<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the Form
10-KSB of Kent Financial Services, Inc. for the year ended December 31, 1995 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000316028
<NAME> KENT FINANCIAL SERVICES, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 8,259
<SECURITIES> 5,620
<RECEIVABLES> 601
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,480
<PP&E> 2,093
<DEPRECIATION> 668
<TOTAL-ASSETS> 16,333
<CURRENT-LIABILITIES> 2,391
<BONDS> 0
0
0
<COMMON> 105
<OTHER-SE> 12,747
<TOTAL-LIABILITY-AND-EQUITY> 16,333
<SALES> 0
<TOTAL-REVENUES> 12,345
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 9,790
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 406
<INCOME-PRETAX> 2,149
<INCOME-TAX> 308
<INCOME-CONTINUING> 1,841
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,841
<EPS-PRIMARY> 1.73
<EPS-DILUTED> 1.73
</TABLE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
4
MARK ONE:
[X] Annual Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 [Fee Required] For the fiscal year ended December 31, 1995
[ ] Transition Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] For the transition period from
_________________ to _________________.
Commission file number 1-7986
KENT FINANCIAL SERVICES, INC.
(Name of small business issuer 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 with Zip Code)
Issuer's telephone number, including area code (908) 234-0078
Securities registered under Section 12(b) of the
Exchange Act:
NONE
Securities registered under Section 12(g) of the
Exchange Act:
Common Stock, par value $.10 per share
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 ____
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained to the best of registrant's knowledge in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for the fiscal year ended December 31, 1995 were
approximately $12,345,000.
At February 29, 1996, there were 1,052,865 shares of common stock
outstanding. The aggregate market value of the voting shares held by
non-affiliates of the registrant, based on the closing bid price of such stock
on such date as reported by NASDAQ, was approximately $3,200,000.
Transitional Small Business Disclosure Format Yes _____ No X
<PAGE>
PART I
Item 1. DESCRIPTION OF BUSINESS
GENERAL
The principal business of Kent Financial Services, Inc. (the "Company"
or "Kent") is the operation of its wholly-owned subsidiary, T.R. Winston &
Company, Inc. ("Winston"), a securities broker-dealer licensed in all states
(except Alaska) and Washington D.C. Winston is a member of the National
Association of Securities Dealers, Inc., the Pacific Stock Exchange, Inc. and
the Securities Investor Protection Corporation. All clearing arrangements for
Winston are conducted pursuant to an agreement with an unrelated major
broker-dealer which is a member of the New York Stock Exchange, Inc. Winston
conducts various activities customary for broker-dealers of comparable size
including buying and selling securities for customer accounts, trading
securities in the over-the-counter market and providing various corporate
finance services including underwritings, private placements, mergers,
acquisitions and similar transactions. As of December 31, 1995, Winston's equity
capital was $1.1 million, all of which was advanced by Kent or generated by
Winston's earnings.
The Company also provides, through its direct and indirect
subsidiaries, investment advisory services. To date, fees from investment
advisory services have not been material. The subsidiaries were funded with an
initial capital contribution of $5.0 million in February 1991. At December 31,
1995, the combined equity capital of the subsidiaries was $11.4 million. These
subsidiaries have no debt.
AMERICAN METALS SERVICE, INC.
In July 1992, the Company, through its indirect, wholly-owned
subsidiary, purchased 1,055,005 shares of the common stock ("Shares") of
American Metals Service, Inc. ("AMTS"), a public company which had been engaged
in the wholesale distribution of aluminum alloys, steel and other specialty
metals but had determined to liquidate its assets. The AMTS Shares, which
represented approximately 52% of outstanding AMTS common stock, were purchased
for $958,000 or $.91 per Share. After the purchase, AMTS proceeded to liquidate
its assets and currently has a net worth of approximately $2 million ($1.02 per
share) which consists of cash and cash equivalents. AMTS has been seeking an
operating business.
On December 15, 1994, the Company distributed approximately 1.1 million
of its AMTS Shares (the "Distribution") to the Company's stockholders of record
on December 12, 1994 (the "Record Date"). In the Distribution, every Company
stockholder received one AMTS Share for each share of the Company's common stock
held by such stockholder on the Record Date. The Distribution was a non-taxable
distribution.
AMTS is currently trading on the Over-the-Counter Bulletin Board Market
under the symbol "AMTS".
<PAGE>
EMPLOYEES
As of December 31, 1995, the Company and its subsidiaries employed 46
people of whom 36 are registered securities brokers.
ENVIRONMENTAL MATTERS - TEXAS AMERICAN PETROCHEMICALS, INC.
See "Item 3. LEGAL PROCEEDINGS - Environmental Matters - Texas American
Petrochemicals, Inc."
Item 2. DESCRIPTION OF PROPERTY
CORPORATE AND BRANCH OFFICES
The Company and certain of its affiliates occupy the Company's
corporate office building and share direct occupancy costs. The office building
is collateral for a mortgage loan with a balance of $580,000 at December 31,
1995, bearing interest on that date at the rate of 7.05% per annum.
Effective February 1, 1994, an affiliate entered into a lease
agreement with the Company for office space for a five-year period. The
Company's aggregate rental income from these arrangements was $44,000 in 1995
and $45,000 in 1994. Prior to February 1994, the offices were leased on a
month-to-month basis. Winston opened an office in New York City in 1992
pursuant to a sub-sublease agreement expiring on June 29, 1996. Winston plans
to dispose of its New York City office effective March 31, 1996, and the lease
will not be renewed. Winston leases space for its other offices on a month-to-
month basis.
IDLE REFINERY PROPERTIES
A discontinued crude oil refinery site comprised of 79 acres is owned
by Texas American Petrochemicals, Inc. ("TAPI"), a wholly-owned subsidiary of
the Company, and is located near West Branch, Michigan. The site has been idle
since 1983 and substantially all of the processing units and equipment have been
sold. TAPI also owns approximately 9 acres near Midlothian, Texas, that was,
until 1976, the site of a waste oil recycling facility. Because of the
environmental matters noted below, the value of these locations is negligible.
<PAGE>
Item 3. LEGAL PROCEEDINGS
ENVIRONMENTAL MATTERS - TEXAS AMERICAN PETROCHEMICALS, INC.
TEXAS WATER COMMISSION
In January 1988, pursuant to Section 13 of the Texas Solid Waste
Disposal Act, the Texas Water Commission ("TWC") listed on the Texas Register a
site identified by the TWC as the "Texas American Oil Site" located in
Midlothian, Ellis County, Texas as a hazardous waste facility. The site was
owned by Texas American Oil Corporation ("TAO"), a formerly wholly-owned
subsidiary of the Company, prior to ownership being transferred to TAPI. TAPI
has been notified by the TWC that TAPI is a potentially responsible party
("PRP") for the site. Early in 1990, TAPI declined a request by the TWC to
perform a remedial investigation at the site. The TWC has not issued an
Administrative Order or instituted a formal proceeding. TAPI has notified the
TWC that TAPI has limited financial resources.
MICHIGAN DEPARTMENT OF NATURAL RESOURCES
In April 1989, TAPI was formally notified that the Michigan Department
of Natural Resources deemed TAPI a responsible party in connection with alleged
environmental problems at a site owned by TAPI.
