<PAGE>
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 JUNE 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 August 5, 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
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
----------- ------------
(Unaudited)
ASSETS:
<S> <C> <C>
Cash $ 133,507 $ 179,944
Securities Owned, at market value:
U.S. government and agency obligations 5,668,099 3,059,289
State and municipal obligations 1,865,951 688,374
Corporate bonds and other securities 5,261,135 5,015,643
Furniture, Fixtures and Leasehold Improvements, at cost, net of
accumulated depreciation of $421,432 and $340,208 for
June 30, 1996 and December 31, 1995, respectively 578,339 484,096
Deferred Tax Asset 42,166 124,384
Other Assets 518,482 234,504
----------- -----------
Total assets $14,067,679 $ 9,786,234
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Securities sold, but not yet purchased, at market value $ 1,443,427 $ 1,504,437
Payable to clearing broker 5,342,377 2,266,722
Accrued compensation 929,697 407,623
Accounts payable and accrued expenses 726,844 411,045
----------- -----------
Total liabilities 8,442,345 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) 295,668 (133,259)
------------ -----------
Total stockholders' equity 5,625,334 5,196,407
------------ -----------
Total liabilities and stockholders' equity $ 14,067,679 $ 9,786,234
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
KIRLIN HOLDING CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE-MONTHS ENDED SIX-MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
1996 1995 1996 1995
----------- --------------- ------------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Principal transactions, net $ 3,099,497 $ 1,474,099 $5,874,314 $ 2,861,309
Commissions and fees 1,118,227 782,607 2,244,389 1,566,028
Other income 106,338 39,044 189,937 72,981
----------- ------------ ---------- -----------
4,324,062 2,295,750 8,308,640 4,500,318
----------- ------------ ---------- -----------
Expenses:
Employee compensation and benefits 2,617,066 1,339,892 5,094,284 2,820,039
Promotion and advertising 350,492 188,699 636,180 389,322
Clearance and execution charges 220,610 182,298 474,760 297,588
Occupancy and communications 399,905 272,297 731,536 494,135
Professional fees 64,416 105,405 95,234 144,000
Interest 104,988 50,873 212,925 62,688
Other 114,567 68,853 210,930 121,964
----------- ------------ --------- -----------
3,872,044 2,208,317 7,455,849 4,329,736
----------- ------------ --------- -----------
Income before provision for
income taxes 452,018 87,433 852,791 170,582
Provision for income taxes 229,767 39,093 423,864 73,902
----------- ------------ --------- -----------
Net income $ 222,251 $ 48,340 $428,927 $ 96,680
----------- ------------ --------- -----------
----------- ------------ --------- -----------
Net income per common share $ 0.17 $ 0.04 $ 0.33 $ 0.07
----------- ------------ --------- -----------
----------- ------------ --------- -----------
Weighted average common shares outstanding 1,302,330 1,302,330 1,302,330 1,324,192
Primary and Fully Diluted Net income
per common share $ 0.14 $ 0.28
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
KIRLIN HOLDING CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX-MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
(ACCUMULATED
COMMON STOCK ADDITIONAL DEFICIT)
---------------------------- PAID-IN 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 428,927 428,927
----------- -------------- -------------- ----------- --------------
Stockholders' equity,
June 30, 1996 1,302,330 $ 130 $ 5,329,536 $ 295,668 $ 5,625,334
----------- -------------- -------------- ----------- --------------
----------- -------------- -------------- ----------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
KIRLIN HOLDING CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX-MONTHS ENDED
JUNE 30,
----------------------------------
1996 1995
---------------- --------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 428,927 $ 96,680
--------------- ---------------
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 81,224 60,000
Amortization of stock options 25,380
Deferred income taxes 82,218 70,776
(Increase) in securities owned, at market value (4,031,879) (7,507,111)
Decrease in prepaid and deferred offering costs 781,711
(Increase) in other assets (283,978) (63,228)
(Decrease) increase in securities sold, but not
yet purchased, at market value (61,010) 1,146,746
Increase in payable to clearing broker 3,075,655 2,447,750
Increase in accrued compensation 522,074 170,645
Increase (decrease) in accounts payable and accrued expenses 315,799 (282,226)
--------------- --------------
Total adjustments (299,897) (3,149,557)
--------------- --------------
Net cash provided by (used in) operating activities 129,030 (3,052,877)
--------------- --------------
Cash flows from investing activities:
Purchase of furniture, fixtures and leasehold improvements (175,467) (220,389)
---------------- --------------
Net cash used in investing activities (175,467) (220,389)
--------------- --------------
Cash flows from financing activities:
Issuance of common stock 3,241,589
--------------- --------------
Net cash provided by financing activities 3,241,589
--------------- --------------
Net decrease in cash (46,437) (31,677)
Cash and cash equivalents, beginning of period 179,944 42,919
--------------- --------------
Cash, end of period 133,507 11,242
--------------- --------------
--------------- --------------
Supplemental information:
Interest paid $ 217,150 $ 58,649
Income taxes paid $ 41,900 $ 3,126
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<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 six-month periods ended June
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 six-month periods ended June 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 six-month periods ended June 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:
<TABLE>
<CAPTION>
THREE-MONTHS SIX-MONTHS
ENDED ENDED
JUNE 30, 1996 JUNE 30, 1996
------------- -------------
(UNAUDITED)
<S> <C> <C>
PRIMARY NET INCOME PER COMMON SHARE
Net Income $ 222,251 $ 428,927
Plus: Estimated proceeds from investment in
U.S. government securities or
commercial paper, net of taxes 15,551 34,682
-------------- --------------
Net Income used in per share calculation $ 237,802 $ 463,609
-------------- --------------
-------------- --------------
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 353,317 353,317
-------------- --------------
Total shares 1,655,647 1,655,647
-------------- --------------
-------------- --------------
Net income per common share $ 0.14 $ 0.28
-------------- --------------
-------------- --------------
</TABLE>
<PAGE>
KIRLIN HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
FULLY DILUTED NET INCOME PER COMMON SHARE
- -----------------------------------------
<S> <C> <C>
Net Income $ 222,251 $ 428,927
Plus: Estimated proceeds from investment
in U.S. government securities or
commercial paper, net of taxes 13,613 27,227
----------- -----------
Net Income used in per share calculation $ 235,864 $ 456,154
----------- -----------
----------- -----------
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 353,317 353,317
Total shares 1,655,647 1,655,647
----------- -----------
----------- -----------
Net income per common share $ 0.14 $ 0.28
----------- -----------
----------- -----------
</TABLE>
For the three and six-month periods ended June 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 six-month period ended June 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 six-month periods ended June 30, 1996
increased 88.4% and 84.6% to $4,324,062 and $8,308,640, respectively, from the
comparable periods in 1995. This increase is attributable to income generated
from the Company's investment banking and retail brokerage activities. As a
result, principal transactions, net increased by 110% and 105%, respectively,
for the three and six-month periods ended June 30, 1996 from the comparable
periods in 1995.
