U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Act of
- ----- 1934
For the quarterly period ended September 30, 1996
_____ 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 0-25336
KIRLIN HOLDING CORP.
--------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 11-3229358
- ------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6901 Jericho Turnpike, Syosset, New York 11791
----------------------------------------------
(Address of Principal Executive Offices)
(800) 899-9400
-----------------------------------------------
(Issuer's Telephone Number Including Area Code)
- --------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Check whether the issuer: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act 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 |_|.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: At November 11, 1996, Issuer had
outstanding 1,302,330 shares of Common Stock, par value $.0001 per share.
Page 1 of 13 Total Pages
Exhibit Index - Page 12
<PAGE>
PART 1: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
KIRLIN HOLDING CORP. and SUBSIDIARY
Consolidated Statements of Financial Condition
September 30, December 31,
1996 1995
------------- ------------
(Unaudited)
ASSETS:
Cash $ 84,172 $ 179,944
Securities Owned, at market value:
U.S. government and agency obligations 18,281,813 3,059,289
State and municipal obligations 2,135,988 688,374
Corporate bonds and other securities 8,548,833 5,015,643
Furniture, Fixtures and Leasehold Improvements,
at cost, net of accumulated depreciation
of $468,376 and $340,208 for
September 30, 1996 and December 31, 1995, 651,854 484,096
respectively
Deferred Tax Asset 124,384
Other Assets 532,640 234,504
----------- -----------
Total assets $30,235,300 $ 9,786,234
=========== ===========
LIABILITIES and STOCKHOLDERS' EQUITY:
Liabilities:
Securities sold, but not yet purchased,
at market value $ 934,030 $ 1,504,437
Payable to clearing broker 21,138,914 2,266,722
Accrued compensation 1,119,121 407,623
Accounts payable and accrued expenses 832,883 411,045
Deferred Tax Liability 270,937
----------- -----------
Total liabilities 24,295,885 4,589,827
----------- -----------
Commitments
Stockholders' Equity:
Common stock, $.0001 par value; authorized
15,000,000 shares, issued and
outstanding 1,302,330 130 130
Additional paid-in capital 5,329,536 5,329,536
Retained earnings (accumulated deficit) 609,749 (133,259)
----------- -----------
Total stockholders' equity 5,939,415 5,196,407
----------- -----------
Total liabilities and
stockholders' equity $30,235,300 $ 9,786,234
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
KIRLIN HOLDING CORP. and SUBSIDIARY
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three-Months Ended Nine-Months Ended
September 30, September 30,
----------------------- -----------------------
1996 1995 1996 1995
---------- ----------- ----------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Principal transactions, net $3,204,057 $ 1,177,821 $ 9,078,371 $4,039,130
Commissions 1,066,604 1,397,559 3,310,993 2,963,587
Other income 103,743 42,032 293,680 115,013
---------- ----------- ----------- ----------
4,374,404 2,617,412 12,683,044 7,117,730
---------- ----------- ----------- ----------
Expenses:
Employee compensation and benefits 2,397,118 1,623,221 7,491,402 4,443,260
Promotion and advertising 434,853 204,434 1,071,033 593,756
Clearance and execution charges 274,815 189,993 749,575 487,581
Occupancy and communications 418,882 303,474 1,150,418 797,609
Professional fees 47,786 51,512 143,020 195,512
Interest 150,588 56,519 363,513 119,207
Other 117,364 71,786 328,294 193,750
---------- ----------- ----------- ----------
3,841,406 2,500,939 11,297,255 6,830,675
---------- ----------- ----------- ----------
Income before provision for
income taxes 532,998 116,473 1,385,789 287,055
Provision for income taxes 218,917 47,917 642,781 121,819
---------- ----------- ----------- ----------
Net income $ 314,081 $ 68,556 $ 743,008 165,236
========== =========== =========== ==========
Net income per common share $ 0.24 $ 0.05 $ 0.57 0.13
