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 September 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
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KIRLIN HOLDING CORP.
--------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 11-3229358
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6901 Jericho Turnpike, Syosset, New York 11791
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(Address of Principal Executive Offices)
(800) 899-9400
---------------------------------------------
(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 November 20, 2000, Issuer had
outstanding 12,846,277 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
<TABLE>
September 30, December 31,
2000 1999
----------------- ------------------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 2,196,142 $ 8,445,532
Due from Clearing Broker 4,532,723 5,716,261
Securities Owned, at market value:
U.S. government and agency obligations 130,293 446,509
State and municipal obligations 1,144,372 589,388
Corporate bonds and other securities 7,831,814 10,859,089
Furniture, Fixtures and Leasehold Improvements, at cost, net of
accumulated depreciation of $1,969,676 and $1,246,173 for
September 30, 2000 and December 31, 1999, respectively 2,509,156 1,275,727
Other Assets 4,591,197 3,740,513
Goodwill, net of accumulated amortization of $211,083 for September 30, 2000 4,551,744
----------------- ------------------
Total assets $ 27,487,441 $ 31,073,019
================= ==================
LIABILITIES and STOCKHOLDERS' EQUITY:
Liabilities:
Securities sold, not yet purchased, at market value $ 314,037 $ 818,574
Accrued compensation 3,413,585 4,232,264
Accounts payable, accrued expenses and other current liabilities 1,996,652 1,054,095
Income taxes payable (including deferred taxes payable of $425,909
and $3,482,940, respectively) 668,653 4,549,825
----------------- ------------------
Total liabilities 6,392,927 10,654,758
----------------- ------------------
Minority Interest in Subsidiaries 3,028,229 2,676,080
----------------- ------------------
Stockholders' Equity (Note 2):
Common stock, $.0001 par value; authorized 40,000,000 and 15,000,000 shares,
issued and outstanding 12,722,851 and 12,495,256 shares, respectively 1,274 1,250
Additional paid-in capital 12,789,374 8,327,793
Retained earnings 5,275,637 9,413,138
----------------- ------------------
Total stockholders' equity 18,066,285 17,742,181
----------------- ------------------
Total liabilities and stockholders' equity $ 27,487,441 $ 31,073,019
================= ==================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
KIRLIN HOLDING CORP. and SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
Three-Months Ended Nine-Months Ended
September 30, September 30,
---------------------------------- --------------------------------
2000 1999 2000 1999
---------------- ---------------- --------------- ----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Principal transactions, net $ 3,010,682 $ 4,333,576 $ 13,421,111 $ 14,744,205
Commissions 4,374,728 2,374,347 14,099,329 8,048,903
Merchant Banking (517,794) 461,925 (1,645,501) 1,719,136
Investment Banking 109,375 325,000 1,044,433
Other income 760,285 252,429 1,807,126 653,576
Increase in value attributable to subsidiary 213,152 796,898
---------------- ---------------- ---------------- ----------------
7,841,053 7,531,652 28,803,963 26,210,253
---------------- ---------------- ---------------- ----------------
Expenses:
Employee compensation and benefits 7,585,273 3,432,410 24,659,918 13,304,082
Promotion and advertising 538,626 195,039 2,029,936 667,013
Clearance and execution charges 492,958 239,251 1,561,306 835,682
Occupancy and communications 1,519,208 803,081 3,864,295 2,262,982
Professional fees 668,345 261,915 1,701,625 738,762
Interest 53,325 22,567 250,864 103,496
Other 682,156 473,521 1,733,422 918,079
---------------- ---------------- ---------------- ----------------
11,539,891 5,427,784 35,801,366 18,830,096
---------------- ---------------- ---------------- ----------------
(Loss) income before (benefit) provision for income
taxes (3,698,838) 2,103,868 (6,997,403) 7,380,157
Income tax (benefit) provision (Note 3) (1,147,740) 1,077,299 (1,890,385) 3,200,358
---------------- ---------------- ---------------- ----------------
(Loss) income before minority interest in loss of
subsidiaries (2,551,098) 1,026,569 (5,107,018) 4,179,799
Minority interest in loss of subsidiaries 215,952 969,517
---------------- ---------------- ---------------- ----------------
Net (loss) income $ (2,335,146) $ 1,026,569 $ (4,137,501) $ 4,179,799
================ ================ ================ ================
Basic earnings per common share (Note 4) $ (0.18) $ 0.08 $ (0.33) $ 0.35
================ ================ ================ ================
Diluted earnings per common share (Note 4) $ (0.18) $ 0.08 $ (0.33) $ 0.34
================ ================ ================ ================
</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, 2000
(Unaudited)
<TABLE>
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 (106,500) (10) (343,332) (343,342)
