UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K/A

|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 2005

|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO _________

Commission File Number 000-22996

                              GILMAN + CIOCIA, INC.
             (Exact name of registrant as specified in its charter)

            DELAWARE                                     11-2587324
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)

                                11 RAYMOND AVENUE
                          POUGHKEEPSIE, NEW YORK 12603
                    (Address of principal executive offices)

                                 (845) 486-0900
              (Registrant's telephone number, including area code)

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

                                      NONE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                     Common Stock, par value $.01 per share
                                (Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|

Indicate by checkmark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Act) Yes |_| No |X|

Indicate by checkmark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act) Yes |_| No |X|

The aggregate market value of the registrant's voting and non-voting common
equity held by non-affiliates as of June 30, 2005 was $2,673,082 based on a sale
price of $0.43.

As of September 25, 2005, 9,128,038 shares of the registrant's common stock,
$0.01 par value, were outstanding.


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                              GILMAN + CIOCIA, INC.

                              REPORT ON FORM 10-K/A

                     FOR THE FISCAL YEAR ENDED JUNE 30, 2005

                                TABLE OF CONTENTS

PART I

Item 1.  Description of Business............................................   3
Item 2.  Properties.........................................................  16
Item 3.  Legal Proceedings..................................................  16
Item 4.  Submission of Matters to a Vote of Security Holders................  18

PART II

Item 5.  Market for Registrant's Common Equity, Related Stockholder Matters
         and Issuer Purchases of Equity Securities..........................  18
Item 6.  Selected Financial Data............................................  19
Item 7.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations..............................................  21
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.........  32
Item 8.  Financial Statements and Supplementary Data........................  32
Item 9.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure...............................................  59
Item 9A. Controls and Procedures ...........................................  59
Item 9B. Other Information..................................................  61

PART III

Item 10. Directors and Executive Officers of the Registrant.................  61
Item 11. Executive Compensation.............................................  62
Item 12. Security Ownership of Certain Beneficial Owners and Management
         and Related Stockholder Matters ...................................  64
Item 13. Certain Relationships and Related Transactions.....................  67
Item 14. Principal Accounting Fees and Services ............................  67

PART IV

Item 15. Exhibits, Financial Statement Schedules............................  67

SIGNATURES..................................................................  69


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Explanatory Note

This Form 10-K/A is being filed to include an updated Report of Independent
Registered Public Accounting Firm with regard to Note 19 of the Notes to
Consolidated Financial Statements and to include the word "restated" in fiscal
years 2005 and 2004 in the Consolidated Statements of Cash Flows.


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PART I

ITEM 1. DESCRIPTION OF BUSINESS

OVERVIEW

Gilman + Ciocia, Inc. (together with its wholly owned subsidiaries, the
"Company") is a corporation that was organized in 1981 under the laws of the
State of New York and reincorporated under the laws of the State of Delaware in
1993. The Company provides federal, state and local tax preparation services to
individuals, predominantly in the middle and upper income tax brackets, and
financial planning services, including securities brokerage, insurance and
mortgage agency services. In Fiscal 2005*, approximately 88.0% of the Company's
revenues were derived from commissions on financial planning services and
approximately 12.0% were derived from fees for tax preparation services. As of
June 30, 2005, the Company had 35 offices operating in five states (New York,
New Jersey, Connecticut, Florida and Colorado). In August 2005 the Company sold
its office in Colorado.

The Company provides financial planning services through both its 35 Company
owned offices and through independently owned and operated financial planning
offices. The Company office financial planning clients generally are introduced
to the Company through the Company's tax return preparation services and
educational workshops. The Company believes that its tax return preparation
business is inextricably intertwined with its financial planning activities in
the Company offices. The independent offices use a variety of marketing tools to
attract new clients. Future profitability will come from the two channels
leveraging off each other, improving client base retention and growth.

All of the Company's financial planners are employees or independent contractors
of the Company and registered representatives of Prime Capital Services, Inc.
("PCS"), a wholly owned subsidiary of the Company. PCS conducts a securities
brokerage business providing regulatory oversight and products and sales support
to its registered representatives, who provide investment products and services
to their clients. PCS earns a share of commissions from the services that the
financial planners provide to their clients in transactions for securities,
insurance and related products. PCS is a registered securities broker-dealer
with the Securities and Exchange Commission ("SEC") and a member of the National
Association of Securities Dealers, Inc. ("NASD"). The Company also has a wholly
owned subsidiary, Asset & Financial Planning, Ltd. ("AFP"), which is registered
with the SEC as an investment advisor. Almost all of the financial planners are
also authorized agents of insurance underwriters. The Company is also a licensed
mortgage broker. As a result, the Company also earns revenues from commissions
for acting as an insurance agent and a mortgage broker. The Company has the
capability of processing insurance business through Prime Financial Services,
Inc. ("PFS"), its wholly owned subsidiary, which is a licensed insurance broker,
as well as through other licensed insurance brokers.

A majority of the financial planners located in Company offices are also tax
preparers. The Company's tax preparation business is conducted predominantly in
February, March and April. During the tax season, the Company significantly
increases the number of employees involved in tax preparation. During the 2005
tax season, the Company prepared approximately 26,000 United States tax returns.

The Company's Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K can be obtained, free of charge, on the Company's
web site at www.gilcio.com.

In Fiscal 2005, the Company had total revenues from continuing operations of
$56.1 million representing a decrease of $3.8 million from total revenues from
continuing operations in Fiscal 2004. For Fiscal 2005, the Company had a net
loss of $1.8 million, and a loss from continuing operations before other income
and expense of $1.2 million. For Fiscal 2004, the Company had net income of $5.1
million and a loss from continuing operations before other income and expense of
$2,685, primarily relating to the gain on disposal of discontinued operations of
$6.2 million. At June 30, 2005, the Company had a working capital deficit of
$13.8 million. See Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Item 8. "Financial Statements and
Supplementary Data".

*     Fiscal years are denominated by the year in which they end. Accordingly,
      Fiscal 2005 refers to the year ended June 30, 2005.


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In January 2004, subsequent to the filing of the 10-K for the year ended June
30, 2003, management discovered and informed the auditors that revenues and
related commission expenses for asset management services, billed and incurred
in the quarter ended September 30, 2003, for services to be rendered in that
quarter, had been recorded as of June 30, 2003. Further, it was ascertained that
this error in revenue and expense recognition had been occurring since the 1999
acquisition of AFP and had gone undetected for four years. The receivables and
commissions originally prematurely recorded at each quarter end were received
and paid by the Company during the subsequent quarter. As the error applied to
both beginning and ending balances of each quarter, the effect on any individual
quarter was immaterial. As a result, the financial statements for the three
years ended June 30, 2003 (including Fiscal 2001) have been restated to correct
the timing error and the related accrual for commission liabilities relating to
asset management services.

During the first quarter of Fiscal 2003, the Company sold to Pinnacle Taxx
Advisors, LLC ("Pinnacle", an entity controlled by former executives of the
Company) 47 offices ("Pinnacle Purchased Offices") and all tangible and
intangible net assets associated with such offices, and Pinnacle assumed certain
liabilities, which were associated with the operations of the Pinnacle Purchased
Offices, together representing approximately $17.7 million, or approximately
18.0% of the Company's annual revenue for Fiscal 2002. See Note 3 to Notes to
Consolidated Financial Statements for a discussion of the Pinnacle transaction,
the settlement of disputes arising in connection therewith and certain
contingent responsibilities of the Company for equipment and real estate leases
(for an aggregate of $1.8 million) assumed by Pinnacle. During Fiscal 2003 and
Fiscal 2004, the Company also sold two subsidiaries and 16 additional offices.
The Company recognized a gain of $6.2 million on the sale of these offices in
Fiscal 2004. The results of operations associated with the sold offices have
been reclassified and are separately presented for all reporting periods as
discontinued operations in the accompanying statements of operations.

REGULATORY AND LEGAL MATTERS

The Company is the subject of a formal investigation by the SEC, which commenced
in March 2003. The investigation concerns, among other things, a restatement of
the Company's financial results for Fiscal 2001, and the fiscal quarters ended
March 31, 2001 and December 31, 2001, the Company's delay in making certain SEC
filings and the Company's past accounting and recordkeeping practices. The
Company does not believe that the investigation will have a material effect on
the Company's Consolidated Financial Statements.

On February 4, 2004, the Company was served with a Summons and a Shareholder's
Class Action and Derivative Complaint with the following caption: "Gary Kosseff,
Plaintiff, against James Ciocia, Thomas Povinelli, Michael Ryan, Kathryn Travis,
Seth A. Akabas, Louis P. Karol, Edward H. Cohen, Steven Gilbert and Doreen
Biebusch, Defendants and Gilman & Ciocia, Inc., Nominal Defendant". While the
Company will vigorously defend itself in this matter, there can be no assurance
that this lawsuit will not have a material adverse impact on its financial
position.

See Item 3. "Legal Proceedings", and Note 11 to Notes to Consolidated Financial
Statements for a discussion of the SEC investigation and litigation pending
against the Company.

Subsequent to an NASD examination of PCS, the NASD on August 12, 2005 accepted a
Letter of Acceptance, Waiver and Consent ("AWC") submitted by PCS, in which PCS
agreed to be censured and fined $200,000, and to recompense certain customers of
PCS who purchased mutual fund "B" shares. Without admitting or denying the
alleged violations, PCS agreed to the findings by the NASD that certain
supervisory deficiencies existed between June 2002 and July 2003. The acceptance
of the AWC concludes the matter.

On September 6, 2005, the Company received an informal inquiry from the SEC
regarding variable annuity sales by the Company's registered representatives
during the period January 1, 2002 through August 1, 2005. The Company will
cooperate fully with the SEC in connection with this informal inquiry.
Management believes that a number of other broker-dealers have received similar
informal inquiries. The Company cannot predict whether the SEC will take any
enforcement action against the Company based on the variable annuity sales
practices of the Company.


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DEBT DEFAULTS

During Fiscal 2005, 2004 and 2003 the Company was in default of certain
covenants under its $7.0 million term loan/revolving letter of credit financing
with Wachovia Bank, National Association ("Wachovia"), of its $5.0 million
distribution financing with Travelers Insurance Company ("Travelers") and of its
$1.0 million loan with Rappaport Gamma Limited Partnership ("Rappaport").

As a result of a number of defaults under its agreements with Wachovia, on
November 27, 2002 the Company entered into a debt forbearance agreement with
Wachovia and subsequently amended the debt forbearance agreement as of June 18,
2003, March 4, 2004 and March 1, 2005. Another of its lenders, Travelers, has
claimed several defaults under its distribution financing agreement, but
acknowledged that it was subject to the terms of a subordination agreement with
Wachovia (the "Subordination Agreement"), which restricts the remedies it can
pursue against the Company. The Company's debt to Rappaport (the "Rappaport
Loan") was due on October 30, 2002. The Rappaport Loan is subordinated to the
Wachovia loan. The Rappaport Loan was sold to a group of Company management and
employees (the "Purchasing Group") on April 29, 2005. The members of the
Purchasing Group include Prime Partners, Inc. ("Prime Partners"), a corporation
controlled by Michael Ryan, the President and Chief Executive Officer and a
director of the Company, James Ciocia, the Chairman of the Company, Christopher
Kelly, the General Counsel of the Company, Kathryn Travis, the Secretary and a
director of the Company, Dennis Conroy, the Chief Accounting Officer of the
Company, Ted Finkelstein, the Assistant General Counsel of the Company, and
certain other Company employees. The Purchasing Group has agreed to reduce the
principal balance of the Rappaport Loan from $1.0 million to $0.8 million and
extend the maturity date to April 29, 2009. Pursuant to the terms of the
Rappaport Loan, the Purchasing Group, as holders of the Rappaport Loan, are
entitled to receive, in the aggregate, as interest, 15,000 shares of the
Company's common stock monthly while the debt remains unpaid. As a result of
these defaults, the Company's debt as to those lenders has been classified as
current liabilities on its financial statements. Upon the purchase of the
Rappaport Loan by the Purchasing Group, however, the Rappaport Loan was
reclassified as a related transaction. See Note 9 to Notes to Consolidated
Financial Statement for a discussion of the Company's debt.

STRATEGY

Over the last three fiscal years the Company has operated under financial
limitations. The Company had a working capital deficit of $13.8 million at June
30, 2005 and recorded a loss from continuing operations for each of such fiscal
years. See Item 6. "Selected Consolidated Financial Data".

The Company has shown losses for a variety of reasons including legacy issues
that include high cost structures for both the home and field offices, the costs
of abandoned leases, significant amounts of legacy litigation and various
accounting issues. The Company has also suffered increased regulatory costs, and
downward pressure on commission levels. The Company has addressed its condition
through among other things, selling assets to raise cash, cutting operating
expenses, retaining existing registered representatives and borrowing from Prime
Partners, an affiliate of Michael Ryan, the President and Chief Executive
Officer and a director of the Company.

However, the Company no longer has significant assets to sell and is unable to
generate further cost savings without adversely impacting revenue and
profitability. There is also no guarantee that Prime Partners will be willing or
able to provide additional loans to the Company for working capital purposes.
Currently, the Company is focusing on building revenues through a recently
initiated registered representative recruiting program, increasing its reserves
and initiating discussions with its lenders to renegotiate its financing
arrangements. The Company has retained a financial advisor to assist the Company
in such discussions. There can be no guarantee, however, that the Company will
be able to successfully implement its strategy, and in particular, there can be
no guarantee that the Company's lenders will agree to terms in the future that
are more favorable to the Company than the current arrangements with the
lenders. See also "Risk Factors" below.

TAX RETURN PREPARATION

The Company prepares federal, state and local income tax returns for
individuals, predominantly in the middle and upper income tax brackets. The
United States Internal Revenue Service (the "IRS") reported that more than 190
million individual 2005 federal income tax returns were filed in the United
States through June 30, 2005. According to the IRS, a paid preparer completes
approximately 50% of the tax returns filed in the United States each year. Among


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paid preparers, H&R Block, Inc. ("H&R Block") dominates the low-cost tax
preparation business with approximately 10,000 offices located throughout the
United States. According to information released by H&R Block, H&R Block
prepared an aggregate of approximately 18 million United States tax returns
during the 2005 tax season. During the 2005 tax season, the Company prepared
approximately 26,000 United States tax returns through 30 of its offices. The
tax preparation industry is highly fragmented and includes regional tax
preparation services, accountants, attorneys, small independently owned
companies, and financial service institutions that prepare tax returns as
ancillary parts of their business. The ability to compete in this market depends
in large part on the location of the tax preparation office, local competition,
local economic conditions, quality of on-site office management and the
Company's ability to file tax returns electronically with the IRS.

The preparation of a tax return by the Company generally begins with a personal
meeting at a Company office between a client and a specially trained employee of
the Company. At the meeting, the Company's employee solicits from the client the
information concerning income, deductions, family status and personal financial
information necessary to prepare the client's tax return. After the meeting, the
employee prepares drafts of the client's tax returns. After review and final
correction by the employee, the returns are delivered to the client for filing.

The Company believes that it offers clients a cost effective tax preparation
service compared to services provided by accountants and tax attorneys and many
independent tax preparers. The Company's volume allows it to provide uniform
service at competitive prices. In addition, as compared to certain of its
competitors that are open only during tax season, all of the Company's offices
are open year round due to the demand for financial planning services. As a
result, the Company has avoided opening offices specifically for the tax season
and closing them after the peak period.

Since 1990, the IRS has made electronic filing available throughout the United
States. The Company has qualified to participate in the electronic filing
program with the IRS and state tax departments and offers clients the option of
filing their federal and state income tax returns electronically. Under this
system, the final federal income tax return is transmitted to the IRS through a
publicly available software package. Electronic filing reduces the amount of
time required for a taxpayer to receive a Federal tax refund and provides
assurance to the client that the return, as filed with the IRS, is
mathematically accurate. If the client desires, he or she may have his or her
refund deposited by the Treasury Department directly into his or her account at
a financial institution designated by the client. As part of its electronic
filing program, Refund Anticipation Loans ("RAL's") are also available to the
clients of the Company through arrangements with approved banking institutions.
Using this service, a client is able to receive a check in the amount of his or
her federal refund (less fees charged by the Company and banking institutions)
drawn on an approved bank, at the office where he or she had his or her return
prepared. RAL's are recourse loans secured by the taxpayer's refund. The Company
acts only as a facilitator between the client and the bank in preparing and
submitting the loan documentation and receives a fee for these services payable
upon consummation of the loan. None of the Company's funds are used to finance
these loans, and the Company has no liability for repayment of these loans.

TAX PREPARERS

The Company's tax preparation business is conducted predominantly in the months
of February, March and April, when most individuals prepare their federal, state
and local income tax returns. During the tax season, the Company typically
increases the number of employees involved in the tax return channel of its
business by over 100 employees. Almost all of the Company's professional tax
preparers have tax preparation experience and the Company has specifically
trained and tested each one to meet the required level of expertise to properly
prepare tax returns. A large percentage of the Company's seasonal employees,
return in the next year. The Company is required to file its own corporate tax
return on a timely basis in order to be able to file returns electronically for
its clients. The Company has obtained an extension of time until March 2006 to
file its return for the year ended June 30, 2005. If it is not filed by March
2006, the Company may be unable to file electronically for its clients, which
would materially adversely affect the Company's tax preparation business.

The Company's tax preparers are generally not certified public accountants.
Therefore, they are limited in the representation that they can provide to
clients of the Company in the event of an audit by the IRS. Only an attorney, a
certified public accountant or a person specifically enrolled to practice before
the IRS can represent a taxpayer in an audit.


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POTENTIAL LIABILITIES

The Company's tax preparation business subjects it to potential civil
liabilities under the Internal Revenue Code for knowingly preparing a false
return or not complying with all applicable laws and regulations relating to
preparing tax returns. Although the Company believes that it complies with all
applicable laws and regulations in all material respects, no assurance can be
given that the Company will not incur any material fines or penalties. In
addition, the Company does not maintain professional liability or malpractice
insurance policies for its tax preparation business. No assurance can be given
that the Company will not be subject to professional liability or malpractice
suits. The Company has never incurred any material fines or penalties from the
IRS and has never been the subject of a malpractice lawsuit.

FINANCIAL PLANNING

The Company provides financial planning services, including securities
brokerage, insurance and annuity brokerage and mortgage agency services, to
individuals, predominantly in the middle and upper income tax brackets. While
preparing tax returns, clients often consider other aspects of their financial
needs, such as insurance, investments, retirement and estate planning. To
capitalize on this situation, the Company offers every client the opportunity to
complete a questionnaire that discloses information on his or her financial
situation. Financial planners subsequently review these questionnaires and
evaluate whether the client may benefit from financial planning services. Upon
request, the client is then introduced to a financial planner. The IRS prohibits
tax preparers from using information on a taxpayer's tax return for certain
purposes involved in the solicitation of other business from such taxpayer
without the consent of such taxpayer. The Company complies with all applicable
IRS regulations. Most middle and upper income individuals require a variety of
financial planning services. If the client seeks insurance or annuity products
in connection with the creation of a financial plan, he or she is referred to a
financial planner employed by the Company who is also an authorized agent of an
insurance underwriter. If the client seeks mutual fund products or other
securities for investment, he or she is referred to a financial planner employed
by the Company who is also a registered representative of PCS.

A majority of the Company's financial planners are also tax preparers.
Approximately 5,200 securities broker-dealers are registered in the United
States, some of which provide financial planning services similar to those
offered by the Company. A large number of these professionals are affiliated
with larger financial industry firms. The remaining portion of the financial
planning industry is highly fragmented with services provided by certified
financial planners, stockbrokers and accountants.

Relationship with Securities Broker-Dealer

All of the Company's financial planners are registered representatives of PCS, a
wholly owned subsidiary of the Company. PCS conducts a securities brokerage
business providing regulatory oversight and products and sales support to its
registered representatives, who provide investment products and services to
their clients. PCS is a registered securities broker-dealer with the SEC and a
member of the NASD.

To become a registered representative, a person must pass one or more of a
series of qualifying exams administered by the NASD that test the person's
knowledge of securities and related regulations. Thereafter, PCS supervises the
registered representatives with regard to all regulatory matters. In addition to
certain mandatory background checks required by the NASD, the Company also
requires that each registered representative respond in writing to a background
questionnaire. PCS has been able to recruit and retain experienced and
productive registered representatives who seek to establish and maintain
personal relationships with their clients. The Company believes that continuing
to add experienced, highly productive registered representatives is an integral
part of its growth strategy. If clients of the Company inquire about the
acquisition or sale of investment securities, they are directed to a registered
representative. The registered representatives are able to effect transactions
in such securities at the request of clients and retain a certain percentage of
the commissions earned on such transactions. All security transactions are
introduced and cleared on a fully disclosed basis through a clearinghouse broker
that is a member of the New York Stock Exchange (the "NYSE"); in the case of
PCS, National Financial Services, LLC, which is a wholly owned subsidiary of
Fidelity Investments. About 90.0% of the securities transactions handled by
registered representatives of PCS involve mutual funds and variable annuities.


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Relationship with Authorized Agents of Insurance Underwriters

Certain of the Company's financial planners are also authorized agents of
insurance underwriters. If clients of the Company inquire about insurance
products, they are directed to one of these authorized agents. These agents are
able, through several insurance underwriters, to sell insurance products to
clients and are paid a certain percentage of the commissions earned on such
sales. The Company's wholly owned subsidiary, PFS, is an authorized insurance
agent in approximately 40 states.

REGULATION (COMPLIANCE AND MONITORING)

PCS and the securities industry in general, are subject to extensive regulation
in the United States at both the federal and state levels, as well as by
self-regulatory organizations ("SRO's") such as the NASD.

The SEC is the federal agency primarily responsible for the regulation of
broker-dealers and investment advisers doing business in the United States. PCS
is registered as a broker-dealer with the SEC. Certain aspects of broker-dealer
regulation have been delegated to securities industry SRO's, principally the
NASD and NYSE. These SRO's adopt rules (subject to SEC approval) that govern the
industry, and, along with the SEC, conduct periodic examinations of the
operations of PCS. PCS is a member of the NASD. The Board of Governors of the
Federal Reserve System promulgates regulations applicable to securities credit
transactions involving broker-dealers. Securities firms are also subject to
regulation by state securities administrators in those states in which they
conduct business.

Broker-dealers are subject to regulations covering all aspects of the securities
industry, including sales practices, trade practices among broker-dealers,
capital requirements, the use and safekeeping of clients' funds and securities,
recordkeeping and reporting requirements, supervisory and organizational
procedures intended to insure compliance with securities laws and to prevent
unlawful trading on material nonpublic information, employee related matters,
including qualification and licensing of supervisory and sales personnel,
limitations on extensions of credit in securities transactions, clearance and
settlement procedures, requirements for the registration, underwriting, sale and
distribution of securities and rules of the SRO's designed to promote high
standards of commercial honor and just and equitable principles of trade. A
particular focus of the applicable regulations concerns the relationship between
broker-dealers and their clients. As a result, many aspects of the relationship
between broker-dealers and clients are subject to regulation, including, in some
instances, requirements that brokers make "suitability" determinations as to
certain customer transactions, limitations on the amounts that may be charged to
clients, timing of proprietary trading in relation to client's trades, and
disclosures to clients.

Additional legislation, changes in rules promulgated by the SEC, state
regulatory authorities or SRO's, or changes in the interpretation or enforcement
of existing laws and rules may directly affect the mode of operation and
profitability of broker-dealers. The SEC, SRO's and state securities commissions
may conduct administrative proceedings that can result in censure, fines, the
issuance of cease-and-desist orders or the suspension or expulsion of a
broker-dealer, its officers or employees. The principal purpose of regulating
and disciplining broker-dealers is for the protection of customers and the
securities markets, not the protection of creditors or shareholders of
broker-dealers.

As a registered broker-dealer, PCS is required to, and has established and it
maintains, a system to supervise the activities of their retail brokers,
including their independent contractor offices and other securities
professionals. The supervisory system must be reasonably designed to achieve
compliance with applicable securities laws and regulations, as well as SRO
rules. The SRO's have established minimum requirements for such supervisory
systems; however, each broker-dealer must establish procedures that are
appropriate for the nature of its business operations. Failure to establish and
maintain an adequate supervisory system may result in sanctions imposed by the
SEC or a SRO that could limit PCS' abilities to conduct their securities
business. Moreover, under federal law and certain state securities laws, PCS may
be held liable for damages resulting from the unauthorized conduct of their
account executives to the extent that PCS has failed to establish and maintain
an appropriate supervisory system.

LENDING SERVICES

The Company is a registered mortgage broker and offers financing for practice
acquisitions, equipment leasing and residential and commercial mortgages. The
Company does not finance these products, but merely acts as a broker. The
Company markets these services along side its financial products to existing
clients, and the Company is actively seeking to expand its sales force of
representatives for these products in its key markets. However, rising interest
rates may hinder the Company's ability to grow revenue from these products.


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MARKETING

The Company markets its services principally through direct mail, promotions and
seminars. The majority of clients in each office return to the Company for tax
preparation services during the following year.

Direct Mail

Each year, prior to and during the tax season when individuals file federal,
state and local income tax returns, the Company sends direct mail advertisements
to residences in the area surrounding the Company's offices. The direct mail
advertising solicits business principally for the Company's tax preparation
services. A large majority of the Company's new clients each year are first
introduced to the Company through its direct mail advertising.

Seminars

The Company supports its registered representatives by advertising their local
financial planning seminars. At these seminars, prospective new clients can
learn about a wide variety of investment products and tax planning
opportunities.

Online

The Company currently has a web site on the Internet at http://www.gilcio.com
for Company information, including financial information and the latest news
releases.

Other Marketing

The Company also prints and distributes brochures, flyers and newsletters about
its services, and advertises in newspapers, on the radio and on billboards on
highways and on commuter trains.

