================================================================================
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, 2004.
Commission File Number 000-22996
GILMAN + CIOCIA, INC.
(Exact name of the registrant as specified in its charter)
DELAWARE 11-2587324
(State or jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11 RAYMOND AVENUE
POUGHKEEPSIE, NEW YORK 12603
(address of principal executive offices)
(845)486-0900
(Issuer's Telephone Number)
Indicate by check mark whether the registrant: (1) has filed reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 the past 90 days. Yes |_| No |X|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). |_| Yes |X| No
As of May 13, 2004, 8,849,323 shares of the issuer's common stock, $0.01 par
value, were outstanding.
Page 1
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS Page
Consolidated Balance Sheets as of March 31, 2004
and June 30, 2003 3
Consolidated Statement of Operations for the Three Months
and Nine Months Ended March 31, 2004 and March 31, 2003 4
Consolidated Statements of Cash Flows for the
Nine Months Ended March 31, 2004 and March 31, 2003 5 - 6
Consolidated Statement of Shareholders' Equity (Deficit)
for the Nine Months Ended March 31, 2004 7
Notes to Consolidated Financial Statements 8 - 16
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
Item 3. Quantitative and Qualitative Disclosure About Market Risks 23
Item 4. Controls and Procedures 24
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 26
SIGNATURES AND CERTIFICATIONS
Page 2
Gilman + Ciocia, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited) (Audited)
March 31, June 30,
2004 2003
-----------------------------
Assets
Cash and cash equivalents $ 1,022,154 $ 955,097
Marketable securities 1,779,171 969,622
Trade accounts receivable, net 4,679,030 4,293,527
Receivables from officers, shareholders
and employees, net 132,388 555,839
Assets of Discountinued Operations 3,568 3,568
Due From Office Sales - Current 219,348 237,302
Prepaid expenses and other current assets 561,526 476,397
Income taxes receivable -- 27,590
-----------------------------
Total current assets 8,397,185 7,518,942
Fixed assets, net 1,825,667 2,396,313
Goodwill 3,884,326 3,900,072
Intangible assets, net 5,803,681 6,133,248
Due from Office Sales - Non Current 399,107 522,090
Other assets 760,280 1,010,449
-----------------------------
Total assets $ 21,070,246 $ 21,481,114
=============================
Liabilities and Shareholders' Deficit
Accounts payable and accrued expenses $ 12,182,812 $ 13,120,150
Current portion of notes payable and
capital leases 9,941,762 12,166,618
Liabilities of Discountinued Operations 1,725,707
Deferred tax liability - net 91,810
-----------------------------
Total current liabilities 22,216,384 27,012,475
Long term portion of notes payable and
capital leases 331,993 650,622
Other liabilities -- 11,000
-----------------------------
Total liabilities 22,548,377 27,674,097
-----------------------------
Preferred Stock - $0.001 par value, 100,000 shares authorized; -- --
no shares Issued and outstanding at March 31, 2004 and June 30, 2003
Common stock - $0.01 par value 20,000 shares authorized; 10,174,561 101,745 100,395
and 10,039,561 shares issued at March 31, 2004 and June 30, 2004
Additional paid in capital 29,665,451 29,850,805
Treasury stock (1,086,079) (1,075,593)
Note receivable for acquired shares -- (105,000)
Retained deficit (30,159,248) (34,963,590)
-----------------------------
Total shareholders' deficit (1,478,131) (6,192,983)
-----------------------------
-----------------------------
Total liabilities and shareholders' deficit $ 21,070,246 $ 21,481,114
=============================
The accompanying notes are an integral part of these financial statements
Page 3
Gilman + Ciocia, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Three Months For the Nine Months
Ended March 31, Ended March 31,
------------------------------ -------------------------------
2004 2003 2004 2003
------------------------------ -------------------------------
Revenues:
Financial planning services $ 14,090,700 $ 10,996,139 $ 40,337,794 $ 37,379,645
Tax preparation fees 4,165,396 3,728,017 5,050,941 4,705,114
------------------------------ -------------------------------
Total revenues 18,256,096 14,724,156 45,388,735 42,084,759
------------------------------ -------------------------------
Operating Expenses:
Salaries and commissions 12,228,226 10,837,454 34,562,227 34,629,769
General and administrative 2,166,089 1,871,735 5,631,479 6,032,697
Advertising 685,924 397,127 807,502 453,986
Brokerage fees and licenses 343,777 215,181 1,198,612 1,104,579
Rent 506,144 689,009 1,621,359 2,333,173
Depreciation and amortization 343,707 482,125 1,069,897 1,355,039
Loss on sale of equipment -- -- -- 85,326
------------------------------ -------------------------------
Total operating expenses 16,273,867 14,492,631 44,891,076 45,994,569
------------------------------ -------------------------------
Income (loss) from
continuing operations before other ------------------------------ -------------------------------
income and expenses 1,982,229 231,525 497,659 (3,909,810)
------------------------------ -------------------------------
Other Income (Expenses):
Interest and investment income $552.00 66,819 28,578 71,299
Interest expense (372,225) (344,704) (822,280) (1,546,997)
Other income (expense), net -- --
------------------------------ -------------------------------
Total other income (expense) (371,673) (277,885) (793,702) (1,475,698)
------------------------------ -------------------------------
Loss from continuing operations ------------------------------ -------------------------------
before income taxes 1,610,556 (46,360) (296,043) (5,385,508)
------------------------------ -------------------------------
-- -- -- --
------------------------------ -------------------------------
Income taxes (benefit) 18,428 15,000 19,598 66,500
------------------------------ -------------------------------
-- -- -- --
------------------------------ -------------------------------
Loss from continuing operations 1,592,128 (61,360) (315,641) (5,452,008)
------------------------------ -------------------------------
Discontinued Operations:
Income (loss) from discontinued operations 10,342 (403,962) 53,837 (1,736,624)
-- -- -- --
Loss on disposal of -- -- -- --
discontinued operations $0.00 1,137,048 5,187,711 (1,543,142)
-- -- -- --
Income taxes (benefit) -- -- 121,359 6,500
-- -- --
------------------------------ -------------------------------
Income (loss) from discontinued operations -- 733,086 5,120,189 (3,286,266)
------------------------------ -------------------------------
-- -- -- --
Net income (loss) $ 1,602,470 $ 671,726 $ 4,804,548 $ (8,738,274)
============================== ===============================
Basic per share data:
(Loss) from continuing operations $0.18 ($0.01) ($0.03) ($0.58)
Gain (Loss) from discountinued operations 0.00 0.08 0.55 (0.35)
------------------------------ -------------------------------
Net Income (loss) per share, basic 0.18 0.07 0.51 (0.94)
============================== ===============================
Weighted average shares, basic 8,832,724 9,666,747 9,370,918 9,338,851
============================== ===============================
Diluted per share data:
(Loss) from continuing operations $0.14 ($0.40) ($0.03) ($0.61)
Gain (Loss) from discountinued operations 0.00 (0.28) 0.50 (0.42)
------------------------------ -------------------------------
Net Income (loss) per share, diluted 0.14 (0.68) 0.47 (1.03)
============================== ===============================
Weighted average shares, diluted 11,345,193 9,666,747 10,202,316 9,338,851
============================== ===============================
Page 4
Gilman + Ciocia, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Unaudited
March 31, March 31,
Cash Flows From Operating Activities: 2004 2003
---------- ----------
Net Income/(Loss): 4,804,547 (8,738,274)
Adjustments to reconcile net income/(loss) to
net cash used in operating activities:
Depreciation and amortization 1,073,196 2,221,975
Amortization of Debt Discount 162,564 --
(Gain) Loss on sale of discontinued operations (5,120,189) 1,543,142
Issuance of common stock for debt default penalties and interest 36,000 301,000
Loss/(Gain) on sale of equipment 85,325
Unrealized losses on securities held for trading (35,437) 34,732
Income from Joint venture (66,747)
Bad Debt Expense 541,488 5,000
Changes in assets and liabilities:
Accounts receivable, net (385,503) 1,216,131
Prepaid and other current assets (85,129) (277,987)
Receivables from officers, stockholders and employees 423,451 306,964
Increase in other assets 250,169 84,970
Accounts payable and accrued expenses (937,338) 1,952,992
Income taxes receivable (payable) 119,400 683,078
Increase in other liabilities (11,000) 11,000
Marketable securities (809,549) 330,022
Change in AR from Others 140,937 --
---------- ----------
Net cash provided by (used in) operating activities 167,607 (306,677)
---------- ----------
Cash Flows From Investing Activities:
Capital expenditures (172,983) (120,951)
Cash paid for acquisitions (146,818) (150,187)
Proceeds from joint venture distribution -- 90,000
Proceeds from sale of equipment -- 14,000
Proceeds from the sale of discontinued operations 4,614,138 1,011,630
Cash Paid for business sale (25,000)
---------- ----------
Net cash provided by investing activities 4,294,337 819,492
---------- ----------
Cash Flows From Financing Activities:
Acquisition of treasury stock (230,695) (5,410)
Cancelation of Note 105,000 --
Proceeds from bank and other loans 583,486 704,544
Payments of bank and capital lease obligations (4,852,678) (2,041,060)
---------- ----------
Net cash used in financing activities (4,394,887) (1,341,926)
---------- ----------
---------- ----------
Net change in cash and cash equivalents 67,057 (829,111)
---------- ----------
---------- ----------
Cash and cash equivalents at beginning of period 955,097 2,223,806
---------- ----------
---------- ----------
Cash and cash equivalents at end of period 1,022,154 1,394,695
========== ==========
Page 5
GILMAN + CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
UNAUDITED
For the Nine Months Ended
March 31, March 31,
2004 2003
--------- ---------
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $176,657 $433,165
======== ========
Supplemental Disclosure of Non Cash Transactions:
Common Stock and Options issued in connection with -- 6,613
business combinations
Equipment acquired under capital leases -- 70,860
Issuance of common stock for debt default penalties
and interest 135,000 301,000
The accompanying notes are an integral part of these consolidated financial
statements.
