<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 six months ended June 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 9,449
<SECURITIES> 3,922
<RECEIVABLES> 601
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,972
<PP&E> 1,688
<DEPRECIATION> 447
<TOTAL-ASSETS> 15,530
<CURRENT-LIABILITIES> 1,824
<BONDS> 0
0
0
<COMMON> 100
<OTHER-SE> 12,696
<TOTAL-LIABILITY-AND-EQUITY> 15,530
<SALES> 0
<TOTAL-REVENUES> 3,432
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,485
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 129
<INCOME-PRETAX> 818
<INCOME-TAX> 53
<INCOME-CONTINUING> 765
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 765
<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: June 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 July 31, 1998, the issuer had 999,482 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,
1998
---------
<S> <C>
Cash and cash equivalents $ 9,449
U.S. Treasury Securities 1,366
Securities owned 2,556
Receivable from clearing broker 601
Property and equipment:
Land and building 1,440
Office furniture and equipment 248
-------
1,688
Accumulated depreciation ( 447)
-------
Net property and equipment 1,241
-------
Other assets 317
-------
Total assets $15,530
=======
</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)
June 30,
1998
----------
<S> <C>
Liabilities:
Securities sold, not yet purchased $ 376
Accounts payable and accrued expenses 1,448
Long-term debt 502
Discontinued operations 408
-------
Total liabilities 2,734
-------
Stockholders' equity:
Preferred stock without par value, 500,000
shares authorized; none outstanding -
Common stock, $.10 par value, 4,000,000
shares authorized; 999,557 outstanding 100
Additional paid-in capital 15,136
Accumulated deficit ( 2,440)
-------
Total stockholders' equity 12,796
-------
Total liabilities and stockholders' equity $15,530
=======
</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,
------------------------
1998 1997
------ ------
<S> <C> <C>
Revenues:
Brokerage commissions and fees $ 491 $ 350
Principal transactions:
Trading 138 420
Investing gains (losses) 447 ( 91)
Interest, dividends and other 250 222
------ ------
1,326 901
------ ------
Expenses:
Brokerage 467 530
General, administrative and other 584 456
Interest 71 73
------ ------
1,122 1,059
------ ------
Earnings (loss) before income taxes 204 ( 158)
Provision (benefit) for income taxes 93 ( 18)
------ ------
Net earnings (loss) $ 111 ($ 140)
====== ======
Basic net earnings (loss) per
common share $ .11 ($ .14)
====== ======
Diluted net earnings (loss) per
common share $ .11 ($ .14)
====== ======
Weighted average number of common
shares outstanding (in 000's) 1,003 1,031
====== ======
</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,
------------------------
1998 1997
------ ------
<S> <C> <C>
Revenues:
Brokerage commissions and fees $1,013 $ 773
Principal transactions:
Trading 355 785
Investing gains (losses) 1,567 ( 572)
Interest, dividends and other 497 420
------ ------
3,432 1,406
------ ------
Expenses:
Brokerage 949 1,056
General, administrative and other 1,536 961
Interest 129 125
------ ------
2,614 2,142
------ ------
Earnings (loss) before income taxes 818 ( 736)
Provision (benefit) for income taxes 53 ( 65)
------ ------
Net earnings (loss) $ 765 ($ 671)
====== ======
Basic net earnings (loss) per
common share $ .76 ($ .65)
====== ======
Diluted net earnings (loss) per
common share $ .76 ($ .65)
====== ======
Weighted average number of common
shares outstanding (in 000's) 1,007 1,037
====== ======
</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,
------------------------
1998 1997
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 765 ($ 671)
Adjustments:
Depreciation and amortization 24 30
Change in unrealized (gains)
losses on securities owned ( 923) 586
Change in securities owned
and U.S. Treasury Securities 3,068 2,307
Change in receivable from
clearing broker ( 531) ( 462)
Change in accounts payable and
accrued expenses 430 ( 342)
Other, net ( 42) ( 35)
------ ------
Net cash provided by
operating activities 2,791 1,413
------ ------
Cash flows from investing activities:
Purchase of property and equipment ( 11) ( 16)
------ ------
Net cash used in investing
activities ( 11) ( 16)
------ ------
Cash flows from financing activities:
Purchase of common stock ( 83) ( 121)
Payments on debt ( 16) ( 16)
------ ------
Net cash used in financing
activities ( 99) ( 137)
------ ------
Net increase in cash and cash
equivalents 2,681 1,260
Cash and cash equivalents at
beginning of period 6,768 7,109
------ ------
Cash and cash equivalents at end of
period $9,449 $8,369
====== ======
Supplemental disclosure of cash flow
information:
Cash paid for:
Interest expense $ 129 $ 125
====== ======
Taxes $ 24 $ 142
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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 June 30, 1998
and for the three and six month periods ended June 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 six month periods ended June
30, 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 broker-dealer and is
a member of the National Association of
<PAGE>
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
June 30, 1998, Winston had net capital, as defined, of approximately $610,000,
which was $510,000 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 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.
