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, 1997
_____ 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 May 12, 1997, Issuer had
outstanding 1,302,330 shares of Common Stock, par value $.0001 per share.
<PAGE>
PART 1: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
KIRLIN HOLDING CORP. and SUBSIDIARY
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
(Unaudited)
-------------- ------------
<S> <C> <C>
ASSETS:
Cash $ 480,591 $ 75,304
Securities Owned, at market value:
U.S. government and agency obligations 1,610,053 2,153,235
State and municipal obligations 2,986,395 4,654,466
Corporate bonds and other securities 4,936,813 6,826,647
Furniture, Fixtures and Leasehold Improvements, at cost, net of
accumulated depreciation of $555,319 and $511,096 for
March 31, 1997 and December 31, 1996, respectively 706,514 691,124
Other Assets 614,108 637,066
---------------- -------------------
Total assets 11,334,474 15,037,842
================ ===================
LIABILITIES and STOCKHOLDERS' EQUITY:
Liabilities:
Securities sold, not yet purchased, at market value 2,537,758 2,019,664
Payable to clearing broker 188,957 4,586,717
Accrued compensation 1,271,598 1,174,706
Accounts payable and accrued expenses 515,326 649,556
Income taxes payable 429,621 582,514
---------------- -------------------
Total liabilities 4,943,260 9,013,157
---------------- -------------------
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 5,522,036 5,522,036
Retained earnings 869,048 502,519
---------------- -------------------
Total stockholders' equity 6,391,214 6,024,685
---------------- -------------------
Total liabilities and stockholders' equity $1,334,474 $ 5,037,842
================ ===================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
KIRLIN HOLDING CORP. and SUBSIDIARY
Consolidated Statements of Income
<TABLE>
<CAPTION>
Three
Months
Ended
March 31,
1997 1996
-------------- -------------
(Unaudited)
<S> <C> <C>
Revenues:
Principal transactions, net $4,126,860 $2,774,817
Commissions 1,070,673 1,126,162
Other income 107,071 83,599
-------------- --------------
5,304,604 3,984,578
--------------- --------------
Expenses:
Employee compensation and benefits 3,713,075 2,477,218
Promotion and advertising 47,071 285,688
Clearance and execution charges 243,120 254,150
Occupancy and communications 388,018 331,631
Professional fees 54,224 30,818
Interest 63,646 107,937
Other 133,494 96,363
--------------- --------------
4,642,648 3,583,805
--------------- --------------
Income before provision for income taxes 661,956 400,773
Provision for income taxes (Note 2) 295,427 194,097
--------------- --------------
Net income $ 366,529 $ 206,676
=============== ==============
Net income per common share (Note 3) $ 0.24 $ 0.16
=============== ==============
Weighted average common shares outstanding $1,302,330 $1,302,330
</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 three months ended March 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
----------------------------- Additional Retained
Shares Par Value Capital Earnings Total
------------- ------------- ------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Stockholders' equity,
January 1, 1997 $1,302,330 $130 $5,522,036 $502,519 $6,024,685
Net income --- --- --- 366,529 366,529
-------------- -------------- -------------- ------------- -----------------
Stockholders' equity,
March 31, 1997 $1,302,330 $130 $5,522,036 $869,048 $6,391,214
============== ============== ============== ============= =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
KIRLIN HOLDING CORP. and SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
------ ------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 366,529 $ 206,676
------------------ ----------------
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization 44,223 38,623
Deferred income taxes (165,063) 117,336
Decrease (increase) in securities owned, at market value 4,101,087 (958,243)
Decrease (increase) in other assets 22,958 (249,309)
Increase (decrease) in securities sold, not yet
purchased, at market value 518,094 (499,130)
(Decrease) increase in payable to clearing broker (4,397,760) 1,317,992
Increase in accrued compensation 96,892 461,392
(Decrease) increase in accounts payable and accrued expenses (134,230) 17,440
Increase in income taxes payable 12,170
----------------- -----------------
Total adjustments 98,371 246,101
----------------- -----------------
Net cash provided by operating activities 464,900 452,777
----------------- -----------------
Cash flows from investing activities:
Purchase of furniture, fixtures and leasehold improvements (59,613) (69,133)
----------------- -----------------
Net cash used in investing activities (59,613) (69,133)
----------------- -----------------
Net increase in cash 405,287 383,644
Cash and cash equivalents, beginning of period 75,304 179,944
----------------- -----------------
Cash, end of period $ 480,591 $ 563,588
================= =================
Supplemental information:
Interest paid $ 63,646 $ 137,649
Income taxes paid $ 448,320 $ 31,100
</TABLE>
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.
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,
1997 are not necessarily indicative of the results that may be expected
for the full year ending December 31, 1997. 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, 1996.
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.
3. Earnings Per Share
Net income per common share is based on the weighted average number of
shares outstanding for each period. For the three-month period ended
March 31, 1997, primary and fully diluted net income per common share
have been calculated using the modified treasury stock method since
options to purchase common stock have a dilutive effect. For the
three-month period ended March 31, 1996 options to purchase common
stock have been excluded from the computation of weighted average
shares outstanding since their inclusion would have an antidilutive
effect. Accounting Principles Board Opinion No. 15, "Earnings per
Share", limits the assumed repurchase of shares under the treasury
stock method to 20% 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. The weighted average number of
shares of common stock outstanding and adjusted net income for primary
and fully diluted net income per common share for the three-month
period ended March 31, 1997 are as follows:
6
<PAGE>
Primary and
Fully Diluted
Net Income
Per
Common Share
----------------
(Unaudited)
Net Income $ 366,529
Plus: Estimated proceeds from investment in
U.S. government securities or
commercial paper, net of taxes 13,239
-- --------------
Net Income used in calculation $ 379,768
== ==============
Weighted average number of shares outstanding 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 309,367
-- --------------
Total shares used in calculation 1,611,697
== ==============
Primary and fully diluted net income per common share $ 0.24
== ==============
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Forward-Looking Statements
When used in this Form 10-QSB and in future filings by the Company with the
Commission, the words or phrases "will likely result," "management expects" or
"the Company expects," "will continue," "is anticipated," "estimated" or similar
expressions are intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Readers are
cautioned 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. 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.
