U.S. SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Act of
- ---- 1934
For the quarterly period ended September 30, 2002
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- ----- Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission File number 0-25336
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KIRLIN HOLDING CORP.
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(Exact Name of Registrant 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
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(Address of Principal Executive Offices)
(800) 899-9400
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(Registrant'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 registrant: (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 registrant's classes of
common equity, as of the latest practicable date: At November 8, 2002, Issuer
had outstanding 14,962,308 shares of Common Stock, par value $.0001 per share.
PART 1: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
KIRLIN HOLDING CORP. and SUBSIDIARIES
Consolidated Statements of Financial Condition
September 30, December 31,
2002 2001
----------------- ------------------
(Unaudited)
ASSETS:
Cash and cash equivalents $ 3,728,163 $ 972,086
Due from Clearing Broker 1,964,199 3,119,154
Securities Owned:
U.S. government and agency obligations, at market value 157,038 161,376
State and municipal obligations, at market value 311,830 1,161,195
Corporate bonds and other securities, at market value 628,528 415,812
Nonmarketable securities, at fair value 56,084 607,249
Furniture, Fixtures and Leasehold Improvements, at cost, net of accumulated
depreciation of $2,811,844 and $2,331,207, respectively 697,652 1,084,821
Deferred Tax Assets, net of valuation allowance of $711,258 and $0, respectively 2,971,361 3,457,855
Intangible Assets, net of accumulated amortization of $0 and $75,000,
respectively 200,000 775,000
Goodwill 120,000 1,395,417
Other Assets 2,588,492 1,724,991
----------------- ------------------
Total assets $ 13,423,347 $ 14,874,956
================= ==================
LIABILITIES and STOCKHOLDERS' EQUITY:
Liabilities:
Securities sold, not yet purchased, at market value $ 291,414 $ 224,371
Accrued compensation 1,882,279 2,113,287
Accounts payable and accrued expenses 2,494,638 1,767,104
----------------- ------------------
Total liabilities 4,668,331 4,104,762
----------------- ------------------
Subordinated liabilities 2,500,000 -
----------------- ------------------
Minority Interest in Subsidiary 109,883 -
----------------- ------------------
Commitments and Contingencies
Stockholders' Equity:
Common stock, $.0001 par value; authorized 40,000,000 shares, issued and
outstanding 14,675,433 and 14,902,488 shares, respectively 1,467 1,490
Additional paid-in capital 16,315,393 16,635,220
Unearned Stock Compensation (321,268) (294,433)
Accumulated deficit (9,850,459) (5,572,083)
----------------- ------------------
Total stockholders' equity 6,145,133 10,770,194
----------------- ------------------
Total liabilities and stockholders' equity $ 13,423,347 $ 14,874,956
================= ==================
See Notes to Consolidated Financial Statements
2
KIRLIN HOLDING CORP. and SUBSIDIARIES
Consolidated Statements of Operations
Three-Months Ended Nine-Months Ended
September 30, September 30,
---------------------------------- --------------------------------
2002 2001 2002 2001
---------------- ---------------- --------------- ----------------
(Unaudited) (Unaudited)
Revenues:
Principal transactions, net $ 94,077 $ 1,284,177 $ (162,619) $ 6,014,646
Commissions 4,341,393 2,169,794 14,311,582 7,819,543
Merchant Banking (37,996) 93,605 (37,998) 180,152
Investment Banking 68,676 40,749 974,989 40,749
Other income 536,230 278,923 1,796,740 912,505
Increase in value attributable to subsidiaries - 62,617 - 515,995
---------------- ---------------- ---------------- ----------------
5,002,380 3,929,865 16,882,694 15,483,590
---------------- ---------------- ---------------- ----------------
Expenses:
Employee compensation and benefits 3,833,110 3,540,950 12,923,544 12,292,350
Promotion and advertising 87,007 258,026 289,591 898,113
Clearance and execution charges 164,173 332,918 465,595 1,132,318
Occupancy and communications 998,841 1,197,126 3,092,033 3,746,480
Impairment of intangible assets and goodwill 1,774,995 - 1,774,995 -
Professional fees 348,795 317,932 835,294 975,064
Interest 14,724 21,848 11,931 65,332
Other 1,261,253 410,626 2,505,402 1,280,162
---------------- ---------------- ---------------- ----------------
8,482,898 6,079,426 21,898,385 20,389,819
---------------- ---------------- ---------------- ----------------
Loss before income tax benefit and minority interest
in loss of subsidiaries (3,480,518) (2,149,561) (5,015,691) (4,906,229)
Income tax benefit 309,968 738,399 847,198 1,527,240
---------------- ---------------- ---------------- ----------------
Loss before minority interest in loss of subsidiaries (3,170,550) (1,411,162) (4,168,493) (3,378,989)
Minority interest in (income) loss of subsidiaries (109,883) 215,760 (109,883) 509,817
---------------- ---------------- ---------------- ----------------
Net loss $ (3,280,433) $ (1,195,402) $ (4,278,376) $ (2,869,172)
================ ================ ================ ================
Basic loss per common share $ (0.22) $ (0.09) $ (0.28) $ (0.22)
================ ================ ================ ================
Diluted loss per common share $ (0.22) $ (0.09) $ (0.28) $ (0.22)
================ ================ ================ ================
See Notes to Consolidated Financial Statements
3
KIRLIN HOLDING CORP. and SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
For the nine months ended September 30, 2002
(Unaudited)
Common Stock Additional Unearned
----------------------------- Paid-in Stock Accumulated
Shares Par Value Capital Compensation Deficit Total
-------------- ------------- ------------- --------------- -------------- --------------
Stockholders' equity,
January 1, 2002 14,902,488 $ 1,490 $ 16,635,220 $ (294,433) (5,572,083) $ 10,770,194
Stock issuances 1,000,385 100 917,110 (45,418) - 871,792
Stock forfeitures (346,131) (35) (443,627) 18,583 - (425,079)
