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, 2000
-------------
_____ 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.
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(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
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(Issuer's Telephone Number Including Area Code)
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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 10, 2000, Issuer had
outstanding 12,772,851 shares of Common Stock, par value $.0001 per share.
<PAGE>
PART 1: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
KIRLIN HOLDING CORP. and SUBSIDIARIES
Consolidated Statements of Financial Condition
June 30, December 31,
2000 1999
---------- -----------
(Unaudited)
ASSETS:
Cash and cash equivalents $ 3,970,184 $ 8,445,532
Due from Clearing Broker 5,066,688 5,716,261
Securities Owned, at market value:
U.S. government and agency obligations 470,645 446,509
State and municipal obligations 442,894 589,388
Corporate bonds and other securities 7,123,256 10,859,089
Furniture, Fixtures and Leasehold Improvements,
at cost, net of accumulated depreciation of
$1,718,941 and $1,246,173 for June 30, 2000
and December 31, 1999, respectively 2,164,944 1,275,727
Other Assets 4,927,452 3,740,513
Goodwill, net of accumulated amortization of
$102,171 for June 30, 2000 4,626,885 -
----------- -----------
Total assets $28,792,948 $31,073,019
=========== ===========
LIABILITIES and STOCKHOLDERS' EQUITY:
Liabilities:
Securities sold, not yet purchased, at
market value $ 827,517 $ 818,574
Accrued compensation 3,017,682 4,232,264
Accounts payable, accrued expenses and
other current liabilities 3,725,142 1,054,095
Income taxes payable (including deferred
taxes payable of $1,549,000
and $3,482,940, respectively) 1,860,818 4,549,825
----------- -----------
Total liabilities 9,431,159 10,654,758
----------- -----------
Minority Interest in Subsidiary 2,255,167 2,676,080
----------- -----------
Stockholders' Equity (Note 2):
Common stock, $.0001 par value; authorized
15,000,000 shares, issued and outstanding
12,772,851 and 12,495,256 shares, respectively 1,278 1,250
Additional paid-in capital 9,494,560 8,327,793
Retained earnings 7,610,784 9,413,138
----------- -----------
Total stockholders' equity 17,106,622 17,742,181
----------- -----------
Total liabilities and stockholders'
equity $28,792,948 $31,073,019
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
KIRLIN HOLDING CORP. and SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three-Months Ended Six-Months Ended
June 30, June 30,
---------------------------------- --------------------------------
2000 1999 2000 1999
---------------- ---------------- --------------- ----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Principal transactions, net $ 2,517,055 $ 6,124,358 $ 10,410,429 $ 10,410,629
Commissions 4,513,229 3,120,341 9,724,602 5,674,556
Merchant Banking (1,392,183) 1,429,379 (1,127,707) 1,257,211
Investment Banking 325,000 509,808 325,000 935,058
Other income 484,171 265,772 1,046,841 401,147
Increase in value attributable to subsidiary 276,747 583,746
---------------- ---------------- ---------------- ----------------
6,724,019 11,449,658 20,962,911 18,678,601
---------------- ---------------- ---------------- ----------------
Expenses:
Employee compensation and benefits 7,230,879 5,879,831 17,074,645 9,871,672
Promotion and advertising 864,397 198,952 1,491,310 471,974
Clearance and execution charges 512,295 274,152 1,068,349 596,431
Occupancy and communications 1,267,443 791,483 2,345,087 1,459,901
Professional fees 398,169 249,907 1,033,280 476,847
Interest 164,378 27,827 197,539 80,929
Other 647,101 212,838 1,051,265 444,558
---------------- ---------------- ---------------- ----------------
11,084,662 7,634,990 24,261,475 13,402,312
---------------- ---------------- ---------------- ----------------
(Loss) income before benefit (provision) for income
taxes (4,360,643) 3,814,668 (3,298,564) 5,276,289
(Loss) income tax benefit (provision) (Note 3) 1,084,849 (1,656,877) 742,645 (2,123,059)
---------------- ---------------- ---------------- ----------------
(Loss) income before minority interest in loss of
