<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, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 8,918
<SECURITIES> 3,651
<RECEIVABLES> 352
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,921
<PP&E> 1,688
<DEPRECIATION> 459
<TOTAL-ASSETS> 14,450
<CURRENT-LIABILITIES> 1,389
<BONDS> 0
0
0
<COMMON> 199
<OTHER-SE> 12,004
<TOTAL-LIABILITY-AND-EQUITY> 14,450
<SALES> 0
<TOTAL-REVENUES> 3,788
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,424
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 211
<INCOME-PRETAX> 153
<INCOME-TAX> (60)
<INCOME-CONTINUING> 213
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 213
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</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, 1998
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, 1998, the issuer had 1,992,060 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,
1998
--------------
<S> <C>
Cash and cash equivalents $ 8,918
Securities owned 3,651
Net receivable from clearing broker 352
Property and equipment:
Land and building 1,440
Office furniture and equipment 248
-------
1,688
Accumulated depreciation ( 459)
-------
Net property and equipment 1,229
-------
Other assets 300
-------
Total assets $14,450
=======
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,
1998
---------------
<S> <C>
Liabilities:
Accounts payable and accrued expenses $ 1,389
Long-term debt 495
Accrual for discontinued operations 363
-------
Total liabilities 2,247
-------
Stockholders' equity:
Preferred stock without par value, 500,000
shares authorized; none issued -
Common stock, $.10 par value, 4,000,000
shares authorized; 1,992,164 issued
and outstanding 199
Additional paid-in capital 14,996
Accumulated deficit ( 2,992)
-------
Total stockholders' equity 12,203
-------
Total liabilities and stockholders' equity $14,450
=======
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,
-------------------------
1998 1997
------ ------
<S> <C> <C>
Revenues:
Brokerage commissions and fees $ 412 $ 474
Principal transactions:
Trading 87 418
Investing losses ( 393) ( 5)
Interest, dividends and other 250 238
------ ------
356 1,125
------ ------
Expenses:
Brokerage 339 582
General, administrative and other 600 583
Interest 82 89
------ ------
1,021 1,254
------ ------
Loss before income taxes ( 665) ( 129)
Benefit for income taxes ( 113) ( 20)
------ ------
Net loss ($ 552) ($ 109)
====== ======
Basic net loss per common share ($ .28) ($ .05)
====== ======
Diluted net loss per common share ($ .28) ($ .05)
====== ======
Weighted average number of common
shares outstanding (in 000's) 1,992 2,044
====== ======
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,
----------------------------
1998 1997
-------- --------
<S> <C> <C>
Revenues:
Brokerage commissions and fees $1,425 $1,247
Principal transactions:
Trading 442 1,203
Investing gains (losses) 1,174 ( 577)
Interest, dividends and other 747 658
------ ------
3,788 2,531
------ ------
Expenses:
Brokerage 1,288 1,638
General, administrative and other 2,136 1,544
Interest 211 214
------ ------
3,635 3,396
------ ------
Earnings (loss) before income taxes 153 ( 865)
Benefit for income taxes ( 60) ( 85)
------ ------
Net earnings (loss) $ 213 ($ 780)
====== ======
Basic net earnings (loss) per
common share $ .11 ($ .38)
====== ======
Diluted net earnings (loss) per
common share $ .11 ($ .38)
====== ======
Weighted average number of common
shares outstanding (in 000's) 2,006 2,064
====== ======
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,
--------------------------
1998 1997
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 213 ($ 780)
Adjustments:
Depreciation and amortization 38 42
Unrealized (gains) losses on
marketable securities ( 495) 766
Change in marketable securities
and U.S. Treasury securities 2,535 2,505
Change in net receivable from
clearing broker ( 283) ( 882)
Change in accounts payable and
accrued expenses 372 ( 329)
Other, net ( 72) ( 25)
------ ------
Net cash provided by operating
activities 2,308 1,297
------ ------
Cash flows from investing activities -
Purchase of equipment ( 11) ( 27)
------ ------
Net cash used in
investing activities ( 11) ( 27)
------ ------
Cash flows from financing activities:
Purchase of common stock ( 124) ( 188)
Payments on debt ( 23) ( 23)
------ ------
Net cash used in financing
activities ( 147) ( 211)
------ ------
Net increase in cash and cash
equivalents 2,150 1,059
Cash and cash equivalents at
beginning of period 6,768 7,109
------ ------
Cash and cash equivalents at end of
period $8,918 $8,168
====== ======
Supplemental disclosure of cash
flow information:
Cash paid for:
Interest expense $ 211 $ 214
====== ======
Taxes $ 29 $ 117
====== ======
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
(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,
1998 and for the three and nine month periods ended September 30, 1998 and 1997
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, 1997 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, 1998 and 1997 are not necessarily indicative of the results to be
expected for the entire year or for any other period.
