ ________ ______________ _____________
Interest Expense 107,650 90,633 213,481 411,764
Identifiable
assets 23,662,174 44,538,390 827,769 (17,415,952) 51,612,380
Capital
expenditures 619,279 119,882 25,843 765,004
Direct costs
consist of
the following:
Advertising 1,251,727 952,336 178,756 2,382,819
Rent 448,511 920,375 4,235 1,373,121
Salaries
and
commissions 3,792,600 13,989,720 306,478 18,088,798
__________ _____________ ________ _______________ ____________
Total Direct
Costs 5,492,838 15,862,431 489,469 - 21,844,738
__________ _____________ ________ _______________ _____________
Quarter ended
March 31, 2000
Revenues $ 12,874,934 $ 23,096,242 $581,654 $36,552,830
__________ _____________ ________ ______________
Direct Costs 5,875,111 17,563,363 5,488,217 28,926,691
Depreciation
and Amortization 187,130 465,408 25,850 678,388
General Corporate
Expenses 4,234,028 2,566,154 740,573 7,540,755
__________ _____________ _________ ______________ _____________
Operating
Income (loss) 2,578,665 2,501,317 (5,672,986) (593,004)
__________ _____________ _________ ______________ _____________
Interest Expense 88,513 225,710 58,697 372,920
Identifiable
assets 9,253,814 56,183,418 279,173 (17,550,044) 48,166,361
Capital
expenditures 627,650 150,998 189,196 967,844
Direct costs
consist of
the following:
Advertising 1,374,143 880,823 4,828,014 7,082,980
Rent 200,430 679,241 35,488 915,159
Salaries and
commissions 4,300,538 16,003,299 624,715 20,928,552
__________ _____________ __________ _____________ _____________
Total Direct
Costs 5,875,111 17,563,363 5,488,217 - 28,926,691
__________ _____________ __________ _____________ _____________
SEGMENT REPORTING-CONTINUED:
Nine months ended March 31, 2001
Revenues $15,440,774 $57,804,188 $445,280 $73,690,242
___________ ___________ ________ __________ ____________
Direct Costs 8,153,921 46,327,769 789,817 55,271,507
Depreciation and
Amortization 483,175 1,861,274 155,556 2,500,005
General Corporate
Expenses 8,970,065 7,446,550 9,293 16,425,908
___________ ____________ ________ __________ ____________
Operating Income
(loss) (2,166,387) 2,168,595 (509,386) (507,178)
___________ ____________ ________ __________ ____________
Interest Expensse 131,551 276,543 571,407 979,501
Identifiable
assets 23,662,174 44,538,390 827,769 (17,415,952)51,612,380
Capital
Expenditures 932,988 215,485 210,686 1,359,159
Direct costs
consist of the
following:
Advertising 1,334,033 1,509,830 244,784 3,088,647
Rent 1,237,021 2,545,486 13,097 3,795,604
Salaries and
commissions 5,582,867 42,272,453 531,936 48,387,256
___________ ____________ ________ ___________ ___________
Total Direct
Costs 8,153,921 46,327,769 789,817 - 55,271,507
___________ ____________ ________ ___________ ___________
Nine months
ended March
31, 2000
Revenues $ 13,906,899 $ 49,103,056 $617,169 $63,627,124
Direct Costs 7,157,732 38,728,499 5,530,780 51,417,011
Depreciation
and
Amortization 457,081 1,506,627 30,235 1,993,943
General Corporate
Expenses 9,538,776 5,914,569 868,114 16,321,459
___________ _____________ _________ __________ ___________
Operating
loss (3,246,690) 2,953,361(5,811,960) (6,105,289)
___________ _____________ _________ __________ ___________
Interest
Expense 150,395 412,088 58,696 621,179
Identifiable
assets 9,253,814 56,183,418 279,173(17,550,044)48,166,361
Capital
expenditures 1,581,028 350,753 242,839 2,174,620
Direct costs
consist of
the following:
Advertising 1,624,114 2,252,762 4,833,188 8,710,064
Rent 681,595 1,833,739 38,708 2,554,042
Salaries and
commissions 4,852,023 34,641,998 658,884 40,152,905
___________ _______________ _________ __________ __________
Total Direct
Costs 7,157,732 38,728,499 5,530,780 51,417,011
___________ _____________ _________ __________ __________
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
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 and its 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 151 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 new tax preparation
client 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 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
The Company's total revenues for the three months ended March 31, 2001 were
$32,901,173 compared to $36,552,830 for the three months ended March 31, 2000, a
decrease of $3,651,657 or 10%. Revenues for the nine months ended March 31, 2001
were $73,690,242 compared to $63,627,124 for the nine months ended March 31,
2000, an increase of $10,063,118 or 16%. The three months ended March 31, 2001
decrease was primarily from a decrease in financial planning services impacted
by the dramatic decline of the broader equity markets, as well as a small
decrease in e1040.com revenues and third party business at the Company's
Progressive Mailing direct mail division.