Page 6
GILMAN + CIOCIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE NINE MONTHS ENDED MARCH 31, 2004
(UNAUDITED)
Gilman + Ciocia, Inc and Subsidiaries
Consolidated Statement of Shareholder's Equity/(Deficit)
For the Nine Months 3-31-2004
Unaudited
Total
Additional Shareholder's
Common Stock Paid Accumulated Treasury Stock Note Equity
Shares Amount In Capital Deficit Shares Amount Receivable (Deficit)
---------- -------- ----------- ------------ --------- ----------- ---------- -------------
Balance at July 1, 2003 10,039,561 $100,395 $29,850,805 ($34,963,590) 278,222 ($1,075,593) ($105,000) ($6,192,983)
Net Income 4,804,547 4,804,547
Record T. Povinelli shares 1,048,616 (230,695) (230,695)
to Treasury Stock
Release of Note receivable from
Pinnacle sale 105,000 105,000
Issuance of stock in
connection with default
on note payable 135,000 1,350 34,650 36,000
---------- -------- ----------- ------------ --------- ----------- --------- -----------
Balance at March 31, 2004 10,174,561 $101,745 $29,885,455 ($30,159,043) 1,326,838 ($1,306,288) $ 0 ($1,478,131)
========== ======== =========== ============ ========= =========== ========= ===========
Page 7
GILMAN + CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS
(a) Description of the Company and Overview
Gilman + Ciocia, Inc. (together with its wholly owned subsidiaries, the
"Company") is a corporation that was organized in 1981 under the laws of the
State of New York and reincorporated under the laws of the State of Delaware in
1993. The Company provides financial planning services, including securities
brokerage, insurance and mortgage agency services, and federal, state and local
tax preparation services to individuals, predominantly in the middle and upper
income tax brackets. In Fiscal 2003*, approximately 89% of the Company's
revenues were derived from commissions on financial planning services and
approximately 11% were derived from fees for tax preparation services. As of
March 31, 2004, the Company had 39 offices operating in 5 states (New York, New
Jersey, Connecticut, Florida and Colorado). The Company's Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K can be
obtained, free of charge, on the Company's web site at www.gilcio.com.
The Company's financial statements have been prepared assuming the Company will
continue as a going concern. The Company has suffered losses from operations in
each of its last four years and is in default under its three largest financing
agreements raising substantial doubt about its ability to continue as a going
concern. During Fiscal 2003, the Company incurred net losses of $13,996,916 and
at March 31, 2004 had a working capital deficit of $13,752,085. The Company's
ability to continue as a going concern and its future success is dependent on
its ability to reduce costs and generate revenues.
As a result of a number of defaults under its agreements with Wachovia Bank,
National Association, ("Wachovia"), on November 27, 2002, the Company entered
into a debt
* Fiscal years are denominated by the year in which they end. Accordingly,
Fiscal 2003 refers to the year ended June 30, 2003.
Page 8
forbearance agreement with Wachovia and subsequently amended the debt
forbearance agreement on June 18, 2003 and on March 4, 2004. Another of its
lenders, Travelers Insurance Company ("Travelers") has claimed several defaults
under its agreement, but acknowledged that it was subject to the terms of a
subordination agreement which restricts the remedies it can pursue against the
Company. The Company's debt to Rappaport Gamma, Ltd.("Rappaport") was due on
October 30, 2002, but remains unpaid. This loan is also subordinated to the
Wachovia loan. That lender is entitled to receive shares of the Company's common
stock monthly while the debt remains unpaid. As a result of these defaults, the
Company's debt as to those lenders is classified as current liabilities on its
financial statements.
(b) Basis of Presentation
The accompanying consolidated financial statements have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission ("SEC").
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to such rules and regulations. However, the Company
believes that the disclosures are adequate to make the information presented not
misleading. The consolidated balance sheets as of March 31, 2004, the
consolidated statement of operations for the three months ended March 31, 2004
and 2003, the consolidated statements of cash flows for the three months and
nine months ended March 31, 2004 and the consolidated statement of stockholders
equity for the nine months ended March 31, 2004 are unaudited. The consolidated
financial statements reflect all adjustments (consisting only of normal
recurring adjustments) that are, in the opinion of management, necessary for a
fair presentation of the Company's financial position and results of operations.
The operating results for the three months and nine months ended March 31, 2004
are not necessarily indicative of the results to be expected for any other
interim period or any future year. These consolidated financial statements
should be read in conjunction with the audited financial statements and notes
thereto included in the Company's Annual Report on Form 10-K/A for the year
ended June 30, 2003, as restated. On February 13, 2004, the Company received a
letter from Grant Thornton, its previous auditors, advising the Company that it
did not consent to the inclusion of its 2002 Auditors' Report issued for the
Company's Form 10K for Fiscal 2002 in the Company's Form 10-K/A for Fiscal 2003
filed on February 9, 2004. The letter stated that Grant Thornton was withdrawing
its 2002 Auditors' Report and that its report could no longer be relied on, and
that it was withdrawing its quarterly review reports for each fiscal quarter
during which it served as the Company's auditors.
(c) Accounting Policies
The preparation of the Company's financial statements in conformity with
accounting principles generally accepted in the United States of America
requires the Company to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. The Company's estimates,
judgments and assumptions are continually evaluated based on available
information and experience. Because of the use of estimates inherent in the
financial reporting process, actual results could differ from those estimates.
Certain of the Company's accounting policies require higher degrees of judgment
than others in their application.
Impairment of intangible assets
Impairment of intangible assets results in a charge to operations whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of an asset to be held and used is
measured by a comparison of the carrying amount of the asset to future net cash
flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the asset exceeds the fair value of the asset. The
measurement of the future net cash flows to be generated is subject to
management's reasonable expectations with respect to the Company's future
operations and future economic conditions which may affect those cash flows. The
Company tests goodwill for impairment annually or more frequently whenever
events occur or circumstances change, which would more likely than not reduce
the fair value of a reporting unit below its carrying amount. The measurement of
fair value in lieu of a public market for such assets or a willing unrelated
buyer relies on management's reasonable estimate of what a willing buyer would
pay for such assets. Management's estimate is based on its knowledge of the
industry, what similar assets have been valued at in sales transactions and
current market conditions.
Page 9
Revenue Recognition
The Company recognizes all revenues associated with income tax preparation,
accounting services, direct mail services and asset management fees upon
completion of the services. Financial planning services include securities and
other transactions. The related commission revenue and expenses are recognized
on a trade date basis.
Net Income (Loss) Per Share
In accordance with SFAS No. 128, "Earnings per Share", basic net income (loss)
per share is computed using the weighted-average number of common shares
outstanding during each period. Diluted net income (loss) per share gives effect
to all potentially dilutive securities that were outstanding during each period.
The computation for March 31, 2003 did not include these outstanding options and
warrants because to do so would have an antidilutive effect for the periods
presented.
Stock Based Compensation
At March 31, 2004, the Company has one stock-based employee compensation plan.
Prior to 2000, the Company accounted for those plans under the recognition and
measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations. Effective July 1, 2000, the Company
adopted the fair value recognition provisions of FASB Statement No. 123,
Accounting for Stock-based Compensation, prospectively to all employee awards
granted, modified, or settled after January 1, 2002. Awards under the Company's
plans vest over periods ranging from three to five years. Therefore, the cost
related to stock-based employee compensation included in the determination of
net income for 2002 and 2003 is less than that which would have been recognized
if the fair value based method had been applied to all awards since the original
effective date of Statement 123. The following table illustrates the effect on
net income and earnings per share if the fair value based method had been
applied to all outstanding and unvested awards in each period.
