**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        D.C. 20549**
 
 **FORM
        10-KSB**
 MARK
        ONE:
 x
              Annual
                  Report under Section 13 or 15(d) of the Securities Exchange Act
                  of 1934
 For
        the
        fiscal year ended December 31, 2005
 
 o
              Transition
                  Report under Section 13 or 15(d) of the Securities Exchange Act
                  of 1934
 For
        the
        transition period from _________________ to _________________.
 
 Commission
        file number 1-7986
 
 KENT
        FINANCIAL SERVICES, INC.
 (Name
        of
        small business issuer in its charter)
 
 Delaware
              
              75-1695953(State
                  or other jurisdiction of incorporation or organization)
              
              (I.R.S.
                  Employer Identification No.)376
                  Main Street, P.O. Box 74, Bedminster, New Jersey
              
              07921(Address
                  of principal executive offices)
              
              (Zip
                  Code)
 
 Issuer's
        telephone number (908)
        234-0078
 
 Securities
        registered under Section 12(b) of the Exchange Act:
 
 NONE
 
 Securities
        registered under Section 12(g) of the Exchange Act:
 
 Common
        Stock, par value $.10 per share
 (Title
        of
        Class)
 
 Check
        whether the issuer is not required to file reports pursuant to Section 13
        or
        15(d) of the Exchange Act o
 
 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 registrant was required to file such reports), and (2) has been
        subject
        to such filing requirements for the past 90 days.   Yes x No o
 
 Check
        if
        there is no disclosure of delinquent filers in response to Item 405 of
        Regulation S-B contained in this form, and no disclosure will be contained,
        to
        the best of registrants knowledge, in definitive proxy or information statements
        incorporated by reference in Part III of this Form 10-KSB or any amendment
        to
        this Form 10-KSB. x
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act).   Yes o No x
 
 The
        issuer's revenues for the fiscal year ended December 31, 2005 were approximately
        $894,000.
 
 The
        aggregate market value of the common stock held by non-affiliates of the
        issuer,
        based upon the closing sale price on the Nasdaq SmallCap Market February
        28,
        2006, was approximately $3.1 million. At February 28, 2006, there were 2,803,304
        shares of common stock outstanding.
 
 Transitional
        Small Business Disclosure Format   Yes o No x
  
  **PART
        I**
 
 **Item
                  1.**
              **DESCRIPTION
                  OF BUSINESS**
 
 General
 
 Kent
        Financial Services, Inc. (“Kent” or the “Company”), a Delaware corporation
        formed in 1980, operates primarily through its subsidiaries.
 
 Cortech,
        Inc .
 
 Kent,
        through its wholly-owned partnership Asset Value Fund Limited Partnership
        (“AVF”), owns approximately 52% of Cortech, Inc. (“Cortech”). Cortech, a
        publicly traded company, is currently seeking to redeploy its assets into
        an
        operating business. All of Cortech’s assets, excluding its portfolio of
        pharmaceutical patents, are invested in cash and United States treasury bills.
        Cortech is consolidated in the accompanying financial statements.
 
 In
        November 2005, Dr. Qun Yi Zheng was named President of the Company and of
        Cortech. From 1995 through 2005, Dr. Zheng was with Pure World, Inc. (“Pure
        World”), a publicly traded company and leading manufacturer of natural products.
        Dr. Zheng was President of Pure World from January 2004 until it was sold
        in
        July 2005. Under Dr. Zheng’s operational leadership, Cortech intends to pursue
        business opportunities in China, Eastern Europe and the United
        States.
 
 Kent
        Educational Services, Inc. (“KES”)
 
 KES
        is a
        wholly-owned subsidiary of Kent that has a 60% controlling interest in The
        Academy for Teaching and Leadership, Inc., (“The Academy”). The Academy, headed
        by Dr. Saul Cooperman, a former Commissioner of Education in the State of
        New
        Jersey, offers educators high quality programs designed to dramatically improve
        themselves, their students and their schools. KES and The Academy are
        consolidated in the accompanying financial statements.
 
 Employees
 
 As
        of
        February 28, 2006, the Company and its wholly owned subsidiaries had six
        employees. These employees devote such time to the Company as required, however,
        they are not full-time employees of the Company.
 
 **Item
                  2.**
              **DESCRIPTION
                  OF PROPERTY**
 
 None.
  I-1
  **Item
                  3.**
              **LEGAL
                  PROCEEDINGS**
 
 Texas
        American Petrochemicals, Inc. (“TAPI”)
 
 By
        letter dated May 24, 2005, the Texas Commission on Environmental Quality
        ("TCEQ") advised Texas American Petrochemicals, Inc. (“TAPI”), that it was a
        person responsible for solid waste at a hazardous waste site in Texas. TAPI
        is
        an inactive subsidiary of the Company with no assets. The TCEQ determined
        that
        the amount owed to the State of Texas for remediation is $2,459,593.92 and
        that
        failure to pay that amount would result in the matter being referred to the
        TCEQ
        Litigation Division. The Company has been advised by its environmental counsel
        that it has good legal arguments to support its position that it should not
        be
        subject to liability for the remediation costs of the site. However, no
        assurances can be made as to the outcome of this matter.
 
 **Item
                  4.**
              **SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY
                  HOLDERS**
 
 The
        Company held its Annual Meeting of Stockholders on November 8, 2005.
        Management's nominees, Paul O. Koether, William Mahomes, Jr., Casey K. Tjang
        and
        M. Michael Witte, were elected to the Board of Directors.
 
 The
        following is a vote tabulation for all nominees:
 
 FOR
              
              AGAINST
              
              WITHHELD
              
              ABSTENTIONS
                  ANDBROKER
                  NONVOTESPaul
                  O. Koether
              
              
              1,541,658
              
              
              -
              
              
              -
              
              
              -William
                  Mahomes, Jr.
              
              
              1,541,658
              
              
              -
              
              
              -
              
              
              -Casey
                  K. Tjang
              
              
              1,541,658
              
              
              -
              
              
              -
              
              
              -M.
                  Michael Witte
              
              
              1,541,658
              
              
              -
              
              
              -
              
              
              -
 
 No
        other
        matters were voted upon at the meeting.
 
 In
        November 2005, stockholders holding approximately 54.69% of the outstanding
        common stock of the Company approved the Kent Financial Services, Inc. 2005
        Stock Option Plan (“2005 Stock Option Plan”), by written consent. The 2005 Stock
        Option Plan was also approved by the Company’s Board of Directors. Under the
        2005 Stock Option Plan, a total of 400,000 shares of common stock is available
        for issuance to key employees, including officers of the Company or any of
        its
        subsidiaries. In November 2005, 300,000 common stock options were issued
        to Dr.
        Qun Yi Zheng, the Company’s President.
  I-2
  **PART
        II**
 
 **Item
                  5.**
              **MARKET
                  FOR COMMON EQUITY AND RELATED STOCKHOLDER
                  MATTERS**
 
 The
        Company's common stock trades on the National Association of Securities Dealers,
        Inc. Automated Quotations System ("Nasdaq") SmallCap Market under the symbol
        "KENT".
 
 The
        table
        below lists the high and low bid prices for the common stock as reported
        by
        Nasdaq for the periods indicated. These prices represent inter-dealer quotations
        without retail markups, markdowns or commissions, and may not represent actual
        transactions.
 
 High
              
              LowCalendar
                  Quarter:2004First
                  Quarter
              
              $
              2.59
              
              $
              1.88Second
                  Quarter
              
              
              4.76
              
              
              2.18Third
                  Quarter
              
              
              2.30
              
              
              1.84Fourth
                  Quarter
              
              
              3.26
              
              
              2.022005First
                  Quarter
              
              $
              3.57
              
              $
              2.45Second
                  Quarter
              
              
              2.85
              
              
              2.17Third
                  Quarter
              
              
              2.73
              
              
              2.21Fourth
                  Quarter
              
              
              2.47
              
              
              2.17
 
 As
        of
        February 28, 2006, the Company had 1,584 stockholders of record of its common
        stock. The closing price of the common stock was $2.46 on February 28,
        2006.
 
 On
        March
        10, 2005 the Company declared a special dividend of $.30 per share. The record
        date for the special dividend was March 21, 2005 and the distribution date
        was
        April 5, 2005.
 
 On
        April
        16, 2004 the Board of Directors approved a two for one stock split in the
        form
        of a 100% stock dividend. The record date was April 30, 2004 and distribution
        date was May 3, 2004. Accordingly, all share and per share information has
        been
        restated for all periods presented.
 
 Equity
        Compensation Plan Information
 
 The
        following table provides a summary of the securities authorized for issuance
        under equity compensation plans, the weighted average price and number of
        securities remaining available for issuance, at December 31,
        2005.
  II-1
  EQUITY
        COMPENSATION PLAN INFORMATION
 
 Number
                  of securities to be issued upon exercise of outstanding options,
                  warrants
                  and rights
              
              Weighted
                  average exercise price of outstanding options, warrants and
                  rights
              
              Number
                  of securities remaining available for future issuance under equity
                  compensation plans (excluding securities reflected in column
                  (a)(a)
              
              (b)
              
              (c)Equity
                  compensation plans approved by security holders
              
              
              300,000
              
              $
              3.00
              
              
              100,000Equity
                  compensation plans not approved by security holders
              
              
              N/A
              
              
              N/A
              
              
              N/A**Total**
              
              
              **300,000**
              
              **$**
              **3.00**
              
              
              **100,000**
 
 PURCHASE
        OF EQUITY
 
 SMALL
        BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES
 (COMMON
        STOCK-AUGUST 2004 REPURCHASE PLAN)
 Period
              (a)
                  Total Number of Shares Purchased
              (b)Average
                  Price Paid per Share
              (c)
                  Total Number of Shares Purchased as Part of Publicly Announced
                  Plans or
                  Programs
              (d)
                  Maximum Number of Shares that May Yet Be Purchased Under the Plans
                  or
                  Programs (1)October
                  1, 2005 - October 31, 2005
              1,388
              $    
                  2.20
              1,388
              121,000November
                  1, 2005 -November
                  30, 2005
              92
              2.41
              92
              120,908December
                  1, 2005 -December
                  31, 2005
              10,155
              2.37
              10,155
              110,753Total
              11,635
              $    
                  2.35
              11,635
              110,753
 
 (1)
              In
                  August 2004, the Board of Directors approved a plan to repurchase
                  up to
                  200,000 shares of the Company’s common stock. This plan has no expiration
                  date.
  II-2
  **Item
                  6.**
              **MANAGEMENT'S
                  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                  OPERATIONS**
 
 This
        Form
        10-KSB contains forward-looking statements which may involve known and unknown
        risks, uncertainties and other factors that may cause the Company’s actual
        results and performance in future periods to be materially different from
        any
        future periods or performance suggested by these statements.
 
 Cortech,
        Inc.
 
 Kent,
        through its wholly-owned partnership Asset Value Fund Limited Partnership
        (“AVF”), owns approximately 52% of Cortech, Inc. (“Cortech”). Cortech has been
        included in the consolidated results of AVF and the Company since June 30,
        2004,
        when Kent’s ownership interest exceeded 50%. Prior to that time, the Company was
        accounting for its investment in Cortech by the equity method.
 
 Cortech,
        a publicly traded company, is currently seeking to redeploy its assets into
        an
        operating business. All of Cortech’s assets, excluding its portfolio of
        pharmaceutical patents, are invested in cash and United States treasury bills.
        Substantially all of Cortech’s revenues consist of interest earned on its cash
        and United States treasury bills.
 
