GILMAN CIOCIA INC - 10-Q
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 2008
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________
Commission File Number 000-22996
GILMAN CIOCIA, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 11-2587324
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11 RAYMOND AVENUE
POUGHKEEPSIE, NEW YORK 12603
(Address of principal executive offices)(Zip code)
(845) 486-0900
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all 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 |X| No |_|
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of "large accelerated filer", "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer |_| Accelerated filer |_|
Non-accelerated filer |_| Smaller reporting company |X|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes |_| No |X|
As of February 6, 2009, 95,868,611 shares of the issuer's common stock, $0.01
par value, were outstanding.
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GILMAN CIOCIA INC - 10-Q
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GILMAN CIOCIA, INC.
QUARTERLY REPORT ON FORM 10-Q
For the Period Ending December 31, 2008
TABLE OF CONTENTS
Page
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Forward-Looking Statements........................................................... 3
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 2008 (unaudited) and June 30, 2008.... 4
Consolidated Statements of Operations for the Three Months and Six Months
Ended December 31, 2008 and December 31, 2007 (unaudited)............................ 5
Consolidated Statements of Cash Flows for the Six Months
Ended December 31, 2008 and December 31, 2007 (unaudited)............................ 6
Supplemental Disclosures to Consolidated Statements of Cash Flows (unaudited)........ 7
Notes to Consolidated Financial Statements (unaudited)............................... 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................................. 18
Item 4 (T). Controls and Procedures ......................................................... 30
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.................................................................. 31
Item 1A. Risk Factors...................... ................................................ 32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds........................ 32
Item 3. Defaults Upon Senior Securities ................................................... 32
Item 5. Other Information................ ................................................. 32
Item 6. Exhibits .......................................................................... 33
SIGNATURES................................................................................... 34
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GILMAN CIOCIA INC - 10-Q
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FORWARD LOOKING STATEMENTS
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 (the "Securities Act") and Section 21E of the Securities Exchange
Act of 1934 (the "Exchange Act"). Such statements, including statements
regarding our expectations about our ability to raise capital, our strategy to
achieve our corporate objectives, including our strategy to pursue growth
through acquisitions, to increase revenues through our registered representative
recruiting program and expand our brand awareness and business presence, our
ability to be profitable, the cyclical nature of our business, our liquidity,
revenues, the payment of legacy accounts payable, the outcome or effect of
litigation, arbitration and regulatory investigations, the impact of certain
accounting pronouncements, the effects of our cost-cutting measures, and others,
are based upon current information, expectations, estimates and projections
regarding us, the industries and markets in which we operate, 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
forecasted 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 we and our
subsidiaries are involved; unforeseen compliance costs; changes in economic,
political or regulatory environments; the impact of the financial market turmoil
and the potential for an ongoing recession; changes in competition and the
effects of such changes; the inability to implement our strategies; changes in
management and management strategies; our inability to successfully design,
create, modify and operate our computer systems and networks; and litigation and
regulatory actions involving us. Readers should take these factors into account
in evaluating any such forward-looking statements. We undertake no obligation to
update publicly or revise any forward-looking statements, whether as a result of
new information, future events or otherwise, except as required by law. The
reader should, however, consult further disclosures we may make in future
filings of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K.
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PART I
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
GILMAN CIOCIA, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
Unaudited
December 31, June 30,
2008 2008 (1)
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Assets
Cash & Cash Equivalents $ 571 $ 1,373
Marketable Securities 115 35
Trade Accounts Receivable, Net 2,624 2,739
Receivables from Employees, Net 889 690
Prepaid Expenses 682 766
Other Current Assets 270 278
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Total Current Assets 5,151 5,881
Property and Equipment (less accumulated depreciation of $5,861
at December 31, 2008 and $5,638 at June 30, 2008) 1,742 1,555
Goodwill 3,959 3,954
Intangible Assets (less accumulated amortization of $6,568 at
December 31, 2008 and $6,229 at June 30, 2008) 4,639 4,751
Other Assets 504 536
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Total Assets $ 15,995 $ 16,677
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Liabilities and Shareholders' Equity
Accounts Payable $ 2,255 $ 1,669
Accrued Expenses 1,348 1,757
Commission Payable 2,560 3,061
Current Portion of Notes Payable and Capital Leases 566 943
Deferred Income 266 16
Due to Related Parties 1,195 1,155
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Total Current Liabilities 8,190 8,601
Long Term Portion of Notes Payable, Capital Leases and Other 1,619 468
Long Term Portion of Related Party Notes 160 186
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Total Liabilities 9,969 9,255
Shareholders' Equity
Preferred Stock, $0.001 par value; 100 shares authorized; none issued -- --
Common Stock, $0.01 par value 500,000 shares authorized; 95,869
and 93,819 shares issued at December 31, 2008 and June 30, 2008,
respectively 959 938
Additional Paid in Capital 36,427 36,286
Accumulated Deficit (31,360) (29,802)
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Total Shareholders' Equity 6,026 7,422
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Total Liabilities and Shareholders' Equity $ 15,995 $ 16,677
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(1) Derived from audited financial statements.
See Notes to Unaudited Consolidated Financial Statements
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GILMAN CIOCIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share data)
For the Three Months Ended For the Six Months Ended
December 31, December 31,
2008 2007 2008 2007
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Revenues
Financial Planning Services $ 8,543 $ 11,943 $ 18,303 $ 23,782
Tax Preparation and Accounting Fees 578 414 1,226 855
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Total Revenues 9,121 12,357 19,529 24,637
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Operating Expenses
Commissions 5,261 7,636 11,462 15,221
Salaries and Benefits 2,028 2,235 4,169 4,458
General and Administrative 1,003 1,176 2,009 2,720
Advertising 301 320 670 674
Brokerage Fees and Licenses 363 305 781 634
Rent 672 642 1,315 1,319
Depreciation and Amortization 287 255 563 500
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Total Operating Expenses 9,915 12,569 20,969 25,526
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Loss from Operations
Before Other Income and Expenses (794) (212) (1,440) (889)
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Other Income/(Expense)
Interest and Investment Income 6 15 11 24
Interest Expense (80) (64) (150) (175)
Other Income, Net 7 57 21 4,719
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Total Other Income/(Expense) (67) 8 (118) 4,568
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Income/(Loss) from Operations
Before Income Taxes (861) (204) (1,558) 3,679
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Income Taxes -- -- -- --
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Net Income/(Loss) $ (861) $ (204) $ (1,558) $ 3,679
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Weighted Average Number of Common
Shares Outstanding:
Basic and Diluted Shares 95,252 89,750 94,542 67,988
Basic and Diluted Net
Income/(Loss) Per Share:
Net Income/(Loss) $ (0.01) $ (0.00) $ (0.02) $ 0.05
See Notes to Unaudited Consolidated Financial Statements
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GILMAN CIOCIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
For the Six Months Ended
December 31,
2008 2007
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Cash Flows from Operating Activities:
Net income/(loss) $ (1,558) $ 3,679
Adjustments to reconcile net income/(loss) to net cash provided
by/(used in) operating activities:
Depreciation and amortization 563 500
Issuance of common stock for debt default penalties, interest and other 15 19
Allowance for doubtful accounts 31 85
Gain on debt extinguishment and other -- (4,315)
Gain on fair value recognition on accounts payable (21) (367)
Changes in assets and liabilities:
Accounts receivable 123 142
Prepaid and other current assets 79 167
Change in marketable securities (80) 91
Other assets 18 52
Accounts payable and accrued expenses (282) (1,783)
Deferred income 250 (215)
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Net cash provided by/(used in) operating activities: (862) (1,945)
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Cash Flows from Investing Activities:
Capital expenditures (180) (176)
Cash paid for acquisitions, net of cash acquired and debt incurred (254) (167)
Receivables from employees (135) 145
Due from office sales 16 8
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Net cash provided by/(used in) investing activities: (553) (190)
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Cash Flows from Financing Activities:
Proceeds from bank and other loans 1,135 115
Proceeds from capital stock issuance 120 5,668
Proceeds from related party loans 50 --
Payments of related party loans (78) (444)
Payments of bank loans and other loans (591) (3,092)
Payments related to offering costs (23) (228)
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Net cash provided by/(used in) financing activities: 613 2,019
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Net change in cash and cash equivalents (802) (116)
Cash and cash equivalents at beginning of period 1,373 1,369
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Cash and cash equivalents at end of period $ 571 $ 1,253
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See Notes to Unaudited Consolidated Financial Statements and Supplemental
Disclosures to Consolidated Statements of Cash Flows
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GILMAN CIOCIA, INC.