For the Three Months Ended For the Nine Months Ended
March 31 March 31
2004 2003 2004 2003
------------- ------------- ------------- -------------
Net Income (Loss), as reported $ 1,602,470 $ (671,726) $ 4,804,547 $ (8,734,274)
Add: Stock-based employee
compensation expenses included
in reported net loss, net of related
tax effects
Deduct: Total stock-based
compensation expense determined
under fair value based method for
all awards, net of related taxes 20,101 63,502 76,104 305,353
------------- ------------- ------------- -------------
Proforma net income (loss) $ 1,582,369 $ (6,608,224) $ 4,728,443 $ 9,039,632
Basic and diluted earnings (loss) per share:
As reported - Basic $ 0.18 $ (0.07) .51 (.94)
Proforma - Basic 0.18 0.06 .50 (.97)
As reported - Diluted $ 0.14 $ (0.07) .51 (.93)
Proforma - Diluted 0.14 0.06 .46 (.97)
The effects of applying SFAS 123 in the pro forma net loss disclosures above are
not likely to be representative of the effects on pro forma disclosures of
future years.
Other significant accounting policies
Other significant accounting policies, not involving the same level of
measurement uncertainties as those discussed above, are nevertheless important
to an understanding of the financial statements. These policies require
difficult judgments on complex matters that are often subject to multiple
sources of authoritative guidance. Certain of these matters are among topics
currently under reexamination by accounting standards setters and regulators.
Although no specific conclusions reached by these standard setters appear likely
to cause a material change in the Company's accounting policies, outcomes cannot
be predicted with confidence. Also see Note 1 to our June 30, 2003 Consolidated
Financial Statements included in the Company's Form 10-K/A, as restated, which
discusses accounting policies that must be selected by management when there are
acceptable alternatives.
Page 10
(d) Liquidity and cash flow
The Company's March 31, 2004 consolidated financial statements were prepared
assuming the Company will continue as a going concern. The Company has suffered
losses from operations in each of its last four years, and is in default under
its three largest lending facilities, raising substantial doubt about its
ability to continue as a going concern. During the fiscal 2003, the Company
incurred net losses totaling $13,996,916 and at March 31, 2004 was in a working
capital deficit position of $13,410,073. At March 31, 2004, the Company had
$1,022,154 of cash and cash equivalents and $4,679,030 of trade receivables to
fund short-term working capital requirements. The Company's ability to continue
as a going concern and its future success is dependent upon its ability to
reduce costs and generate revenues to: (1) satisfy its current obligations and
commitments, and (2) continue its growth.
The Company believes that it has been able to complete the necessary steps in
order to meet its cash flow requirements throughout Fiscal 2004 and 2005. The
following transactions have had a beneficial effect on the Company's future cash
flow requirements:
1. Sale of forty seven offices (the "Purchased Offices") to Pinnacle Taxx
Advisors, LLC ("Pinnacle") effective as of September 1, 2002. See Note 5 of
Notes to Consolidated Financial Statements for a complete discussion of the sale
of the Purchased Offices to Pinnacle.
2. Sale of thirteen other Company offices in Fiscal 2003, sale of one Company
office during the three months ending September 30, 2003 and the sale of three
Company offices during the three months ended December 31, 2003. See Note 5 of
Notes to Consolidated Financial Statements for a discussion of the sale of these
three offices.
3. The payment of the Company's debt. See Note 7 of Notes to Consolidated
Financial Statements for a complete discussion of the Company's debt.
4. By Stock Purchase Agreement dated as of January 1, 2004, the Company sold all
of its shares of stock in North Ridge Securities Corp. and in North Shore
Capital Management Corp. (wholly owned Company subsidiaries) for a total
purchase price of $1,100,000. See Note 5 of Notes to Consolidated Financial
Statements for a complete discussion of this sale.
5. Management has engaged in an extensive campaign to reduce corporate overhead,
consisting primarily of closing the White Plains, NY executive offices and
consolidating those functions into the Poughkeepsie, NY home office. This has
resulted in savings of approximately $170,000 per month.
Management and the Board of Directors are currently exploring a number of
tactical alternatives to increase revenues to provide for the Company's future
liquidity and financial performance.
2. RECLASSIFICATION FOR DISCONTINUED OPERATIONS
During Fiscal 2003 and in the nine months ended March 31, 2004, the Company sold
sixty four of its offices, including the sale of forty seven offices to Pinnacle
and two subsidiaries. In accordance with SFAS 144 assets and liabilities
associated with these offices have been reclassified and are included on the
accompanying balance sheets as assets and liabilities held for sale, and the
results of these operations have been reclassified and are separately presented
for all reporting periods as discontinued operations in the accompanying
statements of operations.
3. RECENT ACCOUNTING PRONOUNCEMENTS
In December 2003, the FASB revised SFAS No. 132, Employers' Disclosures about
Pensions and Other Post Retirement Benefits. This revision requires additional
disclosures to those in the original SFAS No. 132 about assets, obligations,
cash flows and the periodic benefit cost of deferred benefit pension plans and
other deferred benefit post-retirement plans. The required information should be
provided separately for pension plans and for other post-retirement benefit
plans. This statement revision is effective for the fiscal years ended after
December 14, 2003 and interim periods beginning after December 15, 2003. The
adoption of this revision is not expected to have a material impact on our
results of operations, financial position or disclosures.
Page 11
4. CONTINGENCIES
Litigation
The Company and its Broker Dealer Subsidiary are defendants and respondents in
lawsuits and NASD arbitrations in the ordinary course of business. On March 31,
2004, there were thirty seven pending lawsuits and arbitrations and management
accrued $1,186,020 as a reserve for potential settlements, judgments and awards.
Of these matters, twelve were related to Prime Capital Services, Inc. and its
registered representatives. Prime Capital Services has Errors & Omissions
coverage for such matters. In addition, under the Prime Capital Services
Registered Representatives contract, each registered representative has
indemnified the Company for these claims. Eight of these matters were dormant on
March 31, 2004. Accordingly, the Company believes that these lawsuits and
arbitrations will not have a material impact on its financial position.
On February 4, 2004, the Company's registered agent in Delaware was served with
a Summons and a Shareholder's Class Action and Derivative Complaint with the
following caption: "Gary Kosseff, Plaintiff, against James Ciocia, Thomas
Povinelli, Michael P. Ryan, Kathryn Travis, Seth A. Akabas, Louis P. Karol,
Edward H. Cohen, Steven Gilbert and Doreen Biebusch, Defendants and Gilman &
Ciocia, Inc., Nominal Defendant". The action was filed in the Court of Chancery
of the State of Delaware in and for New Castle County under Civil Action No.
188-N. The Company believes that the allegations contained in the lawsuit are
without merit and the Company intends to contest the lawsuit vigorously. The
nature of the action is that the Company, its Board of Directors and its
management, breached their fiduciary duty of loyalty in connection with the sale
of the Purchased Offices to Pinnacle. The action alleges that the sale to
Pinnacle was for inadequate consideration and without a fairness opinion by
independent financial advisors, without independent legal advice and without a
thorough evaluation and vote by an independent committee of the Board of
Directors. The action prays for the following relief: a declaration that the
action is maintainable as a class action and certifying the plaintiff as the
representative of the class; a declaration that the Company, its Board of
Directors and its management breached their fiduciary duty and other duties to
the plaintiff and to the other members of the purported class; a rescission of
the Purchase Agreement; unspecified monetary damages; and an award to the
plaintiff of costs and disbursements, including reasonable legal, expert and
accountants fees. On March 15, 2004, counsel for the Company and for all
defendants filed a motion to dismiss the lawsuit.
SEC Investigation
The Company is the subject of a formal investigation by the Securities and
Exchange Commission ("SEC"). The investigation concerns, among other things, the
restatement of the Company's financial results for the fiscal year ended June
30, 2001 and the fiscal quarters ended March 31, 2001 and December 31, 2001
(which have been previously disclosed in the Company's amended quarterly and
annual reports for such periods), the Company's delay in filing Form 10-K for
Fiscal 2002 and 2003, the Company's delay in filing its 10-Q for the quarter
ending September 30, 2002 and the Company's past accounting and recordkeeping
practices. The Company had previously received informal, non-public inquiries
from the SEC regarding certain of these matters. The Company and its executives
have complied fully with the SEC's investigation and will continue to comply
fully with the SEC's investigation. The Company does not believe that the
investigation will have a material effect on the Company's Consolidated
Financial Statements.