The Company believes that its most promising market for in-office tax
preparation expansion may lie in areas of above average population growth.
Individuals usually retain a local tax preparer in connection with their
individual tax returns. When people move, they usually seek to find a new income
tax preparer. At or shortly after the time that they move, therefore,
individuals are most susceptible to the direct mail advertising of the Company's
tax preparation services.

ACQUISITIONS

The Company's current strategy is to actively pursue acquisitions of small tax
preparation and accounting firms.

COMPETITION

Competitors include companies specializing in income tax preparation as well as
companies that provide general financial services. Many of these competitors, in
the tax preparation field, including H&R Block and Jackson Hewitt Tax Service
("Jackson Hewitt"), and many well-known brokerage and insurance firms in the
financial services field have significantly greater financial and other
resources than the Company. The Company is also subject to competition from
local and regional tax preparation firms. In addition, an increasing number of
taxpayers are using software programs to prepare their own income tax returns,
and filing them electronically with the IRS.

In addition, the Company may suffer from competition from departing employees
and financial planners. Although the Company attempts to restrict such
competition contractually, as a practical matter enforcement of contractual
provisions prohibiting small scale competition by individuals is difficult. The
Company's success in managing the expansion of its business depends in large
part upon its ability to hire, train, and supervise seasonal personnel. If this
labor pool is reduced, or if the Company is required to provide its employees
higher wages or more extensive and costly benefits due to competitive reasons,
the expenses associated with the Company's operations could be substantially
increased without the Company receiving offsetting increases in revenues.


                                    Page 10
<PAGE>

TRADEMARKS

The Company has registered its "Gilman + Ciocia" trademark with the U.S. Patent
and Trademark Office. There is no assurance that the Company would be able to
successfully defend its trademarks if forced to litigate their enforceability.
The Company believes that its trademark "Gilman + Ciocia" constitutes a valuable
marketing factor. If the Company were to lose the use of such trademark, its
sales could be adversely affected.

EMPLOYEES

As of June 30, 2005, the Company employed 297 persons on a full-time, full-year
basis, including five officers. During tax season, the Company typically employs
over 100 seasonal employees who do only tax preparation or provide support
functions. The minimum requirements for a tax preparer at the Company are
generally some tax preparation experience and a passing grade on an examination
given by the Company. More than half of the Company's full-year tax preparers
are also registered representatives with PCS.

Each of the registered representatives licensed with PCS has entered into a
commission sharing agreement with the Company. Each such agreement generally
provides that a specified percentage of the commissions earned by the Company
are paid to the registered representative. In the commission sharing agreements,
the employee registered representatives also agree to maintain certain Company
information as confidential and not to compete with the Company.

Each of the insurance agents has entered into a commission sharing agreement
with the Company. Each agreement generally provides that a specified percentage
of the commissions earned by the Company are paid to the agent. In the
commission sharing agreements, the employee agents also agree to maintain
certain Company information as confidential and not to compete with the Company.

RISK FACTORS

Significant Deficiencies in Internal Controls Over Financial Reporting;
Increased Compliance Expense

The Company has been advised by Radin Glass & Co., LLP ("Radin Glass") of the
existence of certain reportable conditions involving significant deficiencies in
the design and operation of the Company's internal controls over financial
reporting that could adversely affect the Company's ability to record, process,
summarize and report financial data consistent with the assertions of management
in the financial statements. Although none of these conditions individually
constitutes a material weakness, collectively, these deficiencies and the
Company's inability to produce timely accurate financial statements is a
material weakness. A material weakness is defined as a reportable condition in
which the design or operation of one or more of the internal control components
does not reduce to a relatively low level the risk that misstatements caused by
error or fraud in amounts that would be material in relation to the financial
statements being audited may occur and not be detected within a timely period by
employees in the normal course of performing their assigned functions. Changing
laws, regulations and standards relating to corporate governance and public
disclosure, including the Sarbanes-Oxley Act of 2002, and newly enacted SEC
regulations have created additional compliance requirements for companies such
as ours. We are committed to maintaining high standards of internal controls
over financial reporting, corporate governance and public disclosure. As a
result, we intend to invest appropriate resources to comply with evolving
standards, and this investment may result in increased general and
administrative expenses and a diversion of management time and attention from
revenue-generating activities to compliance activities. See Item 9A."Controls
and Procedures."

Working Capital

The Company has been operating with low levels of capital during recent periods.
While the Company itself is not subject to any minimum capital requirement, it
requires working capital to pay salaries, pay vendors, including landlords, and
otherwise operate its business. At June 30, 2005 the Company had a working
capital deficit of $13.8 million and the Company has regularly been forced to
borrow from Prime Partners, an affiliate of Michael Ryan, the President and
Chief Executive Officer and director of the Company, to pay its obligations. In
Fiscal 2005, Prime Partners extended short-term loans to the Company in the
aggregate amount of $1.5 million for working capital purposes. At June 30, 2005,
the Company owed Prime Partners $0.7 million. In July and August 2005, Prime
Partners loaned the Company an additional $0.2 million.


                                    Page 11
<PAGE>

Financial Planning Litigation and Arbitration

If the Company were to be found liable to clients for misconduct alleged in
civil proceedings, the Company's operations may be adversely affected. Many
aspects of the Company's business involve substantial risks of liability. There
has been an increase in litigation and arbitration within the securities
industry in recent years, including class action suits seeking substantial
damages. Broker-dealers such as PCS are subject to claims by dissatisfied
clients, including claims alleging they were damaged by improper sales practices
such as unauthorized trading, churning, sale of unsuitable securities, use of
false or misleading statements in the sale of securities, mismanagement and
breach of fiduciary duty. Broker-dealers may be liable for the unauthorized acts
of their retail brokers and independent contractors if they fail to adequately
supervise their conduct. PCS is currently a defendant/respondent in numerous
such proceedings. It should be noted, however, that PCS maintains securities
broker-dealer's professional liability insurance to insure against this risk,
but the insurance policy contains a deductible (presently $50,000) and a
cumulative cap on coverage (presently $3,000,000). In addition, certain
activities engaged in by brokers may not be covered by such insurance. The
adverse resolution of any legal proceedings involving the Company could have a
material adverse effect on its business, financial condition, and results of
operations or cash flows.

Delisting of Company Shares

The shares of the Company's common stock were delisted from The NASDAQ National
Market in August 2002 and are now traded on what is commonly referred to as the
"pink sheets". As a result, an investor may find it more difficult to dispose of
or obtain accurate quotations as to the market value of the securities. In
addition, the Company is now subject to Rule 15c2-11 promulgated by the SEC. If
the Company fails to meet criteria set forth in such Rule (for example, by
failing to file periodic reports as required by the Exchange Act), various
practice requirements are imposed on broker-dealers who sell securities governed
by the Rule to persons other than established customers and accredited
investors. For these types of transactions, the broker-dealer must make a
special suitability determination for the purchaser and have received the
purchaser's written consent to the transactions prior to sale. Consequently, the
Rule may have a material adverse effect on the ability of broker-dealers to sell
the Company's securities, which may materially affect the ability of
shareholders to sell the securities in the secondary market. The delisting could
make trading the Company's shares more difficult for investors, potentially
leading to further declines in the share price. It would also make it more
difficult for the Company to raise additional capital. Due to the delisting, the
Company would also incur additional costs under state blue-sky laws if the
Company were to sell equity.

General Business Risks

If the financial planners that the Company presently employs or recruits do not
perform successfully, the Company's operations may be adversely affected. The
Company plans to continue to expand in the area of financial planning, by
expanding the business of presently employed financial planners and by
recruiting additional financial planners. The Company's revenue growth will in
large part depend upon the expansion of existing business and the successful
integration and profitability of the recruited financial planners. The Company's
growth will also depend on the successful operation of independent financial
planners who are recruited to join the Company. The financial planning channel
of the Company's business has generated an increasing portion of the Company's
revenues during the past few years, and if such channel does not continue to be
successful, the Company's revenue may not increase.

The Consolidated Financial Statements do not include any adjustments that might
result due to these events or from the uncertainties of a shift in the Company's
business.

The Company may choose to open new offices. When the Company opens a new office,
the Company incurs significant expenses to build out the office and to purchase
furniture, equipment and supplies. The Company has found that a new office
usually suffers a loss in its first year of operation, shows no material profit
or loss in its second year of operation and does not attain profitability, if
ever, until its third year of operation. Therefore, the Company's operating
results could be materially adversely affected in any year that the Company
opens a significant number of new offices. If the financial markets deteriorate,
the Company's financial planning channel will suffer decreased revenues. The
Company's revenue and profitability may be adversely affected by declines in the


                                    Page 12
<PAGE>

volume of securities transactions and in market liquidity, which generally
result in lower revenues from trading activities and commissions. Lower
securities price levels may also result in a reduced volume of transactions as
well as losses from declines in the market value of securities held in trading,
investment and underwriting positions. In periods of low volume, the fixed
nature of certain expenses, including salaries and benefits, computer hardware
and software costs, communications expenses and office leases, will adversely
affect profitability. Sudden sharp declines in market values of securities and
the failure of issuers and counterparts to perform their obligations can result
in illiquid markets in which the Company may incur losses in its principal
trading and market making activities.

Dependence on Technology Software and Systems

As an information-financial services company with a subsidiary broker dealer,
the Company is greatly dependent on technology software and systems and on the
Internet to maintain customer records, effect securities transactions and
prepare and file tax returns. In the event that there is an interruption to the
systems due to internal systems failure or from an external threat, including
terrorist attacks, fire and extreme weather conditions, the Company's ability to
prepare and file tax returns and to process financial transactions could be
affected. The Company has offsite backup, redundant and remote failsafe systems
in place to safeguard against these threats but there can be no assurance that
such systems will be effective to prevent malfunction and adverse effects on
operation.

Competition from Other Companies

If competitors in the industry began to encroach upon the Company's market
share, the Company's operations may be adversely affected. The income tax
preparation and financial planning services industries are highly competitive.
The Company's competitors include companies specializing in income tax
preparation as well as companies that provide general financial services. The
Company's principal competitors are H&R Block and Jackson Hewitt in the tax
preparation field and many well-known national brokerage and insurance firms in
the financial services field. Many of these competitors have larger market
shares and significantly greater financial and other resources than the Company.
The Company may not be able to compete successfully with such competitors.
Competition could cause the Company to lose existing clients, slow the growth
rate of new clients and increase advertising expenditures, all of which could
have a material adverse effect on the Company's business or operating results.

Competition from Departing Employees

If a large number of the Company's departing employees and financial planners
were to enter into competition with the Company, the Company's operations may be
adversely affected. Departing employees and financial planners may compete with
the Company. Although the Company attempts to restrict such competition
contractually, as a practical matter, enforcement of contractual provisions
prohibiting small scale competition by individuals is difficult. In the past,
departing employees and financial planners have competed with the Company. They
have the advantage of knowing the Company's methods and, in some cases, having
access to the Company's clients. No assurance can be given that the Company will
be able to retain its most important employees and financial planners or that
the Company will be able to prevent competition from them or successfully
compete against them. If a substantial amount of such competition occurs, the
corresponding reduction of revenue may materially adversely affect the Company's
operating results.

Departure of Key Personnel

If any of the Company's key personnel were to leave its employ, the Company's
operations may be adversely affected. The Company believes that its ability to
successfully implement its business strategy and operate profitably depends on
the continued employment of James Ciocia, its Chairman of the Board, Michael
Ryan, its President and Chief Executive Officer, Christopher Kelly, its General
Counsel, Kathryn Travis, its Secretary, Carole Enisman, its Executive Vice
President of Operations, and Dennis Conroy, its Chief Accounting Officer.
Michael Ryan and Carole Enisman are married. If any of these individuals become
unable or unwilling to continue in his or her present position, the Company's
business and financial results could be materially adversely affected.

Tax Return Preparation Malpractice

The Company's business of preparing tax returns subjects it to potential civil
liabilities for violations of the Internal Revenue Code or other regulations of
the IRS, although the Company has never been assessed with material civil
penalties or fines. If a Company violation resulted in a material fine or
penalty, the Company's operating results would be materially adversely affected.
In addition, the Company does not maintain any professional liability or


                                    Page 13
<PAGE>

malpractice insurance policies for tax preparation. The Company has never been
the subject of a tax preparation malpractice lawsuit, however, the significant
uninsured liability and the legal and other costs relating to such claims could
materially adversely affect the Company's business and operating results.

In addition, making fraudulent statements on a tax return, willfully delivering
fraudulent documents to the IRS and unauthorized disclosure of taxpayer
information can constitute criminal offenses. If the Company were to be charged
with a criminal offense and found guilty, or if any of its employees or
executives were convicted of a criminal offense, in addition to the costs of
defense and possible fines, the Company would likely experience an adverse
effect to its reputation, which could directly lead to a decrease in revenues
from the loss of clients.

The Company does not hire a large number of CPA's, which could affect the
Company's ability to provide adequate IRS representation services to the
marketplace. The Company utilizes a significant number of seasonal employees who
are not certified public accountants or tax attorneys, to provide tax
preparation services. Under state law, the Company is not allowed to provide
legal tax advice and the Company does not employ nor does it retain any tax
attorneys on a full time basis. Because most of the Company's employees who
prepare tax returns are not certified public accountants, tax attorneys or
otherwise enrolled to practice before the IRS, such employees of the Company are
strictly limited as to the roles they may take in assisting a client in an audit
with the IRS. These limitations on services that the Company may provide could
hinder the Company's ability to market its services.

Furthermore, the small percentage of CPA's or tax attorneys available to provide
assistance and guidance to the Company's tax preparers may increase the risk of
the improper preparation of tax returns by the Company. The improper preparation
of tax returns could result in significant defense expenses and civil liability.

Loss of Trademarks

If the Company were to lose its trademarks or other proprietary rights, the
Company could suffer decreased revenues. The Company believes that its
trademarks and other proprietary rights are important to its success and its
competitive position. The Company has registered its "Gilman + Ciocia"
trademark. However, the actions taken by the Company to establish and protect
its trademarks and other proprietary rights may be inadequate to prevent
imitation of its services and products by others or to prevent others from
claiming violations of their trademarks and proprietary rights by the Company.
In addition, others may assert rights in the Company's trademarks and other
proprietary rights. If the Company were to lose the exclusive right to its
trademarks, its operations could be materially adversely affected.

Payment of Dividends

The Company's decision not to pay dividends could negatively impact the
marketability of the Company's common stock. Since its initial public offering
of securities in 1994, the Company has not paid dividends and it does not plan
to pay dividends in the foreseeable future. The Company currently intends to
retain future earnings, if any, to finance the growth of the Company. It is very
likely that dividends will not be distributed in the near future, which may
reduce the marketability of the Company's common stock.

Third Party Control

The ability of a third party to acquire control of the Company is made more
difficult by the Company's classified board of directors, which would prevent a
third party from immediately electing a new board of directors, and by the
Company's ability to issue preferred stock without shareholder approval. These
impediments to third party control could potentially adversely affect the price
and liquidity of the Company's common stock.

Low Trading Volume

Low trading volume in the Company's common stock increases volatility, which
could result in the impairment of the Company's ability to obtain equity
financing. As a result, historical market prices may not be indicative of market
prices in the future. In addition, the stock market has recently experienced
extreme stock price and volume fluctuation. The Company's market price may be
impacted by changes in earnings estimates by analysts, economic and other
external factors and the seasonality of the Company's business. Fluctuations or
decreases in the trading price of the common stock may adversely affect the
stockholders' ability to buy and sell the common stock and the Company's ability
to raise money in a future offering of common stock. The shares of the Company's
common stock were delisted from The NASDAQ National Market in August 2002, and
the market price of the Company's shares has dramatically declined since the
delisting.


                                    Page 14
<PAGE>

Restricted Common Stock

The release of various restrictions on the possible future sale of the Company's
Common Stock may have an adverse affect on the market price of the common stock.
Based on information received from the Company's transfer agent, that
approximately 5.8 million shares of the common stock outstanding are "restricted
securities" under Rule 144 of the Securities Act of 1933, as amended (the
"Securities Act").

In general, under Rule 144, a person who has satisfied a one year holding period
may, under certain circumstances, sell, within any three month period, a number
of shares of "restricted securities" that do not exceed the greater of one
percent of the then outstanding shares of common stock or the average weekly
trading volume of such shares during the four calendar weeks prior to such sale.
Rule 144 also permits, under certain circumstances, the sale of shares of common
stock by a person who is not an "affiliate" of the Company (as defined in Rule
144) and who has satisfied a two year holding period, without any volume or
other limitation.

Securities Industry Rules

If a material risk inherent to the securities industry was to be realized, the
value of the Company's common stock may decline. The securities industry, by its
very nature, is subject to numerous and substantial risks, including the risk of
declines in price level and volume of transactions, losses resulting from the
ownership, trading or underwriting of securities, risks associated with
principal activities, the failure of counterparties to meet commitments,
customer, employee or issuer fraud risk, litigation, customer claims alleging
improper sales practices, errors and misconduct by brokers, traders and other
employees and agents (including unauthorized transactions by brokers), and
errors and failure in connection with the processing of securities transactions.
Many of these risks may increase in periods of market volatility or reduced
liquidity. In addition, the amount and profitability of activities in the
securities industry are affected by many national and international factors,
including economic and political conditions, broad trends in industry and
finance, level and volatility of interest rates, legislative and regulatory
changes, currency values, inflation, and the availability of short-term and
long-term funding and capital, all of which are beyond the control of the
Company.

Several current trends are also affecting the securities industry, including
increasing consolidation, increasing use of technology, increasing use of
discount and online brokerage services, greater self-reliance of individual
investors and greater investment in mutual funds. These trends could result in
the Company facing increased competition from larger broker-dealers, a need for
increased investment in technology, or potential loss of clients or reduction in
commission income. These trends or future changes could have a material adverse
effect on the Company's business, financial condition, and results of operations
or cash flows.

If new regulations are imposed on the securities industry, the operating results
of the Company may be adversely affected. The SEC, the NASD, the NYSE and
various other regulatory agencies have stringent rules with respect to the
protection of customers and maintenance of specified levels of net capital by
broker-dealers. The regulatory environment in which the Company operates is
subject to change. The Company may be adversely affected as a result of new or
revised legislation or regulations imposed by the SEC, the NASD, other U.S.
governmental regulators or SRO's. The Company also may be adversely affected by
changes in the interpretation or enforcement of existing laws and rules by the
SEC, other federal and state governmental authorities and SRO's.

PCS is subject to periodic examination by the SEC, the NASD, SRO's and various
state authorities. PCS sales practice operations, recordkeeping, supervisory
procedures and financial position may be reviewed during such examinations to
determine if they comply with the rules and regulations designed to protect
customers and protect the solvency of broker-dealers. Examinations may result in
the issuance of letters to PCS, noting perceived deficiencies and requesting PCS
to take corrective action. Deficiencies could lead to further investigation and
the possible institution of administrative proceedings, which may result in the
issuance of an order imposing sanctions upon PCS and/or their personnel.

The Company's business may be materially affected not only by regulations
applicable to it as a financial market intermediary, but also by regulations of
general application. For example, the volume and profitability of the Company's
or its clients' trading activities in a specific period could be affected by,
among other things, existing and proposed tax legislation, antitrust policy and
other governmental regulations and policies (including the interest rate
policies of the Federal Reserve Board) and changes in interpretation or
enforcement of existing laws and rules that affect the business and financial
communities.


                                    Page 15
<PAGE>

Financial Planning Litigation and Arbitration

If the Company were to be found liable to clients for misconduct alleged in
civil proceedings, the Company's operations may be adversely affected. Many
aspects of the Company's business involve substantial risks of liability. There
has been an increase in litigation and arbitration within the securities
industry in recent years, including class action suits seeking substantial
damages. Broker-dealers such as PCS are subject to claims by dissatisfied
clients, including claims alleging they were damaged by improper sales practices
such as unauthorized trading, churning, sale of unsuitable securities, use of
false or misleading statements in the sale of securities, mismanagement and
breach of fiduciary duty. Broker-dealers may be liable for the unauthorized acts
of their retail brokers and independent contractors if they fail to adequately
supervise their conduct. PCS is currently a defendant/respondent in numerous
such proceedings. It should be noted, however, that PCS maintains securities
broker-dealer's professional liability insurance to insure against this risk,
but the insurance policy contains a deductible (presently $50,000) and a
cumulative cap on coverage (presently $3,000,000). In addition, certain
activities engaged in by brokers may not be covered by such insurance. The
adverse resolution of any legal proceedings involving the Company could have a
material adverse effect on its business, financial condition, and results of
operations or cash flows.

ITEM 2. PROPERTIES

As of June 30, 2005, the Company provided services to its clients at 35 local
offices in five states: 15 in New York, 14 in Florida, four in New Jersey, one
in Connecticut and one in Colorado. In August 2005, the Company sold its office
in Colorado. A majority of the offices are located in commercial office
buildings and are leased pursuant to standard form office leases. The remaining
terms of the leases varies from one to seven years. The Company's rental expense
during Fiscal 2005 was approximately $1.9 million. The Company believes that any
of its rental spaces could be replaced with comparable office space, however,
location and convenience is an important factor in marketing the Company's
services to its clients. Since the Company advertises in the geographic area
surrounding the office location, the loss of such an office that is not replaced
with a nearby office could adversely affect the Company's business at that
office. The Company generally needs approximately 1,000 - 3,000 square feet of
usable floor space to operate an office and its needs can be flexibly met in a
variety of real estate environments. Therefore, the Company believes that its
facilities are adequate for its current needs.

The Company owned a building in Babylon, New York which was sold on July 14,
2004. The Company recorded a gain of $31,181 from the sale during Fiscal 2005.

On November 26, 2002, the Company finalized the sale of 47 of its offices to
Pinnacle. In connection with the sale, all operating leases associated with the
purchased offices were assigned to and assumed by Pinnacle, including the former
Executive Headquarters office in White Plains, New York. However, the Company
remains liable on all equipment and real estate leases assigned to and assumed
by Pinnacle, other than the White Plains, New York lease.

In August 2002, the Company consolidated the Executive Headquarters in White
Plains, New York into the Operations Center in Poughkeepsie, New York. The
Operations Center facility is owned by an entity controlled by Michael Ryan, the
Company's President and Chief Executive Officer.

ITEM 3. LEGAL PROCEEDINGS

Litigation

On February 4, 2004, the Company was served with a Summons and a Shareholder's
Class Action and Derivative Complaint with the following caption: "Gary Kosseff,
Plaintiff, against James Ciocia, Thomas Povinelli, Michael Ryan, Kathryn Travis,
Seth A. Akabas, Louis P. Karol, Edward H. Cohen, Steven Gilbert and Doreen
Biebusch, Defendants and Gilman & Ciocia, Inc., Nominal Defendant". The action
was filed in the Court of Chancery of the State of Delaware in and for New
Castle County under Civil Action No. 188-N. The nature of the action is that the
Company, its Board of Directors and its management, breached their fiduciary
duty of loyalty in connection with the sale of the Pinnacle Purchased Offices.


                                    Page 16
<PAGE>

The action alleges that the sale to Pinnacle was for inadequate consideration
and without a fairness opinion by independent financial advisors, without
independent legal advice and without a thorough evaluation and vote by an
independent committee of the Board of Directors. The action prays for the
following relief: a declaration that the Company, its Board of Directors and its
management breached their fiduciary duty and other duties to the plaintiff and
to the other members of the purported class; a rescission of the Purchase
Agreement; unspecified monetary damages; and an award to the plaintiff of costs
and disbursements, including reasonable legal, expert and accountants fees. On
March 15, 2004, counsel for the Company and for all defendants filed a motion to
dismiss the lawsuit. On June 18, 2004, counsel for the plaintiff filed an
Amended Complaint. On July 12, 2004, counsel for the Company and for all
defendants filed a motion to dismiss the Amended Complaint. On March 8, 2005,
oral argument was heard on the motion to dismiss, and on July 29, 2005 the case
Master delivered his draft report denying the motion. The parties are briefing
exceptions to the report, after review of which the Master will deliver his
final report. While the Company will vigorously defend itself in this matter,
there can be no assurance that this lawsuit will not have a material adverse
impact on its financial position.

The Company is the subject of a formal investigation by the SEC. The
investigation concerns, among other things, the restatement of the Company's
financial results for the fiscal year ended June 30, 2001 and the fiscal
quarters ended March 31, 2001 and December 31, 2001 (which have been previously
disclosed in the Company's amended quarterly and annual reports for such
periods), the Company's delay in filing its 10-K for Fiscal 2002 and 2003, the
Company's delay in filing its 10-Q for the quarter ended September 30, 2002 and
the Company's past accounting and recordkeeping practices. The Company had
previously received informal, non-public inquiries from the SEC regarding
certain of these matters. The Company and its executives have complied fully
with the SEC's investigation and will continue to comply fully with the SEC's
investigation. The Company does not believe that the investigation will have a
material affect on the Company's Consolidated Financial Statements.

Subsequent to an NASD examination of PCS, the NASD on August 12, 2005 accepted a
Letter of Acceptance, Waiver and Consent submitted by PCS, in which PCS agreed
to be censured and fined $0.2 million, and to recompense certain customers of
PCS who purchased mutual fund "B" shares. Without admitting or denying the
alleged violations, PCS agreed to the findings by the NASD that certain
supervisory deficiencies existed between June 2002 and July 2003. The acceptance
of the AWC concludes the matter.

On September 6, 2005, the Company received an informal inquiry from the SEC
regarding variable annuity sales by the Company's registered representatives
during the period January 1, 2002 through August 1, 2005. The Company will
cooperate fully with the SEC in connection with this informal inquiry.
Management believes that a number of other broker-dealers have received similar
informal inquiries. The Company cannot predict whether the SEC will take any
enforcement action against the Company based on the variable annuity sales
practices of the Company.