Supplemental Disclosures to Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
For the Six Months Ended
December 31,
2008 2007
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Cash Flow Information
Cash payments during the year for:
Interest $ 143 $ 338
Supplemental Disclosure of Non-Cash Transactions
Issuance of common stock for services, interest
and other $ 15 $ 19
Payment of debt by issuance of shares $ -- $ 2,309
Equipment acquired under capital leases $ 231 $ 143
Fair value recognition on legacy accounts payable $ (21) $ (367)
See Notes to the Unaudited Consolidated Financial Statements
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GILMAN CIOCIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. ORGANIZATION AND NATURE OF BUSINESS
Description of the Company
Gilman Ciocia, Inc. (together with its wholly owned subsidiaries, "we", "us",
"our" or the "Company") was founded in 1981 and is incorporated under the laws
of the State of Delaware. We provide federal, state and local tax preparation
services to individuals, predominantly in the middle and upper income tax
brackets, accounting services to small and midsize companies and financial
planning services, including securities brokerage, investment management
services, insurance and financing services. As of December 31, 2008, we had 25
company-owned offices operating in three states (New York, New Jersey, and
Florida) and 47 independently operated offices providing financial planning
services in 12 states.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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
("GAAP") have been omitted pursuant to such rules and regulations. However, we
believe that the disclosures are adequate to make the information presented not
misleading. The Consolidated Balance Sheet as of December 31, 2008, the
Consolidated Statements of Operations for the three months and six months ended
December 31, 2008 and 2007 and the Consolidated Statements of Cash Flows for the
six months ended December 31, 2008 and 2007 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 our financial position and results of operations. The
operating results for the three months and six months ended December 31, 2008
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 our Annual Report on Form 10-K for the fiscal year ended
June 30, 2008.
Fiscal years are denominated by the year in which they end. Accordingly, fiscal
2008 refers to the year ended June 30, 2008.
The Consolidated Financial Statements include the accounts of the Company and
all majority owned subsidiaries from their respective dates of acquisition. All
significant inter-company transactions and balances have been eliminated. Where
appropriate, prior years financial statements reflect reclassifications to
conform to the current year presentation.
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Use of Estimates
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. Furthermore, we, including our
wholly owned subsidiary Prime Capital Services, Inc. ("PCS"), have been named as
a defendant in various customer arbitrations. These claims result from the
actions of brokers affiliated with PCS. In addition, under the PCS registered
representatives contract, each registered representative has indemnified us for
these claims. In accordance with Statement of Financial Accounting Standards
("SFAS") No. 5 "Accounting for Contingencies," we have established liabilities
for potential losses from such complaints, legal actions, investigations and
proceedings. In establishing these liabilities, our management uses its judgment
to determine the probability that losses have been incurred and a reasonable
estimate of the amount of losses. In making these decisions, we base our
judgments on our knowledge of the situations, consultations with legal counsel
and our historical experience in resolving similar matters. In many lawsuits,
arbitrations and regulatory proceedings, it is not possible to determine whether
a liability has been incurred or to estimate the amount of that liability until
the matter is close to resolution. However, accruals are reviewed regularly and
are adjusted to reflect our estimates of the impact of developments, rulings,
advice of counsel and any other information pertinent to a particular matter.
Because of the inherent difficulty in predicting the ultimate outcome of legal
and regulatory actions, we cannot predict with certainty the eventual loss or
range of loss related to such matters. If our judgments prove to be incorrect,
our liability for losses and contingencies may not accurately reflect actual
losses that result from these actions, which could materially affect results in
the period other expenses are ultimately determined. A majority of these claims
are covered by our errors and omissions insurance policy. While we will
vigorously defend these matters, and will assert insurance coverage and
indemnification to the maximum extent possible, there can be no assurance that
these lawsuits and arbitrations will not have a material adverse impact on our
financial position.
Cash and Cash Equivalents
We consider all highly liquid investments with an original maturity of three
months or less to be cash equivalents. Cash equivalents include investments in
money market funds and are stated at cost, which approximates market value. Cash
at times may exceed FDIC insurable limits.
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. We test 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.
Revenue Recognition
We recognize all revenues associated with income tax preparation, accounting
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. Marketing
revenue associated with product sales is recognized quarterly based on
production levels. Marketing event revenues are recognized at the commencement
of the event offset by its cost.
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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. The computation for the three months and six
months ended December 31, 2008 and December 31, 2007 did not include outstanding
options and warrants because to do so would have an anti-dilutive effect for the
periods.
Fair Value of Financial Instruments
The carrying amounts of financial instruments, including cash and cash
equivalents, marketable securities, accounts receivable, notes receivable,
accounts payable and debt, approximated fair value as of December 31, 2008
because of the relatively short-term maturity of these instruments and their
market interest rates.
Contingent Consideration
We entered into several asset purchase agreements during fiscal 2008, which
include contingent consideration based upon gross revenue generated in future
periods. In accordance with SFAS No. 141 "Business Combinations" no liability
will be recorded until the contingency is determined beyond a reasonable doubt.
Concentration of Credit Risk
Financial instruments that potentially subject us to concentrations of credit
risk consist of trade receivables. The majority of our trade receivables are
commissions earned from providing financial planning services that include
securities brokerage services, insurance and financing services. As a result of
the diversity of services, markets and the wide variety of customers, we do not
consider ourselves to have any significant concentration of credit risk.
Segment Disclosure
Management believes the Company operates as one segment.
3. RECENT ACCOUNTING PRONOUNCEMENTS
In September 2006, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 157, "Fair Value Measurements" ("SFAS No. 157"). SFAS No. 157 defines fair
value, establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value measurements.
This statement applies under other accounting pronouncements that require or
permit fair value measurements, the Board having previously concluded in those
accounting pronouncements that fair value is a relevant measurement attribute.
Accordingly, this statement does not require any new fair value measurements. We
adopted SFAS No. 157 effective September 30, 2007 and have recorded a $0.1
million allowance against our accounts payable balance as of December 31, 2008
representing our fair value assessment of that account. See also Note 6.
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In October 2008, the FASB issued FASB Staff Position ("FSP") FAS 157-3,
"Determining the Fair Value of a Financial Asset When the Market for That Asset
Is Not Active" ("FSP FAS 157-3"). This FSP clarifies the application of SFAS No.
157 in a market that is not active and provides an example to illustrate key
considerations in determining the fair value of a financial asset when the
market for that financial asset is not active. This FSP is effective upon
issuance, including prior periods for which financial statements have not been
issued. The adoption of FSP FAS 157-3 had no impact on our consolidated
financial position, cash flows or results of operations.
In April 2008, the FASB issued FSP FAS 142-3, "Determination of the Useful Life
of Intangible Assets" ("FSP FAS 142-3"). This position amends the factors that
should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SFAS No. 142,
"Goodwill and Other Intangible Assets." This FSP is effective for financial
statements issued for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years. The guidance contained in this FSP
for determining the useful life of a recognized intangible asset shall be
applied prospectively to intangible assets acquired after the effective date. We
are currently assessing the effects of FSP FAS 142-3 and have not yet determined
its impact on our consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141R, "Business Combinations" ("SFAS
No. 141R"). SFAS No. 141R establishes principles and requirements for how the
acquirer of a business recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any non-controlling
interest in the acquiree. This statement also provides guidance for recognizing
and measuring the goodwill acquired in the business combination and determines
what information to disclose to enable users of the financial statement to
evaluate the nature and financial effects of the business combination. SFAS No.
141R is effective for financial statements issued for fiscal years beginning
after December 15, 2008. Accordingly, any business combinations we engage in
will be recorded and disclosed under SFAS No. 141 until June 30, 2009. We expect
SFAS No. 141R will have an impact on our consolidated financial statements when
effective, but the nature and magnitude of the specific effects will depend upon
the nature, terms and size of the acquisitions we consummate after the effective
date. We are still assessing the impact of this standard on our future
consolidated financial statements.
All other new accounting pronouncements issued but not yet effective or adopted
have been deemed not to be relevant to us, hence are not expected to have any
impact once adopted.
4. COMMITMENTS AND CONTINGENCIES
Litigation
On February 4, 2004, we were served with a Summons and a Shareholder's Class
Action and Derivative Complaint in the Court of Chancery of the State of
Delaware (the "Court of Chancery") alleging that members of our board of
directors in 2002 breached their fiduciary duty of loyalty in connection with
the sale of certain of our offices. On February 15, 2008, a written Settlement
Agreement was executed settling the lawsuit, subject to approval by the Court of
Chancery. At a hearing on September 22, 2008, the Court of Chancery approved the
Settlement Agreement and reserved decision on setting an award of attorney's
fees and expenses for plaintiff's counsel. On October 31, 2008, Master in
Chancery Sam Glasscock III issued a Master's Final Report awarding the
plaintiff's attorneys fees in the amount of $1.2 million together with
out-of-pocket costs in the amount of $0.1 million. We have filed an exception
contesting the Master's Final Report with the Court of Chancery. The award of
attorney fees and out-of-pocket costs will be paid by our Executive Liability
and Organization Reimbursement Policy with National Union Fire Insurance Company
of Pittsburgh, PA.