The Company has been advised that the Staff of the SEC has taken the position
that the Company has not timely filed all required financial statements because
the Company's Form 10KA for Fiscal 2003 filed in February 2004 included
unaudited financial statements for fiscal years 2002 and 2001. This was due to
the refusal of Grant Thornton, the Company's prior auditors, to consent to the
inclusion in the Form 10KA for Fiscal 2003 of their 2002 audit report with
respect to the 2002 financial statements, as restated. In addition, Arthur
Andersen, the Company's auditors for 2001, is no longer certified to consent to
changes in its 2001 audit report. The Company is working with its past and
current auditors to resolve this matter, which may involve Radin Glass auditing
fiscal 2002. As a result of the Staff's position, until the Company has been
current in filing all reports for 12 months, the Company is ineligible to use
Forms S-2 and S-3 registration statements to register securities, and until such
audited financial statements are filed, other registration statements will not
be declared effective and the Company will be unable to effect private placement
of its securities under Rules 505 and 506 of Regulation D except for placements
exclusively to accredited investors.
Page 12
5. SALE OF OFFICES
Sale of the Purchased Offices to Pinnacle
On November 26, 2002, the Company finalized a transaction pursuant to an asset
purchase agreement (the "Purchase Agreement") with Pinnacle, whereby Pinnacle an
entity controlled by Thomas Povinelli and David Puyear, former executive
officers of the Company, purchased certain assets of the Company. The effective
date of the closing under the Purchase Agreement was September 1, 2002. The
Company sold to Pinnacle forty seven offices ("Pinnacle Purchased Offices") and
all tangible and intangible net assets (the "Purchased Assets") which were
associated with the operations of the Pinnacle Purchased Offices, together
representing approximately $17,690,000 or approximately 19.0% of the Company's
annual revenue for the fiscal year ended June 30, 2002.
The purchase price payable by Pinnacle, including certain liabilities and
payables assumed by Pinnacle, was approximately $6,975,000, subject to final
adjustments. After the closing, the Company alleged that Pinnacle was in default
under the Asset Purchase Agreement, and on May 16, 2003, the Company initiated a
lawsuit against Pinnacle seeking payments for all amounts due.
On December 4, 2003, the Company entered into a settlement with Pinnacle and the
Company collected all amounts due from Pinnacle under the Purchase Agreement. As
part of the settlement, the parties agreed to discontinue all litigation and
legal disputes between the parties. Pinnacle agreed to pay the Company
$2,067,799. At closing, Wachovia was wired $636,397 pursuant to a preexisting
forbearance agreement, as amended, between the Company and Wachovia, including
$100,000 to obtain its final consent. The balance of $1,431,402 was wired to the
Company. The settlement amount constituted the global settlement amount in
connection with the resolution of all monetary disputes between Pinnacle and the
Company under the Asset Purchase Agreement.
In connection with the settlement, Pinnacle negotiated a release of the Company
from its obligations pursuant to the lease for the Company's former White Plains
office. This release was finalized in an Assignment and Assumption of Lease and
Consent dated as of February 18, 2004.
Including the $2,067,799.93 settlement payment, the Company received total
consideration under the Asset Purchase of approximately $7,270,000, comprised of
the following:
Cash payments to the Company $4,410,000
Company debt assumed by Pinnacle $2,630,000
Credit to Pinnacle for the transfer to
the Company by Povinelli of 1,048,616
shares of Company Common stock $ 230,000
The Company recognized a $ 10,650 gain in Fiscal 2003 and a gain of $4,121,733
in the second quarter of Fiscal 2004 from the Pinnacle sale consisting of:
$2,483,562 of cash received, $1,872,532 on the release of obligations assumed by
Pinnacle, and other items totaling $125,695.
Sale of Other Company Offices
In addition to the Pinnacle transaction, during Fiscal 2003, the Company
completed the sale of thirteen other offices to various parties for an aggregate
sales price of approximately $2,332,324 consisting of approximately $490,091 of
cash and approximately $1,842,233 of promissory notes due to the Company.
During the three months ending September 30, 2003, the Company completed the
sale of one Company office for an aggregate sales price of approximately $34,000
in cash and approximately $10,000 of promissory notes due to the Company. During
the three months ending December 31, 2003, the Company completed the sale of
three Company offices for an aggregate sales price of approximately $247,500 in
cash and approximately $27,450 of promissory notes due to the Company.
Sale of North Ridge Securities Corp. and North Shore Capital Management Corp.
By Stock Purchase Agreement dated as of January 1, 2004, the Company agreed to
sell to Daniel R. Levy and Joseph H. Clinard all of the authorized, issued and
outstanding capital stock (the "Shares") of North Ridge Securities Corp. ("North
Ridge") and North Shore Capital Management Corp. ("North Shore"). The total
purchase price for the Shares was $1,100,000 allocated $1,050,000 to the Shares
of North Ridge and $50,000 to the Shares of North Shore. The sum of $162,500 was
to be paid to the Company in cash at the closing, the sum of $37,500 was to be
paid to Wachovia at the closing, the sum of $37,500 will be paid to the Company
Page 13
on or about sixty (60) days after the closing when certain contingencies are met
and the $862,500 balance will be paid to the Company by Mr. Levy in monthly
payments pursuant to the terms of a promissory note commencing on May 1, 2004
and ending on April 1, 2016. The interest rate on the note will be equal to the
prime rate at JP Morgan Chase Bank plus two (2%) percent, but the interest rate
cannot exceed eight (8%) percent until January 1, 2009. The Company will report
the income from the sale of the Shares as it receives the cash payments under
the Stock Purchase Agreement and the promissory note due to having insufficient
collateral to support the collection of such payments and the note having been
fully reserved by the Company. The transaction closed on February 17, 2004 and
Wachovia received the sum of $37,500 on February 17, 2004 and the Company
received the sum of $162,500 on February 18, 2004. Mr. Levy: did not pay to the
Company the interest payments due on the note on February 1, 2004, March 1,
2004, April 1, 2004 and May 1, 2004; did not pay to the Company the principal
payment due on May 1, 2004; and did not obtain and collaterally assign to the
Company the term life insurance policy required in the note. Accordingly, on May
6, 2004, the Company sent Mr. Levy a notice of default advising Mr. levy that
the $862,500 principal of the note, and all accrued interest, were accelerated
and immediately due and payable, and that the interest rate on the note
increased to 16% on February 6, 2004, five (5) days from the date that the first
interest payment was due. On May 11, 2004, Mr. Levy's attorney faxed the Company
a letter denying that Mr. Levy was in default. In addition, he advised the
Company that Mr. Levy has paid all required principal and interest payments due
on the note into the attorney's escrow account.
6. DISCONTINUED OPERATIONS
Approximate direct operating revenues and operating expenses of the Pinnacle
Purchased Offices and Other Purchased Offices included as discontinued
operations on the accompanying statements of operations for the three and nine
months ended March 31, 2004 and March 31, 2004 were as follows:
For the three months Ended For the nine months Ended
March 31, March 31
2004 2003 2004 2003
--------- --------- ---------- -----------
Revenues:
Financial planning services $ 6,613 $1,347,110 $3,310,669 $7,742,081
Tax preparation fees 310 9,558 310 891,193
--------- --------- ---------- -----------
Total revenue 6,923 1,356,668 3,310,979 8,633,274
--------- --------- ---------- -----------
Operating Expenses:
Salaries and commissions $831 $1,330,992 $2,924,706 $8,047,894
General and Administrative (4,695) 218,777 273,659 908,405
Advertising (1,820) 27,134 (3,271) 47,734
Rent 108,711 32,490 983,533
Depreciation and amortizaion -- 75,058 3,298 382,482
Brokerage Fees 26,307
--------- --------- ---------- -----------
Total operating expenses (5,684) 1,760,672 3,257,189 10,370,049
--------- --------- ---------- -----------
--------- ---------
Gain/(loss) from discountinued operations 12,607 (404,004) $ 53,790 ($1,736,775)
--------- --------- ========== ===========
Other Income (Expense) (2,265.0) 42 151
Net Income (loss) $ 10,342 ($403,962) $ 53,790 ($1,736,624)
========= ========= ========== ===========
7. DEBT
The Company is in default on substantially all of its debt.
Wachovia Loan
On December 26, 2001, the Company closed a $7.0 million financing (the "Loan")
with Wachovia. The Loan consisted of a $5.0 million term loan ("Term Loan") and
a $2.0 million revolving letter of credit ("Revolving Credit Loan"). The
interest rate on the Term Loan and the Revolving Credit Loan is LIBOR plus
2.75%. The Term Loan was being amortized over five years and the Revolving
Credit Loan had a term of two years.
Page 14
On November 27, 2002, the Company and Wachovia entered into a forbearance
agreement (the "Forbearance Agreement") whereby Wachovia agreed to forbear from
acting on certain defaults of financial covenants by the Company under the
Revolving Credit Loan and under the Term Loan. The Company had changed its
control without Wachovia's consent and failed to meet requirements under the
Loan to pay scheduled debt service and to maintain certain financial ratios
including senior funded debt to EBITDA.