Repurchases and
retirement of stock (881,309) (88) (793,310) - - (793,398)
Net loss - - - - (4,278,376) (4,278,376)
-------------- ------------- ------------- --------------- -------------- --------------
Stockholders' equity,
September 30, 2002 14,675,433 $ 1,467 $ 16,315,393 $ (321,268) $ (9,850,459) $ 6,145,133
============== ============= ============= =============== ============== ==============
See Notes to Consolidated Financial Statements
4
KIRLIN HOLDING CORP. and SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended
September 30,
--------------------------------------
2002 2001
------------------- -----------------
(Unaudited)
Cash flows from operating activities:
Net loss $ (4,278,376) $ (2,869,172)
------------------- -----------------
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation 480,637 538,239
Amortization 186,126 135,567
Deferred income taxes 486,494 (898,784)
Investment by minority shareholders - 425,118
Minority interest in loss of subsidiaries 109,883 (509,817)
Noncash compensation 446,713 464,261
Impairment of intangible assets and goodwill 1,774,995 -
Loss on disposal of fixed assets - 104,846
Decrease in receivable from clearing brokers 1,154,955 1,445,907
Decrease in securities owned, at market value 640,988 169,802
Decrease in nonmarketable securities 551,164 634,629
(Increase) decrease in other assets (863,501) 1,921,361
Increase (decrease) in securities sold, not yet purchased, at market value 67,043 (61,674)
(Decrease) in accrued compensation (231,008) (720,039)
Increase in accounts payable and accrued expenses 727,534 132,434
------------------- -----------------
Total adjustments 5,532,023 3,781,850
------------------- -----------------
Net cash provided by operating activities 1,253,647 912,678
------------------- -----------------
Cash flows from investing activities:
Purchase of furniture, fixtures and leasehold improvements (93,468) (258,841)
Acquisition of other businesses, net of cash (110,704) (167,964)
------------------- -----------------
Net cash used in investing activities (204,172) (426,805)
------------------- -----------------
Cash flows from financing activities:
Subordinated liabilities 2,500,000 600,000
Repurchases of stock (793,398) -
------------------- -----------------
Net cash provided by financing activities 1,706,602 600,000
------------------- -----------------
Net increase in cash and cash equivalents 2,756,077 1,085,873
Cash and cash equivalents, beginning of period 972,086 579,652
------------------- -----------------
Cash and cash equivalents, end of period $ 3,728,163 $ 1,665,525
=================== =================
Supplemental disclosures of consolidated cashflow information:
Interest paid $ 4,954 $ 19,917
Income taxes paid $ 17,413 $ 22,145
Supplemental disclosures of noncash investing and financing activities:
Issue of warrant for acquisition $ - $ 1,356,000
Common stock awards, net of forfeitures $ 446,713 $ 464,261
See Notes to Consolidated Financial Statements
5
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 former
majority-owned subsidiary, GMST World Markets, Inc. ("GMST") (formerly
First Long Island Securities, Inc.), and its majority-owned (63.7%)
subsidiary, VentureHighway.com Inc. ("VentureHighway") (collectively, the
"Company"). VentureHighway's consolidated financial statements include the
accounts of Princeton Investments Holding Corp. ("PIHC") and Princeton
Securities Corporation ("Princeton"). In November 2001, the board of
directors and stockholders of VentureHighway adopted a plan of dissolution
and liquidation. During the year ended December 31, 2001, the Company's
percentage ownership of capital stock of GMST ranged from approximately 61%
to 5%. All material intercompany transactions and balances have been
eliminated in consolidation.
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.
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-Q. 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 for a fair presentation
have been included. The operations for the three and nine-month periods
ended September 30, 2002 are not necessarily indicative of the results that
may be expected for the full year ending December 31, 2002. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2001.
2. Income Taxes
The Company files consolidated federal income tax returns and separate
Company state income tax returns. VentureHighway files federal income tax
returns on a stand-alone basis.
3. Earnings Per Share
The Company follows SFAS No. 128, Earnings Per Share, which provides for
the calculation of "basic" and "diluted" earnings per share ("EPS"). Basic
EPS includes no dilution and is computed by dividing income or loss
available to common shareholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflect the potential
dilution that could occur through the effect of common shares issuable upon
exercise of stock options and warrants and convertible securities. For the
three and nine-month periods ended September 30, 2002 and 2001, potential
common shares have not been included in the computation of diluted EPS
6
KIRLIN HOLDING CORP. and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
since the effect would be antidilutive. The following is a reconciliation
of the numerators and denominators of the basic and diluted EPS
computations:
Loss Shares Per-Share
(Numerator) (Denominator) Amount
----------------- -------------- -----------
Three months ended September 30, 2002:
Basic and diluted EPS:
Loss available to
common stockholders $ (3,280,433) 14,910,300 $ (0.22)
================ =============== ===========
Three months ended September 30, 2001:
Basic and diluted EPS:
Loss available to
common stockholders $ (1,195,402) 13,273,386 $ (0.09)
================= ============== ===========
Nine months ended September 30, 2002:
Basic and diluted EPS:
Loss available to
common stockholders $ (4,278,376) 15,016,998 $ (0.28)
================= ============== ===========
Nine months ended September 30, 2001:
Basic and diluted EPS:
Loss available to
common stockholders $ (2,869,172) 13,137,259 $ (0.22)
================= ============== ===========
4. Goodwill
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangibles as of January 1, 2002.
