GILMAN CIOCIA, INC. - FORM 10-Q

Attached files

file	filename
EXCEL - IDEA: XBRL DOCUMENT - GILMAN CIOCIA, INC.	Financial_Report.xls
EX-31.1 - RULE 13A-14(A) CERTIFICATION OF CHIEF EXECUTIVE OFFICER. - GILMAN CIOCIA, INC.	exhibit_31-1.htm
EX-32.2 - CERTIFICATION OF PRINCIPAL FINANCIAL AND CHIEF ACCOUNTING OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002. - GILMAN CIOCIA, INC.	exhibit_32-2.htm
EX-31.2 - RULE 13A-14(A) CERTIFICATION OF PRINCIPAL FINANCIAL AND CHIEF ACCOUNTING OFFICER. - GILMAN CIOCIA, INC.	exhibit_31-2.htm
EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002. - GILMAN CIOCIA, INC.	exhibit_32-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

---------------------------

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, 2012

o 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 incorporation or organization)		(I.R.S. Employer Identification No.)

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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

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 o Accelerated filer o Non-accelerated filer o 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 o No x

As of February 14, 2013, 96,446,179 shares of the issuer's common stock, $0.01 par value, were outstanding.

Table of Contents

GILMAN CIOCIA, INC.

QUARTERLY REPORT ON FORM 10-Q

For the Period Ending December 31, 2012

TABLE OF CONTENTS

		Page

	Forward-Looking Statements	3

PART I - FINANCIAL INFORMATION

Item 1.	FINANCIAL STATEMENTS

	Consolidated Balance Sheets as of December 31, 2012 (unaudited) and June 30, 2012	4

	Consolidated Statements of Operations for the Three and Six Months Ended December 31, 2012 and December 31, 2011 (unaudited)	5

	Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2012 and December 31, 2011 (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	16

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26

Item 4.	Controls and Procedures	26

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	27

Item 1A.	Risk Factors	27

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27

Item 3.	Defaults Upon Senior Securities	27

Item 4.	Mine Safety Disclosures	27

Item 5.	Other Information	27

Item 6.	Exhibits	28

SIGNATURES		29

Table of Contents

FORWARD LOOKING STATEMENTS

The information contained in this Quarterly Report on 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, our expectations that the number of tax preparers who are certified public accountants will increase, the cyclical nature of our business, our liquidity and our ability to fund and intentions for funding future operations, revenues, the outcome or effect of litigation, arbitration and regulatory investigations, the impact of certain accounting pronouncements, the effects of our cost-cutting measures and our intention to continue to closely control expenses, contingent liability associated with acquisitions, the impact of the current economic conditions, 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,” “anticipate,” “expect,” “remain,” “intend,” “estimate,” “approximate,” “believe” 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 economic downturn; changes in competition and the effects of such changes; our ability to raise additional capital and to service or extend the terms of our debt and other financial obligations; 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, as well as those risks contained in our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q 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 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.

Table of Contents

PART I

FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

GILMAN CIOCIA, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)

	Unaudited
	December 31,			June 30,
	2012			2012 (1)
Assets

Cash & Cash Equivalents	$	386		$	446
Restricted Cash		190			190
Marketable Securities		1			8
Trade Accounts Receivable, Net		2,581			2,453
Receivables from Employees, Net		977			980
Prepaid Expenses		433			347
Other Current Assets		167			460
Total Current Assets		4,735			4,884

Property and Equipment (less accumulated depreciation of $7,342
at December 31, 2012 and $7,214 at June 30, 2012)		641			781
Goodwill		4,016			4,016
Intangible Assets (less accumulated amortization of $9,468 at
December 31, 2012 and $9,176 at June 30, 2012)		4,026			4,503
Other Assets		260			271
Total Assets	$	13,678		$	14,455

Liabilities and Shareholders' Equity

Accounts Payable ($4 and $5 are valued at fair value at
December 31, 2012 and June 30, 2012, respectively)	$	1,318		$	1,186
Accrued Expenses		1,472			1,994
Commission Payable		2,459			2,542
Current Portion of Notes Payable and Capital Leases		5,378			2,674
Deferred Income		293			152
Due to Related Parties		1,107			251
Total Current Liabilities		12,027			8,799

Long Term Portion of Notes Payable and Capital Leases		7			1,991
Long Term Portion of Related Party Notes		15			950
Other Long Term Liabilities		682			817
Total Liabilities		12,731			12,557

Shareholders' Equity

Preferred Stock, $0.001 par value; 100 shares authorized; none issued		-			-
Common Stock, $0.01 par value 500,000 shares authorized; 96,446 shares and
97,487 share issued at December 31, 2012 and June 30, 2012		964			975
Additional Paid in Capital		36,584			36,620
Accumulated Deficit		(36,601	)		(35,697	)
Total Shareholders' Equity		947			1,898
Total Liabilities and Shareholders' Equity	$	13,678		$	14,455
(1) Derived from audited financial statements.
See Notes to Unaudited Consolidated Financial Statements

Table of Contents

GILMAN CIOCIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in thousands, except per share data)


	For the Three Months Ended December 31,						For the Six Months Ended December 31,
	2012			2011			2012			2011
Revenues
Financial Planning Services	$	7,475		$	7,212		$	14,811		$	16,075
Tax Preparation and Accounting Fees		680			697			1,571			1,402
Total Revenues		8,155			7,909			16,382			17,477

Operating Expenses
Commissions		4,428			4,373			8,834			9,694
Salaries and Benefits		2,233			2,052			4,398			4,272
General and Administrative		946			950			2,016			1,861
Advertising		143			166			302			353
Brokerage Fees and Licenses		238			255			509			617
Rent		596			642			1,186			1,268
Depreciation and Amortization		276			273			553			545
Total Operating Expenses		8,860			8,711			17,798			18,610

Loss Before Other Income and Expenses	(705		)	(802		)		(1,416	)		(1,133	)
Other Income/(Expenses)
Interest and Investment Income		3			3			10			5
Interest Expense		(150	)		(136	)		(284	)		(264	)
Other Income/(Expense), Net		(18	)		-			787			(2	)
Total Other Income/(Expense)		(165	)		(133	)		513			(261	)

Loss Before Income Taxes		(870	)		(935	)		(903	)		(1,394	)
Income Tax Expense		-			-			-			-
Net Loss	$	(870	)	$	(935	)	$	(903	)	$	(1,394	)

Weighted Average Number of Common
Shares Outstanding:
Basic and Diluted Shares		96,289			97,291			96,464			97,089

Basic and Diluted Net Loss Per Share:
Net Loss Per Common Share	$	(0.01	)	$	(0.01	)	$	(0.01	)	$	(0.01	)




See Notes to Unaudited Consolidated Financial Statements

Table of Contents

GILMAN CIOCIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)

	For the Six Months Ended December 31,
	2012			2011
Cash Flows from Operating Activities:
Net loss	$	(903	)	$	(1,394	)

Adjustments to reconcile net loss to net cash provided
by/(used in) operating activities:
Depreciation and amortization		553			545
Issuance of common stock for stock-based compensation and other		46			54
Gain on sale of office		(323	)		-
Allowance for doubtful accounts		(31	)		(28	)
Gain on fair value recognition on accounts payable		(2	)		-

Changes in assets and liabilities:
Accounts receivable		(100	)		168
Prepaid and other current assets		207			3
Change in marketable securities		6			-
Other assets		-			19
Accounts payable and accrued expenses		(430	)		(358	)
Deferred income		141			94
Net cash used in operating activities:		(836	)		(897	)

Cash Flows from Investing Activities:
Capital expenditures		(2	)		(14	)
Cash paid for acquisitions, net of cash acquired and debt incurred		(186	)		(122	)
Receivables from employees		3			100
Proceeds from sale of office		319			-
Net cash provided by (used in) investing activities:		134			(36	)