In the fourth quarter of 1994 TAPI entered into a consent judgment with
the State of Michigan. The consent judgment provides for the payment by TAPI of
approximately $450,000 to satisfy TAPI's alleged liability for past and future
costs incurred and to be incurred by the State of Michigan in undertaking
remedial environmental activities at TAPI's former refinery site in Michigan.
Under the terms of the settlement, TAPI paid $90,000 in the fourth quarter of
1994 and $45,000 in 1995. The Company is required to pay $45,000 in annual
installments through the year 2002 without interest. The Company joined the
consent judgment for the sole purpose of assuring payments by TAPI. Neither TAPI
nor the Company admitted any liability.
OTHER ENVIRONMENTAL MATTERS
TAPI has been identified as a PRP at two waste disposal sites operated
by unrelated parties. In the past, TAPI had participated in the PRP group
investigating the sites and at one site reviewing government remediation. TAPI
is currently evaluating its continued participation in this effort.
The Company believes that it should have no liability in connection
with TAPI's environmental matters.
<PAGE>
OTHER
The Company may be involved from time to time in various lawsuits which
arise in the ordinary course of business and the outcome of which, if adverse,
would not have a material impact on the business of the Company.
TAX EXAMINATION
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
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 $9.8 million. The Company has retained tax counsel and
intends to continue to vigorously contest the proposed adjustments.
In the event that the IRS prevails with respect to one or more of the
tax adjustments proposed in this audit, it is possible that the Company would be
deemed to have accumulated earnings and profits and that all or a portion of the
distribution of the AMTS Shares would be taxable to the stockholders as a
dividend (as discussed in "Item 1. - DESCRIPTION OF BUSINESS"). In the unlikely
event that the tax deficiencies, penalties and interest ultimately found to be
due in connection with this audit were to exceed the net worth of the Company,
it is possible that the IRS would seek to reclaim the AMTS Shares distributed to
the stockholders as a preferential payment. The Company, however, does not
expect the tax deficiencies, penalties and interest ultimately found to be due
to reach that level. In fact, 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 and, therefore, that neither of these
possibilities would be likely to occur. The Company is unable to estimate the
reduction of the tax deficiencies, penalties and interest and the actual loss
resulting from the examination, if any.
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.
<PAGE>
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<F1> ...... 12,934 --
<FN>
<F1> Nominated from the floor.
</FN>
</TABLE>
<PAGE>
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock trades on the National Association of Securities
Dealers, Inc. Automated Quotations System ("NASDAQ") Small Cap Market under the
symbol "KENT".
The table below lists the high and low bid prices for the common stock
as reported by NASDAQ for the periods indicated. These prices represent
quotations between dealers and do not include retail markups, markdowns or
commissions, and may not represent actual transactions.
<TABLE>
<CAPTION>
Calendar Quarter:
1995 High Low
---- ---- ---
<S> <C> <C>
First Quarter ..................... $ 4 1/2 $ 3 1/2
Second Quarter .................... $ 6 $ 3 1/2
Third Quarter ..................... $ 7 $ 5 1/4
Fourth Quarter .................... $ 7 1/2 $ 5 5/8
1994 High Low
---- ---- ---
First Quarter ..................... $ 5 1/2 $ 5 1/4
Second Quarter .................... $ 5 1/4 $ 5 1/4
Third Quarter ..................... $ 5 1/4 $ 5 1/4
Fourth Quarter .................... $ 5 1/4 $ 4 1/2
</TABLE>
- ---------------
As of February 29, 1996, the Company had approximately 1,600
stockholders of record of its common stock.
The Company distributed shares of common stock of AMTS held by the Company to
stockholders of record of the Company on December 12, 1994 (See Item 1.
DESCRIPTION OF BUSINESS - American Metals Service, Inc.)
The Company does not anticipate paying additional dividends in the
foreseeable future.
<PAGE>
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995, the Company had consolidated cash and cash
equivalents of approximately $8.3 million. The cash equivalents, which were U.S.
Treasury bills with maturities of three months or less, had a yield of
approximately 5.3%. The Company held marketable securities with market values of
$5.6 million at December 31, 1995. At that same date the Company's long-term
debt consisted of a mortgage note on the Company's headquarters facility with a
remaining principal amount of approximately $580,000. The loan currently bears
interest at the rate of 7.05% and has a term of five years with principal
payments amortized over twenty years. An additional principal reduction
of $146,000 was made in March 1995 in connection with a refinancing of the
mortgage note in 1994 to obtain the current terms. See Note 6 of Notes
to Consolidated Financial Statements. The Company believes that its liquidity
is adequate for future operations.
During 1995, the Company repurchased 24,468 shares of its common stock
for an aggregate cost of approximately $127,000. In 1994, the Company
repurchased 34,320 shares for an aggregate purchase price of approximately
$166,000 of which $99,000 was due and paid in January 1995. All shares acquired
were purchased at market prices and have been canceled and returned to the
status of authorized and unissued shares.
DISTRIBUTION OF AMTS
In July 1992, the Company, through its indirect, wholly-owned
subsidiary, purchased 1,055,005 shares of the common stock ("Shares") of
American Metals Service, Inc. ("AMTS"), a public company which had been engaged
in the wholesale distribution of aluminum alloys, steel and other specialty
metals but had determined to liquidate its assets. The AMTS Shares, which
represented approximately 52% of outstanding AMTS common stock, were purchased
for $958,000 or $.91 per Share. After the purchase, AMTS proceeded to liquidate
its assets and currently has a net worth of approximately $2.0 million which
consists of cash and cash equivalents. AMTS has been seeking an operating
business.
On December 15, 1994, the Company distributed approximately 1.1 million
of its AMTS Shares (the "Distribution") to the Company's stockholders of record
on December 12, 1994 (the "Record Date"). In the Distribution, every Company
stockholder received one AMTS Share for each of the Company's common stock held
by such stockholder on the Record Date. The Company determined that the
Distribution was a non-taxable distribution.
ENVIRONMENTAL MATTERS
In January 1988, pursuant to Section 13 of the Texas Solid Waste
Disposal Act, the Texas Water Commission ("TWC") listed on the Texas Register a
site identified by the TWC as the "Texas American Oil Site" located in
Midlothian, Ellis County, Texas as a hazardous
<PAGE>
waste facility. The site was owned by Texas American Oil Corporation ("TAO"), a
formerly wholly-owned subsidiary of the Company, prior to ownership being
transferred to TAPI. TAPI has been notified by the TWC that TAPI is a
Potentially Responsible Party ("PRP") for the site. Early in 1990, TAPI
declined a request by the TWC to perform a remedial investigation at the site.
The TWC has not issued an Administrative Order or instituted a formal pro-
ceeding. TAPI has notified the TWC that TAPI has limited financial resources.
In April 1989, TAPI was formally notified that the Michigan Department
of Natural Resources deemed TAPI a responsible party in connection with alleged
environmental problems at a site owned by TAPI.
In the fourth quarter of 1994 TAPI entered into a consent judgment with
the State of Michigan. The consent judgment provides for the payment by TAPI of
approximately $450,000 to satisfy TAPI's alleged liability for past and future
costs incurred and to be incurred by the State of Michigan in undertaking
remedial environmental activities at TAPI's former refinery site in Michigan.
Under the terms of the settlement, TAPI paid $90,000 in the fourth quarter of
1994 and $45,000 in 1995. The Company is required to pay $45,000 in annual
installments through the year 2002 without interest. The Company joined the
consent judgment for the sole purpose of assuring payments by TAPI. Neither TAPI
nor the Company admitted any liability.