The Forbearance Agreement was amended by an Amendment to Forbearance Agreement
dated as of June 18, 2003. It was amended again by Amendment No.2 to Forbearance
Agreement dated as of March 4, 2004 to change, among other things: the Maturity
Date of the Loan was extended to July 1, 2005; the $250,000 principal payments
due on March 10, 2004, April 10, 2004, May 10, 2004 and June 10, 2004 were
deleted; commencing on March 10, 2004,and continuing on the 10th day of each
month thereafter until the new Maturity Date of the Loan, the Company will make
a principal payment to Wachovia in the amount of $31,250 in addition to the
regular monthly payments due Wachovia; the Applicable Margin to the interest
rate of the Loan was increased to four percent; and the Company's reporting
requirements to Wachovia were changed.
The Company may be in technical default of other provisions of the Loan, the
Forbearance Agreement and the two Amendments to the Forbearance Agreement.
However, the Company does not believe that Wachovia will issue a note of default
for any of these technical defaults.
Travelers Loan
The Company's credit facility with Travelers closed on November 1, 2000. It was
a $5 million debt financing. As part of the debt facility financing with
Travelers, the Company issued warrants to purchase 725,000 shares of the
Company's common stock. Of this amount, 425,000 warrants were issued to purchase
at $4.23 per share, representing the average closing price for 20 days before
the effective date. The 425,000 warrants were exercisable before May 2, 2003. As
of May 2003, the warrants were not exercised and subsequently expired. The
remaining warrants to purchase 300,000 shares of the Company's common stock were
awarded on February 28, 2002 with a strike price of $2.43 and will expire on
October 31, 2005. The value, as determined by an external appraisal of these
warrants issued on February 28, 2002, was set at $300,000. The warrant
valuations were treated as a debt discount and are being amortized over the five
year term of the Debt Facility under the effective interest rate method. The
amortization of the debt discount for the fiscal years ended June 30, 2003, 2002
and 2001 was approximately $282,292, $256,600 and $166,000, respectively. At
June 30, 2003 and June 30, 2002, the Term Loan had an outstanding principal
balance of $4,750,000 and $4,750,000, respectively.
On September 24, 2002, the Company received a notice from the attorneys for
Travelers alleging that the Company was in default under its debt facility with
Travelers due to nonpayment of a $100,000 penalty for failure to meet sales
production requirements as specified in the debt facility. The Company sent a
letter to the attorneys denying that the Company was in default. Although the
Traveler's notice stated that all unpaid interest and principal under the Debt
Facility were immediately due and payable and that Travelers reserved its rights
and remedies under the debt facility, it also stated that Travelers intended to
comply with the terms of a subordination agreement between Travelers and
Wachovia. Such subordination agreement greatly restricts the remedies which
Travelers could pursue against the Company. No further notices have been
received from Travelers.
Page 15
Rappaport Loan
On October 30, 2001, the Company borrowed $1,000,000 from Rappaport pursuant to
a written note without collateral and without stated interest (the "Loan"). The
Loan was due and payable on October 30, 2002. Additionally, the Loan provided
that: Rappaport receive 100,000 shares of Rule 144 restricted shares of common
stock of the Company upon the funding of the Loan, subject to adjustment so that
the value of the 100,000 shares was $300,000 when the Rule 144 restrictions were
removed; there was a penalty of 50,000 shares to be issued to Rappaport if the
Loan was not paid when due and an additional penalty of 10,000 shares per month
thereafter until the Loan was paid in full. The 100,000 shares were issued on
October 31, 2001 at a value of $3 per share. On December 26, 2001, Rappaport
subordinated the Loan to the $7,000,000 being loaned to the Company by Wachovia.
In consideration of the subordination, the Loan was modified by increasing the
10,000 shares penalty to 15,000 shares per month and by agreeing to issue 50,000
additional shares to Rappaport if the Loan was not paid in full by March 31,
2002, subject to adjustment so that the value of the shares issued was $150,000
when the Rule 144 restrictions were removed. The Loan was not paid by March 31,
2002. Accordingly, Rappaport was issued 95,298 common shares with a value of
$150,000 on May 7, 2002 for the March 31, 2002 penalty. When the Rule 144
holding period was satisfied in October, 2002 with respect to the 100,000 shares
of the Company's common stock issued to Rappaport on the funding of the Loan,
the stock price was $.40 per share. As a result, on October 31, 2002, Rappaport
was issued an additional 650,000 common shares to be added to the 100,000 shares
issued upon the funding of the Loan so that the total value of the original
shares issued was $300,000. By March 31, 2004, Rappaport received a total of
1,075,298 shares for all interest and penalties and will receive 15,000 shares
per month as additional penalties until the Loan is paid in full.
8. STOCK - BASED COMPENSATION
The Company has established various stock - based compensation plans for its
officers, directors, key employees and consultants. See Fiscal year ended June
30, 2003 Annual Report on Form 10-K/A for description of the Company's
stock-based compensation plans.
Stock option activity during the nine months ended March 31, 2004 was as
follows:
Outstanding June 30, 2003 2,437,928
Grants 20,000
Canceled (22,549)
Expired (222,910)
Exercised --
----------
Outstanding - March 31, 2004 2,212,469
----------
Exercisable - March 31, 2004 1,844,969
----------
9. SEGMENTS OF BUSINESS
As a result of the Company's recent restructuring, Management believes the
Company operates as one segment.
Page 16
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 Company's ability to continue as a going concern, 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
The Company is a preparer of federal, state and local income tax returns for
individuals predominantly in middle and upper income brackets. While preparing
tax returns, clients often consider other aspects of their financial needs such
as investments, insurance, pension and estate planning. The Company capitalizes
on this situation by making financial planning services available to clients.
The financial planners who provide such services are employees or independent
contractors of the Company and are Registered Representatives of the Company's
broker-dealer subsidiaries. The Company and/or its Broker Dealer Subsidiaries
earn a share of commissions (depending on what service is provided) from the
services that the financial planners provide to the clients in transactions for
securities, insurance and related products.
For the three months and nine months ended March 31, 2004, approximately 22.8%
and 10.4% respectively of the Company's revenues were earned from tax
preparation services, 77.1% and 84.6% were earned from all financial planning
and related services (with 95.9% and 95.3% from mutual funds, annuities and
securities transactions and 4.1% and 4.7% from insurance, mortgage brokerage and
other related services).
The Company's financial planning clients generally are introduced to the Company
through the Company's tax preparation services. The Company believes that its
tax return preparation business is inextricably intertwined with, and is a
necessary adjunct to, its financial planning activities. Neither segment would
operate as profitably by itself and the two segments leverage off each other,
improving profitability and client retention.
Almost all of the financial planners are also authorized agents of insurance
underwriters. The Company is also a licensed mortgage broker. As a result, the
Company also earns revenues from commissions for acting as an insurance agent
and a mortgage broker. In addition, the Company owns a fifty percent (50%)
equity interest in GTAX/CB, an insurance broker, which is a joint venture with
Feingold & Scott, Inc. In December 2002, all of the capital stock of Feingold &
Scott, Inc. was purchased by Bisys Insurance Services Holding Company ("Bisys").
Page 17
On March 21, 2003, Bisys sent the Company a written notice terminating the joint
venture effective as of March 21, 2004. The Company believes that there will be
no material adverse effect on its revenue from the termination of the joint
venture. The Company has the capability of processing insurance business through
Prime Financial Services, Inc., its wholly owned subsidiary, which is a licensed
insurance broker, and through other licensed insurance brokers.
The Company's financial statements have been prepared assuming the Company will
continue as a going concern. The Company has suffered losses from operations in
each of its last four years, and is in default under its three largest lending
facilities, raising substantial doubt about its ability to continue as a going
concern. During Fiscal 2003, the Company incurred net losses totaling
$(13,996,916) and at March 31, 2004 was in a working capital deficit position of
$13,752,085. At March 31, 2004, the Company had $1,022,154 of cash and cash
equivalents and $4,679,030 of trade receivables to fund short-term working
capital requirements. The Company's ability to continue as a going concern and
its future success is dependent upon its ability to reduce costs and generate
revenues to: (1) satisfy its current obligations and commitments, and (2)
continue its growth.
The Company believes that it has been able to complete the necessary steps in
order to meet its cash flow requirements throughout Fiscal 2004 and 2005. See
Note 1(d) of Notes to Consolidated Financial Statements for a complete
discussion of the Company's liquidity and cash flow, Note 5 of Notes to
Consolidated Financial Statements for a complete discussion of the sale of
Company offices and Note 7 of Notes to Consolidated Financial Statements for a
complete discussion of the Company's debt.
If the Company does not comply with the financial covenants and other
obligations in its loan agreement with Wachovia, Travelers or Rappaport, or its
agreements with other lenders, and such lenders elected to pursue their
available remedies, the Company's operations and liquidity would be materially
adversely affected and the Company could be forced to cease operations.
