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 and
- ----- Exchange Act of 1934
For the quarterly period ended September 30, 1999
_____ 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 8, 1999, Issuer had
outstanding 6,243,928 shares of Common Stock, par value $.0001 per share.
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
KIRLIN HOLDING CORP. and SUBSIDIARIES
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------------ ------------------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 1,562,949 $ 85,092
Securities Owned, at market value:
U.S. government and agency obligations 1,183,711 2,261,874
State and municipal obligations 1,178,726 3,254,247
Corporate bonds and other securities 11,353,276 7,252,110
Receivable from clearing broker 2,514,507
Furniture, Fixtures and Leasehold Improvements, at cost, net of
accumulated depreciation of $1,124,104 and $972,523 for
September 30, 1999 and December 31, 1998, respectively 979,784 706,498
Other Assets 2,822,351 1,974,691
------------------ ------------------
Total assets $ 21,595,304 $ 15,534,512
================== ==================
LIABILITIES and STOCKHOLDERS' EQUITY:
Liabilities:
Securities sold, not yet purchased, at market value $ 1,134,619 $ 641,739
Payable to clearing broker 3,467,579
Accrued compensation 2,226,193 1,799,531
Accounts payable, accrued expenses and taxes payable 1,207,604 585,084
Deferred taxes payable 2,975,632 728,060
------------------ ------------------
Total liabilities 7,544,048 7,221,993
------------------ ------------------
Commitments
Stockholders' Equity (Note 2):
Common stock, $.0001 par value; authorized 15,000,000 shares,
issued and outstanding 6,154,528 and 5,605,528 shares, respectively 615 280
Additional paid-in capital 7,912,790 6,354,187
Retained earnings 6,137,851 1,958,052
------------------ ------------------
Total stockholders' equity 14,051,256 8,312,519
------------------ ------------------
Total liabilities and stockholders' equity $ 21,595,304 $ 15,534,512
================== ==================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
KIRLIN HOLDING CORP. and SUBSIDIARIES
Consolidated Statements of Income
<TABLE>
<CAPTION>
Three-Months Ended Nine-Months Ended
September 30, September 30,
-------------------------------- -------------------------------
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Principal transactions, net $ 4,333,576 $ 336,027 $ 14,744,205 $ 5,742,787
Commissions 2,374,347 1,364,755 8,048,903 4,268,030
Merchant Banking 461,925 (452,410) 1,719,136 (183,645)
Investment Banking 109,375 1,044,433 421,875
Other income 252,429 542,990 653,576 958,584
--------------- --------------- ---------------- ---------------
7,531,652 1,791,362 26,210,253 11,207,631
--------------- --------------- ---------------- ---------------
Expenses:
Employee compensation and benefits 3,432,410 1,764,074 13,304,082 7,357,155
Promotion and advertising 195,039 158,851 667,013 464,377
Clearance and execution charges 239,251 173,442 835,682 568,926
Occupancy and communications 803,081 453,155 2,262,982 1,293,485
Professional fees 261,915 189,603 738,762 473,677
Interest 22,567 102,093 103,496 292,162
Other 473,521 78,528 918,079 418,346
--------------- --------------- ---------------- ---------------
5,427,784 2,919,746 18,830,096 10,868,128
--------------- --------------- ---------------- ---------------
Income (loss) before provision (benefit) for
income taxes 2,103,868 (1,128,384) 7,380,157 339,503
Income tax provision (benefit) (Note 3) 1,077,299 (504,843) 3,200,358 151,621
--------------- --------------- ---------------- ---------------
Net income (loss) $ 1,026,569 $ (623,541) $ 4,179,799 $ 187,882
=============== =============== ================ ===============
Basic earnings (loss) per common share (Note 4) $ 0.17 $ (0.11) $ 0.71 $ 0.03
=============== =============== ================ ===============
Diluted earnings (loss) per common share (Note 4) $ 0.16 $ (0.11) $ 0.69 $ 0.03
=============== =============== ================ ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
KIRLIN HOLDING CORP. and SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
