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 June 30, 2004
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ______________________ to ______________________
Commission File number 0-25336
KIRLIN HOLDING CORP.
--------------------
(Exact Name of 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)
- --------------------------------------------------------------------------------
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 August 10, 2004, Issuer
had outstanding 2,061,688 shares of Common Stock, par value $.0001 per share.
KIRLIN HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, DECEMBER 31,
2004 2003
-------------- --------------
(Unaudited)
ASSETS:
Cash $ 5,673,463 $ 3,032,931
Due from Clearing Brokers 2,858,774 3,175,650
Securities Owned:
U.S. government and agency obligations, at market value 48,304 53,532
State and municipal obligations, at market value 708,500 283,101
Corporate bonds and other securities, at market value 729,329 3,008,844
Non-marketable securities, at fair value 108,613 130,044
Rebate Receivable 1,503,000 1,241,000
Representative Loans 107,129 136,341
Furniture, Fixtures and Leasehold Improvements, at cost, net of
accumulated depreciation and amortization of $3,049,666 and
$2,963,955, respectively 75,309 142,498
Deferred Tax Assets, net of valuation allowances of $1,048,310 and
$1,425,043, respectively 1,963,963 2,165,805
Other Assets 497,842 850,669
-------------- --------------
Total assets $ 14,274,226 $ 14,220,415
============== ==============
LIABILITIES and STOCKHOLDERS' EQUITY:
Liabilities:
Securities sold, not yet purchased, at market value $ 63,451 $ 123,972
Accrued compensation 883,257 1,892,160
Accounts payable and accrued expenses 4,336,962 4,180,279
-------------- --------------
Total liabilities 5,283,670 6,196,411
-------------- --------------
Subordinated borrowings 1,937,500 2,062,500
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Commitments and Contingencies
Stockholders' Equity:
Common stock, $.0001 par value; authorized 15,000,000 and 7,000,000
shares, respectively, issued and outstanding 2,032,668 and
2,036,853 shares, respectively 203 204
Additional paid-in capital 16,792,974 16,644,939
Unearned stock compensation (44,616) (106,002)
Accumulated deficit (9,695,505) (10,577,637)
-------------- --------------
Total stockholders' equity 7,053,056 5,961,504
-------------- --------------
Total liabilities and stockholders' equity $ 14,274,226 $ 14,220,415
============== ==============
See Notes to Condensed Consolidated Financial Statements 2
KIRLIN HOLDING CORP. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE-MONTHS ENDED SIX-MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ -------------------------------
2004 2003 2004 2003
-------------- -------------- -------------- --------------
(Unaudited) (Unaudited)
Revenues:
Principal transactions, net $ 118,240 $ 259,612 $ 180,172 $ 419,243
Commissions 3,660,350 5,659,944 10,260,806 9,907,924
Investment banking -- 465,000 273,226 465,000
Other income 696,452 736,284 1,465,937 1,329,471
-------------- -------------- -------------- --------------
Total revenues 4,475,042 7,120,840 12,180,141 12,121,638
-------------- -------------- -------------- --------------
Expenses:
Employee compensation and benefits 2,818,564 4,494,033 8,073,986 7,818,261
Promotion and advertising 54,910 42,717 113,536 116,857
Clearance and execution charges 109,575 142,983 261,404 253,730
Occupancy and communications 437,089 866,040 1,016,360 1,653,696
Professional fees 135,708 217,388 323,857 358,346
Interest 6,947 8,120 12,550 (6,086)
Other 843,449 337,477 1,241,400 516,122
-------------- -------------- -------------- --------------
Total expenses 4,406,242 6,108,758 11,043,093 10,710,926
-------------- -------------- -------------- --------------
Income before income tax benefit (provision) 68,800 1,012,082 1,137,048 1,410,712
Income tax benefit (provision) 202,701 507,738 (254,916) 1,305,991
-------------- -------------- -------------- --------------
Net income $ 271,501 $ 1,519,820 $ 882,132 $ 2,716,703
============== ============== ============== ==============
Basic earnings per common share (See Note 2) $ 0.16 $ 0.95 $ 0.54 $ 1.70
============== ============== ============== ==============
Weighted-average shares outstanding (See Note 2) 1,666,403 1,609,040 1,648,800 1,601,685
============== ============== ============== ==============
Diluted earnings per common share (See Note 2) $ 0.11 $ 0.72 $ 0.36 $ 1.38
============== ============== ============== ==============
Weighted-average shares of common stock and common stock
equivalents outstanding (See Note 2) 2,392,455 2,104,835 2,420,614 1,965,968
============== ============== ============== ==============
See Notes to Condensed Consolidated Financial Statements 3
KIRLIN HOLDING CORP. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Six-Months Ended June 30, 2004
(Unaudited)
Common Stock Additional Unearned
--------------------------- Paid-in Stock Accumulated
Shares Par Value Capital Compensation Deficit Total
------------ ------------ ------------ ------------ ------------ ------------
Stockholders' equity
at January 1, 2004 2,036,853 $ 204 $ 16,644,939 $ (106,002) $(10,577,637) $ 5,961,504
Issuance of restricted
stock to employees
under stock plans 1,135 -- 9,437 -- -- 9,437
Exercise of stock
options 15,000 2 21,748 -- -- 21,750
Issuance of stock to
employees under
deferred commission
plan 46,985 4 465,820 -- -- 465,824
Amortization of
unearned stock
compensation -- -- -- 53,539 -- 53,539
Forfeitures of
restricted stock by
employees (5,973) -- (57,499) 7,847 -- (49,652)
Forfeitures of stock
by employees under
deferred commission
plan (46,332) (5) (182,636) -- -- (182,641)
Repurchases and
retirements of stock (15,000) (2) (108,835) -- -- (108,837)
