UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended October 31, 1997
or
[ ] 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 0-21105
GKN HOLDING CORP.
(Exact name of registrant as specified in its charter)
Delaware 13-3414302
- ------------------------------- -------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
61 Broadway, New York, New York 10006
- --------------------------------------- ---------------
(Address of principal executive offices) (Zip Code)
(212)509-3800
- ----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at December 11, 1997
Common Stock, $.0001 par value 8,095,899 shares
Exhibit index on page 15.
<PAGE>
GKN HOLDING CORP. AND SUBSIDIARIES
Index
<TABLE>
<CAPTION>
Part I - Financial Information Page
<S> <C>
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
October 31, 1997 (Unaudited) and January 31, 1997 3
Consolidated Statements of Income for the three and nine
months ended October 31, 1997 and 1996 (Unaudited) 4
Consolidated Statements of Changes in Stockholders'
Equity for the year ended January 31, 1997 and the nine
months ended October 31, 1997 (Unaudited) 5
Consolidated Statements of Cash Flows for the nine months
ended October 31, 1997 and 1996 (Unaudited) 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II - Other Information
Item 2. Changes in Securities and Use of Proceeds 13
Item 6. Exhibits and Reports on Form 8-K 13
</TABLE>
2
<PAGE>
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
GKN HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
October 31, January 31,
1997 1997
--------------- -----------
(Unaudited)
<S> <C> <C>
Assets
Cash and cash equivalents $ 5,813,000 $ 17,856,000
Receivable from brokers and dealers 6,219,000 9,357,000
Securities owned, at market value 12,994,000 14,610,000
Securities owned, not readily marketable, at fair value 1,548,000 1,365,000
Investments 3,149,000 2,692,000
Office furniture, equipment and leasehold improvements, net 1,122,000 1,251,000
Goodwill, net 3,747,000 1,619,000
Loans receivable 3,739,000 1,451,000
Income taxes receivable 2,408,000 --
Other assets 3,170,000 1,432,000
-------------- --------------
Total assets $ 43,909,000 $ 51,633,000
============== ==============
Liabilities and Stockholders' Equity
Liabilities:
Securities sold, not yet purchased, at market value $ 4,617,000 $ 6,997,000
Commissions payable 2,540,000 2,186,000
Deferred compensation 1,057,000 1,409,000
Income taxes payable -- 238,000
Deferred tax liability 1,088,000 636,000
Accrued expenses and other liabilities 2,654,000 4,403,000
------------- -------------
11,956,000 15,869,000
Liability subordinated to the claims of general creditors 571,000 738,000
------------- -------------
Total liabilities 12,527,000 16,607,000
------------- -------------
Stockholders' equity:
Series A preferred stock, $.10 par value; 1,200,000
authorized, 1,140,000 shares issued and outstanding; and
no shares authorized, issued, and outstanding 114,000 --
Common stock, $.0001 par value; 35,000,000 shares
authorized; 9,209,875 shares issued; 8,095,899 and
8,225,512 shares outstanding 1,000 1,000
Additional paid-in capital 20,449,000 19,931,000
Retained earnings 15,741,000 18,247,000
Cumulative translation adjustment (21,000) (3,000)
------------- -------------
36,284,000 38,176,000
Less treasury stock, at cost; 1,113,976 and 992,363 shares (4,902,000) (3,150,000)
------------- -------------
Total stockholders' equity 31,382,000 35,026,000
------------- -------------
Total liabilities and stockholders' equity $ 43,909,000 $ 51,633,000
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
GKN HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended October 31, Ended October 31,
1997 1996 1997 1996
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Commissions $12,513,000 $10,573,000 $30,247,000 $39,740,000
Investment banking 914,000 1,977,000 4,643,000 7,544,000
Principal transactions 913,000 914,000 1,605,000 4,418,000
Interest 327,000 462,000 1,063,000 1,176,000
Other 450,000 78,000 903,000 130,000
------------ ------------ ----------- -----------
Total revenues 15,117,000 14,004,000 38,461,000 53,008,000
