<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, 1999 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 6,021
<SECURITIES> 6,911
<RECEIVABLES> 494
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,426
<PP&E> 1,696
<DEPRECIATION> 486
<TOTAL-ASSETS> 14,847
<CURRENT-LIABILITIES> 1,715
<BONDS> 0
0
0
<COMMON> 199
<OTHER-SE> 12,570
<TOTAL-LIABILITY-AND-EQUITY> 14,847
<SALES> 0
<TOTAL-REVENUES> 1,419
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,093
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64
<INCOME-PRETAX> 262
<INCOME-TAX> 14
<INCOME-CONTINUING> 248
<DISCONTINUED> 0
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<NET-INCOME> 248
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</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, 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 April 30, 1999, the issuer had 1,971,496 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
(UNAUDITED)
($000 Omitted)
March 31,
1999
---------
Assets
- ------
Cash and cash equivalents $ 6,021
Securities owned 6,911
Receivable from clearing broker 494
Property and equipment:
Land and building 1,440
Office furniture and equipment 256
-------
1,696
Accumulated depreciation ( 486)
-------
Net property and equipment 1,210
-------
Other assets 211
-------
Total assets $14,847
=======
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities:
Accounts payable and accrued expenses $ 1,246
Mortgage note payable 469
Accrual for discontinued operations 363
-------
Total liabilities 2,078
-------
Stockholders' equity:
Preferred stock without par value, 500,000
shares authorized; none outstanding -
Common stock, $.10 par value, 4,000,000
shares authorized; 1,991,658 outstanding 199
Additional paid-in capital 14,995
Accumulated deficit ( 2,425)
-------
Total stockholders' equity 12,769
-------
Total liabilities and stockholders' equity $14,847
=======
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
March 31,
-------------------
1999 1998
------ ------
Revenues:
Brokerage commissions $ 499 $ 387
Principal transactions:
Trading 269 217
Investing gains 455 1,120
Underwriting and placement fees,
net of related expenses - 135
Interest, dividends and other 196 247
------ ------
1,419 2,106
------ ------
Expenses:
Brokerage 516 482
General, administrative and other 577 952
Interest 64 58
------ ------
1,157 1,492
------ ------
Earnings before income taxes 262 614
Provision (benefit) for income taxes 14 ( 40)
------ ------
Net earnings $ 248 $ 654
====== ======
Basic net earnings per common share $ .12 $ .32
====== ======
Diluted net earnings per common
share $ .12 $ .32
====== ======
Weighted average number of common
shares outstanding (in 000's) 1,992 2,022
====== ======
See accompanying notes to consolidated financial statements.
<PAGE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
($000 Omitted)
Three Months Ended
March 31,
------------------
1999 1998
------ ------
Cash flows from operating activities:
Net earnings $ 248 $ 654
Adjustments:
Depreciation and amortization 12 12
Change in unrealized gains
on securities owned ( 46) ( 1,099)
Change in securities owned
and U.S. Treasury securities ( 3,230) 3,493
Change in receivable from
clearing broker 775 ( 837)
Change in accounts payable and
accrued expenses 84 139
Other, net ( 21) 38
------ ------
Net cash (used in) provided by
operating activities ( 2,178) 2,400
------ ------
Cash flows from investing activities-
Purchase of office equipment ( 8) -
------ ------
Cash flows from financing activities:
Purchase of common stock ( 1) ( 36)
Payments on debt ( 9) ( 8)
------ ------
Net cash used in financing
activities ( 10) ( 44)
------ ------
Net (decrease) increase in cash
and cash equivalents ( 2,196) 2,356
Cash and cash equivalents at
beginning of period 8,217 6,768
------ ------
Cash and cash equivalents at end of
period $6,021 $9,124
====== ======
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 64 $ 58
====== ======
Taxes $ 12 $ 11
====== ======
See accompanying notes to consolidated financial statements.
<PAGE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 March 31, 1999 and for the
three month periods ended March 31, 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 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.