Net income -- -- -- -- 882,132 882,132
------------ ------------ ------------ ------------ ------------ ------------
Stockholders' equity
at June 30, 2004 2,032,668 $ 203 $ 16,792,974 $ (44,616) $ (9,695,505) $ 7,053,056
============ ============ ============ ============ ============ ============
See Notes to Condensed Consolidated Financial Statements 4
KIRLIN HOLDING CORP. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30,
-------------------------
2004 2003
----------- -----------
(Unaudited)
Cash flows from operating activities:
Net income $ 882,132 $ 2,716,703
----------- -----------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 85,711 214,233
Deferred income taxes 201,842 (1,250,592)
Decrease (increase) in nonmarketable securities 21,431 (167)
Non-cash compensation 296,507 85,173
Loss on disposal of fixed assets -- 70,678
Decrease (increase) in operating assets:
Due from clearing brokers 316,876 (760,372)
Securities owned, at market value 1,859,344 (593,675)
Rebate receivable (262,000) (6,000)
Representative loans 29,212 180,173
Other assets 352,827 (27,764)
(Decrease) increase in operating liabilities:
Securities sold, not yet purchased, at market value (60,521) 106,136
Accrued compensation (1,008,903) 255,197
Accounts payable and accrued expenses 156,683 (32,786)
----------- -----------
Total adjustments 1,989,009 (1,759,766)
----------- -----------
Net cash provided by operating activities 2,871,141 956,937
----------- -----------
Cash flows from investing activities:
Purchase of furniture, fixtures and leasehold improvements (18,522) --
----------- -----------
Net cash used in investing activities (18,522) --
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock 21,750 --
Repayment of subordinated borrowings (125,000) (312,500)
Repurchase of common stock (108,837) --
----------- -----------
Net cash used in financing activities (212,087) (312,500)
----------- -----------
Net increase in cash 2,640,532 644,437
Cash at beginning of year 3,032,931 3,035,083
----------- -----------
Cash at end of period $ 5,673,463 $ 3,679,520
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 140,865 $ 9,661
Income taxes $ 123,550 $ 6,192
See Notes to Condensed Consolidated Financial Statements 5
KIRLIN HOLDING CORP. and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION AND STOCK-BASED COMPENSATION
The accompanying condensed consolidated financial statements have been
prepared in accordance with U.S. 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 six-month period
ended June 30, 2004 are not necessarily indicative of the results that may
be expected for the full year ending December 31, 2004. 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, 2003.
As permitted under Statement of Financial Accounting Standards ("SFAS")
No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure", which amended SFAS No. 123, "Accounting for Stock-Based
Compensation", the Company has elected to continue to follow the intrinsic
value method in accounting for its stock-based employee compensation
arrangements as defined in Accounting Principles Board Opinion ("APB") No.
25, "Accounting for Stock Issued to Employees", and the related
interpretations including Financial Accounting Standards Board
Interpretation No. 44, "Accounting for Certain Transactions Involving
Stock Compensation", an interpretation of APB No. 25. No stock-based
employee compensation cost is reflected in operations, as all options
granted by the Parent to employees of the Company under those plans had an
exercise price equal to the market value of the underlying common stock at
the date of grant.
The following summary illustrates the effect on net income as if the
Company had applied the fair value recognition provisions of SFAS No. 123
to stock-based employee compensation:
Three-Months Ended Six-Months Ended
June 30, June 30,
----------------------------- -----------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
Net income - as reported $ 271,501 $ 1,519,820 $ 882,132 $ 2,716,703
Deduct: Total stock based employee
compensation expense determined
under the fair value based method (101,033) (144,713) (202,066) (289,426)
------------- ------------- ------------- -------------
Proforma net income $ 170,468 $ 1,375,107 $ 680,066 $ 2,427,277
============= ============= ============= =============
Basic income per common share as reported $ 0.16 $ 0.95 $ 0.54 $ 1.70
Proforma basic income per common share $ 0.10 $ 0.85 $ 0.41 $ 1.52
Diluted income per common share as
reported $ 0.11 $ 0.72 $ 0.36 $ 1.38
Proforma diluted income per common share $ 0.07 $ 0.65 $ 0.28 $ 1.23
6
KIRLIN HOLDING CORP. and SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
2. 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 stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects 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 six-month periods ended June 30, 2004, potential common
shares amounted to 813,069 and 686,443, respectively, and for the three-
and six-month periods ended June 30, 2003, potential common shares
amounted to 964,855 and 995,875, respectively, and have not been included
in the computation of diluted EPS since the effect would be antidilutive.
In connection with the audit of the Company's consolidated financial
statements for the year ended December 31, 2003 it was determined that the
earnings per share calculation should be changed in order to exclude
nonvested and contingently returnable shares in the Company's restricted
and deferred commission plans from the basic earnings per share
calculation and a modification of those shares in the calculation of
diluted earnings per share. This change resulted in different basic and
diluted earnings per share amounts for the three- and six-month periods
ended June 30, 2003 than previously reported.