Accordingly, goodwill is no longer amortized. Instead it will be tested for
impairment at least annually. As a result of the adoption, approximately
$560,000 was re-classified from goodwill to intangible assets, which will
continue to be amortized. During the three-month period ended September 30,
2002 the Company performed a test for impairment which resulted in the
7
KIRLIN HOLDING CORP. and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
write-off of intangible assets and goodwill amounts of approximately $1.8
million related to the acquisition of two retail oriented brokerage firms
in prior years. This write-off decision was made based on an analysis that
identified a market decline not experienced in quite some time, changing
conditions surrounding the broker-dealer industry, and comparison of post-
and pre-acquisition factors which identified a decline in production
results and registered representatives associated with the acquisitions.
Amortization expense on goodwill during the three and nine-month periods
ended September 30, 2001 amounted to $14,497 and $135,567, respectively.
Had such expense not been recorded the Company's results of operations and
loss per common share would have been as follows:
Three Months Ended Nine Months Ended
September 30, 2001 September 30, 2001
---------------------- -----------------------
Reported net loss $ (1,195,402) $ (2,869,172)
Add back: Goodwill
amortization 14,497 135,567
---------------------- -----------------------
Adjusted net loss $ (1,180,905) $ (2,733,605)
====================== =======================
Basic and diluted loss per common
share
Reported net loss $ (0.09) $ (0.22)
Add back: Goodwill
amortization 0.00 0.01
---------------------- -----------------------
Adjusted net loss $ (0.09) $ (0.21)
====================== =======================
During the nine-months ended September 30, 2002, the Company made payments
of contingent consideration of approximately $118,000 under the terms of
the acquisition of Princeton.
5. Contingencies
In July 2002, Kirlin Securities was notified by the NASD that it had made a
preliminary determination to recommend that disciplinary action be brought
against Kirlin Securities and three of its current or former employees,
including Anthony Kirincic, President of the Company and Co-Chief Executive
Officer of Kirlin Securities, as a result of the sale of certain fixed
income securities to clients of Kirlin Securities from November 1995 to
1998. Certain of these securities were issued in $250,000 denominations.
The NASD informed Kirlin that the potential violations of the NASD Conduct
Rules and/or Federal securities laws relate to the following (all of which
activity occurred prior to 1999): (i) sales of unregistered securities
stemming from the sale of these securities in smaller denominations; (ii)
placement of false and misleading advertising as a result of
non-differentiating advertisements for securities of different issuers;
(iii) charging of markups on the sale of the securities in excess of NASD
policy; (iv) failure to maintain inventory sheets as distributed to certain
8
KIRLIN HOLDING CORP. and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
employees in connection with the sale of the securities; and (v) failure to
establish and enforce supervisory procedures to assure compliance with
federal laws and NASD Rules to prevent the aforementioned potential
violations.
Kirlin Securities has been offered the opportunity to file a submission
with the NASD, if the matter is not otherwise resolved, indicating why an
action should not be brought for some or all of the alleged violations. The
Company cannot predict the outcome of the disciplinary action at this time
if it were brought and is unable to determine whether this matter will have
a material adverse effect on the consolidated financial condition of the
Company.
In the normal course of the Company's business, the Company from time to
time is involved in claims, lawsuits and arbitrations brought by its
customers. The Company consults its attorneys in order to estimate amounts
that should be reflected in the Company's financial statements relating to
pending or threatened claims. If pending or threatened claims result in
damages to be paid by the Company, these amounts could be different from
the amounts previously estimated and reflected in the Company's financial
statements. The Company's review of existing claims, arbitrations, and
unpaid settlements at September 30, 2002 resulted in an accrued liability
of $667,500.
6. Subsequent Events
On January 4, 2001, International Assets Advisory Corporation ("IAAC"),
initiated an arbitration proceeding before the NASD against Kirlin
Securities, GMST World Markets, Princeton Securities, Gerard A. Mastrianni,
Stephen Joseph Taormina, (two officers of GMST World Markets), David O.
Lindner, and Anthony J. Kirincic (two officers of Kirlin Securities and of
the Company) (collectively the "Respondents"). IAAC alleged that Kirlin
Securities and Princeton Securities participated in a conspiracy, along
with the other Respondents, to raid IAAC employees, engage in unfair
competition, misappropriate IAAC's trade secrets, induce IAAC employees to
breach a fiduciary duty purportedly owed to IAAC, interfere with IAAC
business relationships and convert assets of IAAC. IAAC sought an
unspecified amount of damages. Kirlin Securities and Princeton Securities
filed an answer with the NASD vigorously denying the allegations contained
in IAAC's statement of claim. On December 10, 2001, Kirlin and Princeton
(together with respondents Lindner and Kirincic) filed a motion to dismiss
IAAC's Statement of Claim. This motion was denied in March 2002.
