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, 1998
__ 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, 1998, Issuer had
outstanding 2,802,764 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>
June 30, December 31,
1998 1997
---------------- ------------------
(Unaudited)
ASSETS:
<S> <C> <C>
Cash $ 119,177 $ 316,219
Securities Owned, at market value:
U.S. government and agency obligations 2,341,742 2,949,723
State and municipal obligations 2,026,108 1,618,284
Corporate bonds and other securities 10,517,532 10,063,391
Furniture, Fixtures and Leasehold Improvements, at cost, net of
accumulated depreciation of $848,811 and $713,626 for
June 30, 1998 and December 31, 1997, respectively 735,463 836,832
Other Assets 1,041,784 1,109,559
---------------- ------------------
Total assets $ 16,781,806 $ 16,894,008
================ ==================
LIABILITIES and STOCKHOLDERS' EQUITY:
Liabilities:
Securities sold, not yet purchased, at market value $ 1,533,916 $ 1,599,279
Payable to clearing broker 2,235,828 2,828,519
Accrued compensation 905,000 2,194,143
Accounts payable and accrued expenses 623,338 509,649
Deferred taxes payable 1,622,892 1,197,696
---------------- ------------------
Total liabilities 6,920,974 8,329,286
---------------- ------------------
Commitments
Stockholders' Equity (Note 2):
Common stock, $.0001 par value; authorized 15,000,000 shares,
issued and outstanding 2,802,764 and 2,720,264 shares, respectively 280 272
Additional paid-in capital 6,354,187 5,869,508
Retained earnings 3,506,365 2,694,942
---------------- ------------------
Total stockholders' equity 9,860,832 8,564,722
---------------- ------------------
Total liabilities and stockholders' equity $ 16,781,806 $ 16,894,008
================ ==================
</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 Six-Months Ended
June 30, June 30,
------------------------------- ------------------------------
1998 1997 1998 1997
--------------- ------------- --------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Principal transactions, net $ 2,595,567 $ 2,414,885 $ 6,097,400 $ 6,541,745
Commissions 1,427,335 1,291,198 2,903,275 2,361,871
Other income 304,857 88,837 415,594 195,908
--------------- -------------- ---------------- --------------
4,327,759 3,794,920 9,416,269 9,099,524
--------------- -------------- ---------------- --------------
Expenses:
Employee compensation and benefits 2,394,629 2,358,004 5,593,081 6,071,079
Promotion and advertising 230,793 98,034 305,526 145,105
Clearance and execution charges 189,870 194,309 395,484 437,429
Occupancy and communications 460,838 450,123 840,330 838,141
Professional fees 185,702 70,933 284,074 125,157
Interest 104,669 61,599 190,069 125,245
Other 199,579 128,424 339,818 261,918
--------------- -------------- ---------------- --------------
3,766,080 3,361,426 7,948,382 8,004,074
--------------- -------------- ---------------- --------------
Income before provision for income taxes 561,679 433,494 1,467,887 1,095,450
Provision for income taxes (Note 3) 250,184 200,345 656,464 495,772
--------------- -------------- ---------------- --------------
Net income $ 311,495 $ 233,149 $ 811,423 $ 599,678
=============== ============== ================ ==============
Basic earnings per common share (Note 4) $ 0.11 $ 0.09 $ 0.29 $ 0.23
=============== ============== ================ ==============
Diluted earnings per common share (Note 4) $ 0.11 $ 0.08 $ 0.29 $ 0.21
=============== ============== ================ ==============
</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 six months ended June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
---------------------------- Paid-in Retained
Shares Par Value Capital Earnings Total
------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Stockholders' equity,
January 1, 1998 2,720,264 $ 272 $ 5,869,508 $ 2,694,942 $ 8,564,722
Issuance of common stock 82,500 8 484,679 484,687
Net income 811,423 811,423
------------- ------------- ------------- ------------- ------------
Stockholders' equity,
June 30, 1998 2,802,764 $ 280 $ 6,354,187 $ 3,506,365 $ 9,860,832
============= ============= ============= ============= ============
</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>
Six Months Ended
June 30,
--------------------------------------
1998 1997
------------------ -----------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 811,423 $ 599,678
------------------ -----------------
