<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, 1996 and is qualified in its entirety by refrence 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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 7,381
<SECURITIES> 7,674
<RECEIVABLES> 400
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,455
<PP&E> 2,061
<DEPRECIATION> 778
<TOTAL-ASSETS> 17,039
<CURRENT-LIABILITIES> 3,248
<BONDS> 0
0
0
<COMMON> 105
<OTHER-SE> 13,686
<TOTAL-LIABILITY-AND-EQUITY> 17,039
<SALES> 0
<TOTAL-REVENUES> 6,717
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,252
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 171
<INCOME-PRETAX> 1,294
<INCOME-TAX> 339
<INCOME-CONTINUING> 955
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 955
<EPS-PRIMARY> .91
<EPS-DILUTED> .91
</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, 1996
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, 1996, the issuer had 1,046,646 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
<TABLE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
(UNAUDITED)
($000 Omitted)
<CAPTION>
September 30,
1996
-------------
<S> <C>
Cash and cash equivalents $ 7,381
U.S. Treasury Securities, at cost,
which approximates market 292
Securities owned 7,382
Net receivable from clearing broker 400
Property and equipment:
Land and building 1,440
Leasehold improvements 220
Office furniture and equipment 401
-------
2,061
Accumulated depreciation ( 778)
-------
Net property and equipment 1,283
-------
Other assets 301
-------
Total assets $17,039
=======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
(UNAUDITED)
($000 Omitted)
<CAPTION>
September 30,
1996
-------------
<S> <C>
Liabilities:
Securities sold, not purchased $ 157
Accounts payable 101
Accrued expenses 1,974
Long-term debt 556
Accrual for discontinued operations 460
-------
Total liabilities 3,248
-------
Stockholders' equity:
Preferred stock without par value, 500,000
shares authorized; none issued -
Common stock, $.10 par value, 4,000,000
shares authorized; 1,049,793 issued
and outstanding 105
Additional paid-in capital 15,457
Accumulated deficit ( 1,771)
-------
Total stockholders' equity 13,791
-------
Total liabilities and stockholders' equity $17,039
=======
</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,
1996 1995
--------- ---------
<S> <C> <C>
Revenues:
Brokerage commissions and fees $ 928 $ 1,176
Net broker-dealer inventory gains 481 1,252
Net investing gains 44 1,146
Interest, dividends and other 251 353
------- -------
1,704 3,927
------- -------
Expenses:
Brokerage 926 1,629
General, administrative and other 639 1,139
Interest 24 100
------- -------
1,589 2,868
------- -------
Earnings before income taxes 115 1,059
Provision for income taxes 53 168
------- -------
Net earnings $ 62 $ 891
======= =======
Net earnings per common share $ .06 $ .84
======= =======
Weighted average number of common
shares outstanding (in 000's) 1,050 1,061
======= =======
</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,
1996 1995
---------- ----------
<S> <C> <C>
Revenues:
Brokerage commissions and fees $ 2,843 $ 3,096
Net broker-dealer inventory gains 1,745 3,612
Net investing gains 1,096 2,535
Interest, dividends and other 1,033 932
------- -------
6,717 10,175
------- -------
Expenses:
Brokerage 3,121 4,501
General, administrative and other 2,131 3,257
Interest 171 272
------- -------
5,423 8,030
------- -------
Earnings before income taxes 1,294 2,145
Provision for income taxes 339 302
------- -------
Net earnings $ 955 $ 1,843
======= =======
Net earnings per common share $ .91 $ 1.73
======= =======
Weighted average number of common
shares outstanding (in 000's) 1,051 1,067
======= =======
</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,
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 955 $ 1,843
Adjustments:
Depreciation and amortization 111 132
Unrealized gains on
marketable securities ( 686) ( 1,220)
Change in marketable securities
and U.S. Treasury securities ( 1,671) 2,221
Change in net receivable from
clearing agent 289 ( 1,392)
Change in interest receivable ( 9) 40
Change in accounts payable and
accrued expenses ( 94) 623
Change in accrued income taxes 163 251
Other, net ( 7) 98
------- -------
Net cash provided by (used in)
operating activities ( 949) 2,596
------- -------
Cash flows from investing activities:
Sale (purchase) of equipment, net 33 ( 23)
Other, net 97 ( 39)
------- -------
Net cash provided by
(used in) investing activities 130 ( 62)
------- -------
Cash flows from financing activities:
Purchase of common stock ( 17) ( 81)
Payments on debt ( 23) ( 166)
Redemption of debentures ( 19) ( 18)
------- -------
Net cash used in financing
activities ( 59) ( 265)
------- -------
Net increase (decrease) in cash and
cash equivalents ( 878) 2,269
Cash and cash equivalents at
beginning of period 8,259 3,791
------- -------
Cash and cash equivalents at end of
period $ 7,381 $ 6,060
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995
(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,
1996 and for the three and nine month periods ended September 30, 1996 and 1995
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, 1995 as filed with the Securities
and Exchange Commission.
