<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, 1997 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 8,168
<SECURITIES> 5,124
<RECEIVABLES> 664
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,956
<PP&E> 1,665
<DEPRECIATION> 410
<TOTAL-ASSETS> 15,351
<CURRENT-LIABILITIES> 2,312
<BONDS> 0
0
0
<COMMON> 102
<OTHER-SE> 12,412
<TOTAL-LIABILITY-AND-EQUITY> 15,351
<SALES> 0
<TOTAL-REVENUES> 2,531
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,182
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 214
<INCOME-PRETAX> (865)
<INCOME-TAX> (85)
<INCOME-CONTINUING> (780)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (780)
<EPS-PRIMARY> (.76)
<EPS-DILUTED> (.76)
</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, 1997
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, 1997, the issuer had 1,017,999 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,
1997
-------------
<S> <C>
Cash and cash equivalents $ 8,168
Securities owned 5,124
Net receivable from clearing broker 664
Property and equipment:
Land and building 1,440
Office furniture and equipment 225
-------
1,665
Accumulated depreciation ( 410)
-------
Net property and equipment 1,255
-------
Other assets 140
-------
Total assets $15,351
=======
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
(UNAUDITED)
($000 Omitted)
<CAPTION>
September 30,
1997
-------------
<S> <C>
Liabilities:
Securities sold, not purchased $ 755
Accrued expenses 1,149
Long-term debt 525
Accrual for discontinued operations 408
-------
Total liabilities 2,837
-------
Stockholders' equity:
Preferred stock without par value, 500,000
shares authorized; none issued -
Common stock, $.10 par value, 4,000,000
shares authorized; 1,018,040 issued
and outstanding 102
Additional paid-in capital 15,248
Accumulated deficit ( 2,836)
-------
Total stockholders' equity 12,514
-------
Total liabilities and stockholders' equity $15,351
=======
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
($000 Omitted, except per share data)
<CAPTION>
Three Months Ended
September 30,
-------------------------
1997 1996
------ ------
<S> <C> <C>
Revenues:
Brokerage commissions and fees $ 474 $ 743
Principal transactions:
Trading 418 481
Investing gains (losses) ( 5) 44
Interest, dividends and other 238 251
------ ------
1,125 1,519
------ ------
Expenses:
Brokerage 582 741
General, administrative and other 583 639
Interest 89 24
------ ------
1,254 1,404
------ ------
Earnings (loss) before income taxes ( 129) 115
Provision (benefit)for income taxes ( 20) 53
------ ------
Net earnings (loss) ($ 109) $ 62
====== ======
Net earnings (loss) per common share ($ .11) $ .06
====== ======
Weighted average number of common
shares outstanding (in 000's) 1,022 1,050
====== ======
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
($000 Omitted, except per share data)
<CAPTION>
Nine Months Ended
September 30,
--------------------------
1997 1996
------- -------
<S> <C> <C>
Revenues:
Brokerage commissions and fees $1,247 $2,658
Principal transactions:
Trading 1,203 1,745
Investing gains (losses) ( 577) 1,096
Interest, dividends and other 658 1,033
------ ------
2,531 6,532
------ ------
Expenses:
Brokerage 1,638 2,936
General, administrative and other 1,544 2,131
Interest 214 171
------ ------
3,396 5,238
------ ------
Earnings (loss) before income taxes ( 865) 1,294
Provision (benefit) for income taxes ( 85) 339
------ ------
Net earnings (loss) ($ 780) $ 955
====== ======
Net earnings (loss) per common share ($ .76) $ .91
====== ======
Weighted average number of common
shares outstanding (in 000's) 1,032 1,051
====== ======
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
($000 Omitted)
<CAPTION>
Nine Months Ended
September 30,
-------------------------
1997 1996
------ -------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) ($ 780) $ 955
Adjustments:
Depreciation and amortization 42 111
Unrealized (gains) losses on
marketable securities 766 ( 686)
Change in marketable securities
and U.S. Treasury securities 2,505 ( 1,671)
Change in net receivable from
clearing broker ( 882) 289
Change in accounts payable and
accrued expenses ( 329) 69
Other, net ( 25) ( 16)
------ ------
Net cash provided by (used in)
operating activities 1,297 ( 949)
------ ------
Cash flows from investing activities:
Sale (purchase) of equipment, net ( 27) 33
Other, net - 97
------ ------
Net cash provided by
(used in) investing activities ( 27) 130
------ ------
Cash flows from financing activities:
Purchase of common stock ( 188) ( 17)
Payments on debt ( 23) ( 23)
Other - ( 19)
------ ------
Net cash used in financing
activities ( 211) ( 59)
------ ------
Net increase (decrease) in cash and
cash equivalents 1,059 ( 878)
Cash and cash equivalents at
beginning of period 7,109 8,259
------ ------
Cash and cash equivalents at end of
period $8,168 $7,381
====== ======
Supplemental disclosure of cash flow information:
Cash paid for:
Interest expense $ 214 $ 171
====== ======
Taxes $ 117 $ 89
====== ======
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
(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,
1997 and for the three and nine month periods ended September 30, 1997 and 1996
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, 1996 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. Prior years
financial statements have been reclassified to conform to the current year's
presentation.