 In
        November 2005, Dr. Qun Yi Zheng was named President of the Company and of
        Cortech. Under Dr. Zheng’s leadership, Cortech intends to pursue business
        opportunities in China, Eastern Europe and the United States. Areas to be
        evaluated include outsourcing for U.S. companies, consulting for companies
        in
        the United States and overseas interested in cross/border business
        relationships, surveys of small businesses for sale in China, Eastern Europe
        and
        the United States and import/export distribution contracts.
 
 It
        is not
        expected that these activities will generate any revenues for an indefinite
        period as these new efforts are in the early stages. As a result, this new
        program may produce a significant loss until such time as meaningful revenues
        are achieved. Kent will consolidate in its financial statements its
        proportionate share of any Cortech losses.
 
 Kent
        Educational Services, Inc. (“KES”)
 
 KES,
        a
        wholly-owned subsidiary of Kent has a 60% controlling interest in The Academy
        for Teaching and Leadership, Inc., (“The Academy”). The Academy, headed by Dr.
        Saul Cooperman, a former Commissioner of Education in the State of New Jersey,
        offers educators high quality programs designed to dramatically improve
        themselves, their students and their schools. KES and The Academy are
        consolidated in the accompanying financial statements. In 2005, its first
        year
        of operations, The Academy had revenues of approximately $67,000 and a net
        loss
        of approximately $59,000. The Company anticipates continued revenue growth
        at
        The Academy. However, there can be no assurance of its growth or
        profitability.
  II-3
  Results
        of Operations
 
 The
        Company had a net loss of $181,000, ($.06 basic and fully diluted loss per
        share) in 2005, compared to net income of $949,000 ($.32 basic and fully
        diluted
        income per share) in 2004. Due to changes in the Company’s business over the
        past two years, results for 2005 and 2004 may not be comparable nor are they
        indicative of any future results. Such changes include the sale in 2004 of
        the
        Company’s interest in T.R. Winston & Company, LLC (“T.R. Winston”), prior to
        which the Company was accounting for its investment in T.R. Winston by the
        equity method. Also as of June 30, 2004, the Company acquired additional
        shares
        of the common stock of Cortech, Inc (“Cortech”), increasing its ownership in
        Cortech to over 50% and effective June 30, 2004, Cortech has been consolidated
        in the financial statements of the Company. Prior to June 30, 2004, the Company
        was accounting for its investment in Cortech by the equity method. Additionally,
        from April 2005, until it sold its position in October 2005, General Devices,
        Inc. was consolidated in the financial statements of the Company, due to
        the
        Company’s determination that General Devices was a variable interest entity.
        Prior to April 1, 2005, the Company was accounting for its investment in
        General
        Devices by the equity method.
 
 Revenues
 
 Net
        investing losses were $148,000 in 2005, compared to net investing gains of
        $362,000 in 2004. A decrease in the change in the carrying value of the
        Company’s investment portfolio of $555,000, offset by an increase in realized
        gains of $45,000 was the reason for this change.
 
 Management
        fees decreased to $12,000 in 2005 from $138,000 in 2004, due to the
        consolidation of Cortech and General Devices at June 30, 2004 and April 1,
        2005,
        respectively. The Company has not collected management fees from General
        Devices
        since it sold its interest in General Devices in October 2005, recording
        a gain
        of $301,000.
 
 The
        Company sold its remaining interest in T.R. Winston in August 2004, recording
        a
        gain on sale of $71,000. Prior to the sale, the Company recorded equity in
        the
        earnings of T. R. Winston of $138,000 during 2004. In 2004, the Company recorded
        equity in the losses of Cortech of $84,000 for the period prior to its
        consolidation in the financial statements of the Company. The Company also
        recorded equity in the losses of General Devices of $25,000 in 2004.
  II-4
  Interest
        income was $403,000 and $116,000 in 2005 and 2004, respectively, an increase
        of
        $287,000. In 2005, interest income earned at Cortech (included in the
        consolidated financial statements) was $326,000 compared to $88,000 in 2004
        due
        to the inclusion of a full year of Cortech in the consolidated financial
        statements compared to six months in 2004. Higher yields on investments combined
        with higher invested balances also contributed to the increase.
 
 Other
        income was $326,000 and $369,000 in 2005 and 2004, respectively. Decreases
        in
        fees for general and administrative services received from a non-affiliated
        company of $85,000 and a decrease in rental income of $66,000 (due to the
        sale
        of the Company’s headquarters building in 2004) were offset by increases in
        consulting fees of $50,000 and seminar fees earned by The Academy of
        $61,000.
 
 In
        August
        2004, the Company sold its headquarters building in Bedminster, New Jersey
        to an
        unrelated party, for $1,950,000 recording a pretax gain of approximately
        $845,000. The Company is currently leasing its required office space, on
        a month
        to month basis, in the same location.
 
 Expenses
 
 General
        and administrative expenses were $1,169,000 in 2005, an increase of $233,000
        from $936,000 in 2004, due primarily to the inclusion of the expenses of
        Cortech, The Academy and General Devices as of June 30, 2004, January 1,
        2005
        and April 1, 2005, respectively. In 2005, expenses of $188,000, $127,000
        and
        $68,000 were included for Cortech, The Academy and General Devices, respectively
        compared to $108,000 in 2004 for Cortech. These increases were partially
        offset
        by a decrease in personnel expenses of $91,000 due primarily to lower bonus
        payments in 2005 compared to 2004.
 
 In
        2004,
        interest expense of $37,000 was incurred in connection with the mortgage
        loan
        collateralized by the Company’s headquarters building which was sold in August
        2004.
 
 Other
 
 The
        Company recorded minority interest in the losses of Cortech of approximately
        $41,000 in 2005 compared to $48,000 in 2004. The Company also recorded minority
        interest in the losses of General Devices and The Academy in 2005 of
        approximately $38,000 and $24,000, respectively.
 
 The
        Company purchased 30,166 shares of Cortech in 2005, in open market transactions,
        for a total purchase price of $81,000, and recorded an extraordinary gain
        in
        connection with these purchases of approximately $13,000.
  II-5
  Liquidity
        and Capital Resources
 
 At
        December 31, 2005, the Company had consolidated cash and cash equivalents
        of
        approximately $1.9 million. Cash equivalents consisted of U.S. treasury bills
        with original maturities of three months or less, with yields ranging between
        3.883% and 3.967%. The Company also had short-term investments, consisting
        of
        U.S. treasury bills with original maturities of six months of $12.2 million,
        with yields ranging between 4.111% and 4.364%, and securities owned valued
        at
        approximately $141,000 at December 31, 2005. See Notes 1 and 3 of Notes to
        Consolidated Financial Statements for additional information on the valuation
        of
        securities owned. The Company believes that its liquidity is adequate for
        future
        operations for the next twelve months, including the costs of acquiring
        operating businesses.
  Net
        cash
        of $526,000 was provided by operations in 2005, compared to net cash used
        in
        operations of $1.3 million in 2004. The primary reasons for the cash provided
        by
        operations in 2005 was the net loss of $181,000 adjusted for the gain on
        sale of
        General Devices of $301,000 offset by the decrease in securities owned of
        $725,000 and an adjustment for unrealized losses of $253,000. Unrealized
        gains
        and losses are included in financial results, but do not effect cash flows.
        In
        2004, the increase in securities owned of $676,000 combined with the increase
        in
        other assets of $317,000 and an adjustment for unrealized gains on securities
        owned of $303,000 were the primary reasons for the cash used in operating
        activities.
 
 Net
        cash
        of $11.8 million was used in investing activities in 2005, compared to net
        cash
        provided by investing activities of $13.3 million in 2004. In 2005, $12.2
        million was invested in short-term investments of U.S. treasury bills with
        original maturities of six months. Previously, these funds were invested
        in cash
        equivalents. In 2004, net cash of approximately $11 million was acquired
        through
        the consolidation of Cortech and an aggregate amount of approximately $2.3
        million was received in connection with the sale of the Company’s building in
        Bedminster, New Jersey and the sale of the Company’s investment in T. R.
        Winston.
 
 Net
        cash
        used in financing activities was $962,000 in 2005, a decrease of $602,000
        from
        net cash used of $1.6 million in 2004. In 2005, the Company paid a cash dividend
        of $852,000 and repurchased 45,644 shares of its common stock for $110,000.
        In
        2004, the Company repurchased 406,177 shares of its common stock for $906,000.
        All shares acquired in 2005 and 2004 were purchased at open market prices
        and
        have been canceled and returned to the status of authorized and unissued
        shares.
        In 2004, the Company also had payments on debt of $658,000 consisting of
        payments of the mortgage loan collateralized by the Company’s headquarters
        building, which was sold in the third quarter of 2004, at which time the
        mortgage loan balance was paid in full.
  II-6
  In
        2004,
        a liability of $390,000 that was established in 2003 in connection with the
        sale
        of the Company’s partial interest in T.R. Winston was reversed as a result of
        the sale of the remaining interest in T.R. Winston in August 2004.
  Off-Balance
        Sheet Arrangements
 
 The
        Company has no off-balance sheet arrangements.
 
 Contractual
        Commitments
 
 The
        Company has no contractual commitments.
 
 Critical
        Accounting Estimates
 
 The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States of America 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.
        The Company has identified the valuation of securities owned and non-readily
        marketable securities as critical accounting estimates. These estimates,
        which
        are particularly susceptible to change, include the assumptions used in
        determining the fair value of these securities.
 
 New
        Accounting Pronouncements
 
 In
        December 2004, the Financial Accounting Standards Board (“FASB”) issued
        Statement of Financial Accounting Standards (“SFAS”) No. 123(R), "Share-Based
        Payment," (“SFAS 123(R)”) which is a revision of SFAS No. 123, "Accounting for
        Stock-Based Compensation.” SFAS 123(R) requires that the compensation cost
        relating to share-based payment transactions be recognized in financial
        statements. The compensation cost will be measured based on the fair value
        of
        the equity or liability instruments issued. The Statement is effective as
        of the
        beginning of the first interim or annual period beginning after December
        15,
        2005. The adoption of SFAS 123(R) is not expected to have a material impact
        on
        the Company’s financial position or results of operations.
 
 In
        May
        2005, the FASB issued Statement 154, “Accounting Changes and Error Corrections,
        a replacement of APB Opinion No. 20 and FASB Statement No. 3.”  The
        standard requires retrospective application to prior periods’ financial
        statements of a voluntary change in accounting principle unless it is deemed
        impracticable. The standard states that a change in method of depreciation,
        amortization or depletion for long-lived, non-financial assets be accounted
        for
        as a change in accounting estimate that is affected by a change in accounting
        principle.  The standard is effective for accounting changes and
        corrections of errors occurring in fiscal years beginning after December
        15,
        2005.
  II-7
  There
        were no other recently issued accounting pronouncements with delayed effective
        dates that would currently have a material impact on the consolidated financial
        statements of the Company.
 
 Market
        Risk
 
 Market
        risk represents the potential loss as a result of absolute and relative price
        movements in financial instruments due to changes in interest rates, foreign
        exchange rates, equity prices, and other factors. The Company’s exposure to
        market risk is directly related to price movements of its securities holdings.
 
 The
        fair
        value of securities owned at December 31, 2005 was approximately $141,000.
        The
        potential change in fair value, using a hypothetical 10% decline in prices,
        is
        estimated to be a $14,100 loss as of December 31, 2005. For working capital
        purposes, the Company invests in U.S. Treasury Bills or maintains interest
        bearing balances in its brokerage accounts which are classified as cash
        equivalents in the consolidated financial statements.
  II-8
  **Item
                  7.**
              **FINANCIAL
                  STATEMENTS**
 
 The
        financial statements filed herein are listed below:
 
 Report
        of
        Independent Registered Public Accounting Firm
 
 Financial
        Statements:
 
 Consolidated
        Balance Sheet as of December 31, 2005
 
 Consolidated
        Statements of Operations for the Years ended December 31, 2005 and
        2004
 
 Consolidated
        Statements of Stockholders’ Equity for the Years ended December 31, 2005 and
        2004
 
 Consolidated
        Statements of Cash Flows for the Years ended December 31, 2005 and
        2004
 
 Notes
        to
        Consolidated Financial Statements
  II-9
  **Report
        of Independent Registered Public Accounting Firm**
 
 To
        the
        Stockholders’ and Board of Directors of Kent Financial Services,
        Inc.
 