On February 13, 2004, the Company received a letter from Grant Thornton, its
previous auditors, advising the Company that it did not consent to the inclusion
of its 2002 Auditors' Report issued for the Company's Form 10K for Fiscal 2002
in the Company's Form 10-K/A for Fiscal 2003 filed on February 9, 2004. The
letter stated that Grant Thornton was withdrawing its 2002 Auditors' Report and
that its report could no longer be relied on, and that it was withdrawing its
quarterly review reports for each fiscal quarter during which it served as the
Company's auditors.
RESULTS OF OPERATIONS - THREE AND NINE MONTHS ENDED MARCH 31, 2004 COMPARED TO
THE THREE AND NINE MONTHS ENDED MARCH 31, 2003.
Except as noted, the numbers and explanations presented below represent results
from Continuing Operations only.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2004 COMPARED TO THREE
MONTHS ENDED MARCH 31, 2003.
The Company's revenues for the three months ended March 31, 2004 were
$18,256,096 compared to $14,724,156 for the three months ended March 31, 2003,
an increase of $3,531,940 or 24.0%. Of the total increase, $3,094,561 was
attributable to an increase in the Company's financial planning business and
$437,379 was a result of the Company's tax preparation fees.
The Company's total revenues for the three months ended March 31, 2004 consisted
of $14,090,700 for financial planning services and $4,165,396 for tax
preparation fees. Financial planning services represented 77.2% and tax
preparation fees represented 22.8% of the Company's total revenues during the
three months ended March 31, 2004. The Company's total revenues for the three
months ended March 31, 2003 consisted of $10,996,139 for financial planning
services and $3,728,017 for tax preparation fees. Financial planning services
represented 74.7% and tax preparation fees represented 25.3% of the Company's
total revenues during the three months ended March 31, 2003.
The Company's operating expenses for the three months ended March 31, 2004 were
$16,273,867 or 89.1% of revenues, an increase of $1,781,236 or 12.3%, compared
to $14,492,631 or 98.4% of revenues for the three months ended March 31, 2003.
The increase in operating expenses was attributable to an increase in
commissions of $1,999,548, general and administrative of $294,354, advertising
of $288,797, and brokerage fees and licenses of $128,596, offset by a $608,777
decrease in salaries, rent of $182,865 and depreciation and amortization of
$138,418. Salaries and commissions increased $1,390,772 or 12.8% in the three
months ended March 31, 2004 to $12,228,226 from $10,837,454 during the three
months ended March 31, 2003. This increase is primarily attributable to
increases in financial planning commissions as a result of higher revenue offset
by lower salary and benefit expenses.
Page 18
General and administrative expenses increased $294,354 or 15.7% in the three
months ended March 31, 2004 to $2,166,089 from $1,871,735 during the three
months ended March 21, 2003. This decrease is primarily attributable to an
increase in bad debt expense offset by lower professional fees.
Advertising expenses increased $285,797 or 72.7% in the three months ended March
31, 2004 to $685,924 from $397,127 during the three months ended March 31, 2003.
This increase is primarily attributable to the increase in print ad campaigns to
build brand equity and awareness during tax season.
Brokerage fees and licenses expenses increased $128,596 or 59.8% in the three
months ended March 31, 2004 to $343,777 from $215,811 during the three months
ended March 31, 2003. This increase is primarily attributable to increased
clearing fees as a result of higher financial planning revenues.
Rent expense decreased $182,865 or 26.5% in the three months ended March 31,
2004 to $506,144 from $689,009 during the three months ended March 31, 2003.
This decrease is primarily attributed to the termination of leases associated
with closed or merged offices.
Depreciation and amortization expense decreased $138,419 or 28.7% in the three
months ended March 31, 2004 to $343,706 from $482,125 during the three months
ended March 31, 2003. This decrease is primarily attributable to lower fixed
assets and intangible balances as a result of reduced capital spending and
assets reaching full depreciable lives.
The Company's income from continuing operations before other income and expense
for the three months ended March 31, 2004 was $1,982,229 as compared to $231,525
for the three months ended March 31, 2003, an increase of $1,750,704. This
increase in income was attributable to the increased revenues described above as
well as the net reduction in operating expenses described.
The Company's net income from continuing operations before the provision of
income taxes for the three months ended March 31, 2004 was $1,610,556 compared
to a loss of $ 46,360 for the three months ended March 31, 2003. This increase
in net income of $1,656,916 was attributed to the increase in income from
operations of $1,982,229 highlighted above and offset by an increase to interest
expense of $371,673, net.
The Company had a gain from Discontinued Operations for the three months ended
March 31, 2004, of $ 10,342 compared to $ 733,086 for the three months ended
March 31, 2003.
RESULTS OF OPERATIONS - NINE MONTHS ENDED MARCH 31, 2004 COMPARED TO THE NINE
MONTHS ENDED MARCH 31, 2003
The Company's revenues for the nine months ended March 31, 2004 were $45,388,735
compared to $42,084,759 for the nine months ended March 31, 2003, an increase of
$ 3,303,976 or 7.9%. Of the total increase, $2,958,149 was attributable to am
increase in the Company's financial planning business, while tax preparation
fees increased by $345,827.
The Company's total revenues for the nine months ended March 31, 2004 consisted
of $40,337,794 for financial planning services and $5,050,941 for tax
preparation fees. Financial planning services represented 88.8% and tax
preparation fees represented 11.2% of the Company's total revenues during the
nine months ended March 31, 2004. The Company's total revenues for the nine
months ended March 31, 2003 consisted of $37,379,645 for financial planning
services, and $4,705,114 for tax preparation fees. Financial planning services
represented 88.9%, and tax preparation fees represented 11.1% of the Company's
total revenues during the nine months ended March 31, 2003.
The Company's operating expenses for the nine months ended March 31, 2004 were
$44,891,076 or 98.9% of revenues, an increase of $1,103,493, compared to
$45,994,569 or 109.3% of revenues for the nine months ended March 31, 2003. The
decrease in operating expenses was attributable to decreases in salaries and
commissions of $ 67,542, general and administrative of $401,218, rent of
$711,814, depreciation and amortization of $285,142, partially offset by an
increase in advertising of $353,516, and brokerage fees and licenses of $94,033.
Page 19
Salaries and commissions decreased $67,542 or .2% in the nine months ended March
31, 2004 to $34,562,227 from $34,629,769 during the nine months ended March 31,
2003. This decrease is primarily attributable to decreases in personnel and
benefit costs offset by higher commission expense related to increased financial
planning revenue.
General and administrative expenses decreased $401,218 or 6.7% in the nine
months ended March 31, 2004 to $5,631,479 from $6,032,697 during the nine months
ended March 31, 2003. The decrease is primarily attributable to decreases in
professional fees, general office expenses, telephone expenses, repairs and
maintenance, partially offset by increases in insurance expenses and bad debt
expenses.
Advertising expenses increased $353,516 or 77.9% in the nine months ended March
31, 2004 to $807,502 from $453,986 during the nine months ended March 31, 2003.
This is primarily a result of increased print advertising to continue to bolster
brand awareness and build brand equity.
Brokerage fees and licenses expenses increased $94,033 or 8.5% in the nine
months ended March 31, 2004 to $1,198,612 from $1,104,579 during the nine months
ended March 31, 2003. This increase is primarily attributable to an increase in
the number of transactions processed by the Company's clearing firm.
Rent expense decreased $711,814 or 30.5% in the nine months ended March 31, 2004
to $1,621,359 from $2,333,173 during the nine months ended March 31, 2003. This
decrease is primarily attributed to the consolidation of corporate overhead
facilitates and the termination of leases associated with closed or merged
offices.
Depreciation and amortization expense decreased $285,142 or 21.8% in the nine
months ended March 31, 2004 to $1,069,897 from $1,355,039 during the nine months
ended March 31, 2003. This decrease is primarily attributable to lower fixed
assets and intangible balances as a result of reduced capital spending, and
assets reaching full depreciable lives.
The Company's income from continuing operations before other income and expense
for the nine months ended March 31, 2004 was $497,659 as compared to a loss of
3,909,810 for the nine months ended March 31, 2003, an increase of $4,407,469 or
1.13%. This increase was attributable to the net reduction in operating expenses
described above, in addition to the increase of revenues.
The Company's income from continuing operations before the provision of income
taxes for the nine months ended March 31, 2004 was a loss of $296,043 compared
to a loss of $5,385,508 for the nine months ended March 31, 2003. This
$5,089,465 reduction in losses or 94.5% was attributed to the net decrease in
loss from operations highlighted above, in addition to the net decrease in other
expenses, net, of $793,702. The net decrease in other expenses, net, includes a
decrease in interest expense of $724,717 due to a lower debt level and a
decrease in interest and investment income of $42,721.
The gain from Discontinued Operations for the nine months ended March 31, 2004
was $ 53,837 compared to a loss of $ 1,736,624 for the nine months ended
December 31, 2002. The gain of $1,790,461 is primarily due to the realized gain
on the sale of Pinnacle.