TAPI has been identified as a PRP at two waste disposal sites operated
by unrelated parties. In the past, TAPI had participated in the PRP group
investigating the sites and at one site reviewing government remediation. TAPI
is currently evaluating its continued participation in this effort.
The Company believes that it should have no liability in connection
with TAPI's environmental matters.
RESULTS OF OPERATIONS
The Company had net income in 1995 of $1,841,000, or $1.73 per share,
compared to a net loss of $471,000, or $.43 per share, in 1994. Total brokerage
income was $8.6 million in 1995, an increase of $.7 million or 9% from 1994
brokerage income of $7.9 million. Brokerage expenses (including all fixed and
variable expenses) increased by $.3 million, or 5% from $5.5 million in 1994 to
$5.8 million in 1995. The net brokerage income of $2.8 million in 1995
represented an increase of $.3 million, or 12% from the net brokerage income of
$2.5 million in 1994. Net investing gains were $2.4 million in 1995, an increase
of $2.3 million from the gains recorded in 1994 of $.1 million. The increases in
revenues reflect variations in investment portfolio composition, as well as
market conditions in the last two years.
Interest, dividend and other income was $1.3 million in 1995, an
increase of $.4 million from the $.9 million recorded in 1994. This was
principally due to an increase in investable balances in 1995 and portfolio
composition.
<PAGE>
General and administrative expenses were $4.0 million in 1995, an
increase of approximately $.3 million or 8% from the $3.7 million recorded in
1994. The increase is primarily attributable to costs associated with the
disposal of the New York office of Winston on March 31, 1996.
Interest expense was approximately $.4 million in 1995 versus $.2
million in 1994, an increase of $.2 million. This increase was due to an
increase in Winston's average debit balance at its clearing broker-dealer.
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
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 $9.8 million. The Company has retained tax counsel and
intends to continue to vigorously contest the proposed adjustments.
In the event that the IRS prevails with respect to one or more of the
tax adjustments proposed in this audit, it is possible that the Company would be
deemed to have accumulated earnings and profits and that all or a portion of the
distribution of the AMTS Shares would be taxable to the stockholders as a
dividend (as discussed in "Item 1. - DESCRIPTION OF BUSINESS"). In the unlikely
event that the tax deficiencies, penalties and interest ultimately found to be
due in connection with this audit were to exceed the net worth of the Company,
it is possible that the IRS would seek to reclaim the AMTS Shares distributed to
the stockholders as a preferential payment. The Company, however, does not
expect the tax deficiencies, penalties and interest ultimately found to be due
to reach that level. In fact, 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 and, therefore, that neither of these possibili-
ties would be likely to occur. The Company is unable to estimate the reduction
of the tax deficiencies, penalties and interest and the actual loss resulting
from the examination, if any.
<PAGE>
Item 7. FINANCIAL STATEMENTS
The financial statements filed with this item are listed below:
Report of Independent Accountants
Financial Statements:
Consolidated Balance Sheet - December 31, 1995
Consolidated Statements of Operations -
Years ended December 31, 1995 and 1994
Consolidated Statements of Cash Flows -
Years ended December 31, 1995 and 1994
Consolidated Statements of Stockholders' Equity -
Years ended December 31, 1995 and 1994
Notes to Consolidated Financial Statements
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Kent Financial Services, Inc.:
We have audited the accompanying consolidated financial statements of Kent
Financial Services, Inc. and Subsidiaries as listed in Part II-Item 7 of this
Form 10-KSB. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Kent Financial
Services, Inc. and Subsidiaries as of December 31, 1995 and the consolidated
results of their operations and their cash flows for the years ended December
31, 1995 and 1994 in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Princeton, New Jersey
March 26, 1996
<PAGE>
<TABLE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
($000 Omitted)
<CAPTION>
December 31,
1995
------------
<S> <C>
Cash and cash equivalents .................... $ 8,259
Marketable securities ........................ 5,620
Net receivable from clearing broker .......... 601
Property and equipment:
Land and building .......................... 1,440
Leasehold and improvements ................. 228
Office furniture and equipment ............. 425
-------
2,093
Accumulated depreciation ................... ( 668)
-------
Net property and equipment ................. 1,425
-------
Other assets ................................. 428
-------
Total assets ........................ $16,333
=======
See accompanying notes to consolidated
financial statements.
</TABLE>
<PAGE>
<TABLE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
($000 Omitted)
<CAPTION>
December 31,
1995
------------
<S> <C>
Liabilities:
Accounts payable ................................. $ 98
Accrued expenses ................................. 1,833
Marketable securities sold, not yet purchased .... 460
Long-term debt ................................... 580
Discontinued operations .......................... 510
--------
Total liabilities .............................. 3,481
--------
Contingent liabilities
Stockholders' equity:
Preferred stock without par value,
500,000 shares authorized;
none issued .................................... -
Common stock, $.10 par value,
4,000,000 shares authorized;
1,053,030 issued and outstanding ............... 105
Additional paid-in capital ....................... 15,473
Accumulated deficit .............................. ( 2,726)
--------
Total stockholders' equity ..................... 12,852
--------
Total liabilities and stockholders' equity ..... $ 16,333
========
See accompanying notes to consolidated
financial statements.
</TABLE>
<PAGE>
<TABLE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
($000 Omitted, except per
share data)
Year ended December 31,
-------------------------
1995 1994
------ ------
<S> <C> <C>
Revenues:
Brokerage commissions and fees .................. $ 4,008 $ 3,922
Net broker-dealer inventory gains ............... 4,586 4,015
Net investing gains ............................. 2,408 72
Interest, dividends and other ................... 1,343 899
------- -------
Total revenues .................. 12,345 8,908
------- -------
Expenses:
Brokerage ....................................... 5,770 5,472
General, administrative and other ............... 4,020 3,721
Interest ........................................ 406 181
------- -------
Total expenses .................. 10,196 9,374
------- -------
Earnings (loss) before income taxes ............... 2,149 ( 466)
Income taxes ...................................... 308 5
------- -------
Net earnings (loss) ............................... $ 1,841 ($ 471)
======= =======
Net earnings (loss) per common share ............. $ 1.73 ($ .43)
======= =======
Weighted average number of common shares
outstanding (in 000's) .......................... 1,064 1,089
======= =======
See accompanying notes to consolidated
financial statements.
</TABLE>
<PAGE>
<TABLE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($000 Omitted)
<CAPTION>
Year Ended December 31,
-----------------------
1995 1994
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) ................................... $ 1,841 ($ 471)
Adjustments:
Depreciation and amortization ..................... 200 25
Unrealized loss (gain) on marketable securities ... ( 233) 356
Change in marketable securities and
U.S. Treasury securities ....................... 2,853 ( 2,841)
Change in net receivable from clearing broker ..... ( 347) 1,251
Change in interest receivable ..................... ( 1) ( 52)
Change in accounts payable and accrued expenses ... 317 ( 258)
Change in accrued income taxes .................... 229 ( 9)
Other, net ........................................ 91 ( 93)
------- --------
Net cash provided by (used in) operating
activities ...................................... 4,950 ( 2,092)
------- --------
Cash flows from investing activities:
Additional investment in former majority-owned
subsidiary .......................................... - ( 46)
Effect of distribution of former majority-owned
subsidiary ........................................ - ( 1,823)
Purchase of fixed assets .............................. ( 31) ( 30)
Loans to employees .................................... ( 103) -
Other ................................................. 1 -
------- --------
Net cash used in investing activities ............. ( 133) ( 1,899)
------- --------
Cash flows from financing activities:
Purchase of common stock and stock options............. ( 165) ( 67)
Exercise of stock options ............................. - 76
Payments on debt ...................................... ( 184) ( 51)
------- --------
Net cash used in financing activities ............. ( 349) ( 42)
------- --------
Net increase in cash and cash equivalents ................. 4,468 ( 4,033)
Cash and cash equivalents at beginning of period .......... 3,791 7,824
------- --------
Cash and cash equivalents at end of period ................ $ 8,259 $ 3,791
======= ========
Supplemental Disclosures of Cash Flow Information:
Cash paid for:
Interest expense .................................. $ 406 $ 181
Taxes ............................................. 38 28
See accompanying notes to consolidated
financial statements.