The following table sets forth the components of basic and diluted
earnings per share for the three and six-month periods ended June 30, 2004
and 2003, respectively:
Three-Months Ended Six-Months Ended
June 30, June 30,
---------------------- ----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Numerator:
Net income $ 271,501 $1,519,820 $ 882,132 $2,716,703
========== ========== ========== ==========
Denominator:
Weighted average shares outstanding 1,666,403 1,609,040 1,648,800 1,601,685
Effect of dilutive securities:
Stock options 335,813 168,383 375,483 84,191
Nonvested stock 390,239 327,412 396,331 280,092
---------- ---------- ---------- ----------
Denominator for diluted earnings per
share - weighted average shares of
common stock and common stock
equivalents after assumed conversions 2,392,455 2,104,835 2,420,614 1,965,968
========== ========== ========== ==========
3. CONTINGENCIES
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 and former employees. It is the opinion of management, based
upon its evaluation of each of these matters and the reserves established
by the Company, that the resolution of all claims presently pending will
not have a material adverse effect on the consolidated financial condition
of the Company.
7
4. STOCKHOLDERS' EQUITY
On June 24, 2004 the stockholders approved the amendment to the
certificate of incorporation to increase the authorized number of shares
of Common Stock by an additional 8,000,000 shares of Common Stock to
15,000,000 shares of Common Stock.
During the six-month period ended June 30, 2004, the Company granted
options to purchase 50,515 shares of common stock at an exercise price
between $4.50 and $10.80 per share. Such options vest over periods of up
to 10 years and are exercisable at various dates through March 31, 2014.
5. SUBSEQUENT EVENTS
On August 9, 2004, Kirlin Securities, Inc. and certain present or former
Kirlin personnel concluded a settlement with the NASD to resolve three
NASD disciplinary proceedings and an investigation by the NASD Department
of Enforcement relating to alleged violations of NASD Conduct Rules and
the federal securities laws occurring from late 1995 to 2001. Each of
these disciplinary proceedings and the investigation were previously
reported by the Company in prior periodic filings with the Securities and
Exchange Commission. Pursuant to the settlement, without admitting or
denying any violation or wrongdoing, Kirlin consented to a fine in the
amount of $155,800, restitution to customers in the amount of $1,044,201
and the requirement to pre-file all firm advertising materials for one
year. Kirlin also agreed to retain, at its own expense, an independent
consultant to review and make recommendations concerning the adequacy of
the firm's current supervisory and operating procedures as they relate to
the settled matters. The independent consultant's recommendations must
also be submitted to NASD. Anthony J. Kirincic, Kirlin's Co-Chief
Executive Officer and the Company's President, also agreed to settle
allegations that he failed to reasonably supervise Kirlin's personnel with
respect to certain of these matters. Without admitting or denying any
violation or wrongdoing, Mr. Kirincic consented to a fine in the amount of
$25,000 and a 30-day suspension as a general securities principal. A
former Kirlin branch manager and two former sales representatives also
agreed to fines totaling $35,000 and other disciplinary sanctions in
connection with the settlement.
8
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," "it is
the opinion of management" 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, 2003. 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, 2003 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,
investment banking 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 consolidated 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 increase
valuation allowances against its deferred tax assets, which would result
in additional income tax expense. At June 30, 2004, the valuation
allowance was approximately 35% of the Company's deferred tax assets
related to its net operating loss carryforwards and other temporary
differences.
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 relate 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
9
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 consolidated statement of operations.
Actual results could differ from the values used in these consolidated
financial statements.
Contingencies. 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 consolidated 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 consolidated financial
statements. The Company's review of existing claims, arbitrations and
unpaid settlements at June 30, 2004 resulted in an accrued liability in
the amount of approximately $585,000.
OVERVIEW
The following discussion and analysis should be read in conjunction with
the Company's condensed consolidated financial statements and the notes
presented following the condensed consolidated financial statements. The
discussion of results, causes and trends should not be construed to imply any
conclusion that such results or trends will necessarily continue in the future.
The Company's revenues during the six-month period ended June 30, 2004
were generated primarily from brokerage transactions. Revenues from brokerage
transactions result in the Company earning commissions charged to customers for
purchasing and selling securities and is comprised of equity securities, unit
trusts, and mutual funds. To a lesser extent, the Company's revenues were
generated from principal trading activities. As a principal, the Company buys
and sells securities, both for proprietary trading and, more significantly, to
facilitate sales to its retail customers and other dealers. Principal
transactions with customers are effected at a net price equal to the current
interdealer price plus or minus a mark-up or mark-down within the guidelines of
applicable securities regulations. As a result of its principal trading
activities, the amount of the Company's liabilities and assets can vary widely
from period-to-period.
The Company pays its registered representatives commissions equal to
varying percentages of gross commissions and mark-ups and mark-downs in
connection with the purchases and sales of securities on behalf of its
customers. In addition, the Company pays ticket charges to its clearing brokers
for the processing of security transactions. The Company maintains some
inventories of securities in order to facilitate sales to customers. In this
regard, the Company may pay interest on the securities held in inventory since
its securities can be purchased on margin through its clearing brokers.
The Company is directly affected by general economic conditions, interest
rates and market conditions. All of these factors have an impact on its
principal trading and overall business volume. The Company's costs associated
with occupancy, communications and equipment costs are relatively fixed and, in
periods of reduced revenues, can have an adverse effect on earnings.