------------ ------------ ----------- -----------
Expenses:
Compensation and benefits 9,968,000 8,970,000 26,796,000 32,665,000
Communications 1,277,000 997,000 3,704,000 2,906,000
Brokerage, clearing and
exchange fees 931,000 537,000 2,442,000 1,742,000
Occupancy and equipment 943,000 751,000 2,501,000 2,067,000
Business development 419,000 429,000 1,606,000 1,051,000
Professional fees 271,000 145,000 756,000 786,000
Investigations and settlements 204,000 141,000 2,192,000 627,000
Other 965,000 667,000 2,438,000 1,829,000
------------ ------------ ------------- -----------
Total expenses 14,978,000 12,637,000 42,435,000 43,673,000
------------ ------------ ------------ -----------
Income (loss) before income taxes 139,000 1,367,000 (3,974,000) 9,335,000
Income taxes 196,000 552,000 (1,468,000) 3,993,000
------------ ------------ --------------- -----------
Net (loss) income $ (57,000) $ 815,000 $(2,506,000) $ 5,342,000
============ ============ ============= ===========
Earnings (loss) per common share $ (0.01) $ 0.09 $ (0.31) $ 0.80
============ ============ ============= ===========
Weighted average common
shares outstanding 8,096,769 8,694,355 8,120,427 6,667,294
============ ============ ============= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
GKN HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
For the Year Ended January 31, 1997 and the Nine Months Ended
October 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Additional Cumulative
Preferred Common Paid-in Retained Translation Treasury Unearned
Stock Stock Capital Earnings Adjustment Stock Compensation Total
---------- -------- -------------- -------------- ---------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 31, 1996 $ - $ 1,000 $ 3,487,000 $ 11,918,000 $ - $ (630,000) $ - $14,776,000
Net income - - - 6,329,000 - - - 6,329,000
Stock issued - - 16,011,000 - - - - 16,011,000
Warrants issued - - 1,000 - - - - 1,000
Stock options
granted - - 36,000 - - - - 36,000
Notes receivable - - (221,000) - - - - (221,000)
Stock options exercised - - 617,000 - - 95,000 - 712,000
Purchase of
treasury stock - - - - - (2,615,000) - (2,615,000)
Translation adjustment - - - - (3,000) - - (3,000)
---------- -------- -------------- -------------- ---------- ----------- ------------- -----------
Balance at
January 31, 1997 - 1,000 19,931,000 18,247,000 (3,000) (3,150,000) - 35,026,000
Net income (loss) - - - (2,506,000) - - - (2,506,000)
Stock issued for
acquisition 114,000 - 1,376,000 - - 517,000 - 2,007,000
Stock options exercised - - (45,000) - - 124,000 - 79,000
Stock issued
under incentive
compensation plans - - 541,000 - - 1,193,000 (1,734,000) -
Amortization of
unearned
compensation - - - - - - 385,000 385,000
Purchase of
treasury stock - - - - - (3,586,000) - (3,586,000)
Change in trans-
lation adjustment - - - - (18,000) - - (18,000)
Other - - (5,000) - - - - (5,000)
---------- -------- -------------- -------------- ---------- ----------- ------------- -----------
Balance at
October 31, 1997 $ 114,000 $ 1,000 $ 21,798,000 $ 15,741,000 $(21,000) $(4,902,000) $(1,349,000) $31,382,000
========== ======== ============== ============== ========== =========== ============= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
GKN HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Oct 31,
1997 1996
--------------- ----------
<S> <C> <C>
Operating activities:
Net (loss) income $ (2,506,000) $ 5,342,000
Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:
Deferred taxes 909,000 (114,000)
Depreciation 334,000 178,000
Amortization 202,000 229,000
------------- ------------
(1,061,000) 5,635,000
(Increase) decrease in operating assets:
Receivable from brokers and dealers 3,793,000 4,139,000
Securities owned, at market value 1,783,000 (7,332,000)
Securities owned, not readily marketable (183,000) 481,000
Investments (2,957,000)
Loans receivable (2,284,000) 266,000
Income taxes receivable (2,408,000) (1,352,000)
Other assets (1,287,000) (177,000)
Increase (decrease) in operating liabilities:
Securities sold, not yet purchased (2,390,000) 1,888,000
Commissions payable (283,000) 166,000
Deferred compensation (353,000) 1,534,000
