-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Gjy4w1dLBU/X/AMIaHEmL6wjO7czE1A9hX6N2BPt9Y1YAWgQWAJ8iYqgvgyoNM8a 5HQ+2CXUTxr3ZZSMLxkwSw== 0000316028-99-000004.txt : 19990505 0000316028-99-000004.hdr.sgml : 19990505 ACCESSION NUMBER: 0000316028-99-000004 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990504 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KENT FINANCIAL SERVICES INC CENTRAL INDEX KEY: 0000316028 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 751695953 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 001-07986 FILM NUMBER: 99610006 BUSINESS ADDRESS: STREET 1: 376 MAIN ST PO BOX 74 CITY: BEDMINSTER STATE: NJ ZIP: 07921 BUSINESS PHONE: 9082340078 MAIL ADDRESS: STREET 1: 376 MAIN STREET STREET 2: P O BOX 74 CITY: BEDMINSTER STATE: NJ ZIP: 07921 FORMER COMPANY: FORMER CONFORMED NAME: TEXAS AMERICAN ENERGY CORP DATE OF NAME CHANGE: 19900815 EX-27 1 FDS --
5 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. 0000316028 KENT FINANCIAL SERVICES, INC. 1000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 6,021 6,911 494 0 0 13,426 1,696 486 14,847 1,715 0 0 0 199 12,570 14,847 0 1,419 0 0 1,093 0 64 262 14 248 0 0 0 248 .12 .12
10QSB 2 FOR THE QUARTER ENDED 03/31/99 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 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. 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. 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. 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. 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. 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. 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%. 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 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. 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. 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 -----END PRIVACY-ENHANCED MESSAGE-----