 We
        have
        audited the accompanying consolidated balance sheet of Kent Financial Services,
        Inc. and subsidiaries as of December 31, 2005, and the related consolidated
        statements of operations, stockholders’ equity, and cash flows for each of the
        two years in the period ended December 31, 2005. These consolidated financial
        statements are the responsibility of the Company’s management. Our
        responsibility is to express an opinion on these consolidated financial
        statements based on our audits.
 
 We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. The Company is not required
        to
        have, nor were we engaged to perform, an audit of its internal control over
        financial reporting. Our audits included consideration of internal control
        over
        financial reporting as a basis for designing audit procedures that are
        appropriate in the circumstances, but not for the purpose of expressing an
        opinion on the effectiveness of the Company’s internal control over financial
        reporting. Accordingly, we express no such opinion. An audit also includes
        examining, on a test basis, evidence supporting the amounts and disclosures
        in
        the financial statements, assessing the accounting principles used and
        significant estimates made by management, as well as evaluating the overall
        financial statement presentation. We believe that our audits provide a
        reasonable basis for our opinion.
 
 In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the financial position of Kent Financial Services,
        Inc. and subsidiaries as of December 31, 2005, and the results of their
        operations and their cash flows for each of the two years in the period ended
        December 31, 2005, in conformity with U.S. generally accepted accounting
        principles.
 
 
 /s/
        Amper, Politziner & Mattia, P.C.
 
 March
        9,
        2006
 Edison,
        New Jersey
  F-1
  **KENT
        FINANCIAL SERVICES, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEET**
 **December
        31, 2005**
 **(in
        $000’s, except share and**
 **per
        share amounts)**
 ASSETS
 
 Current
                  Assets:Cash
                  and cash equivalents
              
              $
              1,890Short-term
                  investments
              
              
              12,223Securities
                  owned
              
              
              141Other
              
              
              33Total
                  current assets
              
              
              14,287Property
                  and equipment:Office
                  furniture and equipment
              
              
              7Accumulated
                  depreciation
              
              
              (3
              )Net
                  property and equipment
              
              
              4Goodwill
              
              
              90Total
                  assets
              
              $
              14,381LIABILITIES
                  AND STOCKHOLDERS’ EQUITYCurrent
                  Liabilities:Accounts
                  payable and accrued expenses
              
              $
              861Accrual
                  for previously discontinued operations
              
              
              166Total
                  liabilities
              
              
              1,027Contingent
                  liabilitiesMinority
                  interest in subsidiaries
              
              
              5,592Stockholders'
                  equity:Preferred
                  stock without par value;500,000
                  shares authorized;none
                  outstanding
              
              
              -Common
                  stock, $.10 par value;4,000,000
                  shares authorized;2,805,127
                  shares issued and outstanding
              
              
              280Additional
                  paid-in capital
              
              
              12,382Accumulated
                  deficit
              
              
              (4,900
              )Total
                  stockholders' equity
              
              
              7,762Total
                  liabilities and stockholders' equity
              
              $
              14,381
 
 See
        accompanying notes to consolidated financial statements.
  F-2
  **KENT
        FINANCIAL SERVICES, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 **($000
        Omitted, except per share data)**
 
 Year
                  ended December 31,2005
              
              2004Revenues:Investing
                  gains (losses)
              
              $
              (148
              )
              $
              362Management
                  fee income
              
              
              12
              
              
              138Equity
                  in earnings of T. R. Winston
              
              
              -
              
              
              138Equity
                  in losses of Cortech
              
              
              -
              
              
              (84
              )Equity
                  in losses of General Devices
              
              
              -
              
              
              (25
              )Interest
              
              
              403
              
              
              116Other
                  income
              
              
              326
              
              
              369Other:Gain
                  on sale of General Devices
              
              
              301
              
              
              -Gain
                  on sale of property
              
              
              -
              
              
              845Gain
                  on sale of T. R. Winston
              
              
              -
              
              
              71Total
                  revenues
              
              
              894
              
              
              1,930Expenses:General,
                  administrative and other
              
              
              1,169
              
              
              936Interest
              
              
              -
              
              
              37Total
                  expenses
              
              
              1,169
              
              
              973Income
                  (loss) before income taxes, minority interest and extraordinary
                  item
              
              
              (275
              )
              
              957Provision
                  for income taxes
              
              
              22
              
              
              56Income
                  (loss) before minority interest and extraordinary item
              
              
              (297
              )
              
              901Minority
                  interest in subsidiaries losses
              
              
              103
              
              
              48Income
                  (loss) before extraordinary item
              
              
              (194
              )
              
              949Extraordinary
                  gain due to purchase of subsidiary stock
              
              
              13
              
              
              -Net
                  income (loss)
              
              $
              (181
              )
              $
              949Basic
                  and diluted net income (loss) per common share:Income
                  (loss) before extraordinary item
              
              $
              (0.07
              )
              $
              0.32Extraordinary
                  gain
              
              
              0.01
              
              
              -Net
                  income (loss)
              
              $
              (0.06
              )
              $
              0.32Weighted
                  average number of common shares outstanding (in 000's)
              
              
              2,826
              
              
              2,921
 
 See
        accompanying notes to consolidated financial statements.
  F-3
  **KENT
        FINANCIAL SERVICES, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF STOCKHOLDERS' EQUITY**
 **($000
        Omitted)**
 
 CommonStock
              
              Additional
                  Paid-InCapital
              
              AccumulatedDeficit
              
              DeferredCompensation
              
              Total
                  Stockholders’EquityBalance,
                  December 31, 2003
              
              $
              326
              
              $
              13,352
              
              $
              (4,816
              )
              $
              (390
              )
              $
              8,472Repurchase
                  and cancellation of common stock
              
              
              (41
              )
              
              (865
              )
              
              -
              
              
              -
              
              
              (906
              )Deferred
                  compensation
              
              
              -
              
              
              -
              
              
              -
              
              
              390
              
              
              390Net
                  income
              
              
              -
              
              
              -
              
              
              949
              
              
              -
              
              
              949Balance,
                  December 31, 2004
              
              
              285
              
              
              12,487
              
              
              (
                  3,867
              )
              
              -
              
              
              8,905Repurchase
                  and cancellation of common stock
              
              
              (5
              )
              
              (105
              )
              
              -
              
              
              -
              
              
              (110
              )Dividend
                  to stockholders
              
              
              -
              
              
              -
              
              
              (852
              )
              
              -
              
              
              (852
              )Net
                  loss
              
              
              -
              
              
              -
              
              
              (181
              )
              
              -
              
              
              (181
              )Balance,
                  December 31, 2005
              
              $
              280
              
              $
              12,382
              
              $
              (4,900
              )
              $
              -
              
              $
              7,762
 
 See
        accompanying notes to consolidated financial statements.
  F-4
  **KENT
        FINANCIAL SERVICES, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **($000
        Omitted)**
 
 Year
                  Ended December 31,2005
              
              2004Cash
                  flows from operating activities:Net
                  income (loss)
              
              $
              (181
              )
              $
              949Adjustments
                  to reconcile net income (loss) to net cash provided by (used in)
                  operating
                  activities:Depreciation
              
              
              2
              
              
              20Unrealized
                  losses (gains) on securities owned
              
              
              253
              
              
              (303
              )Equity
                  in earnings of T. R. Winston
              
              
              -
              
              
              (138
              )Equity
                  in losses of Cortech
              
              
              -
              
              
              84Equity
                  in losses of General Devices
              
              
              -
              
              
              25Extraordinary
                  gain on purchase of stock of subsidiary
              
              
              (13
              )
              
              -Gain
                  on sale of General Devices
              
              
              (301
              )
              
              -Gain
                  on sale of property
              
              
              -
              
              
              (845
              )Gain
                  on sale of T. R. Winston
              
              
              -
              
              
              (71
              )Minority
                  interest in subsidiary losses
              
              
              (103
              )
              
              (48
              )Change
                  in securities owned
              
              
              725
              
              
              (676
              )Change
                  in accounts payable and accrued expenses
              
              
              (58
              )
              
              118Change
                  in other assets
              
              
              203
              
              
              (317
              )Other,
                  net
              
              
              (1
              )
              
              (84
              )Net
                  cash provided by (used in) operating activities
              
              
              526
              
              
              (1,286
              )Cash
                  flows from investing activities:Cash
                  acquired through consolidation of Cortech
              
              
              -
              
              
              10,992Cash
                  acquired through consolidation of The Academy of Teaching and
                  Leadership
              
              
              50
              
              
              -Purchase
                  of short-term investments
              
              
              (12,223
              )
              
              -Proceeds
                  from sale of General Devices
              
              
              343
              
              
              -Proceeds
                  from sale of property
              
              
              -
              
              
              1,811Proceeds
                  from sale of T. R. Winston
              
              
              -
              
              
              520Purchase
                  of equipment
              
              
              -
              
              
              (4
              )Investment
                  in T. R. Winston
              
              
              -
              
              
              (53
              )Other,
                  net
              
              
              -
              
              
              3Net
                  cash provided by (used in) investing activities
              
              
              (11,830
              )
              
              13,269Cash
                  flows from financing activities:Payment
                  of dividend
              
              
              (852
              )
              
              -Repurchase
                  of common stock
              
              
              (110
              )
              
              (906
              )Payments
                  on debt
              
              
              -
              
              
              (658
              )Net
                  cash used in financing activities
              
              
              (962
              )
              
              (1,564
              )Net
                  increase (decrease) in cash and cash equivalents
              
              
              (12,266
              )
              
              10,419Cash
                  and cash equivalents at beginning of year
              
              
              14,156
              
              
              3,737Cash
                  and cash equivalents at end of year
              
              $
              1,890
              
              $
              14,156Supplemental
                  Disclosures of Cash Flow Information:Cash
                  paid for:Interest
              
              $
              -
              
              $
              37Taxes
              
              $
              11
              
              $
              23Non-cash
                  put option liability (reversed)
              
              $
              -
              
              $
              (390
              )
 
 See
        accompanying notes to consolidated financial statements.
  F-5
  **KENT
        FINANCIAL SERVICES, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **Years
        Ended December 31, 2005 and 2004**
 
 1.
              SUMMARY
                  OF SIGNIFICANT ACCOUNTING
                  POLICIES
 
 Principles
        of Consolidation
 
 The
        consolidated financial statements include the accounts of Kent Financial
        Services, Inc. (the “Company” or “Kent”) and its wholly-owned subsidiaries, Kent
        Advisors, Inc., Kent Educational Services, Inc., Texas American Petrochemicals,
        Inc. (“TAPI”) and Asset Value Management, Inc. and its respective subsidiaries,
        Asset Value Holdings, Inc., and Asset Value Fund Limited Partnership (“AVF”) and
        effective June 30, 2004, AVF’s majority owned subsidiary, Cortech, Inc.,
        (“Cortech”) and effective January 1, 2005, KES’s majority owned subsidiary, The
        Academy of Teaching and Leadership, Inc. TAPI and Kent Advisors, Inc. are
        inactive. All material intercompany balances and transactions have been
        eliminated in consolidation.
 
 Cash
        Equivalents
 
 The
        Company considers as cash equivalents all short-term investments that are
        highly
        liquid and readily exchangeable for cash at amounts equal to their stated
        value.
        Cash equivalents consist of U. S. treasury bills with an original maturity
        of 90
        days that matured through March 2006. The Company also maintains interest
        bearing balances in its brokerage accounts. All cash and cash equivalents
        are on
        deposit either with a major money center bank or with a securities broker
        dealer.
 