The Company and PCS are defendants and respondents in lawsuits and NASD
arbitrations in the ordinary course of business. On June 30, 2005, there were 31
pending lawsuits and arbitrations, of which 11 were against PCS or its
registered representatives. In accordance with SFAS No. 5 "Accounting for
Contingencies," the Company has established liabilities for potential losses
from such complaints, legal actions, investigations and proceedings. In
establishing these liabilities, the Company's management uses its judgment to
determine the probability that losses have been incurred and a reasonable
estimate of the amount of the losses. In making these decisions, we base our
judgments on our knowledge of the situations, consultations with legal counsel
and our historical experience in resolving similar matters. In many lawsuits,
arbitrations and regulatory proceedings, it is not possible to determine whether
a liability has been incurred or to estimate the amount of that liability until
the matter is close to resolution. However, accruals are reviewed regularly and
are adjusted to reflect our estimates of the impact of developments, rulings,
advice of counsel and any other information pertinent to a particular matter.
Because of the inherent difficulty in predicting the ultimate outcome of legal
and regulatory actions, we cannot predict with certainty the eventual loss or
range of loss related to such matters. If our judgments prove to be incorrect,
our liability for losses and contingencies may not accurately reflect actual
losses that result from these actions, which could materially affect results in
the period other expenses are ultimately determined. Management accrued $1.0
million as a reserve for potential settlements, judgments and awards. PCS has
errors & omissions coverage that will cover a portion of such matters. In
addition, under the PCS registered representatives contract, each registered
representative is responsible for covering costs in connection with these
claims. While the Company will vigorously defend itself in these matters and
will assert insurance coverage and indemnification to the maximum extent
possible, there can be no assurance that these lawsuits and arbitrations will
not have a material adverse impact on its financial position.


                                    Page 17
<PAGE>

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company held its last meeting of shareholders on December 14, 2001.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURTITIES

The shares of the Company's common stock were delisted from The NASDAQ National
Market in August 2002 and now trade on what is commonly called the pink sheets
under the symbol "GTAX.PK". The following table sets forth the high and low
sales prices for the common stock during the periods indicated as reported on
the pink sheets.

SALES PRICES

QUARTER ENDED                      HIGH            LOW
-------------                      ----            ---
September 30, 2003                 $0.75          $0.10
December 31, 2003                  $0.75          $0.10
March 31, 2004                     $0.75          $0.20
June 30, 2004                      $0.70          $0.25
September 30, 2004                 $0.70          $0.20
December 31, 2004                  $0.55          $0.20
March 31, 2005                     $0.45          $0.20
June 30, 2005                      $0.55          $0.25

DIVIDENDS

Since its initial public offering of securities in 1994, the Company has not
paid dividends, and it does not plan to pay dividends in the foreseeable future.
The Company currently intends to retain any future earnings, if any, to finance
the growth of the Company.

HOLDERS OF COMMON STOCK

On June 30, 2005, there were approximately 300 registered holders of common
stock. This does not reflect persons or entities that hold common stock in
nominee or "street" name through various brokerage firms. On the closing of
trading on June 30, 2005, the price of the common stock was $0.43 per share.

During the three years ended June 30, 2005, the Company issued the following
common stock in privately negotiated transactions that were not registered under
the Securities Act pursuant to the exemption provided by Section 4 (2) of the
Securities Act:

      o     Through June 30, 2005, 1,345,298 shares were issued to Rappaport in
            connection with the Rappaport Loan.

      o     On June 13, 2005, the Company issued 15,000 shares to the Purchasing
            Group, and on June 30, 2005 accrued for the issuance of 15,000
            shares to the Purchasing Group, as interest on the Rappaport Loan.

      o     Through June 30, 2005, 41,249 shares were issued in accordance with
            earnout agreements.

      o     Through June 30, 2005, 14,400 shares were rescinded as part of
            cancelled acquisitions.

No underwriters or brokers participated in any of these transactions. All such
sales were privately negotiated with the individuals with whom the Company had a
prior relationship.


                                    Page 18
<PAGE>

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

Equity Compensation Plan Information

<TABLE>
<CAPTION>
                                                                                                     (c) Number of Securities
                                                                                                      Remaining Available for
                                                         (a) Number of                                 Future Issuance Under
                                                    Securities to be Issued   (b) Weighted-Average      Equity Compensation
                                                        Upon Exercise of        Exercise Price of        Plans (Excluding
                                                      Outstanding Options,      Options, Warrants     Securities Reflected in
                   Plan Category                      Warrants and Rights          and Rights               Column (a))
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>                         <C>                    <C>
Equity Compensation Plans Approved by Security
Holders (1)                                                 136,928                   $6.43                  1,361,769

Equity Compensation Plans not Approved by
Security Holders (2)                                      2,040,639                   $6.28                          -
                                                    -------------------------                        ------------------------
Total                                                     2,177,567                                          1,361,769
</TABLE>

(1)   The issued options are based on all outstanding production awards as of
      June 30, 2005.

(2)   The issued options are based on all non-production awards as of June 30,
      2005.

The Company maintains records of option grants by year, exercise price, vesting
schedule and grantee. In certain cases, the Company has estimated, based on all
available information, the number of such options that were issued pursuant to
each plan. Prior to September 1, 2002, the Company did not consistently record
the plan pursuant to which the option was granted. Starting in September, 2002,
the Company implemented new recordkeeping procedures regarding options that will
ensure this information is accurately recorded and processed. The material terms
of each option grant vary according to the discretion of the Board of Directors.
In addition, from time to time, the Company has issued, and in the future may
issue, additional non-qualified options pursuant to individual option
agreements, the terms of which vary from case to case. The Company does not
presently intend to issue any additional options under its current option plans,
though the Company may adopt a new option plan, and issue additional shares
thereunder. See also Note 12 to Notes to Consolidated Financial Statements.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

In January 2004, subsequent to the filing of the 10-K for the year ended June
30, 2003, management discovered and informed the auditors that revenues and
related commission expenses for asset management services, billed and incurred
in the quarter ended September 30, 2003 for services to be rendered in that
quarter, had been recorded as of June 30, 2003. Further, it was ascertained that
this error in revenue and expense recognition had been occurring since the 1999
acquisition of AFP and had gone undetected for four years. The receivables and
commissions originally prematurely recorded at each quarter end were received
and paid by the Company during the subsequent quarter. As the error applied to
both beginning and ending balances of each quarter, the effect on any individual
quarter was immaterial. As a result, the financial statements for the three
years ended June 30, 2003 (including Fiscal 2001) have been restated to correct
the timing error and the related accrual for commission liabilities relating to
asset management services. As a result of the restatement, receivables as of
June 30, 2003 have been reduced by $1.1 million, commission liabilities have
been reduced by $0.9 million and shareholder's deficit increased by $0.2
million. Revenues for the year ended June 30, 2003 increased by $60,009 and
commission expense increased by $28,765. Losses for the year ended June 30, 2003
decreased by $31,334.

The Selected Consolidated Financial Data with respect to the Company's
Consolidated Balance Sheets as of June 30, 2005 and 2004 and the related
Consolidated Statements of Operations for the years ended June 30, 2005, 2004
and 2003 have been derived from the Company's Consolidated Financial Statements
which are included herein. The following Selected Consolidated Financial Data
should be read in conjunction with the Consolidated Financial Statements and the
Notes thereto and the information contained in Item 7. "Management's Discussion
and Analysis of Financial Condition and Results of Operations."


                                    Page 19
<PAGE>

                      SELECTED CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                      Fiscal Years Ended June 30,
                                   ---------------------------------------------------------------------------------------------
                                           2005               2004               2003              2002               2001
                                                                             Restated (1)      Restated (1)      Restated (2)(3)
--------------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>                <C>                <C>               <C>                <C>
OPERATING RESULTS

Revenues                              $  56,082,790      $  59,911,049      $  54,177,962     $  57,894,915      $  80,082,271
Commissions                              32,911,632         34,361,369         32,018,741        33,527,796                 --
Other Operating Expenses                 24,371,402         25,552,366         28,178,971        45,672,458         85,559,462
Loss from Continuing Operations          (1,825,576)        (1,036,690)        (7,834,174)      (21,983,037)        (5,650,886)
Net Income/(Loss) from
   Discontinued Operations                       --          6,088,225         (6,162,743)        1,623,297          3,044,595
Net Income/(Loss)                        (1,825,576)         5,051,535        (13,996,916)      (20,359,740)        (2,606,291)
------------------------------------------------------------------------------------------------------------------------------
FINANCIAL CONDITION

Working Capital (Deficit)             $ (13,832,678)     $ (13,781,609)     $ (19,493,533)    $ (11,125,496)     $  (5,586,983)
Total Assets                             17,135,712         18,927,580         21,481,114        35,997,688         47,579,394
Long Term Debt and Capital Lease
Obligations                                 282,424            212,248            661,622           851,501          5,425,928
Total Shareholders' Equity               (2,732,347)        (1,218,938)        (6,192,983)        7,488,667         25,757,472
------------------------------------------------------------------------------------------------------------------------------
PER SHARE OF COMMON STOCK

Earnings Per Share:
  Loss Per Share from
   Continuing Operations              $       (0.20)     $       (0.11)     $       (0.83)    $       (2.54)     $       (0.70)
   Income/(Loss) from
     Discontinued Operations          $          --      $        0.65      $       (0.65)    $        0.19      $        0.38
   Net Income/(Loss)                  $       (0.20)     $        0.54      $       (1.48)    $       (2.35)     $       (0.32)

Weighted Average Number of
Common Shares Outstanding:
   Basic Shares                           9,008,400          9,388,764          9,440,815         8,647,966          8,082,674
   Diluted Shares                         9,008,400          9,412,564          9,440,815         8,647,966          8,082,674
Cash Dividends                                   --                 --                 --                --                 --
------------------------------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS

Profit Margin                                 -3.26%              8.43%            -25.84%           -35.17%             -3.25%
Return on Average Assets                     -10.12%             25.00%            -48.70%           -48.72%             -5.74%
Return on Average Shareholders'
Equity                                        92.40%           -136.31%               N/M           -122.48%            -10.34%
Long-term Debt and Capital Lease
   Obligations to Total
   Capitalization                            -11.53%            -21.08%            -11.96%            10.21%             17.40%
Current Assets to Current
Liabilities                                    0.29               0.31               0.28              0.60               1.03
------------------------------------------------------------------------------------------------------------------------------
OTHER COMPANY DATA

AFP Assets Under Management (4)       $ 518,448,585      $ 505,667,067      $ 358,021,951     $ 394,043,262      $ 398,947,550
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)   See Note 19 to Notes to Consolidated Financial Statements.

(2)   Fiscal 2001 has not been adjusted to reflect the sale of the Company's
      North Ridge entities and certain other offices that have been
      discontinued.

(3)   Fiscal 2001 commission expense is included in operating expenses.

(4)   The increase in asset values is attributable to market fluctuations as
      well as increased assets under management.

N/M = Not Meaningful


                                    Page 20
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The information contained in this Form 10-K and the exhibits hereto may contain
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act").
Such statements are based upon current information, expectations, estimates and
projections regarding the Company, the industries and markets in which the
Company operates, and management's assumptions and beliefs relating thereto.
Words such as "will," "plan," "expect," "remain," "intend," "estimate,"
"approximate," and variations thereof and similar expressions are intended to
identify such forward-looking statements. These statements speak only as of the
date on which they are made, are not guarantees of future performance, and
involve certain risks, uncertainties and assumptions that are difficult to
predict. Therefore, actual outcomes and results could materially differ from
what is expressed, implied or forecast in such forward-looking statements. Such
differences could be caused by a number of factors including, but not limited
to, the uncertainty of laws, legislation, regulations, supervision and licensing
by federal, state and local authorities and their impact on the lines of
business in which the Company and its subsidiaries are involved; unforeseen
compliance costs; changes in economic, political or regulatory environments;
changes in competition and the effects of such changes; the inability to
implement the Company's strategies; changes in management and management
strategies; the Company's inability to successfully design, create, modify and
operate its computer systems and networks; litigation involving the Company; and
risks described from time to time in reports and registration statements filed
by the Company and its subsidiaries with the SEC. Readers should take these
factors into account in evaluating any such forward-looking statements. The
Company undertakes no obligation to update publicly or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. The reader should, however, consult further disclosures the
Company may make in future filings of its 10-Ks, 10-Qs and 8-Ks.

The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and related Notes thereto set forth in Item 8.
"Financial Statements and Supplementary Data."

OVERVIEW

Company Model

The Company is a preparer of federal, state and local income tax returns for
individuals predominantly in middle and upper income brackets. While preparing
tax returns, clients often consider other aspects of their financial needs such
as investments, insurance, pension and estate planning. The Company capitalizes
on this situation by making financial planning services available to clients.
The Company believes that its tax return preparation business is inextricably
intertwined with, and is a necessary adjunct to, its financial planning
activities. Neither channel would operate as profitably by itself and the two
channels leverage off each other, improving profitability and client retention.
The financial planners who provide such services are employees or independent
contractors of the Company and are registered representatives of the Company's
PCS subsidiary. The Company and PCS earn a share of commissions (depending on
what service is provided) from the services that the financial planners provide
to the clients in transactions for securities, insurance and related products.

Almost all of the financial planners are also authorized agents of insurance
underwriters. The Company is also a licensed mortgage broker. As a result, the
Company also earns revenues from commissions for acting as an insurance agent
and a mortgage broker.

For the fiscal year ended June 30, 2005, approximately 12.0% of the Company's
revenues were earned from tax preparation services and 88.0% were earned from
all financial planning and related services of which approximately 75.0% was
earned from mutual funds, annuities and securities transactions, 17.0% from
asset management, 6.0% from insurance, 2.0% from mortgage brokerage.


                                    Page 21
<PAGE>

Managed Assets

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

<TABLE>
<CAPTION>
                                              Market Value as of June 30,
                                     ------------    ------------    ------------
                                          2005            2004            2003
                                     ------------    ------------    ------------
<S>                                  <C>             <C>             <C>
Variable Annuities:
Jackson National                     $ 54,775,713    $ 42,290,382    $ 19,988,701
Hartford                               50,814,717      41,043,114      13,586,812
Manulife                               52,675,189      59,703,655      54,594,574
American Skandia                       28,829,052      36,294,734      26,778,089
Nationwide Life                        23,795,047      26,757,531      15,948,805
Allmerica Kemper Gateway               28,775,199      35,417,934      35,008,252
Dreyfus                                10,784,691      14,884,970      10,313,242
Fidelity Selects                       10,668,414      12,952,005      12,265,988
ING (Golden America)                   10,659,545       7,033,717       7,780,790
Travelers                               7,072,302       6,892,223       5,377,905
Polaris                                 6,205,428       6,321,246       4,160,250
Equitable                               5,669,034       2,776,434         620,994
All Other                              27,274,172      34,927,441      33,031,896
                                     ------------    ------------    ------------
   Subtotal                           317,998,504     327,295,387     239,456,298

Brokerage:                            200,450,081     178,371,680     118,565,653
                                     ------------    ------------    ------------
Total Assets Under AFP Management    $518,448,585    $505,667,067    $358,021,951
</TABLE>

Note: The increase in asset values is attributable to market fluctuations as
well as increased assets under management.

Debt

The Company is in default on substantially all of its debt.

On December 26, 2001, the Company closed a $7.0 million financing (the "Loan")
with Wachovia. The Loan consisted of a $5.0 million term loan ("Term Loan") and
a $2.0 million revolving letter of credit ("Revolving Credit Loan"). On November
27, 2002, the Company and Wachovia entered into a forbearance agreement (the
"Forbearance Agreement") whereby Wachovia agreed to forbear from acting on
certain defaults of financial covenants by the Company under the Revolving
Credit Loan and under the Term Loan. Under the Forbearance Agreement and several
amendments thereto, Wachovia deleted several large pre-maturity principal
payments, increased the "Applicable Margin" to 4.0%, changed the Company's
reporting requirements under the Loan and extended the due date of the Loan (the
"Maturity Date") several times. Pursuant to Amendment No. 3 to the Forbearance
Agreement ("Amendment No. 3"), dated as of March 1, 2005, the amortization
schedule was extended by approximately 16 months and the Maturity Date was
extended to March 10, 2008. Under Amendment No. 3, the Company will pay Wachovia
principal on the Loan of $66,000 monthly, plus interest. The Company is in
technical default of several other provisions of the Loan, the Forbearance
Agreement and the amendments to Forbearance Agreement. However, the Company does
not believe that Wachovia will issue a note of default for any of these
technical defaults.

The Company's $5.0 million distribution financing agreement with Travelers
closed on November 1, 2000. On September 24, 2002, the Company received a notice
from Travelers alleging that the Company was in default under its distribution
financing agreement with Travelers due to nonpayment of a $0.1 million penalty
for failure to meet sales production requirements as specified in the
distribution financing agreement. The Company responded with a letter denying
that the Company was in default. Although the Traveler's notice stated that all
unpaid interest and principal under the distribution financing agreement were
immediately due and payable and that Travelers reserved its rights and remedies
under the distribution financing agreement, it also stated that Travelers
intended to comply with the terms of the Subordination Agreement between
Travelers and Wachovia. The Subordination Agreement greatly restricts the
remedies that Travelers could pursue against the Company. No further notices
have been received from Travelers. No payments have been made to Travelers since
April, 2003. Pursuant to the terms of the Subordination Agreement and the
Forbearance Agreement, the Company is not permitted to make payments to
Travelers.


                                    Page 22
<PAGE>

On October 30, 2001, the Company borrowed $1.0 million from Rappaport pursuant
to a written note without collateral and without stated interest. The Rappaport
Loan was due and payable on October 30, 2002. Additionally, the Rappaport Loan
provided that: Rappaport receive 100,000 shares of Rule 144 restricted shares of
common stock of the Company upon the funding of the Rappaport Loan, subject to
adjustment so that the value of the 100,000 shares was $0.3 million when the
Rule 144 restrictions were removed; there was a penalty of 50,000 shares to be
issued to Rappaport if the Rappaport Loan was not paid when due and an
additional penalty of 10,000 shares per month thereafter until the Rappaport
Loan was paid in full. On December 26, 2001, Rappaport agreed to subordinate the
Rappaport Loan to the $7.0 million Wachovia Loan. In consideration of the
subordination, the Rappaport Loan was modified by increasing the 10,000 shares
penalty to 15,000 shares per month and by agreeing to issue 50,000 additional
shares to Rappaport if the Rappaport Loan was not paid in full by March 31,
2002, subject to adjustment so that the value of the shares issued was $0.2
million when the Rule 144 restrictions were removed. By June 30, 2005, Rappaport
had received a total of 1,345,298 shares for all interest and penalties. The
Rappaport Loan, together with 785,298 shares of Company common stock held by
Rappaport, were sold to a group of Company management and employees on April 29,
2005 for the amount of $0.8 million. The $0.3 million debt reduction, agreed to
by the Purchasing Group, was recorded to paid-in-capital as the Purchasing Group
is a related party. Pursuant to the terms of the Rappaport Loan, this Purchasing
Group, as holders of the Rappaport Loan, are entitled to receive, in the
aggregate, as interest, 15,000 shares of the Company's common stock monthly
while the debt remains unpaid. See Note 9 to Notes to Consolidated Financial
Statements.

If the Company does not comply with the financial covenants and other
obligations in its agreements relating to the Wachovia, Travelers or Rappaport
loans, or its agreements with other lenders, and such lenders elected to pursue
their available remedies, the Company's operations and liquidity would be
materially adversely affected and the Company could be forced to cease
operations. The Company has retained a financial advisor to assist the Company
in further discussions with its lenders. The financial advisor was involved in
the Company's discussions with Wachovia that resulted in the Amendment No. 3
described above. There can be no guarantee, however, that the lenders will agree
to terms in the future that are more favorable to the Company than the current
arrangements with the lenders.

Acquisitions

The Company's current strategy is to actively pursue acquisitions of small tax
preparation and accounting firms.

Regulatory Investigations

The Company is the subject of a formal investigation by the SEC. The
investigation concerns, among other things, the restatement of the Company's
financial results for the fiscal year ended June 30, 2001, and the fiscal
quarters ended March 31, 2001 and December 31, 2001 (which have been previously
disclosed in the Company's amended quarterly and annual reports for such
periods), the Company's delay in filing its 10-K for Fiscal 2002 and 2003, the
Company's delay in filing its 10-Q for the quarter ended September 30, 2002, and
the Company's past accounting and recordkeeping practices. The Company had
previously received informal, non-public inquiries from the SEC regarding
certain of these matters. The Company and its executives have complied fully
with the SEC's investigation and will continue to comply fully. The Company does
not believe that the investigation will have a material effect on the Company's
Consolidated Financial Statements.

Subsequent to an NASD examination of PCS, the NASD on August 12, 2005 accepted a
Letter of Acceptance, Waiver and Consent submitted by PCS, in which PCS agreed
to be censured and fined $0.2 million, and to recompense certain customers of
PCS who purchased mutual fund "B" shares. Without admitting or denying the
alleged violations, PCS agreed to the findings by the NASD that certain
supervisory deficiencies existed between June 2002 and July 2003. The acceptance
of the AWC concludes the matter.

On September 6, 2005, the Company received an informal inquiry from the SEC
regarding variable annuity sales by the Company's registered representatives
during the period January 1, 2002 through August 1, 2005. Management believes
that a number of other broker-dealers have received similar informal inquiries.
The Company will cooperate fully with the SEC in connection with this informal
inquiry. The Company cannot predict whether the SEC will take any enforcement
action against the Company based on the variable annuity sales practices of the
Company.


                                    Page 23
<PAGE>

Restatements

In May 2006, management concluded that its previously issued financial
statements for the fiscal year ended June 30, 2005 contained in the Company's
Form 10-K should not be relied upon because of certain grouping and presentation
errors contained therein. The Company made these determinations based on
discussions with the Staff of the Division of Corporation Finance of the
Securities and Exchange Commission (the "Commission") regarding certain
accounting matters raised during a Staff review of the Company's periodic
filings. The grouping and presentation errors include the following:

      o     The Company's consolidated statement of cash flow contained a
            grouping error; the line items titled Due from Office Sales and
            Receivables from Officers, Shareholders and Employees were
            reclassified from operating activities to investing activities; and

            the Company financed $0.9 million for the sale of its North Shore
            and North Ridge offices which was erroneously included in three line
            items on the consolidated statement of cash flow for the fiscal year
            ended 2004; (1) as a deduction to operating activities in the $6.2
            million (Gain)/Loss on Sale of Discontinued Operations; (2) as a
            deduction in Due From Office Sales; and (3) as an increase in
            Proceeds From the Sale of Discontinued Operations in investing
            activities. The restatement was to increase Due From Office Sales
            and to decrease Proceeds From the Sale of Discontinued Operations
            each by $0.9 million.

      o     The Company's stock based compensation table contained an error in
            Note 12 of the Company's Notes to Consolidated Financial Statements.
            The exercisable number of options outstanding at June 30, 2005
            should have been 1,494,950, an increase of 140,000 which were
            options that had vested in February 2005. As a result of this
            restatement, the Weighted Average Exercise Prices in the Stock
            Option Price Schedule as of June 30, 2005 were also restated. The
            Range of Exercise Price $0.01-$2.50 was restated to $1.24 from zero
            and the total weighted average exercise price was restated to $6.90
            from $7.48.

The Company has quantified the impact of these errors on the financial
statements and there is no impact to the Company's net income/(loss) for the
relevant periods.

In January 2004, subsequent to the filing of the 10-K for the year ended June
30, 2003, management discovered and informed the auditors that revenues and
related commission expenses for asset management services, billed and incurred
in the quarter ended September 30, 2003 for services to be rendered in that
quarter, had been recorded as of June 30, 2003. Further, it was ascertained that
this error in revenue and expense recognition had been occurring since the 1999
acquisition of AFP and had gone undetected for four years. The receivables and
commissions recorded originally prematurely recorded at each quarter end were
received and paid by the Company during the subsequent quarter. As the error
applied to both the beginning and ending balances of each quarter, the effect on
any individual quarter was immaterial. As a result, the financial statements for
the three years ended June 30, 2003 (including Fiscal 2001) have been restated
to correct the timing error and the related accrual for commission liabilities
relating to asset management services. As a result of the restatement,
receivables as of June 30, 2003 have been reduced by $1.1 million, commission
liabilities have been reduced by $0.9 million and shareholders' deficit
increased by $0.2 million. Revenues for the year ended June 30, 2003 increased
by $60,009 and commission expense increased by $28,765. Losses for the year
ended June 30, 2003 decreased by $31,334.


                                    Page 24
<PAGE>

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated certain items from the
Company's statements of operations expressed as a percentage of revenue for
fiscal years 2005, 2004 and 2003. The trends illustrated in the following table
are not necessarily indicative of future results.