subsidiary (3,275,794) 2,157,791 (2,555,919) 3,153,230
Minority interest in loss of subsidiary 504,870 - 753,565 -
---------------- ---------------- ---------------- ----------------
Net (loss) income $ (2,770,924) $ 2,157,791 $ (1,802,354) $ 3,153,230
================ ================ ================ ================
Basic earnings per common share (Note 4) $ (0.22) $ 0.18 $ (0.14) $ 0.26
================ ================ ================ ================
Diluted earnings per common share (Note 4) $ (0.22) $ 0.18 $ (0.14) $ 0.25
================ ================ ================ ================
</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 six months ended June 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
----------------------- Paid-in Retained
Shares Par Value Capital Earnings Total
----------- ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stockholders' equity,
January 1, 2000 12,495,256 $ 1,250 $ 8,327,793 $ 9,413,138 $ 17,742,181
Stock issuance 334,095 34 1,021,193 1,021,227
Stock forfeiture (56,500) (6) (173,026) (173,032)
Subsidiary value enhancement 318,600 318,600
Net loss (1,802,354) (1,802,354)
---------- ---------- ------------- ------------- ------------
Stockholders' equity,
June 30, 2000 12,772,851 $ 1,278 $ 9,494,560 $ 7,610,784 $ 17,106,622
========== ========= ============= ============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financials
statements.
4
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------------
2000 1999
-------------- -----------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (1,802,354) $ 3,153,230
-------------- -----------------
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Depreciation and amortization 550,394 51,857
Deferred income taxes (1,929,752) 1,739,192
Investment by minority shareholders 332,652 -
Minority interest in loss of subsidiary (753,565) -
Net compensation forfeited (54,968) 440,813
Provision for losses on accounts receivable 50,640 -
Decrease (increase) in securities owned, at market value 3,858,191 (1,804,903)
Decrease (increase) in receivable from clearing broker 2,169,006 (2,748,543)
Increase (decrease) in other assets (991,108) 264,510
Increase in securities sold, not yet
purchased, at market value 8,943 886,783
(Decrease) in payable to clearing broker (3,467,579)
(Decrease) Increase in accrued compensation (1,329,288) 1,789,906
(Decrease) increase in accounts payable, accrued expenses
and other current liabilities (2,307,207) 52,526
(Decrease) increase in income taxes payable (772,757) 108,821
-------------- -----------------
Total adjustments (1,168,819) (2,688,617)
-------------- -----------------
Net cash (used in) provided by operating activities (2,971,173) 466,613
-------------- -----------------
Cash flows from investing activities:
Purchase of furniture, fixtures and leasehold improvements (1,063,213) (256,797)
Acquisition of other businesses, net of cash (816,437) -
-------------- -----------------
Net cash used in investing activities (1,879,650) (256,797)
-------------- -----------------
Cash flows from financing activities:
Issuance of common stock 56,875 750,000
Issuance of subsidiary common stock 318,600 -
-------------- ----------------
Net cash provided by financing activities 375,475 750,000
-------------- ----------------
Net (decrease) increase in cash and cash equivalents (4,475,348) 959,816
Cash and cash equivalents, beginning of period 8,445,532 85,092
-------------- ----------------
Cash and cash equivalents, end of period $ 3,970,184 $ 1,044,908
============== =================
Supplemental information:
Interest paid $ 34,655 $ 80,929
Income taxes paid $ 1,965,968 $ 60,298
</TABLE>
The accompanying notes are an integral part of these consolidated financials
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"), Greenleaf Management Corp. ("Greenleaf"), First Long
Island Securities, Inc. ("First Long Island"), its majority-owned
(63.7%) subsidiary, VentureHighway.com Inc. ("VentureHighway"), and its
minority-owned (33.1%) subsidiary, ParentNet, Inc. ("ParentNet")
(collectively the "Company"). VentureHighway's consolidated financial
statements include the accounts of Princeton Investment Holding Corp.
