<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 three months ended March
31, 1996 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 8,112
<SECURITIES> 5,649
<RECEIVABLES> 666
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,427
<PP&E> 2,059
<DEPRECIATION> 729
<TOTAL-ASSETS> 16,150
<CURRENT-LIABILITIES> 1,837
<BONDS> 0
0
0
<COMMON> 105
<OTHER-SE> 13,126
<TOTAL-LIABILITY-AND-EQUITY> 16,150
<SALES> 0
<TOTAL-REVENUES> 2,548
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,914
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 124
<INCOME-PRETAX> 510
<INCOME-TAX> 115
<INCOME-CONTINUING> 395
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 395
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
</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: March 31, 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 April 30, 1996, the issuer had 1,049,810 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>
March 31,
1996
----------
<S> <C>
Cash and cash equivalents $ 8,112
Marketable securities 5,649
Net receivable from clearing broker 666
Property and equipment:
Land and building 1,440
Leasehold improvements 228
Office furniture and equipment 391
-------
2,059
Accumulated depreciation ( 729)
-------
Net property and equipment 1,330
-------
Other assets 393
-------
Total assets $16,150
=======
</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>
March 31,
1996
----------
<S> <C>
Liabilities:
Accounts payable $ 97
Accrued expenses 1,740
Long-term debt 572
Accrual for discontinued operations 510
-------
Total liabilities 2,919
-------
Stockholders' equity:
Preferred stock without par value, 500,000
shares authorized; none issued -
Common stock, $.10 par value, 4,000,000
shares authorized; 1,049,810 issued
and outstanding 105
Additional paid-in capital 15,457
Accumulated deficit ( 2,331)
-------
Total stockholders' equity 13,231
-------
Total liabilities and stockholders' equity $16,150
=======
</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
March 31,
-------------------
1996 1995
------ ------
<S> <C> <C>
Revenues:
Brokerage commissions and fees $ 946 $ 956
Net broker-dealer inventory gains 703 1,134
Net investing gains 520 645
Interest, dividends and other 379 273
------ ------
2,548 3,008
------ ------
Expenses:
Brokerage 1,113 1,432
General, administrative and other 801 1,004
Interest 124 80
------ ------
2,038 2,516
------ ------
Earnings before income taxes 510 492
Provision for income taxes 115 73
------ ------
Net earnings $ 395 $ 419
====== ======
Net earnings per common share $ .38 $ .39
====== ======
Weighted average number of common
shares outstanding (in 000's) 1,051 1,076
====== ======
</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>
Three Months Ended
March 31,
-------------------
1996 1995
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 395 $ 419
Adjustments:
Depreciation and amortization 97 41
Unrealized gains on marketable
securities ( 348) ( 232)
Change in marketable securities ( 141) 85
Change in net receivable from
clearing broker ( 65) ( 868)
Change in interest receivable ( 1) 14
Change in accounts payable and
accrued expenses ( 179) 58
Change in accrued income taxes 100 68
Other, net 13 58
------ ------
Net cash used in operating
activities ( 129) ( 357)
------ ------
Cash flows from investing activities:
Purchase of fixed assets ( 2) ( 23)
Other 20 -
------ ------
Net cash provided by
(used in) investing activities 18 ( 23)
------ ------
Cash flows from financing activities:
Purchase of common stock ( 16) ( 12)
Payments on debt ( 7) ( 151)
Other ( 13) ( 6)
------ ------
Net cash used in financing
activities ( 36) ( 169)
------ ------
Net decrease in cash and cash
equivalents ( 147) ( 549)
Cash and cash equivalents at
beginning of period 8,259 3,791
------ ------
Cash and cash equivalents at end of
period $8,112 $3,242
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 March 31, 1996
and for the three month periods ended March 31, 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 results of operations for the three months ended March 31, 1996 and
1995 are not necessarily indicative of the results to be expected for the entire
fiscal year or for any other period.
2. Business
--------
The Company's business is comprised principally of the operation of T. R.
Winston & Company, Inc. ("Winston"), a wholly-owned subsidiary, and the
management of Asset Value Fund Limited Partnership, an investment partnership.