<TABLE>
<CAPTION>
                                                               For Fiscal Years Ended June 30,
                                                              2005          2004           2003
                                                        ----------------------------------------
                                                                                        Restated
                                                                                             (1)
<S>                                                           <C>           <C>            <C>
Revenues
 Financial Planning Services                                   88.4%         89.4%          89.4%
 Tax Preparation Fees                                          11.6%         10.6%          10.6%
                                                        ----------------------------------------
      Total Revenue                                           100.0%        100.0%         100.0%
                                                        ----------------------------------------

Operating Expenses
Commissions                                                      58.7%         57.4%          59.1%
Salaries                                                       18.7%         19.7%          23.2%
General and Administrative Expense                             13.7%         12.0%          17.1%
Advertising                                                     3.1%          2.3%           0.9%
Brokerage Fees and Licenses                                     2.6%          2.7%           2.9%
Rent                                                            3.3%          3.4%           4.1%
Depreciation and Amortization                                   2.1%          2.6%           3.1%
Goodwill and Other Intangibles
   Impairment Loss                                              0.0%          0.0%           0.7%
                                                        ----------------------------------------
      Total Operating Expenses                                102.1%        100.0%          111.1%
                                                        ----------------------------------------

Income/(Loss) from Continuing Operations
  Before Other Income/(Expense)                                -2.1%          0.0%         -11.1%

Other Income/(Expense)                                         -1.1%         -1.7%          -3.2%

Loss from Continuing Operations
                                                        ----------------------------------------
  Before Income Taxes                                          -3.3%         -1.7%         -14.3%

 Income Taxes/(Benefit)                                         0.0%          0.0%          -0.1%

                                                        ----------------------------------------
Net Loss from Continuing Operations                            -3.3%         -1.7%         -14.4%
                                                        ----------------------------------------
</TABLE>

(1)   See Note 19 to Notes to Consolidated Financial Statements.


                                    Page 25
<PAGE>

Consolidated Results of Operations

<TABLE>
<CAPTION>
                                                                        For Fiscal Years Ended June 30,
                                                  2005             2004             2003               % Change
                                                                                  Restated         05-04       04-03
                                              ----------------------------------------------------------------------
<S>                                           <C>              <C>              <C>               <C>         <C>
Revenues                                      $ 56,082,790     $ 59,911,049     $ 54,177,962       -6.4%        10.6%
Commissions                                     32,911,632       34,361,369       32,018,741       -4.2%         7.3%
Other Operating Expenses                        24,371,402       25,552,366       28,178,971       -4.6%        -9.3%
Loss from Continuing Operations                 (1,825,576)      (1,036,690)      (7,834,173)      76.1%       -86.8%
Income/(Loss) from Discontinued Operations              --        6,088,225       (6,162,743)    -100.0%      -198.8%
Net Income/(Loss)                               (1,825,576)       5,051,535      (13,996,916)    -136.1%      -136.1%

Diluted EPS from Continuing Operations        $      (0.20)    $      (0.11)    $      (0.83)      81.8%       -86.7%
Diluted EPS from Discontinued Operations      $         --     $       0.65     $      (0.65)    -100.0%      -200.0%
Diluted EPS from Net Income/(Loss)            $      (0.20)    $       0.54     $      (1.48)    -137.0%      -136.5%
</TABLE>

Consolidated Revenue Detail

                                                       Unaudited
                                              Fiscal Years Ended June 30,
                                          2005           2004           2003
                                                                      Restated
                                                                   (See Note 19)
                                      -----------------------------------------
Revenues
 Brokerage Commissions                $36,492,174     42,438,087     37,024,129
 Insurance Commissions                  3,212,817      2,156,363      3,055,835
 Advisory Fees                          8,620,681      7,441,640      6,795,812
 Tax Preparation Fees                   6,502,402      6,323,190      5,747,884
 Lending Services                         843,398        851,793        518,286
 Marketing Revenue                        411,318        699,976      1,036,016

                                      -----------------------------------------
      Total Revenues                  $56,082,790    $59,911,049    $54,177,962
                                      =========================================

FISCAL 2005 COMPARED WITH FISCAL 2004

Except as noted, the numbers and explanations presented below represent results
from continuing operations only.

The Company's revenues for the fiscal year ended June 30, 2005 were $56.1
million, down 6.4%, compared with $59.9 million for the fiscal year ended June
30, 2004. This decrease was primarily attributable to a decline in the Company's
revenues from financial planning services, resulting principally from its
continued focus on reducing the percentage of sales from variable annuities
while increasing sales of other financial products that generate recurring
income.

For the fiscal year ended June 30, 2005, revenues from variable annuity sales
were $22.4 million compared with $26.1 million for the fiscal year ended June
30, 2004. For the fiscal year ended June 30, 2005, revenues from recurring
revenue sources (managed money and trails) were $14.5 million compared with
$12.7 million for the same period last year.

Commission Expenses

The Company's commission expense for the fiscal year ended June 30, 2005 was
$32.9 million (58.7% of revenue), down 4.2%, compared with commission expense of
$34.4 million (57.4% of revenue) for the fiscal year ended June 30, 2004. This
decrease is attributable to decreased financial planning revenue, and decreased
non-commissionable revenue.


                                    Page 26
<PAGE>

Other Operating Expenses

The Company's other operating expenses for the fiscal year ended June 30, 2005
were $24.4 million, down 4.6% (43.5% of revenues) compared to other operating
expenses of $25.6 million (42.7% of revenues) for the fiscal year ended June 30,
2004. The decline in other operating expenses is attributable to decreases in
salaries, brokerage fees and licenses, rent and depreciation and amortization
charges, partially offset by increased advertising and general and
administrative expenses.

Salaries

Salaries consist primarily of salaries and related payroll taxes and employee
benefit costs. For the fiscal year ended June 30, 2005, salaries decreased
11.3%, to $10.5 million, down from $11.8 million for the fiscal year ended June
30, 2004. The decrease in salaries is primarily attributable to lower seasonal
employment levels and lower employment levels at the Company's headquarters.

Brokerage Fees and Licenses

Brokerage fees and licenses expense for the fiscal year ended June 30, 2005 was
$1.4 million, down 9.5% from $1.6 million for the fiscal year ended June 30,
2004. This decrease is attributable to less transactions clearing through
National Financial Services.

Depreciation and Amortization

For the fiscal year ended June 30, 2005, depreciation and amortization expense
decreased by 23.7% to $1.2 million compared with $1.5 million for the fiscal
year ended June 30, 2004. The decrease is attributable to lower depreciation
expense as a result of assets reaching their full depreciable lives during the
course of fiscal 2005, as well as reduced capital spending.

Rent Expense

For the fiscal year ended June 30, 2005, rent expense decreased 7.9% to $1.9
million compared with $2.0 million for the fiscal year ended June 30, 2004. The
decrease in rent expense is primarily attributable to the termination of leases
associated with closed or merged offices.

Advertising Expense

Advertising expense for the fiscal year ended June 30, 2005 was $1.7 million, up
27.9%, compared to $1.4 million for the fiscal year ended June 30, 2004. The
increase in primarily attributable to the Company's continued efforts to build
brand equity and awareness.

General and Administrative Expense

General and administrative expense consists primarily of expenses for general
corporate functions including outside legal and professional fees, insurance,
telephone, bad debt expenses and general corporate overhead costs. General and
administrative expenses for the fiscal year ended June 30, 2005 increased by
6.2% to $7.7 million up from $7.2 million for the fiscal year ended June 30,
2004. The increase in general and administrative expense is primarily
attributable to higher legal and settlement costs related to complaints and
litigation and higher postage costs related to increased advertising and seminar
mailings, partially offset by reduced telephone costs due to outsourcing our
telemarketing center in November 2004 and reduced bad debt expense resulting
from the Company reserving notes from representatives related to office sales in
the prior year.

Other Income and (Expense)

Other income (expense), net for the fiscal year ended June 30, 2005 improved
38.5% to ($0.6) million, down from $(1.0) million in fiscal year ended June 30,
2004. The improvement is the result of lower interest expense and higher
interest income.

Loss from Continuing Operations Before Income Taxes

The Company's loss from continuing operations before income taxes for the fiscal
year ended June 30, 2005 was $1.8 million, a 79.0% increase in losses, compared
to a loss of $1.0 million for the fiscal year ended June 30, 2004. The increase
in losses was primarily attributable to the Company's continued efforts to focus
on reducing the percentage of sales from variable annuities while increasing
sales of other financial products that generate recurring income, as well as its
efforts to increase brand awareness through advertising, seminars and training.


                                    Page 27
<PAGE>

Income Taxes/(Benefit)

The Company's income tax provision for the fiscal year ended June 30, 2005, was
zero compared to an income tax provision of $16,617 for the fiscal year ended
June 30, 2004. The Company's effective income tax rate for fiscal year 2005 was
0.0%.

Income (Loss) from Discontinued Operations

The Company had no discontinued operations for the fiscal year ended June 30,
2005, compared to income of $6.1 million for the fiscal year ended June 30,
2004.

Net Income

The Company's net loss for the fiscal year ended June 30, 2005, was $1.8 million
compared to net income of $5.1 million in the fiscal year ended June 30, 2004, a
decrease of $6.9 million. This decrease is mostly attributable to the
discontinued operations sold in Fiscal 2004.

The Company's business is seasonal, with a significant component of its revenue
earned during the tax season of January through April. The effect of inflation
has not been significant to the Company's business in recent years.

FISCAL 2004 COMPARED WITH FISCAL 2003 (AS RESTATED)

Except as noted, the numbers and explanations presented below represent results
from continuing operations only.

Revenue

The Company's revenues for the fiscal year ended June 30, 2004 were $59.9
million compared to $54.2 million for the fiscal year ended June 30, 2003, an
increase of $5.7 million. This increase was primarily attributable to an
increase in financial planning services and an increase in tax preparation
revenues. The increase in financial planning and tax revenue for fiscal 2004 was
primarily a product of the Company's marketing efforts combined with its focus
on its core business.

Commission Expenses

The Company's commission expense for the fiscal year ended June 30, 2004 was
$34.4 million, or 57.4%, of revenue, compared to commission expense of $32.0
million, or 59.1% of revenue, for Fiscal 2003. This increase of $2.3 million is
attributable to the corresponding commission expense associated with the
increase in revenue.

Other Operating Expenses

The Company's other operating expenses for the fiscal year ended June 30, 2004
were $25.6 million, or 42.7% of revenue, compared to other operating expenses of
$28.2 million, or 52.0% of revenues, for the fiscal year ended June 30, 2003.
Other operating expenses for the fiscal year ended June 30, 2004 included
decreases of $0.8 million in salaries, $2.0 million in general and
administrative expenses, $0.2 million in rent, $0.1 million in depreciation and
amortization, $0.4 million in goodwill impairment losses and an increase of $0.9
million in advertising expense.

Salaries

Salaries consist primarily of salaries and related payroll taxes and employee
benefit costs. For the fiscal year ended June 30, 2004, salaries decreased $0.8
million or 6.2%, to $11.8 million from $12.6 million for the fiscal year ended
June 30, 2003. The decrease in salaries is primarily attributable to lower
seasonal employment levels and lower employment levels at the Company's
headquarters.

Brokerage Fees and Licenses Expense

Brokerage fees and licenses expense for the fiscal year ended June 30, 2004
remained flat at $1.6 million compared with the fiscal year ended June 30, 2003.


                                    Page 28
<PAGE>

General and Administrative Expense

General and administrative expense consists primarily of expenses for general
corporate functions including outside legal and professional fees, insurance,
telephone, bad debt expenses and general corporate overhead costs. General and
administrative expenses for the fiscal year ended June 30, 2004, decreased by
$2.0 million, or 22.0%, to $7.2 million from $9.2 million for the fiscal year
ended June 30, 2003. The decrease in general and administrative expense is
primarily attributable to lower legal and consulting fees, lower bad debt
expenses and the continued implementation of cost containment initiatives.

Depreciation and Amortization

For the fiscal year ended June 30, 2004, depreciation and amortization expense
decreased by $0.1 million, or 7.1%, to $1.5 million compared to $1.7 million for
the fiscal year ended June 30, 2003. The decrease in depreciation and
amortization is primarily attributable to the decrease of amortization for
intangibles due to the impairment and subsequent write down of intangibles at
year end Fiscal 2003. The remaining decrease is attributable to lower
depreciation expense as a result of assets reaching their full depreciable lives
during the course of Fiscal 2004 as well as reduced capital spending.

Rent Expense

For the fiscal year ended June 30, 2004, rent expense decreased by $0.2 million,
or 9.4%, to $2.0 million compared with $2.2 million for the fiscal year ended
June 30, 2003. The decrease in rent expense is primarily attributable to the
closure and consolidation of offices during Fiscal 2003.

Advertising Expense

Advertising expense for the fiscal year ended June 30, 2004 was $1.4 million
compared with $0.5 million for the fiscal year ended June 30, 2003. The increase
of $0.9 million in advertising cost was attributable to increased marketing
efforts relating to print and media advertisements and the continued
implementation of seminar and marketing efforts.

Goodwill Impairment Loss

As a result of the Company adopting SFAS No. 142, "Goodwill and Other Intangible
Assets", goodwill and other intangible assets were determined not to be impaired
for the fiscal year ended June 30, 2004. Under SFAS No. 142, goodwill and
intangible assets with indefinite lives are no longer amortized but are reviewed
for impairment. The goodwill and impairment loss for the fiscal year ended June
30, 2003 was $0.4 million.

Other Income and (Expense)

Other income/(expense) for the fiscal year ended June 30, 2004 was $(1.0)
million compared to $(1.7) million for the fiscal year ended June 30, 2003. The
improvement in other income/(expense) by $0.7 million, or 40.9% is primarily
attributable to decreased interest expense.

Loss from Continuing Operations Before Income Taxes

The Company's loss from continuing operations before income taxes for the fiscal
year ended June 30, 2004 was $1.0 million compared with a loss of $7.7 million
for the fiscal year ended June 30, 2003, an improvement of $6.7 million. The
reduced losses were primarily attributable to the Company's continued efforts to
raise revenue and reduce expenses.

Income Taxes/(Benefit)

The Company's income tax provision for the fiscal year ended June 30, 2004 was
$16,617 compared to an income tax provision of $93,000 for the fiscal year ended
June 30, 2003, a decrease of $76,383 or 82.1%. The decrease in the income tax
provision is the result of the lower losses in Fiscal 2004 compared to Fiscal
2003. The Company's effective income tax rate for fiscal year 2004 was 0.0% as
compared to 0.7% for Fiscal 2003.

Loss from Continuing Operations

The Company's loss from continuing operations after income taxes for the fiscal
year ended June 30, 2004 was $1.0 million compared with a loss of $7.8 million
for the fiscal year ended June 2003, an improvement of $6.8 million, or 86.8%.
The decreased loss is primarily attributable to decreases in operating expenses,
impairment of goodwill and interest expense, and increased revenues.


                                    Page 29
<PAGE>

Income (Loss) from Discontinued Operations

The Company's loss from discontinued operations for the fiscal year ended June
30, 2004, was $0.1 million compared with a loss of $6.0 million for the fiscal
year ended June 2003, a reduced loss of $5.9 million or 97.9%. For Fiscal 2004,
the Company recorded income from discontinued operations of $6.1 million
compared with a loss of $6.2 million in Fiscal 2003, an increase of $12.3
million.

Net Income

The Company's net income for the fiscal year ended June 30, 2004 was $5.1
million compared with a loss of $14.0 million in the fiscal year ended June 30,
2003, an increase of $19.0 million.

LIQUIDITY AND CAPITAL RESOURCES

During Fiscal 2005, 2004 and 2003 the Company was in default of certain
covenants under (i) its $7.0 million term loan/revolving letter of credit
financing with Wachovia Bank, National Association ("Wachovia"), (ii) its $5.0
million distribution financing with Travelers Insurance Company ("Travelers")
and (iii) its $1.0 million loan with Rappaport Gamma Limited Partnership
("Rappaport").

Following a number of defaults under its agreements with Wachovia, on November
27, 2002, the Company entered into a debt forbearance agreement with Wachovia
which was subsequently amended on June 18, 2003, March 4, 2004 and March 1,
2005. Travelers also has claimed several defaults under its distribution
financing agreement with the Company, but has acknowledged that Travelers is
subject to the terms of a subordination agreement with Wachovia (the
"Subordination Agreement"), which restricts the remedies it can pursue against
the Company. The Company's debt to Rappaport (the "Rappaport Loan") was due on
October 30, 2002. The Rappaport Loan is subordinated to the Wachovia loan. The
Rappaport Loan was sold to a group of Company management members and employees
(the "Purchasing Group") on April 29, 2005. The members of the Purchasing Group
include Prime Partners, Inc. ("Prime Partners"), a corporation partially owned
by Michael Ryan, the President and Chief Executive Officer and a director of the
Company, James Ciocia, the Chairman of the Company, Christopher Kelly, the
former General Counsel of the Company, Kathryn Travis, the Secretary and a
director of the Company, Dennis Conroy, the Chief Accounting Officer of the
Company, Ted Finkelstein, the Assistant General Counsel of the Company, and
certain other Company employees. The Purchasing Group has agreed to reduce the
principal balance of the Rappaport Loan from $1.0 million to $0.8 million and to
extend the maturity date to April 29, 2009. Pursuant to the terms of the
Rappaport Loan, the Purchasing Group, as holders of the Rappaport Loan, are
entitled to receive, in the aggregate, as interest, 15,000 shares of the
Company's common stock monthly while the debt remains unpaid.

As a result of these defaults, the Company's debt as to these lenders has been
classified as current liabilities on its financial statements. Upon the purchase
of the Rappaport Loan by the Purchasing Group, however, the Rappaport Loan was
reclassified as a related transaction.

Over the last three fiscal years the Company has operated under financial
limitations. The Company had a working capital deficit of $13.8 million at June
30, 2005 and recorded a loss from continuing operations for each of such fiscal
years.

The Company has shown losses for a variety of reasons including legacy issues
that include high cost structures for the home and field offices, the costs of
abandoned leases and significant litigation. The Company has also suffered
increased regulatory costs, and downward pressure on commission levels. The
Company has previously attempted to address its financial condition by among
other things, selling assets to raise cash, cutting operating expenses,
retaining existing registered representatives and borrowing from Prime Partners,
an affiliate of Michael Ryan, the President and Chief Executive Officer and a
director of the Company.

As a result of the Company's renegotiations with Wachovia, the amendment dated
March 1, 2005 to the Wachovia agreement discussed above, notwithstanding the
defaults with Wachovia, significantly reduced our debt service requirements
below those of fiscal 2005.

As of August 5, 2005, the Company sold its tax preparation and financial
planning businesses associated with its Colorado Springs, Colorado office. The
tax preparation business was sold to former employees of the Company for total
consideration of $0.4 million, $0.1 million of which was paid in cash to the
Company at closing, and $0.3 million of which is subject to a promissory note
that matures on January 1, 2012.

Additionally, during the third and fourth quarters of the Company's fiscal year,
significantly more cash is generated from its tax preparation business than
during the first and second quarters of the Company's fiscal year.

The Company is currently attempting to (i) increase revenues through a recently
initiated registered representative recruiting program, (ii) increase its
reserves and (iii) initiating discussions with its lenders to renegotiate its
financing arrangements. The Company has retained a financial advisor to assist
the Company in such discussions.

Other initiatives the Company is pursuing include (i) consolidating offices to
preserve the Company's revenue stream and to further reduce overhead expenses,
(ii) negotiating with the top producers in the independent representative
channel to move them to the Company representative channel, and (iii) lowering
compensation levels for lower producing company representatives.

Furthermore, the Company has demonstrated an ability to raise capital from
insiders and key producers when necessary through the Rappaport transaction, as
described above. Although the Company has not done so since the Rappaport
transaction and there is no guarantee the Company would be successful, the
Company believes it would be able to raise capital from insiders and key
producers again if necessary.

      There can be no guarantee, however, that the Company will be able to
successfully implement its strategy, and in particular, there can be no
guarantee that the Company's lenders will agree to terms in the future that are
more favorable to the Company than the current arrangements with the lenders.
Further, there can be no guarantee that the Company will be able to sell
additional assets, raise capital, or be able to generate further cost savings
without adversely impacting revenue and profitability.


                                    Page 30
<PAGE>

In view of the Company's efforts to increase revenues, the Company does not
currently anticipate selling significant amounts of additional assets.
Accordingly, the Company does not anticipate receiving significant funds in the
near future from asset sales to meet its working capital needs.

The Company's cash flows provided by operating activities totaled $0.5 million
for the fiscal year ended June 30, 2005, compared with cash flows used by
operating activities of $2.8 million for the fiscal year ended June 30, 2004.
The improvement of $3.3 million in cash provided by operating activities was
primarily due to cash received from the sale of discontinued operations, which
was used to pay down accounts payable in 2004.

Net cash provided by investing activities totaled $0.2 million for the fiscal
year ended June 30, 2005 compared to cash flows provided by investing activities
of $5.5 million for the fiscal year ended June 30, 2004. The decrease in cash
provided by investing activitieswas primarily attributable to the proceeds
received from the sale of discontinued operations in 2004, increased capital
expenditures in 2005 related to the Company's efforts to standardize its look
across all of its offices, offset slightly by the proceeds of the sale of a
building in Fiscal 2005.

The Company's cash flows used in financing activities totaled $0.6 million for
the fiscal year ended June 30, 2005, compared with cash flows used in financing
activities of $3.2 million for the fiscal year ended June 30, 2004. The
improvement of $2.6 million in cash used in financing is due primarily to lower
payments of bank loans in 2005 compared with 2004.

CONTRACTUAL OBLIGATION AND COMMERCIAL COMMITMENTS

The table below summarizes the Company's contractual obligations for the five
years subsequent to June 30, 2005, and thereafter. The amounts represent the
maximum future cash contractual obligations.

Contractual Obligations and Commercial Commitments

<TABLE>
<CAPTION>
                                                                        Payment Due by Period

Contractual Obligations            Total          2006           2007           2008           2009           2010       Thereafter
                               -----------------------------------------------------------------------------------------------------

<S>                            <C>            <C>            <C>            <C>            <C>            <C>            <C>
Debt and Related Party Debt    $ 8,866,614    $ 7,388,386    $   814,320    $   617,519    $    19,943    $    10,028    $    16,418
Operating Leases                 4,949,653      2,026,588      1,116,099        685,299        508,657        326,613        286,397
Capital Leases                     300,729        110,225        105,253         61,719         17,782          5,750             --
                               -----------------------------------------------------------------------------------------------------
Total contractual
cash obligations               $14,116,996    $ 9,525,199    $ 2,035,672    $ 1,364,537    $   546,382    $   342,391    $   302,815
                               -----------------------------------------------------------------------------------------------------
</TABLE>

Note: This Contractual Obligations schedule reflects the contractual payment
terms of the debt maturities, while $1.3 million has been reclassified to
current liabilities in the balance sheet since such debt is in technical
default.

Pursuant to Amendment No. 3 with Wachovia, the amortization schedule for the
Wachovia Loan was extended by approximately 16 months and the Maturity Date was
extended to March 28, 2008. Under Amendment No. 3, the Company will pay Wachovia
principal on the Loan of $66,000 monthly, plus interest.

In connection with the sale of offices to Pinnacle, all operating leases
associated with the Pinnacle Purchased Offices were assigned to Pinnacle, but
the Company still remains liable on the leases. Aggregate operating lease
commitment amounts included in the table above with respect to the leases
assigned to Pinnacle in November 2002 are $0.3 million in 2006, $0.1 million in
2007, $34,884 in 2008 and zero thereafter.

The Company is also contractually obligated to certain employees and executives
pursuant to commission agreements and compensation agreements.

EFFECTS OF INFLATION

Inflation has not had a significant effect on the Company's results of
operations in recent periods.


                                    Page 31
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

To date, the Company's exposure to market risk has been limited and it is not
currently hedging any market risk, although it may do so in the future. The
Company does not hold or issue any derivative financial instruments for trading
or other speculative purposes. The Company is exposed to market risk associated
with changes in the fair market value of the marketable securities that it
holds. The Company's revenue and profitability may be adversely affected by
declines in the volume of securities transactions and in market liquidity, which
generally result in lower revenues from trading activities and commissions.
Lower securities price levels may also result in a reduced volume of
transactions, as well as losses from declines in the market value of securities
held by the Company in trading and investment positions. Sudden sharp declines
in market values of securities and the failure of issuers and counterparts to
perform their obligations can result in illiquid markets in which the Company
may incur losses in its principal trading activities.

Interest Rate Risk

The Company's obligations under its Wachovia and Travelers agreements bear
interest at floating rates and therefore, the Company is impacted by changes in
prevailing interest rates.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Radin Glass has expressed an opinion on the financial statements for Fiscal
2005, 2004 and 2003.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm...................... 32

Consolidated Balance Sheets as of June 30, 2005 and 2004..................... 33

Consolidated Statements of Operations for the years ended June 30, 2005, 2004
and 2003..................................................................... 34

Consolidated Statements of Shareholders' Equity (Deficit)
for the years ended June 30, 2005, 2004 and 2003............................. 35

Consolidated Statements of Cash Flows for the years ended June 30, 2005, 2004
and 2003..................................................................... 36

Notes to Consolidated Financial Statements................................... 38

All schedules are omitted because they are not applicable or the required
information is shown in the Consolidated Financial Statements or Notes thereto.


                                    Page 32
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of
Gilman + Ciocia, Inc.
Poughkeepsie, New York

We have audited the accompanying consolidated balance sheets of Gilman + Ciocia,
Inc. and subsidiaries as of June 30, 2005 and 2004, and the related consolidated
statements of operations, shareholders' equity (deficit) and comprehensive loss
and cash flows for each of the three years then ended. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Gilman + Ciocia, Inc. and
subsidiaries at June 30, 2005 and 2004, and the results of its operations and
its cash flows for each of the three years then ended, in conformity with
accounting principles generally accepted in the United States.