Cash Flows from Financing Activities:
Proceeds from other loans		235			251
Proceeds from notes payable		1,210			1,050
Proceeds from related parties		-			140
Payments to related parties		(78	)		(178	)
Payments of notes payable		(530	)		(150	)
Payments of capital leases and other loans		(195	)		(248	)
Net cash provided by financing activities:		642			865

Net change in cash and cash equivalents		(60	)		(68	)
Cash and cash equivalents at beginning of period		446			383
Cash and cash equivalents at end of period	$	386		$	315

See Notes to Unaudited Consolidated Financial Statements and Supplemental Disclosures to Consolidated Statements of Cash Flows

Table of Contents

GILMAN CIOCIA, INC.
Supplemental Disclosures to Consolidated Statements of Cash Flows (unaudited)
(in thousands)

	For the Six Months Ended December 31,
	2012			2011
Cash Flow Information
Cash payments during the year for:
Interest	$	279		$	262
Taxes	$	-		$	-

Supplemental Disclosure of Non-Cash Transactions
Issuance of common stock for services	$	25		$	30
Fair value recognition on legacy accounts payable	$	(2	)	$	-

See Notes to the Unaudited Consolidated Financial Statements

Table of Contents

GILMAN CIOCIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. ORGANIZATION AND NATURE OF BUSINESS

Description of the Company

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, 2012, the Consolidated Statements of Operations for the three and six months ended December 31, 2012 and 2011 and the Consolidated Statements of Cash Flows for the six months ended December 31, 2012 and 2011 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 and six months ended December 31, 2012 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 consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2012.

Fiscal years are denominated by the year in which they end. Accordingly, fiscal 2012 refers to the year ended June 30, 2012.

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.

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. We and our wholly owned subsidiary Prime Capital Services, Inc. (“PCS”) have been named as a respondent in customer arbitrations and as a defendant in customer lawsuits (“Customer Claims”). These Customer Claims result from the actions of brokers affiliated with PCS. Under the PCS registered representatives contract, each registered representative has indemnified us for these claims. Most of these Customer Claims are covered by our errors and omissions insurance policy. As of December 31, 2012, there was one pending Customer Claim against PCS and no Customer Claims pending against the Company. We establish liabilities for potential losses from Customer Claims. In establishing these liabilities, management uses its judgment to determine the probability that losses have been incurred and a reasonable estimate of the amount of losses. While we will vigorously defend ourselves in these matters, and we 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.

Table of Contents

GILMAN CIOCIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

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. Restricted cash consists of deposits with clearing firms.

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 (our fourth quarter) 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

Company Owned Offices - 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.

Independent Offices - We recognize 100% of all commission revenues and expenses associated with financial planning services including securities and other transactions on a trade-date basis. Our independent offices are independent contractors who may offer other products and services of other unrelated parties. These same offices are responsible for paying their own operating expenses, including payroll compensation for their staff.

Earnings (Loss) Per Share (“EPS”)

Basic EPS is computed using the weighted average number of common shares outstanding during each period. Options to purchase 3,719,350 common shares at an average price of $0.16 per share were outstanding during the three and six months ended December 31, 2012, but were not included in the computation of diluted earnings per share because to do so would be anti-dilutive and because the options’ exercise prices were greater than the average market price of the common shares. Options to purchase 3,295,850 common shares at an average price of $0.18 per share were outstanding during the three and six months ended December 31, 2011, but were not included in the computation of diluted earnings per share because to do so would be anti-dilutive and because the options’ exercise prices were greater than the average market price of the common shares.

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, 2012 because of the relatively short-term maturity of these instruments and their market interest rates.

Contingent Consideration

During fiscal 2011 we entered into one asset purchase agreement which includes contingent consideration based upon gross revenue generated in future periods. At the time of acquisition we recognized a liability of $1.3 million representing anticipated future contingency payments. As of December 31, 2012 the remaining liability was $0.8 million.

Concentration of Credit Risk

Financial instruments that potentially subject us to concentrations of credit risk consist of trade receivables. The larger portion of our trade receivables are commissions earned from providing financial planning services that include securities brokerage services, insurance and financing services. Our remaining trade receivables consist of revenues recognized for accounting and tax services provided to businesses and individual tax payers. 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.

Table of Contents

GILMAN CIOCIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

3. RECENT ACCOUNTING PRONOUNCEMENTS

In September 2011, the FASB issued new guidance on testing goodwill for impairment. Pursuant to the new guidance an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. However, if an entity concludes otherwise, then it is required to perform the first step of the two-step impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying amount of the reporting unit. If the carrying amount of a reporting unit exceeds its fair value, then the entity is required to perform the second step of the goodwill impairment test to measure the amount of the impairment loss. Under the new guidance, an entity has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the two-step goodwill impairment test. An entity may resume performing the qualitative assessment in any subsequent period. The new guidance does not change the current guidance for testing other indefinite lived intangible assets for impairment. The new guidance was effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The requirements of the amended accounting guidance were effective for us September 30, 2012 and early adoption was permitted. The adoption of the amended guidance did not have a significant impact on the 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

On April 6, 2012, the State of Florida Office of Financial Regulation (the “OFR”) commenced an Administrative Proceeding (the “OFR Administrative Proceeding”) against PCS, Asset & Financial Planning, Ltd. (“AFP”), a wholly owned subsidiary and a registered investment advisor, and three registered representatives of PCS (the “Registered Representatives”). The OFR Administrative Proceeding sought the imposition of administrative fines from PCS, AFP and the Registered Representatives. The allegations in the OFR Administrative Proceeding concerned the impact of management fees on the bonus provisions of a rider on 53 customer variable annuities between 2007 and 2010. On July 10, 2012, the OFR commenced a lawsuit in Florida state court (the “OFR Court Case”) against PCS, AFP and the Registered Representatives. The OFR Court Case sought an injunction against PCS, AFP and the Registered Representatives from violating the Florida Securities and Investor Protection Act and an award of damages to the owners of the 53 customer variable annuities (the “Customers”). AFP has since instituted procedures to insure that no other variable annuities under management are similarly impacted. PCS, AFP and the Registered Representatives believed that these transactions were an administrative error and that the Customers did not suffer any economic harm or damage. PCS, AFP and the Registered Representatives did not believe that the imposition of administrative fines was appropriate and they vigorously defended against the OFR Administrative Proceeding and against the OFR Court Case.

On January 30, 2013, the OFR executed and docketed a Final Order approving a Stipulation and Consent Agreement settling the OFR Administrative Proceeding and the OFR Court Case. The terms of the settlement with the OFR are as follows: PCS, AFP and the Registered Representatives will pay an administrative fine in the amount of $70,000; PCS, AFP and the Registered Representatives will pay $26,175 in costs; PCS, AFP and the Registered Representatives will pay damages in the amount of $100,000 to the Customers; and two of the Registered Representatives will sign two (2) year agreements with OFR restricting their registrations as associated persons of PCS and AFP.

Our insurance carrier has interrelated all claims involving the variable annuity sales practices of certain registered representatives of PCS that involve an SEC Administrative Proceeding commenced on June 30, 2009 which we settled on March 16, 2010 (the “Interrelated Claims”). The total remaining insurance coverage for the Interrelated Claims was reduced from $1.0 million to $0.3 million after settling arbitrations commenced by customers. On February 1, 2012, we settled the last pending Interrelated Claim customer arbitration for $0.4 million which was paid $0.3 million from insurance coverage and $0.1 million from us. As a result of this settlement, there is no remaining insurance coverage for arbitrations for Interrelated Claims which may be commenced by customers and we could be required to pay significant additional costs out of pocket, which would reduce our working capital and have a material adverse effect on our results of operations. We continue to have insurance coverage for any claims that are not “interrelated claims” previously defined.

Table of Contents

GILMAN CIOCIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

4. COMMITMENTS AND CONTINGENCIES - continued

We and PCS have been named as a respondent in customer arbitrations and as a defendant in customer lawsuits (“Customer Claims”). These Customer Claims result from the actions of brokers affiliated with PCS. Under the PCS registered representatives contract, each registered representative has indemnified us for these claims. Most of these Customer Claims are covered by our errors and omissions insurance policy. As of December 31, 2012, there was one pending Customer Claim against PCS and no Customer Claims pending against the Company. We establish liabilities for potential losses from Customer Claims. In establishing these liabilities, management uses its judgment to determine the probability that losses have been incurred and a reasonable estimate of the amount of losses. While we will vigorously defend ourselves in these matters, and we 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.