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.
The results of operations for the three and nine month periods ended
September 30, 1996 and 1995 are not necessarily indicative of the results to be
expected for the entire 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. 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.
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 $100,000. At September 30, 1996, Winston had net capital, as
defined, of approximately $656,000, which was $556,000 in excess of the required
minimum.
<PAGE>
3. Securities Owned
----------------
Marketable securities are valued at market value and securities not readily
marketable are valued at fair value as determined by the Board of Directors. The
resulting difference between cost and market value (or fair value) is included
in revenue as net investing gains. Securities not readily marketable include
investment securities for which market quotations are not readily available as
determined by the Board of Directors. The determination of fair value was based
on all relevant indications of value, including but not limited to, the
financial statements of the companies, the cost of the securities at the dates
of purchase, and trading volume. Because of inherent uncertainties of valuation,
the estimated values may differ significantly from the values that would have
been used had a ready market for the securities existed and the difference could
be material.
The detail of securities owned is as follows (in 000's):
<TABLE>
<S> <C>
Marketable, at market value $3,755
Not readily marketable, at fair value 3,627
------
Securities owned $7,382
======
</TABLE>
4. Income Taxes
------------
The tax deficiency previously reported, including interest, of more than
$20,000,000 proposed by the Internal Revenue Service for the years 1988 through
1991 has been settled for a total payment of approximately $330,000 (the
"Settlement"). As a consequence of the Settlement, the Company will be required
to pay alternative minimum tax ("AMT") and interest of approximately $335,000
for the year 1995 and will be subject to AMT in 1996. The deficiency, interest
and AMT have been included in the accompanying consolidated financial
statements.
<PAGE>
At September 30, 1996, the Company had the following tax attributes,
adjusted for the Settlement:
<TABLE>
Amount
in 000's Expiration Years
-------- ----------------
<S> <C> <C>
Net operating loss
carryforward $5,300 Various years
through 2009
AMT credit
carryforward $ 956 Indefinite
General business credit
carryforward $ 989 Various years
through 2000
</TABLE>
5. Net Earnings Per Common Share
-----------------------------
Net earnings per common 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
---------------------------------------------------------
Liquidity and Capital Resources
- -------------------------------
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 $7.4 million, U.S. Treasury securities with an original maturity of
over ninety days of $.3 million, and securities owned of $7.4 million at
September 30, 1996. See Note 3 of Notes to Consolidated Financial Statements for
additional information on the valuation of securities owned. Net cash used in
operations for the nine months ended September 30, 1996 was approximately $.9
million, compared to net cash provided by operations of $2.6 million for the
nine months ended September 30, 1995. Cash flow from operations decreased
principally from the results of operations and the net changes in the balances
of marketable securities and U.S. Treasury securities, and the net receivable
from the Company's clearing broker-dealer. Net cash used in financing activities
of $.3 million for the nine months ended September 30, 1995 was principally
comprised of a $146,000 payment reducing the mortgage loan collateralized by the
Company's headquarters facility pursuant to a mortgage refinancing in February
1994. The Company also repurchased common stock in open market transactions. The
Company believes that its liquidity is sufficient for future operations.
Material Changes in Results of Operations
- -----------------------------------------
The Company had net income of $62,000, or $.06 per share, for the three
months ended September 30, 1996 compared to net income of $891,000 or $.84 per
share, for the comparable quarter in 1995. For the nine months ended September
30, 1996, net income was $955,000, or $.91 per share, compared to net income of
$1,843,000, or $1.73 per share, for the comparable period in the prior year.