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On September 6, 2005, the Company received an informal inquiry from the SEC
regarding variable annuity sales by our registered representatives during the
period January 1, 2002 through August 1, 2005. On June 22, 2006, the SEC entered
a formal order of investigation. Pursuant to SEC subpoenas, we have supplied
documents to the SEC and several officers, employees and former employees have
testified before the SEC. On December 12, 2008 we received a Wells Notice from
the SEC in connection with this investigation. Wells Notices were also received
by Prime Capital Services, Inc., a wholly owned subsidiary of the Company,
Michael P. Ryan, our President, Rose M. Rudden, our Chief Compliance Officer and
certain other current and former employees. The Wells Notices provide
notification that the staff of the SEC is considering recommending that the SEC
bring a civil action against the recipients of the Wells Notices to determine
whether they committed possible violations of certain sections of the Securities
Act, the Exchange Act and certain Rules of the Exchange Act. Under the process
established by the SEC, we have the opportunity to seek meetings with SEC staff
to present our case to the SEC and we intend to pursue that opportunity. On
January 20, 2009, our attorneys submitted a response to the Wells Notices
received by the Company, Mr. Ryan, Ms. Rudden, certain other current employees
and one former employee. We cannot predict whether or not the investigation will
result in an enforcement action. Further, if there were an enforcement action,
we cannot predict whether or not our operating results would be affected.
The Company and PCS are defendants and respondents in lawsuits and Financial
Industry Regulatory Authority ("FINRA") arbitrations in the ordinary course of
business. PCS has errors and omissions insurance coverage that will cover a
portion of such matters. In addition, under the PCS registered representatives
contract, each registered representative is responsible for covering awards,
settlements and costs in connection with these claims. While we will vigorously
defend these matters, and will assert insurance coverage and indemnification to
the maximum extent possible, there can be no assurance that these lawsuits and
arbitrations will not have a material adverse impact on our financial position.
At December 31, 2008 we accrued $0.1 million for potential settlements,
judgments and awards.
5. EQUITY
On April 14, 2008, the SEC declared effective our registration statement, which
included a prospectus filed with the SEC on April 14, 2008 for a public stock
offering (the "Public Stock Offering"). Pursuant to the Public Stock Offering,
we distributed, for no consideration to our holders of common stock,
non-transferable subscription rights to purchase shares of our common stock.
Each eligible shareholder received one subscription right for each share of
common stock owned at the close of business on April 14, 2008, the record date.
We distributed subscription rights exercisable for up to an aggregate of 20.0
million shares of our common stock.
Each subscription right entitled an eligible shareholder to purchase up to four
shares of common stock, subject to adjustment, at a subscription price of $0.10
per share. This is the same price at which we sold 80.0 million shares of common
stock in two private placements (the "Investment Purchase Closing" and "Private
Placement Closing" each of which closed on August 20, 2007). Shareholders who
exercised their basic subscription rights in full could over-subscribe for
additional shares to the extent additional shares were available. The Public
Stock Offering expired on June 20, 2008. A total of 3.9 million shares of common
stock were issued pursuant to the Public Stock Offering.
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The purchasers in the Investment Purchase Closing and the Private Placement
Closing (collectively, the "2007 Investors") did not receive subscription
rights, but had the right until September 15, 2008 to purchase at $0.10 per
share the shares that remained unsold on June 20, 2008. On September 12, 2008,
we filed a Supplement to our Prospectus extending until December 31, 2008 the
period during which the 2007 Investors had a right to purchase up to the 16.1
million shares of common stock offered under the Prospectus that remained unsold
at the expiration of the Public Stock Offering. A total of 0.7 million shares
were purchased by the 2007 Investors during the extension period which expired
on December 31, 2008.
On October 31, 2008, we commenced a private offering of our securities pursuant
to SEC Regulation D (the "Offering"). The securities offered for sale in the
Offering are: $1.5 million of notes with interest at 10.0% due on July 1, 2010
(the "Notes") and $0.4 million, or 4.0 million shares of our $0.01 par value
common stock with a price of $0.10 per share (the "Shares"). Through February
13, 2009, $1.2 million of Notes and $0.1 million, or 1.0 million shares, of our
common stock were issued by us pursuant to the Offering.
6. FAIR VALUE MEASUREMENTS
We elected early adoption of SFAS No. 157, beginning July 1, 2007, the first day
of our fiscal year 2008. SFAS No. 157 defines fair value, establishes a
framework for measuring fair value under generally accepted accounting
principles, and expands disclosures about fair value measurements. This
Statement applies under other accounting pronouncements that require or permit
fair value measurements, the FASB having previously concluded in those
accounting pronouncements that fair value is a relevant measurement attribute.
The following table sets forth the liabilities we have elected to fair value
under SFAS No. 157 as of December 31, 2008:
Fair Value Measurements at December 31, 2008
(in thousands) Using Significant Unobservable Inputs
Description (Level 3)
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Accounts Payable:
Beginning Balance $ 2,366
Allowance (111)
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Ending Balance $ 2,255
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We have significant legacy accounts payable balances that are at least four
years old and that we believe will never require a financial payment for a
variety of reasons. Accordingly, under SFAS No. 157, we have established an
estimate of $0.15 on the dollar on these legacy balances that we would
potentially pay out against these balances based on our historical pay out on
these legacy balances. The income recorded during the six months ended December
31, 2008 and December 31, 2007 was $20.7 thousand and $0.4 million,
respectively, and is recorded in other income, net on our Consolidated Statement
of Operations.
- --------------------------------------------------------------------------------
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GILMAN CIOCIA INC - 10-Q
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7. GOODWILL AND OTHER INTANGIBLE ASSETS
A reconciliation of the change in the carrying value of goodwill for the six
month period ended December 31, 2008 is as follows (in thousands):
Balance at June 30, 2008 $3,954
Adjustment to purchase accounting (1) 5
------
Balance at December 31, 2008 $3,959
======
(1) During fiscal 2008, we purchased four tax preparation and accounting
practices. Initial purchase prices are adjusted based on contingency payments
made subsequent to the original purchase date.
Other intangible assets subject to amortization are comprised of the following
at December 31, 2008 (in thousands):
Customer Lists $ 6,214
Broker-Dealer Registration 100
Non-Compete Contracts 693
House Accounts 600
Administrative Infrastructure 500
Independent Contractor Agreements 3,100
-------
Intangible Costs at Cost 11,207
Less: Accumulated Amortization and Impairment (6,568)
-------
Intangible Assets, Net $ 4,639
=======
Amortization expense for the three months ended December 31, 2008 and December
31, 2007 was $0.2 million and $0.1 million, respectively. Amortization expense
for the six months ended December 31, 2008 and December 31, 2007 was $0.3
million and $0.3 million, respectively.
8. DEBT
As of December 31, 2008, our outstanding principal balance with Wachovia Bank,
National Association ("Wachovia") was $0.1 million. The due date for the payment
of the outstanding principal balance has been extended to March 31, 2009. As of
December 31, 2008 we were in default of certain covenants under our term
loan/revolving letter of credit financing with Wachovia. Our debt forbearance
agreement with Wachovia was last amended on April 1, 2006. We do not believe
that Wachovia will issue a notice of default for any of these defaults.
The securities offered for sale in the Offering on October 31, 2008 are: $1.5
million of notes with interest at 10.0% due on July 1, 2010 (the "Notes") and
$0.4 million, or 4.0 million shares of our $0.01 par value common stock with a
price of $0.10 per share (the "Shares"). Through February 13, 2009, $1.2 million
of Notes and $0.1 million, or 1.0 million shares, of our common stock were
issued by us pursuant to the Offering.
- --------------------------------------------------------------------------------
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GILMAN CIOCIA INC - 10-Q
- --------------------------------------------------------------------------------
9. STOCK BASED COMPENSATION
On July 1, 2005 we adopted SFAS No. 123-R, "Share-Based Payment" ("SFAS No.
123-R") using a modified prospective application, as permitted under SFAS No.
123-R. Accordingly, prior period amounts have not been restated. Under this
application, we are required to record compensation expense using a
fair-value-based measurement method for all awards granted after the date of
adoption and for the unvested portion of previously granted awards that remain
outstanding at the date of adoption. Pursuant to the provisions of SFAS No.
123-R, we have adopted the policy to recognize compensation expense on a
straight-line attribution method.
Changes in our stock option activity during the six months ended December 31,
2008 were as follows:
Weighted
Average
Shares Exercise Price
----------------------------
Outstanding, June 30, 2008 80,000 $1.04
Granted - -
Exercised - -
Expired - -
Canceled - -
----------------------------
Outstanding, December 31, 2008 80,000 $1.04
Exercisable, December 31, 2008 80,000 $1.04
The range of exercise prices for the outstanding options at December 31, 2008 is
between $0.33 and $6.00.
