<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
Form 10-QSB of Kent Financial Services, Inc. for the nine months ended September
30, 1995 and is qualified in its entirety by reference to such financial
statements ($000 omitted, except per share data).
</LEGEND>
<CIK> 0000316028
<NAME> KENT FINANCIAL SERVICES, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 6,060
<SECURITIES> 6,970
<RECEIVABLES> 1,647
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,677
<PP&E> 2,086
<DEPRECIATION> 601
<TOTAL-ASSETS> 16,488
<CURRENT-LIABILITIES> 2,451
<BONDS> 0
<COMMON> 106
0
0
<OTHER-SE> 12,832
<TOTAL-LIABILITY-AND-EQUITY> 16,488
<SALES> 0
<TOTAL-REVENUES> 10,175
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,758
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 272
<INCOME-PRETAX> 2,145
<INCOME-TAX> 302
<INCOME-CONTINUING> 1,843
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,843
<EPS-PRIMARY> 1.73
<EPS-DILUTED> 0
</TABLE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No.: 1-7986
Kent Financial Services, Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 75-1695953
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
376 Main Street, P.O. Box 74, Bedminster, New Jersey 07921
(Address of principal executive offices)
(908) 234-0078
(Issuer's telephone number)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No _____
State the number of shares outstanding of each of the issuer's classes of
common stock: As of October 31, 1995, the issuer had 1,053,126 shares of its
common stock, par value $.10 per share, outstanding.
Transitional Small Business Disclosure Format (check one). Yes _____ No X
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
(UNAUDITED)
($000 Omitted)
<TABLE>
<CAPTION>
September 30,
1995
_____________
<S> <C>
Cash and cash equivalents $ 6,060
Marketable securities 6,970
Receivable from clearing agent 1,647
Property and equipment:
Land and building 1,440
Leasehold improvements 228
Office furniture and equipment 418
-------
2,086
Accumulated depreciation ( 601)
-------
Net property and equipment 1,485
-------
Other assets 326
-------
Total assets $ 16,488
=======
</TABLE>
See accompanying notes to consolidated
financial statements.
<PAGE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
(UNAUDITED)
($000 Omitted)
<TABLE>
<CAPTION>
September 30,
1995
_____________
<S> <C>
Liabilities:
Securities sold, but not yet purchased $ 193
Accounts payable 141
Accrued expenses 2,117
Long-term debt 587
Accrual for discontinued operations 512
-------
Total liabilities 3,550
-------
Stockholders' equity:
Preferred stock without par value, 500,000
shares authorized; none issued -
Common stock, $.10 par value, 4,000,000
shares authorized; 1,059,510 issued
and outstanding 106
Additional paid-in capital 15,556
Accumulated deficit ( 2,724)
-------
Total stockholders' equity 12,938
-------
Total liabilities and stockholders' equity $ 16,488
========
</TABLE>
See accompanying notes to consolidated
financial statements.
<PAGE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
($000 Omitted, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------
1995 1994
------ ------
<S> <C> <C>
Revenues:
Brokerage commissions and fees $1,176 $ 929
Net broker-dealer inventory gains 1,252 910
Net investing gains 1,146 62
Interest, dividends and other 353 243
------ ------
3,927 2,144
------ ------
Expenses:
Brokerage 1,629 1,331
General, administrative and other 1,139 927
Interest 100 51
------ ------
2,868 2,309
------ ------
Earnings (loss) before income taxes 1,059 ( 165)
Provision (credit) for income taxes 168 ( 15)
------ ------
Net earnings (loss) $ 891 ($ 150)
====== ======
Net earnings (loss) per share $ .84 ($ .14)
====== ======
Weighted average shares outstanding
(in 000's) 1,061 1,087
====== ======
</TABLE>
See accompanying notes to consolidated
financial statements.
<PAGE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
($000 Omitted, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------
1995 1994
------ ------
<S> <C> <C>
Revenues:
Brokerage commissions and fees $ 3,096 $ 2,939
Net broker-dealer inventory gains 3,612 3,135
Net investing gains 2,535 114
Interest, dividends and other 932 667
------- ------
10,175 6,855
------- ------
Expenses:
Brokerage 4,501 4,153
General, administrative and other 3,257 2,940
Interest 272 112
------- ------
8,030 7,205
------- ------
Earnings (loss) before income taxes 2,145 ( 350)
Provision (credit) for income taxes 302 ( 18)
------- ------
Net earnings (loss) $ 1,843 ($ 332)
======= ======
Net earnings (loss) per share $ 1.73 ($ .31)
======= ======
Weighted average shares outstanding
(in 000's) 1,067 1,089
======= ======
</TABLE>
See accompanying notes to consolidated
financial statements.