Total brokerage income (consisting of brokerage commissions, fees and
inventory gains) for the three months ended September 30, 1996 was $1.4 million,
a decrease of approximately $1.0 million, or 41.7%, from $2.4 million in the
comparable 1995 quarter. Total brokerage income was $4.6 million for the nine
months ended September 30, 1996, a decrease of $2.1 million or 31.3% from $6.7
million for the nine month period ended September 30, 1995. Brokerage expenses
(including all fixed and variable expenses) decreased by $700,000, or 43.8%,
from $1.6 million in the quarter ended September 30, 1995, to $900,000 for the
three months ended September 30, 1996. For the nine months ended September 30,
1996, brokerage expenses were $3.1 million compared to $4.5 million for the
comparable period in the prior year, a decrease of $1.4 million or 31.1%. Net
brokerage income of $500,000 for the quarter ended September 30, 1996 decreased
from $800,000 from the same period in 1995, a decrease of $300,000 or 37.5%. For
the nine month period ended September 30, 1996, net brokerage income was $1.5
million, compared to $2.2 million for the nine months ended September 30, 1995,
a decrease of $700,000, or 31.8%.
<PAGE>
The Company completed a private placement of six million shares of common
stock of a public company in the third quarter 1996 which accounted for $360,000
in brokerage commissions. The overall decrease in total brokerage income, total
brokerage expense and net brokerage income was attributable to the closing of
the New York office of T. R. Winston & Company, Inc. ("Winston") on March 31,
1996. The Company expects total brokerage income to decline in the future as it
continues to de-emphasize its retail brokerage business.
Net investing gains were $44,000 and $1.1 million for the three and nine
months ended September 30, 1996, respectively, compared to $1.1 million and $2.5
million, respectively for the comparable periods in 1995. For the nine months
ended September 30, 1996, realized gains accounted for $410,000 of net investing
gains while unrealized gains were $686,000. The decrease in net investing gains
from the three and nine month period ended September 30, 1995 to the comparable
periods in 1996 reflected general market conditions and variations in investment
portfolio composition. See Note 3 of Notes to Consolidated Financial Statements
for additional information on the valuation of securities owned.
Interest, dividend and other income was $251,000 and $1,033,000 for the
three and nine months ended September 30, 1996, respectively, compared to
$353,000 and $932,000 for the comparable periods in the prior year. Interest,
dividend and other income increased in the nine month period ended September 30,
1996 compared to the same period of the prior year due principally to the sale
of Winston's Pacific Stock Exchange seat. This sale generated a gain of
approximately $100,000.
General and administrative expenses were $600,000 and $1.1 million for the
quarters ended September 30, 1996 and 1995, respectively, a decrease of $500,000
or 45.5%. For the nine month periods ended September 30, 1996 and 1995, general
and administrative expenses were $2.1 million and $3.3 million respectively, a
decrease of $1.2 million or 36.4%. The decreases for each of the periods in 1996
compared to the same periods in 1995 was the direct result of decreased
administrative costs related to the closing of Winston's New York office. The
principal reduction in operating expense was due to a lower headcount, which
reduced personnel expense.
The provision for income taxes of $53,000 and $339,000 for the three and
nine months ended September 30, 1996 is composed of a provision for federal
alternative minimum tax ("AMT") and state income taxes. The tax deficiency
previously reported, including interest, of more than $20,000,000 proposed by
the Internal Revenue Service for the years 1988 through 1991 has been settled
for a total payment of approximately $330,000 (the "Settlement"). As a
consequence of the Settlement, the Company will be required to pay AMT and
interest of approximately $335,000 for the year 1995 and will be subject to AMT
in 1996. The deficiency, interest and AMT have been included in the accompanying
consolidated financial statements.
<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 4, 1996.
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 tabulation for all nominees:
<TABLE>
<CAPTION>
For Withheld
------- --------
<S> <C> <C>
Paul O. Koether 819,579 7,993
Mathew E. Hoffman 819,440 8,132
Casey K. Tjang 819,634 7,938
M. Michael Witte 819,588 7,984
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
27. Financial Data Schedule for the nine months ended
September 30, 1996.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which this report
is being filed.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
KENT FINANCIAL SERVICES, INC.
Dated: November 12, 1996 By: /s/ Mark Koscinski
---------------------------------
Mark Koscinski
Vice President and
Principal Accounting Officer