For the nine months ended September 30, 1999
(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, 1999 2,802,764 $ 280 $ 6,354,187 $ 1,958,052 $ 8,312,519
Stock issuance 280,000 28 1,558,910 1,558,938
2-for-1 stock dividend 3,071,764 307 (307)
Net income 4,179,799 4,179,799
------------- ------------- -------------- ------------- -------------
Stockholders' equity,
September 30, 1999 6,154,528 $ 615 $ 7,912,790 $ 6,137,851 $ 14,051,256
============= ============= ============== ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------------------
1999 1998
------------------- -----------------
(Unaudited)
<S> <C> <C>
Cash Flows from operating activities:
Net income $ 4,179,799 $ 187,882
------------------- -----------------
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 151,581 184,771
Deferred income taxes 2,247,572 (9,165)
Noncash compensation 781,438
(Increase) decrease in securities owned, at market value (947,482) 1,714,207
(Increase) in receivable from clearing broker (2,514,507)
(Increase) in other assets (847,660) (292,431)
Increase in securities sold, not yet purchased at market value 492,880 574,919
(Decrease) in payable to clearing broker (3,467,579) (1,337,810)
Increase (decrease) in accrued compensation 426,662 (1,697,202)
Increase in accounts payable, accrued expenses
and taxes payable 622,520 89,441
------------------- -----------------
Total adjustments (3,054,575) (773,270)
------------------- -----------------
Net cash provided by (used in) operating activities 1,125,224 (585,388)
------------------- -----------------
Cash flows from investing activities:
Purchase of furniture, fixtures and leasehold improvements (424,867) (44,825)
------------------- -----------------
Net cash used in investing activities (424,867) (44,825)
------------------- -----------------
Cash flows from financing activities:
Issuance of common stock 777,500 484,687
------------------- -----------------
Net cash provided by financing activities 777,500 484,687
------------------- -----------------
Net increase (decrease) in cash and cash equivalents 1,477,857 (145,526)
Cash and cash equivalents, beginning of period 85,092 316,219
------------------- -----------------
Cash and cash equivalents, end of period $ 1,562,949 $ 170,693
=================== =================
Supplemental information:
Interest paid $ 92,548 $ 292,162
Income taxes paid $ 69,554 $ 47,205
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
KIRLIN HOLDING CORP. and SUBSIDIARIES
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 subsidiaries, Kirlin Securities,
Inc. ("Kirlin") and Greenleaf Management Corp., and its majority owned
subsidiary, VentureHighway.com Inc. ("VentureHighway") (collectively
the "Company"). The Company's principal subsidiary, Kirlin, is a
full-service, retail-oriented brokerage firm specializing in the
trading and sale of both equity and fixed income securities, including
mutual funds. 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 nine-month periods ended
September 30, 1999 are not necessarily indicative of the results that
may be expected for the full year ending December 31, 1999. 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, 1998.
Certain amounts included in the 1998 financial statements have been
reclassified, where appropriate, to conform with the 1999 presentation.
2. Stockholders' Equity
On January 11, 1999, the Company's Board of Directors authorized the
issuance of 138,000 shares of common stock (valued at the closing price
on January 8, 1999) to employees of the Company in connection with
their bonuses related to the year ended December 31, 1998. Following
this action, the Company had 5,743,528 shares of Common Stock
outstanding.
On June 1, 1999, the Company's Board of Directors authorized the sale
and issuance of 300,000 shares of common stock at a price of $2.50 per
share to Individual Investor Group, Inc. ("INDI"), which became
effective on June 2, 1999. The Company also agreed that INDI would
acquire 19.9% of VentureHighway for approximately $3.2 million of
advertising. Following this action, the Company had 6,043,528 shares of
Common Stock outstanding.