10
The following table shows each specified item as a dollar amount and as a
percentage of revenues for the three and six-month periods ended June 30, 2004
and 2003, respectively, and should be read in conjunction with the condensed
consolidated financial statements included elsewhere in this Quarterly Report on
Form 10-Q:
Three-Months Ended June 30, Six-Months Ended June 30,
----------------------------------------- --------------------------------------------
2004 2003 2004 2003
------------------- ------------------- -------------------- --------------------
Revenues:
Principal transactions, net $ 118,240 2.6% $ 259,612 3.6% $ 180,172 1.5% $ 419,243 3.5%
Commissions 3,660,350 81.8% 5,659,944 79.6% 10,260,806 84.2% 9,907,924 81.7%
Investment banking -- -- 465,000 6.5% 273,226 2.3% 465,000 3.8%
Other income 696,452 15.6% 736,284 10.3% 1,465,937 12.0% 1,329,471 11.0%
------------ ----- ------------ ----- ------------ ----- ------------ -----
Total revenues 4,475,042 100.0% 7,120,840 100.0% 12,180,141 100.0% 12,121,638 100.0%
------------ ----- ------------ ----- ------------ ----- ------------ -----
Expenses:
Employee compensation and benefits 2,818,564 63.0% 4,494,033 63.1% 8,073,986 66.3% 7,818,261 64.5%
Promotion and advertising 54,910 1.2% 42,717 0.6% 113,536 0.9% 116,857 1.0%
Clearance and execution charges 109,575 2.5% 142,983 2.0% 261,404 2.2% 253,730 2.1%
Occupancy and communications 437,089 9.8% 866,040 12.2% 1,016,360 8.3% 1,653,696 13.6%
Professional fees 135,708 3.0% 217,388 3.1% 323,857 2.7% 358,346 3.0%
Interest 6,947 0.2% 8,120 0.1% 12,550 0.1% (6,086) (0.1)%
Other 843,449 18.8% 337,477 4.7% 1,241,400 10.2% 516,122 4.3%
------------ ----- ------------ ----- ------------ ----- ------------ -----
Total expenses 4,406,242 98.5% 6,108,758 85.8% 11,043,093 90.7% 10,710,926 88.4%
------------ ----- ------------ ----- ------------ ----- ------------ -----
Income before income tax
benefit (provision) 68,800 1.5% 1,012,082 14.2% 1,137,048 9.3% 1,410,712 11.6%
Income tax benefit (provision) 202,701 4.5% 507,738 7.1% (254,916) (2.1)% 1,305,991 10.8%
------------ ----- ------------ ----- ------------ ----- ------------ -----
Net income $ 271,501 6.0% $ 1,519,820 21.3% $ 882,132 7.2% $ 2,716,703 22.4%
============ ===== ============ ===== ============ ===== ============ =====
RESULTS OF OPERATIONS
Revenues
Principal transactions, net for the three- and six-month periods ended
June 30, 2004 decreased to $118,240 and $180,172, respectively, from the
comparable periods in 2003. The decrease is primarily attributable to losses
related to equity and fixed income business for which the Company maintained an
inventory, offset by gains in the Company's investment account during the three
and six-month periods ended June 30, 2003. Principal transactions, net for the
three-month period ended June 30, 2004 consisted of trading losses of
approximately $94,000 and gains in the Company's investment account of
approximately $212,000. Principal transactions, net for the six-month period
ended June 30, 2004 consisted of trading losses of approximately $32,000 and
gains in the Company's investment account of approximately $212,000.
Commissions for the three- and six-month periods ended June 30, 2004
decreased 35.3% to $3,660,350 and increased 3.6% to $10,260,806, respectively,
from the comparable periods in 2003. The change during the quarter is primarily
attributable to the Company's decreased business in equity and fixed income
securities, mutual funds, and unit investment trusts, which the Company believes
was due to sluggish market conditions. Commissions for the three-month period
ended June 30, 2004 consisted of agency commissions of approximately $3,106,000,
syndicate commissions of approximately $89,000 and mutual fund, variable
annuity, life insurance and managed money commissions of approximately $465,000.
Commissions for the six-month period ended June 30, 2004 consisted of agency
commissions of approximately $8,913,000, syndicate commissions of approximately
$452,000 and mutual fund, variable annuity, life insurance and managed money
commissions of approximately $896,000.
11
There was no investment banking activity during the three-month period
ended June 30, 2004. Investment banking for the six-month period ended June 30,
2004 decreased 41.2% to $273,226. During the six-month period ended June 30,
2004 the Company acted as the placement agent for one private placement.
Other income for the three- and six-month periods ended June 30, 2004
decreased 5.4% to $696,452 and increased 10.3% to $1,465,937, respectively, from
the comparable periods in 2003. The decrease during the three-month period ended
June 30, 2004 is primarily attributable to the decrease in fees related to the
annual account maintenance fee, which is recognized monthly as the annual fee is
amortized, and a decrease in consulting fees offset by an increase in interest
rebates the Company is entitled to receive from its clearing broker under its
clearing agreement. The decrease in fees related to the annual maintenance fee
is due to a change in business mix that eliminated smaller accounts, which
resulted in a fewer number of accounts available to bill. The increase during
the six-month period ended June 30, 2004 results from two additional months of
annual maintenance fee income during 2004 as compared to 2003 since this fee was
instituted during March 2003. Other income for the three-month period ended June
30, 2004 consisted of transactional and account balance rebates of approximately
$513,000, maintenance fee income of approximately $175,000, and other income for
approximately $8,000. Other income for the six-month period ended June 30, 2004
consisted of transactional and account balance rebates of approximately
$1,092,000, maintenance fee income of approximately $359,000, and other income
for approximately $15,000.