RESTATEMENTS
The financial statements for the three years ended June 30, 2003 have been
restated to correct a timing error in the recording of receivables and the
related accrual for commission liabilities relating to asset management
services. In January 2004, subsequent to the filing of the Form 10-K for the
year ended June 30, 2003, management discovered and informed the auditors that
revenues and related commission expenses for asset management services, billed
and incurred in the quarter ended September 30, 2003 for services to be rendered
in that quarter, had been recorded as of June 30, 2003. Further, it was
ascertained that this error in revenue and expense recognition had been
occurring since the 1999 acquisition of Asset and Financial Planning Ltd. and
had gone undetected for four years. The receivables and commissions originally
prematurely recorded at each quarter end were received and paid by the Company
during the subsequent quarter. On February 13, 2004, the Company received a
letter from Grant Thornton, its previous auditors, advising the Company that it
did not consent to the inclusion of its 2002 Auditors' Report issued for the
Company's Form 10K for Fiscal 2002 in the Company's Form 10-K/A for Fiscal 2003
filed on February 9, 2004. The letter stated that Grant Thornton was withdrawing
its 2002 Auditors' Report and that its report could no longer be relied on, and
that it was withdrawing its quarterly review reports for each fiscal quarter
during which it served as the Company's auditors.
Page 20
The financial statements for the three years ended June 30, 2003 have been
restated to correct this error. As a result of the restatement, receivables as
of June 30, 2003 have been reduced by $1,114,725 and commission liabilities have
been reduced by $923,658. Shareholder's deficit increased by $191,067.
Revenues for the year ended June 30, 2003 increased by $60,009 and commission
expense for the years ended June 30, 2003 increased by $28,765. Losses for the
year ended June 30, 2003 decreased by $31,334.
As the error applied to both the beginning and ending balances of each quarter,
the effect on any individual quarter filing on Form 10-Q was immaterial.
LIQUIDITY AND CAPITAL RESOURCES
The Company's revenues have been, and are expected to continue to be,
significantly seasonal. As a result, the Company must generate sufficient cash
during the tax season, in addition to its available bank credit, 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 ongoing accounting and corporate tax revenue. Since its
inception, the Company has utilized funds from operations, proceeds from its
initial public offering and bank borrowings to support operations, finance
working capital requirements and complete acquisitions. As of March 31, 2004 the
Company had $1,022,154 in cash and cash equivalents and $1,779,171 in marketable
securities. Prime Capital Services is subject to the SEC's Uniform Net Capital
Rule 15c 3-1, which require the maintenance of minimum regulatory net capital
and that the ratio of aggregate indebtedness to net capital, both as defined,
shall not exceed the greater of fifteen to one or $100,000 and $25,000,
respectively. The minimum required regulatory net capital was $209,758 and it
had excess net capital of $901,430.
The Company's cash flow provided by or used in operating activities totaled
$167,607 provided by and $306,677 used for the nine months ended March 31, 2004
and 2003, respectively. The increase in cash flows used in operating activities
is due to increased net income, increased marketable securities and other
current assets, offset by an increase in accounts payable and gain on sale of
Pinnacle.
Net cash provided by investing activities totaled $4,294,337 for the nine months
ended March 31, 2004, as compared to $819,492 for the nine ended March 31, 2003.
The increase in cash provided by operating activities of $3,474,845 is primarily
due to an increase in proceeds from the sale of discontinued operations of
$4,614,138.
Net cash used in financing activities totaled $4,394,887 for the nine months
ended March 31, 2004, as compared to $1,341,926 for the nine months ended March
31, 2003. The increase in cash used in financing activities of $583,249 is
attributed to a decrease in proceeds from bank and other loans, offset by as
well as an increase in payouts of bank and capital lease obligations of
$2,811,618.
Prime Partners, Inc. of New York (previously known as Prime Financial Services,
Inc., New York) has made various loans to the Company at a stated interest rate
of 10%. On March 31, 2004, the Company owed Prime Partners, Inc. $468,200.
Michael Ryan, the Company's Chief Executive Officer and President, is one of the
major shareholders of Prime Partners, Inc.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The table below summarizes the Company's contractual obligations for the five
years subsequent to December 31, 2003 and thereafter. The amounts represent the
maximum future cash contractual obligations.
Page 21
Contractual Obligation and Commercial Commitments
Payment Due by Period
2005 to 2007 to After
Contractual Obligations Total 2004 2006 2008 2008
------------------------------------------------------------------
Debt 9,916,159 9,796,976 12,118 60,821 46,245
Operating Leases 5,105,413 1,904,490 2,221,362 548,820 430,741
Capital Leases 357,596 195,729 87,451 50,122 24,295
------------------------------------------------------------------
Total contractual cash obligations 15,379,169 11,897,195 2,320,930 659,763 501,281
==================================================================
In connection with the Pinnacle sale, all operating leases associated with the
Purchased Offices were assigned to Pinnacle, but the Company still remains
liable on the leases. Aggregate operating lease commitment amounts included in
the table above with respect to the leases assigned to Pinnacle in November 2002
are $1,378,965, $1,130,293, 639,927, $404,535, $287,793, and $431,690 for the
fiscal years ending December 31, 2004, 2005, 2006, 2007, 2008 and thereafter,
respectively. See Note 5 of Notes to the Consolidated Financial Statements for a
complete discussion of the sale of the Purchased Offices to Pinnacle.
The Company is also contractually obligated to certain employees and executives
pursuant to commission agreements and compensation agreements.
MARKET FOR COMPANY'S COMMON EQUITY
The shares of the Company's Common Stock were delisted from the NASDAQ national
market in August 2002 and are now traded in the over-the-counter market on what
is commonly referred to as the "pink sheets". As a result, an investor may find
it more difficult to dispose of or obtain accurate quotations as to the market
value of the securities. In addition, the Company is now subject to Rule 15c2-11
promulgated by the SEC. If the Company fails to meet criteria set forth in such
Rule (for example, by failing to file periodic reports as required by the
Exchange Act), various practice requirements are imposed on broker-dealers who
sell securities governed by the Rule to persons other than established customers
and accredited investors. For these types of transactions, the broker-dealer
must make a special suitability determination for the purchaser and have
received the purchaser's written consent to the transactions prior to sale.
Consequently, the Rule may have a materially adverse effect on the ability of
broker-dealers to sell the Company's securities, which may materially affect the
ability of shareholders to sell the securities in the secondary market.
The delisting could make trading the Company's shares more difficult for
investors, potentially leading to further declines in share price. It would also
make it more difficult for us to raise additional capital. The Company will also
incur additional costs under state blue-sky laws if we sell equity due to our
delisting.
EFFECTS OF INFLATION
Due to relatively low levels of inflation in 2003, 2002, 2001 and 2000,
inflation has not had a significant effect on the Company's results of
operations since inception.
MANAGEMENT'S DISCUSSION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of the Company's financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Management's estimates,
judgments and assumptions are continually evaluated based on available
information and experience. Because of the use of estimates inherent in the
financial reporting process, actual results could differ from those estimates.
Page 22
Certain of the Company's accounting policies require higher degrees of judgment
than others in their application.
Impairment of Intangible Assets results in a charge to operations whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of an asset to be held and used is
measured by a comparison of the carrying amount of the asset to future net cash
flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the asset exceeds the fair value of the asset. The
measurement of the future net cash flows to be generated is subject to
management's reasonable expectations with respect to the Company's future
operations and future economic conditions which may affect those cash flows. The
Company tests goodwill for impairment annually or more frequently whenever
events occur or circumstances change, which would more likely than not reduce
the fair value of a reporting unit below its carrying amount. The measurement of
fair value in lieu of a public market for such assets or a willing unrelated
buyer relies on management's reasonable estimate of what a willing buyer would
pay for such assets. Management's estimate is based on its knowledge of the
industry, what similar assets have been valued at in sales transactions and
current market conditions.
The Company recognizes all revenues associated with income tax preparation,
accounting services, direct mail services and asset management fees upon
completion of the services. Financial planning services include securities and
other transactions. The related commission revenue and expenses are recognized
on a trade date basis.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
Other significant accounting policies, not involving the same level of
measurement uncertainties as those discussed above, are nevertheless important
to an understanding of the financial statements. These policies require
difficult judgments on complex matters that are often subject to multiple
sources of authoritative guidance. Certain of these matters are among topics
currently under reexamination by accounting standards setters and regulators.
Although no specific conclusions reached by these standard setters appear likely
to cause a material change in the Company's accounting policies, outcomes cannot
be predicted with confidence.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
To date, the Company's exposure to market risk has been limited and it is not
currently hedging any market risk, although it may do so in the future. The
Company does not hold or issue any derivative financial instruments for trading
or other speculative purposes. The Company is exposed to market risk associated
with changes in the fair market value of the marketable securities that it
holds. The Company's revenue and profitability may be adversely affected by
declines in the volume of securities transactions and in market liquidity, which
generally result in lower revenues from trading activities and commissions.