 Short-Term
        Investments
 
 Short-term
        investments consist of U.S. treasury bills purchased with an original maturity
        of six months and are valued at cost plus accrued interest, which approximates
        the fair market value. The Company currently intends to hold these investments
        until maturity.
 
 Property
        and Equipment
 
 The
        Company records all property and equipment at cost. Depreciation is computed
        using the straight-line method over the estimated useful lives of the individual
        assets generally two years.
  F-6
  **KENT
        FINANCIAL SERVICES, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **Years
        Ended December 31, 2005 and 2004**
 
 
 Fair
        Value of Financial Instruments
 
 Substantially
        all assets and liabilities are stated at cost which approximates fair value.
 
 Interest
        Income
 
 The
        Company received interest income on its credit balances at its securities
        broker
        dealer. The Company also receives interest on its cash equivalents and
        short-term investments.
 
 Income
        Taxes (Benefit)
 
 The
        Company utilizes the asset and liability method of accounting for income
        taxes.
        Under the asset and liability method, deferred income taxes are recognized
        for
        the tax consequences of temporary differences by applying enacted statutory
        tax
        rates applicable to future years to differences between the financial statement
        carrying amounts and the tax bases of existing assets and liabilities. The
        Company and its wholly owned subsidiaries file a consolidated federal income
        tax
        return. All majority owned subsidiaries file their own tax returns.
 
 Earnings
        (Loss) Per Common Share
 
 Earnings
        (loss) per common share is calculated based on the weighted average number
        of
        shares outstanding. Diluted earnings (loss) per share includes the assumed
        conversion of shares issuable upon exercise of options, where appropriate.
        Since
        the Company has losses, the stock options outstanding have an anti-dilutive
        effect on earnings (loss) per common share and are not included in the
        calculation. The Company had 300,000 options outstanding at December 31,
        2005
        and no options outstanding at December 31, 2004.
 
 Accounting
        for Stock-Based Compensation
 
 In
        October 1995, the Financial Accounting Standards Board issued Statement of
        Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based
        Compensation”. This standard encouraged, but did not require, companies to
        recognize compensation expense for grants of stock, stock options and other
        equity instruments based on a fair-value method of accounting.
  F-7
  **KENT
        FINANCIAL SERVICES, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **Years
        Ended December 31, 2005 and 2004**
 
 Companies
        that do not adopt the new expense recognition rules of SFAS No. 123 will
        continue to apply the existing rules contained in Accounting Principles Board
        (“APB”) Opinion No. 25. APB No. 25 requires no recognition of compensation
        expense for most of the stock-based employee compensation arrangements provided
        by the Company, namely broad-based employee stock option grants and stock
        purchase plans where the exercise price is equal to the market price at the
        date
        of grant.
 
 The
        Company applies APB No. 25 and related Interpretations in accounting for
        its
        plans. In accordance with SFAS No. 148 “Accounting for Stock-Based Compensation
        - Transition and Disclosure” the effect on net income and earnings per share if
        the Company had applied the fair value recognition provisions of SFAS 123
        is as
        follows:
 
 2005Net
                  loss(in $000’s)As
                  reported
              
              $
              (181
              )Compensation
                  expense, net of tax
              
              
              (35
              )Pro
                  forma
              
              $
              (216
              )Basic
                  and diluted net loss per share:As
                  reported
              
              $
              (.06
              )Pro
                  forma
              
              $
              (.08
              )
 
 All
        options granted to date have an exercise price equal to the market price
        of the
        Company’s stock on the grant date. For purposes of calculating the compensation
        cost consistent with FASB Statement 123, the fair value of each option grant
        was
        estimated on the grant date using the Black-Scholes option-pricing model
        with
        the following assumptions used: no dividend yield; expected volatility of
        29
        percent; risk free interest rates of 4.37 percent; and weighted average expected
        lives of 7 years.
 
 There
        were no options granted during 2004.
 
 For
        more
        information on stock options, see Note 8 of Notes to Consolidated Financial
        Statements.
 
 Estimates
 
 The
        preparation of financial statements in conformity with accounting principles
        that are generally accepted in the United States of America 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. **** Estimates
        that are particularly susceptible to change include assumptions used in
        determining the fair value of securities owned and non-readily marketable
        securities.
  F-8
  **KENT
        FINANCIAL SERVICES, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **Years
        Ended December 31, 2005 and 2004**
 
 Recent
        Accounting Standards
 
 In
        December 2004, the Financial Accounting Standards Board (“FASB”) issued
        Statement of Financial Accounting Standards (“SFAS”) No. 123(R), "Share-Based
        Payment," (“SFAS 123(R)”) which is a revision of SFAS No. 123, "Accounting for
        Stock-Based Compensation.” SFAS 123(R) requires that the compensation cost
        relating to share-based payment transactions be recognized in financial
        statements. The compensation cost will be measured based on the fair value
        of
        the equity or liability instruments issued. The Statement is effective as
        of the
        beginning of the first interim or annual period beginning after December
        15,
        2005. The adoption of SFAS 123(R) is not expected to have a material impact
        on
        the Company’s financial position or results of operations.
 
 In
        May
        2005, the FASB issued Statement 154, “Accounting Changes and Error Corrections,
        a replacement of APB Opinion No. 20 and FASB Statement No. 3.”  The
        standard requires retrospective application to prior periods’ financial
        statements of a voluntary change in accounting principle unless it is deemed
        impracticable. The standard states that a change in method of depreciation,
        amortization or depletion for long-lived, non-financial assets be accounted
        for
        as a change in accounting estimate that is affected by a change in accounting
        principle.  The standard is effective for accounting changes and
        corrections of errors made occurring in fiscal years beginning after December
        15, 2005.
  There
        were no other recently issued accounting pronouncements with delayed effective
        dates that would currently have a material impact on the consolidated financial
        statements of the Company.
 
 2.
              BUSINESS
 
 The
        Company's business is comprised principally of the management of Cortech.
  F-9
  **KENT
        FINANCIAL SERVICES, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **Years
        Ended December 31, 2005 and 2004**
 
 Through
        AVF, the Company owns approximately 52% of Cortech, a publicly traded company
        currently seeking to redeploy its assets into an operating business. All
        of
        Cortech’s assets, excluding its portfolio of pharmaceutical patents (which have
        a zero value on the consolidated financial statements as of December 31,
        2005),
        are invested in cash and United States Treasury Bills. Cortech is consolidated
        in the accompanying financial statements.
 
 In
        November 2005, Dr. Qun Yi Zheng was named President of the Company and of
        Cortech. From 1995 through 2005, Dr. Zheng was associated with Pure World,
        Inc.
        (“Pure World”), a publicly traded company and leading manufacturer of natural
        products. Dr. Zheng was President of Pure World from January 2004 until it
        was
        sold in July 2005. Under Dr. Zheng’s operational leadership, Cortech intends to
        pursue business opportunities in China, Eastern Europe and the United
        States.
 
 3.
              SECURITIES
                  OWNED
 
 Other
        securities owned as of December 31, 2005, consisting of portfolio positions
        (equity securities) held for capital appreciation consist of the
        following:
 
 Value
              
              %
                Owned(in
                  $000’s)Golf
                  Rounds.com, Inc. (193,800 shares)
              
              $
              140
              
              
              5.6
              %All
                  other portfolio positions
              
              
              1Aggregate
                  market
              
              $
              141
 
 The
        Company’s securities are valued at fair value. Fair value is ordinarily the
        listed market price of the stock. If listed market prices are not indicative
        of
        fair value or if liquidating the Company’s position 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, including
        the analysis of the valuation of comparable companies.
 
 As
        a
        result of the foregoing, securities owned at December 31, 2005 were valued
        at
        listed market prices for all but one position. Securities owned of Golf
        Rounds.com, Inc. were discounted 20%, or approximately $35,000 from the listed
        market price, based on the criteria described in the preceding
        paragraph.
  F-10
  **KENT
        FINANCIAL SERVICES, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **Years
        Ended December 31, 2005 and 2004**
 
 The
        Company had net investing losses of approximately $148,000 in 2005. Net
        unrealized losses on securities owned were approximately $201,000 at December
        31, 2005 compared to net unrealized gains of approximately $51,000 at December
        2004, resulting in net unrealized losses of approximately $252,000 in 2005.
        Realized gains were approximately $104,000 in 2005.
 
 In
        2004,
        the Company had net investing gains of approximately $362,000. Net unrealized
        gains on securities owned were approximately $51,000 at December 31, 2004
        compared to net unrealized losses of approximately $252,000 at December 2003,
        resulting in net unrealized gains of approximately $303,000 in 2004. Realized
        gains were approximately $59,000 in 2004.
 
 4.
              CORTECH,
                  INC.
 
 AVF
        increased its ownership of Cortech to 50.06% on June 30, 2004. Prior to that
        date, AVF had been accounting for its investment in Cortech by the equity
        method. Since AVF’s ownership exceeded 50%, Cortech has been consolidated in the
        accompanying financial statements.
 
 In
        2005,
        the Company acquired 30,166 additional shares of Cortech in open market
        transactions for $81,045 recording, in accordance with SFAS No. 141, “Business
        Combinations”, an extraordinary gain of $13,000, as the amount paid for the
        shares was less than the fair value of the net assets recorded. At December
        31,
        2005, AVF owned 50.91% of Cortech.
 
 Cortech
        Stock Option Plans
 
 Cortech
        has issued certain common stock options to its employees, directors and
        consultants. At December 31, 2005, Cortech had 357,130 common stock options
        outstanding at exercise prices ranging from $3.50 to $12.80 per share expiring
        from 2006 through 2010. Any exercises of these common stock options could
        have a
        dilutive effect on the percentage of Cortech owned by the Company.
 
 In
        October 1995, the FASB issued SFAS No. 123, “Accounting for Stock-Based
        Compensation”. This standard encouraged, but did not require, companies to
        recognize compensation expense for grants of stock, stock options and other
        equity instruments based on a fair-value method of accounting.
  F-11
  **KENT
        FINANCIAL SERVICES, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **Years
        Ended December 31, 2005 and 2004**
 
 Companies
        that do not adopt the new expense recognition rules of SFAS No. 123 will
        continue to apply the existing rules contained in Accounting Principles Board
        (“APB”) Opinion No. 25, but are required to provide proforma disclosures of the
        compensation expense determined under the fair-value provisions of SFAS No.
        123,
        if material. APB No. 25 requires no recognition of compensation expense for
        most
        of the stock-based employee compensation arrangements provided by the Cortech,
        namely broad-based employee stock option grants and stock purchase plans
        where
        the exercise price is equal to the market price at the date of
        grant.
 
 Cortech
        applies APB No. 25 and related Interpretations in accounting for its plans.
        All
        options granted to date are fully vested.
 