("Princeton") and Princeton Securities Corporation. 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. Kirlin also offers a
managed asset portfolio program to manage the financial assets of its
clients. VentureHighway was incorporated March 1, 1999 and commenced
operations on June 1, 1999. VentureHighway operates a branded web site
designed to match companies seeking funding with qualified investors.
Greenleaf was formed in January 1999 to serve as the manager of a
private investment fund which was capitalized in June 1999 to invest in
one or more selected companies. On March 17, 2000, the Company acquired
all of the outstanding stock of First Long Island, which continues its
operations as a retail-oriented brokerage firm. On April 3, 2000,
VentureHighway acquired all of the outstanding stock of Princeton,
which continues its operations as a retail-oriented brokerage firm.
These acquisitions were accounted for under the purchase method of
accounting.
On April 14, 2000, the Company acquired approximately 33% of the
outstanding capital stock of ParentNet, Inc. from its founders. This
acquisition resulted in the Company taking an active role in the
management of ParentNet. Additionally, two of the Company's officers
became the sole directors of ParentNet. During May 24, 2000, the
Company issued 233,459 shares of common stock at a price of $3.625 in
exchange to holders of ParentNet units, which consisted of a 12%
secured promissory note in the amount of $50,000 and a warrant to
purchase 25,000 shares of common stock of ParentNet. Finally, effective
July 5, 2000 the Company converted the ParentNet units it received in
the exchange offer, together with other loans it had made directly to
ParentNet, for capital stock of ParentNet. Following these conversions,
the Company owned approximately 81% of the outstanding capital stock of
ParentNet. Since the Company exhibits control over ParentNet, it was
required under Generally Accepted Accounting Principles to consolidate
its financial statements with those of ParentNet. ParentNet's net loss
for the six-month period ended June 30, 2000 amounts to $1,670,196 and
the net loss for the period April 14, 2000 (the Company's acquisition
date) to June 30, 2000 amounts to $610,266, which is reflected in the
consolidated financial statements at June 30, 2000.
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
6
<PAGE>
in order to make the financial statements not misleading have been
included. The operations for the three and six-month period ended June
30, 2000 are not necessarily indicative of the results that may be
expected for the full year ending December 31, 2000. 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, 1999.
2. Stockholders' Equity
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.
On February 2, 2000, the Company's Board of Directors declared a
2-for-1 stock split accomplished by declaration of a 100% stock
dividend payable on March 1, 2000, to all stockholders of record on
February 15, 2000. The share amounts contained in this report have been
adjusted to reflect the stock split.
On May 24, 2000, the Company issued 233,459 shares of common stock at a
price of $3.625 in exchange to holders of ParentNet units, which
consisted of a 12% secured promissory note in the amount of $50,000 and
a warrant to purchase 25,000 shares of common stock of ParentNet.
On June 30, 2000, the Company adjusted additional paid-in capital in
the amount of $318,600 in order to reflect the sale of common stock of
ParentNet. The Company's investment in ParentNet resulted in accounting
for 100% of ParentNet's stockholder deficit, which entitled it to an
equity adjustment upon the issuance of additional common stock of
ParentNet.
3. Income Taxes
The Company files consolidated federal income tax returns and separate
Company state income tax returns. VentureHighway, Princeton, and
ParentNet will file federal income tax returns on a stand-alone basis.