During October 2002 the Company settled this matter with IAAC and agreed to
pay and did pay IAAC $200,000. The Company was being indemnified with
respect to this matter by GMST and its principal stockholders. This
settlement had no effect on the Company's financial statements.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Forward-Looking Statements
When used in this Form 10-Q 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 7: Management's
Discussion and Analysis of Financial Condition and Results of Operations" and in
"Exhibit 99: Risk Factors" included in Form 10-K for the year ended December 31,
2001. 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.
Critical Accounting Policies
An understanding of our accounting policies is necessary for a complete
analysis of our results, financial position, liquidity and trends. Note 1 to our
consolidated financial statements filed with our Annual Report on Form 10-K for
the year ended December 31, 2001 includes a summary of the significant
accounting policies and methods used in the preparation of our consolidated
financial statements. We focus your attention on the following which provides a
brief discussion of the more significant accounting policies and methods used by
us:
Valuation of Investments. The major portion of the Company's
securities owned and securities sold, not yet purchased, are stated at
quoted market values. Included in securities owned are stock warrants
and investments in privately held companies not readily marketable,
which have been valued at fair value as determined by management. The
warrants are valued based on a percentage of the market value of the
underlying securities. The resulting unrealized gains and losses are
reflected in principal transactions and merchant banking income. The
liquidation of the Company's position could result in substantial
differences from the market and fair value prices used in the
financial statements.
Impairment of Deferred Tax Assets. The carrying value of the Company's
net deferred tax assets assumes that it will be able to generate
future taxable income, based on estimates and assumptions. If these
estimates and assumptions change in the future, the Company may be
required to record additional valuation allowances against its
deferred tax assets, which would result in additional income tax
expense. During the year the Company recorded a valuation allowance
related to 50% of its tax effected net operating loss carryforward
amounts.
Impairment of Goodwill. On January 1, 2002, the Company adopted
Statement of Financial Accounting Standard No. 142, "Goodwill and
Other Intangible Assets," which requires the Company to analyze
goodwill on a periodic basis. If the assumptions used in analyzing
goodwill for impairment at January 1, 2002 change in the future, the
10
Company may be required to record an impairment charge. During the
three-month period ended September 30, 2002 the Company performed a
test for impairment which resulted in the write-off of intangible
asset and goodwill amounts of approximately $1.8 million related to
the acquisition of two retail oriented brokerage firms in prior years.
This write-off decision was made based on an analysis that identified
a market decline not experienced in quite some time, changing
conditions surrounding the broker-dealer industry, and comparison of
post- and pre-acquisition factors which identified a decline in
production results and registered representatives associated with the
acquisitions.
Market, Credit, and Liquidity Risk. The Company's investing and
underwriting activities often involve the purchase, sale or short sale
of securities as principal. Such activities subject our capital to
significant risks from markets that may be characterized by relative
illiquidity or may be particularly susceptible to rapid fluctuation in
liquidity. Such market conditions could limit the Company's ability to
resell securities purchased or to purchase securities sold short.
These activities subject our capital to significant risks, including
market, credit counterparty and liquidity risks. Market risks relates
to the risk of fluctuating values based on market prices without
action on our part. The Company's primary credit risk is settlement or
counterparty risk, which relates to whether a counterparty will
fulfill its contractual obligations, such as delivery of securities or
payment of funds. Liquidity risk relates to the Company's inability to
liquidate assets or redirect the deployment of assets contained in
illiquid investments. In addition, our market and liquidity risks and
risks associated with asset revaluation are increased because these
risks for us are concentrated. The areas related to the above risks
are valued based on listed market prices, where possible. If listed
market prices are not available then these items are carried at fair
value as determined by management, with related unrealized gains and
losses recognized in the statement of operations. Actual results could
differ from the values used in these financial statements.
Legal Proceedings. The Company's business involves substantial risks
of liability, including exposure to liability under federal and state
securities laws in connection with the underwriting or distribution of
securities and claims by dissatisfied customers for fraud,
unauthorized trading, churning, mismanagement and breach of fiduciary
duty. The Company does not presently maintain an errors and omissions
insurance policy insuring it against these risks. In the normal course
of the Company's business, the Company from time to time is involved
in claims, lawsuits and arbitrations brought by its customers. The
Company consults its attorneys in order to estimate amounts that
should be reflected in the Company's financial statements relating to
pending or threatened claims. If pending or threatened claims result
in damages to be paid by the Company, these amounts could be different
from the amounts previously estimated and reflected in the Company's
financial statements. The Company's review of existing claims,
arbitrations, and unpaid settlements at September 30, 2002 resulted in
an accrued liability of $667,500.
Clearing Agreements. The Company's retail oriented brokerage firm does
not carry accounts for customers or perform custodial functions
related to customers' securities. The Company's broker-dealer
introduces all of its customer transactions, which are not reflected
in the financial statements, to its clearing brokers, which maintain
the customers' accounts and clear such transactions. Additionally, the
clearing brokers provide the clearing and depository operations for
the broker dealer's proprietary securities transactions. These
activities may expose the Company to off-balance sheet risk in the
event that customers do not fulfill their obligations with the
clearing brokers, as the broker-dealer has agreed to indemnify the
11
clearing brokers for any resulting losses. The Company will record a
loss from a client transaction when information becomes available to
management that allows it to estimate its impact on the Company's
financial statements.
Results of Operations
Principal transactions, net for the three and nine-month periods ended
September 30, 2002 decreased to $94,077 and $(162,619), respectively, from the
comparable periods in 2001. The decrease is primarily attributable to a change
from principal business to commission business identified in the next paragraph
as well as a decrease in the value of warrants the Company received in
connection with its investment banking activities.