 A
        summary
        of the status of Cortech’s 1986 Plan, 1993 Plan and non employee directors’
stock option plans as of December 31, 2005 and 2004 and changes during the
        years
        ended on those dates is presented below.
  2005
              
              2004Shares
              
              Weighted-Average
                  Exercise Price
              
              Range
                  of Exercise Price
              
              Shares
              
              Weighted-Average
                  Exercise Price
              
              Range
                  of Exercise PriceOptions
                  outstanding at beginning of year
              
              
              376,485
              
              $
              4.80
              
              
              $3.50
                  - $13.59
              
              
              465,202
              
              $
              5.62
              
              
              $3.50
                  - $13.59Expired
              
              
              (25,605
              )
              $
              11.96
              
              
              $9.69
                  - $13.59
              
              
              (88,717
              )
              $
              9.10
              
              
              $8.75
                  - $12.19Options
                  outstanding at end of year
              
              
              350,880
              
              $
              4.27
              
              
              $3.50
                  - $12.80
              
              
              376,485
              
              $
              4.80
              
              
              $3.50
                  - $13.59Options
                  exercisable at end of year
              
              
              350,880
              
              $
              4.27
              
              
              $3.50
                  - $12.80
              
              
              376,485
              
              $
              4.80
              
              
              $3.50
                  - $13.59
 
 Additionally,
        prior to 1997, Cortech granted other options to certain directors and
        consultants. These officers and directors are not currently providing services
        to Cortech or the Company. A summary of the status of these options and the
        changes during the fiscal years ended December 31, 2005 and 2004 is presented
        below:
 
 2005
              
              2004Shares
              
              Weighted-Average
                  Exercise Price
              
              Range
                  of Exercise Price
              
              Shares
              
              Weighted-Average
                  Exercise Price
              
              Range
                  of Exercise PriceOptions
                  outstanding at beginning of year
              
              
              6,250
              
              $
              5.92
              
              
              $5.00
                  - $7.58
              
              
              12,834
              
              $
              7.50
              
              
              $5.00
                  - $17.50Expired
              
              
              -
              
              
              -
              
              
              -
              
              
              (6,584
              )
              $
              9.00
              
              
              $8.75
                  - $17.50Options
                  outstanding at end of year
              
              
              6,250
              
              $
              5.92
              
              
              $5.00
                  - $7.58
              
              
              6,250
              
              $
              5.92
              
              
              $5.00
                  - $ 7.58Options
                  exercisable at end of year
              
              
              6,250
              
              $
              5.92
              
              
              $5.00
                  - $7.58
              
              
              6,250
              
              $
              5.92
              
              
              $5.00
                  - $ 7.58
 F-12
  **KENT
        FINANCIAL SERVICES, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **Years
        Ended December 31, 2005 and 2004**
 
 Cortech
        granted no options during 2005 or 2004, nor were there any modifications
        of
        outstanding awards. No compensation cost has been recognized in income for
        stock-based employee compensation awards at Cortech.
 
 For
        options outstanding and exercisable at December 31, 2005, the exercise price
        ranges are:
 
 Options
                  Outstanding
              
              
              
              Options
                  ExercisableRange
                  of Exercise Prices
              
              Number
                  Outstanding At December 31, 2005
              
              Weighted-
                  Average Remaining Life (in years)
              
              Weighted-
                  Average Exercise Price
              
              Number
                  Outstanding at December 31, 2005
              
              Weighted-
                  Average Remaining Life (in years)
              
              Weighted-
                  Average Exercise Price$
                  3.50 - $ 7.58
              
              
              334,149
              
              
              4.28
              
              $
              3.77
              
              
              334,149
              
              
              4.28
              
              $
              3.77$11.56
                  - $12.80
              
              
              22,981
              
              
              .59
              
              $
              11.97
              
              
              22,981
              
              
              .59
              
              $
              11.97357,130
              
              
              
              
              
              
              
              
              357,130
 
 5.
              KENT
                  EDUCATIONAL SERVICES, INC.
 
 The
        Academy for Teaching and Leadership, Inc. (“The Academy”) was formed to offer
        educators high quality programs designed to dramatically improve themselves,
        their students and their schools. As a result of the Company assessing the
        Academy, Kent Education Services, Inc., (KES) a wholly owned subsidiary of
        the
        Company, acquired a 60% interest in The Academy for $300,000 in August
        2004.
 
 The
        Company accounted for its investment in The Academy in other assets in 2004
        as
        The Academy had no operations in 2004, other than costs incurred of
        approximately $1,800 in formation expenses, which the Company deemed to be
        immaterial. In addition, the equity interests in The Academy had yet to be
        finalized, thus the purchase price allocations had not yet been completed.
        During the first quarter of 2005, the equity interests had been finalized
        and
        purchase price allocations were completed. Additionally, The Academy actively
        began operations including designing and offering programs to school districts
        and incurred expenses. As a result, the Company consolidated The Academy
        as of
        January 1, 2005. As The Academy was a new business, its valuation was based
        on
        business plans and forecasts. The following is a condensed balance sheet
        reflecting the amount assigned to each major asset and liability caption
        relating to the consolidation of The Academy at January 1, 2005 (in
        $000’s):
 
 Cash
              
              $
              350Goodwill
              
              
              90Investment
                  in The Academy
              
              
              (300
              )Minority
                  Interest in The Academy
              
              
              (140
              )$
              -
 
  F-13
  **KENT
        FINANCIAL SERVICES, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **Years
        Ended December 31, 2005 and 2004**
 
 No
        pro
        forma financial information has been presented as The Academy’s operations were
        consolidated since January 1, 2005 and The Academy had no operations in 2004,
        other than approximately $1,800 of formation expenses in the fourth quarter
        of
        2004, which the Company deemed immaterial.
 
 6.
              INCOME
                  TAXES
 
 The
        components of income tax expense are as follows:
 
 ($000
                  Omitted)
                Year
                  Ended December 31,2005
              
              2004Federal-Current
              
              $
              1
              
              $
              22State-Current
              
              
              21
              
              
              34Total
              
              $
              22
              
              $
              56
 
 Total
        income tax expense for the years ended December 31, 2005 and 2004 is different
        from the amount computed by multiplying total income 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)
                Year
                  Ended December 31,2005
              
              2004Income
                  tax expense (benefit) computed at statutory rates on total income
                  before
                  income taxes
              
              $
              (54
              )
              $
              342Increase
                  (decrease) in tax from:Federal
                  alternative minimum tax
              
              
              1
              
              
              22State
                  income tax, net of Federal benefit
              
              
              25
              
              
              27Expiration
                  of state net operating loss carryforwards
              
              
              940
              
              
              -Change
                  in estimate of net operating losses
              
              
              99
              
              
              69Net
                  operating losses and credits acquired through consolidation of
                  Cortech
              
              
              -
              
              
              (31,999
              )Increase
                  (decrease) in valuation allowance
              
              
              (1,119
              )
              
              31,762Minority
                  interest in current year deferred tax benefit
              
              
              -
              
              
              (151
              )Other,
                  net
              
              
              130
              
              
              (16
              )Total
                  tax expense
              
              $
              22
              
              $
              56
 F-14
  **KENT
        FINANCIAL SERVICES, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **Years
        Ended December 31, 2005 and 2004**
 
 The
        tax
        effects of significant items comprising the Company’s net deferred tax asset at
        December 31, 2005 are as follows:
 
 ($000
                  Omitted)Deferred
                  tax assets:Operating
                  loss carryforwards
              
              $
              30,951Federal
                  tax credit carryforwards
              
              
              3,403Mark-to-market
                  valuation adjustments
              
              
              80Deferred
                  Compensation
              
              
              242Other
              
              
              5834,734Valuation
                  allowance
              
              
              (34,734
              )Net
                  deferred tax asset
              
              $
              -
 
 Deferred
        tax assets reflect the net effects of operating loss and tax credit
        carryforwards and the temporary differences between the carrying amounts
        of
        assets and liabilities for financial statement purposes and the amounts used
        for
        income tax purposes. Approximately $31 million of the $35 million deferred
        tax
        asset relates to Cortech. Based upon Cortech’s and the Company’s operating
        history, which includes continuous operating losses (excluding non-recurring
        gains)in each of the last four years and the Company’s assessment of Cortech’s
        and the Company’s ability to achieve future taxable income, a 100% valuation
        allowance has been established for Cortech’s and the Company’s deferred tax
        asset.
 
 Significant
        carryforward balances for Federal income tax purposes as of December 31,
        2005
        are: ($000 omitted)
  Amount
              
              ExpirationYearsNet
                  operating loss
              
              $
              93,904
              
              
              2006
                  - 2023Alternative
                  minimum tax credit
              
              
              3,403
              
              
              N/A
 
 The
        net
        operating loss of $93.9 million includes $86 million relating to
        Cortech.
 
 The
        Tax
        Reform Act of 1986 contains provisions that may limit the NOL and credit
        carryforwards available to be used in any given year upon the occurrence
        of
        certain events, including significant changes in ownership of a company of
        greater than 50% within a three-year period which results in an annual
        limitation on the Company’s ability to utilize its NOLs and tax credit
        carryforwards from tax periods prior to the ownership change.
  F-15
  **KENT
        FINANCIAL SERVICES, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **Years
        Ended December 31, 2005 and 2004**
 
 7.
              SALE
                  OF BUILDING
 
 The
        Company sold its building to an unrelated third party in August 2004 and
        paid-off the underlying mortgage. Following the sale, T. R. Winston leased
        office space from the owner. The Company subleases certain office space from
        T.
        R. Winston on a month-to-month basis. Total rent expense was approximately
        $21,600 and $8,251 in 2005 and 2004, respectively.
 
 8.
              CAPITAL
                  STOCK ACTIVITY
 
 On
        March
        10, 2005, the Company declared a dividend of $.30 per share to stockholders
        of
        record on March 21, 2005. The distribution date was April 5, 2005.
 
 On
        April
        16, 2004 the Board of Directors approved a two for one stock split in the
        form
        of a 100% stock dividend. The record date was April 30, 2004 and distribution
        date was May 3, 2004. Accordingly, all share and per share information has
        been
        restated for all periods presented.
 
 Common
        Stock Repurchases
 
 In
        January 2004, the Board of Directors approved a plan to repurchase up to
        500,000
        shares of the Company’s common stock at prices deemed favorable in the open
        market or in privately negotiated transactions subject to market conditions,
        the
        Company’s financial position and other considerations (“2004 Plan”). In April
        2004, the Board of Directors reduced the number of shares available for
        repurchase under the 2004 Plan to 200,000 shares. All shares under the 2004
        Plan
        had been repurchased, canceled and returned to the status of authorized but
        unissued shares.
 
 In
        August
        2004, the Board of Directors approved a plan to repurchase up to an additional
        200,000 shares of the Company’s common stock at prices deemed favorable in the
        open market or in privately negotiated transactions subject to market
        conditions, the Company’s financial position and other considerations. As of
        December 31, 2005, 89,247 shares under this plan had been repurchased, canceled
        and returned to the status of authorized but unissued shares.
 
 Stock
        Options
 
 In
        2005,
        stockholders holding approximately 54.69% of the outstanding common stock
        of the
        Company approved the Kent Financial Services, Inc. 2005 Stock Option Plan
        (“2005
        Stock Option Plan”), by written consent. The Board of Directors also approved
        the 2005 Stock Option Plan. Under the 2005 Stock Option Plan, a total of
        400,000
        shares of common stock is available for issuance to key employees, including
        officers of the Company or any of its subsidiaries. In November 2005, 300,000
        common stock options were issued to Dr. Qun Yi Zheng, the Company’s
        President.
  F-16
  **KENT
        FINANCIAL SERVICES, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **Years
        Ended December 31, 2005 and 2004**
 
 A
        summary
        of the status of the 2005 Stock Option Plan and changes during the year ended
        2005 is presented bellows:
  Shares
              
              Weighted
                  Average- Exercise Price
              
              Range
                  of Exercise PriceOptions
                  outstanding at beginning of year
              
              
              -
              
              $
              -
              
              $
              -Options
                  granted
              
              
              300,000
              
              $
              3.00
              
              $
              3.00Options
                  outstanding at end of year
              
              
              300,000
              
              $
              3.00
              
              $
              3.00Options
                  exercisable at end of year
              
              
              33,000
              
              $
              3.00
              
              $
              3.00
 
 For
        options outstanding and exercisable at December 31, 2005, the exercise price
        ranges are:
 
 Options
                  Outstanding
              
              Options
                  ExercisableExercise
                  Price
              
              Number
                  Outstanding at December 31, 2005
              
              Weighted-Average
                  Remaining Life (in years)
              
              Weighted-Average
                  Exercise Price
              
              Number
                  Exercisable at December 31, 2005
              
              Weighted-Average
                  Remaining Life (in years)
              
              Weighted-Average
                  Exercise Price$
              3.00
              
              
              300,000
              
              
              9.66
              
              $
              3.00
              
              
              33,000
              
              
              9.66
              
              $
              3.00
 F-17
  **KENT
        FINANCIAL SERVICES, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **Years
        Ended December 31, 2005 and 2004**
 
 9.
              COMPENSATION
                  ARRANGEMENTS
 
 On
        December 1, 2002, (“Effective Date”) the Company and Paul O. Koether entered
        into an employment agreement ("Agreement") pursuant to which Mr. Koether
        serves
        as the Company's Chairman for an initial three-year term at an annual salary
        of
        $240,000 ("Base Salary"), which may be increased but not decreased at the
        discretion of the Board of Directors. The term is to be automatically extended
        one day for each day elapsed after the Effective Date.
 