/s/ Radin, Glass & Co., LLP

Radin, Glass & Co., LLP
New York, New York
September 26, 2005

With respect to Note 19, the date is June 14, 2006


                                    Page 33
<PAGE>

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                          June 30, 2005    June 30, 2004
                                                                          ------------------------------
<S>                                                                       <C>              <C>
Assets

Cash & Cash Equivalents                                                   $    667,054     $    498,545
Marketable Securities                                                          511,832        1,184,907
Trade Accounts Receivable, Net                                               3,102,521        3,678,204
Receivables from Officers, Shareholders
   and employees, net                                                          285,556          138,564
Due From Office Sales - Current                                                280,719          287,325
Prepaid Expenses                                                               905,277          365,117
                                                                          -----------------------------
     Total Current Assets
                                                                             5,752,959        6,152,662

Property and Equipment (less accumulated depreciation
   of $5,090,906 in 2005 and $4,768,871 in 2004)                             1,040,725        1,616,661
Goodwill                                                                     3,837,087        3,837,087
Intangible Assets (less accumulated amortization of $4,908,805
   in 2005 and $4,522,775 in 2004)                                           5,311,002        5,631,123
Due from Office Sales - Non Current                                            700,781        1,181,128
Other Assets                                                                   493,158          508,919
                                                                          -----------------------------
     Total Assets                                                         $ 17,135,712     $ 18,927,580
                                                                          =============================
Liabilities and Shareholders' Equity (Deficit)

Accounts Payable and Accrued Expenses                                     $ 10,452,087     $ 10,153,940
Current Portion of Notes Payable and Capital Leases                          7,253,939        9,113,793
Deferred Income                                                                310,800          221,537
Due to Related Parties                                                       1,568,809          445,000
                                                                          -----------------------------
     Total Current Liabilities                                              19,585,635       19,934,270
Long Term Portion of Notes Payable and Capital Leases                          282,424          212,248
                                                                          -----------------------------
     Total Liabilities                                                      19,868,059       20,146,518

Shareholders' Equity (Deficit)

Preferred Stock, $0.001 par value; 100,000 shares authorized; no
   shares issued and outstanding at June 30, 2005 and 2004,
   respectively                                                                     --               --
Common Stock, $0.01 par value 20,000,000 shares authorized; 10,409,876
   and 10,219,561 shares issued at June 30, 2005 and 2004,
   respectively                                                                104,098          102,195
Additional Paid in Capital                                                  30,207,474       29,897,210
Treasury Stock 1,326,838 at June 30, 2005 and 2004 shares of
   common stock, at cost                                                    (1,306,288)      (1,306,288)
Retained Deficit                                                           (31,737,631)     (29,912,055)
                                                                          -----------------------------
     Total Shareholders' Equity (Deficit)                                   (2,732,347)      (1,218,938)
                                                                          -----------------------------
Total Liabilities & Shareholders' Equity (Deficit)                        $ 17,135,712     $ 18,927,580
                                                                          =============================
</TABLE>

See Notes to the Consolidated Financial Statements


                                    Page 34
<PAGE>

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                          Fiscal Years Ended June 30,
                                                    2005             2004             2003
                                               ----------------------------------------------
<S>                                            <C>              <C>              <C>
                                                                                   Restated
Revenues                                                                         See Note (19)
 Financial Planning Services                   $ 49,580,388     $ 53,587,859     $ 48,430,079
 Tax Preparation Fees                             6,502,402        6,323,190        5,747,883
                                               ----------------------------------------------
      Total Revenues                             56,082,790       59,911,049       54,177,962
                                               ----------------------------------------------
Operating Expenses
Commissions                                      32,911,632       34,361,369       32,018,741
 Salaries                                        10,481,189       11,813,611       12,595,721
 General and Administrative                       7,657,449        7,207,947        9,247,843
 Advertising                                      1,740,738        1,360,814          474,040
 Brokerage Fees and Licenses                      1,447,075        1,599,050        1,590,098
 Rent                                             1,873,089        2,034,374        2,245,373
 Depreciation and Amortization                    1,171,862        1,536,570        1,654,104
 Goodwill Impairment                                     --               --          371,793
                                               ----------------------------------------------
      Total Operating Expenses                   57,283,034       59,913,734       60,197,712
                                               ----------------------------------------------
Loss from Continuing Operations
  Before Other Income and Expenses               (1,200,244)          (2,685)      (6,019,750)
                                               ----------------------------------------------
Other Income/(Expenses)
 Interest and Investment Income                      99,307           39,856          129,462
 Interest Expense                                  (871,141)      (1,057,244)      (1,850,885)
 Other Income/(Expense), Net                        146,502               --
                                               ----------------------------------------------
      Total Other Income/(Expense),Net             (625,332)      (1,017,388)      (1,721,423)
                                               ----------------------------------------------
Loss from Continuing Operations
  Before Income Taxes                            (1,825,576)      (1,020,073)      (7,741,173)
                                               ----------------------------------------------
 Income Taxes/(Benefit)                                  --           16,617           93,000
                                               ----------------------------------------------
      Loss from Continuing Operations            (1,825,576)      (1,036,690)      (7,834,173)
                                               ----------------------------------------------
Discontinued Operations
 Loss from Discontinued Operations                       --         (125,047)      (6,005,126)
 Gain/(Loss)on Disposal of
    Discontinued Operations                              --        6,213,272         (157,617)
                                               ----------------------------------------------
 Income/(Loss) from Discontinued
    Operations                                           --        6,088,225       (6,162,743)
                                               ----------------------------------------------
      Net Income/(Loss)                        $ (1,825,576)    $  5,051,535     $(13,996,916)
                                               ==============================================
Weighted Average Number of Common
  Shares Outstanding
 Basic Shares                                     9,008,400        9,388,764        9,440,815
 Diluted Shares                                   9,008,400        9,412,564        9,440,815
  Basic Net Income/(Loss) Per Share:
 Loss from Continuing Operations               $      (0.20)    $      (0.11)    $      (0.83)
 Income/(Loss) from Discontinued Operations    $         --     $       0.65     $      (0.65)
 Net Income/(Loss)                             $      (0.20)    $       0.54     $      (1.48)
  Diluted Net Income/(Loss) Per Share:
 Loss from Continuing Operations               $      (0.20)    $      (0.11)    $      (0.83)
 Income/(Loss) from Discontinued Operations    $         --     $       0.65     $      (0.65)
 Net Income/(Loss)                             $      (0.20)    $       0.54     $      (1.48)
</TABLE>

See Notes to the Consolidated Financial Statements


                                    Page 35
<PAGE>

           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY/(DEFICIT)

<TABLE>
<CAPTION>
                                                                             Retained
                                                  Common Stock              Additional       Earnings
                                          ---------------------------        Paid in       (Accumulated
                                             Shares          Amount          Capital         Deficit)
                                          -------------------------------------------------------------
<S>                                       <C>            <C>              <C>              <C>
Balance, June 30, 2002                     9,203,027     $     92,030     $ 29,534,512     $(20,966,674)
                                          -------------------------------------------------------------
       Net loss, as restated                      --               --               --      (13,996,916)
Repurchase of stock                               --               --               --               --
Issuance of stock in connection with
   earnout agreement                          16,534              165            6,448               --
Issuance of stock in connection with
   earnout agreement                         820,000            8,200          310,050               --

                                          -------------------------------------------------------------
Balance, June 30, 2003                    10,039,561     $    100,395     $ 29,851,010     $(34,963,590)
                                          -------------------------------------------------------------

       Net income                                 --               --               --        5,051,535
Repurchase of stock                               --               --               --               --
Reversal of Stock Subscriptions                   --               --               --               --
Issuance of stock in connection with
   default of note                           180,000            1,800           46,200               --

                                          -------------------------------------------------------------
Balance, June 30, 2004                    10,219,561     $    102,195     $ 29,897,210     $(29,912,055)
                                          -------------------------------------------------------------

       Net loss                                   --               --               --       (1,825,576)
Rescindment of Shares                        (14,400)            (144)          (4,176)              --
Issuance of stock in connection with
   with acquisitions and other                24,715              247            6,840               --
Issuance of stock in connection with
   default of note                           180,000            1,800           57,600               --
Debt contribution related to sale of
   unsecured note to related parties              --               --          250,000               --

                                          -------------------------------------------------------------
Balance, June 30, 2005                    10,409,876     $    104,098     $ 30,207,474     $(31,737,631)
                                          -------------------------------------------------------------

<CAPTION>
                                                                          Subscriptions/
                                                                               Note            Total
                                                 Treasury Stock           Receivable for   Shareholders
                                             Shares          Amount        Shares Sold        Equity
                                          -------------------------------------------------------------
<S>                                       <C>            <C>              <C>              <C>
Balance, June 30, 2002                       263,492     $ (1,066,014)    $   (105,000)    $  7,488,854
                                          -------------------------------------------------------------

       Net loss, as restated                      --               --               --      (13,996,916)
Repurchase of stock                           14,730           (9,597)              --           (9,597)
Issuance of stock in connection with
   earnout agreement                              --               --               --            6,613
Issuance of stock in connection with
   earnout agreement                              --               --               --          318,250

                                          -------------------------------------------------------------
Balance, June 30, 2003                       278,222     $ (1,075,611)    $   (105,000)    $ (6,192,796)
                                          -------------------------------------------------------------

       Net income                                 --               --               --        5,051,535
Repurchase of stock                        1,048,616         (230,677)              --         (230,677)
Reversal of Stock Subscriptions                   --               --          105,000          105,000
Issuance of stock in connection with
   default of note                                --               --               --           48,000

                                          -------------------------------------------------------------
Balance, June 30, 2004                     1,326,838     $ (1,306,288)    $         --     $ (1,218,938)
                                          -------------------------------------------------------------

       Net loss                                   --               --               --       (1,825,576)
Rescindment of Shares                             --               --               --           (4,320)
Issuance of stock in connection with
   with acquisitions and other                    --               --               --            7,087
Issuance of stock in connection with
   default of note                                --               --               --           59,400
Debt contribution related to sale of
   unsecured note to related parties              --               --               --          250,000

                                          -------------------------------------------------------------
Balance, June 30, 2005                     1,326,838     $ (1,306,288)    $         --     $ (2,732,347)
                                          -------------------------------------------------------------
</TABLE>

See Notes to the Consolidated Financial Statements


                                    Page 36
<PAGE>

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                   For Fiscal Years Ended June 30,
                                                               2005             2004             2003
                                                             Restated         Restated         Restated
                                                          (See Note 19)     (See Note 19)    (See Note 19)
                                                           ----------------------------------------------
<S>                                                        <C>              <C>              <C>
Cash Flows From Operating Activities:
Net Income/(Loss):                                         $ (1,825,576)    $  5,051,535     $(13,996,916)

Adjustments to reconcile net loss to net cash used in
   operating activities:
Depreciation and amortization                                 1,171,862        1,539,868        2,167,256
Issuance of common stock for debt default penalties,
   interest and other                                            62,167           48,000          318,250
Goodwill and other intangible assets impairment loss                 --               --        3,851,585
Amortization of debt discount                                   145,264          209,015          482,834
Provision (benefit) for income taxes                                 --               --           93,000
(Gain) Loss on sale of discontinued operations                       --       (6,213,707)              --
(Gain) Loss on sale of equipment and properties                 (31,182)              --           85,325
Allowance for Doubtful accounts                                (118,446)         169,839          289,231
(Income) Loss from joint venture                                     --               --          (66,747)

Changes in assets and  liabilities:
Accounts receivable, Net                                        575,683          445,486        1,621,503
Prepaid and other current assets                               (540,160)         111,281         (321,480)
Change in marketable securities                                 673,075         (215,285)         798,862
Other Assets                                                     15,763          505,098          539,761
Accounts Payable and accrued expenses                           298,147       (4,470,386)       1,639,770
Income taxes receivable (payable)                                    --           27,589          608,087
Other liabilities                                                89,264          (11,000)          31,000
                                                           ----------------------------------------------
Net cash provided by/(used in) operating activities:       $    515,861     $ (2,802,666)    $ (1,858,679)

Cash Flows From Investing Activities:
Capital Expenditures                                           (299,312)         (72,524)        (146,090)
Cash paid for acquisitions, net of cash acquired               (239,062)        (122,582)        (326,774)
Cash Paid for the sale of businesses                                 --               --          (25,000)
Receivables from officers, shareholders and employees           (21,942)         417,275          372,208
Due From Office Sales                                           480,346          190,939              --
Proceeds from the sale of discontinued operations                    --        5,104,709        1,863,254
Proceeds from the sale of joint ventures                             --               --           90,000
Proceeds from the sale of property and equipment                293,750               --           14,000
                                                           ----------------------------------------------
Net cash provided by/(used in) investing activities:       $    213,780     $  5,517,817     $  1,841,598

Cash Flows From Financing Activities:
Acquisition of treasury stock                                        --         (230,695)          (9,597)
Notes Receivable for Shares                                          --          105,000               --
Proceeds from bank and other loans                              455,856          583,249        1,541,561
Payments of bank loans and capital lease obligations         (1,016,987)      (3,629,256)      (2,783,592)
                                                           ----------------------------------------------
Net cash provided by/(used in) financing activities:       $   (561,131)    $ (3,171,702)    $ (1,251,628)

Net change in cash and cash equivalents                    $    168,509     $   (456,552)    $ (1,268,709)
Cash and cash equivalents at beginning of period           $    498,545     $    955,097     $  2,223,806
Cash and cash equivalents at end of period                 $    667,054     $    498,545     $    955,097
                                                           ==============================================
</TABLE>

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


                                    Page 37
<PAGE>

        Supplemental Disclosures to Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                        For Fiscal Years Ended June 30,
                                                       2005          2004          2003
                                                                                 Restated
                                                                               (See Note 19)
                                                    ---------------------------------------
<S>                                                 <C>           <C>           <C>
Cash Flow Information
Cash payments during the year for
   Interest                                         $  480,617    $1,057,244    $  510,334
   Income Taxes                                     $       --    $       --    $   33,833

Supplemental Disclosure of Non-Cash Transactions
Common stock issued in connection with
   acquisitions/other                               $    7,087    $       --    $    6,613
Issuance of common stock for debt default
   penalties and interest                           $   59,400    $   48,000    $  318,250
Debt contribution related to sale of unsecured
   note to related parties                          $  250,000    $       --    $       --
Equipment acquired under capital leases             $  219,604    $   20,987    $   70,860

Businesses Acquired
Fair value of assets acquired                       $       --    $       --    $  326,774
</TABLE>


                                    Page 38
<PAGE>

                      GILMAN + COCIA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                FOR THE YEARS ENDED JUNE 30, 2005, 2004, AND 2003

1. ORGANIZATION AND NATURE OF BUSINESS

Description of the Company

Gilman + Ciocia, Inc. (together with its wholly owned subsidiaries, the
"Company") is a corporation that was organized in 1981 under the laws of the
State of New York and reincorporated under the laws of the State of Delaware in
1993. The Company provides financial planning services, including securities
brokerage, insurance and mortgage agency services, and federal, state and local
tax preparation services to individuals, predominantly in the middle and upper
income tax brackets. In Fiscal 2005, approximately 88.0% of the Company's
revenues were derived from commissions on financial planning services and
approximately 12.0% were derived from fees for tax preparation services. As of
June 30, 2005, the Company had 35 offices operating in five states (New York,
New Jersey, Connecticut, Florida and Colorado). In August 2005 the Company sold
its office in Colorado.

As a result of a number of defaults under its agreements with Wachovia Bank,
National Association ("Wachovia"), on November 27, 2002 the Company entered into
a debt forbearance agreement with Wachovia and subsequently amended the debt
forbearance agreement as of June 18, 2003, March 4, 2004 and March 1, 2005.
Another of its lenders, Travelers Insurance Company ("Travelers") has claimed
several defaults under its distribution financing agreement, but acknowledged
that it was subject to the terms of a subordination agreement with Wachovia (the
"Subordination Agreement"), which restricts the remedies it can pursue against
the Company. The Company's debt to Rappaport Gamma Limited Partnership (the
"Rappaport Loan") was due on October 30, 2002. The Rappaport Loan is
subordinated to the Wachovia loan. The Rappaport Loan was sold to a group of
Company management and employees (the "Purchasing Group") on April 29, 2005. The
members of the Purchasing Group include Prime Partners, Inc., a corporation
controlled by Michael Ryan, the President and Chief Executive Officer and a
director of the Company, James Ciocia, the Chairman of the Company, Christopher
Kelly, the General Counsel of the Company, Kathryn Travis, the Secretary and a
director of the Company, Dennis Conroy, the Chief Accounting Officer of the
Company, Ted Finkelstein, the Assistant General Counsel of the Company, and
certain other Company employees. The Purchasing Group has agreed to reduce the
principal balance of the Rappaport Loan from $1.0 million to $0.8 million and
extend the maturity date to April 29, 2009. Pursuant to the terms of the
Rappaport Loan, the Purchasing Group, as holders of the Rappaport Loan, are
entitled to receive, in the aggregate, as interest, 15,000 shares of the
Company's common stock monthly while the debt remains unpaid. As a result of
these defaults, the Company's debt as to those lenders has been classified as
current liabilities on its financial statements. Upon the purchase of the
Rappaport Loan by the Purchasing Group, however, the Rappaport Loan was
reclassified as a related transaction. See Note 15 to Notes to Consolidated
Financial Statements for a complete discussion of the Company's debt.

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").
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.


                                    Page 39
<PAGE>

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates. Furthermore, the Company,
including its wholly owned subsidiary Prime Capital Services, Inc. ("PCS"), has
been named as a defendant in various customer arbitrations. These claims result
from the actions of brokers affiliated with PCS. In addition, under the PCS
registered representatives contract, each registered representative has
indemnified the Company for these claims. In accordance with Statement of
Financial Accounting Standards ("SFAS") No. 5 "Accounting for Contingencies,"
the Company has established liabilities for potential losses from such
complaints, legal actions, investigations and proceedings. In establishing these
liabilities, the Company's management uses its judgment to determine the
probability that losses have been incurred and a reasonable estimate of the
amount of losses. In making these decisions, we base our judgments on our
knowledge of the situations, consultations with legal counsel and our historical
experience in resolving similar matters. In many lawsuits, arbitrations and
regulatory proceedings, it is not possible to determine whether a liability has
been incurred or to estimate the amount of that liability until the matter is
close to resolution. However, accruals are reviewed regularly and are adjusted
to reflect our estimates of the impact of developments, rulings, advice of
counsel and any other information pertinent to a particular matter. Because of
the inherent difficulty in predicting the ultimate outcome of legal and
regulatory actions, we cannot predict with certainty the eventual loss or range
of loss related to such matters. If our judgments prove to be incorrect, our
liability for losses and contingencies may not accurately reflect actual losses
that result from these actions, which could materially affect results in the
period other expenses are ultimately determined. As of June 30, 2005, the
Company has accrued approximately $1.0 million for these matters. A majority of
these claims are covered by the Company's errors and omissions insurance policy.
While the Company will vigorously defend itself in these matters, and will
assert insurance coverage and indemnification to the maximum extent possible,
there can be no assurance that these lawsuits and arbitrations will not have a
material adverse impact on its financial position.

Cash and Cash Equivalents

The Company considers 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.

Marketable Securities

The Company accounts for its short-term investments in accordance with SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities". The
Company's short-term investments consist of trading securities and are stated at
quoted market values, with unrealized gains and losses reported as investment
income in earnings. During the fiscal years ended June 30, 2005, 2004 and 2003
the Company recognized unrealized gains/(losses) from trading securities of
$51,872, $(49,904) and $(351,546), respectively. Realized gains, realized losses
and declines in value judged to be other-than-temporary, are included in other
income (expense). All such gains and losses are calculated on the basis of the
specific-identification method. During the fiscal year ended June 30, 2005, the
Company recognized $1.4 million in realized gains. Interest earned is included
in other income/expense. The original cost included in the carrying value of
marketable securities at June 30, 2005 is $0.5 million.

Securities sold, but not yet purchased, are stated at quoted market values with
unrealized gains and losses reflected in the statements of operations.
Subsequent market fluctuations of securities sold, but not yet purchased, may
require purchasing the securities at prices that may differ from the market
values reflected in the accompanying balance sheets. The liability attributable
to securities sold short, but not yet purchased, is $57,584 as of June 30, 2005,
and is included in accounts payable and accrued expenses.


                                    Page 40
<PAGE>

Trade Accounts Receivable, Net

The Company's accounts receivable consist primarily of amounts due related to
financial planning commissions and tax accounting services performed. The
allowance for doubtful accounts represents an amount considered by management to
be adequate to cover potential losses, if any. The recorded allowance at June
30, 2005, and 2004 was $0.9 million and $0.6 million, respectively. Bad debt
expense recorded for June 30, 2005, 2004 and 2003 was $0.4 million, $0.6 million
and $0.4 million, respectively.

Property and Equipment

Property and equipment are carried at cost. Amounts incurred for repairs and
maintenance are charged to operations in the period incurred. Depreciation is
calculated on a straight-line basis over the following useful lives:

      Equipment                            3-5 years

      Furniture and fixtures               5-7 years

      Leasehold improvements               5-10 years

      Software                             5 years

      Assets under capital lease           3-7 years

Goodwill and Intangible Assets

Goodwill and other intangibles, net relates to the Company's acquisitions
accounted for under the purchase method. Intangible assets include covenants not
to compete, customer lists, goodwill, independent contractor agreements and
other identifiable intangible assets. Goodwill represents acquisition costs in
excess of the fair value of net tangible and identifiable intangible assets
acquired as required by SFAS No. 141 "Business Combinations". SFAS No. 142
"Goodwill and Other Intangible Assets" requires that purchased goodwill and
certain indefinite-lived intangibles no longer be amortized, but instead be
tested for impairment at least annually. Prior to SFAS No. 142 goodwill was
amortized over an expected life of 20 years. This testing requires the
comparison of carrying values to fair value and, when appropriate, requires the
reduction of the carrying value of impaired assets to their fair value.
Separable intangible assets that are not deemed to have indefinite lives will
continue to be amortized over their useful lives. Amortization of finite lived
intangible assets is calculated on a straight-line basis over the following
lives:

      Customer Lists                       5-20 years

      Broker-Dealer Registration           20 years

      Non-Compete Contracts                3-5 years

      House Accounts                       15 years

      Administrative Infrastructure        7 years

      Independent Contractor Agreements    15 years

The Company reviews long-lived assets, certain identifiable assets and any
impairment related to those assets at least annually or whenever circumstances
and situations change such that there is an indication that the carrying amounts
may not be recoverable. To the extent carrying values have exceeded fair values,
an impairment loss has been recognized in operating results.

Website Development and Internal Use Software Costs

In accordance with Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use," as well as
Emerging Issues Task Force ("EITF') 00-02, "Accounting for Website Development
Costs," the Company capitalized costs incurred in the application development
stage related to the development of its website and its internal use software in
Fiscal 2003 in the amount of $0.2 million. Amortization expense is computed on a
straight-line basis over a period of three to five years, the expected useful
life, and amounted to approximately $69,745, $80,993 and $89,027 for the years
ended June 30, 2005, 2004 and 2003 (see Note 5).


                                    Page 41
<PAGE>

Revenue Recognition

The Company recognizes 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.

Advertising Expense

The costs to develop direct-mail advertising are accumulated and expensed upon
the first mailing of such advertising in accordance with SOP 93-7, "Reporting on
Advertising Costs". The costs to develop tax season programs and associated
printing and paper costs are deferred in the first and second fiscal quarters
and expensed in the third fiscal quarter upon the first use of such
advertisements in the advertising programs.

Interest Income (Expense)

Interest expense relates to interest owed on the Company's debt. Interest
expense is recognized over the period the debt is outstanding at the stated
interest rates (see Note 9). Interest income relates primarily to interest
earned on bonds by the broker-dealer channel. Interest is recognized from the
last interest payment date up to but not including the settlement date of the
sale.

Income Taxes

Income taxes have been provided using the liability method. Deferred tax assets
and liabilities are determined based on differences between the financial
reporting and tax basis of assets and liabilities and are measured by applying
estimated tax rates and laws to taxable years in which such differences are
expected to reverse.

Stock-based Compensation

At June 30, 2005, the Company had various stock-based employee compensation
plans. Prior to 2000, the Company accounted for plans under the recognition and
measurement provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees", and related Interpretations.
Effective July 1, 2000, the Company adopted the fair value recognition
provisions of SFAS No. 123, "Accounting for Stock-based Compensation",
prospectively to all employee awards granted, modified, or settled after January
1, 2002. Awards under the Company's plans vest over periods ranging from
immediately to five years. Therefore, the cost related to stock-based employee
compensation included in the determination of net income for 2003, 2004 and 2005
is less than that which would have been recognized if the fair value based
method had been applied to all awards since the original effective date of SFAS
No. 123. The following table illustrates the effect on net income and earnings
per share if the fair value based method had been applied to all outstanding and
unvested awards in each period.

                                    Page 42
<PAGE>
<TABLE>
<CAPTION>
                                                           For Fiscal Years Ended June 30,
                                                       2005              2004             2003
                                                  ------------------------------------------------
<S>                                               <C>               <C>              <C>
Net Income/(Loss) as reported                     $  (1,825,576)    $   5,051,535    $ (13,996,916)

Add: Stock-based employee compensation
   expenses included in reported net
   income/(loss), net of related tax effects                 --                --               --

Deduct: Total stock-based compensation
   expense determined under fair value based
   method for all awards, net of related taxes               --                --          198,844
                                                  ------------------------------------------------

Proforma Net Income/(Loss)                        $  (1,825,576)    $   5,051,535    $ (14,195,760)
Basic and diluted earnings/(loss) per share:
As reported - Basic                               $       (0.20)    $        0.54    $       (1.48)

Proforma - Basic                                  $       (0.20)    $        0.54    $       (1.50)
As reported - Diluted                             $       (0.20)    $        0.54    $       (1.48)
Proforma - Diluted                                $       (0.20)    $        0.54    $       (1.50)
</TABLE>

The effects of applying SFAS No. 123 in the proforma net income/(loss)
disclosures above are not likely to be representative of the effects on proforma
disclosures of future years.

Net Income/(Loss) Per Share

In accordance with SFAS No. 128, "Earnings Per Share", basic net income/(loss)
per share is computed using the weighted average number of common shares
outstanding during each period. The computation for June 30, 2005 did not
include outstanding options and warrants because to do so would have an
antidilutive effect for the periods presented.