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation and amortization 135,185 95,697
Deferred income taxes 425,196 (59,564)
(Increase) decrease in securities owned, at market value (253,984) 3,782,054
Decrease (increase) in other assets 67,775 (139,266)
(Decrease) increase in securities sold, not yet
purchased, at market value (65,363) 14,768
(Decrease) in payable to clearing broker (592,691) (3,430,419)
(Decrease) in accrued compensation (1,289,143) (45,636)
Increase (decrease) in accounts payable, taxes payable
and accrued expenses 113,689 (533,191)
------------------ -----------------
Total adjustments (1,459,336) (315,557)
------------------ -----------------
Net cash (used in) provided by operating activities (647,913) 284,121
------------------ -----------------
Cash flows from investing activities:
Purchase of furniture, fixtures and leasehold improvements (33,816) (149,632)
------------------ -----------------
Net cash used in investing activities (33,816) (149,632)
------------------ -----------------
Cash flows from financing activities:
Issuance of common stock 484,687
------------------ -----------------
Net cash provided by financing activities 484,687
------------------ -----------------
Net increase (decrease) in cash (197,042) 134,489
Cash, beginning of period 316,219 75,304
------------------ -----------------
Cash, end of period $ 119,177 $ 209,793
================== =================
Supplemental information:
Interest paid $ 190,069 $ 125,245
Income taxes paid $ 43,899 $ 1,118,920
</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. Primarily all activity of
the Company has 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 and six-month periods ended June
30, 1998 are not necessarily indicative of the results that may be
expected for the full year ending December 31, 1998. 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, 1997.
2. Stockholders' Equity
On January 5, 1998, the Company's Board of Directors authorized the
issuance of 82,500 shares of common stock (valued at the closing price
on that date) to officers of the Company in connection with their
bonuses related to the year ended December 31, 1997. Following this
action, the Company had 2,802,764 shares of Common Stock outstanding.
3. Income Taxes
The Company files consolidated federal income tax returns and separate
Company 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.
4. Earnings Per Share
Net income per common share is calculated by dividing net income by the
weighted average number of shares of common stock outstanding. The
following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations:
6
<PAGE>
KIRLIN HOLDING CORP. and SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
<TABLE>
<CAPTION>
Income Shares Per-Share
(Numerator) (Denominator) Amount
------------ -------------- -----------
<S> <C> <C> <C> <C>
Three months ended June 30, 1998:
Basic EPS:
Income available to
common stockholders $ 311,495 2,802,764 $ 0.11
Effect of Dilutive
Securities - options 46,654
-- --------- -------------- -- --------
Diluted EPS:
Income available to common
stockholders and assumed
exercise $ 311,495 2,849,418 $ 0.11
== ========= ============== == ========
Three months ended June 30, 1997:
Basic EPS:
Income available to
common stockholders $ 233,149 2,604,660 $ 0.09
Effect of Dilutive
Securities - options 224,314
-- --------- -------------- -- --------
Diluted EPS:
Income available to common
stockholders and assumed
exercise $ 233,149 2,828,974 $ 0.08
== ========= ============== == ========
</TABLE>
<PAGE>
KIRLIN HOLDING CORP. and SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
<TABLE>
<CAPTION>
Income Shares Per-Share
(Numerator) (Denominator) Amount
------------ -------------- -----------
<S> <C> <C> <C> <C>
Six months ended June 30, 1998:
Basic EPS:
Income available to
common stockholders $ 811,423 2,800,940 $ 0.29
Effect of Dilutive
Securities - options 45,957
-- --------- -------------- -- --------
Diluted EPS:
Income available to common
stockholders and assumed
exercise $ 811,423 2,846,897 $ 0.29
== ========= ============== == ========
Six months ended June 30, 1997:
Basic EPS:
Income available to
common stockholders $ 599,678 2,604,660 $ 0.23
Effect of Dilutive
Securities - options 276,636
-- --------- -------------- -- --------
Diluted EPS:
Income available to common
stockholders and assumed
exercise $ 599,678 2,881,296 $ 0.21
== ========= ============== == ========
</TABLE>
In 1997, the Company adopted SFAS No. 128, "Earnings per Share."