Expenses
Employee compensation and benefits for the three- and six-month periods
ended June 30, 2004 decreased 37.3% to $2,818,564 and increased 3.3% to
$8,073,986, respectively, from the comparable periods in 2003. 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 increase
during the six-month period ended June 30, 2003 is also attributable to the
reduction in the first quarter of 2003 of base salary by the Company's Chief
Executive Officer and its President by 68% and by its Chief Financial Officer by
35% during the first three months of 2003. During that time period other key
management personnel also agreed to reduce their base salaries. In addition the
Chief Executive Officer and President of the Company reduced the variable
portion of their base salaries by 100% during this period. The salary reductions
amounted to approximately $117,000. These reductions were not continued in 2004.
Additionally, during the three-month period ended June 30, 2003 the Company
collected outstanding loans from one former employee that was written off in a
prior year for approximately $145,000, which was partially offset by loan
write-offs of approximately $40,000. During the three-month period ended June
30, 2004 the Company changed its benefit contribution policy to include all
employees participating in the medical insurance plan which resulted in an
increase monthly expense of approximately $8,000. Prior to June 2004 the benefit
contribution was only given to non-highly compensated employees. Finally, hiring
and training expense increased during the three- and six-month periods ended
June 30, 2004 due to the hiring of an executive search firm to recruit and hire
a retail sales director.
Promotion and advertising for the three- and six-month periods ended June
30, 2004 increased 28.5% to $54,910 and decreased 2.8% to $113,536,
respectively, from the comparable periods in 2003. The increase during the
three-month period ended June 30, 2004 results from an increase in meals and
travel expenses related to prospective business as well as planning and
operating meetings . The decrease during the six-month period ended June 30,
2004 results from the decrease in car allowances arising from the termination of
certain employees during the comparable period during 2003.
Clearance and execution charges for the three- and six-month periods ended
June 30, 2004 decreased 23.4% to $109,575 and increased 3% to $261,404,
respectively, from the comparable periods in 2003. The decrease is a result of a
lower ticket volume.
12
Occupancy and communications costs for the three- and six-month periods
ended June 30, 2004 decreased 49.5% to $437,089 and decreased 38.5% to
$1,016,360, respectively, from the comparable periods in 2003. This decrease is
primarily a result of the closing of the New York City, Fort Lauderdale and Red
Bank offices in the prior year and resulted in the reduction of rent and
depreciation expenses during the three and six-month periods ended June 30, 2004
as compared to the same period in 2003. Rent decreased approximately $182,000
and $317,000, respectively, and depreciation expense inclusive of disposals
decreased approximately $132,000 and $199,000, respectively.
Professional fees for the three- and six-month periods ended June 30, 2004
decreased 37.6% to $135,708 and decreased 9.6% to $323,857, respectively, from
the comparable periods in 2003. The decrease is reflective of non-recurring
legal fees in the prior periods as it related to certain customer arbitrations,
regulatory matters related to potential violations of NASD Conduct Rules and/or
Federal securities laws and legal fees related to the Company's vacated office
space in San Diego. In the current periods this line item reflects an increase
in fees related to strategic business consulting fees to increase the Company's
revenues and expand its business lines.
Interest expense for the three- and six-month periods ended June 30, 2004
decreased 14.4% to $6,947 and increased 306% to $12,550, respectively, from the
comparable periods in 2003. Interest for the three and six-month periods ended
June 30, 2004 relates to inventory positions purchased on margin and securities
sold short, which are held at a clearing broker and charged interest. The
increase for the six-month period ended June 30, 2004 compared to the same
period in 2003 results from the forfeiture of non-vested deferred commission
interest during 2003 upon the termination of representatives.
Other expenses for the three- and six-month periods ended June 30, 2004
increased 150% to $843,449 and increased 141% to $1,241,400, respectively, from
the comparable periods in 2003 primarily as a result of municipal bond syndicate
participation losses and customer expenses, which includes existing claims,
arbitrations and unpaid settlements. Municipal bond syndicate participation
losses were approximately $20,000 and $111,000, respectively, for the three and
six-month periods ended June 30, 2004. Customer expenses were approximately
$526,000 and $551,000, respectively, for the three- and six-month period ended
June 30, 2004. Other expenses for the three-month period ended June 30, 2004
consisted of municipal syndicate participation losses of approximately $20,000,
clearing broker non-trade processing costs of approximately $8,000, office
insurance (property, casualty, and umbrella) related to each office, directors
and officers insurance and automobile insurance of approximately $36,000,
directors fees of approximately $8,000, regulatory listing, registration and
assessment expenses of approximately $51,000, customer expenses of approximately
$526,000, general office expenses of approximately $137,000, and a receivable
write-off of approximately $57,000. Other expenses for the six-month period
ended June 30, 2004 consisted of municipal syndicate participation losses of
approximately $111,000, clearing broker non-trade processing costs of
approximately $27,000, office insurance (property, casualty, and umbrella)
related to each office, directors and officers insurance and automobile
insurance of approximately $76,000, directors fees of approximately $15,000,
regulatory listing, registration and assessment expenses of approximately
$130,000, customer expenses of approximately $551,000, general office expenses
of approximately $274,000, and a receivable write-off of approximately $57,000.