 Mr.
        Koether may terminate his employment in accordance with certain provisions
        of
        the Agreement, at which time he would be paid the greater of the (i) Base
        Salary
        payable under the Agreement through the expiration date of the Agreement
        or (ii)
        an amount equal to three times the average annual Base Salary paid to him
        during
        the preceding five years.
 
 In
        the
        event of Mr. Koether's death during the term of the Agreement, his beneficiary
        shall be paid a death benefit equal to three years Base Salary, payable in
        36
        equal monthly installments. Should Mr. Koether become "disabled" (as such
        term
        is defined in the Agreement) during the term of the Agreement and either
        long-term disability insurance is not provided by the Company or such policy
        does not provide an annual benefit to age 75 equal to 80% or more of Mr.
        Koether's Base Salary, he shall be paid an annual disability payment equal
        to
        80% of his Base Salary in effect at the time of the disability. Such payments
        shall continue until Mr. Koether attains the age of 75.
 
 Effective
        November 1, 2005 (“Zheng Effective Date”) Cortech and Qun Yi Zheng entered into
        an employment agreement (“Zheng Agreement”) pursuant to which Dr. Zheng serves
        as Cortech’s President for an initial three-year term at an annual salary of
        $200,000 (“Zheng Base Salary”), which may be increased but not decreased at the
        discretion of the Cortech Board of Directors. Unless Cortech gives notice
        30
        days written notice to Dr. Zheng prior to November 1, 2007, the three year
        term
        of the Zheng Agreement shall be automatically extended for one day for each
        day
        elapsed after November 1, 2007.
 
 In
        the
        event of Dr. Zheng’s death during the term of the Agreement, his beneficiary
        shall be paid a death benefit equal to his then current annual salary in
        equal
        monthly installments for the remainder of the term of the Zheng Agreement.
        Should Dr. Zheng become disabled (as such term is defined in the Zheng
        Agreement) during the term of the Zheng Agreement, Dr. Zheng shall be paid
        such
        benefits to which he is entitled under the terms of such long-term insurance
        as
        Cortech has provided him or 80% of his salary for the remainder of the three
        year term of the Zheng Agreement, whichever is greater, in accordance with
        his
        regular payment schedule.
  F-18
  **KENT
        FINANCIAL SERVICES, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **Years
        Ended December 31, 2005 and 2004**
 
 10.
              LEGAL
                  PROCEEDINGS
 
 Texas
        American Petrochemicals, Inc. (“TAPI”)
 
 By
        letter dated May 24, 2005, the Texas Commission on Environmental Quality
        ("TCEQ") advised Texas American Petrochemicals, Inc. (“TAPI”), that it was a
        person responsible for solid waste at a hazardous waste site in Texas. TAPI
        is
        an inactive subsidiary of the Company with no assets. The TCEQ determined
        that
        the amount owed to the State of Texas for remediation is $2,459,593.92 and
        that failure to pay that amount would result in the matter being referred to the TCEQ
        Litigation Division. The Company has been advised by its environmental counsel
        that it has good legal arguments to support its position that it should not
        be
        subject to liability for the remediation costs of the site, however no
        assurances can be made as to the outcome of this matter.
 
 11.
              TRANSACTIONS
                  WITH RELATED PARTIES
 
 From
        March 1990 until the sale of the building in August 2004 certain non-subsidiary
        affiliates had rented office space from the Company. The Company's aggregate
        rental income from these arrangements was approximately $66,000 in 2004.
        Following the sale, T. R. Winston leased office space from the acquiror.
        The
        Company subleases certain office space from T. R. Winston on a month to month
        basis. Total rent expense for 2005 and 2004 was approximately $21,600 and
        $8,251, respectively. Additionally the Company received consulting fees of
        $120,000 and $70,000 in 2005 and 2004, respectively from T.R. Winston.
 
 The
        Company reimburses affiliates for the direct cost of certain group medical
        insurance, and office supplies. Such reimbursements were approximately $55,000
        and $54,000 during 2005 and 2004, respectively.
 
 General
        Devices paid an administrative fee of $4,000 per month for management services
        performed by the Company. These services included corporate governance,
        financial management and accounting services. General Devices was sold in
        October of 2005 and the Company no longer collects any fees.
  F-19
  **KENT
        FINANCIAL SERVICES, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **Years
        Ended December 31, 2005 and 2004**
 
 12.
              SEGMENT
                  REPORTING
 
 The
        Company has determined that it does not have reportable operating segments.
        The
        Company conducts investment activities through its wholly owned subsidiary
        AVF,
        as described in Note 2 of Notes to the Consolidated Financial Statements.
        AVF
        does not have individual segment managers or discrete financial data used
        to
        allocate resources.
 
 13.
              401
                  (K) - PLAN
 
 Eligible
        employees can elect to participate in the Company’s qualified 401(k) Retirement
        Plan (the “Plan”). Employees may voluntarily contribute up to 15% of their
        compensation, not to exceed the Internal Revenue Service limit ($14,000 in
        2005
        and $13,000 in 2004). The employees’ contributions are 100% vested and the
        Company’s contribution, if any, vests over a six-year period in accordance with
        the vesting schedule in the Plan. There were no employer matching contributions
        in 2005 or 2004.
  F-20
  **Item
                  8.**
              **CHANGES
                  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                  DISCLOSURES**
 
 None.
 
 **Item
                  8A.**
              **CONTROLS
                  AND PROCEDURES**
  As
        of the
        end of the period covered by this report, the Company carried out, under
        the
        supervision and with the participation of the Company’s management, including
        its Chief Executive Officer and Chief Financial Officer, an evaluation of
        the
        effectiveness of the design and operation of the Company’s disclosure controls
        and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities
        Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer
        and Chief Financial Officer concluded that the design and operation of these
        disclosure controls and procedures are effective. There was no change in
        the
        Company’s internal control over financial reporting (as defined in Rule
        13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during
        the
        quarter ended December 31, 2005 that has materially affected, or is reasonably
        likely to materially affect, the Company’s internal control over financial
        reporting.
 
 Compliance
        with Section 404 of Sarbanes-Oxley Act
 
 In
        order
        to achieve compliance with Section 404 of the Sarbanes-Oxley Act of 2002
        (the
“Act”) by December 31, 2007, the Company expects to begin, in fiscal 2006, the
        system and process documentation and evaluation needed to comply with Section
        404.
 
 **Item
                  8B.**
              **OTHER
                  INFORMATION**
 
 None.
  II-10
  **PART
        III**
 
 **Item
                  9.**
              **DIRECTORS,
                  EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
                  SECTION
                  16(a) OF THE EXCHANGE
                  ACT**
 
 The
        current members of the Board of Directors were elected at the 2005 Annual
        Meeting and will serve until the next Annual Meeting and until their successors
        have been elected and qualify. The Company's officers are elected by and
        serve
        at the leave of the Board.
 
 None
        of
        the executive officers of the Company is related to any other. There is no
        arrangement or understanding between any executive officer and any other
        person
        pursuant to which such officer was selected.
 
 The
        directors and executive officers of the Company at February 28, 2006 were
        as
        follows:
 
 Name
              
              Age
              
              Position
                  HeldPaul
                  O. Koether
              
              69
              
              Chairman
                  and DirectorWilliam
                  Mahomes, Jr.
              
              59
              
              DirectorCasey
                  K. Tjang
              
              67
              
              DirectorM.
                  Michael Witte
              
              79
              
              DirectorQun
                  Yi Zheng
              
              48
              
              PresidentSue
                  Ann Merrill
              
              42
              
              Chief
                  Financial Officer
 
 **Paul
        O. Koether** is
        principally engaged in the following businesses: (i) Chairman and director
        since
        July 1987, and President from October 1990 until November 2005 of the Company
        and, until December 31, 2003 when it was dissolved, the general partner of
        Shamrock Associates, an investment partnership which was the principal
        stockholder of the Company. Mr. Koether was Chairman from April 1988 to July
        2005, President from April 1989 to February 1997 and director from March
        1988 to
        July 2005 of Pure World, Inc., (“Pure World”) and from December 1994 until July
        2005 a director and from January 1995 to July 2005 Chairman of Pure World’s
        wholly-owned subsidiary, Pure World Botanicals, Inc. (“PWBI”), a manufacturer
        and distributor of natural products. Mr. Koether was Chairman and a director
        of
        Sun Equities Corporation, (“Sun”) a private company until Sun was merged into
        Pure World in December 2004. Mr. Koether was Chairman from 1990 until August
        2003 and a registered representative since 1989 of T. R. Winston & Company,
        LLC. ("T.R. Winston"). Since September 1998, Mr. Koether has been a director
        and
        Chairman and from October 2003 until November 2005, President of Cortech,
        Inc.,
        (“Cortech”), a public company and subsidiary of the Company, seeking to redeploy
        its assets. Since November 2003 Mr. Koether has been General Partner of Emerald
        Partners an investment partnership. **** Mr.
        Koether was a director of Golf Rounds.com, Inc., (“Golf Rounds”) a non-operating
        company from July 1992 to January 2000.
  III-1
  **William
        Mahomes, Jr.** Mr.
        Mahomes has been a director of the Company since November 2005. Mr. Mahomes
        currently is a senior shareholder in Simmons Mahomes P.C., a law firm
        emphasizing commercial real estate transactions, public finance, business
        transactions and mediation. From 1997 to May 2001, Mr. Mahomes was in the
        private practice of law emphasizing mediation, real estate and commercial
        transactions. From 1994 to March 1997, Mr. Mahomes was a senior shareholder
        at
        the law firm of Locke Purnell Rain Harrell. From 1989 to 1994 he was an
        international partner in the Dallas office of Baker & McKenzie law firm.
        From 1993 to July 2005, Mr. Mahomes was a director of Pure World. Mr. Mahomes
        currently serves on the Board of Directors of a variety of organizations,
        including the Center for New Ventures and Entrepreneurship (Texas A&M
        University), The Association of Former Students at Texas A&M University and
        the Texas Affiliate Board of Healthcare Service Corporation (HCSC), also
        known
        as Blue Cross and Blue Shield of Texas and the Texas Youth
        Commission.
 