We will be granting to certain of our employees and representatives common stock
options with a five-year term and vesting as to 20.0% of the shares annually
commencing one year after the date of grant and having a Black-Scholes value at
the time of grant determined based on the closing price on the date of such
grant. The number of stock options will be computed and granted five days after
the filing of our Form 10-Q for the quarter ended December 31, 2008.
10. ACCRUED EXPENSES
Accrued expenses consist of the following:
(in thousands) December 31, June 30,
2008 2008
--------------------------
Accrued compensation $ 293 $ 237
Accrued bonus 3 96
Accrued related party compensation and bonus 129 196
Accrued vacation 69 128
Accrued settlement fees 110 122
Accrued audit fees & tax fees 142 160
Accrued interest 21 18
Accrued other 370 558
Accrued acquisitions short term 211 242
--------------------------
Total Accrued Expenses $1,348 $1,757
==========================
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11. RELATED PARTY TRANSACTIONS
As of June 30, 2008, Prime Partners, Inc. ("Prime Partners") owed a trust, of
which Ted Finkelstein, our Vice President and General Counsel, is the trustee
("the Trust"), $0.5 million in principal pursuant to a promissory note dated
January 31, 2008 (the "Old Note"). As of September 1, 2008, Prime Partners
assigned $0.5 million from a $1.0 million note from the Company to Prime
Partners dated January 31, 2008 to the Trust in payment of the Old Note. As of
September 1, 2008, we entered into a new $0.5 million promissory note with Prime
Partners at 10.0% interest to be paid in arrears through the end of the previous
month on the 15th day of each month commencing on October 15, 2008 with the
principal due on or before July 1, 2009 (the "New Prime Partners Note").
As of September 1, 2008, we entered into a new $0.5 million promissory note with
the Trust (the "New Trust Note"). The New Trust Note was amended on January 30,
2009. The New Trust Note provides for 10.0% interest to be paid in arrears
through the end of the previous month on the 15th day of each month commencing
on October 15, 2008. The principal of the New Trust Note will be paid to the
Trust as follows: $117.5 thousand on March 31, 2009, April 30, 2009, May 31,
2009, and June 30, 2009. We gave the Trust a collateral security interest in all
of our assets, including the stock of PCS, subordinate only to the outstanding
security interest of Wachovia Bank. We agreed that the only loan debt principal
that we are permitted to pay until the New Trust Note is paid in full is: the
existing Wachovia debt, the scheduled principal payments on certain executive
notes with de minimis balances and the scheduled principal payments to Prime
Partners for a $0.3 million Promissory Note dated December 26, 2007. No payments
of loan principal can be paid to any other existing or future lenders, including
to Prime Partners on the New Prime Partners Note. Prime Partners and Ted
Finkelstein guaranteed the New Trust Note. The guarantee of Prime Partners is
secured by a collateral assignment of the promissory note dated January 23, 2004
between Daniel R. Levy and the Company in the original amount of $0.9 million
which was assigned to Prime Partners, Inc. on June 26, 2006.
At December 31, 2008 the aggregate amount we owed to related parties was $1.4
million.
On October 30, 2008, Michael Ryan, our President and a Director, and Carole
Enisman, our Executive Vice President of Operations, each purchased 250,000
restricted shares of our common stock at $0.10 per share pursuant to the
Offering in reliance upon the exemption from securities registration afforded by
Section 4(2) of the Securities Act and Rule 506 of Regulation D. See Note 5.
On November 20, 2008, we entered into a promissory note in the amount of $50.0
thousand with Ted Finkelstein, our Vice President and General Counsel. The note
provides for 10.0% interest to be paid monthly with the principal balance to be
paid on or before June 30, 2009.
On December 3, 2008, three trusts, of which James Ciocia, our Chairman of the
Board of Directors, is a trustee, purchased an aggregate of $0.3 million of the
Notes issued pursuant to the Offering in reliance upon the exemption from
registration in Rule 506 of Regulation D. See Note 5.
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GILMAN CIOCIA INC - 10-Q
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12. SUBSEQUENT EVENTS
In January and February 2009, we entered into asset purchase agreements to
purchase two tax preparation, accounting and financial planning businesses. In
each case, the purchase price is equal to a percentage of gross revenue
generated from the preparation of tax returns, accounting services and financial
planning revenues from clients generated during a one to four-year period.
Commencing on March 31, 2009 and each 90-day period thereafter, we will pay the
seller an installment payment based on a percentage of gross revenues generated
during a one to four-year period after the closing date less all prior payments
received. Based on an estimate of these future revenues, we will have a
contingent liability of $0.8 million, subject to change based on actual future
revenues earned.
On January 22, 2009 we held our Annual Meeting of Stockholders. At the Annual
Meeting, James Ciocia, Chairman of the Board, and Michael Ryan, President and
Director, were re-elected as Class B directors and the stockholders voted to
ratify the appointment of Sherb & Co., LLP as our independent registered public
accounting firm for the fiscal year ending June 30, 2009.
On January 27, 2009 Carole Enisman, our Executive Vice President of Operations,
purchased a $0.2 million Note pursuant to the Offering. See Note 5.
- --------------------------------------------------------------------------------
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GILMAN CIOCIA INC - 10-Q
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Item 2 contains forward-looking statements. Forward-looking statements in
this Quarterly Report on Form 10-Q are subject to a number of risks and
uncertainties, some of which are beyond our control. Our actual results,
performance, prospects, or opportunities could differ materially from those
expressed in or implied by the forward-looking statements. Additional risks of
which we are not currently aware or which we currently deem immaterial could
also cause our actual results to differ, including those discussed in the
sections entitled "Forward-Looking Statements" and "Risk Factors" included
elsewhere in this Quarterly Report as well as those risk factors discussed in
the section entitled "Risk Factors" in our annual report on Form 10-K.
Overview
We provide federal, state and local income tax return preparation for
individuals predominantly in middle and upper income brackets and accounting
services to small and midsize companies and financial planning services,
including securities brokerage, investment management services, insurance and
financing services. Clients often consider other aspects of their financial
needs such as investments, insurance, pension and estate planning, while having
their tax returns prepared by us. We believe that our tax return preparation and
accounting services are inextricably intertwined with our financial planning
activities. The two channels leverage off each other, improving economies of
scale and client retention. The financial planners who provide such services are
our employees or independent contractors and are registered representatives of
Prime Capital Services, Inc. ("PCS"), a wholly owned subsidiary. PCS conducts a
securities brokerage business providing regulatory oversight and products and
sales support to its registered representatives, who sell investment products
and provide services to their clients. PCS earns a share of commissions from the
services that the financial planners provide to their clients in transactions
for securities, insurance and related products. PCS is a registered securities
broker-dealer with the Securities and Exchange Commission ("SEC") and a member
of Financial Industry Regulatory Authority ("FINRA"). We also have a wholly
owned subsidiary, Asset & Financial Planning, Ltd. ("AFP"), which is registered
with the SEC as an investment advisor. Almost all of our financial planners are
also authorized agents of insurance underwriters. We have the capability of
processing insurance business through PCS and Prime Financial Services, Inc.
("PFS"), a wholly owned subsidiary, which are licensed insurance brokers, as
well as through other licensed insurance brokers. We are a licensed mortgage
broker in the states of New York and Pennsylvania. GC Capital Corporation, a
wholly owned subsidiary of the Company is a licensed mortgage broker in the
State of Florida. PCS also earns revenues ("PCS Marketing") from its strategic
marketing relationships with certain product sponsors which enables PCS to
efficiently utilize its training, marketing and sales support resources.
The Company office financial planning clients generally are introduced to us
through our tax return preparation services, accounting services and educational
workshops. We believe that our tax return preparation and accounting services
are inextricably intertwined with our financial planning activities in our
Company offices and that overall profitability will depend, in part, on the two
channels leveraging off each other since many of the same processes, procedures
and systems support sales from both channels. Accordingly, management views and
evaluates the Company as one segment.
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GILMAN CIOCIA INC - 10-Q
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We also provide financial planning services through approximately 47
independently owned and operated offices in 12 states. We benefit from economies
of scale associated with the aggregate production of both Company offices and
independently owned offices. Our 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
our web site at www.gtax.com.
For the three months ended December 31, 2008, approximately 6.0% of our revenues
were earned from tax preparation and accounting services and approximately 94.0%
were earned from all financial planning and related services, of which
approximately 71.0% were earned from brokerage commissions, 24.0% from asset
management, 4.0% from insurance, and 1.0% from lending services and PCS
Marketing.