Income tax benefit for the three-month period ended June 30, 2004 was
$202,701 as compared to $507,738 for the three-month period ended June 30, 2003
and the income tax provision for the six-month period ended June 30, 2004 was
$254,916 as compared to the income tax benefit of $1,305,991 for the six-month
period ended June 30, 2003. At June 30, 2004 the Company's valuation allowance
was approximately 35% of the Company's gross deferred tax assets (which relate
to its net operating loss carryforwards and other temporary differences) based
upon the Company's estimation of future taxable income, which directly effects
the income tax provision/benefit amount.
Net income of $271,501 and $882,132 for the three- and six-month periods
ended June 30, 2004 compares unfavorably to net income of $1,519,820 and
$2,716,703 for the three and six-month periods ended June 30, 2003. Overall this
resulted primarily from a decrease in revenues, an increase in customer expenses
offset by a reduction in occupancy and communication charges, and a change in
the income tax benefit. On a pretax basis, the Company recorded income of
$68,800 and 1,137,048 for the three- and six-month periods ended June 30, 2004,
respectively, as compared to $1,012,082 and $1,410,712 for the three- and
six-month periods ended June 30, 2003, respectively.
13
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2004, approximately 70% of the Company's assets were comprised
of cash and highly liquid securities.
Cash amounted to $5,673,463 at June 30, 2004 as compared to $3,032,931 at
December 31, 2003. This increase is reflective of the cash held in the Company's
investment account resulting from the liquidation of equity securities and the
collection of the annual maintenance fee on client accounts.
Due from Clearing Brokers amounted to $2,858,774 at June 30, 2004 as
compared to $3,175,650 at December 31, 2003. This 10% decrease is primarily
attributable to monies owed on security positions purchased on margin in the
Company's investment account, which are netted against amounts otherwise due
from clearing brokers. These securities are reflected in the "Securities Owned"
line item in the condensed consolidated statement of financial condition.
Securities Owned at June 30, 2004 were $1,594,746 as compared to
$3,475,521 at December 31, 2003. This decrease is primarily reflective of the
decrease in equity securities maintained in the Company's investment account,
partially offset by an increase in state and municipal obligations held in
inventory with respect to the Company's syndicate activities.
Rebate Receivable amounted to $1,503,000 at June 30, 2004 as compared to
$1,241,000 at December 31, 2003. This 21.1% increase is reflective of the rebate
the Company is entitled to receive from its clearing broker as provided in the
clearing agreement. The Company generated income and fees which increased this
line item by $387,000 offset by the collection of $125,000 of this rebate
receivable. The clearing broker will rebate, in amounts and at dates specified
in the agreement, 50% of the clearing fees and other items (as defined) up to a
maximum of $2,500,000. The rebate is supposed to be paid by the clearing broker
up to maximum installments of $62,500 at the end of each subsequent calendar
quarter through March 31, 2005, at which time the balance will be payable.
Representative Loans at June 30, 2004 amounted to $107,129 as compared to
$136,341 at December 31, 2003. This 21.4% decrease is reflective of the
forgiveness and amortization of some of the loans disbursed in the current and
prior years. A majority of the loans will be forgiven based on the recipient's
production or employment through a specific time period. The Company amortizes
the principal amount of the loan over the performance period or the employment
period, whichever is shorter.
Furniture, Fixtures and Leasehold Improvements, net, at June 30, 2004,
decreased to $75,309 as compared to $142,498 at December 31, 2003. This 47.2%
decrease results from the depreciation of the Company's furniture, fixtures and
leasehold improvements.
Deferred Tax Assets, net at June 30, 2004 amounted to $1,963,963 as
compared to $2,165,805 at December 31, 2003. The deferred tax assets changed
during the period due to the expected utilization of the Company's net operating
loss carryforward and other temporary differences which resulted in a decrease
in its valuation allowance. At June 30, 2004 the valuation allowance is
approximately 35% of its deferred tax assets related to its net operating loss
carryforwards and other temporary differences as a result of events giving rise
to greater expectation of a return to long-term profitability. At June 30, 2004
the deferred tax assets amount to approximately $3,012,000 and the recorded
valuation allowance amounted to approximately $1,048,000. If the Company
continues to be profitable then it anticipates being able to use a substantial
portion of the deferred tax assets.
Other assets decreased by 41.5% to $497,842 at June 30, 2004, from
$850,669 at December 31, 2003. The net decrease is primarily attributable to
receipt of a clearing broker conversion cost reimbursement receivable, receipt
of unit investment trust commission receivables related to the Company's retail
activities, and a decrease in prepaid expenses and deposits related to the
Company's general operations, partially offset by two loans made to a potential
14
investment banking client,. Other assets at June 30, 2004 consisted of a loan to
a potential investment banking client of $100,000, unit investment trust and
mutual fund commissions receivable of approximately $64,000, prepaid expenses of
approximately $84,000, rent and other deposits inclusive of a letter of credit
deposit of approximately $214,000, and other assets of approximately $36,000.
Other assets at December 31, 2003 consisted of clearing broker conversion cost
reimbursement receivable of $300,000, unit investment trust and mutual fund
commissions receivable of approximately $108,000, prepaid expenses of
approximately $146,000, rent deposits inclusive of a letter of credit deposit of
approximately $224,000, and other assets of approximately $73,000.
Securities sold, not yet purchased amounted to $63,451 at June 30, 2004 as
compared to $123,972 at December 31, 2003. Management monitors these positions
on a daily basis and covers short positions when deemed appropriate.