Subsidiary value enhancement 3,783,720 3,783,720
Net loss (4,137,501) (4,137,501)
-------------- ------------- ------------- --------------- -------------
Stockholders' equity,
September 30, 2000 12,722,851 $ 1,274 $ 12,789,374 $ 5,275,637 $ 18,066,285
============== ============= ============= =============== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
KIRLIN HOLDING CORP. and SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
Nine Months Ended
September 30,
--------------------------------------
2000 1999
------------------- -----------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (4,137,501) $ 4,179,799
------------------- -----------------
Adjustments to reconcile net (loss) income to net cash (used in) provided by
operating activities:
Depreciation and amortization 910,041 151,581
Deferred income taxes (3,052,843) 2,247,572
Investment by minority shareholders 560,061
Minority interest in loss of subsidiaries (969,517)
Net compensation forfeited (186,105) 781,438
Provision for losses on accounts receivable 51,405
Decrease (increase) in securities owned, at market value 4,435,428 (947,482)
Decrease (increase) in receivable from clearing broker 2,702,971 (2,514,507)
(Decrease) in other assets (655,618) (847,660)
(Decrease) increase in securities sold, not yet purchased, at market value (504,537) 492,880
(Decrease) in payable to clearing broker (3,467,579)
(Decrease) increase in accrued compensation (933,385) 426,662
(Decrease) in accounts payable, accrued expenses and other current
liabilities (2,045,068) (35,127)
(Decrease) increase in income taxes payable (841,831) 657,647
------------------- --------------
Total adjustments (528,998) (3,054,575)
------------------- --------------
Net cash (used in) provided by operating activities (4,666,499) 1,125,224
------------------- --------------
Cash flows from investing activities:
Purchase of furniture, fixtures and leasehold improvements (1,658,160) (424,867)
Acquisition of other businesses, net of cash (850,208)
------------------- ---------------
Net cash used in investing activities (2,508,368) (424,867)
------------------- ---------------
Cash flows from financing activities:
Issuance of common stock 56,877 777,500
Issuance of subsidiary common stock 868,600
------------------- ---------------
Net cash provided by financing activities 925,477 777,500
------------------- ---------------
Net (decrease) increase in cash and cash equivalents (6,249,390) 1,477,857
Cash and cash equivalents, beginning of period 8,445,532 85,092
------------------- -----------------
Cash and cash equivalents, end of period $ 2,196,142 $ 1,562,949
=================== =================
Supplemental information:
Interest paid $ 47,530 $ 92,548
Income taxes paid $ 1,989,617 $ 69,554
</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"), Greenleaf Management Corp. ("Greenleaf"), its
majority-owned (80.0%) subsidiary, First Long Island Securities, Inc.
("First Long Island"), its majority-owned (63.7%) subsidiary,
VentureHighway.com Inc. ("VentureHighway"), and its majority-owned
(53.8%) 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 August 29, 2000, the Company
sold 20% of the outstanding stock of First Long Island. 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. 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. 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. In addition, during the period July 5, 2000
to September 30, 2000, ParentNet issued shares of common stock pursuant
to an employee stock plan, and in connection with equity infusions by
investors, debt conversion and an exchange of stock with an
unaffiliated company related to entering into an exclusive distribution
agreement. Following these issuances of common stock, the Company owned
approximately 54% 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
nine-month period ended September 30, 2000 amounts to $2,572,873 and
the net loss for the period April 14, 2000 (the Company's acquisition
date) to September 30, 2000 amounts to $1,512,943, which is reflected
in the consolidated financial statements at September 30, 2000.
All material intercompany transactions and balances have been
eliminated in consolidation.
6
<PAGE>
KIRLIN HOLDING CORP. and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
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 period ended
September 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 August 11, 2000 the stockholders approved the amendment to the
certificate of incorporation to increase the authorized number of
shares of Common Stock by an additional 25,000,000 shares of Common
Stock to 40,000,000 shares of Common Stock,
During the nine-month period ended September 30, 2000, the Company
adjusted additional paid-in capital in the amount of $3,783,720 related
to issuance of common stock by ParentNet. Through September 25, 2000,
the Company's investment in ParentNet resulted in accounting for 100%
of ParentNet's stockholder deficit, which entitled it to a 100% equity
adjustment upon the issuance of additional common stock of ParentNet.