The Company's total revenues for the three months ended March 31, 2001
consisted of $12,213,006 for tax preparation/accounting services, $20,210,337
for financial planning services, $379,972 for e1040.com and $97,858 for
Progressive Mailing. For the nine months ended March 31, 2001 total revenues
consisted of $14,722,951 for tax preparation/accounting services, $57,804,188
for financial planning services, $445,280 for e1040.com and $717,823 for
Progressive Mailing. The Company's total revenues for the three months ended
March 31, 2000 consisted of $12,367,148 for tax preparation/accounting services,
$23,096,241 for financial planning services, $581,654 for e1040.com and $507,787
for Progressive Mailing. For the nine months ended March 31, 2000 total revenues
consisted of $12,915,106 for tax preparation/accounting services, $49,103,056
for financial planning services, $617,169 for e1040.com and $991,792 for
Progressive Mailing. Tax preparation services represented 20% and 20%, financial
planning services represented 78% and 77%, e1040.com represented 1% and 1% and
Progressive Mailing represented 1% and 2% of the Company's total revenues for
the nine months in Fiscal 2001 and Fiscal 2000, respectively.
The Company's operating expenses for the three months ended March 31, 2001 were
$29,431,160, or 89% of revenues, a decrease of $7,714,674, or 21%, compared to
$37,145,834, or 102% of revenues, for the three months ended March 31, 2000. For
the nine months ended March 31, 2001, operating expenses were $74,197,420, or
101% of revenues, an increase of $4,465,007, or 6%, compared to $69,732,413, or
110% of revenues, for the nine months ended March 31, 2000. The increase in
operating expenses is the result of changes to the following areas:
Salaries and Commissions decreased $3,072,423, or 13%, in the three months ended
March 31, 2001 to $20,967,470 from $24,039,893 in the three months ended March
31, 2000. For the nine months ended March 31, 2001 the increase was $8,623,704,
or 18%, to $56,121,900 from $47,498,196 in the nine months ended March 31, 2000.
The nine month increase is primarily from 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 the limited addition
of additional corporate staff to manage the increased number of field offices.
Conversely, the decrease for the three months ended March 31, 2001 was primarily
from the decrease in commissions paid to financial planners on lower revenue of
financial planning services.
General and Administration decreased $707,858, or 18%, in the three months ended
March 31, 2001 to $3,272,197 from $3,980,055 in the three months ended March 31,
2000. For the nine months ended March 31, 2001 the decrease was $729,200, or 9%,
to $7,294,559 from $8,023,759 in the nine months ended March 31, 2000. The
decrease is primarily from the continued streamlining of our existing offices as
well as from implementing cost containment initiatives at our subsidiary
companies.
Advertising decreased $4,700,161, or 66%, in the three months ended March 31,
2001 to $2,382,819 from $7,082,980 in the three months ended March 31, 2000. For
the nine months ended March 31, 2001 the decrease was $5,621,416, or 65%, to
$3,088,647 from $8,710,063 in the nine months ended March 31, 2000. The decrease
is primarily from not replacing the Fiscal 2000 advertising campaigns to market
our e1040.com website resulting in a reduction of $4,588,404. In addition, the
Company reduced its direct mail marketing for its brick and mortar tax offices
by approximately $1,033,012 in the nine months ended March 31, 2001. While the
Company reduced its total marketing cost dramatically, it has not had a dramatic
affect on revenues and its quarterly profits have increased.
Rent increased $457,962, or 50%, in the three months ended March 31, 2001 to
$1,373,121 from $915,159 in the three months ended March 31, 2000. For the nine
months ended March 31, 2001 the increase was $1,241,561, or 49%, to $3,795,604
from $2,554,043 in the nine months ended March 31, 2000. The increases are
primarily from taking additional rental space by our existing offices, normal
rate increases on lease renewals and the affect of acquired offices.
Depreciation and Amortization increased $211,402, or 31%, in the three months
ended March 31, 2001 to $889,790 from $678,388 in the three months ended March
31, 2000. For the nine months ended March 31, 2001, the increase was $506,063,
or 25%, to $2,500,005 from $1,993,942 in the nine months ended March 31, 2000.