Commissions for the three and nine-month periods ended September 30, 2002
increased 100% and 83%, respectively, to $4,341,393 and $14,311,582 from the
comparable periods in 2001. The increase is primarily attributable to a change
from the amount of principal business to commission business the Company does,
which reduced the Company's exposure to market risk. Commission business is
comprised of 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. The change
is also reflective of the increase in commissions resulting from the addition of
registered representatives which arose from the acquisition of certain assets of
M.S. Farrell & Co. during August 2001.
Merchant banking for the three-month period ended September 30, 2002 was
$(37,996) as a result of the write-down of one of the Company's investments.
Investment banking for the three and nine-month periods ended September 30,
2002 was $68,676 and $974,989 as a result of fees the Company generated from
acting as the underwriter for an initial public offering and as a placement
agent related to a debt conversion and two private placements.
Other income for the three and nine-month periods ended September 30, 2002
increased 92.3% and 96.9%, respectively, to $536,230 and $1,796,740 from the
comparable periods in 2001. The increase is primarily attributable to the
increases in transactional and account balance rebates the Company is entitled
to from its clearing broker, consulting income related to its investment banking
area, and earnout payment income the Company is entitled to as a result of the
sale of the Company's majority interest in GMST World Markets, Inc. during
December 2001.
Increase in value attributable to subsidiaries for the three and nine-month
periods ended September 30, 2002 was $0 as compared to $62,617 and $515,995 from
the comparable periods in 2001. This line item changes based on the value of the
Company's investment in its subsidiaries. During the three and nine-month
periods ended September 30, 2002 none of the Company's subsidiaries had any
changes which affected this line item.
Employee compensation and benefits for the three and nine-month periods
ended September 30, 2002 increased 8.3% and 5.1%, respectively, to $3,833,110
and $12,923,544 from the comparable periods in 2001. 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. The results are reflective of the
compensation costs directly related to the increase in commission structure for
its registered representatives and branch managers which was initiated during
September 2001, as well as the compensation costs directly related to the hiring
of additional personnel following the acquisition of certain assets of a retail
oriented brokerage firm during August 2001.
12
Promotion and advertising for the three and nine-month periods ended
September 30, 2002 decreased 66.3% and 67.8%, respectively, to $87,007 and
$289,591 from the comparable periods in 2001 primarily as a result of the
Company's decrease in advertising expenditures related to Kirlin Securities'
radio campaign and due to the expiration of VentureHighway's advertising
commitment during December 2001. To a lesser extent this line item decreased due
to the promotional expenses related to GMST, which was sold during December
2001. The Company expects to increase its expenditures for promotion and
advertising in future periods.
Clearance and execution charges for the three and nine-month periods ended
September 30, 2002 decreased 50.7% and 58.9%, respectively, to $164,173 and
$465,595 from the comparable periods in 2001 primarily as a result of the change
in clearing brokers during October 2001 which resulted in reduced fees.
Occupancy and communications costs for the three and nine-month periods
ended September 30, 2002 decreased 16.6% and 17.5%, respectively, to $998,841
and $3,092,033 from the comparable periods in 2001. This decrease is primarily a
result of the elimination of these costs directly related to VentureHighway
which is in the process of being dissolved and the sale of the Company's
majority interest in GMST during December 2001 offset by the increase in
occupancy and communications costs as a result of the prior year acquisition of
certain assets and the assumption of liabilities under real estate and equipment
leases of M.S. Farrell & Co.
Impairment of intangible assets and goodwill for the three and nine-month
periods ended September 30, 2002 amounted to $1,774,995 and is a result of the
write-off of intangible assets and goodwill amounts related to the acquisitions
of Princeton Securities Corporation and M.S. Farrell & Co. This write-off
decision was made based on an analysis that identified a market decline not
experienced in quite some time, changing conditions surrounding the
broker-dealer industry, and comparison of post and pre acquisition factors which
identified a decline in production results and registered representatives
associated with the acquisitions.
Professional fees for the three and nine-month periods ended September 30,
2002 increased 9.7% and decreased 14.3%, respectively, to $348,795 and $835,294
from the comparable periods in 2001. The increase during the three-month period
ended September 30, 2002 is reflective of a lawsuit initiated by the Company
against former representatives as well as legal consultation related to customer
arbitrations against the Company and regulatory matters related to potential
violations of NASD Conduct Rules and/or Federal securities laws, which is being
handled by outside counsel. The decrease during the nine-month period ended
September 30, 2002 is reflective of non-recurring legal fees in the prior
period, as well as the shift toward more legal work being performed internally
by the Company.
Interest expense for the three and nine-month periods ended September 30,
2002 decreased 32.6% and 81.7%, respectively, to $14,724 and $11,931 from the
comparable periods in 2001. Interest expense decreased primarily due to the
reversal of accrued interest related to Kirlin Securities' deferred commission
plan due to the termination of employment of certain registered representatives.
To a lesser extent interest expense decreased as a result of a reduction of
inventory positions purchased on margin and securities sold short, which are
held at clearing brokers 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,
2002 increased 207% and 95.7%, respectively, to $1,261,253 and $2,505,402 from
the comparable periods in 2001 primarily a result of the settlement of and
accrual for customer arbitrations, as well as a result of general office
expenses related to the acquisition of certain assets of a retail oriented
brokerage firm during August 2001 which resulted in an increase in the number of
branch offices operated by the Company.