Results of Operations
Three Months Ended March 31, 1997 compared with Three Months Ended March 31,
1996
Total revenues for the three-month period ended March 31, 1997 increased
33.1% to $5,304,604 from $3,984,578 in the comparable period in 1996. This
increase is attributable to proceeds derived from profit taking on securities
received in prior periods from the Company's investment banking activities and
income generated from the Company's retail brokerage activities.
Employee compensation and benefits for the three-month period ended March
31, 1997 increased 49.9% to $3,713,075 from $2,477,218 in the comparable period
in 1996. 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, 1997
decreased 83.5% to 47,071 from $285,688 in the comparable period in 1996
primarily as a result of the Company's planned reduction in advertising
expenditures, primarily in radio and television advertising, due to the
Company's expectation of sluggish market conditions and a retail product focused
on the Company's existing client base.
Clearance and execution charges in the three-month period ended March 31,
1997 decreased 4.3% to $243,120 from $254,150 in the comparable period in 1996
as a result of a revised agreement with the Company's clearing broker which lead
to lower ticket charges.
Occupancy and communications costs in the three-month period ended March
31, 1997 increased 17% to $388,018 from $331,631 in the comparable period in
1996. This increase is a result of the establishment and operations of branch
offices.
8
<PAGE>
Professional fees in the three-month period ended March 31, 1997 increased
75.9% to $54,224 from $30,818 in the comparable period in 1996 primarily as a
result of an increase in external consultation with outside professionals.
Interest expense in the three-month period ended March 31, 1997 decreased
41% to $63,646 from $107,937 in the comparable period in 1996 as a result of
smaller inventory positions purchased on margin, which are held at the clearing
broker and charged interest.
Income tax provision for the three-month period ended March 31, 1997 was
$295,427 as compared to $194,097 in the comparable period in 1996, which is
consistent with the increase in income before this income tax provision.
Net income of $366,529 in the three month-period ended March 31, 1997
compares to net income of $206,676 for the three-month period in 1996 primarily
as a result of the increase in revenues from the same period in 1996.
Liquidity and Capital Resources
Securities owned, at market value, at March 31, 1997 were $9,533,261 as
compared to $13,634,348 at December 31, 1996. This 30.1% decrease is
attributable to a sluggish retail marketplace for fixed income and equity
securities, which decreased 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 less active
market and lower sales necessitating lower inventory levels. Approximately 80.1%
of the Company's assets at March 31, 1997 were comprised of cash and highly
liquid securities.
Furniture, fixtures and leasehold improvements, net, at March 31, 1997,
increased to $706,514 as compared to $691,124 at December 31, 1996. This 2.2%
increase results from additional computer hardware, office furniture, and
leasehold improvements purchased in connection with the existence and
maintenance of the Company's offices.
Other assets decreased to $614,108 at March 31, 1997, from $637,066 at
December 31, 1996, a 3.6% decrease. This decrease is primarily attributable to
interest receivable on inventory held, mutual fund receivables, and advances to
registered representatives.
Securities sold short amounted to $2,537,758 at March 31, 1997 as compared
to $2,019,664 at December 31, 1996. Management monitors these positions on a
daily basis and covers short positions when deemed appropriate. A portion of the
short position at March 31, 1997 was covered during the subsequent month.
Payable to clearing broker amounted to $188,957 at March 31, 1997 as
compared to $4,586,717 at December 31, 1996. This 95.9% decrease is a result of
decreased inventory purchases on margin.
Accrued compensation was $1,271,598 at March 31, 1997 as compared to
$1,174,706 at December 31, 1996, a 8.2% increase attributable to increased
revenues upon which commission income to registered representatives is based.
9
<PAGE>
Accounts payable and accrued expenses were $515,326 at March 31, 1997 as
compared to $649,556 at December 31, 1996, a 20.7% decrease attributable to
accrued promotion, general office expenses, and an accrued expense related to a
settlement with a customer.
Income Taxes Payable were $429,621 at March 31, 1997 as compared to
December 31, 1996. This decrease is comprised of current taxes payable
reflective of the adjustment for the current period's earnings and payment of
estimated income taxes and deferred income taxes payable resulting from
unrealized appreciation on securities positions.
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.
10
<PAGE>
PART II: OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule (3/31/97)
(b) Reports on Form 8-K
None
11
<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 12, 1997 By: /s/ Anthony J. Kirincic
----------------------------
Anthony J. Kirincic
President and Chief Financial Officer
12
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description Page
27. Financial Data Schedule (3/31/97) 14
13
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 480,591
<SECURITIES> 9,533,261
<RECEIVABLES> 614,108
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,627,960
<PP&E> 1,261,833
<DEPRECIATION> (555,319)
<TOTAL-ASSETS> 11,334,474
<CURRENT-LIABILITIES> 4,943,260
<BONDS> 0
<COMMON> 130
0
0
<OTHER-SE> 6,391,084
<TOTAL-LIABILITY-AND-EQUITY> 11,334,474
<SALES> 5,304,604
<TOTAL-REVENUES> 5,304,604
<CGS> 4,003,266
<TOTAL-COSTS> 4,003,266
<OTHER-EXPENSES> 575,736
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63,646
<INCOME-PRETAX> 661,956
<INCOME-TAX> 295,427
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 366,529
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
<PAGE>
</TABLE>
