<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
Form 10QSB of Kent Financial Services, Inc. for the six months ended June 30,
1996 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000316028
<NAME> KENT FINANCIAL SERVICES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 7,970
<SECURITIES> 6,883
<RECEIVABLES> 485
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,338
<PP&E> 2,059
<DEPRECIATION> 763
<TOTAL-ASSETS> 16,953
<CURRENT-LIABILITIES> 3,224
<BONDS> 0
0
0
<COMMON> 105
<OTHER-SE> 13,729
<TOTAL-LIABILITY-AND-EQUITY> 16,953
<SALES> 0
<TOTAL-REVENUES> 5,013
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,687
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 147
<INCOME-PRETAX> 1,179
<INCOME-TAX> 286
<INCOME-CONTINUING> 893
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 893
<EPS-PRIMARY> .85
<EPS-DILUTED> .85
</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: June 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 July 31, 1996, the issuer had 1,049,779 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>
June 30,
1996
------------
<S> <C>
Cash and cash equivalents $ 7,970
U.S. Treasury Securities, at cost,
which approximates market 292
Securities owned 6,591
Net receivable from clearing agent 485
Property and equipment:
Land and building 1,440
Leasehold improvements 218
Office furniture and equipment 401
-------
2,059
Accumulated depreciation ( 763)
-------
Net property and equipment 1,296
-------
Other assets 319
-------
Total assets $16,953
=======
</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>
June 30,
1996
------------
<S> <C>
Liabilities:
Securities sold, not purchased $ 191
Accounts payable 134
Accrued expenses 1,825
Long-term debt 564
Accrual for discontinued operations 510
-------
Total liabilities 3,224
-------
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 ( 1,833)
-------
Total stockholders' equity 13,729
-------
Total liabilities and stockholders' equity $16,953
=======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
($000 Omitted, except per share data)
<CAPTION>
Three Months Ended
June 30,
----------------------
1996 1995
------ ------
<S> <C> <C>
Revenues:
Brokerage commissions and fees $ 969 $ 964
Net broker-dealer inventory gains 561 1,226
Net investing gains 532 744
Interest, dividends and other 403 306
------ ------
2,465 3,240
------ ------
Expenses:
Brokerage 1,083 1,440
General, administrative and other 691 1,114
Interest 23 92
------ ------
1,797 2,646
------ ------
Earnings before income taxes 668 594
Provision for income taxes 171 61
------ ------
Net earnings $ 497 $ 533
====== ======
Net earnings per common share $ .47 $ .50
====== ======
Weighted average number of common
shares outstanding (in 000's) 1,050 1,065
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
($000 Omitted, except per share data)
<CAPTION>
Six Months Ended
June 30,
----------------------
1996 1995
------ ------
<S> <C> <C>
Revenues:
Brokerage commissions and fees $1,915 $1,920
Net broker-dealer inventory gains 1,264 2,360
Net investing gains 1,052 1,389
Interest, dividends and other 782 579
------ ------
5,013 6,248
------ ------
Expenses:
Brokerage 2,195 2,872
General, administrative and other 1,492 2,118
Interest 147 172
------ ------
3,834 5,162
------ ------
Earnings before income taxes 1,179 1,086
Provision for income taxes 286 134
------ ------
Net earnings $ 893 $ 952
====== ======
Net earnings per common share $ .85 $ .89
====== ======
Weighted average number of common
shares outstanding (in 000's) 1,051 1,070
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
($000 Omitted)
<CAPTION>
Six Months Ended
June 30,
----------------------
1996 1995
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 893 $ 952
Adjustments:
Depreciation and amortization 96 82
Unrealized gains on
marketable securities ( 730) ( 233)
Change in marketable securities
and U.S. Treasury securities ( 803) 2,558
Change in net receivable from
clearing agent 116 ( 1,494)
Change in interest receivable - 24
Change in accounts payable and
accrued expenses 30 335
Change in accrued income taxes 14 84
Other, net 20 117
------ -------
Net cash provided by (used in)
operating activities ( 364) 2,425
------ -------
Cash flows from investing activities:
Sale (purchase) of equipment, net 34 ( 23)
Other, net 78 ( 54)
------ -------
Net cash provided by
(used in) investing activities 112 ( 77)
------ -------
Cash flows from financing activities:
Purchase of common stock ( 17) ( 52)
Payments on debt ( 8) ( 159)
Redemption of debentures ( 12) ( 18)
------ ------
Net cash used in financing
activities ( 37) ( 229)
------ ------
Net increase (decrease) in cash and
cash equivalents ( 289) 2,119
Cash and cash equivalents at
beginning of period 8,259 3,791
------- -------
Cash and cash equivalents at end of
period $ 7,970 $ 5,910
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 June 30, 1996
and for the three and six month periods ended June 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 six month periods ended June
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 $130,000. At June 30, 1996, Winston had net capital, as defined, of
approximately $601,000, which was $471,000 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.
<TABLE>
The detail of securities owned is as follows (in 000):
<S> <C>
Marketable, at market value $2,983
Not readily marketable, at fair value 3,608
------
Securities owned $6,591
======
</TABLE>
4. Income Taxes
------------
An examination of the Company's consolidated federal income tax returns for
the years 1988 through 1991 was completed by the Internal Revenue Service
("IRS") in 1994. In the written examination report dated January 10, 1994, which
was enclosed with a thirty-day letter dated January 13, 1994, the IRS proposed
tax deficiencies and penalties for the years under audit of approximately $8.2
million. The Company filed a written protest of the IRS 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 $10.7 million. The accrued interest to date on this amount would be
approximately $10.9 million.