13
Income tax benefit for the three and nine-month periods ended September 30,
2002 were $309,968 and $847,198, respectively, which is reflective of the
benefit the Company is entitled to based on its operations during the past year,
net of the valuation allowance related to 50% of the Company's tax effected net
operating loss carryforward amounts.
Net loss of $3,280,433 and $4,278,376 for the three and nine-month periods
ended September 30, 2002 compares to net loss of $1,195,402 and $2,869,172 for
the three and nine-month periods ended September 30, 2001. This resulted
primarily from the change in revenues and expenses discussed above.
Liquidity and Capital Resources
At September 30, 2002, approximately 51% of the Company's assets were
comprised of cash and highly liquid securities. This represents a percentage
increase from the Company's position at December 31, 2001 and is primarily a
result of the $2,500,000 subordinated loan Kirlin Securities received from its
clearing broker during March 2002
Cash and cash equivalents amounted to $3,728,163 at September 30, 2002 as
compared to $972,086 at December 31, 2001. This increase is reflective of the
movement of cash from the Company's trading accounts, which were accounted for
in the "Due from Clearing Brokers" line item, to other financial institutions.
Additionally, this line item is reflective of the $2,500,000 subordinated loan
Kirlin Securities received from its clearing broker during March 2002.
Due from Clearing Brokers amounted to $1,964,199 at September 30, 2002 as
compared to $3,119,154 at December 31, 2001. This 37% decrease is primarily
attributable to the movement of cash out of the Company's trading accounts as
discussed in the previous paragraph.
Securities owned at September 30, 2002 were $1,153,480 as compared to
$2,345,632 at December 31, 2001. This 50.8% decrease is primarily attributable
to the decrease in the value of positions held in relation to its merchant
banking and investment banking activities and the decrease in state and
municipal obligations securities held in inventory with respect to the Company's
syndicate activities.
Furniture, Fixtures and Leasehold improvements, net, at September 30, 2002,
decreased to $697,652 as compared to $1,084,821 at December 31, 2001. This 35.7%
decrease primarily results from the depreciation of fixed assets during the past
quarter.
Deferred tax asset at September 30, 2002 amounted to $2,971,361 as compared
to $3,457,855 at December 31, 2001. The deferred tax asset is reflective of the
income tax benefit resulting from the net operating loss which arose during the
nine-month period ended September 30, 2002, net unrealized depreciation in the
value of certain security positions in the Company's merchant banking portfolio
and investment accounts, and temporary differences related to taxable loans
utilized for recruiting. During the year the Company recorded a valuation
allowance related to 50% of its tax effected net operating loss carryforward
amounts.
Intangible assets, net at September 30, 2002 amounted to $200,000 as
compared to $775,000 at December 31, 2001, a 74.2% decrease. Goodwill, net at
September 30, 2002 amounted to $120,000 as compared to $1,395,417 at December
31, 2001, a 91.4% decrease. The decreases in these line items are reflective of
the write-off of certain intangible asset and goodwill amounts for approximately
$1.8 million as previously discussed in the results of operations.
Other assets increased by 50.1% to $2,588,492 at September 30, 2002, from
$1,724,991 at December 31, 2001. The change in other assets is primarily
attributable to the rebate the Company is due from its clearing broker which
14
entitles it to receive a rebate of 50% of the clearing fees and other items that
Kirlin is obligated to pay to the clearing broker under the clearing agreement.
Payments required under the $2,500,000 three-year subordinated loan Kirlin
Securities received during March 2002 will basically offset this rebate. The
change is also reflective of commissions due the Company related to the sale of
unit investment trusts, Investment Banking fees and commissions related to a
private placement, and fees due the Company for facilitating the trading
strategy of customers offset by a decrease in outstanding loans. To a lesser
extent the change in other assets is reflective of the decrease in prepaid
restricted stock and the reduction of prepaid operating expenses.
Securities sold short amounted to $291,414 at September 30, 2002 as
compared to $224,371 at December 31, 2001. Management monitors these positions
on a daily basis and covers short positions when deemed appropriate.
Accrued compensation was $1,882,279 at September 30, 2002 as compared to
$2,113,287 at December 31, 2001, a 10.9% decrease. The revenues upon which
commission income to registered representatives is based directly affect this
line item, which was lower at the end of the current quarter as compared to
2001.
Accounts payable and accrued expenses at September 30, 2002 were $2,494,638
as compared to $1,767,104 at December 31, 2001. This 41.2% increase is primarily
attributable to the increase in the accrual related to customer arbitrations. To
a lesser extent the change is reflective of an increase in payables related to
the Company's general business.
Subordinated liabilities amounted to $2,500,000 at September 30, 2002. This
line item did not exist at December 31, 2001. During March 2002, Kirlin
Securities received from its clearing broker a $2,500,000 three-year
subordinated loan. Pursuant to the provisions of the loan agreement, principal
payments due under the loan are basically offset by an amount equal to 50% of
the clearing fees and other items that Kirlin is obligated to pay to the
clearing broker under the clearing agreement, over a three-year period ending on
February 28, 2005.
Minority interest in Subsidiaries was $109,883 at September 30, 2002 which
is reflective of the investment by third parties in the voting stock of
VentureHighway.
The Company, as guarantor of its customer accounts to its clearing brokers,
is exposed to off-balance-sheet risks in the event that its customers do not
fulfill their obligations with the clearing brokers. 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.