</TABLE>
<PAGE>
<TABLE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
($000 Omitted)
<CAPTION>
Additional Total
Common Paid-In Accumulated Stockholders'
Stock Capital Deficit Equity
------ ---------- ----------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1993 .................................. $ 109 $16,709 ($ 4,096) $12,722
Repurchase and cancellation
of common stock ........................................... ( 3) ( 163) - ( 166)
Exercise of stock options ................................... 2 74 - 76
Stock distribution of AMTS
(former majority-owned
subsidiary) ............................................... - ( 985) - ( 985)
Net loss ................................................. - - ( 471) ( 471)
------- ------- ------- -------
Balance, December 31, 1994 .................................. 108 15,635 ( 4,567) 11,176
Repurchase and cancellation of
common stock and stock options ............................. ( 3) ( 162) - ( 165)
Net income .................................................. - - 1,841 1,841
----- ------- ------- -------
Balance, December 31, 1995 .................................. $ 105 $15,473 ($ 2,726) $12,852
===== ======= ======= =======
See accompanying notes to consolidated
financial statements.
</TABLE>
<PAGE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1995 and 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, T.R. Winston & Company, Inc.
("Winston"), Texas American Petrochemicals, Inc. ("TAPI") and Asset Value
Management, Inc. ("AVM") and its respective subsidiaries, Asset Value Fund
Limited Partnership ("AVF"), a limited partnership, and Asset Value Holdings,
Inc.("AVH"). The results of operations and net cash flows of American Metals
Service, Inc. ("AMTS") are included in the consolidated financial statements
until the distribution date (see Note 9 of Notes to Consolidated Financial
Statements). AMTS had a net loss of $6,000 in 1994. All significant intercompany
transactions and balances have been eliminated in consolidation. TAPI is
inactive.
CASH EQUIVALENTS
The Company considers as cash equivalents all short-term investments
with a maturity of three months or less when purchased, which are highly liquid
and are readily exchangeable for cash at amounts equal to their stated value.
Cash equivalents at December 31, 1995 are U.S. Treasury Bills.
MARKETABLE SECURITIES
All securities transactions and the related revenues and expenses are
accounted for on the trade-date basis. The effect of all unsettled transactions
for the period is accrued in the consolidated financial statements.
On January 1, 1994, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 115, Accounting for Certain
Investments in Debt and Equity Securities. SFAS 115 requires certain investments
to be categorized as either "Trading, Available-for-Sale, or Held to Maturity".
At December 31, 1995, the Company's investments were classified as "Trading" and
stated at fair market value. There was no effect on income from the adoption of
this standard.
Marketable securities owned by the Company and its subsidiaries are
recorded at market value and the net change in market value is included in the
consolidated statement of operations. Cost is determined on a first-in,
first-out basis for computing realized gains or losses on the sale of marketable
securities.
<PAGE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
PROPERTY AND EQUIPMENT
The Company records all property and equipment at cost. Depreciation is
computed using the straight-line method over the estimated useful lives of the
individual assets ranging from five to thirty-four years. Gains or losses on
dispositions of property and equipment are included in operating results.
INCOME TAX
The Company adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("SFAS 109") effective January 1, 1993. SFAS
109 requires an asset and liability approach for the accounting for income
taxes.
NET EARNINGS (LOSS) PER COMMON SHARE
Net earnings (loss) per common share is based on the weighted average
number of shares outstanding adjusted for the assumed conversion of shares
issuable upon exercise of options where appropriate.
RECLASSIFICATIONS
Certain reclassifications were made to the 1994 consolidated financial
statements to conform to classifications in the consolidated financial
statements as of and for the year ended December 31, 1995. These
reclassifications had no effect on the results of operations or stockholders'
equity for that period.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. SECURITIES BROKERAGE BUSINESS
The Company's business is comprised principally of the operation of
Winston, a wholly-owned subsidiary, and the management of AVF, 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, Bear Stearns Securities Corporation,
under a clearing agreement.
<PAGE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 $146,000. At December 31, 1995, Winston had net capital, as defined,
of $358,963 which was $212,963 in excess of the required minimum. Winston's
ratio of aggregate indebtedness to net capital, as defined, was 1.52 to 1.
3. SECURITIES OWNED AND SECURITIES SOLD NOT YET PURCHASED
Securities owned and securities sold not yet purchased consist of the
following at quoted market prices:
<TABLE>
<CAPTION>
In 000's
--------
Sold
Not Yet
Owned Purchased
----- ---------
<S> <C> <C>
Marketable equity securities ....... $5,478 $ 460
Mutual funds ....................... 142 -
------ -----
Aggregate market ................... $5,620 $ 460
====== =====
</TABLE>
4. LEASE COMMITMENTS
Winston leases its New York office facility from an unaffiliated
landlord under the terms of a noncancellable lease expiring in 1996. In addition
to base rent and utilities, the lease requires Winston to pay its proportionate
share of annual increases in certain of the lessor's building costs as defined
in the lease agreement.
Winston subleases part of its premises at one location to several
subtenants under sublease terms substantially equivalent to Winston's lease
agreement. Rental income under these agreements in 1995 and 1994 was
approximately $61,000 in each year.
Aggregate net rent expense for the years ended December 31, 1995 and
1994 was approximately $195,000 and $193,000, respectively. Future minimum
rental requirements under terms of Winston's noncancelable leases are approxi-
mately $99,000 in 1996.
5. INCOME TAXES
The Company utilizes the asset and liability method of Statement of
Financial Accounting Standards No. 109 ("SFAS 109") to account for its income
taxes. Under the asset and liability method, deferred income taxes are
recognized for the tax consequences of "temporary differences" by applying
enacted statutory tax rates applicable to future years to differences between
<PAGE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
the financial statement carrying amounts and the tax bases of existing assets
and liabilities. Due to the uncertainty of realizing its deferred tax asset, a
valuation allowance of an equal amount is maintained. For the year ended
December 31, 1995, the valuation allowance decreased by $787,000.