 **Casey
        K. Tjang.** Mr.
        Tjang
        has been a director of the Company since 1992. Since January 2005, he has
        been
        President and Chief Executive Officer, of Erudite Internet Systems, Inc.
        (EIS),
        an e-learning custom courseware provider of Internet corporate training and
        the
        Sarbanes-Oxley Act (SOX) custom training program. Since January 2004, Mr.
        Tjang
        has been Chairman and Chief Executive Officer of First Merchant Bankers,
        Inc.
        From September 2001 to December 2004, he was President and Chief Executive
        Officer of Knowledge Window, Inc., an e-learning developer and provider of
        Internet base distance education system. From December 1995, until August
        2000,
        he was with Leading Edge Packaging, Inc., a marketing, wholesaler and
        distribution company of consumer product packaging in the following capacities:
        director and Secretary since December 1995; Chief Financial Officer since
        September 1996 and President since September 1998. On August 16, 2000, Leading
        Edge Packaging, Inc., filed a Chapter XI petition and on November 21, 2000,
        converted to Chapter VII under the United States Bankruptcy Code.
  **M.
        Michael Witte.** Mr.
        Witte
        has been a director of the Company since 1986. Since August 1980, he has
        been
        President of M. M. Witte & Associates, Inc., a private corporation that is
        engaged in oil and gas consulting and investment management. In November
        1995,
        Mr. Witte was elected Co-Chairman of The American Drilling Company, L.L.C.,
        a
        position he subsequently relinquished after his election on August 1, 1996
        as
        Chief Executive Officer and Director of South Coast Oil Corporation, a Los
        Angeles-based oil company founded in 1921.
 
 **Qun
        Yi Zheng.** Dr
        Zheng
        has been President of the company since November 2005, and had been a director
        from November 2000 until November 2003. Since August 2000, Dr. Zheng has
        been a
        director and since November 2005, President of Cortech. Dr. Zheng was with
        Pure
        World and PWBI in various positions, including President, from 1996 until
        2005.
        From 1995 until 1996, Dr. Zheng was Technical Manager at Hauser Nutraceuticals,
        a division of Hauser Chemicals, Inc., a manufacturer and distributor of
        nutraceuticals.
  III-2
  **Sue
        Ann Merrill,** a
        certified public accountant, is principally engaged in the following businesses:
        (i) the Company, in various positions since 1995 including Chief Financial
        Officer since November 2003; (ii) since 1995 in various positions with
        affiliates and former affiliates of the Company including Chief Financial
        Officer of Pure World and PWBI, from October 2002 until August 2005; Chief
        Financial Officer of Cortech since September 1998 and (iii) in various positions
        with T.R. Winston from 1995 until 2003.
 
 Compliance
        with Section 16(a) of the Exchange Act
 
 Section
        16(a) of the Securities Exchange Act requires the Company's officers and
        directors and persons who own more than ten percent of a registered class
        of the
        Company's equity securities, to file reports of ownership and changes in
        ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission
        ("SEC"). Officers and directors and greater than ten percent stockholders
        are
        required by SEC regulation to furnish the Company with copies of all Forms
        3, 4
        and 5 which they file.
  Based
        solely on the Company's review of the copies of such forms it has received,
        the
        Company believes that all its officers, directors and greater than ten percent
        beneficial owners complied with all filing requirements applicable to them
        with
        respect to transactions during fiscal 2005.
 
 Audit
        Committee
 
 The
        Board
        of Directors of the Company has determined that Casey K. Tjang is an audit
        committee financial expert, as that term is defined under SEC rules and that
        Mr.
        Tjang is independent, as the term is used in Item 7(d)(3)(iv) of Schedule
        14A
        under the Exchange Act. The Company has a separately designated standing
        Audit
        Committee whose members are William Mahomes, Jr. Esq., Casey K. Tjang and
        M.
        Michael Witte.
 
 Code
        of Ethics
 
 The
        Company has adopted a Code of Ethics that applies to its principal executive
        officer and principal financial officer. Stockholders may write to Sue Ann
        Merrill, the Secretary of the Company, at the Company’s principal executive
        office: 376 Main Street, Bedminster, New Jersey 07921, to request a copy
        of the
        Code of Ethics, and the Company will provide it to any person without charge
        upon such request.
 
 **Item
                  10.**
              **EXECUTIVE
                  COMPENSATION**
 
 There
        is
        shown below information concerning the annual compensation for services in
        all
        capacities to the Company for the fiscal years ended December 31, 2005, 2004
        and
        2003, for those persons who were, at December 31, 2005 the chief executive
        officer and (ii) the other most highly compensated officers of the Company,
        whose annual compensation exceeds $100,000 (the "Named Officers"). No other
        executive officer of the Company who was serving as such at the end of 2005
        received annual compensation in excess of $100,000 in 2005, 2004 or
        2003.
  III-3
  **Summary
        Compensation Table**
 
 Annual
                  Compensation(1)
                  (2)
              
              Long-term
                  compensationAwards
              
              PayoutsName
                  and principal position
              
              Year
              
              Salary
              
              Bonus
              
              Other
                  annual Compensation(3)
              
              Restricted
                  stock award
              
              Securities
                  under- lying options/ SARs
              
              LTIP
                  Payouts
              
              All
                  other compensation($)
              
              ($)
              
              ($)
              
              ($)
              
              (#)
              
              ($)
              
              ($)Paul
                  O. Koether
              
              
              2005
              
              $
              240,000
              
              $
              -
              
              $
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Chairman
                  and
              
              
              2004
              
              
              240,000
              
              
              40,000
              
              
              95,502
              
              
              -
              
              
              -
              
              
              -
              
              
              -Chief
                  Executive
              
              
              2003
              
              
              240,000
              
              
              -
              
              
              69,113
              
              
              -
              
              
              -
              
              
              -
              
              
              -OfficerQun
                  Yi Zheng
              
              
              2005
              
              $
              33,333
              
              $
              -
              
              $
              -
              
              
              -
              
              
              300,000
              
              
              -
              
              
              -President
              
              
              2004
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -2003
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
 
 ____________________________________________________
 
 (1) The
        Company has no bonus or deferred compensation plans and pays bonuses at the
        discretion of the Board based on performance.
 
 (2) The
        individuals name above may have received incidental personal benefits during
        the
        fiscal years covered by the table. The value of these incidental benefits
        did
        not exceed the lesser of either $50,000 or 10% of the total annual salary
        and
        bonus reported for him. Such amounts are excluded from the table.
 
 (3) Represents
        commissions paid by T. R. Winston to Mr. Koether in his capacity as a registered
        representative for securities trades made for his customers through 2004.
        The
        Company sold its interest in T. R. Winston in August 2004.
 
 Options
        Granted
 
 Under
        the
        Company’s 2005 Stock Option Plan, 400,000 shares of the Company’s Common Stock
        may be granted to officers and employees of the Company or its
        subsidiaries.
  III-4
   The
        following table sets forth information with respect to stock option grants
        to
        the Named Officers during the fiscal year ended December 31, 2005:
  OPTION/SAR
        GRANTS IN LAST FISCAL YEAR
  Individual
                  GrantsName
              
              Number
                  of Securities Underlying Options/SAR’s Granted (#)
              
              Percent
                  of Total Options/SAR’s Granted to Employees in Fiscal year
              
              Exercise
                  or Base price ($/Sh)
              
              Expiration
                  dateQun
                  Yi Zheng
              
              300,000
              
              100%
              
              $3.00
              
              11/24/2015
 
 The
        table
        below contains information concerning the fiscal year end value of unexercised
        options held by the Named Officers.
 
 Fiscal
                  Year-End Options ValuesShares
                  Acquired On Exercise
              
              Value
                  Realized
              
              Number
                  of Unexercised Options at 12/31/05
              
              Value
                  of Unexercised In-the-Money Options at 12/31/05Name
              
              (#)
              
              ($)
              
              Exercisable/Unexercisable
              
              Exercisable/UnexercisableQun
                  Yi Zheng
              
              -
              
              -
              
              
              33,000
                  / 267,000
              
              
              $    
                  - / $     -
 
 Remuneration
        of Directors
  Directors
        who are not employees of the Company receive a monthly fee of $1,000 plus
        $200
        for each day of attendance at board and committee meetings. During 2005,
        the
        Company paid directors' fees in the aggregate amount of approximately
        $35,600.
 
 Compensation
        Arrangements
 
 On
        December 1, 2002, (“Effective Date”) the Company and Paul O. Koether entered
        into an employment agreement ("Agreement") pursuant to which Mr. Koether
        serves
        as the Company's Chairman for an initial three-year term at an annual salary
        of
        $240,000 ("Base Salary"), which may be increased but not decreased at the
        discretion of the Board of Directors. The term is to be automatically extended
        one day for each day elapsed after the Effective Date.
 
 Mr.
        Koether may terminate his employment under the Agreement at any time for
        "good
        reason" (defined below) within 36 months after the date of a Change in Control
        (defined below) of the Company. Upon his termination, he shall be paid the
        greater of the (i) Base Salary payable under the Agreement through the
        expiration date of the Agreement or (ii) an amount equal to three times the
        average annual Base Salary paid to him during the preceding five
        years.
  III-5
  Change
        in
        Control is deemed to have occurred if (i) any individual or entity, other
        than
        individuals or entities beneficially owning, directly or indirectly, common
        stock of the Company representing 30% or more of the Company's stock outstanding
        as of December 1, 2003, is or becomes the beneficial owner, directly or
        indirectly, of 30% or more of the Company's outstanding stock or (ii)
        individuals constituting the Board of Directors on December 1, 2002 ("Incumbent
        Board"), including any person subsequently elected to the Board whose election
        or nomination for election was approved by a vote of at least a majority
        of the
        Directors comprising the Incumbent Board, cease to constitute at least a
        majority of the Board. "Good reason" means a determination made solely by
        Mr.
        Koether, in good faith, that as a result of a Change in Control he may be
        adversely affected (i) in carrying out his duties and powers in the fashion
        he
        previously enjoyed or (ii) in his future prospects with the
        Company.
 
 Mr.
        Koether may also terminate his employment if the Company fails to perform
        its
        obligations under the Agreement (including any material change in Mr. Koether's
        duties, responsibilities and powers or the removal of his office to a location
        more than five miles from its current location) which failure is not cured
        within specified time periods.
 
 The
        Company may terminate Mr. Koether's employment under the Agreement for "cause"
        which is defined as (i) Mr. Koether's continued failure to substantially
        perform
        his duties under the Agreement (other than by reason of his mental or physical
        incapacity or the removal of his office to a location more than five miles
        from
        its current location) which is not cured within specified time periods, or
        (ii)
        Mr. Koether's conviction of any criminal act or fraud with respect to the
        Company. The Company may not terminate Mr. Koether's employment except by
        a vote
        of not less than 80 percent of the entire Board of Directors at a meeting
        at
        which Mr. Koether is given the opportunity to be heard.
 
 In
        the
        event of Mr. Koether's death during the term of the Agreement, his beneficiary
        shall be paid a death benefit equal to three years Base Salary, payable in
        36
        equal monthly installments. Should Mr. Koether become "disabled" (as such
        term
        is defined in the Agreement) during the term of the Agreement and either
        long-term disability insurance is not provided by the Company or such policy
        does not provide an annual benefit to age 75 equal to 80% or more of Mr.
        Koether's Base Salary, he shall be paid an annual disability payment equal
        to
        80% of his Base Salary in effect at the time of the disability. Such payments
        shall continue until Mr. Koether attains the age of 75.
 
 Effective
        November 1, 2005 (“Zheng Effective Date”) Cortech and Qun Yi Zheng entered into
        an employment agreement (“Zheng Agreement”) pursuant to which Dr. Zheng serves
        as Cortech’s President for an initial three-year term at an annual salary of
        $200,000 (“Zheng Base Salary”), which may be increased but not decreased at the
        discretion of the Cortech Board of Directors. Unless Cortech gives 30 days
        written notice to Dr. Zheng prior to November 1, 2007, the three year term
        of
        the Zheng Agreement shall be automatically extended for one day for each
        day
        elapsed after November 1, 2007, it being the intention to convert the term
        of
        the Zheng Agreement to a contract with a three year ‘evergreen’ term, commencing
        on November 1, 2007.
  III-6
  Dr.
        Zheng
        may terminate his employment under the Zheng Agreement at any time for “Good
        Reason” (defined below) within 36 months after the date of a “Cortech Change in
        Control” (defined below). Upon his termination, Dr. Zheng shall be paid the
        Zheng Base Salary payable under the Zheng Agreement through the expiration
        date
        of the Zheng Agreement.
 