Accordingly, the above amounts for 1997 have been restated.
8
<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
Total revenues for the three and six-month periods ended June 30, 1998
increased 14.0% and 3.5%, respectively, to $4,327,759 and $9,416,269 from the
comparable periods in 1997. The increase is primarily attributable to
appreciation in the value of the firm's investment account, consulting services,
and the settlement of a lawsuit brought by the Company against a former
registered representative.
Employee compensation and benefits for the three and six-month periods
ended June 30, 1998 increased and decreased 1.6% and 7.9%, respectively, to
$2,394,629 and $5,593,081 from the comparable periods in 1997. Since employee
compensation to the Company's traders and registered representatives is directly
related to revenue, a portion of employee compensation follows the change in the
Company's revenues. The decrease in the six-month period is primarily
attributable to the closing of a branch office during the first quarter of 1997
and a reduction of registered representatives from the comparable period in
1997.
Promotion and advertising for the three and six-month periods ended
June 30, 1998 increased 135.4% and 110.6%, respectively, to $230,793 and
$305,526 from the comparable periods in 1997 primarily as a result of the
Company's planned increase in advertising expenditures to attract new customers.
Clearance and execution charges for the three and six-month periods
ended June 30, 1998 decreased 2.3% and 9.6%, respectively, to $189,870 and
$395,484 from the comparable periods in 1997. While ticket volume increased, the
decrease in clearance and execution charges is reflective of a shift towards
commission products carrying lower ticket charges.
Occupancy and communications costs for the three and six-month periods
ended June 30, 1998 and 1997 were comparable.
Professional fees for the three and six-month periods ended June 30,
1998 increased 161.8% and 127.0% to $185,702 and $284,074 from the comparable
periods in 1997 as a result of an increase in external consultation with outside
professionals related to litigation commenced by the Company.
9
<PAGE>
Interest expense for the three and six-month periods ended June 30,
1998 increased 69.9% and 51.8%, respectively, to $104,669 and $190,069 from the
comparable periods in 1997 as a result of inventory positions purchased on
margin and securities sold short, which are held at the clearing broker and
charged interest. The Company seeks to minimize its cash balances and withdraws
cash for operations from its trading accounts as needed. To the extent
necessary, inventory positions are utilized as collateral for such withdrawals.
Other expenses for the three and six-month periods ended June 30, 1998
increased 55.4% and 29.7%, respectively, to $199,579 and $339,818 from the
comparable periods in 1997 as a result of the write-off of a receivable related
to computer equipment purchased by one of the Company's ventures, which arose
since this venture has been discontinued.
Income tax provision for the three and six-month periods ended June 30,
1998 were $250,184 and $656,464, respectively, which was consistent with the
increase in income before this income tax provision.
Net income of $311,495 and $811,423, respectively, for the three and
six-month periods ended June 30, 1998 compares to net income of $233,149 and
$599,678, respectively, for the three and six-month periods ended June 30, 1997
primarily as a result of increased revenues in 1998 which did not result in a
corresponding increase in compensation and benefits.
Liquidity and Capital Resources
Securities owned, at market value, at June 30, 1998 were $14,885,382 as
compared to $14,631,398 at December 31, 1997. This 1.7% increase is primarily
attributable to an increase in the value of positions with respect to the
Company's merchant banking activities. To a significant extent, the Company's
inventory requirement for securities is market driven, with a more active market
and greater sales generally necessitating higher inventory levels. Approximately
60% of the Company's assets at June 30, 1998 were comprised of cash and highly
liquid securities.
Furniture, fixtures and leasehold improvements, net, at June 30, 1998,
decreased to $735,463 as compared to $836,832 at December 31, 1997. This 12.1%
decrease results from the depreciation of the Company's furniture, fixtures and
leasehold improvements.