5. EQUITY

On October 31, 2012, pursuant to the Company’s 2007 Stock Incentive Plan (the “2007 Plan”), we granted to the independent members of our Board of Directors and Jim Ciocia, our Chairman of the Board, in the aggregate, $25.0 thousand in common stock options, or 510,205 common stock options each with an exercise price of $0.15 and a ten-year term which vest as to 20.0% of the shares annually commencing one year after the date of grant and which have a Black-Scholes value at the time of grant determined based on the closing price of our common stock on the date of grant. Additionally, on October 31, 2012 we issued in the aggregate to these same board members $25.0 thousand in common stock, or 500,000 shares of Rule 144 restricted common stock.

6. FAIR VALUE MEASUREMENTS

Valuation techniques for fair value are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our best estimate, considering all relevant information. These valuation techniques involve some level of management estimation and judgment. The valuation process to determine fair value also includes making appropriate adjustments to the valuation model outputs to consider risk factors.

The fair value hierarchy of our inputs used in the determination of fair value for assets and liabilities during the current period consists of three levels. Level 1 inputs are comprised of unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. Level 2 inputs include quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 3 inputs incorporate our own best estimate of what market participants would use in pricing the asset or liability at the measurement date where consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. If inputs used to measure an asset or liability fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the asset or liability. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

We have 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, we opted to use the cost approach as our valuation technique to measure the fair value of our legacy accounts payable. Based on historical payouts we have established an estimate of fifteen cents on the dollar on these legacy balances that we would potentially pay out. The income recorded during the six months ended December 31, 2012 was $2.2 thousand. No income was recorded during the six months ended December 31, 2011.

The following table sets forth the assets and liabilities as of December 31, 2012 which is recorded on the balance sheet at fair value on a recurring basis by level within the fair value hierarchy. These are classified based on the lowest level of input that is significant to the fair value measurement:

		Quoted Prices in Active
(in thousands)	Carrying	Markets for Identical	Significant Unobservable
Description	Value	Assets (Level 1)	Inputs (Level 3)
Cash equivalents	$ 191	$ 191	$ -
Marketable securities	$ 1	$ 1	$ -
Accounts payable greater than 4 years old	$ 4	$ -	$ 4

Table of Contents

GILMAN CIOCIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

6. FAIR VALUE MEASUREMENTS - continued

The following table sets forth the assets and liabilities as of June 30, 2012 which is recorded on the balance sheet at fair value on a recurring basis by level within the fair value hierarchy. These are classified based on the lowest level of input that is significant to the fair value measurement:

		Quoted Prices in Active
(in thousands)	Carrying	Markets for Identical	Significant Unobservable
Description	Value	Assets (Level 1)	Inputs (Level 3)
Cash equivalents	$ 191	$ 191	$ -
Marketable securities	$ 8	$ 8	$ -
Accounts payable greater than 4 years old	$ 5	$ -	$ 5

Cash and cash equivalents of $0.6 million includes money market securities of $0.2 million. The carrying value of our cash and cash equivalents, accounts payable and other current liabilities approximates fair value because of their short-term maturity. All of our other significant financial assets, financial liabilities and equity instruments are either recognized or disclosed in the consolidated financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise only available information pertinent to fair value has been disclosed.

7. GOODWILL AND OTHER INTANGIBLE ASSETS

The carrying value of goodwill remained unchanged at $4.0 million for the six month period ended December 31, 2012.

Other intangible assets subject to amortization are comprised of the following at:

(in thousands)	December 31, 2012			June 30, 2012
Customer Lists	$	8,415		$	8,600
Broker-Dealer Registration		100			100
Non-Compete Contracts		779			779
House Accounts		600			600
Administrative Infrastructure		500			500
Independent Contractor Agreements		3,100			3,100
Intangible Costs at Cost		13,494			13,679
Less: Accumulated Amortization and Impairment		(9,468	)		(9,176	)
Intangible Assets, Net	$	4,026		$	4,503

Amortization expense for both the three months ended December 31, 2012 and December 31, 2011 was $0.2 million. Amortization expense for both the six months ended December 31, 2012 and December 31, 2011 was $0.4 million.

8. DISPOSITIONS

On August 3, 2012 we sold the assets of an office located in Toms River, New Jersey, including client lists and goodwill, for a purchase price of $0.4 million ($0.3 million in cash and $0.1 million in Gilman Ciocia stock – 1.5 million shares). The sale resulted in a gain on sale of assets of approximately $0.3 million.

9. DEBT

	December 31,			June 30,
(in thousands)	2012			2012
2008 Notes (a)	$	1,972		$	2,502
2012 Notes (b)		1,800			1,800
2013 Notes (c)		1,210			-
Note Payable for Insurance (d)		80			18
Capitalized Lease Obligations (e)		323			345
Total		5,385			4,665
Less: Current Portion		(5,378	)		(2,674	)
Total Long-Term Portion	$	7		$	1,991

Table of Contents

GILMAN CIOCIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

9. DEBT - continued

(a) On October 31, 2008 we commenced the Gilman Ciocia Common Stock and Promissory Note Offering, a private offering of our securities pursuant to SEC Regulation D (the “2008 Offering”). The 2008 Offering was amended on December 8, 2008, September 3, 2009, December 16, 2009, February 11, 2010, March 29, 2010, May 31, 2011 and May 31, 2012. The securities offered for sale in the 2008 Offering, as amended were: $3.8 million of notes with interest at 10% (the “2008 Notes”) and $0.4 million, or 3.5 million shares of our $0.01 par value common stock with a price of $0.10 per share (the “Shares”). As of December 31, 2012, $2.3 million of the 2008 Notes are outstanding and due July 1, 2013 (inclusive of $848.0 thousand in related party notes: see Note 12 (b)(c)), $0.5 million of the 2008 Notes were outstanding and due July 1, 2012, which were paid on July 2, 2012 and $0.1 million, or 1.0 million shares, of our common stock were issued pursuant to the 2008 Offering.

On January 27, 2009, Carole Enisman, Executive Vice President of Operations purchased a $170.0 thousand Note of the 2008 Notes. On November 24, 2009 Ms. Enisman purchased an additional $40.0 thousand Note and Michael Ryan, President and Chief Executive Officer purchased a $38.0 thousand Note of the 2008 Notes. The Notes with Ms. Enisman were amended on March 2, 2010 and May 31, 2011 and were again amended on May 31, 2012 extending the due date to July 1, 2013. The Note with Mr. Ryan was amended on April 19, 2010 and May 31, 2011 and was also amended on May 31, 2012 extending the due date to July 1, 2013. On December 3, 2008 and August 19, 2009, three trusts, of which James Ciocia, Chairman of the Board is a trustee, purchased an aggregate of $0.6 million of Notes of the 2008 Notes. The Notes with the three trusts were amended on April 19, 2010 and May 31, 2011 and was also amended on May 31, 2012 extending the due date to July 1, 2013. The Carole Enisman, Michael Ryan and James Ciocia as trustee purchases, which amount to $848.0 thousand, are included in related party debt.

(b) On May 2, 2012, we commenced the Gilman Ciocia $1.8 million Promissory Note Offering, a private offering of our debt securities pursuant to SEC Regulation D (the “2012 Offering”). The securities offered for sale in the 2012 Offering were $1.8 million of promissory notes with interest payable at 10.0% (the “2012 Notes”). The 2012 Notes are collateralized by a 33.3% security interest in our gross receipts from the preparation of 2013 income tax returns (the “2013 Gross Receipts”). The principal of the 2012 Notes will be paid to the Note holders from the 2013 Gross Receipts on March 31, April 30, May 31, and June 30, 2013, with the balance of principal, if any paid July 1, 2013. On December 31, 2012 the entire $1.8 million 2012 Notes were outstanding secured by a 33.3% interest in the 2013 Gross Receipts.