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:
7
<PAGE>
Income Shares Per-Share
(Numerator) (Denominator) Amount
------------ ----------- ----------
Three months ended June 30, 2000:
Basic EPS:
Loss available to common
stockholders $ (2,770,924) 12,654,353 $ (0.22)
Effect of Dilutive Securities -
options
------------ ----------- ----------
Diluted EPS:
Loss available to common
stockholders and assumed
exercise $ (2,770,924) 12,654,353 $ (0.22)
============ =========== ==========
Three months ended June 30, 1999:
Basic EPS:
Income available to common
stockholders $ 2,157,791 11,714,528 $ 0.18
Effect of Dilutive Securities -
options 280,892
------------ ----------- ----------
Diluted EPS:
Income available to common
stockholders and assumed
exercise $ 2,157,791 11,995,420 $ 0.18
============ =========== =========
8
<PAGE>
Income Shares Per-Share
(Numerator) (Denominator) Amount
------------ ----------- ----------
Six months ended June 30, 2000:
Basic EPS:
Loss available to common
stockholders $ (1,802,354) 12,597,553 $ (0.14)
Effect of Dilutive Securities -
options
------------ ----------- ----------
Diluted EPS:
Loss available to common
stockholders and assumed
exercise $ (1,802,354) 12,597,553 $ (0.14)
============ =========== =========
Six months ended June 30, 1999:
Basic EPS:
Income available to common
stockholders $ 3,153,230 12,220,816 $ 0.26
Effect of Dilutive Securities -
options 224,540
----------- ----------- ----------
Diluted EPS:
Income available to common
stockholders and assumed
exercise $ 3,153,230 12,445,356 $ 0.25
============ =========== =========
9
<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. These risks are included in "Item 1: Business," "Item 6: Management's
Discussion and Analysis of Financial Condition and Results of Operations" and in
"Exhibit 99: Risk Factors" included in Form 10-KSB for the year ended December
31, 1999. 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.
ParentNet, Inc.
On April 14, 2000, the Company acquired approximately 33% of the
outstanding capital stock of ParentNet, Inc. from its founders. This acquisition
resulted in the Company taking an active role in the management of ParentNet.
Additionally, two of the Company's officers became the sole directors of
ParentNet. During May 24, 2000, the Company issued 233,459 shares of common
stock at a price of $3.625 in exchange to holders of ParentNet units, which
consisted of a 12% secured promissory note in the amount of $50,000 and a
warrant to purchase 25,000 shares of common stock of ParentNet. Finally,
effective July 5, 2000 the Company converted the ParentNet units it received in
the exchange offer, together with other loans it had made directly to ParentNet,
for capital stock of ParentNet. Following these conversions, the Company owned
approximately 81% of the outstanding capital stock of ParentNet. Since the
Company exhibits control over ParentNet, it was required under Generally
Accepted Accounting Principles to consolidate its financial statements with
those of ParentNet. ParentNet's net loss for the six-month period ended June 30,
2000 amounts to $1,670,196 and the net loss for the period April 14, 2000 (the
Company's acquisition date) to June 30, 2000 amounts to $610,266, which is
reflected in the consolidated financial statements at June 30, 2000.
Results of Operations
Principal transactions, net for the three and six-month periods ended
June 30, 2000 decreased 58.9% and 0.0%, respectively, to $2,517,055 and
$10,410,429 from the comparable periods in 1999. The decrease is primarily
attributable to a decrease 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. To a lesser extent revenue related to fixed
income securities decreased due to an increase in commission business identified
in the next paragraph.
10
<PAGE>
Commissions for the three and six-month periods ended June 30, 2000
increased 44.6% and 71.4%, respectively, to $4,513,229 and $9,724,602 from the
comparable periods in 1999. The increase is primarily attributable to the
Company's increased business in equity securities, unit trusts, 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. Additionally, this line item contains subscription revenue related
to ParentNet.
Merchant banking for the three and six-month periods ended June 30,
2000 decreased 197.4% and 189.7%, respectively, to $(1,329,183) and $(1,127,707)
from the comparable periods in 1999 primarily as a result of depreciation in the
value of investments owned by the Company.
Investment banking for the three and six-month periods ended June 30,
2000 decreased 36.3% and 65.2%, respectively, to $325,000 from the comparable
periods in 1999. The decrease is primarily attributable to fewer investment
banking fees collected by the Company during the current year. Such fees are
generated from acting as placement agent related to bridge loan financings and
private placements.
Other income for the three and six-month periods ended June 30, 2000
increased 82.2% and 161.0%, respectively, to $484,171 and $1,046,841 from the
comparable periods in 1999. The increase is primarily attributable to the
increases in transactional and account balance rebates the Company is entitled
to from the clearing broker, as well as other broker dealers it conducts
business. Other income also increased due to interest income from funds held in
money market funds.