On June 4, 1999, the Company's Board of Directors authorized the
issuance of 50,000 shares of common stock (valued at the closing price
on June 3, 1999) to employees of the Company. Following this action,
the Company had 6,093,528 shares of Common Stock outstanding.
On June 29, 1999, the Company's Board of Directors declared a 2-for-1
stock split accomplished by declaration of a 100% stock dividend
payable on July 30, 1999, to all stockholders of record on July 14,
1999. The share amounts contained in this report have been adjusted to
reflect the stock split.
6
<PAGE>
KIRLIN HOLDING CORP. and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
On July 8, 1999, the Company's Board of Directors authorized the
issuance of 50,000 shares of common stock (valued at the closing price
on July 7, 1999) to an employee of the Company. Following this action,
the Company had 6,143,528 shares of Common Stock outstanding.
On August 3, 1999, an employee exercised stock options, which
authorized the issuance of 11,000 shares of common stock. Following
this action, the Company had 6,154,528 shares of Common Stock
outstanding.
3. Income Taxes
The Company files consolidated federal income tax returns, but each
constituent entity files separate 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:
<TABLE>
<CAPTION>
Income Shares Per-Share
(Numerator) (Denominator) Amount
-------------- -------------- -----------
<S> <C> <C> <C>
Three months ended September 30, 1999:
Basic EPS:
Income available to
common stockholders $ 1,026,569 6,146,778 $ 0.17
Effect of Dilutive
Securities - options 321,151
------------- -------------- ----------
Diluted EPS:
Income available to common
stockholders and assumed
exercise $ 1,026,569 6,467,929 $ 0.16
============= ============== ==========
Three months ended September 30, 1998:
Basic EPS:
Income (loss) available to
common stockholders $ (623,541) 5,605,528 $ (0.11)
Effect of Dilutive
Securities - options
------------- -------------- ----------
Diluted EPS:
Income (loss) available to
common stockholders and
assumed Exercise $ (623,541) 5,605,528 $ (0.11)
============= ============== ==========
</TABLE>
7
<PAGE>
KIRLIN HOLDING CORP. and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
<TABLE>
<CAPTION>
Income Shares Per-Share
(Numerator) (Denominator) Amount
-------------- -------------- -----------
<S> <C> <C> <C>
Nine months ended September 30, 1999:
Basic EPS:
Income available to
common stockholders $ 4,179,799 5,912,279 $ 0.71
Effect of Dilutive
Securities - options 181,896
------------- -------------- ----------
Diluted EPS:
Income available to common
stockholders and assumed
exercise $ 4,179,799 6,094,175 $ 0.69
============= ============== ==========
Nine months ended September 30, 1998:
Basic EPS:
Income available to
common stockholders $ 187,882 5,603,111 $ 0.03
Effect of Dilutive
Securities - options 61,275
------------- -------------- ----------
Diluted EPS:
Income available to common
stockholders and assumed
exercise $ 187,882 5,664,386 $ 0.03
============= ============== ==========
</TABLE>
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 Securities and Exchange 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. These risks and uncertainties include those
set forth in Item 2 (entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations) of Part I hereof and elsewhere in this
report, in Item 1 (entitled "Business") of Part I and Item 6 (entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations") of Part II of the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1998, and in the section entitled "Risk Factors"
of the Company's Prospectus, dated August 13, 1999, filed with the Securities
and Exchange Commission. 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
Principal transactions, net for the three and nine-month periods ended
September 30, 1999 increased 1,189.7% and 156.7%, respectively, to $4,333,576
and $14,744,205 from the comparable periods in 1998. The increase is primarily
attributable to an increase in equity business generated by additional
registered representatives and appreciation in the value of warrants and/or unit
purchase options the Company received in prior periods in connection with
underwriting public offerings or acting as placement agent in private offerings
in connection with its investment banking activities.