The results of operations for the three and nine month periods ended
September 30, 1997 and 1996 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 ("AVF"), an investment
partnership whose primary purpose is to make large investments in a limited
number of portfolio companies whose securities are considered undervalued by the
partnership's management. 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.
<PAGE>
Pursuant to the net capital provisions of Rule 15c3-1 of the Securities
Exchange Act of 1934, Winston is required to maintain minimum net capital, as
defined, of $109,000. At September 30, 1997, Winston had net capital, as
defined, of approximately $771,000 which was $662,000 in excess of the required
minimum.
3. Securities owned
----------------
The following table describes securities owned by the Company at September
30, 1997 (in $000'S). Equity securities are listed by subsidiary, with the
securities valued at market value listed separately from the securities valued
at fair value. Mutual funds, owned by Winston, are valued at market value.
<TABLE>
<CAPTION>
Marketable securities Non-marketable
valued at securities valued Total
Market Value at Fair Value Securities
---------------------- ------------------ -----------
<S> <C> <C> <C>
Equity
securities:
AVF $2,087 $2,641 $4,728
Winston 260 - 260
Other 35 - 35
Mutual funds 101 - 101
------ ------ ------
Total $2,483 $2,641 $5,124
====== ====== ======
</TABLE>
The estimated fair value of securities owned has been determined in good
faith under consistently applied principles by the management of the Company,
using available market information and other valuation considerations.
Considerable judgment is required to develop the estimates of fair value, thus,
the estimates provided herein are not necessarily indicative of the amounts that
could be realized in a current market exchange.
4. 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 stock options where appropriate.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
-------------------------------------------------
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 $8.2 million and securities owned of $5.1 million at September 30,
1997. See Note 3 of Notes to Consolidated Financial Statements for additional
information on the valuation of securities owned. Net cash provided by
operations was $1.3 million in the nine months ended September 30, 1997 compared
to a net use of cash by operations of $949,000 in the comparable period of 1996.
Cash flow from operations for the nine months ended September 30, 1997 increased
from the comparable period in 1996 principally from the change in securities
owned and U.S. Treasury securities less the change in the net receivable from
the clearing broker, accounts payable and all other accrued expenses. Net cash
used in financing activities of $211,000 for the nine months ended September 30,
1997 was principally comprised of the purchase of Company common stock, which
was subsequently retired and payments on the mortgage loan collateralized by the
Company's headquarters building. The Company believes that its liquidity is
sufficient for future operations.
Material Changes in Results of Operations
- -----------------------------------------
The Company had a net loss of $109,000, or $.11 per share, for the three
months ended September 30, 1997 compared to net income of $62,000 or $.06 per
share, for the comparable quarter in 1996. For the nine months ended September
30, 1997, the net loss was $780,000, or $.76 per share, compared to net income
of $955,000, or $.91 per share, for the comparable period in the prior year.