In July 2002, Kirlin Securities was notified by the NASD that it had made a
preliminary determination to recommend that disciplinary action be brought
against Kirlin Securities and three of its current or former employees,
including Anthony Kirincic, President of the Company and Co-Chief Executive
Officer of Kirlin Securities, as a result of the sale of certain fixed income
securities to clients of Kirlin Securities from November 1995 to 1998. Certain
of these securities were issued in $250,000 denominations. The NASD informed
Kirlin that the potential violations of the NASD Conduct Rules and/or Federal
securities laws relate to the following (all of which activity occurred prior to
1999): (i) sales of unregistered securities stemming from the sale of these
securities in smaller denominations; (ii) placement of false and misleading
advertising as a result of non-differentiating advertisements for securities of
different issuers; (iii) charging of markups on the sale of the securities in
excess of NASD policy; (iv) failure to maintain inventory sheets as distributed
to certain employees in connection with the sale of the securities; and (v)
failure to establish and enforce supervisory procedures to assure compliance
with federal laws and NASD Rules to prevent the aforementioned potential
violations. Kirlin Securities has been offered the opportunity to file a
submission with the NASD, if the matter is not otherwise resolved, indicating
why an action should not be brought for some or all of the alleged violations.
15
The Company cannot predict the outcome of the disciplinary action at this time
if it were brought and is unable to determine whether this matter will have a
material adverse effect on the consolidated financial condition of the Company.
As discussed in Part II, Item 1, Legal Proceedings, In October 2002 the
Company settled claims made against it by International Assets Advisory
Corporation in an NASD arbitration. The Company is being indemnified with
respect to this matter and this settlement had no effect on the Company's
financial statements.
The Company believes its financial resources will be sufficient to fund the
Company's operations and capital requirements for the foreseeable future. The
Company, however, is exploring the possibility of an equity financing to assist
it in pursuing its plans for growth.
Consolidated Contractual Obligations and Lease Commitments
The table below summarizes information about our consolidated contractual
obligations as of September 30, 2002 and the effects these obligations are
expected to have on our consolidated liquidity and cash flow in future years.
This table does not include any projected payment amounts related to the
Company's potential exposure to arbitrations and other legal matters.
2006 and
Total 2002 2003 2004 2005 thereafter
------------ ------------- ------------- -------------- ------------ --------------
Equipment Lease $ 323,105 $ 69,046 $ 168,073 $ 51,906 $ 22,614 $ 11,466
obligations
Office Lease obligations 2,866,725 332,702 1,306,761 837,293 309,486 80,483
Employment contract
obligations 5,878,083 437,750 1,751,000 921,000 755,000 2,013,333
------------ ------------- ------------- -------------- ------------ --------------
$ 9,067,913 $ 839,498 $ 3,225,834 $ 1,810,199 $ 1,087,100 $ 2,105,282
============ ============= ============= ============== ============ ==============
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our investing and underwriting activities often involve the purchase, sale
or short sale of securities as principal. Such activities subject our capital to
significant risks from markets that may be characterized by relative illiquidity
or may be particularly susceptible to rapid fluctuation in liquidity. Such
market conditions could limit our ability to resell securities purchased or to
purchase securities sold short. These activities subject our capital to
significant risks, including market, credit counterparty and liquidity risks.
Market risk relates to the risk of fluctuating values based on market prices
without action on our part. Our primary credit risk is settlement or
counterparty risk, which relates to whether a counterparty will fulfill its
contractual obligations, such as delivery of securities or payment of funds.
Liquidity risk relates to our inability to liquidate assets or redirect the
deployment of assets contained in illiquid investments. In addition, our market
and liquidity risks and risks associated with asset revaluation are increased
because these risks for us are concentrated.
16
ITEM 4. CONTROLS AND PROCEDURES.
Within the 90-day period prior to the filing of this report, an evaluation
of the effectiveness of the Company's disclosure controls and procedures was
made under the supervision and with the participation of the Company's
management, including the chief executive officer and chief financial officer.
Based on that evaluation, the CEO and CFO concluded that the Company's
disclosure controls and procedures are effective to ensure that information
required to be disclosed by the Company in reports that it files or submits
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange Commission
rules and forms. Subsequent to the date of their evaluation, there were no
significant changes in the Company's internal controls or in other factors that
could significantly affect these controls, including any corrective actions with
regard to significant deficiencies and material weaknesses.
17
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
On January 4, 2001, International Assets Advisory Corporation ("IAAC"),
initiated an arbitration proceeding before the NASD against Kirlin Securities,
GMST World Markets, Princeton Securities, Gerard A. Mastrianni, Stephen Joseph
Taormina, (two officers of GMST World Markets), David O. Lindner, and Anthony J.
Kirincic (two officers of Kirlin Securities and of the Company) (collectively
the "Respondents"). IAAC alleged that Kirlin Securities and Princeton Securities
participated in a conspiracy, along with the other Respondents, to raid IAAC
employees, engage in unfair competition, misappropriate IAAC's trade secrets,
induce IAAC employees to breach a fiduciary duty purportedly owed to IAAC,
interfere with IAAC business relationships and convert assets of IAAC. IAAC
sought an unspecified amount of damages. Kirlin Securities and Princeton
Securities have filed an answer with the NASD vigorously denying the allegations
contained in IAAC's statement of claim. On December 10, 2001, Kirlin and
Princeton (together with respondents Lindner and Kirincic) filed a motion to
dismiss IAAC's Statement of Claim. This motion was denied in March 2002.