<PAGE>
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.
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. At
September 30, 1998, Winston had net capital, as defined, of approximately
$618,000 which was $518,000 in excess of the required minimum.
3. Securities Owned
----------------
Substantially all securities are owned by AVF and consist of equity
securities valued at market value.
4. Net Earnings (Loss) Per Common Share
------------------------------------
Net earnings (loss) per common share is calculated in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
No. 128") and is based on the weighted average number of shares outstanding.
Diluted earnings per share includes the assumed conversion of shares issuable
upon exercise of options where appropriate. Prior years' earnings per share
information has been restated to comply with the requirements of SFAS No. 128.
All share amounts and per share data have been restated to reflect a two-for-one
stock split, effected in the form of a stock dividend, declared on October 15,
1998 and payable on November 9, 1998 to holders of record October 26, 1998.
<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 $8.9 million at September 30, 1998. At the same date, the Company
also had securities owned of $3.7 million. See Note 3 of Notes to Consolidated
Financial Statements for additional information on the valuation of securities
owned.
Net cash provided by operations was $2.3 million and $1.3 million in the
nine months ended September 30, 1998 and 1997, respectively. Cash flow from
operations for the nine months ended September 30, 1998 increased from the
comparable period in 1997 principally from net income, the change in accounts
payable and accrued expenses and the change in the net receivable from clearing
broker, partially offset by the change in unrealized gains/losses on securities
owned.
Net cash used in financing activities of $147,000 and $211,000 for the nine
month periods ended September 30, 1998 and 1997, respectively, resulted
principally from the Company's purchase and retirement of its common stock and
the continued payments on the mortgage loan collateralized by the Company
headquarters facility. The Company believes that its liquidity is sufficient for
future operations.
Material Changes in Results of Operations
- -----------------------------------------
The Company had a net loss of $552,000, or $.28 basic loss per share, for
the three months ended September 30, 1998 compared to a net loss of $109,000 or
$.05 basic loss per share, for the comparable quarter in 1997. Diluted loss per
share was $.28 and $.05 for the quarters ended September 30, 1998 and 1997,
respectively. For the nine months ended September 30, 1998, net income was
$213,000 or $.11 basic earnings per share, compared to a net loss of $780,000 or
$.38 basic loss per share, for the comparable period in the prior year. The
diluted earnings (loss) per share was $.11 and ($.38) for the nine month periods
ended September 30, 1998 and 1997, respectively.
<PAGE>
Total brokerage income (consisting of brokerage commissions, fees and
trading gains) for the three months ended September 30, 1998 was $499,000, a
decrease of $393,000, or 44%, from $892,000 in the comparable 1997 period. Total
brokerage income was $1,867,000 for the nine months ended September 30, 1998, a
decrease of $583,000 or 24% from $2,450,000 for the nine month period ended
September 30, 1997. Brokerage expenses (including all fixed and variable
expenses) decreased by $243,000, or 42%, from $582,000 in the quarter ended
September 30, 1997, to $339,000 for the three months ended September 30, 1998.
For the nine months ended September 30, 1998, brokerage expenses were $1,288,000
compared to $1,638,000 for the comparable period in the prior year, a decrease
of $350,000 or 21%. Net brokerage income of $160,000 for the quarter ended
September 30, 1998 decreased by $150,000 or 48% from $310,000 for the comparable
period of the prior year. For the nine month period ended September 30, 1998,
net brokerage income was $579,000, compared to $812,000 for the nine months
ended September 30, 1997, a decrease of $233,000 or 29%.