Total brokerage income (consisting of brokerage commissions, fees and
trading gains) for the three months ended September 30, 1997 was $892,000, a
decrease of $332,000, or 27.1%, from approximately $1.2 million in the
comparable 1996 period. Total brokerage income was $2.5 million for the nine
months ended September 30, 1997, a decrease of $2.0 million or 44.4% from $4.4
million for the nine month period ended September 30, 1996. Brokerage expenses
(including all fixed and variable expenses) decreased by $159,000, or 21.5%,
from $741,000 in the quarter ended September 30, 1996, to $582,000 for the three
months ended September 30, 1997. For the nine months ended September 30, 1997,
brokerage expenses were $1.6 million compared to $2.9 million for the comparable
period in the prior year, a decrease of $1.3 million or 44.2%. Net brokerage
income of $310,000 for the three months ended September 30, 1997 decreased from
$483,000 from the same period in 1996, a decrease of $173,000 or 35.8%. For the
nine month period ended September 30, 1997, net brokerage income was $812,000,
compared to $1,467,000 for the nine months ended September 30, 1996, a decrease
of $655,000, or 44.7%.
<PAGE>
The reduction in total brokerage income, total brokerage expense and net
brokerage income for the quarter ended September 30, 1997 from the comparable
quarter of 1996 was primarily due to a decrease in the total number of brokers
employed at T. R. Winston & Company, Inc. ("Winston") in 1997 compared to 1996.
Additionally, Winston participated in a private placement of securities in the
third quarter of 1996 that contributed net revenue of $175,000. The decrease in
total brokerage income and expense and net brokerage income for the nine months
ended September 30, 1997 compared to the same period in 1996 was due to the
reasons mentioned above as well as the closing of the New York office of Winston
on March 31, 1996.
Net investing losses were $5,000 and $577,000 for the three and nine months
ended September 30, 1997, respectively, compared to net gains of $44,000 and
$1.1 million, respectively, for the comparable periods in 1996. The decrease in
net investing gains from the three and nine month periods ended September 30,
1996 to the comparable periods in 1997 reflected the decline in the valuation of
selected securities owned in 1997. See Note 3 of Notes of Consolidated Financial
Statements for additional information on the valuation of securities owned.
Interest, dividend and other income was $238,000 and $251,000 for the
quarters ended September 30, 1997 and 1996 respectively. For the nine months
ended September 30, 1997, interest, dividend and other income was $658,000, a
decrease of $375,000 from the same period in the prior year. This decrease was
principally the result of lower interest income on customer balances at the
clearing broker in 1997 compared to 1996 and the sale of Winston's Pacific Stock
Exchange seat in 1996 which resulted in a gain of $100,000.
General and administrative expenses were $583,000 and $639,000 for the
quarters ended September 30, 1997 and 1996, respectively, a decrease from
quarter to quarter of $56,000 or 8.8%. The reduction was due to lower
professional fees in 1997 than 1996. For the nine month periods ended September
30, 1997 and 1996, general and administrative expenses were $1.5 million and
$2.1 million respectively, a decrease of $587,000 or 27.5%. The decrease for
the nine months ended September 30, 1997 compared to the same period in 1996 was
principally the result of lower administrative costs related to the closing of
Winston's New York office, as well as lower overall transaction volume.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which will be effective for the Company
beginning January 1, 1998. SFAS No. 131 redefines how operating segments are
determined and requires expanded quantitative and qualitative disclosures
relating to a company's operating segments. The Company has not yet completed
its analysis of which operating segments it will report on. The Company does not
believe the adoption of SFAS No. 131 will have a material impact on current
disclosures.
<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 October 20, 1997.
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 700,489 21,155
Mathew E. Hoffman 703,210 18,434
Casey K. Tjang 703,210 18,434
M. Michael Witte 703,187 18,457
</TABLE>
Item 6. - Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits
--------
27. Financial Data Schedule for the nine months ended September
30, 1997.
(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 10, 1997 By: /s/ Mark Koscinski
-------------------------
Mark Koscinski
Vice President and
Principal Accounting Officer