Fair Value of Financial Instruments

The carrying amounts of financial instruments, including cash and cash
equivalents, accounts receivable, notes receivable, and accounts payable,
approximated fair value as of June 30, 2005, because of the relatively
short-term maturity of these instruments and their market interest rates. Since
the long term debt is in default, it is not possible to estimate its value.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of
credit risk consist of trade receivables. The majority of the Company's trade
receivables are commissions earned from providing financial planning services
that include securities/brokerage services and insurance and mortgage agency
services. As a result of the diversity of services, markets and the wide variety
of customers, the Company does not consider itself to have any significant
concentration of credit risk.

Segment Disclosure

Management believes the Company operates as one segment.

Recent Accounting Pronouncements

In May 2005, the Financial Accounting Standards Board ("FASB") issued SFAS
Statement No. 154 "Accounting Changes and Error Corrections", which replaces APB
Opinion No. 20 "Accounting Changes" and FASB No. 3 "Reporting Accounting Changes
in Interim Financial Statements". This Statement provides guidance on the
reporting of accounting changes and error corrections. It established, unless
impracticable, retrospective application as the required method for reporting a


                                    Page 43
<PAGE>

change in accounting principle in the absence of explicit transition
requirements to a newly adopted accounting principle. The Statement also
provides guidance when the retrospective application for reporting of a change
in accounting principle is impracticable. The reporting of a correction of an
error by restating previously issued financial statements is also addressed by
this Statement. This Statement is effective for financial statements for fiscal
years beginning after December 15, 2005. Earlier application is permitted for
accounting changes and corrections of errors made in fiscal years beginning
after the date this Statement is issued. Management believes this Statement will
have no impact on the financial statements of the Company once adopted.

In March 2005, FASB Interpretation ("FIN") No. 47 "Accounting for Conditional
Asset Retirement Obligations" was issued, which clarifies certain terminology as
used in FASB Statement No. 143, "Accounting for Asset Retirement Obligations".
In addition, it clarifies when an entity would have sufficient information to
reasonably estimate the fair value of an asset retirement obligation. FIN 47 is
effective no later than the end of fiscal years ending after December 15, 2005.
Early adoption of FIN 47 is encouraged. Management believes FIN 47 will have no
impact on the financial statements of the Company once adopted.

In December 2004, the FASB issued SFAS No. 153 "Exchanges of Nonmonetary
Assets". This Statement addresses the measurement of exchanges of non-monetary
assets. The guidance in APB Opinion No. 29, "Accounting for Non-monetary
Transactions", is based on the principle that exchanges of non-monetary assets
should be measured based on the fair value of the assets exchanged. The guidance
in that Opinion, however, included certain exceptions to that principle. This
Statement amends APB Opinion No. 29 to eliminate the exception for non-monetary
exchanges of similar productive assets and replaces it with a general exception
for exchanges of non-monetary assets that do not have commercial substance. A
non-monetary exchange has commercial substance if the future cash flows of the
entity are expected to change significantly as a result of the exchange. This
Statement is effective for financial statements for fiscal years beginning after
June 15, 2005. Earlier application is permitted for non-monetary asset exchanges
incurred during fiscal years beginning after the date this Statement is issued.
Management believes the adoption of this Statement will have no impact on the
financial statements of the Company.

In December 2004, the FASB issued SFAS No. 123 (R) "Share-Based Payment", a
revision to FASB Statement No. 123, "Accounting for Stock Based Compensation".
This Statement supercedes APB Opinion No. 25, "Accounting for Stock Issued to
Employees", and its related implementation guidance. This Statement establishes
standards for the accounting for transactions in which an entity exchanges its
equity instruments for goods or services. It also addresses transactions in
which an entity incurs liabilities in exchange for goods or services that are
based on the fair value of the entity's equity instruments or that may be
settled by the issuance of those equity instruments. This Statement focuses
primarily on accounting for transactions in which an entity obtains employee
services in share-based payment transactions. This Statement does not change the
accounting guidance for share-based payment transactions with parties other than
employees provided in SFAS No. 123 as originally issued and EITF Issue No.
96-18, "Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services."
This Statement does not address the accounting for employee share ownership
plans, which are subject to SOP 93-6 "Employers' Accounting for Employee Stock
Ownership Plans".

A nonpublic entity will measure the cost of employee services received in
exchange for an award of equity instruments based on the grant-date fair value
of those instruments, except in certain circumstances.

A public entity will initially measure the cost of employee services received in
exchange for an award of equity instruments based on its current fair value; the
fair value of that award will be re-measured subsequently at each reporting date
through the settlement date. Changes in fair value during the requisite service
period will be recognized as compensation cost over that period. A nonpublic
entity may elect to measure its equity awards at their intrinsic value through
the date of settlement.

The grant-date fair value of employee share options and similar instruments will
be estimated using the option-pricing models adjusted for the unique
characteristics of those instruments (unless observable market prices for the
same or similar instruments are available).


                                    Page 44
<PAGE>

Excess tax benefits, as defined by this Statement, will be recognized as an
addition to paid-in-capital. Cash retained as a result of those excess tax
benefits will be presented in the statement of cash flows as financing cash
inflows. The write-off of deferred tax assets relating to unrealized tax
benefits associated with recognized compensation cost will be recognized as
income tax expense unless there are excess tax benefits from previous awards
remaining in paid-in capital to which it can be offset.

The notes to the financial statements of both public and nonpublic entities will
disclose information to assist users of financial information to understand the
nature of share-based payment transactions and the effects of those transactions
on the financial statements.

The effective date for public entities that do not file as small business
issuers will be as of the beginning of the first annual reporting period that
begins after June 15, 2005. For public entities that file as small business
issuers and nonpublic entities the effective date will be as of the beginning of
the first annual reporting period that begins after December 15, 2005.
Management intends to comply with this Statement at the scheduled effective date
for the relevant financial statements of the Company.

3. BUSINESS COMBINATIONS AND SOLD OFFICES

The Company has financed the sale of a few offices with the receipt of notes to
be paid over various terms up to 144 months. These notes have guarantees from
the respective office purchaser and certain default provisions. These notes are
non-interest bearing and have been recorded with an 8% discount.

The scheduled payments for the balance of the term of these notes are as
follows:

                    2006                  $  218,816
                    2007                     209,771
                    2008                     181,710
                    2009                      90,984
                    2010                      71,875
              Thereafter                     413,281
                                          ----------
                   Total                  $1,186,437
          Less Allowance                     204,937
                                          ----------
                   Total                  $  981,500
                                          ==========

On November 26, 2002, the Company finalized a transaction pursuant to an asset
purchase agreement (the "Purchase Agreement") with Pinnacle, whereby Pinnacle,
an entity controlled by Thomas Povinelli and David Puyear, former executive
officers of the Company, purchased certain assets of the Company. The effective
date of the closing under the Purchase Agreement was September 1, 2002. The
Company sold to Pinnacle 47 offices ("Pinnacle Purchased Offices") and all
tangible and intangible net assets associated with the operations of the
Pinnacle Purchased Offices, together representing approximately $17.7 million,
or approximately 18.0%, of the Company's annual revenue for the fiscal year
ended June 30, 2002.

The purchase price payable by Pinnacle, including certain liabilities and
payables assumed by Pinnacle, was approximately $7.0 million, subject to final
adjustments. After the closing, the Company alleged that Pinnacle was in default
under the Purchase Agreement, and on May 16, 2003, the Company initiated a
lawsuit against Pinnacle seeking payments for all amounts due.

On December 4, 2003, the Company entered into a settlement with Pinnacle and the
Company collected all amounts due from Pinnacle under the Purchase Agreement. As
part of the settlement, the parties agreed to discontinue all litigation and
legal disputes between the parties. Pinnacle agreed to pay the Company $2.1
million. At closing, Wachovia was paid $0.6 million pursuant to a preexisting
forbearance agreement, as amended, between the Company and Wachovia, including
$0.1 million to obtain its final consent. The balance of $1.4 million was paid
to the Company. The settlement amount constituted the global settlement amount
in connection with the resolution of all monetary disputes between Pinnacle and
the Company under the Purchase Agreement.


                                    Page 45
<PAGE>

In connection with the settlement, Pinnacle negotiated a release of the Company
from its obligations pursuant to the lease for the Company's former White Plains
office. This release was finalized in an Assignment and Assumption of Lease and
Consent dated as of February 18, 2004. However, subsequent to the settlement,
the Company still remains liable to lessors of equipment and landlords for
certain leases assigned to Pinnacle and will have to pay such lessors and
landlords if Pinnacle, or guarantors Thomas Povinelli and David Puyear, do not
pay. The aggregate of these lease amounts on June 30, 2004 was $1.3 million.

Including the $2.1 million settlement payment, the Company received total
consideration under the Purchase Agreement of approximately $7.3 million,
comprised of the following:

      Cash payments to the Company                   $4,410,000

      Company debt assumed by Pinnacle               $2,630,000

      Credit to Pinnacle for the transfer to the
      Company by Povinelli of 1,048,616 shares of
      Company common stock                           $  230,000

The Company recognized a $10,650 gain in Fiscal 2003 and a gain of $4.1 million
in the second quarter of Fiscal 2004 from the Pinnacle sale consisting of: $2.5
million of cash received, $1.9 million on the release of obligations assumed by
Pinnacle, and other items totaling $0.1 million.

During Fiscal 2004 and 2003, the Company sold 63 of its offices, including the
offices sold to Pinnacle. The Company recognized a gain of $6.2 million on the
sale of these offices in Fiscal 2004.

The following table presents financial data on discontinued operations of
offices sold:

                                        For Fiscal Years Ended June 30,
                                -----------------------------------------------
                                    2005             2004              2003

Revenues                        $         --     $  3,529,387      $ 13,573,167
Pre-tax Loss                    $         --     $   (125,047)     $ (6,005,126)


                                    Page 46
<PAGE>

4. RECEIVABLES FROM OFFICERS, STOCKHOLDERS AND EMPLOYEES, AND PREPAIDS

Receivables from officers, shareholders, employees and independent
representatives consist of the following:

                                                            As of June 30,
                                                         2005            2004
                                                      --------------------------
Demand loans from officers, shareholders,
   employees and independent registered
   representatives                                    $1,179,065      $  935,525
                                                      --------------------------
   Subtotal                                            1,179,065         935,525

Less Allowance                                           893,507         796,961
                                                      --------------------------

Total Receivable (Current)                            $  285,558      $  138,564
                                                      ==========================

Prepaids consist of the following:

                                                            As of June 30,
                                                         2005            2004
                                                      --------------------------

Prepaid Insurance                                     $  641,748      $  365,117
Deferred Expense                                         263,529              --
                                                      --------------------------
     Total                                            $  905,277      $  365,117
                                                      ==========================

Note: For Fiscal 2005, prepaid insurance was subsequently financed and the
corresponding liability is recorded in Notes Payable. Deferred expense consists
primarily of advertising and is being amortized straight line over two years.

5. PROPERTY AND EQUIPMENT, NET

Major classes of property and equipment consist of the following:

                                                           As of June 30,
                                                        2005            2004
                                                    ---------------------------

Buildings                                           $        --     $   317,737
Equipment                                             4,304,774       4,048,137
Furniture and Fixtures                                  712,417         630,626
Leasehold Improvements                                  727,151         714,694
Software                                                387,289         674,338
                                                    ---------------------------

 Property and Equipment at Cost                       6,131,631       6,385,532

Less: Accumulated Depreciation & Amortization        (5,090,906)     (4,768,871)
                                                    ---------------------------

 Property and Equipment, Net                        $ 1,040,725     $ 1,616,661
                                                    ===========================

Property and equipment under capitalized leases was $1.8 million at June 30,
2005 and $1.6 million at June 30, 2004. Accumulated amortization related to
capitalized leases was $1.5 million at June 30, 2005 and $1.4 million at June
30, 2004.

Depreciation expense for property and equipment was $0.5 million and $0.7
million for the fiscal years ended June 30, 2005 and June 30, 2004,
respectively.


                                    Page 47
<PAGE>

6. GOODWILL

Goodwill included on the balance sheets as of June 30, 2005 and 2004 was $3.8
million. The Company's goodwill at June 30, 2005 all relates to the acquisitions
of PCS, Prime Financial Services, Inc. ("PFS") and AFP completed during or prior
to the fiscal year ended June 30, 1999, which were accounted for under the
purchase method.

The impairment testing for goodwill in the broker-dealer reporting unit was
performed using future discounted cash flows and an independent appraisal. In
the fourth quarter of Fiscal 2003, the Company recognized an impairment loss of
$3.5 million of goodwill and intangible based on management's assessment of such
intangible and estimated future cash flows.

7. INTANGIBLE ASSETS

During the fiscal year ended June 30, 2005, the Company acquired aggregate
intangible assets valued at $0.2 million in connection with acquisitions which
are accounted for under the purchase method. During the fiscal year ended June
30, 2004, the Company did not acquire any intangible assets in connection with
acquisitions.

Intangible assets consist of the following:

                                                           As of June 30,
                                                       2005              2004
                                                   -----------------------------

Customer Lists                                     $ 5,419,807       $ 5,353,899
Broker-Dealer Registration                             100,000           100,000
Non-Compete Contracts                                  500,000           500,000
House Accounts                                         600,000           600,000
Administrative Infrastructure                          500,000           500,000
Independent Contractor Agreements                    3,100,000         3,100,000
                                                   -----------------------------
 Intangible Assets at Cost                         $10,219,807       $10,153,899

Less: Accumulated Amortization
         And Impairment                              4,908,805         4,522,775
                                                   -----------------------------

 Intangible Assets, Net                            $ 5,311,002       $ 5,631,123
                                                   =============================

Amortization expense for the fiscal years ended June 30, 2005 and 2004 was
computed on a straight-line basis over periods of five to 20 years, and it
amounted to $0.7 million and $0.6 million, respectively. Annual amortization
expense will be approximately $0.7 million for each of the next five years.

As required, the Company performed the fair value impairment tests prescribed by
SFAS No. 142 during the fiscal years ended June 30, 2005, 2004 and 2003. Fair
value was determined based on recent comparable sale transactions and future
cash flow projections. As a result, the Company recognized impairment losses as
disclosed on the statement of operations.


                                    Page 48
<PAGE>

8. ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following:

                                                           As of June 30,
                                                      2005               2004
                                                  ------------------------------
Accounts Payable                                  $ 2,862,581        $ 2,787,243
Commissions Payable                                 2,971,626          3,099,904
Accrued Compensation                                  277,404            337,238
Accrued Bonuses                                     1,033,368          1,035,844
Accrued Vacation                                      211,370            150,426
Accrued Litigation                                    639,484            943,600
Accrued Audit Fees & Tax Fees                         177,500            230,500
Accrued Interest                                    1,278,943            888,419
Accrued Other                                         999,811            680,766
                                                  ------------------------------
Total                                             $10,452,087        $10,153,940
                                                  ==============================

Note: For Fiscal years 2005 and 2004, $0.3 million of accrued litigation was
included in Accounts Payable each year.

9. DEBT

<TABLE>
<CAPTION>
                                                                     As of June 30,
                                                                  2005            2004
                                                              ---------------------------
<S>                                                           <C>             <C>
Wachovia Bank                                                 $ 2,118,573     $ 3,320,024
Traveler's Insurance Company Facility
     ($4,750,000 less unamortized debt discount of $40,613
     and $185,877 at June 30, 2005 and 2004, respectively)      4,709,387       4,564,123
Unsecured Promissory Note  ($1,000,000 less unamortized
   debt discount of $250,000 at June 30, 2004)                         --       1,000,000
Note Payable for Insurance                                        297,529          67,312
Notes Payable for Client Settlements, payable over periods
   of up to 7 years at varying interest rate to 10%                49,871          65,196
Capitalized Lease Obligations and Leasehold Improvements
   Loan                                                           361,003         309,386
                                                              ---------------------------
              Total                                           $ 7,536,363     $ 9,326,041
Less: Current Portion                                          (7,253,939)     (9,113,793)
                                                              ---------------------------
              Total                                           $   282,424     $   212,248
                                                              ===========================
</TABLE>

Note: The Unsecured Promissory Note in 2004 is now included in Related Party
Transactions based on the definition of the Purchasing Group described below.
Also see Note 15.

The Company is in default on substantially all of its debt.

On December 26, 2001, the Company closed a $7.0 million financing (the "Loan")
with Wachovia. The Loan consisted of a $5.0 million term loan ("Term Loan") and
a $2.0 million revolving letter of credit ("Revolving Credit Loan"). On November
27, 2002, the Company and Wachovia entered into a forbearance agreement (the
"Forbearance Agreement") whereby Wachovia agreed to forbear from acting on
certain defaults of financial covenants by the Company under the Revolving
Credit Loan and under the Term Loan. Under the Forbearance Agreement and several
amendments thereto, Wachovia deleted several large pre-maturity principal
payments, increased the "Applicable Margin" to 4.0%, changed the Company's
reporting requirements under the Loan and extended the due date of the Loan (the
"Maturity Date") several times. Pursuant to Amendment No. 3 to the Forbearance
Agreement ("Amendment No. 3"), dated as of March 1, 2005, the amortization
schedule was extended by approximately 16 months and the Maturity Date was
extended to March 10, 2008. Under Amendment No. 3, the Company will pay Wachovia
principal on the Loan of $66,000 monthly, plus interest. The Company is in
technical default of several other provisions of the Loan, the Forbearance
Agreement and the amendments to Forbearance Agreement. However, the Company does
not believe that Wachovia will issue a note of default for any of these
technical defaults.


                                    Page 49
<PAGE>

The Company's $5.0 million distribution financing agreement with Travelers
closed on November 1, 2000. On September 24, 2002, the Company received a notice
from Travelers alleging that the Company was in default under its distribution
financing agreement with Travelers due to nonpayment of a $0.1 million penalty
for failure to meet sales production requirements as specified in the debt
facility. The Company responded with a letter denying that the Company was in
default. Although the Traveler's notice stated that all unpaid interest and
principal under the distribution financing agreement were immediately due and
payable and that Travelers reserved its rights and remedies under the
distribution financing agreement, it also stated that Travelers intended to
comply with the terms of the Subordination Agreement between Travelers and
Wachovia. The Subordination Agreement greatly restricts the remedies that
Travelers could pursue against the Company. No further notices have been
received from Travelers. No payments have been made to Travelers since April,
2003. Pursuant to the terms of the Subordination Agreement and the Forbearance
Agreement, the Company is not permitted to make payments to Travelers.

On October 30, 2001, the Company borrowed $1.0 million from Rappaport pursuant
to a written note without collateral and without stated interest. The Rappaport
Loan was due and payable on October 30, 2002. Additionally, the Rappaport Loan
provided that: Rappaport receive 100,000 shares of Rule 144 restricted shares of
common stock of the Company upon the funding of the Rappaport Loan, subject to
adjustment so that the value of the 100,000 shares was $0.3 million when the
Rule 144 restrictions were removed; there was a penalty of 50,000 shares to be
issued to Rappaport if the Rappaport Loan was not paid when due and an
additional penalty of 10,000 shares per month thereafter until the Rappaport
Loan was paid in full. On December 26, 2001, Rappaport agreed to subordinate the
Rappaport Loan to the $7.0 million Wachovia Loan. In consideration of the
subordination, the Rappaport Loan was modified by increasing the 10,000 shares
penalty to 15,000 shares per month and by agreeing to issue 50,000 additional
shares to Rappaport if the Rappaport Loan was not paid in full by March 31,
2002, subject to adjustment so that the value of the shares issued was $0.2
million when the Rule 144 restrictions were removed. By June 30, 2005, Rappaport
had received a total of 1,345,298 shares for all interest and penalties. The
Rappaport Loan, together with 785,298 shares of Company common stock held by
Rappaport, were sold to a group of Company management and employees on April 29,
2005 in the amount of $0.8 million. The $0.3 million of debt reduction agreed to
by the Purchasing Group was recorded to paid-in-capital as the Purchasing Group
is a related party. Pursuant to the terms of the Rappaport Loan, this Purchasing
Group, as holders of the Rappaport Loan, are entitled to receive, in the
aggregate, as interest, 15,000 shares of the Company's common stock monthly
while the debt remains unpaid.

If the Company does not comply with the financial covenants and other
obligations in its agreements relating to the Wachovia, Travelers or Rappaport
loans, or its agreements with other lenders, and such lenders elected to pursue
their available remedies, the Company's operations and liquidity would be
materially adversely affected and the Company could be forced to cease
operations. The Company has retained a financial advisor to assist the Company
in further discussions with its lenders. The financial advisor was involved in
the Company's discussions with Wachovia that resulted in the Amendment No. 3
described above. There can be no guarantee, however, that the lenders will agree
to terms in the future that are more favorable to the Company than the current
arrangements with the lenders.

Debt Maturities

The stated maturities of all long term debt due after June 30, 2005, are as
follows:

                    2006                 $ 5,823,611
                    2007                     814,320
                    2008                     551,314
                    2009                      19,943
                    2010                      10,028
              Thereafter                      16,418
                                         -----------
                                         $ 7,235,634
                                         ===========

Note: This Debt Maturities schedule reflects the contractual payment terms of
the debt maturities, while $1.3 million has been reclassified to current
liabilities in the balance sheet since such debt is in technical default.

10. CAPITAL LEASE OBLIGATIONS

The Company is the lessee of certain equipment under capital leases expiring
through 2010. 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.


                                    Page 50
<PAGE>

Minimum future lease payments under capital leases as of June 30, 2005, are as
follows:

                                       2006         $ 154,587
                                       2007           130,863
                                       2008            70,100
                                       2009            20,148
                                       2010             6,014
                                 Thereafter                 -
                                                    ---------
                                      Total         $ 381,712
    Less amount representing finance charge            80,983
                                                    ---------
Present value of net minimum lease payments         $ 300,729
                                                    =========

Capital equipment leases have the lease rate factor (finance charge) built into
the monthly installment and range from 9.0% to 25.0%.

11. COMMITMENTS AND CONTINGENCIES

Leases

The Company is obligated under various non-cancelable lease agreements for the
rental of office space through 2012. The lease agreements for office space
contain escalation clauses based principally upon real estate taxes, building
maintenance and utility costs.

The following is a schedule by fiscal year of future minimum rental payments
required under operating leases as of June 30, 2005:

                    2006                 $ 2,026,588
                    2007                   1,116,099
                    2008                     685,299
                    2009                     508,657
                    2010                     326,613
              Thereafter                     286,397
                                         -----------
                   Total                 $ 4,949,653
                                         ===========

Operating lease commitment amounts included in table above with respect to the
leases assigned to Pinnacle in November 2002 are:

                    2006                     328,328
                    2007                     136,611
                    2008                      34,884
                    2009                           -
                    2010                           -
              Thereafter                           -
                                         -----------
                                             499,823
                                         ===========

Rent expense from continuing operations for the fiscal years ended June 30,
2005, 2004 and 2003 was $1.9 million, $2.0 million, and 2.2 million,
respectively.

Professional Liability or Malpractice Insurance

The Company does not maintain any professional liability or malpractice
insurance policy for income tax preparation. The Company does maintain an
"Errors and Omissions" insurance policy for its securities business. Although
the Company believes it complies with all applicable laws and regulations in all
material respects, no assurance can be given that the Company will not be
subject to professional liability or malpractice suits.


                                    Page 51
<PAGE>

Clearing Agreements

The Company is a party to clearing agreements with unaffiliated correspondent
brokers, which in relevant part state that the Company will assume customer
obligations in the event of a default. At June 30, 2005, the clearinghouse
brokers held approximately $0.2 million of cash as a deposit requirement, which
is included in current assets on the balance sheet at June 30, 2005, as a
reduction to amounts due to such brokers.

Net Capital Requirements

PCS is subject to the SEC's Uniform Net Capital Rule 15c 3-1, which requires
that PCS maintain minimum regulatory net capital of $0.1 million and, in
addition, that the ratio of aggregate indebtedness to net capital, both as
defined, shall not exceed the greater of 15 to one. As of June 30, 2005, the
Company was in compliance with these regulations.

Financial Instruments with Off-Balance Sheet Risk

In the normal course of business, PCS executes, as agent, transactions on behalf
of customers. These activities may expose the Company to risk in the event
customers, other brokers and dealers, banks depositories or clearing
organizations are unable to fulfill their contractual obligations. The Company
continuously monitors the creditworthiness of customers and third party
providers. If the agency transactions do not settle because of failure to
perform by either the customer or the counter parties, PCS may be obligated to
discharge the obligation of the non-performing party and, as a result, may incur
a loss if the market value of the security is different from the contract amount
of the transactions.

Litigation

On February 4, 2004, the Company was served with a Summons and a Shareholder's
Class Action and Derivative Complaint with the following caption: "Gary Kosseff,
Plaintiff, against James Ciocia, Thomas Povinelli, Michael Ryan, Kathryn Travis,
Seth A. Akabas, Louis P. Karol, Edward H. Cohen, Steven Gilbert and Doreen
Biebusch, Defendants and Gilman & Ciocia, Inc., Nominal Defendant". The action
was filed in the Court of Chancery of the State of Delaware in and for New
Castle County under Civil Action No. 188-N. The nature of the action is that the
Company, its Board of Directors and its management, breached their fiduciary
duty of loyalty in connection with the sale of the Pinnacle Purchased Offices.
The action alleges that the sale to Pinnacle was for inadequate consideration
and without a fairness opinion by independent financial advisors, without
independent legal advice and without a thorough evaluation and vote by an
independent committee of the Board of Directors. The action prays for the
following relief: a declaration that the Company, its Board of Directors and its
management breached their fiduciary duty and other duties to the plaintiff and
to the other members of the purported class; a rescission of the Asset Purchase
Agreement; unspecified monetary damages; and an award to the plaintiff of costs
and disbursements, including reasonable legal, expert and accountants fees. On
March 15, 2004, counsel for the Company and for all defendants filed a motion to
dismiss the lawsuit. On June 18, 2004, counsel for the plaintiff filed an
Amended Complaint. On July 12, 2004, counsel for the Company and for all
defendants filed a motion to dismiss the Amended Complaint. On March 8, 2005,
oral argument was heard on the motion to dismiss, and on July 27, 2005 the case
Master delivered his draft report denying the motion. The parties are briefing
exceptions to the report, after review of which the Master will deliver his
final report. While the Company will vigorously defend itself in this matter,
there can be no assurance that this lawsuit will not have a material adverse
impact on its financial position.