Income taxes payable (229,000) (328,000)
Accrued expenses and other liabilities (2,575,000) 507,000
Translation adjustment (18,000) (17,000)
------------- ------------
Net cash (used in) provided by operating activities (7,495,000) 2,453,000
------------- ------------
Investing activities:
Purchase of office furniture, equipment
and leasehold improvements (160,000) (640,000)
Limited partnerships (457,000) -
Acquisition, net of cash acquired (302,000) -
Goodwill resulting from acquisition 68,000 (30,000)
------------- ------------
Net cash used in investing activities (851,000) (670,000)
------------- ------------
Financing activities:
Issuance of common shares 75,000 16,112,000
Issuance of common stock warrants - 1,000
Purchase of treasury stock (3,586,000) (928,000)
Repayment of subordinated debt (186,000) (203,000)
------------- ------------
Net cash (used in) provided by financing activities (3,697,000) 14,982,000
------------- ------------
Net change in cash and cash equivalents (12,043,000) 16,765,000
Cash and cash equivalents at beginning of year 17,856,000 7,873,000
------------- ------------
Cash and cash equivalents at end of period $ 5,813,000 $24,638,000
============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
GKN HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Basis of Presentation
The consolidated financial statements include the accounts of GKN Holding Corp.
and its subsidiaries (the Company). All significant intercompany accounts and
transactions are eliminated in consolidation. In the opinion of management, the
consolidated financial statements reflect all adjustments, which are all of a
normal recurring nature, necessary for a fair statement of the Company's
financial position and results of operations for the interim periods presented.
These consolidated financial statements should be read in conjunction with the
Company's consolidated financial statements and notes thereto for the year ended
January 31, 1997, in its annual report on Form 10-K.
Certain reclassifications have been made to the prior year amounts to conform to
the current presentation.
The financial statements conform with generally accepted accounting principles
(GAAP). The preparation of financial statements in conformity with GAAP requires
the Company to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets and liabilities
at the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could vary
from these estimates.
The Company's principal business activities are affected by many factors,
including general economic and market conditions, which can result in
substantial fluctuations in the Company's revenues and net income. Therefore,
the results of operations for the nine months ended October 31, 1997, are not
necessarily indicative of the results which may be expected for the entire
fiscal year.
2. Acquisition
On March 13, 1997, the Company acquired all of the outstanding stock of
Southeast Research Partners, Inc. ("Southeast") for $520,000 cash, 152,000
shares of common stock, and 1,140,000 shares of Series A Preferred Stock. This
preferred stock was authorized by the Company's Board of Directors on March 3,
1997. Southeast is a research and institutional brokerage boutique, located in
Boca Raton, Florida, which maintains research coverage primarily focused on
small and mid capitalization companies located in the Southeastern United
States.
3. Net Capital Requirements
GKN Securities Corp. ("GKN"), Southeast, and Shochet Securities, Inc. (Shochet),
all wholly-owned subsidiaries of the Company, are registered broker-dealers with
the Securities and Exchange Commission (the SEC) and member firms of the
National Association of Securities Dealers, Inc. (NASD). As such, GKN,
Southeast, and Shochet are subject to the SEC's net capital rule, which requires
the maintenance of minimum net capital.
GKN has elected to compute net capital using the alternative method permitted by
the net capital rule, which requires that it maintain minimum net capital, as
defined, to be greater than or equal to $250,000. At October 31,1997, GKN had
excess net capital of $5,006,000.