During October 2002 the Company settled this matter with IAAC and agreed to
pay and did pay IAAC $200,000. The Company was being indemnified with respect to
this matter by GMST and its principal stockholders. This settlement had no
effect on the Company's financial statements.
ITEM 2: SALES OF UNREGISTERED SECURITIES
Consideration Received
and Description of
Underwriting or Other If Option, Warrant
Discounts to Market or Convertible
Title of Number Sold Price Afforded Exemption from Security, Terms of
Date of Sale Security or forfeited to Purchasers Registration Claimed Exercise or Conversions
- ------------ --------- ------------ -------------------- -------------------- -----------------------
7/1/02 Options to 73,650 Options granted under 4(2) Fully exercisable
purchase 1994 Stock Plan - no upon grant for a
Common Stock cash consideration period of 10 years
received by the Company. from date of grant,
at an exercise price
of $0.82650 per
share.
7/1/02 Options to 41,173 Options granted under 4(2) Fully exercisable
purchase 1994 Stock Plan - no commencing 7/1/05
Common Stock cash consideration until 10 years from
received by the Company. date of grant, at an
exercise price of
$1.04 per share.
ITEM 5: OTHER INFORMATION
On July 30, 2002, the Company was advised by Nasdaq that the closing bid
price for the Company's Common Stock was less than $1.00 for 30 consecutive
business days and the Common Stock was subject to delisting from the Nasdaq
National Market if the closing bid price did not reach $1.00 for ten consecutive
business days by October, 28, 2002. The Company intends to take one or more
actions to maintain listing on Nasdaq, including exercising its ability to phase
down to the Nasdaq SmallCap Market, which provides the Company with lengthier
core periods in which to regain compliance with the $1.00 minimum bid price
requirement. (The SmallCap Market would extend the Company's time to regain the
$1.00 minimum bid price requirement until January 27, 2003 and the Company could
also seek an additional 180 day grace period on the SmallCap Market.) If the
Company were to phase down to the SmallCap Market, the Company could regain
18
listing on the National Market provided it meets certain conditions by July 25,
2003.
On August 8, 2002, the Company was reminded by Nasdaq that, effective
November 1, 2002, one of the minimum standards to maintain listing on the Nasdaq
National Market will be changed from a $4 million minimum net tangible assets
standard to a $10 million minimum stockholders' equity standard. As indicated in
this report, at June 30, the Company met the existing standard, but would not
have met the new standard. Unless the Company has a minimum stockholders' equity
of at least $10 million after November 1, 2002, the Company will need to phase
down to the Nasdaq SmallCap market, which has a lower $2.5 million stockholders'
equity standard.
In response to the above items the Company has applied to transfer its
common stock to the Nasdaq SmallCap Market and anticipates the application will
be approved and the transfer will occur in the near future. To assist the
Company in achieving compliance with the minimum bid price requirement, the
Company's Board of Directors has scheduled a stockholder's meeting at which the
stockholders will be asked to authorize a reverse stock split of the Company's
Common Stock of between one-for-two up to one-for-eight, at any time within 180
days after the meeting, with the timing and the exact ratio to be determined in
the discretion of the Board of Directors. Although the Company's Board of
Directors has not made a determination to implement the reverse stock split at
this time, the Board took action to schedule the meeting so that the reverse
stock split could be implemented in the future if it is deemed appropriate. The
Company's Board of Directors also authorized an increase in the Company's
previously authorized stock repurchase program from $1 million to $1.5 million.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) None
(b) Reports on Form 8-K
None
19
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 14, 2002 By: /s/ Anthony J. Kirincic
----------------------------------------
Anthony J. Kirincic
President
Dated: November 14, 2002 By: /s/ Barry E. Shapiro
----------------------------------------
Barry E. Shapiro
Chief Financial Officer
(and principal accounting officer)
20
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Kirlin Holding Corp. (the "Company")
on Form 10-Q for the period ended June 30, 2002 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), each of the undersigned,
in the capacities and on the dates indicated below, hereby certifies pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that to the best of his knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operation of the Company.
Dated: November 14, 2002 /s/ David O. Lindner
---------------------------
David O. Lindner
Chief Executive Officer
Dated: November 14, 2002 /s/ Barry E. Shapiro
---------------------------
Barry E. Shapiro
Chief Financial Officer
21
SECTION 302 CERTIFICATION PURSUANT TO
RULE 13a-14 AND 15d-14 UNDER
THE SECURITIES ACT OF 1934, AS AMENDED
I, David O. Lindner, certify that:
1. I have reviewed this Quarterly report on Form 10-Q of Kirlin Holding Corp.;
2. based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. the registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days of the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and to the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. the registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: November 14, 2002 /s/ David O. Lindner
---------------------------
David O. Lindner
Chief Executive Officer
22
SECTION 302 CERTIFICATION PURSUANT TO
RULE 13a-14 AND 15d-14 UNDER
THE SECURITIES ACT OF 1934, AS AMENDED
I, Barry E. Shapiro, certify that:
1. I have reviewed this Quarterly report on Form 10-Q of Kirlin Holding Corp.;
2. based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. the registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days of the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and to the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. the registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: November 14, 2002 /s/ Barry E. Shapiro
---------------------------
Barry E. Shapiro
Chief Financial Officer
23