<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, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 9,124
<SECURITIES> 4,306
<RECEIVABLES> 1,053
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,483
<PP&E> 1,677
<DEPRECIATION> 435
<TOTAL-ASSETS> 15,962
<CURRENT-LIABILITIES> 2,311
<BONDS> 0
0
0
<COMMON> 101
<OTHER-SE> 12,632
<TOTAL-LIABILITY-AND-EQUITY> 15,962
<SALES> 0
<TOTAL-REVENUES> 2,106
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,434
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58
<INCOME-PRETAX> 614
<INCOME-TAX> (40)
<INCOME-CONTINUING> 654
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 654
<EPS-PRIMARY> .65
<EPS-DILUTED> .64
</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, 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 April 30, 1998, the issuer had 1,003,957 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,
1998
-----------
<S> <C>
Cash and cash equivalents $ 9,124
U.S. Treasury Securities 1,366
Securities owned 2,940
Receivable from clearing broker 1,053
Property and equipment:
Land and building 1,440
Office furniture and equipment 237
-------
1,677
Accumulated depreciation ( 435)
-------
Net property and equipment 1,242
-------
Other assets 237
-------
Total assets $15,962
=======
</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,
1998
-----------
<S> <C>
Liabilities:
Securities sold, not yet purchased $ 1,009
Accounts payable and accrued expenses 1,302
Long-term debt 510
Discontinued operations 408
-------
Total liabilities 3,229
-------
Stockholders' equity:
Preferred stock without par value, 500,000
shares authorized; none outstanding -
Common stock, $.10 par value, 4,000,000
shares authorized; 1,006,783 outstanding 101
Additional paid-in capital 15,183
Accumulated deficit ( 2,551)
-------
Total stockholders' equity 12,733
-------
Total liabilities and stockholders' equity $15,962
=======
</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,
-------------------------
1998 1997
------ ------
<S> <C> <C>
Revenues:
Brokerage commissions and fees $ 522 $ 423
Principal transactions:
Trading 217 365
Investing gains (losses) 1,120 ( 481)
Interest, dividends and other 247 198
------ ------
2,106 505
------ ------
Expenses:
Brokerage 482 526
General, administrative and other 952 505
Interest 58 52
------ ------
1,492 1,083
------ ------
Earnings (loss) before income taxes 614 ( 578)
Provision (benefit) for income taxes ( 40) ( 47)
------ ------
Net earnings (loss) $ 654 ($ 531)
====== ======
Basic net earnings (loss) per common share $ .65 ($ .51)
====== ======
Diluted net earnings (loss) per common
share $ .64 ($ .51)
====== ======
Weighted average number of common
shares outstanding (in 000's) 1,011 1,043
====== ======
</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,
----------------------------
1998 1997
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 654 ($ 531)
Adjustments:
Depreciation and amortization 12 8
Change in unrealized (gains)
losses on securities owned ( 1,099) 606
Change in securities owned
and U.S. Treasury securities 3,493 1,140
Change in receivable from
clearing broker ( 837) ( 901)
Change in accounts payable and
accrued expenses 178 ( 122)
Change in income taxes payable ( 39) ( 225)
Other, net 38 ( 33)
------ ------
Net cash provided by
(used in) operating activities 2,400 ( 58)
------ ------
Cash flows from investing activities:
Purchase of property and equipment - ( 7)
Other - ( 10)
------ ------
Net cash used in investing
activities - ( 17)
------ ------
Cash flows from financing activities:
Purchase of common stock ( 36) ( 36)
Payments on debt ( 8) ( 8)
------ ------
Net cash used in financing
activities ( 44) ( 44)
------ ------
Net increase (decrease) in cash
and cash equivalents 2,356 ( 119)
Cash and cash equivalents at
beginning of period 6,768 7,109
------ ------
Cash and cash equivalents at end of
period $9,124 $6,990
====== ======
Supplemental disclosure of cash flow
information:
Cash paid for:
Interest expense $ 58 $ 52
====== ======
Taxes $ 11 $ 190
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
(Unaudited)
1. Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements of Kent
Financial Services, Inc. and subsidiaries (the "Company") as of March 31, 1998
and for the three month periods ended March 31, 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 month periods ended March 31, 1998
and 1997 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
<PAGE>
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
March 31, 1998, Winston had net capital, as defined, of approximately $639,000,
which was $531,000 in excess of the required minimum.