Southeast has elected to compute net capital under the standard aggregate
indebtedness method permitted by the net capital rule, which requires that the
ratio of aggregate indebtedness to net capital, both as defined, shall not
exceed 15 to 1. At October 31, 1997, Southeast had net capital of $1,559,000 and
a net capital requirement of $100,000. Southeast's net capital ratio at October
31, 1997, was 0.62 to 1.
Shochet has also elected to compute net capital under the standard aggregate
indebtedness method permitted by the net capital rule. At October 31, 1997,
Shochet had net capital of $701,000 and a net capital requirement of $100,000.
Shochet's net capital ratio at October 31, 1997, was 0.80 to 1.
7
<PAGE>
4. Earnings Per Share
Weighted average common shares outstanding used in the calculation of earnings
per common share reflects common stock equivalents, consisting of stock options
and warrants, when their effect is dilutive. The difference between primary and
fully diluted earnings per share is not material. In March 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 128, Earnings per Share (SFAS 128), effective beginning in the fiscal year
ending January 31, 1998. This statement changes the calculation and presentation
of earnings per common share (EPS). The new presentation will consist of basic
EPS, which includes no dilution and is computed by dividing net income by the
weighted-average number of common shares outstanding for the period, and diluted
EPS, which is similar to the current fully diluted EPS. The disclosed EPS for
the current quarter would be the same under the new pronouncement.
5. Supplemental Cash Flow Information
<TABLE>
<CAPTION>
Nine Months Ended Oct 31,
1997 1996
--------------- -----------
<S> <C> <C>
Cash paid for:
Income taxes $ 731,000 $ 1,551,000
Interest 26,000 17,000
Non-cash financing activities:
Treasury stock issued for Incentive Compensation Plan $ 3,586,000 $ -
Details of acquisition:
Fair value of assets acquired $ 1,479,000 $ -
Liabilities assumed (1,474,000) -
Common stock issued in acquisition (912,000) -
Preferred stock issued in acquisition (1,095,000) -
Goodwill 2,304,000 -
--------- -----------
Net cash used for acquisition 302,000 -
</TABLE>
6. Commitments and Contingencies
On June 24, 1997, GKN entered into a lease agreement for approximately 48,000
square feet of office space in Downtown New York City. The Company's
headquarters and New York branch are expected to relocate to this facility
during the fourth quarter of this year.
8
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Results of Operations
Three Months Ended October 31, 1997 vs. Three Months Ended October 31, 1996
- ----------------------------------------------------------------------------
Net income (loss) for the three months ended October 31, 1997 was $(57,000) as
compared to $815,000 for the three months ended October 31, 1996. Earnings
(loss) per share of common stock for the three months ended October 31, 1997,
were $(0.01) as compared to $0.09 for the three months ended October 31, 1996.
The decrease in earnings was attributable to losses suffered through market
making activities, and the execution of fewer investment banking deals. These
results reflect the settlements of investigations by NASDR and the SEC. Net
income excluding investigations and settlements for the three months ended
October 31, 1997 and 1996, was $59,000 and $896,000, respectively. Earnings per
share excluding investigations and settlements for the three months ended
October 31, 1997 and 1996 were $0.01 and $0.10, respectively.
The Company's principal business activities are affected by many factors,
including general economic and market conditions, which can result in
substantial fluctuations in the Company's revenues and net income. Therefore,
the results of operations for the quarter are not necessarily indicative of the
results which may be expected for the entire fiscal year.
Revenues
Total revenues increased by 8% to $15,117,000 for the third quarter of fiscal
1998, mainly as a result of higher commission revenues.
Commission revenues increased by $1,940,000, or 18%, for the third quarter,
reflecting the strong market conditions in the small capitalization stock sector
during the month of October. The Company executed 29% more trades during the
quarter as compared to the same quarter in the prior year.