<PAGE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
($000 Omitted)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------
1995 1994
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 1,843 ($ 332)
Adjustments:
Depreciation and amortization 132 130
Unrealized losses (gains) on
marketable securities ( 1,220) 158
Change in marketable securities
and U.S. Treasury securities 2,221 ( 3,477)
Change in net receivable from
clearing agent ( 1,392) 1,184
Change in interest receivable 40 ( 22)
Change in accounts payable and
accrued expenses 623 ( 198)
Change in accrued income taxes 251 ( 47)
Other, net 98 ( 16)
------ ------
Net cash provided by (used in)
operating activities 2,596 ( 2,620)
------ ------
Cash flows from investing activities:
Additional investment in former
majority-owned subsidiary - ( 46)
Purchase of equipment ( 23) ( 28)
Other, net ( 39) -
------ ------
Net cash used in investing
activities ( 62) ( 74)
------ ------
Cash flows from financing activities:
Purchase of common stock ( 81) ( 21)
Payments on debt ( 166) ( 13)
Other, net ( 18) ( 34)
------ ------
Net cash used in financing
activities ( 265) ( 68)
------ ------
Net increase (decrease) in cash and
cash equivalents 2,269 ( 2,762)
Cash and cash equivalents at begin-
ning of period 3,791 7,824
------ ------
Cash and cash equivalents at end of
period $6,060 $5,062
====== ======
</TABLE>
See accompanying notes to consolidated
financial statements.
<PAGE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1994
(Unaudited)
1. FINANCIAL CONDITION AND OPERATING RESULTS
The accompanying unaudited consolidated financial statements of Kent
Financial Services, Inc. and subsidiaries (the "Company") as of September 30,
1995 and for the three and nine-month periods ended September 30, 1995 and 1994
reflect all material adjustments consisting of only normal recurring adjustments
which, in the opinion of management, are necessary for a fair presentation of
results for the interim periods. Certain information and footnote disclosures
required under generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission, although the Company believes that the disclosures are adequate to
make the information presented not misleading. These consolidated financial
statements should be read in conjunction with the year-end consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1994 as filed with the Securities
and Exchange Commission.
The results of operations for the three and nine-month periods ended
September 30, 1995 and 1994 are not necessarily indicative of the results to be
expected for the entire fiscal year or for any other period.
2. BUSINESS
The Company's business is comprised principally of the operation of T. R.
Winston & Company, Inc. ("Winston"), a wholly-owned subsidiary, and the
management of Asset Value Fund Limited Partnership, an investment partnership.
Winston is a licensed securities broker-dealer and is a member of the National
Association of Securities Dealers, Inc., the Pacific Stock Exchange, Inc. and
the Securities Investor Protection Corporation. All safekeeping, cashiering, and
customer account maintenance activities are provided by an unrelated
broker-dealer under a clearing agreement.
<PAGE>
Pursuant to the net capital provisions of Rule 15c3-1 of the Securities
Exchange Act of 1934, Winston is required to maintain a minimum net capital, as
defined, of $182,000. Net capital and the related net capital ratio fluctuate on
a daily basis. At September 30, 1995, Winston had net capital, as defined, of
$994,548 which was $812,548 in excess of the required minimum.
3. MARKETABLE SECURITIES
The following is a summary of marketable securities owned and sold, not yet
purchased, at September 30, 1995 (in $000):
<TABLE>
<CAPTION>
Sold
Marketable Not Yet
Securities Purchased
---------- ---------
<S> <C> <C>
Marketable equity
securities $ 6,832 $ 193
Mutual funds 138 -
------- ------
Aggregate market value $ 6,970 $ 193
======= ======
Aggregate cost $ 6,098 $ 159
Gross unrealized gain $ 1,070 $ -
Gross unrealized loss $ 198 $ 34
</TABLE>
Securities sold, not yet purchased, represent obligations of the Company to
deliver the specified security at the contracted price and thereby create a
liability to repurchase the security in the market at prevailing prices.
Accordingly, these transactions result in off-balance sheet risk, as the
Company's ultimate obligation to satisfy the sale of securities sold, not yet
purchased, may exceed the amount recognized in the accompanying consolidated
financial statements. Inventory positions are monitored on a daily basis to
minimize the risk of loss.
4. INCOME TAXES
An examination of the Company's consolidated federal income tax returns for
the years 1988 through 1991 was completed by the Internal Revenue Service
("IRS") in 1994. In the written examination report dated January 10, 1994, which
was enclosed with a thirty-day letter dated January 13, 1994, the IRS proposed
tax deficiencies and penalties for the years under audit of approximately $8.2
million. The Company filed a written protest of the IRS's examination report
<PAGE>
with the Appeals Office within the IRS on March 18, 1994. After the protest
was filed, the Appeals Office sent the case to the Examining Agent for a further
review of certain of the issues involved. On January 30, 1995, a request was
made by the Company to move the case back to the IRS Appeals Office. On or about
September 26, 1995, the Company received a revised examination report which
increased the proposed tax deficiencies and penalties for the years under audit
to $10.7 million. The accrued interest to date on this amount is approximately
$8.9 million. The Company has retained tax counsel and intends to vigorously
contest the proposed adjustments.