Accrued compensation was $883,257 at June 30, 2004 as compared to
$1,892,160 at December 31, 2003, a 53.3% 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 2003
offset by a decrease in the accrual related to bonuses accrued at December 31,
2003 and paid during January 2004. Finally, this line item decreased due to the
deferred commission payout which was paid during April 2004.
Accounts payable and accrued expenses at June 30, 2004 were $4,336,962 as
compared to $4,180,279 at December 31, 2003, a 3.7% increase. The change is
primarily attributable to the collection in March 2004 of the annual maintenance
fee charged to client accounts and the recording of an offsetting liability in
the Company's consolidated statement of financial condition. The income related
to the annual maintenance fee will be recognized monthly as the annual fee is
amortized. The above increase is also attributable to an increase in the accrued
liability related to existing claims, arbitrations and unpaid settlements. To a
lesser extent this line item increased due to the increase in payables related
to the Company's general business. Finally, this line item is offset by a
decrease in the deferred commission interest which was paid during April 2004.
Accounts payable and accrued expenses at June 30, 2004 consisted of accrued
professional fees of approximately $407,000, accrued communication charges of
approximately $178,000, accrued computer and copier charges of approximately
$200,000, accrued arbitration settlements of $583,000, accrued lease expense of
approximately $547,000, accrued regulatory expense of approximately $1,260,000
and other accounts payable and accrued expenses of approximately $1,162,000.
Accounts payable and accrued expenses at December 31, 2003 consisted of accrued
professional fees of approximately $588,000, accrued communication charges of
approximately $233,000, accrued computer and copier charges of approximately
$202,000, accrued arbitration settlements of approximately $191,000, accrued
lease expense of approximately $648,000, accrued regulatory expense of
approximately $1,250,000 and other accounts payable and accrued expenses of
approximately $1,069,000.
Subordinated borrowings amounted to $1,937,500 at June 30, 2004 as
compared to $2,062,500 at December 31, 2003. During March 2002, Kirlin
Securities received from its clearing broker a $2,500,000 three-year
subordinated loan that requires payments over various periods of time during
this three-year period. During the six-month period ended June 30, 2004 the
Company repaid $125,000 of this subordinated loan back to the clearing broker,
which payment was made from the funds received from the clearing broker under
the rebate agreement.
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.
15
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 itself 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 and former employees. It is
the opinion of management, based upon its evaluation of each of these matters
and the reserves established by the Company, that the resolution of all claims
presently pending will not have a material adverse effect on the condensed
consolidated financial condition of the Company.
The Company's operations historically have been the principal source of
cash needed by the Company's business. Retained earnings and cash generally were
sufficient to carry the Company through periods when operations used more cash
than was generated. However, the Company experienced significant losses in 2000
through 2002 and the Company sought capital from external sources. This was
provided by the $2,500,000 three-year subordinated loan Kirlin Securities
obtained from its clearing broker in 2002 and by a private placement of the
Company's securities in 2001 that raised $1,500,000.
The Company will be required to pay $1,260,000 in the coming months
related to the resolution of three NASD disciplinary proceedings and an
investigation by the NASD Department of Enforcement relating to alleged
violations of NASD Conduct Rules and the federal securities laws occurring from
late 1995 to 2001. The Company believes its current cash position and revenues
from operations will be sufficient to satisfy its obligations.
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, continues to explore the possibility of a 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 June 30, 2004 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.
2008 and
Total 2004 2005 2006 2007 thereafter
======================== -------------- -------------- -------------- -------------- -------------- --------------
Equipment lease
obligations $ 426,131 $ 110,589 $ 199,407 $ 113,297 $ 2,838 $ --
Office lease obligations 1,353,796 448,919 663,402 147,492 93,983 --
Employment contract
obligations 3,145,833 377,500 755,000 755,000 755,000 503,333
-------------- -------------- -------------- -------------- -------------- --------------
$ 4,925,760 $ 937,008 $ 1,617,809 $ 1,015,789 $ 851,821 $ 503,333
============== ============== ============== ============== ============== ==============
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
16
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.
ITEM 4. CONTROLS AND PROCEDURES.
An evaluation of the effectiveness of the Company's disclosure
controls and procedures as of June 30, 2004 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, they
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. During the most recently
completed fiscal quarter, there has been no significant change in the Company's
internal control over financial reporting that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.
17
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
On August 9, 2004, Kirlin Securities, Inc. and certain present or
former Kirlin personnel concluded a settlement with the NASD to resolve three
NASD disciplinary proceedings and an investigation by the NASD Department of
Enforcement relating to alleged violations of NASD Conduct Rules and the federal
securities laws occurring from late 1995 to 2001. Each of these disciplinary
proceedings and the investigation were previously reported by the Company in
prior periodic filings with the Securities and Exchange Commission. Pursuant to
the settlement, without admitting or denying any violation or wrongdoing, Kirlin
consented to a fine in the amount of $155,800, restitution to customers in the
amount of $1,044,201 and the requirement to pre-file all firm advertising
materials for one year. Kirlin also agreed to retain, at its own expense, an
independent consultant to review and make recommendations concerning the
adequacy of the firm's current supervisory and operating procedures as they
relate to the settled matters. The independent consultant's recommendations must
also be submitted to NASD. Anthony J. Kirincic, Kirlin's Co-Chief Executive
Officer and the Company's President, also agreed to settle allegations that he
failed to reasonably supervise Kirlin's personnel with respect to certain of
these matters. Without admitting or denying any violation or wrongdoing, Mr.