Increase in value attributable to subsidiary for the three and
six-month periods ended June 30, 2000 amounted to $276,747 and $583,746,
respectively. This line item did not exist during the three and six-month
periods ended June 30, 1999. The increase is primarily attributable to the
increase in the value of the Company's investment in its subsidiary,
VentureHighway, arising from the change in the Stock subscription receivable
VentureHighway has related to an advertising barter transaction it has with a
minority shareholder.
Employee compensation and benefits for the three and six-month periods
ended June 30, 2000 increased 23.0% and 73.0%, respectively, to $7,230,879 and
$17,074,645 from the comparable periods in 1999. Since employee compensation
related to the Company's retail brokerage traders and registered representatives
is directly related to revenue they generate, a portion of employee compensation
follows the change in the Company's revenues. In addition, during the past year
the Company has increased its roster of employees and has increased certain
benefits to its employees. Additionally, the past quarter's results are
reflective for the first time of the increase in compensation costs directly
related to the ParentNet acquisition.
Promotion and advertising for the three and six-month periods ended
June 30, 2000 increased 334.5% and 216.0%, respectively, to $864,397 and
$1,491,310 from the comparable periods in 1999 primarily as a result of the
Company's planned increase in advertising expenditures related to
VentureHighway. During 1999, VentureHighway sold a portion of its outstanding
capital stock to a company which agreed to provide advertising and promotion
over a 30-month period, which did not begin until the third quarter of 1999. For
the three and six-month periods ended June 30, 2000, the Company spent
approximately $500,000 and $900,000, respectively, of this advertising and
promotion.
Clearance and execution charges for the three and six-month periods
ended June 30, 2000 increased 86.9% and 79.1%, respectively, to $512,295 and
$1,068,349 from the comparable periods in 1999 as a result of higher ticket
volume.
Occupancy and communications costs for the three and six-month periods
ended June 30, 2000 increased 60.1% and 60.6%, respectively, to $1,267,443 and
$2,345,087 from the comparable periods in 1999. This increase is a result of the
establishment and operations of additional retail brokerage branch offices, the
establishment of two new companies, the acquisition of two retail brokerage
companies, the consolidation of its investment in ParentNet into the Company's
financial statements, and the increase in the number of employees.
Professional fees for the three and six-month periods ended June 30,
2000 increased 59.3% and 116.7%, respectively, to $398,169 and $1,033,280 from
the comparable periods in 1999 primarily as a result of computer consultation
11
<PAGE>
related to the Company's websites and networks, professional recruitment fees
related to the search of a new Chief Executive Officer for VentureHighway, and
legal consultation related to new business ventures and general business
consultation.
Interest expense for the three and six-month periods ended June 30,
2000 increased 490.7% and 144.1%, respectively, to $164,378 and $197,539 from
the comparable periods in 1999. Interest expense increased substantially due to
accrued interest related to secured promissory notes related to ParentNet, which
arose for the first time for the Company during the past quarter. For the retail
brokerage entities, interest expense decreased 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 six-month periods ended June 30, 2000
increased 204.0% and 136.5%, respectively, to $647,101 and $1,051,265 from the
comparable periods in 1999 as a result of expenses related to syndicate
liabilities, continuous improvement and maintenance of the Company's websites,
and regulatory fees and general office expenses related to the increase in the
number of employees. General office expenses also increased due to the
organization of a new subsidiary, and the acquisition of two companies as well
as the consolidation of ParentNet into the companies financial statements.
Income tax benefit for the three and six-month periods ended June 30,
2000 were $1,084,849 and $742,645, respectively, which follows the decrease in
income before this income tax benefit.
Net loss of $2,770,924 and $1,802,354, respectively, for the three and
six-month periods ended June 30, 2000 compares to net income of $2,157,791 and
$3,153,230 for the three and six-month periods ended June 30, 1999. This
resulted primarily from the decrease in revenues offset by increases in expenses
as discussed above.
Liquidity and Capital Resources
Due from Clearing Broker amounted to $5,066,688 at June 30, 2000 as
compared to $5,716,261 at December 31, 1999. This shift results primarily from
reduced inventory purchased on margin and decreased receivables related to
agency commission business at June 30, 2000.