Winston is a licensed securities broker- dealer and is a member of the National
Association of Securities Dealers, Inc., the Pacific Stock Exchange, Inc. and
the Securities Investor Protection Corporation. All safekeeping, cashiering, and
customer account maintenance activities are provided by an unrelated
broker-dealer under a clearing agreement.
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 $122,000. At March 31, 1996, Winston had net capital, as defined, of
approximately $714,000 which was $592,000 in excess of the required minimum.
<PAGE>
3. 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 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 $10.7 million. The accrued interest to
date on this amount is approximately $10.1 million. The Company believes that
the ultimate resolution of the issues involved in the 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.
4. 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 $8.1 million and marketable securities (at fair value) of $5.6
million at March 31, 1996. Net cash used in operations for the three months
ended March 31, 1996, was approximately $.1 million, compared to a net use of
approximately $.4 million for the same period in 1995. This decrease in cash
flows used in operations was due principally to the change in the net receivable
from clearing broker, partially offset by the changes in marketable securities
and accrued expenses. The Company believes that its financial resources are
sufficient for future operations.
Material Changes in Results of Operations
- -----------------------------------------
The Company had net income of $395,000, or $.38 per share, for the three
months ended March 31, 1996, compared to net income of $419,000, or $.39 per
share, for the comparable period in 1995.
Total brokerage income for the three months ended March 31, 1996 decreased
by approximately $.4 million, or 21.1%, to $1.6 million from $2.1 million in the
comparable 1995 period. Brokerage expenses (including all fixed and variable
expenses) decreased by $.3 million, or 22.3%, from $1.4 million in the quarter
ended March 31, 1995, to $1.1 million for the three months ended March 31, 1996.
Net brokerage income of $.5 million for the three months ended March 31, 1996
reflected a $.2 million decrease from $.7 million for the same period in 1995.
The decrease in net brokerage revenue and expenses was due to the closing of the
New York office of T. R. Winston & Company, Inc. ("Winston") on March 31, 1996.
Net investing gains were $.5 million and $.6 million for the three months
ended March 31, 1996 and 1995, respectively. For the three months ended March
31, 1996, net realized gains accounted for $.2 million of net investing gains
while net unrealized gains were $.3 million. The decrease in net investing gains
was due to portfolio composition.
Interest, dividend and other income was $.4 million and $.3 million for the
three months ended March 31, 1996, and 1995 respectively. The increase was the
result of higher investable balances of the Company's cash equivalents,
partially offset by lower yields.
<PAGE>
General and administrative expenses were $.8 million and $1.0 million for
the three months ended March 31, 1996 and 1995, respectively. The decreases from
the first quarter of 1995 to the first quarter of 1996 was the result of
decreased costs related to the operations of Winston's New York office. The
principal reduction in operating expense was due to a lower headcount which
reduced personnel expense.
Interest expense increased due to a higher outstanding balance at the
Company's clearing broker.
The provision for income taxes of $115,000 for the three months ended March
31, 1996 is composed of a provision for state and federal income taxes. While
the Company is in a net operating loss carryforward position for federal income
tax purposes, the IRS has proposed adjustments to the Company's consolidated
federal income tax returns for the years 1988 through 1991 that could result in
the elimination of the utilization of these carryforwards in 1996 and 1995. See
Note 3 of Notes to Consolidated Financial Statements for additional information.
New Accounting Standards
- ------------------------
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123") was issued in October 1995 and was
effective January 1, 1996. SFAS No. 123 requires entities that have employee
stock option plans to estimate the value of grants awarded to employees and
disclose in a pro forma footnote the impact on the entities' earnings per share
as if the estimated option value were expensed over the vesting period of the
same.
The Company maintains one stock option plan and has granted to key
employees and directors options to buy shares of the Company's common stock at
the current market value of the stock at the date of grant. Since SFAS No. 123
only requires additional disclosure of the cost of stock options, implementation
will not have a material impact on the Company's results of operations.
<PAGE>
PART II - OTHER INFORMATION
- ---------------------------
Item 6. - Exhibits and Reports on Form 8-K
- ------ --------------------------------
(a) Exhibits
--------
(27). Financial Data Schedule for the three months ended March 31,
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 Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
KENT FINANCIAL SERVICES, INC.
By: /s/ MARK KOSCINSKI
---------------------------------
Dated: May 2, 1996 Mark Koscinski
Vice President and
Chief Accounting Officer