In July, 1996 the Company and the IRS Appeals Office reached a tentative
settlement agreement (the "Agreement") which would conclude the examination. The
Agreement, which is subject to review and approval by the Joint Committee on
Taxation of the United States Congress, would require the Company to make a
total payment of approximately $330,000, consisting of both tax and interest, to
the IRS for the years under audit. This amount has been accrued in the
accompanying consolidated financial statements.
As a consequence of the Agreement, the Company will be required to pay
alternative minimum tax ("AMT") for 1995 and 1996. The AMT payable for those
years has been included in the accompanying consolidated financial statements.
<PAGE>
At June 30, 1996, the Company had the following tax attributes, adjusted
for the Agreement:
<TABLE>
Amount
in 000's Expiration Years
------------- --------------------
<S> <C> <C>
Net operating loss
carryforward $5,400 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 $8.0 million, U.S. Treasury securities with an original maturity of
over ninety days of $.3 million, and securities owned of $6.6 million at June
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 six months ended June 30, 1996 was approximately $.4 million,
compared to net cash provided by operations of $2.4 million for the six months
ended June 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 $.2
million for the six months ended June 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 believes that its liquidity is sufficient for future operations.
Material Changes in Results of Operations
- -----------------------------------------
The Company had net income of $497,000, or $.47 per share, for the three
months ended June 30, 1996 compared to net income of $533,000 or $.50 per share,
for the comparable period in 1995. For the six months ended June 30, 1996, net
income was $893,000, or $.85 per share, compared to net income of $952,000, or
$.89 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 June 30, 1996 was $1.5 million, a
decrease of approximately $700,000, or 30.1%, from $2.2 million in the
comparable 1995 period. Total brokerage income was $3.2 million for the six
months ended June 30, 1996, a decrease of $1.1 million or 25.7% from $4.3
million for the six month period ended June 30, 1995. Brokerage expenses
(including all fixed and variable expenses) decreased by $300,000, or 24.8%,
from $1.4 million in the quarter ended June 30, 1995, to $1.1 million for the
three months ended June 30, 1996. For the six months ended June 30, 1996,
brokerage expenses were $2.2 million compared to $2.9 million for the comparable
period in the prior year, a decrease of $700,000 or 23.6%. Net brokerage income
of $400,000 for the three months ended June 30, 1996 decreased from $700,000
from the same period in 1995, a decrease of $300,000 or 40.4%. For the six month
period ended June 30, 1996, net brokerage income was $1.0 million, compared to
$1.4 million for the six months ended June 30, 1995, a decrease of $400,000, or
30.1%.
<PAGE>
The 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 $500,000 and $1.1 million for the three and six
months ended June 30, 1996, respectively, compared to $.7 million and $1.4
million, respectively for the comparable periods in 1995. For the six months
ended June 30, 1996, realized gains accounted for $300,000 of net investing
gains while unrealized gains were $800,000. The decrease in net investing gains
from the three and six month period ended June 30, 1995 to the comparable
periods in 1996 reflected general market conditions and variations in investment
portfolio composition. See Note 3 of Notes of Consolidated Financial Statements
for additional information on the valuation of securities owned.
Interest, dividend and other income was $400,000 and $800,000 for the three
and six months ended June 30, 1996, respectively, compared to $300,000 and
$600,000 for the comparable periods in the prior year. Interest, dividend and
other income increased in the Second Quarter 1996 compared to the Second Quarter
1995 due principally to the sale of Winston's Pacific Stock Exchange seat. This
sale generated a gain of approximately $100,000. Interest income increased in
the six months ended June 30, 1996 compared to the same period in 1995 as a
result of higher investable balances, partially offset by lower yields.
General and administrative expenses were $700,000 and $1.1 million for the
quarters ended June 30, 1996 and 1995, respectively, a decrease of $400,000 or
38.0%. For the six month periods ended June 30, 1996 and 1995, general and
administrative expenses were $1.5 million and $2.1 million respectively, a
decrease of $600,000 or 29.6%. 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 $171,000 and $286,000 for the three and
six months ended June 30, 1996 is composed of a provision for federal
alternative minimum tax and state 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 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 $10.7 million. The
accrued interest to date on this amount would be approximately $10.9 million.
<PAGE>
In July, 1996 the Company and the IRS Appeals Office reached a tentative
settlement agreement (the "Agreement") which would conclude the examination. The
Agreement, which is subject to review and approval by the Joint Committee on
Taxation of the United States Congress, would require the Company to make a
total payment of approximately $330,000, consisting of both tax and interest, to
the IRS for the years under audit. This amount has been accrued in the
accompanying consolidated financial statements.
As a consequence of the Agreement, the Company will be required to pay
alternative minimum tax ("AMT") for 1995 and 1996. The AMT payable for those
years has been included in the accompanying consolidated financial statements.
See Note 4 of Notes to Consolidated Financial Statements for additional
information.
<PAGE>
PART II - OTHER INFORMATION
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits
(27). Financial Data Schedule for the six months ended June 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: August 13, 1996 By: /s/ Mark Koscinski
---------------------------
Mark Koscinski
Vice President and
Principal Accounting Officer