Employee compensation and benefits for the three and six-month periods
ended June 30, 1996 increased 95.3% and 80.6%, respectively, to $2,617,066 and
$5,094,284 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 six-month periods ended June
30, 1996 increased 85.7% and 63.4%, respectively, to $350,492 and $636,180 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 six-month periods ended
June 30, 1996 increased 21% and 59.5%, respectively, to $220,610 and $474,760
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 six-month periods
ended June 30, 1996 increased 46.9% and 48% , respectively, to $399,905 and
$731,536 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 six-month periods ended June 30, 1996
decreased 38.9% and 33.9% to $64,416 and $95,234 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 six-month periods ended June 30, 1996
increased 106% and 240%, respectively, to $104,988 and $212,925 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 six-month periods ended June 30, 1996
increased 66.4% and 72.9%, respectively, to $114,567 and $210,930 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 six-month periods ended June 30,
1996 were $229,767 and $423,864, 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 $222,251 and $428,927, respectively, for the three and six-
month periods ended June 30, 1996 compares to net income of $48,430 and $96,680,
respectively, for the three and six-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 June 30, 1996 were $12,795,185 as
compared to $8,763,309 at December 31, 1995. This 46% 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 88.9% of the Company's
assets at June 30, 1996 were comprised of cash and highly liquid securities.
Furniture, fixtures and leasehold improvements, net, at June 30, 1996,
increased to $578,339 as compared to $484,096 at December 31, 1995. This 19.5%
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 June 30, 1996, decreased to $42,166 as compared to
$124,384 at December 31, 1995. This 66% decrease reflects the adjustment for
the current period's earnings.
Other assets increased to $518,482 at June 30, 1996, from $234,501 at
December 31, 1995, a 121% increase. This increase is primarily attributable to
interest receivable on inventory held and advances to registered
representatives.
Securities sold short amounted to $1,443,427 at June 30, 1996 as compared
to $1,504,437 at December 31, 1995. The short position at June 30, 1996 was
significantly covered soon thereafter.
Payable to clearing broker amounted to $5,342,377 at June 30, 1996 as
compared to $2,266,722 at December 31, 1995. This 136% increase is a result of
increased inventory purchases on margin.
Accrued compensation was $929,697 at June 30, 1996 as compared to $407,623
at December 31, 1995, a 128% increase attributable to increased revenues upon
which commission income to registered representatives is based.
Accounts payable and accrued expenses were $726,844 at June 30, 1996 as
compared to $411,045 at December 31, 1995, a 76.8% increase primarily
attributable to current taxes payable.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
The Company held its Annual Meeting of Stockholders on June 21, 1996.
At the meeting two directors, David O. Lindner and Edward J. Casey,
were re-elected for a three-year term by the following vote:
FOR AUTHORITY WITHHELD
--- ------------------
Lindner 1,203,080 3,000
Casey 1,203,210 2,870
At the meeting, the stockholders also approved the adoption of the
1996 Stock Plan by the following vote:
FOR AGAINST ABSTAIN NOT VOTED
--- ------- ------- ---------
851,952 7,250 2,500 344,378
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.10 1996 Stock Plan [incorporated by reference to Appendix
A to the Company's definative proxy dated May 8, 1996].
27. Financial Data Schedule (6/30/96)
(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: August 5, 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 (6/30/96) 13
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 133,507
<SECURITIES> 12,795,185
<RECEIVABLES> 560,648
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,489,340
<PP&E> 999,771
<DEPRECIATION> (421,432)
<TOTAL-ASSETS> 14,068,679
<CURRENT-LIABILITIES> 8,442,345
<BONDS> 0
0
0
<COMMON> 130
<OTHER-SE> 5,625,204
<TOTAL-LIABILITY-AND-EQUITY> 14,067,679
<SALES> 8,308,640
<TOTAL-REVENUES> 8,308,640
<CGS> 6,205,224
<TOTAL-COSTS> 6,205,224
<OTHER-EXPENSES> 1,037,700
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 212,925
<INCOME-PRETAX> 852,791
<INCOME-TAX> 423,864
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 428,927
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.28
</TABLE>