For the three months ended December 31, 2008, revenues from commissions paid to
PCS as the broker dealer each year a client's money remains in a mutual fund or
in a variable annuity account, as compensation for services rendered to the
client ("trails") and advisory fees decreased to $3.6 million, down $1.1 million
from $4.7 million for the three months ended December 31, 2007, representing a
23.0% decrease in recurring revenue (advisory and trails). Although recurring
revenue is down year over year, the decrease is less than other financial
planning products as evidenced by advisory fees and trails representing 42.3% of
the financial planning revenue, up from 39.3% for the three months ended
December 31, 2007. Additionally, we are attempting to increase revenue by, among
other things, continuing to put forth a strong financial representative
recruiting effort. The financial impact of new recruits could take several
months for revenue on new accounts to become recognizable. If this program is
not successful in generating additional revenue, the result will be continued
downward pressure on total revenues in future quarters until we start to more
significantly benefit from the effect of the greater sale of products that
generate recurring income. We expect that we will continue to control overall
operating expenses, while continuing to spend on marketing efforts to build
brand awareness and attract new clients. We cannot predict whether our marketing
efforts will have the desired effects.
The tax preparation business is a highly seasonal business. The first and second
quarters of our fiscal year are typically our weakest quarters and the third
quarter of our fiscal year is typically our strongest.
During the three months ended December 31, 2008, we had a loss of $0.9 million
compared to a $0.2 million loss during the three months ended December 31, 2007.
The increased loss was primarily attributable to decreased financial planning
revenue due to declines in market conditions and attrition, partially offset by
increased tax preparation and accounting services revenue, decreased commission
expense due to declines in revenues and by lowering operating expenses.
We believe that the significant turmoil in the financial markets during 2008 and
related erosion of investor confidence will continue to negatively impact our
operating results for fiscal 2009. To help mitigate the negative impact on our
operating results, we implemented cost cutting strategies in the fourth quarter
of our fiscal year ending June 30, 2008, including staff reductions. During the
first six months of 2009, we continued to keep a tight control on operating
expenses. We remain committed, however, to investing in the continuing
development of our network of financial representatives and to acquire tax
preparation and accounting firms to increase our client base and accounting
business as part of our long-term strategy for growing our revenues and
earnings.
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GILMAN CIOCIA INC - 10-Q
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Managed Assets
As indicated in the following table, as of December 31, 2008, assets under AFP
management decreased 17.5%, or $98.3 million, to $461.8 million, from $560.1
million as of September 30, 2008. This decrease is mostly attributable to market
declines. As of December 31, 2008, total Company securities under custody were
$3.2 billion, down 16.6%, or $630.8 million from September 30, 2008.
The following table presents the market values of assets under AFP management:
(in thousands) Total Assets
Under
Market Value as of Annuities Brokerage Management
- ------------------ ---------------------------------------
12/31/2008 $269,566 $192,235 $461,801
9/30/2008 $331,492 $228,581 $560,073
6/30/2008 $330,503 $265,850 $596,353
The following table presents the market values of total Company securities under
custody. The numbers do not include fixed annuities. In the current market
environment we are seeing an increase in fixed annuity transactions.
(in thousands) Total Company
Securities Under
Market Value as of Custody
- ------------------ ----------------
12/31/2008 $3,166,001
9/30/2008 $3,796,835
6/30/2008 $4,231,803
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GILMAN CIOCIA INC - 10-Q
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RESULTS OF OPERATIONS - THREE MONTHS ENDED DECEMBER 31, 2008 COMPARED TO THREE
MONTHS ENDED DECEMBER 31, 2007
Revenue
The following table presents revenue by product line and brokerage revenue by
product type:
For the Three Months Ended December 31,
--------------------------------------------------------------------
(in thousands) % of Total % of Total
% Change Revenue Revenue
Consolidated Revenue Detail 2008 2007 08-07 2008 2007
--------------------------------------------------------------------
Revenue by Product Line
Brokerage Commissions Revenue $ 6,093 $ 8,595 -29.1% 66.8% 69.6%
Insurance Commissions Revenue 312 501 -37.7% 3.4% 4.1%
Advisory Fees 2,023 2,613 -22.6% 22.2% 21.1%
Tax Preparation and Accounting Fees 578 414 39.6% 6.3% 3.4%
Lending Services 30 117 -74.4% 0.3% 0.9%
Marketing Revenue 85 117 -27.4% 1.0% 0.9%
--------------------------------------------------------------------
Total Revenue $ 9,121 $12,357 -26.2% 100.0% 100.0%
--------------------------------------------------------------------
Brokerage Commissions Revenue
by Product Type
Mutual Funds $ 767 $ 1,193 -35.7% 8.4% 9.7%
Equities, Bonds & UIT 241 350 -31.1% 2.7% 2.8%
Annuities 2,993 4,689 -36.2% 32.8% 37.9%
Trails 1,590 2,082 -23.6% 17.4% 16.9%
All other products 502 281 78.6% 5.5% 2.3%
--------------------------------------------------------------------
Brokerage Commissions Revenue $ 6,093 $ 8,595 -29.1% 66.8% 69.6%
====================================================================
The following table sets forth a breakdown of our consolidated financial
planning revenue by company-owned offices and independent offices for the three
months ended December 31, 2008 and 2007:
For Three Months Ended December 31,
-----------------------------------
% of % of
(in thousands) 2008 Total 2007 Total
- ----------------------------------------------------------------------------
Company-Owned Offices $ 4,271 50.0% $ 5,711 47.8%
Independent Offices 4,272 50.0% 6,232 52.2%
------- -------
Total $ 8,543 $11,943
======= =======
Our total revenues for the three months ended December 31, 2008 were $9.1
million compared to $12.4 million for the three months ended December 31, 2007,
a decrease of $3.2 million or 26.2%. Our total revenues for the three months
ended December 31, 2008 consisted of $8.5 million for financial planning
services and $0.6 million for tax preparation and accounting services. Financial
planning services represented approximately 94.0% and tax preparation and
accounting services represented approximately 6.0% of our total revenues during
the three months ended December 31, 2008. Our total revenues for the three
months ended December 31, 2007 consisted of $11.9 million for financial planning
services and $0.4 million for tax preparation and accounting services. Financial
planning services represented approximately 97.0% and tax preparation fees and
accounting services represented approximately 3.0% of our total revenues during
the three months ended December 31, 2007.
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GILMAN CIOCIA INC - 10-Q
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For the three months ended December 31, 2008, financial planning revenue was
$8.5 million compared to $11.9 million for the same period last year. This
decrease in financial planning revenue is mostly the result of market declines
during the three months ended December 31, 2008.
Tax preparation and accounting services revenue was $0.6 million for the three
months ended December 31, 2008 compared to $0.4 million for the same period last
year. The majority of this increase in tax preparation and accounting services
revenue is attributable to the additional revenue generated from four tax
preparation and accounting businesses that we acquired in the second and third
quarters of our prior fiscal year.
For the three months ended December 31, 2008, revenues from trails and advisory
fees decreased to $3.6 million, down $1.1 million from $4.7 million for the
three months ended December 31, 2007, representing a 23.0% decrease in recurring
revenue (trails and advisory fees). The decrease in recurring revenues is mostly
attributable to lower assets under management and securities under custody at
September 30, 2008, at which time fees are determined and revenue is recognized
during the three months ended December 31, 2008, compared with the same period
last year. Most of the reduction of assets under management and securities under
custody is attributable to market declines realized during the three months
ended December 31, 2008.
Expenses
Our total operating expenses for the three months ended December 31, 2008 were
$9.9 million, down $2.7 million or 21.1%, compared to $12.6 million for the
three months ended December 31, 2007. This decrease is primarily due to
decreased commission expense resulting from the revenue declines, decreased
salaries and benefits, and decreased general and administrative expenses as we
continue our efforts to control expenses. These savings were offset slightly by
increased brokerage fees and licenses and depreciation and amortization.
Commission expense was $5.3 million for the three months ended December 31,
2008, compared with $7.6 million for the same period last year. Commission
expense decreased $2.4 million due to the declines in revenue, as well as due to
the mix of financial planning revenue generated on the employee channel compared
with the independent channel. Financial planning commission expense as a
percentage of financial planning revenue was approximately 62.0% and 64.0% for
the three months ended December 31, 2008 and December 31, 2007, respectively.
This decrease as a percentage of revenue is attributable to financial planning
revenue generated through our employee channel representing 50.0% of the total
financial planning revenue where commission pay out rates are lower than on the
independent channel compared with the same period last year when our employee
channel generated 47.8% of the total financial planning revenue.
Salaries, which consist primarily of salaries, related payroll taxes and
employee benefit costs, decreased by $0.2 million, or 9.3% in the three months
ended December 31, 2008 compared with the same period last year. This decrease
is mostly attributable to our efforts in March 2008 to reduce overhead costs to
help mitigate the impact of the downturn in the market which negatively affects
our revenues. Such cost reductions included the restructuring of departments,
eliminating open positions and layoffs.