The components of income tax expense were as follows:
<TABLE>
<CAPTION>
($000 Omitted)
Year Ended December 31,
---------------------------
1995 1994
---- ----
<S> <C> <C>
Federal:
Current ............... $ 132 $ -
Deferred .............. - -
--------- ---------
$ 132 $ -
========= =========
State:
Current ............... $ 176 $ 5
Deferred .............. - -
--------- ---------
$ 176 $ 5
========= =========
</TABLE>
Total income tax expense for the years ended December 31, 1995 and 1994
is different from the amount computed by multiplying total earnings before
income taxes by the statutory Federal income tax rate of 34%. The reasons for
these differences and the related tax effects are:
<TABLE>
<CAPTION>
($000 Omitted)
Year Ended December 31,
---------------------------
1995 1994
---- ----
<S> <C> <C>
Income tax expense (benefit) computed
at statutory rates on total earnings
(loss) before income taxes .............. $ 731 ($ 158)
Increase (decrease) in tax from:
Utilization of net operating loss
carryforward .......................... ( 73) -
Alternative minimum tax 132 303
Utilization of capital loss carryforward ( 595) ( 147)
State income tax, net of Federal benefit 116 3
Other, net .............................. ( 3) 4
-------- --------
Total tax expense ....... $ 308 $ 5
======== ========
</TABLE>
Deferred income taxes reflect the net effects of (a) temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, and (b) operating loss
and tax credit carryforwards.
<PAGE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The tax effects of significant items comprising the Company's net
deferred tax asset as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
($000
Omitted)
--------
<S> <C>
Deferred tax assets:
Operating loss carryforwards ................. $4,400
Alternative minimum tax credit ............... 574
General business credit
carryforwards ............................... 1,152
State, net of federal benefit ................ 873
Other ........................................ 586
------
$7,585
======
Valuation allowance ............................ ($7,585)
======
Net deferred tax asset ......................... $ -
======
</TABLE>
Significant carryforward balances for Federal income tax purposes as of
December 31, 1995 are:
<TABLE>
<CAPTION>
($000 Omitted)
For Federal
Income Expiration
Tax Years
----------- ----------
<S> <C> <C>
Net operating loss .......................... $12,941 2005-2009
General business tax credit ................. $ 1,152 1996-2000
Alternative minimum tax credit .............. $ 574 -
</TABLE>
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 has retained tax counsel and intends to continue to
vigorously contest the proposed adjustments. The Company filed a written protest
of the IRS examination report with the Appeals Office within the IRS on March
18, 1994. After the protest was filed, the Appeals Office sent the case back 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
<PAGE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
$10.7 million. The accrued interest to date on this amount is approximately $9.8
million. 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 resulting from the
examination, if any.
6. LONG-TERM DEBT
The mortgage loan collateralized by the Company's headquarters facility
was refinanced on February 25, 1994. The loan currently bears interest at the
rate of 7.05%. Under the terms of the refinancing, the Company reduced the
principal balance of the loan by $146,000 in March 1995 and will continue to
make monthly payments of approximately $6,000, including interest, through March
1999, at which time the remaining balance is due.
7. CAPITAL STOCK
COMMON STOCK REPURCHASES
From time to time since April 1988, the Company's Board of Directors
has authorized the repurchase of the Company's common stock in the open market
or in privately negotiated transactions. On March 26, 1996, the Board of
Directors approved a plan to repurchase up to 150,000 shares of the Company's
common stock at prices deemed favorable in the open market or in privately
negotiated transactions, subject to market conditions, the Company's financial
position and other considerations. All shares acquired through December 31,
1995 have been canceled and returned to the status of authorized but unissued
shares.
COMMON STOCK OPTIONS
The Non-Qualified Stock Option Plan adopted by the stockholders of the
Company in 1987 provides for a maximum of 66,666 shares of common stock of the
Company to be issued to key executives, including officers and directors of the
Company, at the discretion of the Board of Directors. Options under this plan
expire five years from the date of grant and are exercisable as to one-half of
the shares on the date of grant and, as to the other half, after the first
anniversary of the date of grant, or at such other time, or in such other
installments as may be determined by the Board of Directors at the time of
grant.
<PAGE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes option transactions under this plan for
1995 and 1994:
<TABLE>
<CAPTION>
Average
Shares Price
------ -------
<S> <C> <C>
Options outstanding at December 31, 1993 ..... 36,167 $3.38
Options granted .............................. - -
Options canceled ............................. (10,000) $3.38
Options exercised ............................ (21,167) $3.38
------ -----
Options outstanding at December 31, 1994 ..... 5,000 $3.38
Options granted .............................. 21,000 $4.50
Options exercised ............................ - -
------ -----
Options outstanding at December 31, 1995 ..... 26,000 $4.28
====== =====
</TABLE>
In August 1993, pursuant to a litigation settlement the Company granted
to a stockholder a non-qualified stock option to purchase up to 15,000 shares of
the common stock of the Company at $4.50 per share. This option was exercisable
in whole or in part for a period of five years. In connection with the grant of
the option, the Company recorded a charge to earnings in 1993 of $37,500 and
increased additional paid-in capital accordingly. On December 5, 1995, the
Company bought back the options for $54,900, and charged paid-in capital for
$37,500 and miscellaneous expense for $17,400.
In August 1993, pursuant to terms of employment with the Company, an
executive officer was granted a non-statutory stock option to purchase an
aggregate of 5,000 shares of the Company's common stock at a price of $7.00 per
share. These shares are exercisable as to one-half of the shares on the date of
grant and, as to the other half, after the first anniversary of the date of
grant. In December 1994, this option was replaced, in its entirety, with an
option to purchase an aggregate of 5,000 shares at an exercise price of $4.50
per share ("New Option"). The exercise terms of the New Option are consistent
with the original option. The officer exercised his right to purchase 1,000
shares at an exercise price of $4.50 during 1994. These options were not issued
pursuant to the 1987 Non-Qualified Stock Option Plan.
8. COMPENSATION ARRANGEMENTS
In April 1990, the Company entered into an employment agreement (the
"Agreement") with the Company's Chairman for a three-year term commencing April,
1990 (the "Effective Date") at an annual salary of $175,000 (adjusted to
$200,000 in December 1993), which may be increased but not decreased at the
discretion of the Board of Directors. The term is to be automatically extended
one day for each day elapsed after the Effective Date. The Chairman may
terminate his employment under the Agreement under certain conditions specified
in the Agreement and the Company may terminate the Chairman's employment under
<PAGE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
the Agreement for cause. In the event of the Chairman's death during the term of
the Agreement, his beneficiary shall be paid a death benefit equal to $200,000
per year for three years payable in equal monthly installments. Should the
Chairman become "disabled" (as such term is defined in the Agreement) during the
term of the Agreement he shall be paid an annual disability payment equal to 80%
of his base salary in effect at the time of the disability. The Company has
accrued for the contingent payments under this Agreement.
9. DISTRIBUTION OF AMERICAN METALS SERVICE, INC.
In July 1992, the Company, through its indirect, wholly-owned
subsidiary, purchased 1,055,005 shares of the common stock ("Shares") of
American Metals Service, Inc. ("AMTS"), a public company which had been engaged
in the wholesale distribution of aluminum alloys, steel and other specialty
metals but had determined to liquidate its assets. The AMTS Shares, which
represented approximately 52% of outstanding AMTS common stock, were purchased
for $958,000 or $.91 per Share. After the purchase, AMTS proceeded to liquidate
its assets and currently has a net worth of approximately $2 million which
consists of cash and cash equivalents. AMTS has been seeking an operating
business.
On December 15, 1994, the Company distributed approximately 1.1 million
of its AMTS Shares (the "Distribution") to the Company's stockholders of record
on December 12, 1994 (the "Record Date"). In the Distribution, every Company
stockholder received one AMTS Share for each share of the Company's common stock
held by such stockholder on the Record Date. The Company retains a nominal
investment in AMTS which is classified as a marketable security.