Investment banking revenues decreased by $1,063,000, or 54%. During the third
quarter of fiscal 1998 the Company raised $2.7 million for corporate clients
through two private placements. In the same period in fiscal 1997, the Company
raised $26.9 million for its clients through two public offerings and two
private placements. There were no public offerings in the current quarter.
Principal transactions generated income of $913,000 in the third quarter of
fiscal 1998. Revenues generated through market making activities for
over-the-counter equity securities decreased $1,623,000 to $(1,293,000) for the
quarter while revenues from the Company's investment account increased
$1,623,000 to $2,206,000.
Expenses
Total expenses for the third quarter in fiscal 1998 were $14,978,000, a 19%
increase over the third quarter in fiscal 1997. This increase is tied to the
increase in revenues, as compensation expenses are directly correlated with
commission revenues, and the acquisition of Southeast.
Compensation and benefits expense increased 11% to $9,968,000. These expenses
are primarily variable as commissions to brokers are paid as a percentage of
commission revenues generated and incentive compensation is directly related to
net income. The expense increase in fiscal 1998 is consistent with the increases
in commission revenues.
9
<PAGE>
Communications expense increased by $280,000, or 28%, as a result of the
Company's expansion.
Brokerage, clearing and exchange fees and occupancy and equipment expenses
increased by 73% and 26%, respectively. These increases were primarily due to
the March 1997 acquisition of Southeast and the growth of existing offices.
Investigations and settlements expense relates to costs incurred resolving the
SEC and NASDR investigations.
Other expenses increased $298,000 primarily due to increased expenses associated
with the Company's growth.
Weighted average common shares outstanding
The average number of common shares and common stock equivalents outstanding
used in the computation of earnings per common share was 8,096,769 in the third
quarter of fiscal 1998, compared with 8,694,355 in fiscal 1997.
Nine Months Ended October 31, 1997 vs. Nine Months Ended October 31, 1996
- --------------------------------------------------------------------------
Net income (loss) for the nine months ended October 31, 1997 was $(2,506,000) as
compared to $5,342,000 for the nine months ended October 31, 1996. Earnings
(loss) per share of common stock for the nine months ended October 31, 1997,
were $(0.31) as compared to $0.80 for the nine months ended October 31, 1996.
The decrease in earnings was directly attributable to the weakness in the small
cap market, although the month of October posted strong results. The Company
experienced lower commission revenues, executed fewer investment banking deals,
and suffered losses through market making activities for over-the-counter
securities. These results reflect the settlements of investigations by NASDR and
the SEC. Net income (loss) excluding investigations and settlements for the nine
months ended October 31, 1997 and 1996, was $(1,258,000) and $5,701,000,
respectively. Earnings (loss) per share excluding investigations and settlements
for the nine months ended October 31, 1997 and 1996, were $(0.15) and $0.86,
respectively. The results of operations for the nine months are not necessarily
indicative of the results which may be expected for the entire year.
Revenues
Total revenues decreased by 27% to $38,461,000 for the nine months. Revenues
decreased in all the Company's major areas of activity for the fiscal
year-to-date.
Commission revenues decreased by $9,493,000, or 24%, for the year-to-date
period. The decrease reflects the weakness in the small capitalization stock
sector through the first eight months of this year. The month of October posted
a strong rebound in the small capitalization stock sector. The Company executed
10% more trades during the period as opposed to the same period in the prior
year.
Investment banking revenues decreased by $2,901,000, or 38%. The Company raised
$54.9 million for its clients in the fiscal 1998 period through four public
offerings and seven private placements, a decrease from the comparable fiscal
1997 period when the Company raised $85.8 million through six public offerings
and seven private placements. The decrease in underwriting activity was the
result of general market conditions on the small capitalization market.
Revenues from principal transactions decreased by $2,813,000, or 64%, for the
nine months. Revenues generated through market making activities for
over-the-counter equity securities decreased $4,406,000 to $(1,689,000) for the
period while revenues from the Company's investment account increased
$1,593,000. The lower revenues generated through market making activities
resulted from weakened market conditions for small capitalization stocks during
the fiscal 1998 period.