The increase is primarily from additional purchases of computer equipment and
additional amortization associated with acquired businesses during Fiscal 2000
and 2001.
The Company's profit from operations for the three months ending March 31, 2001
was $3,470,013 compared to a loss of $593,004 for the three months ended March
31, 2000. This increase represents an improvement of $4,063,017. The nine months
ended March 31, 2001 loss from operations was $507,178 compared to $6,105,289
for the nine months ended March 31, 2000, an improvement of $5,598,111 or 92%.
This improvement is from implementing cost containment initiatives through
consolidating and streamlining existing offices and reduced media advertising
campaigns. Adding to the reduction in the loss from operations is the
significant growth in revenue in financial planning services and the addition of
more profitable year round tax preparation business.
The Company's profit after income taxes for the three months ended March 31,
2001 was $1,625,905 compared to $43,782 for the three months ended March 31,
2000. This increase represents an improvement of $1,582,123 or 3,614%. For nine
months ended March 31, 2001 the loss after the income tax benefit was $711,017
compared to $3,097,363 for the nine months ended March 31, 2000, an improvement
of $2,386,346 or 77%. This improvement is from the operational improvements
highlighted above. The increase in interest expense was $38,844, or 10%, in the
three months ended March 31, 2001 and $358,322, for the nine months ended March
31, 2001. This increase in interest expense resulted from carrying more debt
this Fiscal year over last Fiscal year. The Company's effective income tax rate
for the three months and nine months ended March 31, 2001, is approximately 12%
and 54%, respectively. The primary differences between these rates and the
statutory federal income tax rate of 34% relates primarily to the amortization
of certain goodwill and other intangible assets not being deductible for income
tax purposes, as well as state income taxes and benefits.
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 $2,053,648 and
$5,850,146 for the nine months ended March 31, 2001 and 2000, respectively. The
decrease of $3,796,498 in cash used in operating activities is from a decrease
in net loss of $2,386,347, additional depreciation and amortization of $590,063,
a decrease in deferred tax benefit of $2,192,494, a decrease in accounts
receivable of $2,144,118, an income tax refund of $1,769,622 received during the
nine months ended March 31, 2001, a decrease in prepaid and income tax
receivable of $526,636 and a decrease in security
deposits and other assets of $136,401. These decreases in cash flows used in
operating activities were offset by advance draws to planners on future
commissions of $1,077,153, a decrease in accounts payable and accrued expenses
of $4,428,575 and a decrease in amortization of deferred and other compensation
expense of $1,465,653.
Net cash used in investing activities totaled $1,495,343 and $1,135,335 for the
nine months ended March 31, 2001 and 2000, respectively. The increase of
$360,008 is from a decrease in proceeds from sale of investments and marketable
securities of $1,246,385. This decrease proceeds from the sale is offset by a
decrease in capital expenditures of $288,239, a decrease in cash payments for
acquisitions of $391,049 and an increase in loan repayments from officers and
stockholders of $207,089.
Net cash provided by financing activities totaled $3,610,268 and $7,581,082 for
the nine months ended March 31, 2001 and 2000, respectively. The decrease in net
cash provided by financing activities of $3,970,814 is attributable to a net
decrease in loan proceeds of $3,033,452, additional purchases of treasury stock
of $602,999 and a decrease from the proceeds from the issuance of common stock
of $512,171. These decreases in net cash provided by financing activities are
offset by cash proceeds received from the re-issuance of treasury stock of
$177,808, which has been allocated to the Employee Stock Purchase Plan.
The Company had a $10,000,000 credit facility with Merrill Lynch. This facility
consisted of three separate loans, a line of credit of $4,000,000 and two
revolver loans totaling $6,000,000. 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. At March 31, 2001, the outstanding principal and
interest balance on the replacement credit facility was $11,257,392.
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). 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 complainants $857,000. This order
is subject to appeal, but the payment should reduce the principal amount of the
complainant's indemnification claim against the Company to an amount less than
$900,000. In addition, in January 2001, the legal action against the Company was
dismissed on the Company's motion for summary judgment based on the court's
determination that the indemnification of an insurance company in this situation
would be against the public policy of New York State. The complainant insurance
company in the action against the Company has filed a notice of appeal from the
dismissal.
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 Registration Statement on Form SB-2 under
the Securities Act of 1933, as amended, File No. 33-70640-NY.
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: May 14, 2001
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