The Company is the subject of a formal investigation by the SEC. The
investigation concerns, among other things, the restatement of the Company's
financial results for the fiscal year ended June 30, 2001 and the fiscal
quarters ended March 31, 2001, and December 31, 2001 (which have been previously
disclosed in the Company's amended quarterly and annual reports for such
periods), the Company's delay in filing its 10-K for Fiscal 2002 and 2003, the
Company's delay in filing its 10-Q for the quarter ended September 30, 2002, and
the Company's past accounting and recordkeeping practices. The Company had
previously received informal, non-public inquiries from the SEC regarding
certain of these matters. The Company and its executives have complied fully
with the SEC's investigation and will continue to comply fully. The Company does
not believe that the investigation will have a material effect on the Company's
Consolidated Financial Statements.

Subsequent to an NASD examination of PCS, the NASD on August 12, 2005 accepted a
Letter of Acceptance, Waiver and Consent ("AWC") submitted by PCS, in which PCS
agreed to be censured and fined $0.2 million, and to recompense certain
customers of PCS who purchased mutual fund "B" shares. Without admitting or
denying the alleged violations, PCS agreed to the findings by the NASD that
certain supervisory deficiencies existed between June 2002 and July 2003. The
acceptance of the AWC concludes the matter.


                                    Page 52
<PAGE>

On September 6, 2005, the Company received an informal inquiry from the SEC
regarding variable annuity sales by the Company's registered representatives
during the period January 1, 2002 through August 1, 2005. The Company will
cooperate fully with the SEC in connection with this informal inquiry.
Management believes that a number of other broker-dealers have received similar
informal inquiries. The Company cannot predict whether the SEC will take any
enforcement action against the Company based on the variable annuity sales
practices of the Company.

The Company and PCS are defendants and respondents in lawsuits and NASD
arbitrations in the ordinary course of business. On June 30, 2005, there were 31
pending lawsuits and arbitrations, of which 11 were against PCS or its
registered representatives. In accordance with SFAS No. 5 "Accounting for
Contingencies," the Company has established liabilities for potential losses
from such complaints, legal actions, investigations and proceedings. In
establishing these liabilities, the Company's management uses its judgment to
determine the probability that losses have been incurred and a reasonable
estimate of the amount of the losses. In making these decisions, we base our
judgments on our knowledge of the situations, consultations with legal counsel
and our historical experience in resolving similar matters. In many lawsuits,
arbitrations and regulatory proceedings, it is not possible to determine whether
a liability has been incurred or to estimate the amount of that liability until
the matter is close to resolution. However, accruals are reviewed regularly and
are adjusted to reflect our estimates of the impact of developments, rulings,
advice of counsel and any other information pertinent to a particular matter.
Because of the inherent difficulty in predicting the ultimate outcome of legal
and regulatory actions, we cannot predict with certainty the eventual loss or
range of loss related to such matters. If our judgments prove to be incorrect,
our liability for losses and contingencies may not accurately reflect actual
losses that result from these actions, which could materially affect results in
the period other expenses are ultimately determined. Management accrued $1.0
million as a reserve for potential settlements, judgments and awards. PCS has
errors & omissions coverage that will cover a portion of such matters. In
addition, under the PCS registered representatives contract, each registered
representative is responsible for covering costs in connection with these
claims. While the Company will vigorously defend itself in these matters, and
will assert insurance coverage and indemnification to the maximum extent
possible, there can be no assurance that these lawsuits and arbitrations will
not have a material adverse impact on its financial position.

12. EQUITY COMPENSATION PLANS

Stock Option Agreements and Stock Option Plans

The Company has adopted and the stockholders have approved various stock option
plans covering 1,498,697 shares of stock. The Company has granted stock options
to employees, directors and consultants pursuant to individual agreements or to
its incentive and non-qualified stock option plans. In addition, from time to
time, the Company has issued, and in the future may issue additional
non-qualified options pursuant to individual option agreements, the terms of
which vary from case to case. The Company maintains records of option grants by
year, exercise price, vesting schedule and grantee. In certain cases the Company
has estimated, based on all available information, the number of such options
that were issued pursuant to each plan. The material terms of such option grants
vary according to the discretion of the Board of Directors. The Company does not
presently intend to issue any additional options under its current option plans,
though the Company may adopt a new option plan, and issue additional shares
thereunder.

There was no charge to earnings during the Fiscal 2005 related to the issuance
of stock options.


                                    Page 53
<PAGE>

The table below summarizes plan and non-plan stock option activity for the
fiscal years ended June 30, 2005, 2004 and 2003:

                                                                        Weighted
                                                                         Average
                                                       Number of        Exercise
                                                        Shares            Price
                                                      -------------------------
Outstanding, June 30, 2002                             4,819,594          $7.39
                                                      -------------------------
   Granted (1)                                            80,000           1.04
   Exercised                                                  --             --
   Canceled                                           (2,461,666)          7.92
                                                      -------------------------
Outstanding, June 30, 2003                             2,437,928          $6.63
                                                      -------------------------
   Granted (2)                                            20,000          $1.00
   Exercised                                                  --             --
   Expired                                              (254,885)          9.19
   Canceled                                              (25,477)          5.93
                                                      -------------------------
Outstanding, June 30, 2004                             2,177,566          $6.28
                                                      -------------------------
   Granted                                                    --          $  --
   Exercised                                                  --             --
   Expired                                              (464,385)          4.72
   Canceled                                               (3,231)          3.36
                                                      -------------------------
Outstanding, June 30, 2005                             1,709,950          $6.72
                                                      -------------------------
Exercisable June 30, 2003                              2,044,178          $7.04
Exercisable June 30, 2004                              1,810,066          $6.78
Exercisable June 30, 2005                              1,564,950          $6.77

The weighted average fair value of options granted during the years ended June
30, 2005, 2004, and 2003 are zero, $0.37, $0.57 per option, respectively.

(1)   A previously unrecorded Fiscal 2000 option for 10,000 shares is being
      included as a new Fiscal 2003 grant in lieu of restating prior years
      option activity results.

(2)   Two previously unrecorded Fiscal 2003 options for 10,000 shares each are
      being included as new Fiscal 2004 grants in lieu of restating prior years
      option activity results.

                           Stock Option Price Schedule
                               As of June 30, 2005

<TABLE>
<CAPTION>
                                        Weighted
                                        Average       Weighted        Number        Weighted
                       Number of       Remaining       Average     Exercisable      Average
      Range of          Options       Contractual     Exercise       Options        Exercise
   Exercise Price     Outstanding         Life          Price      Outstanding       Price
-----------------------------------------------------------------------------------------------
<S>     <C>                <C>             <C>             <C>          <C>              <C>
         $0.01-$2.50         160,000       3               $ 1.21         140,000        $ 1.24
         $2.51-$5.00         334,450       1               $ 4.40         334,450        $ 4.40
         $5.01-$7.50         638,500       3               $ 6.25         576,000        $ 6.27
        $7.51-$10.00         362,500       3               $ 8.10         300,000        $ 8.13
        Above $10.00         214,500       3               $13.49         214,500        $13.49
                           ---------                                    ---------
                           1,709,950       2               $ 6.72       1,564,950        $ 6.77
                           =========                                    =========
</TABLE>

Employee Stock Purchase Plan

On February 1, 2000, the Board of Directors of the Company adopted the Company's
"2000 Employee Stock Purchase Plan" (the "2000 ESPP Plan") and on May 5, 2000,
the 2000 ESPP Plan became effective upon approval by the stockholders. Under the
2000 ESPP Plan, the Company sold shares of its common stock to participants at a
price equal to 85% of the closing price of the common stock on (i) the first
business day of a Plan Period or (ii) the Exercise Date (the last day of the
plan period), whichever closing price was less. Plan periods were six-month
periods commencing January 1 and July 1. The 2000 ESPP Plan was intended to
qualify as an "employee stock purchase plan" under Section 423 of the Internal
Revenue Code.


                                    Page 54
<PAGE>

There were two offering periods in Fiscal 2003. The first offering period
commenced on July 1, 2002 and closed on December 31, 2002, and the second
offering period started on January 2, 2003 and closed on June 30, 2003. There
were two offering periods in Fiscal 2004. The first offering period commenced on
July 1, 2003 and closed on December 31, 2003 and the second commenced on January
2, 2004 and closed on May 1, 2004. In Fiscal 2004, after a review of employee
contributions to the 2000 ESPP Plan, it was determined that contributions were
made by employees who left the Company and were ineligible to receive shares.
Accordingly, in Fiscal 2004, cash refunds were made to employees who made
contributions to the 2000 ESPP Plan but were determined not to be entitled to
the shares they subscribed to.

The 2000 ESPP Plan was terminated by the Board of Directors as of May 1, 2004.
The Company is reviewing the ESPP Plan to determine the number of shares to be
issued to participants for Fiscal 2002, 2003 and 2004.

13. EMPLOYEE BENEFIT PLAN

The Company maintains a 401(k) plan for the benefit of its eligible employees.
The Company makes annual matching contributions to the plan at its discretion.
The aggregate cost of contributions made by the Company to the 401(k) plan was
zero during the fiscal years ended June 30, 2005, 2004 and 2003. The Company has
amended its 5500 filings with the IRS for Fiscal 2000 and 2001. The Company has
submitted 5500 filings for Fiscal 2002, 2003 and 2004. However, audits for the
fiscal periods ended 2002, 2003 and 2004 still need to be completed. As of
January 1, 2004, the Board of Directors authorized the Company to adopt a new
401(k) plan. The new 401(k) plan is being administered by Sentinel Benefit and
Reliance Trust is the new Trustee of the plan. The new 401(k) plan was
implemented by the Company in September 2004.

14. NET EARNINGS /(LOSS) PER SHARE

Basic net earnings/loss per share is computed using the weighted average number
of common shares outstanding. The dilutive effect of potential common shares
outstanding is included in the diluted net earnings/loss per share. The
computations of basic and diluted net earnings/loss per share are as follows:

<TABLE>
<CAPTION>
                                                              For Fiscal Years Ended June 30,
                                                         2005               2004              2003
                                                  ----------------------------------------------------
<S>                                               <C>                <C>                <C>
Numerator for basic and diluted
   earnings per share                             $   (1,825,576)    $    5,051,535     $  (13,996,916)

Denominator for basic earnings per share -
   weighted average shares                             9,008,400          9,388,764          9,440,815
Effects of dilutive securities
   Stock options for employees, directors and
   outside consultants                                        --             23,800                 --
                                                  ----------------------------------------------------
Denominator for diluted earnings per share -
   weighted average shares                             9,008,400          9,412,564          9,440,815

Net income/(loss) per share of common stock:
   Basic Net Income/(Loss):
    Income/(Loss) from continuing operations      $        (0.20)    $        (0.11)    $        (0.83)
    Income/(Loss) from discontinued operations    $           --     $         0.65     $        (0.65)
    Net Income/(Loss)                             $        (0.20)    $         0.54     $        (1.48)
   Diluted Net Income/(Loss):
    Income/(Loss) from continuing operations      $        (0.20)    $        (0.11)    $        (0.83)
    Income/(Loss) from discontinued operations    $           --     $         0.65     $        (0.65)
    Net Income/(Loss)                             $        (0.20)    $         0.54     $        (1.48)
</TABLE>


                                    Page 55
<PAGE>

15. RELATED PARTY TRANSACTIONS

James Ciocia, Michael Ryan and Kathryn Travis, all Company directors, personally
guaranteed the repayment of the Company's distribution financing agreement from
Travelers. Messrs. Ciocia and Ryan personally guaranteed the repayment of the
Company's loan from Wachovia. Such stockholders received no consideration for
such guarantees other than their salaries and other compensation.

Edward H. Cohen is Counsel and a retired partner of the international law firm
Katten Muchin Rosenman LLP ("KMR") and is also a director of the Company. Since
August 2002, KMR has been outside counsel to the Company and has also, in the
past, represented Michael Ryan, the President and Chief Executive Officer and a
director of the Company, personally. During Fiscal 2003, 2004 and 2005 the
Company paid fees to KMR. Mr. Cohen is to receive 2,000 shares of common stock
for his services in Fiscal 2005. An expense of $1,100 was recorded for these
shares to be issued.

Michael Ryan and Carole Enisman, the Executive Vice President of Operations, are
married.

Michael Ryan is one of the general partners in a limited partnership named Prime
Income Partners, L.P., which owns the building in Poughkeepsie, New York
occupied by the Company's executive headquarters. During the fiscal year ended
June 30, 2005, the Company paid $0.3 million to Prime Income Partners, L.P. for
rent and related charges. Management believes the amounts charged to the Company
for rent to be commensurate with the rental rate that would be charged to an
independent third party.

During Fiscal 2005, Prime Partners, Inc. ("Prime Partners") loaned the Company
an aggregate of $1.5 million at an interest rate of 10%. As of June 30, 2005,
the Company owed Prime Partners $0.7 million. Michael Ryan is the President, a
director and a major stockholder of Prime Partners. In July and August 2005,
Prime Partners loaned the Company an additional $0.2 million.

In August of 2002, the Company entered into a promissory note in the amount of
$0.1 million with James Ciocia, a Director of the Company. The note pays
interest at the rate of 10% per annum. The note shall be payable on demand and
may be prepaid in whole or in part at any time and from time to time without
premium or penalty. As of June 30, 2005 the principal balance was $67,667.

On December 23, 2003, the Company entered into a promissory note in the amount
of $0.2 million with Ted H. Finkelstein, currently the Company's Assistant
General Counsel. The note pays interest at the rate of 10% per annum payable
monthly. At June 30, 2005, the principal balance the Company owed Mr.
Finkelstein was $33,333.

On April 29, 2005, the Rappaport Loan in the amount of $1.0 million, together
with 785,298 shares of Company common stock held by Rappaport, were sold to a
group of Company management and employees for $0.8 million. Since the resulting
debt reduction of $0.3 million agreed to by the Purchasing Group resulted from a
related party transaction, paid-in-capital was appropriately increased.

At June 30, 2005 and 2004, the Company owed to related parties $1.6 million and
$0.4 million, respectively.

16. SEGMENTS OF BUSINESS

Management believes the Company operates as one segment.

17. TAXES ON INCOME

The provisions for income taxes and income tax benefits in the Consolidated
Financial Statements for the June 30 fiscal years consist of the following:


                                    Page 56
<PAGE>

                                                For Fiscal Years Ended June 30,
                                                 2005         2004        2003
                                               ---------------------------------
Current

Federal                                        $     --     $     --    $     --
State and local                                      --       16,600      93,000
                                               ---------------------------------
Total current tax/(benefit) provision          $     --     $ 16,600    $ 93,000

Deferred

Federal                                        $     --     $     --    $     --
State and local                                      --           --          --
                                               ---------------------------------
Total deferred tax/(benefit) provision         $     --     $     --    $     --
                                               ---------------------------------
Total income tax/(benefit) provision           $     --     $ 16,600    $ 93,000
                                               ---------------------------------

A valuation allowance has been established against the deferred tax assets as of
June 30, 2005 as the Company has suffered large recurring losses from
operations, and management believes that the future tax benefit associated with
the deferred tax asset may not be realized.

The Company's net operating loss carry forwards of $16.7 million at June 30,
2005 expire in 2012.

The ability to utilize net operating loss carryovers may be restricted based on
Internal Revenue Code Section 382 "changes in ownership."

A reconciliation of the federal statutory rate to the provision for income taxes
is as follows:

<TABLE>
<CAPTION>
                                                          For Fiscal Years Ended June 30,
                                            2005                       2004                       2003
                                        ----------------------------------------------------------------------------
<S>                                     <C>              <C>       <C>              <C>        <C>            <C>
Federal income taxes/(benefit)
computed at statutory rates             $  (638,952)     -35.00%   $(1,628,000)     -32.23%    (4,910,000)    -35.08%

State and local taxes/(benefit) net
of federal tax benefit                      (63,895)     -3.50%       (163,000)     -3.23%       (749,000)    -5.35%

Amortization of intangible assets
with no benefit                                  --       0.00%             --       0.00%      1,579,000     11.28%

Other                                        25,000       1.37%         25,000       0.49%        (97,000)    -0.69%

Valuation reserve                           677,847      37.13%      1,743,400      34.96%      4,173,000     30.51%
                                        -----------                -----------                -----------

Total income tax/(benefit) provision    $        --       0.00%    $    16,617       0.00%    $    93,000      0.66%
                                        ===========                ===========                ===========

Note: At June 30, 2005 deferred tax assets were comprised of the following:

Net operating loss carry forward        $ 5,900,000
Intangibles                               1,900,000
Other, net                                  800,000
                                        -----------
   Total
                                          8,600,000
Less Valuation reserve                   (8,600,000)
                                        -----------
   Net                                  $         -
                                        ===========
</TABLE>


                                    Page 57
<PAGE>

18. QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                 Income (Loss)
Fiscal                           Before Taxes                                 Net (Loss)               Per Share Weighted
 Year                           From Continuing      Tax Provision           Income From                    Average
 2005        Revenue              Operations           (Benefit)        Continuing Operations      Basic             Diluted
----------------------------------------------------------------------------------------------------------------------------
<S>        <C>                   <C>                   <C>                  <C>                  <C>                <C>
  Q1       $ 12,657,563          $ (1,223,708)         $        -           $ (1,223,708)        ($0.14)            ($0.14)

  Q2       $ 13,370,940          $    (14,234)         $        -           $    (14,234)         $0.00              $0.00

  Q3       $ 16,238,246          $    718,166          $        -           $    718,166          $0.08              $0.08

  Q4       $ 13,816,041          $ (1,305,800)         $        -           $ (1,305,800)        ($0.14)            ($0.14)

<CAPTION>
                                 Income (Loss)
Fiscal                           Before Taxes                                 Net (Loss)               Per Share Weighted
 Year                           From Continuing      Tax Provision           Income From                    Average
 2004        Revenue              Operations           (Benefit)        Continuing Operations      Basic             Diluted
----------------------------------------------------------------------------------------------------------------------------
<S>        <C>                   <C>                   <C>                  <C>                  <C>                <C>
  Q1       $ 13,549,252          $   (327,476)         $    1,200           $   (328,676)        ($0.04)            ($0.04)

  Q2       $ 13,273,521          $ (1,466,533)         $  121,328           $ (1,587,861)        ($0.17)            ($0.17)

  Q3       $ 18,367,936          $  1,666,935          $   18,428           $  1,648,507          $0.18              $0.16

  Q4       $ 14,720,340          $   (892,999)         $ (124,340)          $   (768,659)        ($0.08)            ($0.08)

<CAPTION>
                                 Income (Loss)
Fiscal                           Before Taxes                                 Net (Loss)               Per Share Weighted
 Year                           From Continuing      Tax Provision           Income From                    Average
 2003        Revenue              Operations           (Benefit)        Continuing Operations      Basic             Diluted
----------------------------------------------------------------------------------------------------------------------------
<S>        <C>                   <C>                   <C>                  <C>                  <C>                <C>
  Q1       $ 12,726,072          $ (1,226,582)         $   43,000           $ (1,269,582)        ($0.13)            ($0.13)

  Q2       $ 12,953,970          $ (3,327,004)         $   15,000           $ (3,342,004)        ($0.35)            ($0.35)

  Q3       $ 13,791,550          $    273,988          $   15,000           $    258,988          $0.03              $0.03

  Q4 (1)   $ 14,706,371          $ (3,461,577)         $   20,000           $ (3,481,577)        ($0.37)            ($0.37)
</TABLE>

(1)   Two significant items included in the net loss are the recognition of $3.5
      million in impairment losses and increase in legal reserves by $1.0
      million.

19.  RESTATEMENTS

A.  Restatement

In May 2006, management concluded that its previously issued financial
statements for the fiscal year ended June 30, 2005 contained in the Company's
Form 10-K should not be relied upon because of certain grouping and presentation
errors contained therein. The Company made these determinations based on
discussions with the Staff of the Division of Corporation Finance of the
Securities and Exchange Commission (the "Commission") regarding certain
accounting matters raised during a Staff review of the Company's periodic
filings. The grouping and presentation errors include the following:

      o     The Company's consolidated statement of cash flow contained a
            grouping error; the line items titled Due from Office Sales and
            Receivables from Officers, Shareholders and Employees were
            reclassified from operating activities to investing activities; and

            the Company financed $0.9 million for the sale of its North Shore
            and North Ridge offices which was erroneously included in three line
            items on the consolidated statement of cash flow for the fiscal year
            ended 2004; (1) as a deduction to operating activities in the $6.2
            million (Gain)/Loss on Sale of Discontinued Operations; (2) as a
            deduction in Due From Office Sales; and (3) as an increase in
            Proceeds From the Sale of Discontinued Operations in investing
            activities. The restatement was to increase Due From Office Sales
            and to decrease Proceeds From the Sale of Discontinued Operations
            each by $0.9 million.

            As a result the following restatements were made for each period
            presented on the Consolidated Statement of Cash Flows:

            o     For Fiscal 2005; (1) net cash provided by operating activities
                  was restated from $974,266 to $515,861, a reduction in net
                  cash provided by operating activities of $458,405; and (2) net
                  cash used in investing activities was restated from $244,624
                  to net cash provided by of $213,780, an increase in net cash
                  provided by investing activities of $458,405;

            o     For Fiscal 2004; (1) net cash used in operating activities was
                  restated from $3,094,452 to $2,802,666, a reduction in net
                  cash used in operating activities of $291,786; and (2) net
                  cash provided by investing activities was restated from
                  $5,809,603 to $5,517,817, a reduction in net cash provided by
                  investing activities of $291,786 and;

            o     For Fiscal 2003; (1) net cash used in operating activities was
                  restated from $1,486,471 to $1,858,679, an increase in net
                  cash used in operating activities of $372,208 and (2) net cash
                  provided by investing activities was restated from $1,469,390
                  to $1,841,598, an increase in net cash provided by investing
                  activities of $372,208.

      o     The Company's stock based compensation table contained an error in
            Note 12 of the Company's Notes to Consolidated Financial Statements.
            The exercisable number of options outstanding at June 30, 2005
            should have been 1,564,950, an increase of 210,000 which were
            options that had vested in February 2005. As a result of this
            restatement, the Weighted Average Exercise Prices in the Stock
            Option Price Schedule as of June 30, 2005 were also restated. The
            Range of Exercise Price $0.01-$2.50 was restated to $1.24 from zero
            and the total weighted average exercise price was restated to $6.77
            from $7.48.

The Company has quantified the impact of these errors on the financial
statements and there is no impact to the Company's net income/(loss) for the
relevant periods.


                                    Page 58
<PAGE>

B.  Restatement

In January 2004, subsequent to the filing of the 10-K for the year ended June
30, 2003, management discovered and informed the auditors that revenues and
related commission expenses for asset management services, billed and incurred
in the quarter ended September 30, 2003 for services to be rendered in that
quarter, had been recorded as of June 30, 2003. Further, it was ascertained that
this error in revenue and expense recognition had been occurring since the 1999
acquisition of AFP and had gone undetected for four years. The receivables and
commissions recorded originally prematurely recorded at each quarter end were
received and paid by the Company during the subsequent quarter. As the error
applied to both the beginning and ending balances of each quarter, the effect on
any individual quarter was immaterial. As a result, the financial statements for
the three years ended June 30, 2003 (including Fiscal 2001) have been restated
to correct the timing error and the related accrual for commission liabilities
relating to asset management services. As a result of the restatement,
receivables as of June 30, 2003 have been reduced by $1.1 million, commission
liabilities have been reduced by $0.9 million and shareholders' deficit
increased by $0.2 million. Revenues for the year ended June 30, 2003 increased
by $60,009 and commission expense increased by $28,765. Losses for the year
ended June 30, 2003 decreased by $31,334.

20. SUBSEQUENT EVENTS

As of August 5, 2005, the Company sold its tax preparation and financial
planning businesses associated with its Colorado Springs, Colorado office. The
tax preparation business was sold to former employees of the Company for total
consideration of $0.4 million, $0.1 million of which was paid in cash to the
Company at closing, and $0.3 million of which is subject to a promissory note
that matures on January 1, 2012. The financial planning business was sold to a
former employee of the Company for total consideration of $47,142, $23,571 of
which was paid in cash to the Company at closing, and $23,571 of which is
subject to a promissory note that matures on October 1, 2005.

In July and August 2005, Prime Partners loaned the Company an additional $0.2
million.

On September 6, 2005, the Company received an informal inquiry from the SEC
regarding variable annuity sales by the Company's registered representatives
during the period January 1, 2002 through August 1, 2005. Management believes
that a number of other broker-dealers have received similar informal inquiries.
The Company will cooperate fully with the SEC in connection with this informal
inquiry. The Company cannot predict whether the SEC will take any enforcement
action against the Company based on the variable annuity sales practices of the
Company.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

Item 9A. CONTROLS AND PROCEDURES

In performing its audit of our Consolidated Financial Statements for Fiscal
2004, our independent auditors, Radin Glass, notified our Board of Directors of
several reportable conditions in internal controls under standards established
by the American Institute of Certified Public Accountants. Reportable conditions
involve matters coming to the attention of our auditors relating to significant
deficiencies in the design or operation of internal controls that, in their


                                    Page 59
<PAGE>

judgment, could adversely affect our ability to record, process, summarize, and
report financial data consistent with the assertions of management in the
consolidated financial statements. Radin Glass stated that, while none of the
items identified by them individually are individually a material weakness, the
combined effect of these issues and the inability to produce timely accurate
financial statements is a material weakness.