(c) On July 31, 2012, we commenced the Gilman Ciocia $1.5 million Promissory Note Offering, a private offering of our debt securities pursuant to SEC Regulation D (the “$1.5 Million Note Offering”). The securities offered for sale in the $1.5 Million Note Offering are $1.5 million of notes with interest at 10.0% (the “2013 Notes”). As of February 13, 2013, $1,450,000 were outstanding and due December 31, 2013.

(d) We have historically financed our insurance premiums over a short-term period of time.

(e) We are the lessee of certain equipment and leasehold improvements under capital leases expiring through 2014. The assets and liabilities under capital leases are carried at the lower of the present value of minimum lease payments or the fair market value of the asset. The assets are depreciated over the shorter of their estimated useful lives or their respective lease terms. Depreciation of assets under capital leases is included in depreciation expense.

10. STOCK BASED COMPENSATION

We account for stock-based compensation using a modified prospective application. 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. 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, 2012 were as follows:

	Shares		Weighted Average Exercise Price
Outstanding, June 30, 2012		3,247,645	$	0.16
Granted		510,205		0.15
Exercised		-		-
Expired		-		-
Canceled		38,500		0.18
Outstanding, December 31, 2012		3,719,350	$	0.16

Exercisable, December 31, 2012		1,646,527	$	0.16

The range of exercise prices for the outstanding options at December 31, 2012 is between $0.10 and $0.18.

On October 31, 2012, pursuant to the 2007 Plan, we granted to the independent members of our Board of Directors and Jim Ciocia, our Chairman of the Board, in aggregate, $25.0 thousand in common stock options, or 510,205 common stock options each with an exercise price of $0.15 and a ten-year term which vest as to 20.0% of the shares annually commencing one year after the date of grant and which have a Black-Scholes value at the time of grant determined based on the closing price of our common stock on the date of grant. Additionally, on October 31, 2012 we issued in the aggregate to these same board members $25.0 thousand in common stock, or 500,000 shares of Rule 144 restricted common stock.

Table of Contents

GILMAN CIOCIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

11. ACCRUED EXPENSES

Accrued expenses consist of the following:

(in thousands)	December 31,		June 30,
	2012		2012

Accrued compensation	$	252	$	272
Accrued bonus		99		83
Accrued related party compensation and bonus		9		18
Accrued vacation		79		153
Accrued settlement fees		345		490
Accrued audit fees & tax fees		117		176
Accrued interest		112		106
Accrued other		209		380
Accrued acquisitions short term		250		316
Total Accrued Expenses	$	1,472	$	1,994

12. RELATED PARTY TRANSACTIONS

	December 31,			June 30,
(in thousands)	2012			2012

Prime Partners Note (a)	$	184		$	263
Ciocia as Trustee 2008 Notes (b)		600			600
Enisman and Ryan 2008 Notes (c)		338			338
Total		1,122			1,201
Less: Current Portion		(1,107	)		(251	)
Total Long-Term Portion	$	15		$	950

(a) As of September 1, 2008, we entered into a $0.5 million promissory note with Prime Partners (the “Prime Partners Note”). The Prime Partners Note provided for 10% 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 Prime Partners Note was to be paid on or before July 1, 2009. Michael Ryan is a director, an officer and a significant shareholder of Prime Partners. The Prime Partners Note was amended as of June 30, 2009 to extend the due date of principal to July 1, 2010. The Prime Partners Note was again amended as of May 5, 2010 to extend the due date of principal to July 1, 2011. The Prime Partners Note was again amended as of August 1, 2010 to provide for 42 monthly payments of $15.0 thousand comprised of principal and interest at 10% on the 15th day of each month commencing on August 15, 2010 and ending on January 15, 2014. Up to and including June 30, 2011, in the event that we determined that we could not make a payment on the monthly due date, we could defer the payment by sending written notice to Prime Partners. Any payment so deferred, was to be paid by adding each such deferred payment to the 42 month amortization schedule as an increased monthly payment commencing on August 15, 2011. No payments were deferred by us. In the event that we are in default on any of the promissory notes issued in our Regulation D Private Placement, within 30 days from written notice by us, Prime Partners shall repay to us all principal payments requested in the notice. This repayment obligation is secured by Prime Partner’s execution of a collateral assignment of a promissory note owed by Daniel R. Levy to Prime Partners dated January 23, 2004 in the original principal amount of $0.9 million and with a present outstanding principal balance of $0.2 million. There shall be no fees owed by us to Prime Partners for any late payments and no acceleration of the Prime Partners Note as a result of any late payments.

(b) On December 3, 2008, three trusts of which James Ciocia 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. On August 19, 2009, these trusts purchased an additional $0.3 million of the Notes. The Notes with the three trusts were amended on April 19, 2010, May 31, 2011 and was also amended on May 31, 2012 extending the due date to July 1, 2013. See Note 9.

(c) On January 27, 2009, Carole Enisman, Executive Vice President of Operations purchased a $0.2 million Note of the 2008 Notes. On November 24, 2009 Ms. Enisman purchased an additional $40.0 thousand Note and Michael Ryan, President and Chief Executive Officer purchased a $38.0 thousand Note of the 2008 Notes. The Notes with Ms. Enisman were amended on March 2, 2010, May 31, 2011 and were also amended on May 31, 2012 extending the due date to July 1, 2013. The Note with Mr. Ryan was amended on April 19, 2010, May 31, 2011 and was also amended on May 31, 2012 extending the due date to July 1, 2013. See Note 9.

On September 23, 2011 we issued an unsecured promissory note in the amount of $50.0 thousand to Carole Enisman, our Executive Vice President of Operations, payable on demand by Ms. Enisman at an interest rate of 10.0% per annum. On November 3, 2011 we issued an unsecured promissory note in the amount of $40.0 thousand to Michael Ryan, our President and Chief Executive Officer, payable on demand by Mr. Ryan at an interest rate of 10.0% per annum. The unsecured promissory notes with Ms. Enisman and Mr. Ryan are still outstanding as of December 31, 2012.

At December 31, 2012, the aggregate amount we owed to related parties was $1.1 million.

Table of Contents

GILMAN CIOCIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

13. SUBSEQUENT EVENTS

Subsequent to December 31, 2012, we sold an additional $240,000 Note offered for sale in the $1.5 Million Note Offering. As of February 14, 2013, $1,450,000 was outstanding and due December 31, 2013.

Table of Contents

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

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 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, insurances and financing services. Our 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.

The financial planners who provide such services are either employees of the Company or independent contractors, all of whom are registered representatives of Prime Capital Services, Inc. (“PCS”), our wholly owned subsidiary. PCS conducts a securities brokerage business that provides regulatory oversight and products and sales support to its registered representatives, who sell investment products and provide services to their clients. PCS receives a share of commissions earned 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 the Financial Industry Regulatory Authority (“FINRA”). Asset & Financial Planning, Ltd. (“AFP”), a wholly owned subsidiary, 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, is a licensed mortgage broker in the State of Florida. PCS also earns revenues from its strategic marketing relationships with certain product sponsors (“PCS Marketing”) which enables PCS to efficiently utilize its training, marketing and sales support resources.

As of December 31, 2012 we had 26 Company-owned offices operating in the states of New York, New Jersey and Florida. We also provide financial planning services through approximately 30 independently owned and operated offices in 8 states. We believe that we benefit from economies of scale associated with the aggregate production of both Company offices and independently owned offices.

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.

We continue to control our overall operating expenses, and we remain committed to investing in the continuing development of our network of financial representatives and to acquiring additional tax preparation and accounting firms to increase our client base and accounting business as part of our long-term strategy for growing revenues and earnings. In an effort to facilitate identifying potential acquisitions, we are engaged in an advertising campaign involving targeted direct mail, a customized website and inbound and outbound telemarketing to prospect for leads. We cannot predict whether our advertising campaign will have the desired effects, and 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. We are 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 these strategies are 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.