10
<PAGE>
Expenses
Total expenses for the first nine months of fiscal 1998 were $42,435,000, a 3%
decrease from the same period in fiscal 1997. As a percentage of revenues, these
expenses increased to 110% in the fiscal 1998 period from 82% in the fiscal 1997
period.
Increases in the Company's expense categories for the nine month period resulted
from the same factors causing increases in expenses for the third quarter. The
primary factors resulting in higher expenses were the significant increase in
the level of business activities, the addition of wholly owned subsidiaries,
settlements of the NASDR and SEC investigations, and increased promotional
activities.
Liquidity and Capital Resources
Most of the Company's assets are highly liquid, with the majority consisting of
cash and cash equivalents, securities inventories, and receivables from other
broker-dealers and the Company's clearing firm, all of which fluctuate depending
upon the levels of customer business and trading activity. Approximately 57% of
the Company's assets at October 31, 1997, were highly liquid. Receivables from
broker-dealers and the Company's clearing firm turn over rapidly. As a
securities dealer, the Company may carry significant levels of trading
inventories to meet customer needs. The Company's inventory of market making
securities is readily marketable; however, holding large blocks of the same
security may limit liquidity and prevent realization of full market value for
the securities. Securities owned, but not readily marketable, represent
underwriter warrants and the securities underlying such warrants. The liquidity
of these securities is limited. A relatively small percentage of the Company's
total assets are fixed. The Company's total assets or the individual components
of total assets may vary significantly from period to period because of changes
relating to customer demand, economic and market conditions, and proprietary
trading strategies.
GKN, Southeast, and Shochet, the Company's operating broker-dealer subsidiaries,
are subject to the net capital rules of the NASD and the SEC. As such, they and
the Company are subject to certain restrictions on the use of capital and its
related liquidity. GKN's, Southeast's, and Shochet's respective net capital
positions as of October 31, 1997, were $5,256,000, $1,559,000 and $701,000,
which were $5,006,000, $1,459,000, and $601,000 in excess of their respective
net capital requirements.
Prior to its initial public offering, the Company financed its operations
through the private placement of debt and equity securities and cash flow from
operations. The Company has not employed any significant leverage or debt. In
conjunction with the Company's November 1995 acquisition of Shochet, the Company
issued the seller a subordinated note as part of the purchase price, of which
$571,000 was outstanding at October 31, 1997. The Company intends to use debt
prudently in the future and to arrange for lines of credit in the near future.
On March 12, 1997, the Company authorized the repurchase of up to 10% of the
current outstanding shares, or approximately 825,000 shares. As of October 31,
1997, 385,000 shares had been repurchased. All repurchases were funded from cash
flow from operations.
During the fourth quarter of this year, the Company's headquarters and New York
branch are expected to relocate to a new 48,000 square foot facility in Downtown
Manhattan. Concurrent with this move, the Company is making an investment in its
technological infrastructure. The combined cost of this relocation and
technological investment amounts to approximately $5 million and will be
financed mainly with operating leases.
The Company's overall capital and funding needs are continually reviewed to
ensure that its capital base can support the estimated needs of its business
units. These reviews take into account business needs as well as regulatory
capital requirements of the subsidiaries. Based upon these reviews, management
believes that the Company's capital structure is adequate for current operations
and reasonably foreseeable future needs.