Commissions for the three and nine-month periods ended September 30,
1999 increased 74.0% and 88.6%, respectively, to $2,374,347 and $8,048,903 from
the comparable periods in 1998. The increase is primarily attributable to the
Company's increased business in equity securities and mutual funds, which,
except for equity securities for which the Company maintains an inventory, are
bought and sold on an agency basis for which the Company receives a commission.
This increase is a direct result of an active market in equity securities as
well as the addition of registered representatives.
Merchant banking for the three and nine-month periods ended September
30, 1999 increased 202.1% and 1,036.1%, respectively, to $461,925 and $1,719,136
from the comparable periods in 1998 primarily as a result of appreciation in the
value and realization of certain gains on investments owned by the Company.
Investment banking for the three and nine-month periods ended September
30, 1999 increased 100.0% and 147.6%, respectively, to $109,375 and $1,044,433
from the comparable periods in 1998. The increase is primarily attributable to
investment banking fees the Company generated from acting as placement agent
related to a bridge loan financing and private placements.
Other income for the three and nine-month periods ended September 30,
1999 decreased 53.5% and 31.8%, respectively, to $252,429 and $653,576 from the
comparable periods in 1998. The decrease is primarily attributable to the
settlement of lawsuits brought by the Company in the prior year.
9
<PAGE>
Employee compensation and benefits for the three and nine-month periods
ended September 30, 1999 increased 94.6% and 80.8%, respectively, to $3,432,410
and $13,304,082 from the comparable periods in 1998. 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 increase in employee compensation is not directly proportionate
with the increase in revenues because a portion of the revenue increase is
related to an increase in value of the Company's investment account, which has
no relationship to employee compensation. In addition, during the past year the
Company has increased its roster of salaried personnel.
Promotion and advertising for the three and nine-month periods ended
September 30, 1999 increased 22.8% and 43.6%, respectively, to $195,039 and
$667,013 from the comparable periods in 1998 primarily as a result of the
Company's planned increase in advertising expenditures and expenses.
Clearance and execution charges for the three and nine-month periods
ended September 30, 1999 increased 37.9% and 46.9%, respectively, to $239,251
and $835,682 from the comparable periods in 1998 as a result of higher ticket
volume.
Occupancy and communications costs for the three and nine-month periods
ended September 30, 1999 increased 77.2% and 75.0%, respectively, to $803,081
and $2,262,982 from the comparable periods in 1998. This increase is a result of
the establishment and operations of additional branch offices.
Professional fees for the three and nine-month periods ended September
30, 1999 increased 38.1% and 56.0%, respectively, to $261,915 and $738,762 from
the comparable periods in 1998 primarily as a result of computer consultation
related to the establishment of branch offices and addressing the Y2K issue and
legal consultation related to new business ventures and lawsuits initiated by
the Company.
Interest expense for the three and nine-month periods ended September
30, 1999 decreased 77.9% and 64.6%, respectively, to $22,567 and $103,496 from
the comparable periods in 1998 as a result of a reduction 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 nine-month periods ended September 30,
1999 increased 503.0% and 119.5%, respectively, to $473,521 and $918,079 from
the comparable periods in 1998 as a result of the settlement of customer
arbitrations, expenses related to syndicate liabilities and the continuous
improvement and maintenance of the Company's websites.
Income tax provision for the three and nine-month periods ended
September 30, 1999 were $1,077,299 and $3,200,358, respectively. For the three
and nine-month periods ended September 30, 1999, the Company utilized a net
operating loss carry-forward from the prior year to reduce the income tax
provision.
Net income of $1,026,569 and $4,179,799, respectively, for the three
and nine-month periods ended September 30, 1999 compares to net (loss) income of
$(623,541) and $187,882 for the three and nine-month periods ended September 30,
1998. This resulted primarily from the increase in revenues offset by increases
in expenses as discussed above.
Liquidity and Capital Resources
Securities owned, at market value, at September 30, 1999 were
$13,715,713 as compared to $12,768,231 at December 31, 1998. This 7.4% increase
10
<PAGE>
is primarily attributable to increases in the value of positions held in
relation to the Company's merchant banking and investment banking activities.
