<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,
1999 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000316028
<NAME> KENT FIANCIAL SERVICES, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 5,738
<SECURITIES> 7,160
<RECEIVABLES> 404
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,302
<PP&E> 1,700
<DEPRECIATION> 500
<TOTAL-ASSETS> 14,907
<CURRENT-LIABILITIES> 1,818
<BONDS> 0
0
0
<COMMON> 194
<OTHER-SE> 12,532
<TOTAL-LIABILITY-AND-EQUITY> 14,907
<SALES> 0
<TOTAL-REVENUES> 2,748
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,199
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 133
<INCOME-PRETAX> 416
<INCOME-TAX> 18
<INCOME-CONTINUING> 398
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 398
<EPS-BASIC> 0.20
<EPS-DILUTED> 0.20
</TABLE>
U.S. 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, 1999
-------------
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, 1999, the issuer had 1,898,600 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
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
(UNAUDITED)
($000 Omitted)
June 30,
1999
--------
Assets
- ------
Cash and cash equivalents $ 5,738
Securities owned 7,160
Receivable from clearing broker 404
Property and equipment:
Land and building 1,440
Office furniture and equipment 260
--------
1,700
Accumulated depreciation ( 500)
--------
Net property and equipment 1,200
--------
Other assets 405
--------
Total assets $ 14,907
========
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities:
Accounts payable and accrued expenses $ 1,349
Mortgage payable 469
Discontinued operations 363
--------
Total liabilities 2,181
--------
Stockholders' equity:
Preferred stock without par value, 500,000
shares authorized; none outstanding -
Common stock, $.10 par value, 4,000,000
shares authorized; 1,941,438 outstanding 194
Additional paid-in capital 14,807
Accumulated deficit ( 2,275)
--------
Total stockholders' equity 12,726
--------
Total liabilities and stockholders' equity $ 14,907
========
See accompanying notes to consolidated financial statements.
<PAGE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
($000 Omitted, except per share data)
Three Months Ended
June 30,
------------------
1999 1998
------ ------
Revenues:
Brokerage commissions and fees $ 450 $ 491
Principal transactions:
Trading 227 138
Investing gains 39 447
Interest, dividends and other 613 250
------ ------
1,329 1,326
------ ------
Expenses:
Brokerage 468 467
General, administrative and other 638 584
Interest 69 71
------ ------
1,175 1,122
------ ------
Earnings before income taxes 154 204
Provision for income taxes 4 93
------ ------
Net earnings $ 150 $ 111
====== ======
Basic net earnings per
common share $ .08 $ .06
====== ======
Diluted net earnings per
common share $ .08 $ .06
====== ======
Weighted average number of common
shares outstanding (in 000's) 1,967 2,006
====== ======
See accompanying notes to consolidated financial statements.
<PAGE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
($000 Omitted, except per share data)
Six Months Ended
June 30,
----------------
1999 1998
------ ------
Revenues:
Brokerage commissions and fees $ 949 $ 878
Principal transactions:
Trading 496 355
Investing gains 494 1,567
Underwriting and placement fees,
net of related expenses - 135
Interest, dividends and other 809 497
------ ------
2,748 3,432
------ ------
Expenses:
Brokerage 984 949
General, administrative and other 1,215 1,536
Interest 133 129
------ ------
2,332 2,614
------ ------
Earnings before income taxes 416 818
Provision for income taxes 18 53
------ ------
Net earnings $ 398 $ 765
====== ======
Basic net earnings per
common share $ .20 $ .38
====== ======
Diluted net earnings per
common share $ .20 $ .38
====== ======
Weighted average number of common
shares outstanding (in 000's) 1,969 2,014
====== ======
See accompanying notes to consolidated financial statements.
<PAGE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
($000 Omitted)
Six Months Ended
June 30,
----------------
1999 1998
------ ------
Cash flows from operating activities:
Net earnings $ 398 $ 765
Adjustments:
Depreciation and amortization 27 24
Change in unrealized (gains)
losses on securities owned ( 456) ( 923)
Change in securities owned
and U.S. Treasury Securities ( 3,069) 3,068
Change in receivable from
clearing broker 865 ( 531)
Change in accounts payable and
accrued expenses 183 430
Other, net ( 153) ( 42)
------- -------
Net cash provided by (used in)
operating activities ( 2,205) 2,791
------- -------
Cash flows from investing activities:
Purchase of equipment ( 14) ( 11)
Net noncash assets of a previously
consolidated subsidiary 27 -
Net cash related to a previously
consolidated subsidiary ( 85) -
------- -------
Net cash used in investing
activities ( 72) ( 11)
------- -------
Cash flows from financing activities:
Purchase of common stock ( 193) ( 83)
Payments on debt ( 9) ( 16)
------- -------
Net cash used in financing
activities ( 202) ( 99)
------- -------
Net (decrease) increase in cash
and cash equivalents ( 2,479) 2,681
Cash and cash equivalents at
beginning of period 8,217 6,768
------- -------
Cash and cash equivalents at end of
period $ 5,738 $ 9,449
======= =======
Consolidated Statements of Cash Flows
is Continued on Page 6
See accompanying notes to consolidated financial statements.