The Company believes that the ultimate resolution of the issues involved in
this audit will likely result in a substantial reduction of the adjustments,
and, hence, the tax deficiencies, penalties and interest at issue in the audit.
The Company is unable to estimate the reduction of the tax deficiencies,
penalties and interest and the actual loss, if any, resulting from the
examination.
5. EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is based on the weighted average number of shares
outstanding adjusted for the assumed conversion of shares issuable upon exercise
of stock options where appropriate.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
MATERIAL CHANGES IN FINANCIAL CONDITION
Kent Financial Services, Inc. (the "Company") had consolidated cash and
cash equivalents (U.S. Treasury bills with an original maturity of ninety days
or less) of $6.1 million and marketable securities (at fair value) of $7.0
million at September 30, 1995. Net cash provided by operations for the nine
months ended September 30, 1995, was approximately $2.6 million compared to a
net use of approximately $2.6 million for the same period in 1994. This increase
in cash flow from operations resulted from the increase in net earnings over the
same periods as well as changes in the balances of marketable securities, U.S.
Treasury securities and the net receivable from the Company's clearing agent.
The Company believes that its financial resources are sufficient for future
operations.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
The Company had net income of $891,000, or $.84 per share, for the three
months ended September 30, 1995, compared to a net loss of $150,000, or $.14 per
share, for the comparable period in 1994. For the nine months ended September
30, 1995, net income was $1,843,000, or $1.73 per share, compared to a net loss
of $332,000, or $.31 per share, for the comparable period in the prior year.
Total brokerage income for the three months ended September 30, 1995
increased by approximately $.6 million, or 32.0%, to $2.4 million from $1.8
million in the comparable 1994 period. Total brokerage income of $6.7 million
for the nine months ended September 30, 1995 increased by approximately $.6
million, or 10.4%, from the comparable period in 1994. Brokerage expenses
(including all fixed and variable expenses) increased by $.3 million, or 22.4%,
from $1.3 million in the quarter ended September 30, 1994, to $1.6 million for
the three months ended September 30, 1995. For the nine months ended September
30, 1995, brokerage expenses were $4.5 million compared to $4.2 million for the
comparable period in the prior year, an increase of $.3 million, or 8.4%. Net
brokerage income of $.8 million for the three months ended September 30, 1995
reflected a $.3 million increase from $.5 million for the same period in 1994.
For the nine months ended September 30, 1995, net brokerage income increased by
$.3 million, or 14.9%, to $2.2 million from $1.9 million in the comparable
period of 1994.
<PAGE>
Net investing gains were $1.1 million and $2.5 million for the three and
nine months ended September 30, 1995, respectively, compared to net investing
gains of $62,000 and $114,000 for the comparable periods in 1994. For the nine
months ended September 30, 1995, realized gains accounted for $1.4 million of
net investing gains while unrealized gains were $1.1 million. Of these
unrealized gains, approximately $800,000 were realized in October 1995. The
increase in net investing gains from the three and nine months ended September
30, 1994 to the comparable periods in 1995 reflected general market conditions
and variations in investment portfolio composition.
Interest, dividend and other income was $.4 million and $.9 million for the
three and nine months ended September 30, 1995, respectively, compared to $.2
million and $.7 million for the comparable periods in the prior year. The
overall increase for each of the respective periods was the result of higher
yields on the Company's cash, cash equivalents and U.S. Treasury securities.
General and administrative expenses were $1.1 million and $3.3 million for
the three and nine months ended September 30, 1995, respectively, compared to
$.9 million and $2.9 million for the comparable three and nine month periods in
1994. The increases for each of the periods in 1995, compared to the comparable
period in the prior year, were the result of increased costs related to the
operations of T. R. Winston & Company, Inc.'s New York office.
The provision for income taxes of $168,000 and $302,000 for the three and
nine months ended September 30, 1995 is composed of a provision for federal
alternative minimum tax and state income taxes. While the Company is in a net
operating loss and capital loss carryforward position for federal income tax
purposes, the IRS has proposed adjustments to the Company's consolidated federal
income tax returns for the years 1988 through 1991 that could result in the
elimination of the utilization of these carryforwards in 1995 and 1994. See Note
4 of Notes to Consolidated Financial Statements for additional information.
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on November 3, 1995.
Management's nominees, Messrs. Paul O. Koether, Mathew E. Hoffman, Casey K.
Tjang and M. Michael Witte were elected to the Board of Directors.
The following is a vote tabulation for all nominees:
<TABLE>
<CAPTION>
For Withheld
----- --------
<S> <C> <C>
Paul O. Koether 764,855 8,135
Mathew E. Hoffman 764,763 8,227
Casey K. Tjang 764,878 8,112
M. Michael Witte 764,855 8,135
Brian Abrams 12,934 --
</TABLE>
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Forms 8-K
No Forms 8-K were filed by the Company during the quarter ended September
30, 1995.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
KENT FINANCIAL SERVICES, INC.
Dated: November 13, 1995 By: /s/ Mark L. Koscinski
Mark L. Koscinski
Vice President and
Chief Accounting Officer