Table of Contents

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

Managed Assets

As indicated in the following table, as of December 31, 2012, assets under AFP management decreased 0.5%, or $2.4 million, to $445.8 million, from $448.3 million as of September 30, 2012. This decrease is mostly attributable to a net removal of $32.2 million of money under management due attrition amongst our independent financial planners, offset by improved market conditions. As of December 31, 2012, total Company securities under custody were $3.1 billion, down 2.8%, or $90.5 million from September 30, 2012.

The following table presents the market values of assets under AFP management:

(in thousands) Market Value as of	Annuities		Brokerage		Third Party		Total Assets Under Management

12/31/2012	$	122,139	$	242,644	$	81,040	$	445,823
9/30/2012	$	96,384	$	271,841	$	80,026	$	448,251
6/30/2012	$	162,912	$	293,106	$	44,716	$	500,734
3/31/2012	$	165,216	$	333,583	$	45,762	$	544,561

The following table presents the market values of total Company securities under custody. The numbers do not include fixed annuities.

(in thousands) Market Value as of	Total Company Securities Under Custody

12/31/2012	$	3,128,419
9/30/2012	$	3,218,939
6/30/2012	$	3,146,798
3/31/2012	$	3,273,957

RESULTS OF OPERATIONS – THREE MONTHS ENDED DECEMBER 31, 2012 COMPARED TO THREE MONTHS ENDED DECEMBER 31, 2011

Revenue

The following table presents revenue by product line and brokerage revenue by product type:

	For the Three Months Ended December 31,
(in thousands)					% Change			% of Total Revenue			% of Total Revenue
Consolidated Revenue Detail	2012		2011			2012-2011			2012			2011

Revenue by Product Line
Brokerage Commissions Revenue	$	5,466	$	4,755		15.0	%		67.0	%		60.1	%
Insurance Commissions		199		233		-14.6	%		2.5	%		3.0	%
Fixed Annuities		223		306		-27.1	%		2.7	%		3.9	%
Advisory Fees (1)		1,355		1,770		-23.4	%		16.7	%		22.4	%
Tax Preparation and Accounting Fees		680		697		-2.4	%		8.3	%		8.8	%
Lending Services		125		66		89.3	%		1.5	%		0.8	%
Marketing Revenue		107		82		30.5	%		1.3	%		1.0	%
Total Revenue	$	8,155	$	7,909		3.1	%		100.0	%		100.0	%

Brokerage Commissions Revenue by Product Type
Mutual Funds and Unit Investment Trusts	$	1,059	$	851	24.4	%	13.0	%	10.7	%
Equities, Bonds & Other Securities		557		374	48.9	%	6.8	%	4.7	%
Variable Annuities		1,125		1,366	-17.6	%	13.8	%	17.3	%
Trails (1)		2,459		1,864	31.9	%	30.1	%	23.6	%
All Other Products		266		300	-11.3	%	3.3	%	3.8	%
Brokerage Commissions Revenue	$	5,466	$	4,755	15.0	%	67.0	%	60.1	%

Table of Contents

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

(1) Advisory fees represent the fees charged by the Company’s investment advisors on client’s assets under management and is calculated as a percentage of the assets under management, on an annual basis. Trails are commissions earned by 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. Advisory fees and trails represent recurring revenue. While these fees generate substantially lower first year revenue than most commission products and are more susceptible to fluctuations in the financial markets, the recurring nature of these fees provides a platform for accelerating future revenue growth.

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, 2012 and 2011:

	For Three Months Ended December 31,
(in thousands)	2012		% of Total			2011		% of Total
Company-Owned Offices	$	4,216		56.4	%	$	3,932		54.5	%
Independent Offices		3,259		43.6	%		3,280		45.5	%
Total	$	7,475				$	7,212

Our total revenues for the three months ended December 31, 2012 were $8.2 million consisting of $7.5 million for financial planning services and $0.7 million for tax preparation and accounting services, compared to $7.9 million for the three months ended December 31, 2011 consisting of $7.2 million for financial planning services and $0.7 million for tax preparation and accounting services, an increase in total of $0.2 million or 3.1%. Financial planning services represented approximately 92.0% and tax preparation fees and accounting services represented approximately 8.0% of our total revenues during the three months ended December 31, 2012. Financial planning services represented approximately 91.0% and tax preparation fees and accounting services represented approximately 9.0% of our total revenues during the three months ended December 31, 2011. Revenue from financial planning services consisted of approximately 73.0% earned from brokerage commissions, 18.0% from asset management, 6.0% from insurance and fixed annuities, 1.0% from PCS marketing, and 2.0% from lending services.

Financial planning revenue for the three months ended December 31, 2012 was $7.5 million, an increase of $0.3 million or 3.7%, compared to $7.2 million for the three months ended December 31, 2011 mainly attributed to improved market conditions, offset by a decrease in Advisory Fees. Advisory Fees decreased $0.4 million as a result of a net removal of money under management of $21.1 million due to attrition amongst our independent financial planners.

Tax preparation and accounting services revenue was $0.7 million for the three months ended December 31, 2012, and for the three months ended December 31, 2011 as the sale of one office was offset by an increase in tax preparation and accounting services revenue attributable to an acquisition made in fiscal year 2011 now in its second year of operations as well as price increases for tax preparation services.

Expenses

Our total operating expenses for the three months ended December 31, 2012 were $8.9 million, an increase of $0.1 million or 1.7%, compared to the three months ended December 31, 2011. This increase is mostly due to an increase in commission expenses of $0.1 million and salaries of $0.2 million, offset in part by a decrease in rent expenses of $0.1 million.

Commission expense for the three months ended December 31, 2012 was $4.4 million, an increase of $0.1 million, or 1.3%, compared to the three months ended December 31, 2011. The increase in commission expense is attributable to increases in revenue, offset in part by the fact that commission expense as a percentage of revenue decreased to 54.0% for the three months ended December 31, 2012 compared with 55.0% for the same period last year. This decrease in commission expense as a percentage of revenue is the result of higher financial planning revenues amongst our employee channel where a lower commission percentage is paid compared to the independent channel and due to a greater percentage of tax revenues generated by employees that are on a salary versus a commission payout basis.

Salaries, which consist primarily of compensation, related payroll taxes and employee benefit costs, increased $0.2 million in the three months ended December 31, 2012 compared to the three months ended December 31, 2011. This increase is mainly attributable to lower wages during the three months ended December 31, 2011 as a result of open positions that were filled during the past twelve months in the compliance department, the staffing of our insurance department, senior management bonus accrual, and increased payroll taxes resulting from these same increased wages and higher commissions paid to Company financial planners. These increases were offset in part by savings in benefits as we entered into service agreements with Abel Southeast, Inc. and Abel HRO Services, Inc (“Abel”) for Abel to provide professional employment organization services to us.

Table of Contents

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

General and administrative expenses remained relatively unchanged in the three months ended December 31, 2012 compared to the three months ended December 31, 2011. A decrease in client settlements was offset in part by increased travel expenses associated with compliance related branch visits and general office expenses in payroll services as we entered into service agreements with Abel to provide professional employment organization services to us (resulting in cost savings in other areas such as employee benefits and human resources).

Advertising expense decreased $23.0 thousand or 13.9% in the three months ended December 31, 2012 compared to the three months ended December 31, 2011. We continue to control these costs while maintaining our marketing strategy.

Brokerage fees and licenses decreased $17.0 thousand or 6.6% in the three months ended December 31, 2012 compared to the three months ended December 31, 2011. Although financial planning revenues increased the three months ended December 31, 2012 over the same period last year, brokerage fees and licenses decreased mostly due to the types of products sold during the three months ended December 31, 2012 compared to the same period last year.

Rent expense decreased by $46.0 thousand or 7.2% in the three months ended December 31, 2012 compared to the three months ended December 31, 2011. This decrease is attributable to downsizing our corporate office and the disposition of one office.

