<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, 2000 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-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 3,245
<SECURITIES> 10,084
<RECEIVABLES> 1,268
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,597
<PP&E> 1,712
<DEPRECIATION> 557
<TOTAL-ASSETS> 16,021
<CURRENT-LIABILITIES> 2,286
<BONDS> 0
0
0
<COMMON> 186
<OTHER-SE> 13,549
<TOTAL-LIABILITY-AND-EQUITY> 16,021
<SALES> 0
<TOTAL-REVENUES> 3,190
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,729
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 99
<INCOME-PRETAX> 1,362
<INCOME-TAX> 3
<INCOME-CONTINUING> 1,359
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,359
<EPS-BASIC> .72
<EPS-DILUTED> .72
</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, 2000
----------------
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, 2000, the issuer had 1,849,364 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,
2000
-----------
Assets
Cash and cash equivalents $ 3,245
Securities owned 10,084
Receivable from clearing broker 1,268
Property and equipment:
Land and building 1,447
Office furniture and equipment 265
--------
1,712
Accumulated depreciation ( 557)
--------
Net property and equipment 1,155
--------
Other assets 269
--------
Total assets $ 16,021
========
Liabilities and Stockholders' Equity
Liabilities:
Securities sold, not yet purchased $ 236
Accounts payable and accrued expenses 1,035
Mortgage payable 697
Accrual for previously discontinued operations 318
--------
Total liabilities 2,286
--------
Contingent liabilities (Notes 4 and 5)
Stockholders' equity:
Preferred stock without par value, 500,000
shares authorized; none outstanding -
Common stock, $.10 par value, 4,000,000
shares authorized; 1,862,264 outstanding 186
Additional paid-in capital 14,454
Accumulated deficit ( 905)
--------
Total stockholders' equity 13,735
--------
Total liabilities and stockholders' equity $ 16,021
========
See accompanying notes to consolidated financial statements.
1
<PAGE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
($000 Omitted, except per share data)
Three Months Ended
March 31,
2000 1999
------ ------
Revenues:
Brokerage commissions $ 592 $ 499
Principal transactions:
Trading 1,509 269
Investing gains 840 455
Interest, dividends and other 249 196
------ ------
3,190 1,419
------ ------
Expenses:
Brokerage 1,300 516
General, administrative and other 429 577
Interest 99 64
------ ------
1,828 1,157
------ ------
Earnings before income taxes 1,362 262
Provision for income taxes 3 14
------ ------
Net earnings $1,359 $ 248
====== ======
Basic net earnings per common share $ .72 $ .12
====== ======
Diluted net earnings per common
share $ .72 $ .12
====== ======
Weighted average number of common
shares outstanding (in 000's) 1,888 1,992
====== ======
See accompanying notes to consolidated financial statements.
2
<PAGE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
($000 Omitted)
Three Months Ended
March 31,
----------------------
2000 1999
------ ------
Cash flows from operating activities:
Net earnings $ 1,359 $ 248
Adjustments:
Depreciation and amortization 19 12
Change in unrealized gains
on securities owned ( 832) ( 46)
Change in securities owned ( 723) ( 3,230)
Change in receivable from
clearing broker ( 328) 775
Change in accounts payable and
accrued expenses ( 135) 84
Other, net 9 ( 21)
------- ------
Net cash used in
operating activities ( 631) ( 2,178)
------- ------
Cash flows from investing activities-
Purchase of office equipment - ( 8)
------- ------
Cash flows from financing activities:
Purchase of common stock ( 165) ( 1)
Payments on debt ( 2) ( 9)
------- ------
Net cash used in financing
activities ( 167) ( 10)
------- ------
Net decrease in cash
and cash equivalents ( 798) ( 2,196)
Cash and cash equivalents at
beginning of period 4,043 8,217
------- ------
Cash and cash equivalents at end of
period $ 3,245 $6,021
======= ======
Supplemental disclosure of cash flow
information:
Cash paid for:
Interest $ 99 $ 64
======= ======
Taxes $ 1 $ 12
======= ======
See accompanying notes to consolidated financial statements.