========== =========== =========== ==========
Weighted average common shares
outstanding 1,302,330 1,302,330 1,302,330 1,308,412
Primary Net income per common share $ 0.20 $ 0.48
========== ===========
Fully Diluted Net income per common
share $ 0.20 $ 0.47
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
KIRLIN HOLDING CORP. and SUBSIDIARY
Consolidated Statement of Changes in Stockholders' Equity
For the nine-months ended September 30, 1996
(Unaudited)
Common Stock (Accumulated
---------------- Additional Deficit)
Par Paid-in Retained
Shares Value Capital Earnings Total
--------- ----- ---------- ---------- ----------
Stockholders' equity,
January 1, 1996 1,302,330 $ 130 $5,329,536 $ (133,259) $5,196,407
Net income 743,008 743,008
--------- ----- ---------- ---------- ----------
Stockholders' equity,
September 30, 1996 1,302,330 $ 130 $5,329,536 $ 609,749 $5,939,415
========= ===== ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
KIRLIN HOLDING CORP. and SUBSIDIARY
Consolidated Statements of Cash Flows
Nine-Months Ended
September 30,
--------------------------
1996 1995
------------ -----------
(Unaudited)
Cash flows from operating activities:
Net income $ 743,008 $ 165,236
------------ -----------
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 128,168 90,000
Amortization of stock options 38,070
Deferred income taxes 395,321 118,692
(Increase) in securities owned, at
market value (20,203,328) (5,902,629)
Decrease in prepaid and deferred offering
costs 781,711
(Increase) in other assets (298,136) (30,991)
(Decrease) increase in securities sold,
but not yet purchased, at market value (570,407) 63,766
Increase in payable to clearing broker 18,872,192 1,992,143
Increase in accrued compensation 711,498 230,756
Increase (decrease) in accounts
payable and accrued expenses 421,838 (242,151)
------------ -----------
Total adjustments (542,854) (2,860,633)
------------ -----------
Net cash provided by (used in) operating
activities 200,154 (2,695,397)
------------ -----------
Cash flows from investing activities:
Purchase of furniture, fixtures and leasehold
improvements (295,926) (307,738)
------------ -----------
Net cash used in investing activities (295,926) (307,738)
------------ -----------
Cash flows from financing activities:
Issuance of common stock 3,241,589
------------ -----------
Net cash provided by financing activities 3,241,589
------------ -----------
Net (decrease) increase in cash (95,772) 238,454
Cash and cash equivalents, beginning of period 179,944 42,919
------------ -----------
Cash, end of period $ 84,172 $ 281,373
============ ===========
Supplemental information:
Interest paid $ 386,537 $ 117,781
Income taxes paid $ 44,452 $ 4,106
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
KIRLIN HOLDING CORP. and SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
1. Organization and Summary of Significant Accounting Policies
The consolidated financial statements include the accounts of Kirlin
Holding Corp. and its wholly owned subsidiary, Kirlin Securities, Inc.
(collectively the "Company"). The Company, through Kirlin Securities, Inc.
("Kirlin"), is a full service, retail-oriented brokerage firm specializing
in the trading and sale of fixed income securities, including
collateralized mortgage obligations, corporate and municipal bonds, and
government and government agency securities and, to a lesser extent,
mutual funds and equity securities. The Company's only activities, other
than investments, have been through Kirlin. All material intercompany
transactions and balances have been eliminated in consolidation. Kirlin
has offices in New York, New Jersey and California.
Net income per common share for the three and nine-month periods ended
September 30, 1996 and 1995 is based on the weighted average number of
shares outstanding for each period based on the modified treasury stock
method. For the three and nine-month periods ended September 30, 1996
primary and fully diluted net income per common share has also been
calculated since options to purchase common stock have a dilutive effect.