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GILMAN CIOCIA INC - 10-Q
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General and administrative expenses decreased $0.2 million or 14.7% in the three
months ended December 31, 2008 compared with the same period last year. This
decrease is primarily attributable to additional cost savings of $0.1 million in
legal and professional expenses and claim settlements resulting from our effort
to control expenses by processing more customer claims in-house as well as an
overall reduced number of claims versus the same period last year. The remaining
$0.1 million reduction in expenses resulted mostly from our continued efforts to
control our operating expenses.
Advertising expense decreased by $19.0 thousand for the three months ended
December 31, 2008 compared with the same period last year. This is mostly due to
the timing of certain marketing efforts during the six month period ending
December 31, 2008.
Brokerage fees and licenses increased $58.0 thousand for the three months ended
December 31, 2008 compared with the same period last year. This increase is due
to more accounts under management with third party money managers in AFP, and
more trades going through brokerage accounts versus direct applications.
Rent was 4.7% higher for the three months ended December 31, 2008 compared with
the same period last year. This is mostly the result of higher lease costs as a
result of relocating a number of existing offices to more prominent office
locations.
Depreciation and amortization expense was 12.5% higher for the three months
ended December 31, 2008 compared with the same period last year. This is mostly
attributable to increased amortization expense related to the intangible assets
acquired through acquisitions during our fiscal year ended June 30, 2008.
Typically we report a loss in the second quarter of our fiscal year. Our loss
from operations before other income and expense increased $0.6 million for the
three months ended December 31, 2008 compared to the three months ended December
31, 2007. This increase in loss was primarily attributable to decreased
financial planning revenue due to declines in market conditions and attrition,
partially offset by a decrease in related commission expense, other cost savings
in salaries and general and administrative expenses and increases in tax
preparation and accounting fee revenues.
Total other income/(expense) for the three months ended December 31, 2008 was an
expense of $0.1 million compared to income of $8.0 thousand for the three months
ended December 31, 2007. This decrease in other income/(expense) was primarily
due to an increase in interest expense related to our private offering of our
securities pursuant to SEC Regulation D (the "Offering") and a reduction in
income related to the fair value measurement of our accounts payable.
Our net loss for the three months ended December 31, 2008 was $0.9 million, or
$(0.01) per diluted share, compared with a net loss of $0.2 million, or $0.00
per diluted share for the three months ended December 31, 2007. This increase in
net loss was primarily attributable to decreased financial planning revenue due
to declines in market conditions and attrition, partially offset by increased
tax preparation and accounting services revenue, decreased commission expense
due to declines in revenues and by controlling expenses.
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GILMAN CIOCIA INC - 10-Q
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RESULTS OF OPERATIONS - SIX MONTHS ENDED DECEMBER 31, 2008 COMPARED TO SIX
MONTHS ENDED DECEMBER 31, 2007
Revenue
The following table presents revenue by product line and brokerage revenue by
product type:
For the Six Months Ended December 31,
--------------------------------------------------------------------
(in thousands) % of Total % of Total
% Change Revenue Revenue
Consolidated Revenue Detail 2008 2007 08-07 2008 2007
--------------------------------------------------------------------
Revenue by Product Line
Brokerage Commissions Revenue $12,977 $17,128 -24.2% 66.4% 69.5%
Insurance Commissions Revenue 693 844 -17.9% 3.6% 3.4%
Advisory Fees 4,327 5,164 -16.2% 22.2% 21.0%
Tax Preparation and Accounting Fees 1,226 855 43.4% 6.3% 3.5%
Lending Services 145 168 -13.7% 0.7% 0.7%
Marketing Revenue 161 478 -66.3% 0.8% 1.9%
--------------------------------------------------------------------
Total Revenue $19,529 $24,637 -20.7% 100.0% 100.0%
--------------------------------------------------------------------
Brokerage Commissions Revenue
by Product Type
Mutual Funds $ 1,631 $ 2,258 -27.8% 8.4% 9.2%
Equities, Bonds & UIT 511 658 -22.3% 2.5% 2.7%
Annuities 6,421 9,424 -31.9% 32.9% 38.2%
Trails 3,535 4,188 -15.6% 18.1% 17.0%
All other products 879 600 46.5% 4.5% 2.4%
--------------------------------------------------------------------
Brokerage Commissions Revenue $12,977 $17,128 -24.2% 66.4% 69.5%
====================================================================
The following table sets forth a breakdown of our consolidated financial
planning revenue by company-owned offices and independent offices for the six
months ended December 31, 2008 and 2007:
For Six Months Ended December 31,
---------------------------------
% of % of
(in thousands) 2008 Total 2007 Total
- ----------------------------------------------------------------------------
Company-Owned Offices $ 9,062 49.5% $10,893 45.8%
Independent Offices 9,241 50.5% 12,889 54.2%
------- -------
Total $18,303 $23,782
======= =======
Our total revenues for the six months ended December 31, 2008 were $19.5 million
compared to $24.6 million for the six months ended December 31, 2007, a decrease
of $5.1 million or 20.7%. Our total revenues for the six months ended December
31, 2008 consisted of $18.3 million for financial planning services and $1.2
million for tax preparation and accounting services. Financial planning services
represented approximately 94.0% and tax preparation and accounting services
represented approximately 6.0% of our total revenues during the six months ended
December 31, 2008. Our total revenues for the six months ended December 31, 2007
consisted of $23.8 million for financial planning services and $0.9 million for
tax preparation and accounting services. Financial planning services represented
approximately 97.0% and tax preparation fees and accounting services represented
approximately 3.0% of our total revenues during the six months ended December
31, 2007.
- --------------------------------------------------------------------------------
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GILMAN CIOCIA INC - 10-Q
- --------------------------------------------------------------------------------
For the six months ended December 31, 2008, financial planning revenue was $18.3
million compared to $23.8 million for the same period last year. This decrease
in financial planning revenue is mostly the result of financial planner
attrition mostly on our independent channel and decreased production mostly on
the independent channel resulting from market declines during the six months
ended December 31, 2008. In addition, we had a decrease of $0.3 million in PCS
Marketing revenue due to the timing of our annual awards conference which was
held in May 2008, whereas the prior year's annual awards conference was held in
July 2007. This decrease in PCS Marketing revenue of $0.3 million was offset by
a savings in general and administrative expense of $0.4 million as we recognize
the marketing event revenues at the commencement of the event.
Tax preparation and accounting services revenue was $1.2 million for the six
months ended December 31, 2008 compared to $0.9 million for the same period last
year. The majority of this increase in tax preparation and accounting services
revenue is attributable to the additional revenue generated from four tax
preparation and accounting businesses that we acquired in the second and third
quarters of our prior fiscal year, and the remaining increase came from organic
growth resulting from our strong advertising campaign, increases in average
client fees and client retention, offset slightly by client attrition.
For the six months ended December 31, 2008, revenues from trails and advisory
fees decreased to $7.9 million, down $1.5 million from $9.4 million for the six
months ended December 31, 2007, representing a 15.9% decrease in recurring
revenue (advisory and trails). The decrease in recurring revenues is mostly
attributable to lower assets under management and securities under custody at
June 30, 2008 and September 30, 2008, at which time fees are determined and
revenue is recognized during the six months ended December 31, 2008, compared
with the same period last year. Most of the reduction of assets under management
and securities under custody is attributable to market declines realized during
the six months ended December 31, 2008.
Expenses
Our total operating expenses for the six months ended December 31, 2008 were
$21.0 million, down $4.6 million or 17.9%, compared to $25.5 million for the six
months ended December 31, 2007. This decrease is primarily due to decreased
commission expense resulting from the revenue declines, decreased salaries and
benefits, decreased general and administrative expenses as we moved our annual
awards conference into May of our prior fiscal year, as well as our efforts to
continue to control expenses. These savings were offset slightly by increased
brokerage fees and licenses and depreciation and amortization.
Commission expense was $11.5 million for the six months ended December 31, 2008,
compared with $15.2 million for the same period last year. Commission expense
decreased $3.8 million mostly due to the declines in revenue as well as to the
mix of financial planning revenue generated on the employee channel compared
with the independent channel. Financial planning commission expense as a
percentage of financial planning revenue was approximately 63.0% and 64.0% for
the six months ended December 31, 2008 and December 31, 2007, respectively. This
decrease as a percentage of revenue is attributable to financial planning
revenue generated through our employee channel representing 49.5% of the total
financial planning revenue where commission pay out rates are lower than on the
independent channel compared with the same period last year when our employee
channel generated 45.8% of the total financial planning revenue.
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Salaries, which consist primarily of salaries, related payroll taxes and
employee benefit costs, decreased by $0.3 million, or 6.5% in the six months
ended December 31, 2008 compared with the same period last year. This decrease
is mostly attributable to our efforts in March 2008 to reduce overhead costs to
help mitigate the impact of the downturn in the market which negatively affects
our revenues. Such cost reductions included the restructuring of departments,
eliminating open positions and layoffs.