11
<PAGE>
Safe Harbor Cautionary Statement
The Company occasionally makes forward-looking statements such as forecasts and
projections of expected future performance or statements of its plans and
objectives. When used in this quarterly report and in future filings by the
Company with the SEC, in the Company's press releases and in oral statements
made with the approval of an authorized executive officer of the Company, the
words or phrases "will likely result," "the Company expects," "will continue,"
"is anticipated," "estimated," "project," or "outlook" or similar expressions
(including confirmations by an authorized executive officer of the Company of
any such expressions made by a third party with respect to the Company) are
intended to identify forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. The Company wishes to caution
readers not to place undue reliance on any such forward-looking statements, each
of which speak only as of the date made. Such statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from historical earnings and those presently anticipated or projected. Factors
which could affect the Company's results of operations and cause its results to
differ from these statements include the volatility and price level of the
securities markets; the volume, size and timing of securities transactions; the
demand for investment banking services; the level and volatility of interest
rates; the availability of credit; legislation affecting the business and
financial communities; and the economy in general. For a more complete
discussion of these and other factors, see the Company's registration statement
filed on Form S-1, as amended (No. 333-05273). The Company has no obligation to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect anticipated or unanticipated events or
circumstances occurring after the date of such statements.
12
<PAGE>
Part II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On July 30, 1996, the Securities and Exchange Commission declared the
Company's registration statement on Form S-1, File No. 333-05273, effective, and
the offering commenced on that date. Such registration statement registered the
sale at an offering price of $6.00 per share of 2,875,000 shares of common stock
by the Company, for an aggregate offering price of $17,250,000. On August 2,
1996, the Company sold 2,875,000 shares of common stock receiving total proceeds
of $17,250,000. Pennsylvania Merchant Group Ltd. was the managing underwriter of
the offering, and GKN Securities Corp was the co-managing underwriter.
Total expenses incurred to date are approximately $2.5 million,
consisting of $1.4 million of underwriting discounts and commissions, and an
estimated $1.1 million of accounting, legal, and other expenses. After deducting
the Company's underwriting commissions and other expenses, the net proceeds to
the Company were approximately $14.7 million. None of such expenses were paid,
directly or indirectly, to directors or officers of the Company or to any person
owning 10% or more of any class of equity securities of the Company or to any
affiliates of the Company.
The $14.7 million of net proceeds to the Company was applied as
follows:
Working capital $ 1,700,000
Money market account 1,400,000
Increase in equity capital of GKN Securities 1,200,000
Retail sales force expansion 3,600,000
Expand investment banking and research capabilities 5,000,000
Money management and merchant banking 1,800,000
-------------
$ 14,700,000
The Company had previously intended to allocate $4 million to increase
equity capital of GKN Securities Corp. The Company has used $1.2 million to
increase equity capital and has reallocated the remaining $2.8 million for the
expansion of investment banking and research capabilities.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 - Financial Data Schedule BD
(b) Reports on Form 8-K:
On August 21, 1997, the Company filed a Current Report on Form
8-K, dated August 13, 1997, reporting under Item 5, Other Events, the settlement
of a previously disclosed investigation by NASDR.
13
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GKN HOLDING CORP.
Date: December 12, 1997 /s/ David M. Nussbaum
----------------------------
David M. Nussbaum
Chairman of the Board and
Chief Executive Officer
/s/ Peter R. Kent
----------------------------
Peter R. Kent
Chief Operating Officer and
Chief Financial Officer
14
<PAGE>
GKN HOLDING CORP. AND SUBSIDIARIES
Exhibit Index
Number Description
27 Financial Data Schedule BD (10/31/97)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> BD
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Jan-31-1998
<PERIOD-START> Feb-01-1997
<PERIOD-END> Oct-31-1997
<CASH> 5,813,000
<RECEIVABLES> 12,366,000
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 17,691,000
<PP&E> 1,122,000
<TOTAL-ASSETS> 43,909,000
<SHORT-TERM> 0
<PAYABLES> 0
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 4,617,000
<LONG-TERM> 571,000
<COMMON> 1,000
0
114,000
<OTHER-SE> 31,267,000
<TOTAL-LIABILITY-AND-EQUITY> 43,909,000
<TRADING-REVENUE> 913,000
<INTEREST-DIVIDENDS> 327,000
<COMMISSIONS> 12,513,000
<INVESTMENT-BANKING-REVENUES> 914,000
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 0
<COMPENSATION> 9,968,000
<INCOME-PRETAX> 139,000
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (57,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