<PAGE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS, CONTINUED FROM PAGE 5
(UNAUDITED)
($000 Omitted)
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 133 $ 129
======= ======
Taxes $ 28 $ 24
======= ======
Supplemental disclosure of non-cash transaction:
During the quarter ended June 30, 1999, the previously consolidated
subsidiary, T. R. Winston Capital, Inc., ("Wincap") issued stock to an unrelated
third party, resulting in a change of control. Net assets of Wincap consisted of
$168,000 including $141,000 of cash at December 31, 1998. Subsequent to the
stock issuance, the Company withdrew $56,000 from Wincap.
CONCLUDED
See accompanying notes to consolidated financial statements.
<PAGE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(UNAUDITED)
1. Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements of Kent
Financial Services, Inc. and subsidiaries (the "Company") as of June 30, 1999
and for the three and six month periods ended June 30, 1999 and 1998 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, 1998 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.
On May 7, 1999, T.R. Winston Capital, Inc. ("Wincap") a previously
consolidated subsidiary of the Company, issued stock to an unrelated third
party, resulting in a change of control. The financial statements presented
prior to that date include the accounts of Wincap which was consolidated into
the Company. Subsequently, the Company accounted for Wincap using the equity
method to reflect its new ownership percentage.
Certain reclassifications have been made to the prior years' financial
statements to conform to the current years' presentation.
The results of operations for the three and six month periods ended June
30, 1999 and 1998 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
<PAGE>
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
June 30, 1999, Winston had net capital, as defined, of approximately $626,000,
which was $525,000 in excess of the required minimum.
3. Securities Owned
----------------
Securities owned consist of the following ($000's omitted):
Marketable, at Marketable, at
Market Value Fair Value Total
-------------- -------------- -----
Equity securities $ 6,509 $ 600 $ 7,109
Mutual funds 51 - 51
------- ----- -------
Total $ 6,560 $ 600 $ 7,160
======= ===== =======
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 judgement 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. Sale of Subsidiary
------------------
In July 1998, Winston, its then wholly-owned subsidiary T. R. Winston
Capital, Inc. ("Wincap"), and an unrelated third party ("Third Party"), entered
into a stock purchase agreement ("Agreement"). The Agreement provides among
other things, for the Third Party to contribute to the capital of Wincap,
$800,000 in return for an 80% ownership interest and an officer of Wincap and
Winston to receive a 10% ownership interest. The closing of the Agreement and
the resultant change in control were effected during May 1999 subsequent to
receiving NASD approval. No gain or loss was recorded on the transaction.
<PAGE>
A condition of the Agreement is that the Third Party and two officers of
Winston enter into an investment advisory agreement ("Advisory Agreement").
Under the Advisory Agreement, the Third Party has committed to provide no less
than $4.7 million of assets to be managed by the two officers as long as certain
performance criteria are met.
Winston has agreed to provide management services to Wincap. These services
will consist of all services necessary for the operation of Wincap's securities
business. Winston will receive as compensation for the services, 60% of Wincap's
gross commissions as defined in the Agreement. Wincap is currently in the
process of amending its Membership Agreement with the NASD in order to enable it
to conduct its planned securities business. Approval of this amendment is
pending.
5. Segment Reporting
-----------------
The Company has evaluated the requirements of Statement of Financial
Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS No. 131") and has determined that it does not have
reportable operating segments as defined. The Company conducts stock brokerage
and investment banking activities through its wholly-owned subsidiaries Winston
and AVF, as described in Note 2 of Notes to Consolidated Financial Statements.
These wholly-owned subsidiaries do not have individual segment managers or
discrete financial data used to allocate resources as defined by SFAS No. 131.
<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 cash and cash equivalents
(U.S. Treasury bills with an original maturity of ninety days or less) of $5.7
million and securities owned of $7.2 million at June 30, 1999. Substantially all
securities are owned by AVF. For additional information on the valuation of
securities owned see Note 3 of Notes to Consolidated Financial Statements.
Net cash (used in) provided by operations was approximately ($2.2) million
and $2.8 million in the six month periods ended June 30, 1999 and 1998,
respectively. Cash flows from operations for the six months ended June 30, 1999
decreased from the comparable period in 1998 principally from the increase in
securities owned.