3
<PAGE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
(UNAUDITED)
1. Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements of Kent
Financial Services, Inc. and subsidiaries (the "Company") as of March 31, 2000
and for the three month periods ended March 31, 2000 and 1999 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, 1999, 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 accounts for Wincap using the equity
method to reflect its new ownership percentage.
The results of operations for the three month periods ended March 31, 2000
and 1999 are not necessarily indicative of the results to be expected for the
entire year or for any other period.
4
<PAGE>
2. Business
--------
The Company's business is comprised principally of the operation of T. R.
Winston & Company, Inc. ("Winston"), a wholly-owned subsidiary. 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,
2000, Winston had net capital, as defined, of approximately $1.1 million, which
was approximately $1.0 million in excess of the required minimum.
The Company also invests through its wholly-owned subsidiary, Asset Value
Fund Limited Partnership ("AVF"). AVF primarily invests in a limited number of
portfolio companies, the securities of which are considered undervalued by AVF's
management. As of March 31, 2000, AVF held 14 equity investments, of which four
consisted of owning more than 5% of the investee's outstanding capital stock.
AVF owns more than 38% of Cortech, Inc., a company supervising the exploitation
of its technology by third parties and also seeking a new business; 26% of
General Devices, Inc., a non-operating company seeking a new business; 16% of
Gish Biomedical, Inc., a manufacturer of medical devices; and 6% of Golf
Rounds.com, Inc., an internet content provider.
3. Securities owned and securities sold, not yet purchased
-------------------------------------------------------
Securities owned consist of proprietary trading positions held for resale
to customers and portfolio positions held for capital appreciation some of which
are valued at fair value. The fair values of the portfolio positions generally
are based on listed market prices. If listed market prices are not indicative of
fair value or if liquidating the Company's positions would reasonably be
expected to impact market prices, fair value is determined based on other
relevant factors. Among the factors considered by management in determining fair
value of the portfolio positions are the financial condition, asset composition
and operating results of the issuer, the long term business potential of the
issuer and other factors generally pertinent to the valuation of investments.
The fair value of these investments are subject to a high degree of volatility
and may be susceptible to significant fluctuation in the near term. Securities
owned and securities sold, not yet purchased as of March 31, 2000, consist of
the following (in 000's):
5
<PAGE>
Sold,
Not Yet
Owned Purchased
----- ---------
Marketable equity securities:
Portfolio positions of
greater than 5% of
outstanding common stock:
Cortech, Inc. $ 5,355 $ -
Gish Biomedical, Inc. 1,262 -
Golf Rounds.com, Inc. 455 -
General Devices, Inc. 51 -
All other portfolio positions 2,775 236
Held for resale to customers 147 -
Mutual funds 39 -
------- ------
Fair value $10,084 $ 236
======= ======
Securities owned which are not valued at listed market prices at March 31,
2000 amounted to $7,072,000.
4. Income taxes
------------
The components of income tax expense are as follows:
($000 Omitted)
Three Months Ended March 31,
-----------------------------
2000 1999
------ ------
Federal-Current $ - $ -
State-Current 3 14
Deferred - -
---- ----
Total $ 3 $ 14
==== ====
6
<PAGE>
Total income tax expense for the three months ended March 31, 2000 and 1999
are different from the amounts computed by multiplying total earnings before
income taxes by the statutory Federal income tax rate of 34%. The reasons for
these differences and the related tax effects are:
($000 Omitted)
Three Months Ended
March 31,
--------------------
2000 1999
------ ------
Income tax expense computed at
statutory rates on total earnings
before income taxes $ 463 $ 89
Increase (decrease) in tax from:
Valuation allowance on net operating
loss carryforward ( 463) ( 89)
State income tax, net of Federal benefit 3 14
----- -----
Total tax expense $ 3 $ 14
===== =====
5. Contingent liabilities
----------------------
From time to time in the normal course of business Winston could be named
as a respondent in various arbitration matters. In January 2000 and May 2000
Winston settled the two open arbitrations which were open at December 31, 1999.