<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 $9.4 million at June 30, 1998. At the same date, the company also
had U.S. Treasury Securities with an original maturity greater than 90 days of
$1.4 million and securities owned of $2.6 million. See Note 3 of Notes to
Consolidated Financial Statements for additional information on the valuation
and composition of securities owned.
Net cash provided by operations was $2.8 million and $1.4 million in the
six months ended June 30, 1998 and 1997, respectively. Cash flow from operations
for the six months ended June 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 securities owned and U.S. Treasury Securities,
partially offset by the change in unrealized gains/losses on securities owned.
Net cash used in financing activities of $99,000 and $137,000 for the six
month periods ended June 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. The Company believes that its liquidity is
sufficient for future operations.
Material Changes in Results of Operations
- -----------------------------------------
The Company had net income of $111,000, or $.11 basic earnings per share,
for the three months ended June 30, 1998 compared to a net loss of $140,000 or
$.14 basic loss per share, for the comparable quarter in 1997. Diluted earnings
(loss) per share were $.11 and ($.14) for the quarters ended June 30, 1998 and
1997, respectively. For the six months ended June 30, 1998, net income was
$765,000 or $.76 basic earnings per share, compared to a net loss of $671,000 or
$.65 basic loss per share, for the comparable period in the prior year. The
diluted earnings (loss) per share was $.76 and ($.65) for the six month periods
ended June 30, 1998 and 1997, respectively.
Total brokerage income (consisting of brokerage commissions, fees and
trading gains) for the three months ended June 30, 1998 was $629,000, a decrease
of $141,000, or 18%, from approximately $770,000 in the comparable 1997 period.
Total brokerage income was $1,368,000 for the six months ended June 30, 1998, a
decrease of $190,000 or 12% from $1,558,000 for the six month period ended June
30, 1997. Brokerage expenses (including all fixed and variable
<PAGE>
expenses) decreased by $63,000, or 12%, from $530,000 in the quarter ended June
30, 1997, to $467,000 for the three months ended June 30, 1998. For the six
months ended June 30, 1998, brokerage expenses were $949,000 compared to
$1,056,000 for the comparable period in the prior year, a decrease of $107,000
or 10%. Net brokerage income of $162,000 for the three months ended June 30,
1998 decreased from $240,000 for the same period in 1997, a decrease of $78,000
or 33%. For the six month period ended June 30, 1998, net brokerage income was
$419,000, compared to $502,000 for the six months ended June 30, 1997, a
decrease of $83,000 or 17%.
The decrease in total brokerage income, total brokerage expense and net
brokerage income for the quarter and six months ended June 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. ("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 $447,000 and $1,567,000 for the three and six
months ended June 30, 1998, respectively, compared to net investing losses of
$91,000 and $572,000 for the comparable periods in 1997. The increase in net
investing gains from the three and six month periods ended June 30, 1997 to the
comparable periods in 1998 reflected the sale in 1998 of a significant amount of
securities owned. Securities owned decreased from $5.7 million at December 31,
1997 to $2.6 million at June 30, 1998.
Interest, dividends and other income was $250,000 and $497,000 for the
three and six months ended June 30, 1998, respectively, compared to $222,000 and
$420,000 for the three and six months ended June 30, 1997, respectively. This
increase was a result of higher invested balances due to the previously
discussed sale of marketable securities.
General and administrative expenses were $584,000 and $456,000 for the
quarters ended June 30, 1998 and 1997, respectively, an increase of $128,000 or
28%. The increase in general and administrative expense for the quarter ended
June 30, 1998 versus the quarter ended June 30, 1997 was due principally to:
(i) an increased bonus accrual of $60,000; (ii) increased consulting and travel
expenses of $19,000 incurred in connection with the search for new business
opportunities; (iii) legal fees and other expenses incurred in connection with a
proxy solicitation in one of the securities owned by the company of $15,000; and
(iv) various other expenses such as postage, supplies and subscriptions.
<PAGE>
For the six month periods ended June 30, 1998 and 1997, general and
administrative expenses were $1,536,000 and $961,000 respectively, an increase
of $575,000 or 60%. This increase forthe six months ended June 30, 1998 compared
to the same period in 1997 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) $160,000 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.
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.
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, which will be expensed as incurred.
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 6. - Exhibits and Reports on Form 8-K
- ------ --------------------------------
(a) Exhibits
--- --------
(27). Financial Data Schedule for the six months ended June
30, 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: August 14, 1998 By: /s/ Mark Koscinski
------------------------
Mark Koscinski
Vice President