Net cash used in investing activities increased during 1999 due to the sale
of Winston's subsidiary as discussed in Note 4 of Notes to Consolidated
Financial Statements.
Net cash used in financing activities of $202,000 and $99,000 for the six
month periods ended June 30, 1999 and 1998, 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's headquarters
facility. The loan matures in September 1999. The Company intends to refinance
the loan before the maturity date. The Company believes that its liquidity is
sufficient for future operations.
Material Changes in Results of Operations
- -----------------------------------------
The Company had net income of $150,000, or $.08 basic and diluted earnings
per share, for the three months ended June 30, 1999 compared to net income of
$111,000 or $.06 basic and diluted earnings per share, for the comparable
quarter in 1998. For the six months ended June 30, 1999, net income was $398,000
or $.20 basic and diluted earnings per share, compared to net income of $765,000
or $.38 basic earnings 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 June 30, 1999 was $677,000, an
increase of $48,000, or 8%, from approximately $629,000 in the comparable 1998
period. Total brokerage income was $1,445,000 for the six months ended June 30,
1999, an increase of $77,000 or 6% from $1,368,000 for the six month period
ended June 30, 1998. Included in brokerage income for the six months ended June
<PAGE>
30, 1998 was net underwriting fees of $135,000 that were earned from a private
placement of debt for a publically-traded company in the first quarter of 1998.
Brokerage expenses (including all fixed and variable expenses) increased by
$1,000, from $467,000 in the quarter ended June 30, 1998, to $468,000 for the
quarter ended June 30, 1999. For the six months ended June 30, 1999, brokerage
expenses were $984,000 compared to $949,000 for the comparable period in the
prior year, an increase of $35,000 or 4%. Net brokerage income of $209,000 for
the three months ended June 30, 1999 increased from $162,000 for the same period
in 1998, an increase of $47,000 or 29%. For the six month period ended June 30,
1999, net brokerage income was $461,000, compared to $419,000 for the six months
ended June 30, 1998, an increase of $42,000 or 10%.
Net investing gains were $39,000 and $494,000 for the three and six months
ended June 30, 1999, respectively, compared to net investing gains of $447,000
and $1,567,000 for the comparable periods in 1998. The decrease in net investing
gains from the three and six month periods ended June 30, 1998 to the comparable
periods in 1999 reflected the gain on sale in 1998 of a significant amount of
securities owned.
Interest, dividends and other income was $613,000 and $809,000 for the
three and six months ended June 30, 1999, respectively, compared to $250,000 and
$497,000 for the three and six months ended June 30, 1998, respectively. This
increase was a result of an extraordinary dividend received by AVF from one of
its portfolio investments offset by a decrease in interest earned due to lower
invested balances and lower available rates.
General and administrative expenses were $638,000 and $584,000 for the
quarters ended June 30, 1999 and 1998, respectively, an increase of $54,000 or
9%. The increase in general and administrative expense for the quarter ended
June 30, 1999 versus the quarter ended June 30, 1998 was due principally to an
increase in compensation accruals and various other administrative expenses.
For the six month periods ended June 30, 1999 and 1998, general and
administrative expenses were $1,215,000 and $1,536,000 respectively, a decrease
of $321,000 or 21%. This decrease for the six months ended June 30, 1999
compared to the same period in 1998 is principally due to the following items:
(i) $130,000 provision for start up costs of a subsidiary that will provide
<PAGE>
telephone services in the New England region during the 1998 period; (ii)
$35,000 decrease in employee bonus accruals; (iii) $40,000 decrease in legal
expenses; (iv) $60,000 decrease 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 during the 1998 period.
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. Management's
Year 2000 Plan addresses aspects of: Assessment which was completed during 1998;
Implementation which will be completed during the third quarter of 1999;
Staffing; Testing; and Contingency Planning. To date the Company is on schedule
with its Year 2000 Plan. The Company's critical systems were completed during
May 1999 and all systems will be Year 2000 ready by October 31, 1999, which is
prior to any anticipated effect on its operating systems. The Company has
replaced certain systems that were not Year 2000 compliant and is in the process
of converting others to properly recognize the Year 2000. The Company will
utilize external resources to reprogram or replace, and test the software for
Year 2000 modifications. Due to the critical relationship with the Company's
clearing broker, the Company has developed 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 will not have an adverse effect on the Company's systems. The
total cost of the Year 2000 Plan is not expected to be material and will be
funded though operating cash flows and 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 estimates,
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, 1999.
(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 13, 1999 By: /s/ Mark Koscinski
---------------------------
Mark Koscinski
Vice President