The decrease in total brokerage income, total brokerage expense and net
brokerage income for the quarter and nine months ended September 30, 1998
compared to the comparable periods of 1997 was due to a decrease in the total
number of brokers employed at T. R. Winston & Company, Inc. in 1998 compared to
1997. These decreases were partially offset by investment banking fees of
$29,000 and $164,000 for the quarter and nine months ended September 30, 1998.
Net investing (losses) gains were ($393,000) and $1,174,000 for the three
and nine months ended September 30, 1998, respectively, compared to net
investing losses of $5,000 and $577,000 for the comparable periods in 1997. The
changes in net investing gains (losses) from the three and nine month periods
ended September 30, 1997 to the comparable periods in 1998 reflected the changes
in general market conditions and the composition of the investment portfolio.
Interest, dividend and other income was $250,000 and $747,000 for the three
and nine months ended September 30, 1998, respectively, compared to $238,000 and
$658,000 for the three and nine months ended September 30, 1997, respectively.
This increase was a result of higher invested balances due to the reduction of
marketable securities.
<PAGE>
General and administrative expenses were $600,000 and $583,000 for the
quarters ended September 30, 1998 and 1997, respectively, an increase of $17,000
or 3%. The increase in general and administrative expense for the quarter ended
September 30, 1998 versus the quarter ended September 30, 1997 was due
principally to legal fees and other expenses incurred in connection with a proxy
solicitation in one of the securities owned by the Company.
For the nine month periods ended September 30, 1998 and 1997, general and
administrative expenses were $2,136,000 and $1,544,000 respectively, an increase
of $592,000 or 38%. This increase for the nine months ended September 30, 1998
compared to the same period in 1997 is principally due to the following items:
(i) $200,000 provision for start up costs of a subsidiary that will provide
telephone services in the New England region, (ii) $160,000 increase in employee
bonus accruals, (iii) $75,000 for legal expenses, (iv) $75,000 increase in
business development expenses and (v) $80,000 in expenses incurred in connection
with a proxy solicitation in one of the securities owned by the Company.
Year 2000 Matters
- -----------------
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions or engage in similar
normal business activities.
Management has determined that the year 2000 issue will not pose
significant operational problems for its internal computer systems. All costs
associated with this conversion are being expensed as incurred. Due to the
critical relationship with the Company's clearing broker, the Company will
develop a plan to test the transaction and other data provided by the clearing
broker after any required revisions to its software. However, there can be no
guarantee that the systems of the clearing broker and other companies on which
the Company's systems rely will be timely converted and would not have an
adverse effect on the Company's systems.
<PAGE>
The Company will utilize external resources to reprogram, or replace, and
test the software for Year 2000 modifications. The Company anticipates
completing the Year 2000 project not later than October 31, 1999, which is prior
to any anticipated impact on its operating systems. The total cost of the Year
2000 project is not expected to be material and will be funded through operating
cash flows.
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimate,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, third party modifications plans
and other factors. However, there can be no guarantee that these estimates will
be achieved and actual results could differ materially from those anticipated.
<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 2, 1998.
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 749,160 23,706
Mathew E. Hoffman 749,290 23,576
Casey K. Tjang 749,389 23,477
M. Michael Witte 749,378 23,488
</TABLE>
Item 6. - Exhibits and Reports on Form 8-K
- ------ --------------------------------
(a) Exhibits
--------
27. Financial Data Schedule for the nine months ended September
30, 1998.
(b) Reports on Form 8-K
-------------------
On October 15, 1998 the Company filed Form 8-K reporting a
two-for-one stock split effected in the from of a stock dividend.
The record date for the stock split was October 26, 1998 and the
distribution date was November 9, 1998.
<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 13, 1998 By: /s/ Mark Koscinski
-----------------------------
Mark Koscinski
Vice President and
Principal Accounting Officer