Subsequent to this date, ParentNet had stockholders' equity which
entitled the Company to an equity adjustment upon the issuance of
additional common stock of ParentNet based on its ownership percentage.
ParentNet's issuance of common stock is pursuant to an employee stock
plan, and in connection with equity infusions by investors, debt
conversion and an exchange of stock with an unaffiliated company
related to entering into an exclusive distribution agreement.
7
<PAGE>
KIRLIN HOLDING CORP. and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
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:
<TABLE>
(Loss)
Income Shares Per-Share
(Numerator) (Denominator) Amount
------------------ ------------------ -------------
<S> <C> <C> <C>
Three months ended September 30, 2000:
Basic EPS:
Loss available to common
stockholders $ (2,335,146) 12,750,568 $ (0.18)
Effect of Dilutive Securities
- options
----------------- ------------------ ------------
Diluted EPS:
Loss available to common
stockholders and assumed
exercise $ (2,335,146) 12,750,568 $ (0.18)
================= ================== ============
Three months ended September 30, 1999:
Basic EPS:
Income available to common
stockholders $ 1,026,569 12,293,556 $ 0.08
Effect of Dilutive Securities
- options 642,304
----------------- ------------------ -----------
Diluted EPS:
Income available to common
stockholders and assumed
exercise $ 1,026,569 12,935,860 $ 0.08
================= ================== ============
</TABLE>
8
<PAGE>
KIRLIN HOLDING CORP. and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
<TABLE>
(Loss)
Income Shares Per-Share
(Numerator) (Denominator) Amount
------------------ ------------------ -------------
<S> <C> <C> <C>
Nine months ended September 30, 2000:
Basic EPS:
Loss available to common
stockholders $ (4,137,501) 12,648,929 $ (0.33)
Effect of Dilutive Securities
- options
---------------- ------------------ ------------
Diluted EPS:
Loss available to common
stockholders and assumed
exercise $ (4,137,501) 12,648,929 $ (0.33)
================= ================== ============
Nine months ended September 30, 1999:
Basic EPS:
Income available to common
stockholders $ 4,179,799 11,824,558 $ 0.35
Effect of Dilutive Securities
- options 363,795
----------------- ------------------ ------------
Diluted EPS:
Income available to common
stockholders and assumed
exercise $ 4,179,799 12,188,353 $ 0.34
================= ================== ============
</TABLE>
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. 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. 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.
In addition, during the period July 5, 2000 to September 30, 2000, ParentNet
issued shares of common stock pursuant to an employee stock plan, and in
connection with equity infusions by investors, debt conversion and an exchange
of stock with an unaffiliated company related to entering into an exclusive
distribution agreement. Following these issuances of common stock, the Company
owned approximately 54% 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 nine-month period ended
September 30, 2000 amounts to $2,572,873 and the net loss for the period April
14, 2000 (the Company's acquisition date) to September 30, 2000 amounts to
$1,512,943, which is reflected in the consolidated financial statements at
September 30, 2000.
Results of Operations
Principal transactions, net for the three and nine-month periods ended
September 30, 2000 decreased 30.5% and 9.0%, respectively, to $3,010,682 and
$13,421,111 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.
Commissions for the three and nine-month periods ended September 30,
2000 increased 84.3% and 75.2%, respectively, to $4,374,728 and $14,099,329 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
10
<PAGE>
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 business resulting from the acquisition of two
retail-oriented brokerage firms. Additionally, this line item contains
subscription revenue related to ParentNet.
Merchant banking for the three and nine-month periods ended September
30, 2000 decreased 212.1% and 195.7%, respectively, to $(517,794) and
$(1,645,501) 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 nine-month periods ended September
30, 2000 decreased 100.0% and 68.9%, 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 nine-month periods ended September 30,
2000 increased 201.2% and 176.5%, respectively, to $760,285 and $1,807,126 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. This line item also includes consulting income realized by
VentureHighway which indirectly arose from the sale of some of its barter
advertising to an outside company. 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
nine-month periods ended September 30, 2000 amounted to $213,152 and $796,898,
respectively. This line item did not exist during the three and nine-month
periods ended September 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 effected with
a minority shareholder.
Employee compensation and benefits for the three and nine-month periods
ended September 30, 2000 increased 121.0% and 85.4%, respectively, to $7,585,273
and $24,659,918 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, particularly with VentureHighway. Additionally, the
results are reflective of the increase in compensation costs directly related to
the ParentNet acquisition as well as the acquisition of two retail-oriented
brokerage firms.