10. CONTINGENCIES
ENVIRONMENTAL MATTERS
In January 1988, pursuant to Section 13 of the Texas Solid Waste
Disposal Act, the Texas Water Commission ("TWC") listed on the Texas Register a
site identified by the TWC as the "Texas American Oil site" located in
Midlothian, Ellis County, Texas as a hazardous waste facility. The site was
owned by Texas American Oil Corporation ("TAO"), a formerly wholly-owned
subsidiary of the Company, prior to ownership being transferred to TAPI. TAPI
has been notified by the TWC that TAPI is a potentially responsible party
("PRP") for the site. Early in 1990 the TWC requested that TAPI perform a
remedial investigation at the site, which TAPI has declined. The TWC has not
issued an Administrative Order or instituted a formal proceeding. TAPI has
notified the TWC that TAPI has limited financial resources.
In April 1989, TAPI was formally notified that the Michigan Department
of Natural Resources deemed TAPI a responsible party in connection with alleged
environmental problems at a site owned by TAPI.
<PAGE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In the fourth quarter of 1994, TAPI entered into a consent judgment
with the State of Michigan. The consent judgment provides for the payment by
TAPI of approximately $450,000 to satisfy TAPI's alleged liability for past and
future costs incurred and to be incurred by the State of Michigan in undertaking
remedial environmental activities at TAPI's former refinery site in Michigan.
Under the terms of the settlement, TAPI paid $90,000 in the fourth quarter of
1994 and $45,000 in 1995. The Company is required to pay $45,000 in annual
installments through the year 2002 without interest. The Company joined the
consent judgment for the sole purpose of assuring payments by TAPI. Neither TAPI
nor the Company admitted any liability. The liability had been accrued for in
prior years as part of discontinued operations.
TAPI has been identified as a PRP at two Texas waste disposal sites
operated by unrelated parties. In the past, TAPI has participated in the PRP
group investigating the sites and at one site reviewing government remediation.
TAPI is currently evaluating its continued participation in this effort.
The Company believes that it should have no liability in connection
with TAPI's environmental matters.
RECEIVABLE FROM CLEARING BROKER
Winston conducts its business on a fully disclosed basis with one
clearing broker, Bear Stearns Securities Corporation, on behalf of its customers
and for its own proprietary accounts. The clearing operations for Winston's
customer accounts and proprietary transactions are performed by its clearing
broker pursuant to a clearance agreement.
At December 31, 1995, substantially all the marketable securities and
the total receivable from clearing broker are positions with and amounts due
from this clearing broker. The Company is subject to credit risk should the
clearing broker be unable to pay this balance.
11. TRANSACTIONS WITH RELATED PARTIES
Rosenman & Colin ("R&C") has performed legal work for the Company and
its affiliates in 1995 and 1994. Natalie I. Koether, wife of the Chairman and
President of the Company is of counsel to R&C. Aggregate fees and expenses
billed to the Company and its subsidiaries in 1995 and 1994 were approximately
$273,000 and $240,000, respectively.
Since March 1990 certain non-subsidiary affiliates have rented office
space from the Company. The Company's aggregate rental income from these
arrangements was approximately $44,000 in 1995 and $45,000 in 1994.
The Company reimburses an affiliate for the direct cost of certain group medical
insurance, 401(k) benefits and office supplies. Such reimbursements were
approximately $225,000 and $263,000 during 1995 and 1994, respectively.
<PAGE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Affiliates of the Company maintain brokerage accounts with Winston,
which received commissions from those affiliates totaling approximately $152,000
and $57,000 during 1995 and 1994, respectively.
<PAGE>
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
<PAGE>
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
All of the members of the current Board of Directors were elected at
the 1995 Annual Meeting and all will serve until the next Annual Meeting or
until their successors have been elected and shall qualify. The Company's
officers are elected by and serve at the leave of the Board.
None of the executive officers of the Company is related to any other.
There is no arrangement or understanding between any executive officer and any
other person pursuant to which such officer was selected.
The directors and executive officers of the Company at February 29,
1996 are as follows:
<TABLE>
<CAPTION>
Name Age Position Held
---------------- ----- -------------
<S> <C> <C>
Paul O. Koether ......................... 59 Chairman, Director and
President
Mathew E. Hoffman ....................... 42 Director
Casey K. Tjang .......................... 55 Director
M. Michael Witte ........................ 70 Director
John W. Galuchie, Jr. ................... 43 Vice President and
Treasurer
Mark L. Koscinski ....................... 38 Vice President
</TABLE>
- ------------------------------------
Paul O. Koether is principally engaged in the following businesses: (i)
as Chairman and director since 1987 and President since October 1990 of the
Company and the general partner since 1990 of Shamrock Associates, an investment
partnership which is the principal stockholder of the Company and (ii) various
positions with affiliates of the Company, including Chairman since 1990 and a
registered representative since 1989 of T. R. Winston & Company, Inc.
("Winston") and since July 1992, Chairman and a director of American Metals
Service, Inc., a formerly, indirect, majority-owned subsidiary currently seeking
to acquire an operating business. Mr. Koether also has been Chairman since April
1988, President since April 1989 and director since March 1988 of Pure World,
Inc. ("Pure World"), and for more than five years the Chairman and President of
Sun Equities Corporation ("Sun"), a private, closely-held corporation which is
Pure World's principal stockholder. Until August 1994, when it sold its majority
ownership to an unaffiliated
<PAGE>
party, Pure World operated as a real estate asset manager through its
wholly-owned subsidiary, NorthCorp Realty Advisors, Inc. ("NorthCorp"). Prior to
its sale, Mr. Koether also served as Chairman and a director of NorthCorp. Mr.
Koether has been serving as a director of Madis Botanicals, Inc., ("Madis"),
since December 1994 and as Chairman and Chief Executive Officer since February
1995. Madis is a majority-owned subsidiary of Pure World whose primary business
is the manufacture of natural products.
Mathew E. Hoffman, an attorney, has been a director of the Company
since September 1994. Since May 1994 he has been a partner of Rosen & Reade.
From February 1989 to May 1994, he was a partner of Keck, Mahin & Cate.
Casey K. Tjang has been a director of the Company since February 1992.
Since March 1991, he has been the President and Chief Executive Officer of First
Merchant Bankers, Inc., a privately-owned investment company whose business is
focused in Asia and the Pacific Rim. Prior to March 1991 he was managing
director and Vice President of the Trade and Merchant Banking Group of Midlantic
National Bank where he was employed for twelve years. From March 1991 until
February 1995, Mr. Tjang was a director of Concord Camera Corp., which
manufactures and distributes camera equipment. From November 1993 to December
1995 he had been the Executive Director of Starlite Holdings Limited, a printer
and manufacturer of packaging materials.
M. Michael Witte, a director of the Company since 1986, has been President
of M. M. Witte & Associates, Inc., a private corporation which is engaged in oil
and gas consulting and investment management since August 1980. From April 1991
until June 1995, Mr. Witte has been a director of Search Exploration, Inc., a
publicly held corporation until it was acquired by Harken Energy Corporation,
which, through its wholly-owned subsidiary, McCulloch Energy, Inc. ("McCulloch")
is engaged in the acquisition, exploration, development and production of oil
and natural gas properties in the United States. Mr. Witte has been Chairman of
McCulloch from April 1991 until June 1995.