Other assets decreased to $1,041,784 at June 30, 1998, from $1,109,559
at December 31, 1997, a 6.1% decrease. This decrease is primarily attributable
to the write-off of a receivable related to one of the Company's ventures and an
adjustment for income taxes related to the current period's earnings, offset by
a loan related to the expansion of the Company's investment banking department.
Securities sold short amounted to $1,533,916 at June 30, 1998 as
compared to $1,599,279 at December 31, 1997. Management monitors these positions
on a daily basis and covers short positions when deemed appropriate. A portion
of the short position at June 30, 1998 was covered during the subsequent month.
Payable to clearing broker amounted to $2,235,828 at June 30, 1998 as
compared to $2,828,519 at December 31, 1997. This 21.0% decrease is a result of
decreased inventory purchases on margin.
<PAGE>
Accrued compensation was $905,000 at June 30, 1998 as compared to
$2,194,143 at December 31, 1997, a 58.8% decrease attributable to the payment of
bonuses, which were accrued at December 31, 1997.
Accounts payable and accrued expenses were $623,338 at June 30, 1998 as
compared to $509,649 at December 31, 1997, a 22.3% increase primarily
attributable to accrued promotion.
Deferred Income Taxes Payable were $1,622,892 at June 30, 1998 as
compared to $1,197,696 at December 31, 1997. This increase is reflective of the
adjustment for 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 risk 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 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 5: OTHER INFORMATION
Notice to Stockholders Regarding 1999 Annual Meeting of Stockholders:
Pursuant to Rule 14a-4 promulgated by the Securities and Exchange
Commission, stockholders are advised that the Company's management
shall be permitted to exercise discretionary voting authority under
proxies it solicits and obtains for the Company's 1999 Annual Meeting
of Stockholders with respect to any proposal presented by a stockholder
at such meeting, without any discussion of the proposal in the
Company's proxy statement for such meeting, unless the Company receives
notice of such proposal at its principal office in Syosset, New York
not later than March 21, 1999.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule (6/30/98)
27.2 Restated Financial Data Schedule (6/30/97)
(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: August 5, 1998 By:/s/ Anthony J. Kirincic
--------------------------
Anthony J. Kirincic
President and Chief Financial Officer
12
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
27.1 Financial Data Schedule (6/30/98)
27.2 Restated Financial Data Schedule (6/30/97)
13
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 119,177
<SECURITIES> 14,885,382
<RECEIVABLES> 1,041,784
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,046,343
<PP&E> 1,584,274
<DEPRECIATION> (848,811)
<TOTAL-ASSETS> 16,781,806
<CURRENT-LIABILITIES> 6,920,974
<BONDS> 0
<COMMON> 280
0
0
<OTHER-SE> 9,860,552
<TOTAL-LIABILITY-AND-EQUITY> 16,781,806
<SALES> 9,416,269
<TOTAL-REVENUES> 9,416,269
<CGS> 6,294,091
<TOTAL-COSTS> 6,294,091
<OTHER-EXPENSES> 1,464,222
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 190,069
<INCOME-PRETAX> 1,467,887
<INCOME-TAX> 656,464
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 811,423
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.29
<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 209,793
<SECURITIES> 9,852,294
<RECEIVABLES> 637,360
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,699,447
<PP&E> 1,351,852
<DEPRECIATION> (606,793)
<TOTAL-ASSETS> 11,444,506
<CURRENT-LIABILITIES> 4,820,143
<BONDS> 0
<COMMON> 130
0
0
<OTHER-SE> 6,624,233
<TOTAL-LIABILITY-AND-EQUITY> 11,444,506
<SALES> 9,099,524
<TOTAL-REVENUES> 9,099,524
<CGS> 6,653,613
<TOTAL-COSTS> 6,653,613
<OTHER-EXPENSES> 1,225,216
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 125,245
<INCOME-PRETAX> 1,095,450
<INCOME-TAX> 495,772
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 599,678
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.21
</TABLE>