Accounting Principles Board Opinion No. 15, "Earnings per Share", limits
the assumed repurchase of shares under the treasury stock method to 20
percent of the shares outstanding. Any excess proceeds from the assumed
exercise of options are assumed to be invested in U.S. government
securities or commercial paper. Therefore, net income is adjusted for
assumed interest income, net of applicable income taxes for purposes of
these calculations. For the three and nine-month periods ended September
30, 1996 primary and fully diluted net income per common share was
computed by dividing net income, adjusted to include interest income, net
of applicable income taxes, from U.S. government securities or commercial
paper, by the weighted average number of shares of common stock plus the
additional common shares resulting from the assumed conversion of all
options to purchase common stock at the beginning of the period. The
weighted average number of shares of common stock outstanding and adjusted
net income for primary and fully diluted net income per common share are
as follows:
Three-Months Nine-Months
Ended Ended
September September
30, 1996 30, 1996
------------ ----------
(Unaudited)
Primary Net Income Per Common Share
-----------------------------------
Net Income $ 314,081 $ 743,008
Plus: Estimated proceeds from
investment in U.S. government
securities or commercial paper,
net of taxes 13,407 47,839
---------- ----------
Net Income used in per
share calculation $ 327,488 $ 790,847
========== ==========
Weighted average number of shares
outstanding 1,302,330 1,302,330
Plus: Net effect of dilutive
stock options based on
the modified treasury stock
method using the average market
price of common stock 351,317 351,317
---------- ----------
Total shares 1,653,647 1,653,647
========== ==========
Net income per common share $ 0.20 $ 0.48
========== ==========
6
<PAGE>
KIRLIN HOLDING CORP. and SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
Fully Diluted Net Income Per Common Share
-----------------------------------------
Net Income $ 314,081 $ 743,008
Plus: Estimated proceeds from
investment in U.S. government
securities or commercial paper,
net of taxes 12,463 37,388
---------- ----------
Net Income used in per
share calculation $ 326,544 $ 780,396
========== ==========
Weighted average number of shares
outstanding 1,302,330 1,302,330
Plus: Net effect of dilutive
stock options based on the modified
treasury stock method using
the end of period market price
of common stock if higher than
average market price 351,317 351,317
---------- ----------
Total shares 1,653,647 1,653,647
========== ==========
Net income per common share $ 0.20 $ 0.47
========== ==========
For the three and nine-month periods ended September 30, 1995 options to
purchase common stock have been excluded from the computation of weighted
average shares outstanding since their inclusion would have an
antidilutive effect.
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes as
required by generally accepted accounting principles for annual financial
statements. In the opinion of management of the Company, all adjustments
(consisting only of normal recurring adjustments) necessary in order to
make the financial statements not misleading have been included. The
operations for the nine-month period ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the full
year ending December 31, 1996. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-KSB for the fiscal year ended December
31, 1995.
2. Income Taxes
The Company files consolidated federal income tax returns and combined New
York, New Jersey, and California State income tax returns. The provision
for income taxes differs from the amount of income taxes determined by
applying the federal statutory rates principally because of the effect of
state taxes.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations
Total revenues for the three and nine-month periods ended September 30,
1996 increased 67.1% and 78.2% to $4,374,404 and $12,683,044, respectively, from
the comparable periods in 1995. This increase is attributable to income
generated from the Company's investment banking and retail brokerage activities,
which is reflective of the general market conditions. As a result, principal
transactions, net increased by 172% and 125%, respectively, for the three and
nine-month periods ended September 30, 1996 from the comparable periods in 1995
directly reflective of the increases in the prices of the shares underlying the
restricted shares and underwriter warrants the Company holds.
Employee compensation and benefits for the three and nine-month periods
ended September 30, 1996 increased 47.7% and 68.6%, respectively, to $2,397,118
and $7,491,402 from the comparable periods in 1995. This increase is primarily
due to an increase in commission payments to the Company's traders and
registered representatives as a result of higher revenues.
Promotion and advertising for the three and nine-month periods ended
September 30, 1996 increased 113% and 80.4%, respectively, to $434,853 and
$1,071,033 from the comparable periods in 1995 primarily as a result of the
Company's planned increased of advertising expenditures, primarily in television
advertising on the east coast for fixed income securities.
Clearance and execution charges for the three and nine-month periods ended
September 30, 1996 increased 44.6% and 53.7%, respectively, to $274,815 and
$749,575 from the comparable periods in 1995. The increase in the three and
six-month period is a result of overall higher ticket volume.
Occupancy and communications costs for the three and nine-month periods
ended September 30, 1996 increased 38% and 44.2% , respectively, to $418,882 and
$1,150,418 from the comparable periods in 1995. This increase is a result of the
establishment and operations of four branch offices on the east and west coast.
Professional fees for the three and nine-month periods ended September 30,
1996 decreased 7.2% and 26.8% to $47,786 and $143,020 from the comparable
periods in 1995 primarily as a result of a shift of work performed by outside
consultants to internal professional staff.
Interest expense for the three and nine-month periods ended September 30,
1996 increased 166% and 205%, respectively, to $150,588 and $363,513 from the
comparable periods in 1995 as a result of larger inventory positions held in the
1996 period upon which the Company is charged interest by its clearing broker.
Other expenses for the three and nine-month periods ended September 30,
1996 increased 63.5% and 69.4%, respectively, to $117,364 and $328,294 from the
comparable periods in 1995 as a result of an increase in general office expenses
primarily as a result of the establishment of branch offices on the east and
west coast.