Promotion and advertising for the three and nine-month periods ended
September 30, 2000 increased 176.2% and 204.3%, respectively, to $538,626 and
$2,029,936 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 nine-month periods ended September 30, 2000, the Company spent
approximately $160,000 and $1,100,000, respectively, of this advertising and
promotion.
Clearance and execution charges for the three and nine-month periods
ended September 30, 2000 increased 106.0% and 86.8%, respectively, to $492,958
and $1,561,306 from the comparable periods in 1999 as a result of higher ticket
volume.
Occupancy and communications costs for the three and nine-month periods
ended September 30, 2000 increased 89.2% and 70.8%, respectively, to $1,519,208
and $3,864,295 from the comparable periods in 1999. This increase is a result of
11
<PAGE>
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 nine-month periods ended September
30, 2000 increased 155.2% and 130.3%, respectively, to $668,345 and $1,701,625
from the comparable periods in 1999 primarily as a result of computer
consultation 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 nine-month periods ended September
30, 2000 increased 136.3% and 142.4%, respectively, to $53,325 and $250,864 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 nine-month period ended
September 30, 2000. 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 nine-month periods ended September 30,
2000 increased 44.1% and 88.8%, respectively, to $682,156 and $1,733,422 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 nine-month periods ended September
30, 2000 were $1,147,740 and $1,890,385, respectively, which follows the
decrease in income before this income tax benefit.
Net loss of $2,335,146 and $4,137,501, respectively, for the three and
nine-month periods ended September 30, 2000 compares to net income of $1,026,569
and $4,179,799 for the three and nine-month periods ended September 30, 1999.
This resulted primarily from the increases in expenses as discussed above.
Liquidity and Capital Resources
Due from Clearing Broker amounted to $4,532,723 at September 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 September 30, 2000.
Securities owned, at market value, at September 30, 2000 were
$9,106,479 as compared to $11,894,986 at December 31, 1999. This 23.4% decrease
is primarily attributable to a decrease in securities held in inventory for
resale to its customers. Approximately 33% of the Company's assets at September
30, 2000 were comprised of cash and highly liquid securities.
Furniture, Fixtures and Leasehold Improvements, net, at September 30,
2000, increased to $2,509,156 as compared to $1,275,727 at December 31, 1999.
This 96.7% increase results from the renovation of the Company's offices, and
12
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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 $4,591,197 at September 30, 2000, from
$3,740,513 at December 31, 1999, a 22.7% 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 September 30, 2000 amounted to $4,551,744. This line
item did not exist in 1999. 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
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 the past year the Company acquired a controlling
ownership interest 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 September 30, 2000.
Securities sold short amounted to $314,037 at September 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 $3,413,585 at September 30, 2000 as compared
to $4,232,264 at December 31, 1999, a 19.3% decrease attributable to decreased
profits upon which override payments are based.
Accounts payable and accrued expenses were $1,996,652 at September 30,
2000 as compared to $1,054,095 at December 31, 1999, a 89.4% increase primarily
attributable to secured promissory notes and operating expenses that ParentNet
has with outside parties.
Income taxes payable (including deferred taxes payable) was $668,653 at
September 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 Subsidiaries was $3,028,229 at September 30, 2000
as compared to $2,676,080 at December 31, 1999, a 13.2% increase attributable to
subsidiary stock issuances offset by subsidiaries net losses during the
nine-month period ended September 30, 2000. Minority interest in Subsidiaries is
reflective of the investment by third parties in the voting stock of some of the
Company's subsidiaries 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.
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PART II: OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
The Company held its Annual Meeting of Stockholders on August 11, 2000.
At the meeting the sole director nominated for re-election, Harold Paul, was
re-elected for a three-year term with 8,903,100 shares voted in favor of
re-election and 32,531 shares for which authority to vote was withheld. In
addition, the stockholders approved a proposal to increase the Company's
authorized common stock from 15 million to 40 million shares, with 8,818,108
shares voting in favor, 94,908 shares voting against, 22,615 shares abstaining
and 3,857,220 broker non-votes.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule (9/30/00)
(b) Reports on Form 8-K
None
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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 20, 2000 By: /s/ Anthony J. Kirincic
----------------------------
Anthony J. Kirincic
President and Chief Financial Officer
15
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EXHIBIT INDEX
Exhibit
Number Description
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27. Financial Data Schedule (9/30/00)
16