John W. Galuchie, Jr., a certified public accountant, is engaged in the
following businesses: (i) the Company, as Vice President and Treasurer since
September 1986 and a director from June 1989 to August 1993; (ii) Winston, as
President and Treasurer since September 1989; (iii) Pure World, as Executive
Vice President since April 1988 and director from January 1990 until October
1994; and (iv) NorthCorp as a director since June 1992 and as Secretary, from
November 1992 until the sale of NorthCorp in August 1994.
Mark L. Koscinski, a certified public accountant, is principally
engaged in the following businesses since August 1993 (i) the Company and
Winston as Vice President; (ii) Pure World, as Senior Vice President; and (iii)
Madis, as director, Secretary and Treasurer since December 1994. Previously, Mr.
Koscinski had served as Vice President of Accounting Operations with Chemical
Bank of New York from October 1992 to August 1993. From February 1986 to October
1992, Mr. Koscinski was employed by the Howard Savings Bank in New Jersey in
various positions, and concluding as its Corporate Controller.
Section 16(a) of the Securities Exchange Act requires the Company's
officers and directors and persons who own more than ten percent of a registered
class of the Company's equity securities, to file reports of ownership and
changes in ownership on Forms 3, 4 and 5 with the Securities and Exchange
Commission ("SEC") and the National Association of Securities Dealers ("NASD").
Officers and directors and greater than ten percent
<PAGE>
stockholders are required by SEC regulation to furnish the Company with copies
of all Forms 3, 4 and 5 which they file.
Based solely on the Company's review of the copies of such forms it has
received, the Company believes that all its officers, directors and
greater than ten percent beneficial owners complied with all filing
requirements applicable to them with respect to transactions during fiscal
1995.
Item 10. EXECUTIVE COMPENSATION
There is shown below information concerning the annual compensation for
services in all capacities to the Company for the fiscal years ended December
31, 1995, 1994 and 1993, for those persons who were, at December 31, 1995 (i)
the chief executive officer and (ii) the other most highly compensated officers
of the Company, whose annual compensation exceeds $100,000 (the "Named
Officers").
<TABLE>
Summary Compensation Table
<CAPTION>
Long-Term
Name and Principal Annual Compensation<F1><F2> Compensation Other<F4>
Officer Year Salary Bonus Other<F3> Options(#)
- ------------------ ---- --------------------------------------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Paul O. Koether ..... 1995 $200,000 $90,000 $141,956 - -
Chairman, Presi- .... 1994 $200,000 $ - $132,917 - -
dent and Chief ...... 1993 $177,083 $30,000 $145,832 - $2,024
Executive Officer
John W. Galuchie, Jr. 1995 $160,000 $21,000 $ 259 - -
Vice President ...... 1994 $160,000 $ - $ 62 - -
and Treasurer ....... 1993 $ 85,333 $15,000 $ 2,001 - $2,249
- ----------------------------------------------------
<FN>
<F1> The Company has no bonus or deferred compensation plans and pays bonuses at
the discretion of the Board based on performance.
<F2> The individuals named in the table above received incidental personal
benefits during the fiscal years covered by the table. The value of these
incidental benefits did not exceed the lesser of either $50,000 or 10% of the
total annual salary and bonus reported for any of the Named Officers. Such
amounts are excluded from the table.
<F3> Represents commissions paid by Winston to these individuals in their
capacity as registered representatives for securities trades made for their
respective customers.
<F4> Represents the amount of matching contributions made by the Company pursuant
to a 401(k) plan.
</FN>
</TABLE>
<PAGE>
There were no stock options granted pursuant to the Company's 1987
Non-Qualified Stock Option Plan (the "Plan") during the fiscal years ended
December 31, 1994 or 1995 to the Named Officers.
Options may be granted by the Board of Directors to officers, directors and
employees of the Company or its subsidiaries. The exercise price for the shares
shall not be less than the fair market value of the Common Stock on the date of
grant. Options will expire five years from date of grant and will be exercisable
as to one-half of the shares on the date of grant and as to the other half,
after the first anniversary of the date of grant, or at such other time, or in
such other installments as may be determined by the Board of Directors or a
committee thereof at the time of grant. The options are non-transferable (other
than by will or by operation of the laws of descent) and are exercisable
generally only while the holder is employed by the Company or by a subsidiary of
the Company or, in the event of the holder's death or permanent disability while
employed by the Company, within one year after such death or disability.
The table below contains information concerning the exercise of options by
the Named Officers during 1995 and the fiscal year-end value of unexercised
options held by the Named Officers.
<TABLE>
Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year-End Option Values
<CAPTION>
Value of Unexercised
Number of Number of Unexercised In-the-Money Options
Shares Acquired Value Options at December 31, 1995 at December 31, 1995
on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
--------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Paul O.
Koether .......... - $ - - - $ - -
John W.
Galuchie, Jr. .... - $ - 5,000 - $12,503 -
</TABLE>
REMUNERATION OF DIRECTORS
Directors who are not employees of the Company receive a monthly fee of
$750 plus $200 for each day of attendance at board and committee meetings.
During 1995, the Company paid directors' fees in the aggregate amount of
approximately $29,700.
COMPENSATION ARRANGEMENTS
In April, 1990, the Company and Paul O. Koether entered into an
employment agreement ("Agreement") pursuant to which Mr. Koether serves as the
Company's Chairman for an initial three-year term ("Commencement Date") at an
annual salary of $175,000 (changed to $200,000 in December 1993) ("Base
Salary"), which may be increased but not decreased at the discretion of the
Board of Directors. The term is to be automatically extended one day for each
day elapsed after the Commencement Date.
<PAGE>
Mr. Koether may terminate his employment under the Agreement at any
time for "good reason" (defined below) within 36 months after the date of a
Change in Control (defined below) of the Company. Upon his termination, he shall
be paid the greater of the (i) Base Salary and any bonuses payable under the
Agreement through the expiration date of the Agreement or (ii) an amount equal
to three times the average annual Base Salary and bonuses paid to him during the
preceding five years.
Change in Control is deemed to have occurred if (i) any individual or
entity, other than individuals beneficially owning, directly or indirectly,
common stock of the Company representing 30% or more of the Company's stock
outstanding as of April, 1990, is or becomes the beneficial owner, directly or
indirectly, of 30% or more of the Company's outstanding stock or (ii)
individuals constituting the Board of Directors on April, 1990 ("Incumbent
Board"), including any person subsequently elected to the Board whose election
or nomination for election was approved by a vote of at least a majority of the
Directors comprising the Incumbent Board, cease to constitute at least a
majority of the Board. "Good reason" means a determination made solely by Mr.
Koether, in good faith, that as a result of a Change in Control he may be
adversely affected (i) in carrying out his duties and powers in the fashion he
previously enjoyed or (ii) in his future prospects with the Company.
Mr. Koether may also terminate his employment if the Company fails to
perform its obligations under the Agreement (including any material change in
Mr. Koether's duties, responsibilities and powers or the removal of his office
to a location more than five miles from its current location) which failure is
not cured within specified time periods.