3. Securities Owned and Securities Sold, Not Yet Purchased
-------------------------------------------------------
Substantially all securities are owned by AVF and consist of the following
($000's omitted):
<TABLE>
<CAPTION>
Marketable, at Marketable, at
Market Value Fair Value Total
---------------- ---------------- ---------
<S> <C> <C> <C>
Equity securities $2,534 $ 326 $2,860
Mutual funds 80 - 80
------ ------ ------
Total $2,614 $ 326 $2,940
====== ====== ======
</TABLE>
Subsequent to quarter-end, the Company sold the securities owned valued at
fair value for a gain of approximately $280,000. Securities sold, not yet
purchased consist of equity securities carried 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.
<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 $9.1 million and U.S. Treasury Securities with an original maturity
greater than 90 days and securities owned of $4.3 million at March 31, 1998. See
Note 3 of Notes to Consolidated Financial Statements for additional information
on the valuation of securities owned.
Net cash provided by operations was $2.4 million in the three months ended
March 31, 1998 compared to a net use of cash by operations of $58,000 in the
comparable period of 1997. Cash flow from operations for the three months ended
March 31, 1998 increased from the comparable period in 1997 principally from the
change in securities owned and U.S. Treasury securities less the change in
unrealized gains on securities owned and the results of operations.
Net cash used in financing activities of $44,000 for both of the three
month periods ended March 31, 1998 and 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 net income of $654,000, or $.65 basic earnings per share,
for the three months ended March 31, 1998 compared to a net loss of $531,000 or
$.51 basic loss per share, for the comparable quarter in 1997. Diluted earnings
(loss) per share were $.64 and ($.51) for the quarters ended March 31, 1998 and
1997, respectively.
Total brokerage income (consisting of brokerage commissions, fees and
trading gains) for the three months ended March 31, 1998 was $739,000, a
decrease of $49,000, or 6%, from approximately $788,000 in the comparable 1997
period. Brokerage expenses (including all fixed and variable expenses) decreased
by $44,000, or 8%, from $526,000 in the quarter ended March 31, 1997, to
$482,000 for the three months ended March 31, 1998. Net brokerage income of
$257,000 for the three months ended March 31, 1998 decreased from $262,000 from
the same period in 1997, a decrease of $5,000 or 2%.
<PAGE>
The decrease in total brokerage income, total brokerage expense and net
brokerage income for the quarter ended March 31, 1998 compared to the comparable
quarter of 1997 was due to a decrease in the total number of brokers employed at
T. R. Winston & Company, Inc. ("Winston") in 1998 compared to 1997. This
decrease was partially offset by net commissions earned of $135,000 from a
private placement of debt for a publically traded company in the first quarter
of 1998.
Net investing gains were $1,120,000 for the three months ended March 31,
1998, compared to a net investing loss of $481,000 for the comparable period in
1997. The increase in net investing gains from the three month period ended
March 31, 1997 to the comparable period in 1998 reflected the sale of a
significant amount of securities owned in 1998. Securities owned decreased from
$5.7 million at December 31, 1997 to $2.9 million at March 31, 1998.
Interest and dividend income was $224,000 for the three months ended March
31, 1998, compared to $175,000 for the three month period ended March 31, 1997.
This increase was a result of higher invested balances due to the previously
discussed sale of marketable securities. Other income was $23,000 for both the
three month periods ended March 31, 1998 and 1997.
General and administrative expenses were $952,000 and $505,000 for the
quarters ended March 31, 1998 and 1997, respectively, an increase of $447,000 or
89%. This increase is principally due to the following items: (i) $130,000
provision for start up costs of a subsidiary that will provide telephone
services in the New England region, (ii) $100,000 increase in employee bonus
accruals, (iii) $75,000 for legal expenses, (iv) $60,000 increase in business
development expenses and (v) $50,000 in expenses incurred in connection with a
proxy solicitation in one of the securities owned by the Company.
<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, 1998.
(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.
Dated: May 14, 1998 By: /s/ Mark Koscinski
---------------------
Mark Koscinski
Vice President
