[LETTERHEAD OF GILMAN CIOCIA, INC.]
Corporate Headquarters
11 Raymond Avenue o Poughkeepsie, NY 12603
845.485-3338 tel o 845.622.3638 fax
VIA EDGAR SUBMISSION AND FACSIMILE
June 11, 2009
United States Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: Mr. Daniel L. Gordon
Branch Chief
RE: Gilman Ciocia, Inc.
Form 10-K for the year ended June 30, 2008
Filed September 26, 2008
File No. 000-22996
Dear Mr. Gordon:
This letter is being furnished in response to the comments contained in the
letter dated May 28, 2009 (the "Letter") from Daniel L. Gordon, Branch Chief, of
the Staff (the "Staff") of the United States Securities and Exchange Commission
(the "Commission") to Mr. Michael Ryan, Chief Executive Officer of Gilman
Ciocia, Inc. (the "Company"). The comments of the Staff and the Company's
responses are set forth below and are keyed to the sequential numbering of the
comments and the headings used in the Letter.
Form 10-K for the year ended June 30, 2008
Note 2. Summary of Significant Accounting Policies, page F-8
Revenue Recognition, page F-10
1. Please elaborate upon your revenue recognition policy. For instance, we
note that you operate through both company-owned and independently
operated offices. Describe for us how revenues are generated and recorded
for each type of office.
For both Company-owned offices and independently owned offices, except as
set forth in the below paragraph, revenues are generated and recognized on
a consistent basis. For example, for both Company-owned offices and
independently owned offices, the Company recognizes all revenues from
asset management fees upon completion of the services. Likewise, for each
type of office, revenues from financial planning services, including
securities trading and other types of transactions, are recognized on a
trade-date basis and both types of offices utilize the same software
system to process their transactions.
Company-owned offices generate revenue from tax preparation and accounting
services which are recognized upon completion of the services.
Company-owned offices also generate marketing revenue, amounting to less
than two percent of sales, from the Company's strategic marketing
relationships with certain product sponsors which enable the Company to
efficiently utilize its training, marketing and sales support resources.
These revenues are recognized based on production levels. Marketing event
revenues are recognized at the commencement of the event offset by its
cost. Independently-owned offices do not generate these types of revenues.
Note 9. Fair Value Measurements, page F-15
2. You disclose that you have elected to fair value accounts payable under
SFAS 157. Please note that SFAS 157 defines fair value, establishes a
framework for measuring fair value, and expands disclosures about fair
value measurements, but does not provide for assets and liabilities to be
reported at fair value unless allowed under other existing accounting
literature. In that regard, please clarify to us how you have determined
that it is appropriate to present accounts payable at fair value. In
addition, please advise us if you have applied fair value accounting to
the accounts payable balance as a whole, or if you have specifically
identified portions of the accounts payable balance to report at fair
value.
The Company has determined that it is appropriate to present accounts
payable which is greater than four years old at fair value based on the
following factors:
1. The Company has significant legacy accounts payable balances that
are at least four years old. The Company believes that these
payables may never require a financial payment because there has not
been any active pursuit by any of the vendors to collect. The
Company believes that the longer these payables are outstanding the
less likely it is that there will be any pursuit of payment by the
vendor. Furthermore, the general statute of limitations for breach
of contract is six years and for sales of goods, the UCC has a four
year statute of limitations.
2. The Company has established a conservative estimate of fair value of
fifteen cents on the dollar that it would potentially pay out
against these balances based on its historical pay out on these
legacy balances. The Company has in the past two years settled
$78,313 in payables for $100.
3. The Company also has the ability to pay any negotiated settlements
should the situation arise.
3. Please explain why you recorded $0.4 million of income related to your
accounts payable account.
The $0.4 million of income related to the accounts payable account
includes (i) $0.2 million of accounts payable which was entirely written
off as a result of the statutes of limitations expiring, and (ii) $0.2
million of accounts payable that the Company recorded as an allowance
against the remaining accounts payable balance, which includes invoices
that are at least four years old.
4. Please describe for us and disclose in future filings, a description of
the inputs and the information used to develop the inputs, as well as the
valuation techniques used to measure fair value of accounts payable and a
discussion of any changes in the valuation techniques used to measure
similar assets and/or liabilities in prior periods. Refer to paragraphs
33(c-d) of SFAS 157.
The Company opted to use the cost approach as its valuation technique to
measure fair value of its legacy accounts payable since this approach is
based on the Company's previous experience with vendors pursuing payment.