The Company may terminate Mr. Koether's employment under the Agreement
for "cause" which is defined as (i) Mr. Koether's continued failure to
substantially perform his duties under the Agreement (other than by reason of
his mental or physical incapacity or the removal of his office to a location
more than five miles from its current location) which is not cured within
specified time periods, or (ii) Mr. Koether's conviction of any criminal act or
fraud with respect to the Company. The Company may not terminate Mr. Koether's
employment except by a vote of not less than 75 percent of the entire Board of
Directors at a meeting at which Mr. Koether is given the opportunity to be
heard.
In the event of Mr. Koether's death during the term of the Agreement,
his beneficiary shall be paid a death benefit equal to $200,000 per year for
three years payable in equal monthly installments. Should Mr. Koether become
"disabled" (as such term is defined in the Agreement) during the term of the
Agreement and either long-term disability insurance is not provided by the
Company or such policy does not provide an annual benefit to age 70 equal to 80%
or more of Mr. Koether's base salary, he shall be paid an annual disability
payment equal to 80% of his base salary in effect at the time of the disability.
Such payments shall continue until Mr. Koether attains the age of 70.
<PAGE>
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information with respect to the Company's
common stock beneficially owned as of February 29, 1996 by each director of the
Company, by each person having beneficial ownership of five percent or more of
the Company's common stock and by all directors and officers of the Company as a
group.
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of Beneficial Percent of
of Beneficial Owner Ownership<F1> Class
- ------------------- ----------------- ----------
<S> <C> <C>
Paul O. Koether ................ 468,177<F2> 43.76%
211 Pennbrook Road
Far Hills, NJ 07931
Shamrock Associates ............ 417,470 39.02%
211 Pennbrook Road
Far Hills, NJ 07931
M. Michael Witte ............... 12,000 1.12%
1120 Granville Avenue
Suite 102
Los Angeles, CA 90049
Casey K. Tjang ................. 10,000 <F3>
56 Hall Drive
Clark, NJ 07066
Mathew E. Hoffman .............. 7,000 <F3>
41 Vivian Drive
Scarsdale, NY 10583
All Directors and .............. 510,677 47.73%
as a Group (6 persons)
- -----------------------------------------
<FN>
<F1> The beneficial owner has both sole voting and sole investment powers with
respect to these shares except as set forth in this footnote or in other
footnotes below. Included in such number of Shares beneficially owned are shares
subject to options currently exercisable or becoming exercisable within sixty
days: all directors and officers as a group (27,500 shares).
<F2> Includes the 417,470 Shares beneficially owned by Shamrock. As a general
partner of Shamrock, Mr. Koether may be deemed to own these shares beneficially.
Includes 14,166 shares owned by Sun, a private corporation of which Mr. Koether
is the Chairman and a principal stockholder. Includes 1,666 shares held by Mr.
Koether's Keogh Plan and 875 shares held in a trust for the benefit of Mr.
Koether's daughter for which Mr. Koether acts as the sole trustee. Mr. Koether
is also a limited partner of Shamrock and may be deemed to own beneficially that
percentage of the shares owned by Shamrock represented by his partnership
percentage. Mr. Koether disclaims beneficial ownership of such shares.
<F3>Less than 1 percent.
</FN>
</TABLE>
<PAGE>
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Rosenman & Colin ("R&C") performed legal work for the Company and its
affiliates in 1995 and 1994. Natalie I. Koether, wife of the Chairman and
President of the Company, is of counsel to R&C. Aggregate fees and expenses
billed to the Company and its subsidiaries in 1995 and 1994 were approximately
$273,000 and $240,000, respectively.
The Company reimburses an affiliate for the direct cost of certain
group medical insurance, 401(k) benefits and office supplies. Such
reimbursements were approximately $225,000 and $263,000 during 1995 and 1994,
respectively.
Affiliates of the Company maintain brokerage accounts with Winston,
which received commissions from these affiliates totaling approximately $152,000
and $57,000 during 1995 and 1994, respectively.
<PAGE>
PART IV
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
The following exhibits are filed as part of this report:
<CAPTION>
(a) Exhibits
--------
<S> <C>
3.1 Bylaws of the Registrant, as amended. <F1>
3.2(a) Articles of Incorporation of Registrant, as
amended (including certificate of stock
designation for $2.575 Cumulative Convertible
Exchangeable Preferred Stock). <F2>
3.2(b) Certificate of Amendment to Certificate of
Incorporation. <F3>
3.2(c) Certificate of Amendment to Certificate of
Incorporation dated September 26, 1991. <F4>
10.1 1987 Non-Qualified Executive Stock Option Plan.
<F6>
10.2 Employment Agreement, dated as of April 6, 1990 by
and between Texas American Energy Corporation and
Paul 0. Koether. <F7>
10.3 Notice of Proposed Settlement. <F8>
10.4 Consent Judgment referred to in "Part I - Item 3
- LEGAL PROCEEDINGS." <F9>
21 Subsidiaries <F10>
27 Financial Data Schedule <F10>
(b) Reports on Form 8-K.
--------------------
No reports on Form 8-K were filed by the Registrant in the
fourth quarter of the fiscal year ended December 31, 1995.
- -------------------
<PAGE>
<FN>
<F1> Incorporated by reference to Texas American Energy Corporation
Registration Statement, as amended, on Form S-l, No. 33-11109.
<F2> Incorporated by reference to Texas American Energy Corporation Form
10-K, for the fiscal year ended December 31, 1984.
<F3> Incorporated by reference to Texas American Energy Corporation Form
10-K for the fiscal year ended December 31, 1987.
<F4> Incorporated by reference to Kent Financial Services, Inc. Form 10-Q
for the quarter ended September 30, 1991.
<F6> Incorporated by reference to Texas American Energy Corporation Proxy
Statement dated November 11, 1987.
<F7> Incorporated by reference to Kent Financial Services, Inc. Form 10-Q
for the quarter ended June 30, 1990.
<F8> Incorporated by reference to Kent Financial Services, Inc. Form 10-QSB
for the quarter ended June 30, 1993.
<F9> Incorporated by reference to Kent Financial Services, Inc. Form 10-QSB
for the quarter ended September 30, 1994.
<F10> Filed herewith.
</FN>
</TABLE>
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
KENT FINANCIAL SERVICES, INC.
Dated: March 18, 1996 BY /s/ Paul O. Koether
--------------------
Paul 0. Koether
Chairman of the Board, President
and Director
(Principal Executive Officer)
BY /s/ Mark L. Koscinski
---------------------
Mark L. Koscinski
Vice President
(Principal Financial and
Accounting Officer)
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
Dated: March 18, 1996 /s/ Paul O. Koether
---------------------
Paul 0. Koether
Chairman of the Board,
President and Director
(Principal Executive Officer)
Dated: March 18, 1996 /s/ Mathew E. Hoffman
-----------------------
Mathew E. Hoffman
Director
Dated: March 18, 1996 /s/ M. Michael Witte
----------------------
M. Michael Witte
Director
Dated: March 18, 1996 /s/ Casey K. Tjang
--------------------
Casey K. Tjang
Director
<TABLE>
KENT FINANCIAL SERVICES, INC.
SUBSIDIARIES
<CAPTION>
Name of Subsidiary State of Incorporation
- ------------------ ----------------------
<S> <C>
Asset Value Holdings, Inc. Delaware
Asset Value Management, Inc. Delaware
Texas American Petrochemicals, Inc. Texas
T. R. Winston & Company, Inc. New Jersey
T. R. Winston Capital, Inc. Delaware
Kent Advisors, Inc. New Jersey
</TABLE>
