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 March 31, 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
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(Address of Principal Executive Offices)
(800) 899-9400
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(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 May 9, 1996, Issuer had
outstanding 1,302,330 shares of Common Stock, par value $.0001 per share.
Page 1 of 12 Total Pages
Exhibit Index - Page 11
<PAGE>
PART 1: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
KIRLIN HOLDING CORP. and SUBSIDIARY
<TABLE><CAPTION>
Consolidated Statements of Financial Condition
March 31, December 31,
1996 1995
---------------- ------------------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash $ 563,588 $ 179,944
Securities Owned, at market value:
U.S. government and agency obligations 2,979,206 3,059,289
State and municipal obligations 1,207,087 688,374
Corporate bonds and other securities 5,535,256 5,015,643
Furniture, Fixtures and Leasehold Improvements, at cost, net of
accumulated depreciation of $378,831 and $340,208 for
March 31, 1996 and December 31, 1995, respectively 514,606 484,096
Deferred Tax Asset 7,048 124,384
Other Assets 483,813 234,504
---------------- ------------------
Total assets $ 11,290,604 $ 9,786,234
================ ==================
LIABILITIES and STOCKHOLDERS' EQUITY:
Liabilities:
Securities sold, but not yet purchased, at market value $ 1,005,307 $ 1,504,437
Payable to clearing broker 3,584,714 2,266,722
Accrued compensation 869,015 407,623
Accounts payable and accrued expenses 428,485 411,045
---------------- ------------------
Total liabilities 5,887,521 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) 73,417 (133,259)
---------------- ------------------
Total stockholders' equity 5,403,083 5,196,407
---------------- ------------------
Total liabilities and stockholders' equity $ 11,290,604 $ 9,786,234
================ ==================
The accompanying notes are an integral part of these consolidated financial statements.
2
</TABLE>
<PAGE>
KIRLIN HOLDING CORP. and SUBSIDIARY
Consolidated Statements of Operations
<TABLE><CAPTION>
Three Months Ended
March 31,
-------------------------------------
1996 1995
----------------- -----------------
(Unaudited)
<S> <C> <C>
Revenues:
Principal transactions, net $ 2,774,817 $ 1,387,210
Commissions 1,126,162 783,421
Other income 83,599 33,937
----------------- -----------------
3,984,578 2,204,568
----------------- -----------------
Expenses:
Employee compensation and benefits 2,477,218 1,480,147
Promotion and advertising 285,688 200,623
Clearance and execution charges 254,150 115,290
Occupancy and communications 331,631 221,838
Professional fees 30,818 38,595
Interest 107,937 11,815
Other 96,363 53,111
----------------- -----------------
3,583,805 2,121,419
----------------- -----------------
Income before provision for income taxes 400,773 83,149
Provision for income taxes 194,097 34,809
----------------- -----------------
Net income $ 206,676 $ 48,340
================= =================
Net income per common share $ .16 $ .04
================= =================
Weighted average common shares outstanding 1,302,330 1,346,153
The accompanying notes are an integral part of these consolidated financial statements.
3
</TABLE>
<PAGE>
KIRLIN HOLDING CORP. and SUBSIDIARY
Consolidated Statement of Changes in Stockholders' Equity
For the three months ended March 31, 1996
(Unaudited)
<TABLE><CAPTION>
(Accumulated
Deficit)
Common Stock Additional Retained
----------------------------
Shares Par Value Capital Earnings Total
------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Stockholders' equity,
January 1, 1996 1,302,330 $ 130 $ 5,329,536 $ (133,259) $ 5,196,407
Net income 206,676 206,676
------------- ------------- ------------- ------------- ------------
Stockholders' equity,
March 31, 1996 1,302,330 $ 130 $ 5,329,536 $ 73,417 $ 5,403,083
============= ============= ============= ============= ============
The accompanying notes are an integral part of these consolidated financial statements.
4
</TABLE>
<PAGE>
KIRLIN HOLDING CORP. and SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE><CAPTION>
Three Months Ended
March 31,
--------------------------------------
1996 1995
------------------ -----------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 206,676 $ 48,340
------------------ -----------------
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 38,623 30,000
Amortization of stock options 12,690
Deferred income taxes 117,336 34,500
(Increase) in securities owned, at market value (958,243) (3,046,380)
Decrease in prepaid and deferred offering costs 781,711
(Increase) decrease in other assets (249,309) 14,830
(Decrease) increase in securities sold, but not
yet purchased, at market value (499,130) 98,295
Increase (decrease) in payable to clearing broker 1,317,992 (696,099)
Increase in accrued compensation 461,392 83,804
Increase (decrease) in accounts payable and accrued expenses 17,440 (396,262)
------------------ -----------------
Total adjustments 246,101 (3,082,911)
------------------ -----------------
Net cash provided by (used in) operating activities 452,777 (3,034,571)
------------------ -----------------
Cash flows from investing activities:
Purchase of furniture, fixtures and leasehold improvements (69,133) (115,975)
------------------ -----------------
Net cash used in investing activities (69,133) (115,975)
------------------ -----------------
Cash flows from financing activities:
Issuance of common stock 3,241,589
------------------ -----------------
Net cash provided by financing activities 3,241,589
------------------ -----------------
Net increase in cash 383,644 91,043
Cash and cash equivalents, beginning of period 179,944 42,919
------------------ -----------------
Cash, end of period $ 563,588 $ 133,962
================== =================
Supplemental information:
Interest paid $ 137,649 $ 11,968
Income taxes paid $ 31,100 $ 311
The accompanying notes are an integral part of these consolidated financial statements.