Kirincic consented to a fine in the amount of $25,000 and a 30-day suspension as
a general securities principal. A former Kirlin branch manager and two former
sales representatives also agreed to fines totaling $35,000 and other
disciplinary sanctions in connection with the settlement. For additional
information see the Company's Current Report on Form 8-K filed August 13 2004,
which is incorporated by reference hereto.
ITEM 2: SALES OF UNREGISTERED SECURITIES
================ ====================== ================= =========================== =============== ====================
CONSIDERATION RECEIVED
AND DESCRIPTION OF IF OPTION, WARRANT
UNDERWRITING OR EXEMPTION OR CONVERTIBLE
OTHER DISCOUNTS TO FROM SECURITY, TERMS OF
MARKET PRICE AFFORDED REGISTRATION EXERCISE OR
DATE OF SALE TITLE OF SECURITY NUMBER SOLD TO PURCHASERS CLAIMED CONVERSION
- ---------------- ---------------------- ----------------- --------------------------- --------------- --------------------
4/1/04 Options to purchase 6,895 Options granted under 4(2) Fully exercisable
Common Stock 1994 Stock Plan - no cash on 4/1/07, for a
consideration received by period of 10 years
the Company. from date of
grant, at an
exercise price of
$8.94 per share.
- ---------------- ---------------------- ----------------- --------------------------- --------------- --------------------
4/27/04 Options to purchase 5,985 Options granted under 4(2) Fully exercisable
Common Stock 1994 Stock Plan - no cash on 4/27/07, for a
consideration received by period of 5 years
the Company. from date of
grant, at an
exercise price of
$7.52 per share.
- ---------------- ---------------------- ----------------- --------------------------- --------------- --------------------
5/3/04 Options to purchase 10,270 Options granted under 4(2) Fully exercisable
Common Stock 1994 Stock Plan - no cash on date of grant
consideration received by for a period of 10
the Company. years from date of
grant, at an
exercise price of
$7.7245 per share.
- ---------------- ---------------------- ----------------- --------------------------- --------------- --------------------
6/1/04 Options to purchase 1,000 Options granted under 4(2) Fully exercisable
Common Stock 1994 Stock Plan - no cash on 6/1/07, for a
consideration received by period of 5 years
the Company. from date of
grant, at an
exercise price of
$4.50 per share.
================ ====================== ================= =========================== =============== ====================
18
ISSUER PURCHASES OF EQUITY SECURITIES
================ ================ ================ ====================== =========================
(d) Maximum Number (or
(A) TOTAL (C) TOTAL NUMBER OF APPROXIMATE DOLLAR
NUMBER OF SHARES (OR UNITS) VALUE) OF SHARES (OR
SHARES (OR (B) AVERAGE PURCHASED AS PART OF UNITS) THAT MAY YET BE
UNITS) PRICE PAID PER PUBLICLY ANNOUNCED PURCHASED UNDER THE
PERIOD PURCHASED SHARE (OR UNIT) PLANS OR PROGRAMS PLANS OR PROGRAMS
- ---------------- ---------------- ---------------- ---------------------- -------------------------
April 1, 2004 15,000 $7.25 15,000 $327,753 (1)
to April 30, 2004
- ---------------- ---------------- ---------------- ---------------------- -------------------------
May 1, 2004 to None N/A N/A $327,753 (1)
May 31, 2004
- ---------------- ---------------- ---------------- ---------------------- -------------------------
June 1, 2004 None N/A N/A $327,753 (1)
to June 30, 2004
- ---------------- ---------------- ---------------- ---------------------- -------------------------
Total 15,000 $7.25 15,000 $327,753 (1)
================ ================ ================ ====================== =========================
(1) On November 1, 2002 the Company announced that the Board of Directors had
authorized a repurchase program to purchase up to $1,500,000 of common stock
purchased from time to time. The repurchase program does not have a specified
expiration date.
19
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on June 24,
2004. At the meeting each of the two directors nominated for election, Anthony
J. Kirincic and John Milcetich, were re-elected to a three year term expiring in
2007, with 1,475,617 shares voted in favor of Mr. Kirincic's election and 8,945
shares withheld authority to vote, and with 1,474,906 shares voted in favor of
Mr. Milcetich's election and 7,656 shares withheld authority to vote. At the
meeting the stockholders authorized an amendment to the Company' s certificate
of incorporation to increase the number of shares of common stock the Company
was authorized to issue from 7,000,000 to 15,000,000, with 1,460,827 shares
voted in favor of this amendment, 14,795 shares voted against this amendment,
7,940 shares abstained from the vote of this amendment, and zero shares were
broker non-votes.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) 3.1.3 Certificate of Amendment of Certificate of Incorporation,
dated June 24, 2004.
31.2 Section 302 Certification of Chief Financial Officer.
31.2 Section 302 Certification of Chief Financial Officer.
32 Section 906 Certification.
(b) Reports on Form 8-K
On August 13, 2004 a Form 8-K was filed to report the Company's
resolution of three NASD disciplinary proceedings and an
investigation by the NASD Department of Enforcement.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Kirlin Holding Corp.
(Registrant)
Dated: August 16, 2004 By: /s/ Anthony J. Kirincic
--------------------------------------
Anthony J. Kirincic
President
Dated: August 16, 2004 By: /s/ Barry E. Shapiro
--------------------------------------
Barry E. Shapiro
Chief Financial Officer
(and principal accounting officer)
21