Income tax provision for the three and nine-month periods ended September
30, 1996 were $218,917 and $642,781, respectively. The provision for income
taxes differs from the amount of income taxes determined by applying the federal
statutory rates principally because of the effect of state taxes.
Net income of $314,081 and $743,008, respectively, for the three and
nine-month periods ended September 30, 1996 compares to net income of $68,556
and $165,236, respectively, for the three and nine-month periods in 1995
primarily as a result of increased revenues in 1996.
8
<PAGE>
Liquidity and Capital Resources
Securities owned, at market value, at September 30, 1996 were $28,966,634
as compared to $8,763,306 at December 31, 1995. This 231% increase is primarily
attributable to specific retail orders in which the related inventory was
reduced shortly thereafter. This increase is also attributable to an improved
retail marketplace for fixed income and equity securities, which increased the
Company's need to maintain securities in inventory for resale to its customers.
To a significant extent, the Company's inventory requirements for securities is
market driven, with a more active market and greater sales necessitating higher
inventory levels. Approximately 92% of the Company's assets at September 30,
1996 were comprised of cash and highly liquid securities.
Furniture, fixtures and leasehold improvements, net, at September 30,
1996, increased to $651,854 as compared to $484,096 at December 31, 1995. This
34.7% increase results primarily from additional computer hardware, office
furniture, and leasehold improvements purchased in connection with the
establishment of a branch office on the east coast and conversion of the
Company's operational and quotation system.
Deferred tax asset at September 30, 1996, decreased 100% as compared to
$124,384 at December 31, 1995. This decrease reflects the adjustment for the
current period's earnings.
Other assets increased to $532,640 at September 30, 1996, from $234,504 at
December 31, 1995, a 127% increase. This increase is primarily attributable to
interest receivable on inventory held and advances to registered
representatives.
Securities sold short amounted to $934,030 at September 30, 1996 as
compared to $1,504,437 at December 31, 1995. A portion of the short position at
September 30, 1996 was covered soon thereafter.
Payable to clearing broker amounted to $21,138,914 at September 30, 1996
as compared to $2,266,722 at December 31, 1995. This 833% increase is a result
of increased inventory purchases on margin.
Accrued compensation was $1,119,121 at September 30, 1996 as compared to
$407,623 at December 31, 1995, a 175% increase attributable to increased
revenues upon which commission income to registered representatives is based.
Accounts payable and accrued expenses were $832,883 at September 30, 1996
as compared to $411,045 at December 31, 1995, a 103% increase primarily
attributable to accrued promotion and current taxes payable.
Deferred tax liability at September 30, 1996, increased 100% to $270,937
as compared to December 31, 1995. This increase reflects the adjustment for the
current period's earnings.
The Company, as guarantor of its customer accounts to its clearing broker,
is exposed to off-balance-sheet risks in the event that its customers do not
fulfill their obligations with the clearing broker. In addition, to the extent
the Company maintains a short position in certain securities, it is exposed to a
further off-balance-sheet market risk, since the Company's ultimate obligation
may exceed the amount recognized in the financial statements.
The Company believes its financial resources will be sufficient to fund
the Company's operations and capital requirements for the foreseeable future.
9
<PAGE>
PART II: OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule (9/30/96)
(b) Reports on Form 8-K
None
10
<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.
Kirlin Holding Corp.
--------------------
(Registrant)
Dated: November 11, 1996 By: /s/ Anthony J. Kirincic
------------------------
Anthony J. Kirincic
President and Chief
Financial Officer
11
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description Page
- ------ ----------- ----
27. Financial Data Schedule (9/30/96) 13
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 84,172
<SECURITIES> 28,966,634
<RECEIVABLES> 532,640
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 29,583,446
<PP&E> 1,120,230
<DEPRECIATION> (468,376)
<TOTAL-ASSETS> 30,235,300
<CURRENT-LIABILITIES> 24,295,885
<BONDS> 0
0
0
<COMMON> 130
<OTHER-SE> 5,939,285
<TOTAL-LIABILITY-AND-EQUITY> 30,235,300
<SALES> 12,683,044
<TOTAL-REVENUES> 12,683,044
<CGS> 9,312,010
<TOTAL-COSTS> 9,312,010
<OTHER-EXPENSES> 1,621,732
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 363,513
<INCOME-PRETAX> 1,385,789
<INCOME-TAX> 642,781
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 743,008
<EPS-PRIMARY> 0.48
<EPS-DILUTED> 0.47
</TABLE>