General and administrative expenses decreased $0.7 million or 26.1% in the six
months ended December 31, 2008 compared with the same period last year. This
decrease is primarily attributable to the timing of our annual awards conference
which was held in May 2008 whereas the prior year's annual awards conference was
held in July 2007. This cost savings of $0.4 million has an offsetting revenue
decline in PCS Marketing revenues of $0.3 million as we recognize the marketing
event revenues at the commencement of the event. Additional cost savings of $0.2
million in legal and professional expenses and claim settlements resulted from
our effort to control expenses by processing more customer claims in-house as
well as a reduced number of claims versus the same period last year. The
remaining $0.1 million reduction in expenses resulted mostly from our continued
efforts to control operating expenses.
Advertising expense remained the same for the six months ended December 31, 2008
compared with the same period last year. We continue to spend on marketing for
recruiting representatives and acquisitions in an effort to offset market
declines.
Brokerage fees and licenses increased $0.1 million for the six months ended
December 31, 2008 compared with the same period last year. This increase is due
to more accounts under management with third party money managers in AFP, and
more trades going through brokerage accounts versus direct applications.
Rent remained the same for the six months ended December 31, 2008 compared with
the same period last year. Although we closed two offices resulting in lower
rent expense, these savings were offset by higher lease costs through relocating
a number of existing offices to more prominent locations.
Depreciation and amortization expense was 12.6% higher for the six months ended
December 31, 2008 compared with the same period last year. This is mostly
attributable to increased amortization expense related to the intangible assets
acquired through acquisitions during our fiscal year ended June 30, 2008.
Typically we report a loss in the first and second quarters of our fiscal year.
Our loss from operations before other income and expense increased $0.6 million
for the six months ended December 31, 2008 compared to the six months ended
December 31, 2007. This increase in loss was primarily attributable to decreased
financial planning revenue due to declines in market conditions and attrition,
partially offset by increased tax preparation and accounting services revenue
and by our efforts to control operating expenses.
Total other income/(expense) for the six months ended December 31, 2008 was an
expense of $0.1 million compared to income of $4.6 million for the six months
ended December 31, 2007. This decrease in other income/(expense) was primarily
due to the extinguishment of debt owed to Met Life and the conversion of a
portion of related party debt to the Company's common stock resulting from the
sale of 80.0 million shares of common stock in two private placements (the
"Investment Purchase Closing" and "Private Placement Closing") each of which
closed on August 20, 2007.
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Our net loss for the six months ended December 31, 2008 was $1.6 million, or
$(0.02) per diluted share, compared with net income of $3.7 million, or $0.05
per diluted share for the six months ended December 31, 2007. This decline was
primarily attributable to decreased financial planning revenue due to declines
in market conditions and attrition, and reduced one-time other income realized
in fiscal 2007 related to the extinguishment of Company debt owed to Met Life
and related parties, partially offset by increased tax preparation and
accounting services revenue, decreased commission expense due to declines in
revenues and by controlling expenses. Weighted average shares outstanding
increased by 26.6 million shares compared to the prior period, mainly due to
the sale of 80.0 million shares of common stock in the Investment Purchase
Closing and Private Placement Closing held on August 20, 2007.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended December 31, 2008, we realized a net loss of $1.6
million and at December 31, 2008 we had a working capital deficit of $3.0
million. At December 31, 2008 we had $0.6 million of cash and cash equivalents,
$0.1 million in marketable securities and $2.6 million of trade account
receivables, net, to fund short-term working capital requirements. PCS is
subject to the SEC's Uniform Net Capital Rule 15c3-1, which requires that PCS
maintain minimum regulatory net capital of $100,000 and, in addition, that the
ratio of aggregate indebtedness to net capital, both as defined, shall not
exceed 15 to one. At December 31, 2008 we were in compliance with this
regulation.
On April 14, 2008, the SEC declared effective our registration statement, which
included a Prospectus filed with the SEC on April 14, 2008 for a public stock
offering (the "Public Stock Offering"). Pursuant to the Public Stock Offering,
we distributed, for no consideration to our holders of common stock,
non-transferable subscription rights to purchase shares of our common stock.
Each eligible shareholder received one subscription right for each share of
common stock owned at the close of business on April 14, 2008, the record date.
We distributed subscription rights exercisable for up to an aggregate of 20.0
million shares of our common stock.
Each subscription right entitled an eligible shareholder to purchase up to four
shares of common stock, subject to adjustment, at a subscription price of $0.10
per share. This is the same price at which we sold 80.0 million shares of common
stock in the Investment Purchase Closing and the Private Placement Closing.
Shareholders who exercised their basic subscription rights in full could
over-subscribe for additional shares to the extent additional shares were
available. The Public Stock Offering expired on June 20, 2008. A total of 3.9
million shares of the common stock were issued pursuant to the Public Stock
Offering.
The 2007 Investors did not receive subscription rights, but had the right until
September 15, 2008 to purchase at $0.10 per share the shares that remained
unsold on June 20, 2008. On September 12, 2008, we filed a Supplement to our
Prospectus extending until December 31, 2008 the period during which the 2007
Investors have a right to purchase up to the 16.1 million shares of common stock
offered under the Prospectus that remained unsold at the expiration of the
Public Stock Offering. A total of 0.7 million shares were purchased by the 2007
Investors during the extension period which expired on December 31, 2008.
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Our ability to satisfy our obligations depends on our future performance, which
will be subject to prevailing economic, financial, and business conditions.
Capital requirements, at least in the near term, are expected to be provided by
cash flows from operating activities and cash on hand at December 31, 2008 or a
combination thereof. To the extent future capital requirements exceed cash on
hand plus cash flows from operating activities, we anticipate that working
capital will be financed by the Offering and by pursuing financing by third
parties. As a result of concern about the stability of the markets, generally
many traditional lenders have reduced and, in some cases, ceased to provide
funding. We continue to actively pursue non-traditional financing. However,
there can be no assurance that we will be successful in raising this type of
capital. We are working to minimize the impact the current economic conditions
have on our revenues by aggressively recruiting and retaining sophisticated
representatives who can offer diversified products that continue to meet the
needs of their clients despite changing market conditions. Furthermore, we also
work to control our operating expenses.
While we believe that payments to tax preparation and accounting practices which
we have acquired have been and will continue to be funded through cash flow
generated from those acquisitions, we need additional capital to fund initial
payments on future acquisitions. If we do not have adequate capital to fund
those future acquisitions, we may not be able to acquire all of the acquisitions
available to us which could result in our not fully realizing all of the revenue
which might otherwise be available to us.
Our net cash used in operating activities was $0.9 million for the six months
ended December 31, 2008, compared with net cash used in operating activities of
$1.9 million for the six months ended December 31, 2007. The decrease in net
cash used in operating activities was primarily attributable to paying down a
large portion of accounts payable in the six months ended December 31, 2007 due
to the cash provided by the 2007 Investors. The first and second quarters of our
fiscal year are typically our weakest quarters for generating cash flow from
operations and the third quarter of our fiscal year is typically our strongest.
Net cash used in investing activities was $0.6 million for the six months ended
December 31, 2008 compared with net cash used in investing activities of
$0.2 million for the six months ended December 31, 2007. This increase in cash
used in investing activities was attributable to cash paid for acquisitions
(contingency payments) and advances made to registered representatives.
Net cash provided by financing activities was $0.6 million for the six months
ended December 31, 2008 compared with net cash provided by financing activities
of $2.0 million for the six months ended December 31, 2007. This decrease in
cash provided by financing activities was due primarily to proceeds from the
Investment Purchasers Closing and Private Placement Closing on August 20, 2007.
MARKET FOR COMPANY'S COMMON EQUITY
On April 23, 2008, FINRA cleared the request of vFinance Investments, Inc. for a
quotation on the OTC Bulletin Board for Gilman Ciocia, Inc. common stock
pursuant to NASD Rule 6640 and Rule 15c2-11 under the Securities Exchange Act of
1934. We trade on the OTC Bulletin Board under the symbol GTAX.
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CRITICAL ACCOUNTING POLICIES
Use of Estimates
The preparation of our financial statements in conformity with generally
accepted accounting principles ("GAAP") requires management to adopt accounting
policies and make estimates and judgments that affect the amounts reported in
the financial statements and the accompanying notes. Actual results could differ
from those estimates under different assumptions and judgments and
uncertainties, and potentially could result in materially different results
under different conditions. These critical accounting estimates are reviewed
periodically by our independent auditors and the audit committee of our board of
directors.
Our critical accounting estimates have not changed materially from those
disclosed in Management's Discussion and Analysis of Financial Condition and
Results of Operations included in our Annual Report on Form 10-K, for the year
ended June 30, 2008 as filed with the Securities and Exchange Commission
("SEC").
Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 157, "Fair Value
Measurements" ("SFAS No. 157"). SFAS No. 157 defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles,
and expands disclosures about fair value measurements. This statement applies
under other accounting pronouncements that require or permit fair value
measurements, the Board having previously concluded in those accounting
pronouncements that fair value is a relevant measurement attribute. Accordingly,
this statement does not require any new fair value measurements. We adopted SFAS
No. 157 effective September 30, 2007 and have recorded a $0.1 million allowance
against our accounts payable balance as of December 31, 2008 representing our
fair value assessment of that account.
In October 2008, the FASB issued FASB Staff Position ("FSP") FAS 157-3,
"Determining the Fair Value of a Financial Asset When the Market for That Asset
Is Not Active" ("FSP FAS 157-3"). This FSP clarifies the application of FASB
SFAS No. 157 in a market that is not active and provides an example to
illustrate key considerations in determining the fair value of a financial asset
when the market for that financial asset is not active. This FSP is effective
upon issuance, including prior periods for which financial statements have not
been issued. The adoption of FSP FAS 157-3 had no impact on our consolidated
financial position, cash flows or results of operations.
In April 2008, the FASB issued FSP FAS 142-3, "Determination of the Useful Life
of Intangible Assets" ("FSP FAS 142-3"). This position amends the factors that
should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SFAS No. 142,
"Goodwill and Other Intangible Assets." This FSP is effective for financial
statements issued for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years. The guidance contained in this FSP
for determining the useful life of a recognized intangible asset shall be
applied prospectively to intangible assets acquired after the effective date. We
are currently assessing the effects of FSP FAS 142-3 and have not yet determined
its impact on our consolidated financial statements.
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In December 2007, the FASB issued SFAS No. 141R, "Business Combinations" ("SFAS
No. 141R"). SFAS No. 141R establishes principles and requirements for how the
acquirer of a business recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any non-controlling
interest in the acquiree. This statement also provides guidance for recognizing
and measuring the goodwill acquired in the business combination and determines
what information to disclose to enable users of the financial statement to
evaluate the nature and financial effects of the business combination. SFAS No.
141R is effective for financial statements issued for fiscal years beginning
after December 15, 2008. Accordingly, any business combinations we engage in
will be recorded and disclosed under SFAS No. 141 until June 30, 2009. We expect
SFAS No. 141R will have an impact on our consolidated financial statements when
effective, but the nature and magnitude of the specific effects will depend upon
the nature, terms and size of the acquisitions we consummate after the effective
date. We are still assessing the impact of this standard on our future
consolidated financial statements.
All other new accounting pronouncements issued but not yet effective or adopted
have been deemed not to be relevant to us, hence are not expected to have any
impact once adopted.
ITEM 4 (T). CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our 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 Exchange Act) designed to ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the SEC'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 we file or submit
under the Exchange Act is accumulated and communicated to the issuer's
management, including our principal executive officer and principal financial
officer, to allow timely decisions regarding required disclosure.
We have carried out an evaluation under the supervision and with the
participation of our management, including our Chief Executive Officer and
Principal Financial and Chief Accounting Officer, of our disclosure controls and
procedures as defined in Exchange Act Rule 13(a)-15(e). In designing and
evaluating disclosure controls and procedures, we and our management recognize
that any disclosure controls and procedures, no matter how well designed and
operated, can only provide reasonable assurance of achieving the desired control
objective. As of December 31, 2008, our Chief Executive Officer and Principal
Financial and Chief Accounting Officer conclude that our disclosure controls and
procedures are effective.
Changes in Internal Controls
During the three months ended December 31, 2008, there were no changes in our
internal controls over financial reporting that materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 4, 2004, we were served with a Summons and a Shareholder's Class
Action and Derivative Complaint in the Court of Chancery of the State of
Delaware (the "Court of Chancery") alleging that members of our board of
directors in 2002 breached their fiduciary duty of loyalty in connection with
the sale of certain of our offices. On February 15, 2008, a written Settlement
Agreement was executed settling the lawsuit, subject to approval by the Court of
Chancery. At a hearing on September 22, 2008, the Court of Chancery approved the
Settlement Agreement and reserved decision on setting an award of attorney's
fees and expenses for plaintiff's counsel. On October 31, 2008, Master in
Chancery Sam Glasscock III issued a Master's Final Report awarding the
plaintiff's attorneys fees in the amount of $1.2 million together with
out-of-pocket costs in the amount of $0.1 million. We have filed an exception
contesting the Master's Final Report with the Court of Chancery. The award of
attorney fees and out-of-pocket costs will be paid by our Executive Liability
and Organization Reimbursement Policy with National Union Fire Insurance Company
of Pittsburgh, PA.
On September 6, 2005, the Company received an informal inquiry from the SEC
regarding variable annuity sales by our registered representatives during the
period January 1, 2002 through August 1, 2005. On June 22, 2006, the SEC entered
a formal order of investigation. Pursuant to SEC subpoenas, we have supplied
documents to the SEC and several officers, employees and former employees have
testified before the SEC. On December 12, 2008 we received a Wells Notice from
the SEC in connection with this investigation. Wells Notices were also received
by Prime Capital Services, Inc., a wholly owned subsidiary of the Company,
Michael P. Ryan, our President, Rose M. Rudden, our Chief Compliance Officer and
certain other current and former employees. The Wells Notices provide
notification that the staff of the SEC is considering recommending that the SEC
bring a civil action against the recipients of the Wells Notices to determine
whether they committed possible violations of certain sections of the Securities
Act, the Exchange Act and certain Rules of the Exchange Act. Under the process
established by the SEC, we have the opportunity to seek meetings with SEC staff
to present our case to the SEC and we intend to pursue that opportunity. On
January 20, 2009, our attorneys submitted a response to the Wells Notices
received by the Company, Mr. Ryan, Ms. Rudden, certain other current employees
and one former employee. We cannot predict whether or not the investigation will
result in an enforcement action. Further, if there were an enforcement action,
we cannot predict whether or not our operating results would be affected.
The Company and PCS are defendants and respondents in lawsuits and FINRA
arbitrations in the ordinary course of business. In accordance with SFAS No. 5
"Accounting for Contingencies," we have established liabilities for potential
losses from such complaints, legal actions, investigations and proceedings. In
establishing these liabilities, our management uses its judgment to determine
the probability that losses have been incurred and a reasonable estimate of the
amount of the losses. In making these decisions, we base our judgments on our
knowledge of the situations, consultations with legal counsel and our historical
experience in resolving similar matters. In many lawsuits, arbitrations and
regulatory proceedings, it is not possible to determine whether a liability has
been incurred or to estimate the amount of that liability until the matter is
close to resolution. However, accruals are reviewed regularly and are adjusted
to reflect our estimates of the impact of developments, rulings, advice of
counsel and any other information pertinent to a particular matter. Because of
the inherent difficulty in predicting the ultimate outcome of legal and
regulatory actions, we cannot predict with certainty the eventual loss or range
of loss related to such matters. If our judgments prove to be incorrect, our
liability for losses and contingencies may not accurately reflect actual losses
that result from these actions, which could materially affect results in the
period other expenses are ultimately determined. PCS has errors and omissions
insurance coverage that will cover a portion of such matters. In addition, under
the PCS registered representatives contract, each registered representative is
responsible for covering awards, settlements and costs in connection with these
claims. While we will vigorously defend these matters, and will assert insurance
coverage and indemnification to the maximum extent possible, there can be no
assurance that these lawsuits and arbitrations will not have a material adverse
impact on our financial position.
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ITEM 1A. RISK FACTORS
Risk factors and uncertainties associated with our business have not changed
materially from those disclosed in Part I, Item 1A of our 2008 Annual Report on
Form 10-K as filed with the SEC on September 26, 2008.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On October 30, 2008, we sold 1.0 million shares of our $0.01 par value common
stock with a price of $0.10 per share. No underwriters were involved in the
purchase and sale of the shares. The proceeds from the sale of securities
totaling $0.1 million were used for working capital purposes. The sales were
made to accredited and sophisticated investors in reliance on the exemption from
registration in Rule 506 of Regulation D.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
See Note 8 to Notes to Consolidated Financial Statements herein for a discussion
of the Company's defaults on debt.
ITEM 5. OTHER INFORMATION
On December 11, 2008, Kathryn Travis resigned as the Secretary of the Company.
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ITEM 6. EXHIBITS
31.1 Rule 13a-14(a) Certification of Chief Executive Officer.
31.2 Rule 13a-14(a) Certification of Principal Financial and Chief Accounting
Officer.
32.1 Certification of Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Principal Financial and Chief Accounting Officer Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
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SIGNATURES
Pursuant to the requirements 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: February 13, 2009 By: /s/ Michael Ryan
--------------------
Chief Executive Officer
Dated: February 13, 2009 By: /s/ Karen Fisher
--------------------
Principal Financial and
Chief Accounting Officer
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