Securities owned, at market value, at June 30, 2000 were $8,036,795 as
compared to $11,894,986 at December 31, 1999. This 32.4% decrease is primarily
attributable to a decrease in securities held in inventory for resale to its
customers. Approximately 38% of the Company's assets at June 30, 2000 were
comprised of cash and highly liquid securities.
Furniture, Fixtures and Leasehold Improvements, net, at June 30, 2000,
increased to $2,164,944 as compared to $1,275,727 at December 31, 1999. This
69.7% increase results from the renovation of the Company's offices, and the
purchase of additional computer hardware and furniture to support the increase
in the number of employees as well as fixed assets related to the acquisition of
two companies and the consolidation of the ParentNet investment into the
Company's financial statements.
Other assets increased to $4,927,452 at June 30, 2000, from $3,740,513
at December 31, 1999, a 31.7% increase. This increase is primarily attributable
to loans provided to registered representatives as part of the acquisition of
new companies as well as subscriptions, net of allowance for doubtful accounts,
and inventory related to the ParentNet investment.
Goodwill, net at June 30, 2000 amounted to $4,626,885. This line item
did not exist in 2000. During March 2000 and April 2000, respectively, the
Company acquired all of the outstanding capital stock of First Long Island
Securities, Inc. and Princeton Investments Holding Corp., both of which are
12
<PAGE>
retail-oriented brokerage firms. The increase is attributable to the excess of
the acquisition cost over the fair value of the net assets of these acquired
companies. Additionally, during April 2000 the Company acquired approximately
33% of ParentNet, Inc. in which it is required to consolidate this investment
into the Company's financial statements, and created approximately $3,700,000 of
goodwill at June 30, 2000.
Securities sold short amounted to $827,517 at June 30, 2000 as compared
to $818,574 at December 31, 1999. Management monitors these positions on a daily
basis and covers short positions when deemed appropriate.
Accrued compensation was $3,017,682 at June 30, 2000 as compared to
$4,232,264 at December 31, 1999, a 28.7% decrease attributable to decreased
revenues upon which commission income to registered representatives is based.
Accounts payable and accrued expenses were $3,725,142 at June 30, 2000
as compared to $1,054,095 at December 31, 1999, a 253.4% increase primarily
attributable to secured promissory notes and accrued interest payable that
ParentNet has with outside parties.
Income taxes payable (including deferred taxes payable) was $1,860,818
at June 30, 2000 as compared to $4,549,825 at December 31, 1999. This decrease
is reflective of the adjustment for the current period's loss. Additionally,
deferred income taxes payable decreased resulting from a decrease in the value
of certain securities positions in the Company's merchant banking portfolio and
investment account offset by the increase in value attributable to its
subsidiary, VentureHighway.
Minority interest in Subsidiary was $ 2,255,167 at June 30, 2000 as
compared to $2,676,080 at December 31, 2000, a 3.9% decrease attributable to
VentureHighway's net loss during the past quarter. Minority interest in
Subsidiary is reflective of the investment by third parties in the voting stock
of VentureHighway not held by the Company.
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.
13
<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 Number Sold Price Afforded to Exemption from Exercise or
Date of Sale Security or forfeited Purchasers Registration Claimed Conversions
----------------- ---------------- --------------- ------------------------- --------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
4/3/00 Common Stock 15,000 Restricted stock 4(2) N/A
awarded to an employees
under 1996 Stock Plan;
no cash consideration
paid by the Company
5/24/00 Common Stock 233,459 Restricted stock 4(2) N/A
awarded under 1996
Stock Plan in exchange
for secured promissory
notes and warrants; no
cash consideration paid
by the Company
</TABLE>
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule (6/30/00)
(b) Reports on Form 8-K
None
14
<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 14, 2000 By: /s/ Anthony J. Kirincic
------------------------------
Anthony J. Kirincic
President and Chief Financial
Officer
15
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
Number Description
27. Financial Data Schedule (6/30/00)
16