Approximately 41% of the Company's assets at September 30, 1999 were comprised
of cash and highly liquid securities.
Receivable from clearing broker amounted to $2,514,507 at September 30,
1999 as compared to a payable to clearing broker of $3,467,579 at December 31,
1998. This shift results primarily from reduced inventory purchased on margin
and increased positions in securities sold short at September 30, 1999.
Furniture, fixtures and leasehold improvements, net, at September 30,
1999, increased to $979,784 as compared to $706,498 at December 31, 1998. This
38.7% increase primarily results from the purchase of additional computer
hardware, furniture, and leasehold improvements in connection with the Company's
new branch offices and conversion of the Company's operational and quotation
system.
Other assets increased to $2,822,351 at September 30, 1999, from
$1,974,691 at December 31, 1998, a 42.9% increase. This increase is primarily
attributable to the prepaid expense related to the issuance of restricted stock
to various employees, which will be amortized over the respective vesting
periods, receivable the Company is entitled to for placement agent commissions
related to a private placement, receivable of an insurance settlement related to
a customer arbitration, and a rent security deposit in connection with a new
branch office.
Securities sold short amounted to $1,134,619 at September 30, 1999 as
compared to $641,739 at December 31, 1998. Management monitors these positions
on a daily basis and covers short positions when deemed appropriate.
Accrued compensation was $2,226,193 at September 30, 1999 as compared
to $1,799,531 at December 31, 1998, a 23.7% increase attributable to increased
revenues upon which commission income to registered representatives is based.
Accounts payable and accrued expenses were $1,207,604 at September 30,
1999 as compared to $585,084 at December 31, 1998, a 106.4% increase primarily
attributable to current taxes payable reflective of the adjustment for the
current period's earnings.
Deferred income taxes payable were $2,975,632 at September 30, 1999 as
compared to $728,060 at December 31, 1998. This increase is reflective of the
adjustment for deferred income taxes payable resulting from an increase in the
value of certain securities positions in the Company's merchant banking
portfolio and investment account.
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.
Year 2000
The Company has been evaluating the potential impact of the situation
commonly referred to as the "Year 2000 Issue" ("Y2K"). The Y2K issue is the
result of computer systems and applications that currently use two digits rather
than four to recognize a particular year (e.g., "98" for "1998"). The Y2K issue
affects the Company's information technology systems (i.e., computer systems,
network elements and software applications) as well as other business systems
11
<PAGE>
that might have time-sensitive programs or microprocessors that may not properly
reflect or recognize the year 2000 ("non-IT systems"). The failure to reflect or
recognize dates after 1999 could cause the Company's information technology and
non-IT systems to fail or cause errors, which could lead to disruptions in
operations or increased costs. The Company, similar to most securities
institutions, is significantly subject to the potential impact of the Y2K issue
due to the nature of the industry. Potential impacts to the Company may arise
from software, computer hardware, and other equipment both within the Company's
direct control and outside the Company's ownership, yet with which the Company
interfaces either electronically or operationally. The Company has completed its
review of its internal systems and programs to determine the extent to which its
information technology systems are Y2K compliant. The Company has completed its
review of whether its non-IT systems are Y2K compliant. Since much of the
Company's internal information technology has been developed fairly recently,
the Company found that its internal information technology systems did not face
significant issues of non-compliance. The Company has completed the evaluation
of its mission critical systems and the completion of the remediation of certain
systems will make them Y2K compliant by the end of the year. Based on current
information, the Company believes it will spend approximately $100,000 to
$150,000 in 1999 and expects to accrue approximately $50,000 to $100,000 for
2000, although there can be no assurance that such amounts will be sufficient
due to unforeseen difficulties, to complete the review and address the Y2K issue
with respect to its internal information technology systems and non-IT systems.