Lower securities price levels may also result in a reduced volume of
transactions, as well as losses from declines in the market value of securities
held by the Company in trading, investment and underwriting positions. Sudden
sharp declines in market values of securities and the failure of issuers and
counterparts to perform their obligations can result in illiquid markets in
which the Company may incur losses in its principal trading and market making
activities.
The Company's obligations under its Wachovia and Travelers credit facilities
bear interest at floating rates and therefore, the Company is impacted by
changes in prevailing interest rates.
Page 23
ITEM 4. CONTROLS AND PROCEDURES.
The Company's senior management is responsible for establishing and maintaining
a system of disclosure controls and procedures (as defined in Rule 13a-15 and
15d-15 under the Securities Exchange Act of 1934 (the "Exchange Act") designed
to ensure that information required to be disclosed by the Company in the
reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by an issuer in the reports that it files
or submits under the Act is accumulated and communicated to the issuer's
management, including its principal executive officer or officers and principal
financial officers, to allow timely decisions regarding required disclosure.
As of the end of the period covered by this report, the Company carried out an
evaluation under the supervision and with the participation of the Company's
management, including its Chief Executive Officer and Chief Accounting Officer,
of its disclosure controls and procedures. In designing and evaluating
disclosure controls and procedures, the Company and its management recognize
that any controls and procedures, no matter how well designed and operated, can
only provide reasonable assurance of achieving the desired control objective.
The Chief Executive Officer and the Chief Accounting Officer have determined
that, taking into account the steps taken and to be taken to address the matters
described below, such controls and procedures will provide a reasonable level of
assurance to adequately and effectively timely alert them to material
information required to be included in the Company's periodic SEC reports.
During the third quarter of fiscal 2004 the Company's auditors notified the
Company of certain reportable conditions relating to certain deficiencies,
including with respect to revenue recognition, in the design and operation of
the Company's systems of internal control over financial reporting, that
collectively constitute a material weakness in the Company's ability to produce
timely and accurate financial statements. To address these matters, and in
connection with management's quarterly evaluation of changes in the Company's
internal controls over financial reporting, the Company has: increased staffing
in the accounting department and reallocated responsibility for financial
oversight of the Company's operating divisions; implemented enhanced documented
policies for reconciling trading transactions reporting, commission payment
procedures, and daily transaction reporting (to be completed firm wide in fiscal
2004); documented improved monthly and quarterly closing procedures and improved
trial balance review processes of the Company's subsidiaries; reconciled or
replaced legacy software systems used for monitoring tax return receivables and
related accounts, and implemented improved customer payment recording and
collection procedures. The Company continues to review and enhance its internal
control environment to further reduce to a relatively low level the risk that
errors in amounts that would be material in relation to the financial statements
will be detected within a timely period.
Except as described above, no change occurred in the Company's internal controls
concerning financial reporting during the quarter ended March 31, 2004 that has
materially affected or is reasonably likely to materially affect the Company's
internal controls over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Litigation
The Company and its Broker Dealer Subsidiaries are defendants and respondents in
lawsuits and NASD arbitrations in the ordinary course of business. On March 31,
2004, there were thirty seven pending lawsuits and arbitrations and management
accrued $1,146,058 as a reserve for potential settlements, judgments and awards.
Of these matters, twelve were related to Prime Capital Services, Inc. and its
registered representatives. Prime Capital Services has Errors & Omissions
coverage for such matters. In addition, under the Prime Capital Services
Registered Representatives contract, each registered representative has
indemnified the Company for these claims. Eight of these matters were dormant on
March 31, 2004. Accordingly, the Company believes that these lawsuits and
arbitrations will not have a material impact on its financial position.
Page 24
On February 4, 2004, the Company was served with a Summons and a Shareholder's
Class Action and Derivative Complaint with the following caption: "Gary Kosseff,
Plaintiff, against James Ciocia, Thomas Povinelli, Michael P. Ryan, Kathryn
Travis, Seth A. Akabas, Louis P. Karol, Edward H. Cohen, Steven Gilbert and
Doreen Biebusch, Defendants and Gilman & Ciocia, Inc., Nominal Defendant". The
action was filed in the Court of Chancery of the State of Delaware in and for
New Castle County under Civil Action No. 188-N. The Company believes that the
allegations contained in the lawsuit are without merit and the Company intends
to contest the lawsuit vigorously. The nature of the action is that the Company,
its Board of Directors and its management, breached their fiduciary duty of
loyalty in connection with the sale of the Purchased Offices to Pinnacle. The
action alleges that the sale to Pinnacle was for inadequate consideration and
without a fairness opinion by independent financial advisors, without
independent legal advice and without a thorough evaluation and vote by an
independent committee of the Board of Directors. The action prays for the
following relief: a declaration that the action is maintainable as a class
action and certifying the plaintiff as the representative of the class; a
declaration that the Company, its Board of Directors and its management breached
their fiduciary duty and other duties to the plaintiff and to the other members
of the purported class; a rescission of the Purchase Agreement; unspecified
monetary damages; and an award to the plaintiff of costs and disbursements,
including reasonable legal, expert and accountants fees. On March 15, 2004,
counsel for the Company and for all defendants filed a motion to dismiss the
lawsuit.
SEC Investigation
The Company is the subject of a formal investigation by the Securities and
Exchange Commission ("SEC"). The investigation concerns, among other things, the
restatement of the Company's financial results for the fiscal year ended June
30, 2001 and the fiscal quarters ended March 31, 2001 and December 31, 2001
(which have been previously disclosed in the Company's amended quarterly and
annual reports for such periods), the Company's delay in filing Form 10-K for
Fiscal 2002 and 2003, the Company's delay in filing its 10-Q for the quarter
ending September 30, 2002 and the Company's past accounting and recordkeeping
practices. The Company had previously received informal, non-public inquiries
from the SEC regarding certain of these matters. The Company and its executives
have complied fully with the SEC's investigation and will continue to comply
fully with the SEC's investigation. The Company does not believe that the
investigation will have a material effect on the Company's Consolidated
Financial Statements.
The Company has been advised that the Staff of the SEC has taken the position
that the Company has not timely filed all required financial statements because
the Company's Form 10KA for Fiscal 2003 filed in February 2004 included
unaudited financial statements for fiscal years 2002 and 2001. This was due to
the refusal of Grant Thornton, the Company's prior auditors, to consent to the
inclusion in the Form 10KA for Fiscal 2003 of their 2002 audit report with
respect to the 2002 financial statements, as restated. In addition, Arthur
Andersen, the Company's auditors for 2001, is no longer certified to consent to
changes in its 2001 audit report. The Company is working with its past and
current auditors to resolve this matter, which may involve Radin Glass auditing
fiscal 2002. As a result of the Staff's position, until the Company has been
current in filing all reports for 12 months, the Company is ineligible to use
Forms S-2 and S-3 registration statements to register securities, and until such
audited financial statements are filed, other registration statements will not
be declared effective and the Company will be unable to effect private placement
of its securities under Rules 505 and 506 of Regulation D except for placements
exclusively to accredited investors
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its last meeting of shareholders on December 14, 2001.
ITEM 5. OTHER INFORMATION.
On August 27, 2002, the Company switched independent auditors from Arthur
Andersen LLP to Grant Thornton LLP. On November 7, 2003, the Company switched
independent auditors from Grant Thornton LLP to Radin Glass & Co. LLP. On
February 13, 2004, the Company received a letter from Grant Thornton, its
previous auditors, advising the Company that it did not consent to the inclusion
of its 2002 Auditors' Report issued for the Company's Form 10K for Fiscal 2002
in the Company's Form 10-K/A for Fiscal 2003 filed on February 9, 2004. The
letter stated that Grant Thornton was withdrawing its 2002 Auditors' Report and
that its report could no longer be relied on, and that it was withdrawing its
quarterly review reports for each fiscal quarter during which it served as the
Company's auditors.
Page 25
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
31.1 Certification of Chief Executive Officer.
31.2 Certification of Chief Accounting Officer.
32.1 Certification of Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley of Act of 2002.
32.2 Certification of Chief Accounting Officer Pursuant to Section 906 of the
Sarbanes-Oxley of Act of 2002.
(b) Reports on Form 8-K
(1) Current Report on Form 8-K filed with the SEC on November 12, 2003
(2) Current Report on Form 8-K filed with the SEC on December 18, 2003
(3) Current Report on Form 8-K filed with the SEC on March 26, 2004
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GILMAN + CIOCIA, INC.
Dated: May 17, 2004 By /s/ Michael P. Ryan
Chief Executive Officer
Dated: May 17, 2004 By /s/ Dennis Conroy
Chief Accounting Officer
Page 26