Depreciation and amortization expense remains relatively unchanged for the three months ended December 31, 2012 compared to the three months ended December 31, 2011.

Our loss from operations before other income and expense decreased to $0.7 million for the three months ended December 31, 2012 compared to $0.8 million for the three months ended December 31, 2011. Our net loss for the three months ended December 31, 2012 and December 31, 2011 was $0.9 million, or $0.01 per basic and diluted share. The decrease in loss from operations was primarily attributable to higher financial planning revenues offset in part by an increase in salaries.

Total other income/(expense) was a net expense of $165.0 thousand for the three months ended December 31, 2012, an increase of $32.0 thousand compared with a net expense of $133.0 thousand for the same period last year.

As a result of those factors described above, our net loss for the three months ended December 31, 2012 decreased 7.0% compared to the three months ended December 31, 2011.

Reconciliation of Non-GAAP Financial Measures

From time to time we may publicly disclose certain “non-GAAP” financial measures in the course of our investor presentations or other venues. A non-GAAP financial measure is a numerical measure of historical or future performance, financial position or cash flow that excludes amounts, or is subject to adjustments that effectively exclude amounts, included in the most directly comparable measure calculated and presented in accordance with GAAP in our financial statements, and vice versa for measures that include amounts, or are subject to adjustments that effectively include amounts, that are excluded from the most directly comparable measure as calculated and presented. GAAP refers to generally accepted accounting principles in the United States.

Non-GAAP financial measures are provided as additional information to investors in order to provide them with an alternative method for assessing our financial condition and operating results. These measures are not meant to be a substitute for GAAP, and may be different from or otherwise inconsistent with non-GAAP financial measures used by other companies.

The tables below reconcile the most directly comparable GAAP financial measures to EBITDA and Adjusted EBITDA.

Reconciliation of Net income / (loss) to EBITDA and Adjusted EBITDA

EBITDA – Earnings before Interest, Income Taxes, Depreciation and Amortization (“EBITDA”) is calculated as net income / (loss) before interest expense, income tax expense (benefit), depreciation expense and amortization expense. Amortization expenses consist of amortization of intangibles and debt charges, including debt issuance costs, discounts, etc.

Table of Contents

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

Adjusted EBITDA – Is calculated utilizing the same calculation as described above in arriving at EBITDA further adjusted by one-time income or expenses such as the sale of an office and the business development credit. We believe that EBITDA and Adjusted EBITDA provide useful information to investors and reflect important financial measures as they exclude the effects of items which reflect the impact of long-term investment decisions, rather than the performance of near term operations. When compared to net income / (loss) these financial measures are limited in that they do not reflect the periodic costs of certain capital assets used in generating revenues of our businesses or the non-cash charges associated with impairments. This presentation also allows investors to view the performance of our businesses in a manner similar to the methods used by us, provides additional insight into our operating results and provides a measure for evaluating targeted businesses for acquisition.

We believe these measurements are also useful in measuring our ability to service debt and other payment obligations. EBITDA and Adjusted EBITDA are not meant to be a substitute for GAAP, and may be different from or otherwise inconsistent with non-GAAP financial measures used by other companies.

The following table reconciles EBITDA and Adjusted EBITDA to net income / (loss), which we consider to be the most comparable GAAP financial measure:

(in thousands)	For the Three Months Ended December 31,
	2012			2011
Net loss	$	(870	)	$	(935	)
Plus:
Interest income		(3	)		(3	)
Interest expense		150			136
Amortization and Depreciation		276			273
EBITDA		(447	)		(529	)
Add / (subtract):
Other (income) / expense, net		18			-
Adjusted EBITDA	$	(429	)	$	(529	)

For the three months ended December 31, 2012, EBITDA increased by $0.1 million primarily attributable to a reduction in our net loss. The decrease in net loss was primarily attributable to an increase in financial planning revenues offset in part by an increase in salaries.

Adjusted EBITDA decreased from EBITDA remained relatively unchanged.

EBITDA and Adjusted EBITDA should not be considered as an alternative to net income (as an indicator of operating performance) or as an alternative to cash flow (as a measure of liquidity or ability to service debt obligations), but provides additional information for evaluating our operating results and our ability to meet our debt obligations.

Table of Contents

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

RESULTS OF OPERATIONS – SIX MONTHS ENDED DECEMBER 31, 2012 COMPARED TO SIX MONTHS ENDED DECEMBER 31, 2011

Revenue

The following table presents revenue by product line and brokerage revenue by product type:

	For the Six Months Ended December 31,
(in thousands)					% Change			% of Total Revenue			% of Total Revenue
Consolidated Revenue Detail	2012		2011			2012-2011			2012			2011

Revenue by Product Line
Brokerage Commissions Revenue	$	10,784	$	10,685		0.9	%		65.8	%		61.2	%
Insurance Commissions		495		578		-14.4	%		3.0	%		3.3	%
Fixed Annuities		393		683		-42.5	%		2.4	%		3.9	%
Advisory Fees (1)		2,730		3,865		-29.4	%		16.7	%		22.1	%
Tax Preparation and Accounting Fees		1,571		1,402		12.1	%		9.6	%		8.0	%
Lending Services		225		110		104.5	%		1.4	%		0.6	%
Marketing Revenue		184		154		19.5	%		1.1	%		0.9	%
Total Revenue	$	16,382	$	17,477		-6.3	%		100.0	%		100.0	%

Brokerage Commissions Revenue by Product Type
Mutual Funds and Unit Investment Trusts	$	2,257	$	1,643	37.4	%	13.7	%	9.4	%
Equities, Bonds & Other Securities		900		898	0.2	%	5.5	%	5.2	%
Variable Annuities		2,393		3,198	-25.2	%	14.6	%	18.3	%
Trails (1)		4,776		4,285	11.5	%	29.2	%	24.5	%
All Other Products		458		661	-30.7	%	2.8	%	3.8	%
Brokerage Commissions Revenue	$	10,784	$	10,685	0.9	%	65.8	%	61.2	%

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, 2012 and 2011:

	For Six Months Ended December 31,
(in thousands)	2012		% of Total			2011		% of Total
Company-Owned Offices	$	8,615		58.2	%	$	8,833		54.9	%
Independent Offices		6,196		41.8	%		7,242		45.1	%
Total	$	14,811				$	16,075

Our total revenues for the six months ended December 31, 2012 were $16.4 million consisting of $14.8 million for financial planning services and $1.6 million for tax preparation and accounting services, compared to $17.5 million for the six months ended December 31, 2011 consisting of $16.1 million for financial planning services and $1.4 million for tax preparation and accounting services, a decrease in total of $1.1 million or 6.3%. Financial planning services represented approximately 90.0% and tax preparation fees and accounting services represented approximately 10.0% of our total revenues during the six months ended December 31, 2012. Financial planning services represented approximately 92.0% and tax preparation fees and accounting services represented approximately 8.0% of our total revenues during the six months ended December 31, 2011. Revenue from financial planning services consisted of approximately 73.0% earned from brokerage commissions, 18.0% from asset management, 6.0% from insurance and fixed annuities, 1.0% from PCS marketing, and 2.0% from lending services.

Table of Contents

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

Financial planning revenue for the six months ended December 31, 2012 was $14.8 million, a decrease of $1.3 million or 7.9%, compared to $16.1 million for the six months ended December 31, 2011. The product mix during the six months ended December 31, 2012 is not indicative of the year and possibly future earnings. Advisory fees are down $1.1 million as a result of a net removal of $32.2 million of our money under management due to attrition amongst our independent financial planners. Other financial planning revenues are down as a result of attrition amongst our independent financial planners and the sale of one office, offset in part by revenues in lending services and PCS marketing.

Tax preparation and accounting services revenue was $1.6 million for the six months ended December 31, 2012, an increase of $0.2 million from the same period during the previous fiscal year. The majority of this increase in tax preparation and accounting services revenue is attributable to our acquisition made in fiscal 2011 now in its second year of operations and to a lesser extent increases in prices, offset in part by the sale of one of our offices.