5
</TABLE>
<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-month periods ended March 31,
1996 and 1995 is based on the weighted average number of shares
outstanding for each period. 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 three-month period ended March 31,
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.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Results of Operations
Three Months Ended March 31, 1996 compared with Three Months Ended
March 31, 1995
Total revenues for the three-month period ended March 31, 1996
increased 80.7% to $3,984,578 from $2,204,568 in the comparable period in 1995.
This increase is attributable to decreasing interest rates, which resulted in an
improved retail marketplace. As a result, principal transactions and commission
business increased by 100% and 43.7%, respectively.
Employee compensation and benefits in the three-month period ended
March 31, 1996 increased 67.4% to $2,477,218 from $1,480,147 in the comparable
period 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-month period ended March 31,
1996 increased 42.4% to $285,688 from $200,623 in the comparable period in 1995
primarily as a result of the Company's planned increase in advertising
expenditures, primarily in radio advertising, in conjunction with the addition
of branch offices on the East Coast and the usage of television as an additional
media source.
Clearance and execution charges in the three-month period ended March
31, 1996 increased 120% to $254,150 from $115,290 in the comparable period in
1995 as a result of higher trade ticket volume.
Occupancy and communications costs in the three-month period ended
March 31, 1996 increased 49.5% to $331,631 from $221,838 in the comparable
period in 1995. This increase reflects higher rental costs associated with the
establishment of branch offices.
Professional fees in the three-month period ended March 31, 1996
decreased 20.2% to $30,818 from $38,595 in the comparable period in 1995
primarily as a result of a reduction in external consultation with outside
professionals.
Interest expense in the three-month period ended March 31, 1996
increased 814% to $107,937 from $11,815 in the comparable period 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.
Income tax provision for the three-month period ended March 31, 1996
was $194,097 as compared to $34,809 in the comparable period in 1995. 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 $206,676 in the three month-period ended March 31, 1996
compares to net income of $48,340 for the three-month period in 1995 primarily
as a result of the increase in revenues from the same period in 1995.
7
<PAGE>
Liquidity and Capital Resources
Securities owned, at market value, at March 31, 1996 were $9,721,549 as
compared to $8,763,309 at December 31, 1995. This 10.9% increase is attributable
to an improved retail marketplace for corporate 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 85.2% of the Company's
assets at March 31, 1996 were comprised of cash and highly liquid securities.
Furniture, fixtures and leasehold improvements, net, at March 31, 1996,
increased to $514,606 as compared to $484,096 at December 31, 1995. This 6.3%
increase results primarily from additional computer hardware, office furniture,
and leasehold improvements purchased in connection with the establishment of the
Company's branch offices.
Deferred tax asset at March 31, 1996, decreased to $7,048 as compared
to $124,384 at December 31, 1995. This 94.3% decrease reflects the adjustment
for the current period's earnings.
Other assets increased to $483,813 at March 31, 1996, from $234,501 at
December 31, 1995, a 106% increase. This increase is primarily attributable to
interest receivable on inventory held and advances to registered
representatives.
Securities sold short amounted to $1,005,307 at March 31, 1996 as
compared to $1,504,437 at December 31, 1994. The short position at March 31,
1996 resulted primarily from several positions that were covered soon
thereafter.
Payable to clearing broker amounted to $3,584,714 at March 31, 1996 as
compared to $2,266,722 at December 31, 1995. This 58.1% increase is a result of
increased inventory purchases on margin.
Accrued compensation was $869,015 at March 31, 1996 as compared to
$407,623 at December 31, 1995, a 113% increase attributable to increased
revenues upon which commission income to registered representatives is based.
Accounts payable and accrued expenses were $428,485 at March 31, 1996
as compared to $411,045 at December 31, 1995, a 4.2% decrease primarily
attributable to interest payable related to securities sold short.
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.
8
<PAGE>
PART II: OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule (3/31/96)
(b) Reports on Form 8-K
None
9
<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: May 9, 1996 By: /s/ Anthony J. Kirincic
------------------------------------------
Anthony J. Kirincic
President and Chief Financial Officer
10
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
Number Description Page
- ------ ----------- ----
27. Financial Data Schedule (3/31/96) 12
11
<TABLE> <S> <C>
<ARTICLE>5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 563,588
<SECURITIES> 9,721,549
<RECEIVABLES> 490,861
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,775,998
<PP&E> 893,437
<DEPRECIATION> (378,831)
<TOTAL-ASSETS> 11,290,604
<CURRENT-LIABILITIES> 5,887,521
<BONDS> 0
<COMMON> 130
0
0
<OTHER-SE> 5,402,953
<TOTAL-LIABILITY-AND-EQUITY> 11,290,604
<SALES> 3,984,578
<TOTAL-REVENUES> 3,984,578
<CGS> 3,017,056
<TOTAL-COSTS> 3,017,056
<OTHER-EXPENSES> 458,812
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 107,937
<INCOME-PRETAX> 400,773
<INCOME-TAX> 194,097
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 206,676
<EPS-PRIMARY> .16<FN>
<EPS-DILUTED> 0
<FN>
THIS FIGURE REPRESENTS BASIC EPS, SINCE THE COMPANY HAD NO PRIMARY EPS.
</FN>
</TABLE>