Unobservable inputs also were utilized in the valuation technique to
measure fair value of these legacy accounts payable because there is
little, if any market activity for the liability at the measurement date.
FAS 157 states that Level 3 inputs are unobservable inputs that shall be
used to measure fair value to the extent that observable inputs are not
available, thereby allowing for situations in which there is little, if
any, market activity for the liability at the measurement date. However,
the fair value measurement objective remains the same, that is, an exit
price from the perspective of a market participant that owes the
liability. These inputs are the Company's own assumptions about what it
believes it would have to pay out against these payables based on the
Company's historical experience in making payments against these payables.
The Company will provide this description in future filings.
Note 16. Net Earnings per Share, page F-21
5. In future filings, please quantify the number of outstanding options and
warrants that have been excluded from diluted EPS due to their
anti-dilutive effect. Refer to paragraph 40(c) of SFAS 128.
The Staff is supplementally advised that at June 30, 2008, the number of
outstanding options and warrants that have been excluded from diluted EPS
due to their anti-dilutive effect was 70,000 shares. The Company will
quantify this number in future filings.
Note 17. Related Party Transactions, page F-21
6. We note that as part of the Private Placement Closing, $0.7 million of the
Purchasing Group Loan was converted to 7.1 million shares of your common
stock. Please describe this related party transaction in detail,
specifically describing what obligations you retained from the $1 million
Purchasing Group Loan, why you issued an additional 7.1 million shares to
the purchasers, and any continuing obligations that remain.
On October 30, 2001, the Company borrowed $1.0 million from Rappaport
Gamma Limited Partnership pursuant to a written promissory note (the
"Rappaport Loan"). On April 29, 2005, the Rappaport Loan, together with
785,298 shares of Company common stock held by Rappaport, were sold to a
group of Company management and employees (the "Purchasing Group") for
$0.8 million. The members of the Purchasing Group included Prime Partners,
Inc., a corporation controlled by Michael Ryan, a director, the president
and a significant shareholder of the Company, James Ciocia, the Chairman
of the Company, Christopher Kelly, former General Counsel of the Company,
Kathryn Travis, the Secretary and a director of the Company, Dennis
Conroy, the Chief Accounting Officer of the Company, Ted Finkelstein, the
Associate General Counsel of the Company, and certain other Company
employees.
The Purchasing Group agreed to reduce the principal balance of the
Rappaport Loan from $1.0 million to $0.8 million and extended the maturity
date to April 29, 2009. The $0.2 million debt reduction agreed to by the
Purchasing Group was recorded to paid-in-capital as the Purchasing Group
was a related party. Pursuant to the terms of the Rappaport Loan, the
Purchasing Group, as holders of the Rappaport Loan, was entitled to
receive, in the aggregate, as interest, 180,000 shares of the Company's
common stock annually while the debt remained unpaid. Upon the purchase of
the Rappaport Loan by the Purchasing Group, the Rappaport Loan was
reclassified as a related party transaction.
On August 20, 2007, as part of the Private Placement Closing, $0.7 million
of the Purchasing Group Loan was converted to 7.1 million shares of
Company common stock, leaving a $37,500 debt balance to one member of the
Purchasing Group, who was not a related party. The $0.10 per share
conversion price was the same price paid by all other participants in the
Private Placement, which included purchasers unaffiliated with the
Company. The $0.10 price was the result of an arms length negotiation with
unaffiliated investors who purchased 40.0 million shares of Company stock
for $4.0 million. The $37,500 balance was paid on October 25, 2007,
leaving no continuing obligations by the Company to the Purchasing Group.
It should also be noted that on April 14, 2008, the SEC declared effective
the Company's registration statement for a public stock offering. Pursuant
to this offering, the Company distributed to its holders of common stock
other than participants in the Private Placement, subscription rights to
purchase four shares of common stock for each share owned. The public
stock offering was at the same $0.10 per share price as the Private
Placement and the debt conversion.
The Company acknowledges that:
o The Company is responsible for the adequacy and accuracy of the
disclosure in the filings;
o Staff comments or changes to disclosure in response to Staff
comments do not foreclose the Commission from taking any action with
respect to the filings; and
o The Company may not assert Staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
If you have any questions regarding our responses above, please feel free to
contact me at 845-485-3338.
Sincerely,
/s/ Michael P. Ryan
Chief Executive Officer
Gilman Ciocia, Inc.
cc: Kristi Marrone, Staff Accountant, United States Securities and Exchange
Commission (via facsimile)
Laurie A. Cerveny, Bingham McCutchen LLP
Joseph D'Arelli, Sherb & Co. LLP