Expenses

Our total operating expenses for the six months ended December 31, 2012 were $17.8 million, a decrease of $0.8 million or 4.4%, compared to $18.6 million for the six months ended December 31, 2011. This decrease is mostly due to a decrease in commission expenses of $0.9 million, brokerage fees and licenses of $0.1 million, and rent of $0.1 million, offset in part by an increase in salaries of $0.1 million and general and administrative expenses of $0.2 million.

Commission expense for the six months ended December 31, 2012 was $8.8 million, a decrease of $0.9 million, or 8.9%, from $9.7 million for the six months ended December 31, 2011. The decrease in commission expense is attributable to decreases in revenue and the fact that commission expense as a percentage of revenue decreased to 54.0% for the six months ended December 31, 2012 compared with 56.0% for the same period last year. This decrease in commission expense as a percentage of revenue is the result of higher financial planning revenues amongst our employee channel where a lower commission percentage is paid compared to the independent channel and due to a greater percentage of tax revenues generated by employees that are on a salary versus a commission payout basis.

Salaries, which consist primarily of compensation, related payroll taxes and employee benefit costs, increased $0.1 million in the six months ended December 31, 2012 compared to the six months ended December 31, 2011. This increase is mainly attributable to lower wages during the three months ended December 31, 2011 as a result of open positions that have been filled during the past twelve months in the compliance department, the staffing of our insurance department, senior management bonus accrual, and increased payroll taxes resulting from these same increased wages and higher commissions paid to company financial planners. These increases were offset in part by savings in benefits as we entered into service agreements with Abel Southeast, Inc. and Abel HRO Services, Inc (“Abel”) for Abel to provide professional employment organization services to us.

General and administrative expenses increased by $0.2 million or 8.3% in the six months ended December 31, 2012 compared to the six months ended December 31, 2011. This increase is primarily attributable to an increase in professional fees paid to consultants, increases in professional development costs, as we continue to invest in our financial planners, and increases in payroll services as we entered into service agreements with Abel to provide professional employment organization services to us (resulting in cost savings in other areas such as employee benefits and human resources).

Advertising expense decreased $51.3 thousand or 14.5% in the six months ended December 31, 2012 compared to the six months ended December 31, 2011. We continue to control these costs while maintaining our marketing strategy.

Brokerage fees and licenses decreased $0.1 million for the six months ended December 31, 2012 compared to the six months ended December 31, 2011. The decrease is mostly due to the decrease in financial planning revenue.

Rent expense decreased by $0.1 million or 6.5% in the six months ended December 31, 2012 compared to the six months ended December 31, 2011. This decrease is attributable to downsizing our corporate office and the disposition of one office.

Depreciation and amortization expense remains relatively unchanged for the six months ended December 31, 2012 compared to the six months ended December 31, 2011.

Our loss from operations before other income and expense increased to $1.4 million for the six months ended December 31, 2012 compared to $1.1 million for the six months ended December 31, 2011. Our net loss for the six months ended December 31, 2012 was $0.9 million, or $0.01 per basic and diluted share, compared with $1.4 million, or $0.01 per basic and diluted share for the six months ended December 31, 2011. The increase in loss from operations was primarily attributable to lower financial planning revenues offset in part by a reduction in all other operating expenses with the exception of general and administrative expenses and salaries.

Table of Contents

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

Total other income/(expense) was a net income of $0.5 million for the six months ended December 31, 2012, an increase of $0.8 million compared with a net expense of $0.3 million for the same period last year. This increase in income is mostly the result of renewing our clearing agreement and receiving a business development credit of $0.5 million and a $0.3 million gain on the sale of an office.

As a result of those factors described above, our net loss for the six months ended December 31, 2012 decreased 35.2% compared to the six months ended December 31, 2011.

Reconciliation of Non-GAAP Financial Measures

The tables below reconcile the most directly comparable GAAP financial measures to EBITDA and Adjusted EBITDA.

Reconciliation of Net income / (loss) to EBITDA and Adjusted EBITDA

Table of Contents

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

The following table reconciles EBITDA and Adjusted EBITDA to net income / (loss), which we consider to be the most comparable GAAP financial measure:

(in thousands)	For the Six Months Ended December 31,
	2012			2011
Net loss	$	(903	)	$	(1,394	)
Plus:
Interest income		(10	)		(5	)
Interest expense		284			264
Amortization and Depreciation		553			545
EBITDA		(76	)		(590	)
Add / (subtract):
Other (income) / expense, net		37			2
Business development credit		(500	)		-
Gain on sale of office		(323	)		-
Adjusted EBITDA	$	(862	)	$	(592	)

For the six months ended December 31, 2012, EBITDA increased by $0.5 million primarily attributable to a reduction in our net loss. The decrease in net loss was primarily attributable to the business development credit and gain on sale of an office, offset in part by an increase in operating loss.

Adjusted EBITDA decreased from EBITDA by $0.8 million, to ($0.9) million. The additional decrease in Adjusted EBITDA is primarily attributable to deducting the business development credit and gain on sale of an office as non recurring events.

LIQUIDITY AND CAPITAL RESOURCES

During the six months ended December 31, 2012, we realized a net loss of $0.9 million and at December 31, 2012 we had a working capital deficit of $7.3 million. At December 31, 2012 we had $0.6 million of cash and cash equivalents and $2.6 million of trade accounts receivable, 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 fifteen to one. At December 31, 2012 we were in compliance with this regulation.

On July 31, 2012, we commenced the Gilman Ciocia $1.5 million Promissory Note Offering, a private offering of our debt securities pursuant to SEC Regulation D (the “$1.5 Million Offering”). The securities offered for sale in the $1.5 Million Offering are $1.5 million of notes with interest at 10.0% (the “2013 Notes”). As of February 14, 2013, $1,450,000 were outstanding and due December 31, 2013.

On May 2, 2012, we commenced the Gilman Ciocia $1.8 million Promissory Note Offering, a private offering of our debt securities pursuant to SEC Regulation D (the “2012 Offering”). The securities offered for sale in the 2012 Offering were $1.8 million of promissory notes with interest payable at 10.0% (the “2012 Notes”). The 2012 Notes are collateralized by a 33.33% security interest in our gross receipts from the preparation of 2013 income tax returns (the “2013 Gross Receipts”). The principal of the 2012 Notes will be paid to the Note holders from the 2013 Gross Receipts on March 31, April 30, May 31, and June 30, 2013, with the balance of principal, if any, paid July 1, 2013. On February 14, 2013, the entire $1.8 million 2012 Notes were outstanding secured by 33.3% interest in the 2013 Gross Receipts.

On October 31, 2008, we commenced the Gilman Ciocia Common Stock and Promissory Note Offering, a private offering of our securities pursuant to SEC Regulation D (the “2008 Offering”). The 2008 Offering was amended on December 8, 2008, September 3, 2009, December 16, 2009, February 11, 2010, March 29, 2010, May 31, 2011 and May 31, 2012. The securities offered for sale in the 2008 Offering, as amended were: $3.8 million of notes with interest at 10.0% (the “2008 Notes”) and $0.4 million, or 3.5 million shares of our $0.01 par value common stock with a price of $0.10 per share (the “Shares”). As of February 14, 2013, $2.8 million of the 2008 Notes were outstanding and due July 1, 2013, and $0.1 million, or 1.0 million shares, of our common stock were issued pursuant to the 2008 Offering.

Table of Contents

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

On August 3, 2012, we sold the assets of an office located in Toms River, New Jersey, including client lists and goodwill, for a purchase price of $0.4 million ($0.3 million in cash and $0.1 million in Gilman Ciocia stock – 1.5 million shares). The sale resulted in a gain on sale of assets of approximately $0.3 million.

On July 31, 2012 PCS renewed its clearing agreement for a five-year term ending August 1, 2017 and received a $0.5 million business development credit.