Although Radin Glass noted significant improvements in the structure of the
accounting department, and designed its audit procedures to address the matters
described below in order to obtain reasonable assurance that the financial
statements are free of material misstatement and to issue an unqualified audit
report, certain of the internal control deficiencies noted by Radin Glass had
been noted in their internal control letter regarding the Company's Consolidated
Financial Statements for Fiscal 2003.

These significant deficiencies in the design and operation of our internal
controls include the needs to hire additional staffing and change the structure
of the finance/accounting department, to provide better coordination and
communication between the legal and finance/accounting departments and to
provide training to existing and new personnel in SEC reporting requirements;
the lack of integration of the general ledger system with other recordkeeping
systems, and the need for formal control systems for journal entries and closing
procedures; the need to document internal controls over financial reporting; the
needs to form an independent audit committee, to form an internal audit
department and to implement budget and reporting procedures; and the need to
provide internal review procedures for schedules, SEC reports and filings prior
to submission to the auditors and/or filing with the SEC.

Management believes that such deficiencies represent a material weakness in
internal control over financial reporting that, by themselves or in combination,
result in a reasonable likelihood that a material misstatement in our financial
statements will not be prevented or detected by our employees in the normal
course of performing their assigned functions.

The Company continues its efforts to remediate these conditions and has and will
continue to implement enhanced procedures to accelerate improvement of its
internal controls. For example, (a) the Company continues to implement specific
changes in its internal controls with more formalized, structured and timely
review and analysis of journal entries, accounting data and reports prepared,
(b) has submitted SEC filings within the prescribed due dates for the last eight
quarters, (c) hired a new General Counsel with SEC significant knowledge,
replaced accounting staff and hired a Controller with SEC significant knowledge.

A material weakness is defined as a reportable condition in which the design or
operation of one or more of the internal control components does not reduce to a
relatively low level the risk that misstatements caused by error or fraud in
amounts that would be material in relation to the financial statements being
audited may occur and not be detected within a timely period by employees in the
normal course of performing their assigned functions. While the Company did
implement specific changes in its internal controls during the fourth quarter of
Fiscal 2004, such as improvement in recording commissions earned and tax return
billings, and regulatory filings now being filed within the prescribed due
dates, such improvements were partially offset by declines in other areas.

The Company's senior management is responsible for establishing and maintaining
a system of disclosure controls and procedures (as defined in Rule 13a-15 and
15d-15 under the Exchange Act) designed to ensure that information required to
be disclosed by the Company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the 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 Act is accumulated and communicated to the
issuer's management, including its principal executive officer or officers and
principal financial officers, to allow timely decisions regarding required
disclosure.

The Company has carried out an evaluation under the supervision and with the
participation of the Company's management, including its Chief Executive Officer
and Chief Accounting Officer, of the disclosure controls and procedures of the
Company as defined in Exchange Act Rule 13(a)-15(e). In designing and evaluating
disclosure controls and procedures, the Company and its 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. Due to the material weakness in internal control over financial
reporting previously noted and insufficient passage of time to test the enacted
changes to determine if such changes are effective as at and prior to June 30,
2005, management concludes that the Company's disclosure controls and procedures
are ineffective.


                                    Page 60
<PAGE>

Item 9B. OTHER INFORMATION

None

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

CHANGE IN MANAGEMENT

During Fiscal 2005 Carole Enisman was appointed the Executive Vice President of
Operations of the Company and Christopher Kelly was appointed the General
Counsel of the Company. Ted Finkelstein resigned as Vice President and General
Counsel of the Company.

TABLE OF OFFICERS AND DIRECTORS

The following table sets forth information regarding the executive officers and
directors of the Company:

NAME                    AGE      POSITION
James Ciocia            49       Chairman of the Board and Director
Michael Ryan            47       Chief Executive Officer, President and Director
Edward H. Cohen         66       Director
Steven Gilbert          49       Director
Kathryn Travis          57       Secretary and Director
Carole Enisman          46       Executive Vice President of Operations
Christopher Kelly       47       General Counsel
Dennis Conroy           34       Chief Accounting Officer

EXECUTIVE OFFICERS AND DIRECTORS

JAMES CIOCIA, CHAIRMAN. Mr. Ciocia is a principal founder of the Company having
opened the Company's first tax preparation office in 1981. In addition to
serving the Company as its Chief Executive Officer until November 6, 2000, Mr.
Ciocia is a registered representative of PCS. Mr. Ciocia holds a B.S. in
Accounting from St. John's University.

MICHAEL RYAN, CHIEF EXECUTIVE OFFICER, PRESIDENT AND DIRECTOR. Mr. Ryan was
appointed the Company's President and Chief Executive Officer in August 2002.
Mr. Ryan co-founded PCS and has served as its President since its founding in
1987. Mr. Ryan is a founding member and past President of the Mid-Hudson Chapter
of the International Association for Financial Planning. Mr. Ryan is a
Registered Principal with the NASD and serves on the Independent Firms Committee
of the Securities Industry Association. Mr. Ryan holds a B.S. in Finance from
Syracuse University. Mr. Ryan was first elected as a director in 1999. Mr. Ryan
is married to Ms. Enisman.

EDWARD H. COHEN, DIRECTOR. Mr. Cohen has been Counsel to the international law
firm of Katten Muchin Rosenman LLP since February 2002, and was prior thereto a
partner in the firm (with which he was affiliated since 1963). During Fiscal
2003, 2004 and 2005 the Company paid fees to KMR. Mr. Cohen is a director of
Phillips-Van Heusen Corporation, a manufacturer and marketer of apparel and
footwear, Franklin Electronic Publishers, Incorporated, an electronic publishing
company, Levcor International, Inc., a marketer of craft items to mass
merchants, and Merrimac Industries, Inc., a manufacturer of passive RF and
microwave components for industry, government and science.

STEVEN GILBERT, DIRECTOR. Mr. Gilbert is the head of the Company's Clearwater,
Florida office. His responsibilities include the training of sales
representatives and general management of the Company's Clearwater office. Mr.
Gilbert has also historically been one of PCS's most productive registered
representatives. On August 1, 2005, Mr. Gilbert filed for bankruptcy under
Chapter 11 of the U.S. Bankruptcy Code.

KATHRYN TRAVIS, SECRETARY AND DIRECTOR. Ms. Travis began her career with the
Company in 1986 as an accountant and has served as Secretary and a director
since November 1989. Ms. Travis currently supervises all tax preparation
personnel and she is a registered representative of PCS. Ms. Travis holds a B.A.
in Mathematics from the College of New Rochelle.


                                    Page 61
<PAGE>

CAROLE ENISMAN, EXECUTIVE VICE PRESIDENT OF OPERATIONS. Ms. Enisman was
appointed the Executive Vice President of Operations of the Company on November
15, 2004. Ms. Enisman began her career with the Company in 1990 as a Financial
Planner. She served as Director of Operations and then Senior Vice President of
Operations of PCS from 1994-1999. Ms. Enisman has been the Chief Operating
Officer of PCS since April 5, 1999. Ms. Enisman graduated from the University of
Miami (Florida) with degrees in Economics and Political Science.

CHRISTOPHER KELLY, GENERAL COUNSEL. Mr. Kelly was appointed General Counsel of
the Company on October 13, 2004. Prior thereto, Mr. Kelly was a Managing
Director, General Counsel and Chief Compliance Officer for Cypress Associates
LLC, a New York based investment banking firm and broker-dealer. Prior thereto,
Mr. Kelly was a partner (non-equity) in Proskauer Rose LLP, an international law
firm headquartered in New York. Mr. Kelly graduated with High Honors from the
University of Virginia and the University of Virginia School of Law.

DENNIS CONROY, CHIEF ACCOUNTING OFFICER. Mr. Conroy began his career with the
Company in 1998 as an accountant for its PFS subsidiary. He was appointed as the
Company's Chief Accounting Officer effective January 6, 2004. He has a Bachelor
of Science degree in Accounting. He is a registered Financial and Operations
Principle with the NASD.

Each director holds office until the annual meeting of shareholders of the
Company next succeeding his election and until his successor is duly elected and
qualified. The Company's executive officers serve at the discretion of the Board
of Directors.

AUDIT COMMITTEE

The Audit Committee was disbanded on August 18, 2002 and the entire Board
undertook its duties. The Company's Board of Directors does not include an
"audit committee financial expert" as that term is defined in SEC regulations.
The Company's securities are not listed on any national securities exchange and
the Company is not required to have an audit committee. The Company is presently
engaged in a search for additional independent directors and the Company intends
that one or more of the candidates for such independent directors will qualify
as an audit committee financial expert.

CODE OF ETHICS

On January 16, 2004, the Company adopted a Code of Ethics that applies to its
Chief Executive Officer and its principal financial and accounting officer. A
copy of the Code of Ethics is filed as Exhibit 14 to the Company's 10-K for the
year ended June 30, 2003.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires the Company's directors and executive
officers, and persons who own more than 10% of the Company's common stock, to
file with the SEC initial reports of ownership and reports of changes in
ownership of common stock. The SEC requires such officers, directors and greater
than 10% shareholders to furnish to the Company copies of all forms that they
file under Section 16(a).

To the Company's knowledge, all officers, directors and/or greater than 10%
shareholders of the Company complied with all Section 16(a) filing requirements
prior to the filing of this 10-K except that (i) Dennis Conroy filed late his
Initial Statement of Beneficial Ownership of Securities on Form 3 and (ii)
although the Company believes Rappaport owned more than 10% of the Company's
outstanding common stock based on the number of shares previously issued to
Rappaport by the Company, to the Company's knowledge no Section 16 forms were
filed by Rappaport during the year ended June 30, 2005.

ITEM 11. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION

The following table sets forth the compensation of the Chief Executive Officer,
and the five other most highly compensated executive officers (collectively, the
"Named Executive Officers"), and information with respect to annual and
long-term compensation earned during the last three fiscal years:


                                    Page 62
<PAGE>

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                   Other Annual
                                            Fiscal                                  Compensation      All Other
                                             Year        Salary          Bonus         (3)           Compensation
                                            ---------------------------------------------------------------------
<S>                                          <C>        <C>            <C>            <C>            <C>
Michael Ryan, President and Chief
Executive Officer  and Director              2005       $279,789       $     --       $ 68,166       $ 31,117 (1)
                                             2004        291,077             --         19,759         29,869 (1)
                                             2003        195,693             --             --         19,238 (2)

Carole Enisman, Executive Vice               2005       $201,882       $     --       $  4,313       $ 13,731 (2)
   President of Operations (4)               2004        208,892             --         19,816         15,283 (2)
                                             2003        181,269             --             --             --

Kathryn Travis, Vice President               2005       $204,000       $     --       $     --       $  8,400 (2)
   and Director                              2004        204,000             --             --          8,658 (2)
                                             2003        138,421             --             --          9,259 (2)

Christopher Kelly, General Counsel (5)       2005       $115,192       $  1,442       $     --       $     --
                                             2004             --             --             --             --
                                             2003             --             --             --             --

Ted Finkelstein, Vice President              2005       $117,481       $    962       $     --       $     --
   and General Counsel (6)                   2004        160,000             --             --             --
                                             2003        157,617             --             --             --

Dennis Conroy, Chief Accounting              2005       $126,154       $  1,923       $     --       $     --
   Officer (7)                               2004        113,846             --             --             --
                                             2003        111,923          2,404             --             --
</TABLE>

(1)   Auto expense and club membership
(2)   Auto expense
(3)   Compensation earned in prior years
(4)   Ms. Enisman was appointed Executive Vice President of Operations on
      November 15, 2004
(5)   Mr. Kelly commenced employment with the Company and was appointed General
      Counsel on October 13, 2004
(6)   Mr. Finkelstein resigned as General Counsel on October 13, 2004 and
      resigned as Vice President on March 1, 2005
(7)   Mr. Conroy was appointed Chief Accounting Officer on January 6, 2004

INSURANCE

On June 30, 2005, the Company maintained $2.0 million Key Man life insurance
policies on James Ciocia and Michael Ryan. These policies are pledged to
Wachovia as collateral security for the Company's financing with Wachovia.

DIRECTORS

Independent directors are paid $12,500 per year plus $500 per meeting attended
(in person or telephonically). In addition, the independent director is entitled
to receive either a five-year option with respect to 3,000 shares or 4,000
shares of restricted stock.

OPTION GRANTS

The Company did not grant any options to purchase shares of common stock to the
Named Executive Officers during Fiscal 2005.

AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND 2004 YEAR-END OPTION
VALUES

The following table sets forth for each of the Named Executive Officers (i) the
number of options exercised during Fiscal 2005, (ii) the total number of
unexercised options for common stock (exercisable and un-exercisable) held at
June 30, 2005, and (iii) the value of those options that were in-the-money on
June 30, 2005, based on the difference between the closing price of our common
stock on June 30, 2005 and the exercise price of the options on that date.

                                    Page 63
<PAGE>
<TABLE>
<CAPTION>
                                                               NUMBER OF SECURITIES UNDERLYING          VALUE OF UNEXERCISED
                                                                 UNEXERCISED STOCK OPTIONS AT       IN-THE-MONEY STOCK OPTIONS AT
                                                                       FISCAL YEAR END                    FISCAL YEAR END

                                   Shares         Value          Exercisable   Un-Exercisable      Exercisable     Un-Exercisable
                                 Acquired on    Realized
                                  Exercise
<S>                              <C>            <C>                <C>            <C>                <C>             <C>
Michael Ryan, President and
Chief Executive Officer and
Director                         -              $  -               500,000        -                  $     -         $     -

Carole Enisman, Executive
Vice President of Operations     -              $  -                15,000        -                  $     -         $     -

Kathryn Travis, Secretary
and Director                     -              $  -                     -        -                  $     -         $     -

Christopher Kelly, General
Counsel                          -              $  -                     -        -                  $     -         $     -

Ted H. Finkelstein, Vice
President and General Counsel    -              $  -                10,000        -                  $     -         $     -

Dennis Conroy, Chief
Accounting Officer               -              $  -                     -        -                  $     -         $     -
</TABLE>

AGREEMENT WITH EXECUTIVE OFFICER

The Company has entered into an agreement with Mr. Kelly providing for a base
salary of $190,000 and a minimum bonus of $40,000. Pursuant to the agreement,
management has also agreed to support the implementation of a Company-wide stock
incentive plan, a stock purchase plan for senior management and top producers
and change-in-control severance agreements for senior management.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Board of Directors does not have a Compensation Committee. The entire Board
undertakes the duties of a Compensation Committee. Mr. Ryan, the President and
Chief Executive Officer of the Company, and a director, participated in
deliberations of the Board concerning executive officer compensation.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

5% HOLDERS

The following table sets forth as of June 30, 2005 the holdings of the only
persons known to the Company to beneficially own more than 5% of the Company's
outstanding common stock, the only class of voting securities issued by the
Company. Except as indicated in the footnotes to this table and the table
following and pursuant to applicable community property laws, the persons named
in the table and the table following have sole voting and investment power with
respect to all shares of common stock. For each individual or group included in


                                    Page 64
<PAGE>

the table and the table following, percentage ownership is calculated by
dividing the number of shares beneficially owned by such person or group by the
sum of the 9,083,038 shares of common stock outstanding as of June 30, 2005 and
the number of shares of common stock that such person or group had the right to
acquire within 60 days of June 30, 2005, including, but not limited to, upon the
exercise of options.

<TABLE>
<CAPTION>
                                                AMOUNT AND NATURE OF                 PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER            BENEFICIAL OWNERSHIP                     CLASS
<S>                                                <C>                                   <C>
Michael Ryan
11 Raymond Avenue
Poughkeepsie, NY 12603                             2,112,766 (1)                         23.2%

Ralph Porpora
11 Raymond Avenue
Poughkeepsie, NY 12603                             1,577,597 (2)                         17.4%

Prime Partners, Inc.
11 Raymond Avenue
Poughkeepsie, NY 12603                             1,574,866                             17.3%

James Ciocia
16626 N. Dale Mabry Highway
Tampa, FL 33618                                      564,816 (3)                          6.2%

Rappaport Gamma Limited Partnership
13907 Carrolwood Village RunTampa, FL 33624          560,000                              6.2%

Steven Gilbert
2420 Enterprise Road
Clearwater, FL 33763                                 562.224 (4)                          6.1%
</TABLE>

(1)   6,000 shares are beneficially owned by Mr. Ryan personally, 26,200 shares
      (including 15,000 shares issuable upon the exercise of options) are
      beneficially owned by Mr. Ryan's wife, Carole Enisman (the Executive Vice
      President of Operations of the Company), 5,700 shares are beneficially
      owned by Prudential Serls Prime Properties (of which Mr. Ryan is a
      director and significant shareholder) and 1,574,866 shares are
      beneficially owned by Prime Partners. Mr. Ryan is a shareholder, officer
      and director of Prime Partners. Includes 250,000 shares issuable to Mr.
      Ryan upon exercise of stock options at a price of $6.00 per share and
      250,000 shares issuable to Mr. Ryan upon exercise of stock options at a
      price of $8.00 per share. Mr. Ryan disclaims beneficial ownership of the
      26,200 shares beneficially owned by Ms. Enisman, and the 5,700 shares
      owned by Prudential Serls Prime Properties.

(2)   Includes 1,574,866 shares beneficially owned by Prime Partners and 2,731
      shares issuable to Mr. Porpora upon the exercise of stock options at a
      price of $2.875 per share. Mr. Porpora is a shareholder, officer and
      director of Prime Partners.

(3)   555,716 of such shares are held jointly with Tracy Ciocia, Mr. Ciocia's
      wife. 9,100 shares are held as custodian for Mr. Ciocia's sons.

(4)   Includes 69,927 shares owned by Randi Gilbert, Mr. Gilbert's wife, and
      30,000 shares held as custodian for Mr. Gilbert's sons. Mr. Gilbert
      disclaims beneficial ownership of the 69,927 shares beneficially owned by
      Randi Gilbert. In addition, includes 100,000 shares, 75,000 shares, 70,000
      shares, 70,000 shares, 70,000 shares and 7,370 shares issuable upon
      exercise of options at $4.75, $13.75, $4.00, $0.33, $2.15 and $2.875,
      respectively, per share.


                                    Page 65
<PAGE>

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth as of June 30, 2005 the beneficial ownership of
our common stock by (i) each Company director, (ii), each Named Executive
Officer and (iii) the directors and Named Executive Officers as a group.

<TABLE>
<CAPTION>
                                                AMOUNT AND NATURE OF                 PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER            BENEFICIAL OWNERSHIP                     CLASS
<S>                                                <C>                                   <C>
James Ciocia
16626 N. Dale Mabry Highway
Tampa, FL 33618                                      564,816 (1)                          6.2%

Michael Ryan
11 Raymond Avenue
Poughkeepsie, NY 12603                             2,112,766 (2)                         22.3%

Edward H. Cohen
45 Club Pointe Drive                                       -                                -
White Plains, New York, NY 10605

Steven Gilbert
2420 Enterprise Road, Suite 100
Clearwater, FL 33763                                 562,224 (3)                          6.1%

Kathryn Travis
375 North Broadway
Suite 203
Jericho, NY 11753                                    208,996                              2.3%

Carole Enisman
11 Raymond Avenue
Poughkeepsie, NY 12603                                26,200 (4)                           *

Christopher Kelly
11 Raymond Avenue
Poughkeepsie, NY 12603                               103,512                              1.1%

Ted Finkelstein
11 Raymond Avenue
Poughkeepsie, NY 12603                               191,601 (5)                          2.1%

Dennis Conroy
11 Raymond Avenue
Poughkeepsie, NY 12603                                40,015                               *

Directors and Named Executive Officers as a
Group (nine persons)                               3,810,130                             40.1%
</TABLE>

*     Less than 1.0%

(1)   555,716 of such shares are held jointly with Tracy Ciocia, Mr. Ciocia's
      wife. 9,100 shares are hold as custodian for Mr. Ciocia's sons.

(2)   6,000 shares are beneficially owned by Mr. Ryan personally, 26,200 shares
      are beneficially owned by Mr. Ryan's wife, Carole Enisman (the Executive
      Vice President of Operations of the Company), 5,700 shares are
      beneficially owned by Prudential Serls Prime Properties (of which Mr. Ryan
      is a director and significant shareholder) and 1,574,866 shares are
      beneficially owned by Prime Partners. Mr. Ryan is a shareholder, officer
      and director of Prime Partners. Includes 250,000 shares issuable to Mr.
      Ryan upon exercise of stock options at a price of $6.00 per share and
      250,000 shares issuable to Mr. Ryan upon exercise of stock options at a
      price of $8.00 per share. Mr. Ryan disclaims beneficial ownership of the
      26,200 shares beneficially owned by Ms. Enisman, and the 5,700 shares
      owned by Prudential Serls Prime Properties.

(3)   Includes 69,927 shares owned by Randi Gilbert, Mr. Gilbert's wife, and
      30,000 shares held as custodian for Mr. Gilbert's sons. Mr. Gilbert
      disclaims beneficial ownership of the 69,927 shares beneficially owned by
      Randi Gilbert. In addition, includes 100,000 shares, 75,000 shares, 70,000
      shares, 70,000 shares, 70,000 shares and 7,370 shares issuable upon
      exercise of options at $4.75, $13.75, $4.00, $0.33, $2.15 and $2.875,
      respectively, per share.

(4)   Includes 15,000 shares issuable upon the exercise of options at a price of
      $6.00.


                                    Page 66
<PAGE>

(5)   Includes 10,000 shares issuable upon the exercise of options at a price of
      $6.00.

See Item 5. "Market for Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities" and Note 12 to Notes to Consolidated
Financial Statements for a discussion of Company stock option plans.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

James Ciocia, our Chairman of the Board and a financial planner for the Company,
receives commissions based on a variable percentage of his own business
production and under which he received an aggregate of $0.6 million in Fiscal
2005.

Michael Ryan, the Company's Chief Executive Officer and President, is one of the
general partners in a limited partnership called Prime Income Partners, L.P.
which owns the building in Poughkeepsie, New York occupied by the home office of
the Company. During Fiscal 2005, the Company paid $0.3 million to Prime Income
Partners, L.P. for rent and related charges. Management believes the amounts
charged to the Company for rent to be commensurate with the rental rate that
would be charged to an independent third party.

Mr. Ryan is a director, the President and a major stockholder of Prime Partners.
In Fiscal 2005, Prime Partners extended short-term loans to the Company in the
aggregate amount of $1.5 million for working capital purposes. The loans pay 10%
interest per annum. As of June 30, 2005, the Company owed Prime Partners $0.7
million.

Edward H. Cohen is Counsel to and a retired partner of the law firm Katten
Muchin Rosenman LLP and also a director of the Company. Since August 2002, KMR
has been outside counsel to the Company and has also, in the past, represented
Michael Ryan personally. During Fiscal 2005, the Company paid fees to KMR.

Steven Gilbert, a director of the Company, received in his capacity as national
sales manager a base salary of $240,000 and in addition earned commissions based
on a percentage of his own business production. Mr. Gilbert's base salary
component was terminated during Fiscal 2005 and his current compensation is
based on a variable percentage of his own business production and a contract fee
dependent on maintaining at least 75% of his average quarterly production for
the prior calendar year. Mr. Gilbert received an aggregate of $0.7 million in
Fiscal 2005. Mr. Gilbert also received in Fiscal 2005 a car allowance of
$10,000.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table sets forth the aggregate fees billed to Radin Glass for
professional services rendered to the Company for the audit of the Company's
annual financial statements for the fiscal years ended June 30, 2005, and 2004,
for the reviews of the financial statements included in the Company's Quarterly
Reports on Form 10-Q for those fiscal years, and for other services rendered on
behalf of the Company during those fiscal years. All of such fees were
pre-approved by the Company Board of Directors.

                                   Fiscal 2005                    Fiscal 2004

Audit Fees                         $230,000                       $293,000 (1)

Audit-Related Fees                      -                              -

Tax Fees                           $ 40,000                       $ 40,000

All Other Fees                          -                              -

(1)   Included $63,000 in fees related to the re-audit of Fiscal 2002.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES


                                    Page 67
<PAGE>

(a)   The following documents are filed as part of this report:

(1)   Financial Statements: See Index to Consolidated Financial Statements at
      Item 8 of this report.

(2)   Financial Statement Schedule: See Notes to Consolidated Financial
      Statements at Item 8 of this report.

(3)   EXHIBITS

The following exhibits are incorporated herein by reference:

23.1  Consent of Radin, Glass LLP.

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

31.2 Rule 13a-14(a) Certification of Chief Accounting Officer.

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

32.2 Certification of Chief Accounting Officer Pursuant to Section 906 of the
Sarbanes-Oxley of Act of 2002.

(b) Reports on Form 8-K

Current Reports on Form 8-K were filed on April 28 and May 13, 2005.


                                    Page 68
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                              GILMAN + CIOCIA, INC.


Dated: July 10, 2006                          By /s/ Michael Ryan
                                                 Chief Executive Officer


Dated: July 10, 2006                          By /s/ Dennis Conroy
                                                 Principal Financial Officer and
                                                 Chief Accounting Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated this 10th day of July, 2006.


                                                 /s/ James Ciocia, Chairman


                                                 /s/ Edward H. Cohen, Director


                                                 /s/ Steven Gilbert, Director


                                                 /s/ Michael Ryan, Director


                                                 /s/ Kathryn Travis, Director


                                    Page 69