These settlements did not have any material adverse effect on the consolidated
financial statements of the Company. Currently there are no pending
arbitrations.
6. Pending Sale of Investment in T.R. Winston Capital, Inc.
--------------------------------------------------------
In January 2000, Wincap stockholders signed a letter of intent with Direct
Capital Markets.com, Inc., ("DCM") to sell all outstanding shares in exchange
for 75,000 unregistered, non-marketable shares of DCM's Series C Convertible
Preferred Stock. In April 2000,Wincap's stockholders negotiated a definitive
agreement for the sale. The sale is contingent upon regulatory approval.
7
<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 $3.2
million and securities owned of $10.1 million at March 31, 2000. Substantially
all securities are owned by AVF. Securities carried at fair value of $7,072,000
were valued based on managements estimates. These securities are subject to a
high degree of volatility and may be susceptible to significant fluctuation in
the near term. The remainder of the securities owned are valued at quoted market
prices.
Net cash used in operations was $631,000 in the three months ended March
31, 2000 compared to net cash used in operations of $2.2 million in the
comparable period of 1999. Net cash used in operations for the three months
ended March 31, 2000 decreased from the comparable period in 1999 principally
from the change in securities owned and the change in the receivable from
clearing broker. The increase in net income in the first quarter of 2000
compared to the first quarter of 1999 was 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 $167,000 and $10,000 in the three
month periods ended March 31, 2000 and 1999, 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. In
February 2000 the Company announced that it would purchase up to 200,000 shares
of the Company's common stock at prices deemed favorable from time to time in
the open market or in privately negotiated transactions subject to market
conditions, the Company's financial position and other considerations. The
Company believes that its liquidity is sufficient for future operations.
Results of Operations
- ---------------------
The Company had net income of $1,359,000, or $.72 basic and diluted
earnings per share, for the three months ended March 31, 2000 compared to net
income of $248,000 or $.12 basic and diluted earnings per share, for the
comparable quarter in 1999.
8
<PAGE>
Total brokerage income (consisting of brokerage commissions, fees and
trading gains) for the three months ended March 31, 2000 was $2,101,000, an
increase of $1,333,000, or 174%, from approximately $768,000 in the comparable
1999 period. Brokerage expenses (including all fixed and variable expenses)
increased by $784,000, or 152%, from $516,000 in the quarter ended March 31,
1999, to $1,300,000 for the three months ended March 31, 2000. Net brokerage
income was $801,000 for the three months ended March 31, 2000 and $252,000 for
the same period in 1999, an increase of $549,000 or 218%.
The increase in brokerage commission income, principal trading gains and
total brokerage expense for the quarter ended March 31, 2000 compared to the
comparable quarter of 1999 was due to increased activity by the brokers employed
at T. R. Winston & Company, Inc., which was consistent with increased activity
in the equity markets in general.
Net investing gains were $840,000 for the three months ended March 31,
2000, compared to net investing gains of $455,000 for the comparable period in
1999. The increase in net investing gains from the three month period ended
March 31, 2000 to the comparable period in 1999 reflected the appreciation in
investment valuation of portfolio positions and the increased level of
investment activity.
Interest, dividend and other income was $249,000 for the three months ended
March 31, 2000, compared to $196,000 for the three months ended March 31, 1999.
This increase was a result of dividend income offset by a decrease in interest
received due to lower invested balances of the Company's cash equivalents.
General, administrative and other expenses were $429,000 and $577,000 for
the quarters ended March 31, 2000 and 1999, respectively, a decrease of $148,000
or 26%. This decrease is principally due to a reduction in personnel expense and
a reduction in bonus expense accrual.
9
<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, 2000.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter for which
this report is being filed.
10
<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 12, 2000 By: /s/ John W. Galuchie, Jr.
-------------------------
John W. Galuchie, Jr.
Executive Vice President