However, even if the Company's internal systems are Y2K compliant, the
Company remains at risk from Y2K failure caused by third parties. The Company
has commenced to contact third parties with which it interacts to determine the
state of their assessment and remediation of any Y2K issues they face. To date,
the Company has received sufficient information from such third parties to
complete its assessment of their Y2K readiness. Some of the third parties with
which the Company has significant interaction include, most significantly, its
clearing broker, Correspondence Services Corporation ("CSC"), and vendors
providing phone service, payroll services and banking services. In April 1999
CSC installed a new clearing system, which addressed the Y2K issue. The
Company's major third-party vendor has communicated that it has completed its
internal testing, including a fully integrated system test of all its core
processing applications and that they will continue to conduct additional tests
throughout the remainder of 1999. The Company will continue to assess whether it
is necessary to retain the services of other third-party vendors who are Y2K
compliant in order to prevent a disruption in the Company's business. The
Company has developed a contingency plan for those areas where plans to achieve
Y2K compliance fail.
The failure to correct a material Y2K problem could result in an
interruption in, or failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Y2K problem, resulting in part from the uncertainty
of the Y2K readiness of third-party vendors, the Company is unable to determine
at this time whether the consequences of Y2K failures will have a material
impact on the Company's results of operations, liquidity or financial condition.
Although the Company expects that its mission critical systems will be
compliant, there is no guarantee that these results will be achieved. Specific
factors that give rise to this uncertainty include a possible loss of technical
resources to perform the work, failure to identify all susceptible systems,
non-compliance by third parties whose systems and operations impact the Company,
and other similar uncertainties. A reasonably possible worst case scenario might
include one or more of the Company's or a third-party vendor's significant
systems being non-compliant. Such an event could result in a material disruption
to the Company's operations, which would adversely affect the Company's results
of operations, liquidity and financial condition.
12
<PAGE>
PART II: OTHER INFORMATION
ITEM 2: SALES OF UNREGISTERED SECURITIES
<TABLE>
<CAPTION>
Consideration Received
and Description of If Option, Warrant
Underwriting or Other or Convertible
Discounts to Market Security, Terms of
Title of Price Afforded to Exemption from Exercise or
Date of Sale Security Number Sold Purchasers Registration Claimed Conversions
- ----------------- ---------------- --------------- ------------------------- --------------------- ----------------------
<S> <C> <C> <C> <C> <C>
7/8/99 Common Stock 50,000 Restricted stock 4(2) N/A
awarded to employees
under 1996 Stock Plan;
no cash consideration
received by the Company
8/3/99 Common Stock 11,000 $27,500 cash 4(2) N/A
consideration received
by the Company upon
exercise of employee
stock option
</TABLE>
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule (9/30/99)
(b) Reports on Form 8-K
None
13
<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 12, 1999 By: /s/ Anthony J. Kirincic
---------------------------
Anthony J. Kirincic
President and Chief Financial Officer
14
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- -------- -----------
27. Financial Data Schedule (9/30/99)
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,562,949
<SECURITIES> 13,715,713
<RECEIVABLES> 5,336,858
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 20,615,520
<PP&E> 2,103,888
<DEPRECIATION> (1,124,104)
<TOTAL-ASSETS> 21,595,304
<CURRENT-LIABILITIES> 7,544,048
<BONDS> 0
<COMMON> 615
0
0
<OTHER-SE> 14,050,641
<TOTAL-LIABILITY-AND-EQUITY> 21,595,304
<SALES> 26,210,253
<TOTAL-REVENUES> 26,210,253
<CGS> 14,806,777
<TOTAL-COSTS> 14,806,777
<OTHER-EXPENSES> 3,919,823
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 103,496
<INCOME-PRETAX> 7,380,157
<INCOME-TAX> 3,200,358
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,179,799
<EPS-BASIC> 0.71
<EPS-DILUTED> 0.69
</TABLE>