Certain reclassifications have been made to the prior years' financial
statements to conform to the current year's presentation.
The results of operations for the three month periods ended March 31, 1999 and
1998 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 pursuant to 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,
1999, Winston had net capital, as defined, of approximately $499,000, which was
$393,000 in excess of the required minimum.
3. Pending Sale of Subsidiary
--------------------------
On July 30, 1998, Winston, its 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 are subject to NASD approval which is anticipated to be
received in the second quarter of 1999.
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.
If the Agreement is closed, 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.
<PAGE>
4. 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 $6.0
million and securities owned of $6.9 million at March 31, 1999. Substantially
all securities are owned by AVF and consist of equity securities valued at
market value.
Net cash used in operations was $2.2 million in the three months ended
March 31, 1999 compared to net cash provided by operations of $2.4 million in
the comparable period of 1998. Cash flows from operations for the three months
ended March 31, 1999 decreased from the comparable period in 1998 principally
from the change in securities owned and U.S. Treasury securities and the change
in the receivable from clearing broker. The decrease in net income in the first
quarter of 1999 compared to the first quarter of 1998 was more than offset by
the change in unrealized gains on securities owned over the same periods.
Unrealized gains on securities owned are included in the results of operations
but do not generate cash flows from operations.
Net cash used in financing activities of $10,000 and $44,000 in the three
month periods ended March 31, 1999 and 1998, respectively, was 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.
Results of Operations
- ---------------------
The Company had net income of $248,000, or $.12 basic and diluted earnings
per share, for the three months ended March 31, 1999 compared to net income of
$654,000 or $.32 basic and diluted earnings per share, for the comparable
quarter in 1998.
Total brokerage income (consisting of brokerage commissions, fees and
trading gains) for the three months ended March 31, 1999 was $768,000, an
increase of $29,000, or 4%, from approximately $739,000 in the comparable 1998
period. Brokerage expenses (including all fixed and variable expenses) increased
by $34,000, or 7%, from $482,000 in the quarter ended March 31, 1998, to
$516,000 for the three months ended March 31, 1999. Net brokerage income of
$252,000 for the three months ended March 31, 1999 decreased from $257,000 from
the same period in 1998, a decrease of $5,000 or 2%.
<PAGE>
The increase in brokerage commission income, principal trading gains and
total brokerage expense for the quarter ended March 31, 1999 compared to the
comparable quarter of 1998 was due to increased activity of the brokers employed
at T. R. Winston & Company, Inc. Net underwriting fees of $135,000 were earned
from a private placement of debt for a publically traded company in the first
quarter of 1998.
Net investing gains were $455,000 for the three months ended March 31,
1999, compared to net investing gains of $1,120,000 for the comparable period in
1998. The decrease in net investing gains from the three month period ended
March 31, 1998 to the comparable period in 1999 reflected the sale of a
significant amount of securities owned in the first quarter of 1998, and the
change in investment portfolio composition.
Interest, dividend and other income was $196,000 for the three months ended
March 31, 1999, compared to $247,000 for the three months ended March 31, 1998.
This decrease was a result of lower interest rates and lower invested balances
of the Company's cash equivalents.
General, administrative and other expenses were $577,000 and $952,000 for
the quarters ended March 31, 1999 and 1998, respectively, a decrease of $375,000
or 39%. This decrease is principally due to the following expenses incurred in
the first quarter 1998: (i) $130,000 provision for start-up costs directly
expensed of a subsidiary that provides telephone services in the New England
region, (ii) $75,000 for legal expenses, (iii) $60,000 in business development
expenses and (iv) $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. 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 with the anticipated completion date for the Company's
critical systems of May 1999 and all systems being Year 2000 ready by October
31, 1999, which is prior to any anticipated effect on its operating systems. The
<PAGE>
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 three months ended
March 31, 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: May 4, 1999 By: /s/ Mark Koscinski
-------------------------
Mark Koscinski
Vice President