Our ability to satisfy our obligations depends on our future financial performance, which will be subject to prevailing economic, financial and business conditions. Our capital requirements, at least in the near term, are expected to be provided by cash flows from operating activities, cash on hand at December 31, 2012, possible extensions of due dates on existing notes 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 further sales of our securities through private offerings. We are also continuing to control operating expenses and are implementing our acquisition strategy to increase earnings and cash flow. While management believes that capital may be available, there is no assurance that such capital can be secured. Additionally, there can be no assurance that our cost control measures will provide the capital needed which could adversely impact our business, nor can we assure the extensions of due dates on existing notes.

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 proceed with such intended acquisitions, which could result in our not fully realizing all of the revenue which might otherwise be available to us.

Our insurance carrier interrelated all claims involving the variable annuity sales practices of certain registered representatives of PCS that involved an SEC Order Instituting Administrative and Cease-And-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933, Sections 15(b) and 21(c) of the Exchange Act, and Section 203(f) of the Investment Advisors Act of 1940 (the “Interrelated Claims”). The total remaining insurance coverage for the Interrelated Claims was reduced from $1.0 million to $0.3 million after settling arbitrations commenced by customers. On February 1, 2012, we settled the last pending Interrelated Claim customer arbitration for $0.4 million which was paid $0.3 million from insurance coverage and $0.1 million from us. As a result of this settlement, there is no remaining insurance coverage for arbitrations for Interrelated Claims which may be commenced by customers and we could be required to pay significant additional costs out of pocket, which would reduce our working capital and have a material adverse effect on our results of operations. We continue to have insurance coverage for any claims that are not Interrelated Claims.

Our net cash used in operating activities was $0.8 million for the six months ended December 31, 2012, compared with net cash used in operating activities of $0.9 million for the six months ended December 31, 2011. This improvement is mostly due to the decreased net loss offset in part by the gain on sale of an office.

Net cash provided by investing activities was $0.1 million for the six months ended December 31, 2012 compared with net cash used in investing activities of $36.0 thousand for the six months ended December 31, 2011. Most of this increase in cash provided by investing activities is related to our sale of an office made in the six months ended December 31, 2012.

Net cash provided by financing activities was $0.6 million for the six months ended December 31, 2012 compared with net cash provided by financing activities of $0.9 million for the six months ended December 31, 2011. The decrease in net cash provided by financing activities can be mostly attributed to the increased pay down of the 2008 Notes over the prior year ($0.4 million), offset by the increased sale of 2013 Notes made during the six months ended December 31, 2012, over the prior year ($0.1 million)

OFF-BALANCE SHEET ARRANGEMENTS

None.

CRITICAL ACCOUNTING POLICIES

Use of Estimates

The preparation of our financial statements in conformity with 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.

Table of Contents

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

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, 2012 as filed with the SEC.

Recent Accounting Pronouncements

In September 2011, the FASB issued new guidance on testing goodwill for impairment. Pursuant to the new guidance an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. However, if an entity concludes otherwise, then it is required to perform the first step of the two-step impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying amount of the reporting unit. If the carrying amount of a reporting unit exceeds its fair value, then the entity is required to perform the second step of the goodwill impairment test to measure the amount of the impairment loss. Under the new guidance, an entity has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the two-step goodwill impairment test. An entity may resume performing the qualitative assessment in any subsequent period. The new guidance does not change the current guidance for testing other indefinite lived intangible assets for impairment. The new guidance was effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The requirements of the amended accounting guidance were effective for us September 30, 2012 and early adoption was permitted. The requirements of the amended accounting guidance were effective for us September 30, 2012 and early adoption was permitted. The adoption of the amended guidance did not have a significant impact on the 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable

ITEM 4. 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 it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its 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 Principal Executive Officer and Principal Financial and Chief Accounting Officer, of our disclosure controls and procedures. In designing and evaluating our 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, 2012, our Principal Executive Officer and Principal Financial and Chief Accounting Officer concluded that our disclosure controls and procedures are effective.

Changes in Internal Controls

During the three months ended December 31, 2012, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We and our wholly owned subsidiary Prime Capital Services, Inc. (“PCS”) have been named as a respondent in customer arbitrations and as a defendant in customer lawsuits (“Customer Claims”). These Customer Claims result from the actions of brokers affiliated with PCS. Under the PCS registered representatives contract, each registered representative has indemnified us for these claims. Most of these Customer Claims are covered by our errors and omissions insurance policy. As of December 31, 2012, there was one pending Customer Claim against PCS and no Customer Claims pending against the Company. We establish liabilities for potential losses from Customer Claims. In establishing these liabilities, management uses its judgment to determine the probability that losses have been incurred and a reasonable estimate of the amount of losses. While we will vigorously defend ourselves in these matters, and we 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.

On April 6, 2012, the State of Florida Office of Financial Regulation (the “OFR”) commenced an Administrative Proceeding (the “OFR Administrative Proceeding”) against PCS, Asset & Financial Planning, Ltd. (“AFP”), a wholly owned subsidiary and a registered investment advisor, and three registered representatives of PCS (the “Registered Representatives”). The OFR Administrative Proceeding sought the imposition of administrative fines from PCS, AFP and the Registered Representatives. The allegations in the OFR Administrative Proceeding concerned the impact of management fees on the bonus provisions of a rider on 53 customer variable annuities between 2007 and 2010. On July 10, 2012, the OFR commenced a lawsuit in Florida state court (the “OFR Court Case”) PCS, AFP and the Registered Representatives. The OFR Court Case sought an injunction against PCS, AFP and the Registered Representatives from violating the Florida Securities and Investor Protection Act and an award of damages to the owners of the 53 customer variable annuities (the “Customers”). AFP has since instituted procedures to insure that no other variable annuities under management are similarly impacted. PCS, AFP and the Registered Representatives believed that these transactions were an administrative error and that the Customers did not suffer any economic harm or damage. PCS, AFP and the Registered Representatives did not believe that the imposition of administrative fines was appropriate and they vigorously defended against the OFR Administrative Proceeding and against the OFR Court Case.

ITEM 1A. RISK FACTORS

Our risk factors have not changed materially from those disclosed in Part I, Item 1A of our 2012 Annual Report on Form 10-K as filed with the SEC on September 28, 2012.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

Table of Contents

ITEM 6. EXHIBITS

3.1	Registrant’s Certificate of Amendment of Certificate of Incorporation, incorporated by reference to the exhibit in theRegistrant’s Quarterly Report on Form 10-Q dated March 31, 2008, incorporated by reference herein.

3.2	Registrant’s Certificate of Incorporation, as amended, incorporated by reference to the like numbered exhibit in the Registrant’s Registration Statement on Form SB-2 under the Securities Act of 1933, as amended, File No. 33-70640-NY.

3.3	Registrant’s Certificate of Amendment of Certificate of Incorporation, incorporated by reference to the exhibit in the Registrant’s Proxy Statement on Form 14-A under the Securities Exchange Act of 1934, as amended, filed on June 22, 1999.

3.4	Registrant’s By-Laws, incorporated by reference to the like numbered exhibit in the Registrant’s Registration Statement on Form SB-2 under the Securities Act of 1933, as amended, File No. 33-70640-NY.

31.1	Rule 13a-14(a) Certification of Chief Executive Officer. (Filed herewith).

31.2	Rule 13a-14(a) Certification of Principal Financial and Chief Accounting Officer. (Filed herewith).

32.1	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith).

32.2	Certification of Principal Financial and Chief Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith).

101

The financial information from the Corporation’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2012 furnished electronically herewith, and formatted in XBRL (Extensible Business Reporting Language): Consolidated Balance Sheets; Consolidated Statements of Operations; Consolidated Statement of Cash Flows; and Notes to Consolidated Financial Statements, tagged as blocks of text. (Filed herewith).

Table of Contents

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 14, 2013	By:	/s/ Michael Ryan
	Michael Ryan
	Chief Executive Officer (Principal Executive Officer)


Dated: February 14, 2013	By:	/s/ Jay Palma
	Jay Palma
	Principal Financial and Chief Accounting Officer

Attached files

Stock widget

Investing forum

GILMAN CIOCIA, INC. Reports

Also read