 Cortech
        Change in Control is deemed to have occurred if (i) any individual or entity,
        other than individuals or entities beneficially owning, directly or indirectly,
        common stock of Cortech representing 50.1% or more of Cortech’s issued and
        outstanding common stock as of the Zheng Effective Date, is or becomes the
        beneficial owner, directly or indirectly, of the common stock of Cortech
        representing 50.1% or more of Cortech’s outstanding common stock or (ii)
        individuals constituting the Cortech Board of Directors on the Zheng Effective
        Date (“Cortech Incumbent Board”), including any person subsequently elected to
        the Cortech Board of Directors comprising the Cortech Incumbent Board, cease
        for
        any reason to constitute at least a majority of the Cortech Board of Directors.
        Good Reason means a determination made solely by Dr. Zheng, in good faith,
        that
        as a result of a Cortech Change in Control he may be adversely affected (i)
        in
        carrying out his duties and powers in the fashion he previously enjoyed or
        (ii)
        in his future prospects with Cortech.
 
 Dr.
        Zheng
        may also terminate his employment if Cortech fails to make the payments
        specified in the Zheng Agreement, or if Cortech fails to make such payments
        for
        a period of five days after Dr. Zheng has given notice of such
        failure.
 
 Cortech
        may terminate Dr. Zheng’s employment under the Zheng Agreement for “cause” which
        is defined as (i) Dr. Zheng’s continued failure to substantially perform his
        duties under the Zheng Agreement (other than by reason of his incapacity
        due to
        physical or mental illness) which is not cured within specified time frames
        or
        (ii) Dr. Zheng’s conviction of any criminal act of fraud. The Company may not
        terminate Dr. Zheng’s employment except by a vote of not less than 75% of the
        entire Cortech Board of Directors at a meeting at which Dr. Zheng is given
        the
        opportunity to be heard.
 
 In
        the
        event of Dr. Zheng’s death during the term of the Agreement, his beneficiary
        shall be paid a death benefit equal to his then current annual salary in
        equal
        monthly installments for the remainder of the term of the Zheng Agreement.
        Should Dr. Zheng become disabled (as such term is defined in the Zheng
        Agreement) during the term of the Zheng Agreement, Dr. Zheng shall be paid
        such
        benefits to which he is entitled under the terms of such long-term insurance
        as
        Cortech has provided him or 80% of his salary for the remainder of the three
        year term of the Zheng Agreement, whichever is greater, in accordance with
        his
        regular payment schedule.
  III-7
  **Item
                  11.**
              **SECURITY
                  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                  STOCKHOLDER MATTERS**
 
 The
        following table provides information with respect to the Company's common
        stock
        beneficially owned as of February 28, 2006 by each director and executive
        officer of the Company, by each person having beneficial ownership of five
        percent or more of the Company's common stock and by all directors and officers
        of the Company as a group.
 
 Name
                  and Addressof
                  Beneficial Owner
              
              Amount
                  and Natureof
                  BeneficialOwnership(1)
              
              Percent
                  ofClassPaul
                  O. Koether
                211
                  Pennbrook Road
                Far
                  Hills, NJ 07931
              
              1,539,658
              (2)
              
              54.92%William
                  Mahomes, Jr.
                900
                  Jackson Street
                Suite
                  540
                Dallas,
                  TX 75202
              
              -
              
              
              -Casey
                  K. Tjang
                510
                  Tallwood Lane
                Greenbrook,
                  NJ 08812
              
              -
              
              
              -M.
                  Michael Witte
                1120
                  Granville Avenue
                Suite
                  102
                Los
                  Angeles, CA 90049
              
              2,000
              
              
              *Qun
                  Yi Zheng
                376
                  Main Street
                Bedminster,
                  NJ 07921
              
              43,000
              
              
              1.52%Sue
                  Ann Merrill
                376
                  Main Street
                Bedminster,
                  NJ 07921
              
              -
              
              
              -Marital
                  Trust u/w/o
                Natalie
                  I. Koether
                211
                  Pennbrook Road
                Far
                  Hills, NJ 07931
              
              451,434
              
              
              16.10%All
                  Directors and Executive
                Officers
                  as a Group (6 persons)
              
              1,584,658
              
              
              54.71%
 
 _________________________________________
 *Less
        than 1 percent.
  III-8
  (1)
              The
                  beneficial owner has both sole voting and sole investment powers
                  with
                  respect to these shares except as set forth in other footnotes
                  below.
                  Included in such number of shares beneficially owned are 33,000
                  shares
                  subject to options currently exercisable or becoming exercisable
                  within 60
                  days for Qun Yi Zheng and all directors and executive officers
                  as a
                  group.
 
 (2)
              Includes
                  42,275 shares held in Mr. Koether’s IRA. Also includes 451,434 Shares
                  beneficially owned by the Marital Trust u/w/o Natalie I. Koether.
                  As
                  trustee, Mr. Koether may be deemed to own these shares beneficially.
 
 At
        December 31, 2005, the Company had no Compensation plans (including individual
        compensation arrangements) under which its equity securities may be
        issued.
 
 **Item
                  12.**
              **CERTAIN
                  RELATIONSHIPS AND RELATED
                  TRANSACTIONS**
 
 From
        March 1990 until the sale of the building in August 2004 certain non-subsidiary
        affiliates had rented office space from the Company. The Company's aggregate
        rental income from these arrangements was approximately $66,000 in 2004.
        Following the sale, T. R. Winston leased office space from the acquiror.
        The
        Company subleases certain office space from T. R. Winston on a month to month
        basis. Total rent expense for 2005 and 2004 was approximately $21,600 and
        $8,251, respectively. Additionally the Company received consulting fees of
        $120,000 and $70,000 in 2005 and 2004, respectively from T.R.
        Winston.
 
 The
        Company reimburses affiliates for the direct cost of certain group medical
        insurance, office supplies and expenses. Such reimbursements were approximately
        $55,000 and $54,000 during 2005 and 2004, respectively.
 
 General
        Devices paid an administrative fee of $4,000 per month for management services
        performed by the Company. These services include corporate governance, financial
        management and accounting services. General Devices was sold in October of
        2005
        and therefore the Company no longer collects any fees.
  III-9
  **Item
                  13.**
              **EXHIBITS
                  AND REPORTS ON FORM
                  8-K**
 
 The
        following exhibits are filed as part of this report:
 
 (a) Exhibits
 
 3.1
              
              Bylaws
                  of the Registrant, as amended. (l)3.2(a)
              
              Articles
                  of Incorporation of Registrant, as amended (including certificate
                  of stock
                  designation for $2.575 Cumulative Convertible Exchangeable Preferred
                  Stock). (2)3.2(b)
              
              Certificate
                  of Amendment to Certificate of Incorpora-tion. (3)3.2(c)
              
              Certificate
                  of Amendment to Certificate of Incorporation dated September 26,
                  1991.
                  (4)10.1
              
              Employment
                  Agreement, dated December 1, 2002 by and between Kent Financial
                  Services,
                  Inc. and Paul O. Koether. (5)10.2
              
              Agreement
                  to sell the Company’s Investment in T. R. Winston & Company, LLC.
                  (6)10.3
              
              Kent
                  Financial Services 2005 Stock Option Plan, Form of Incentive Stock
                  Option
                  and Form of Non-Qualified Stock Option (7)21
              
              Subsidiaries*31.1
              
              Certification
                  pursuant to Section 302 of the Sarbanes-Oxley Act of
                  2002*31.2
              
              Certification
                  pursuant to Section 302 of the Sarbanes-Oxley Act of
                  2002*32
              
              Certification
                  pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002*
 III-10
 ___________________
 *
              Filed
                  herewith.
 
 (1)
              Incorporated
                  by reference to Texas American Energy Corporation Registration
                  Statement,
                  as amended, on Form S-l, No.
                  33-11109.
 (2)
              Incorporated
                  by reference to Texas American Energy Corporation Form 10-K, for
                  the
                  fiscal year ended December 31,
                  1984.
 (3)
              Incorporated
                  by reference to Texas American Energy Corporation Form 10-K for
                  the fiscal
                  year ended December 31, 1987.
 (4)
              Incorporated
                  by reference to Kent Financial Services, Inc. Form 10-Q for the
                  quarter
                  ended September 30, 1991.
 (5)
              Incorporated
                  by reference to Kent Financial Services, Inc., Form 10-KSB for
                  the fiscal
                  year ended December 31, 2002.
 (6)
              Incorporated
                  by reference to Kent Financial Services, Inc., Form 10-QSB for
                  the quarter
                  ended June 30, 2004.
 (7)
              Incorporated
                  by reference to Kent Financial Services, Inc., Form 8-K filed on
                  December
                  2, 2005.
  III-11
  **ITEM
                  14.**
              **PRINCIPAL
                  ACCOUNTANT FEES AND
                  SERVICES**
 
 Year
        ended December 31, 2005
 
 Audit
        Fees: The aggregate fees, including expenses, expected to be billed by the
        Company's principal accountant in connection with the audit of its consolidated
        financial statements and for the review of its financial information included
        in
        its Annual Report on Form 10-KSB; and its quarterly reports on Form 10-QSB
        during the fiscal year ending December 31, 2005 are $39,690.
 
 Audit
        Related Fees: The aggregate fees, including expenses, billed by the Company’s
        principal accountant in 2005, related to auditing restated financial statements
        for the years ended December 31, 2004 and 2003 were $24,170.
 
 Tax
        Fees:  The
        aggregate fees, including expenses, expected to be billed by the Company’s
        principal accountant in connection with the preparation of income tax returns
        for the Company for the fiscal year ending December 31, 2005 are
        $7,500.
 
 All
        Other
        Fees: There were no other fees billed to the Company by its principal account
        during 2005.
 
 Year
        ended December 31, 2004
 
 Audit
        Fees: The aggregate fees, including expenses, billed, by the Company's principal
        accountant in connection with the audit of its consolidated financial statements
        and for the review of its financial information included in its Annual Report
        on
        Form 10-KSB; and its quarterly reports on Form 10-QSB during the fiscal year
        ending December 31, 2004 were $37,512.
 
 Audit
        Related Fees: There were no audit related fees billed to the Company by its
        principal accountant during 2004.
 
 Tax
        Fees:
        The aggregate fees, including expenses, billed by the Company’s principal
        accountant in connection with the preparation of income tax returns for the
        Company for the fiscal year ending December 31, 2004 were $7,875.
 
 All
        Other
        Fees: There were other fees billed to the Company by its principal accountant
        during 2004.
 
 Audit
        Committee Pre-Approval Policies and Procedures
 
 The
        Audit
        Committee pre-approved all non-audit work performed by the Company’s principal
        accountant, specifically, the preparation of income tax returns for the
        Company.
  III-12
  **SIGNATURES**
 
 In
        accordance with Section 13 or 15(d) of the Exchange Act of 1934, the Registrant
        has duly caused this report to be signed on its behalf by the undersigned,
        thereunto duly authorized.
 
 KENT
                  FINANCIAL SERVICES, INC.Dated:
                  March 29, 2006
              
              BY
              /s/
                  Paul O. KoetherPaul
                  O. KoetherChairman
                  of the Board and Director(Principal
                  Executive Officer)
 
 In
        accordance with the Exchange Act, this report has been signed below by the
        following persons on behalf of the Registrant and in the capacities and on
        the
        dates indicated.
 
 Dated:
                  March 29, 2006
              
              /s/
                  Paul O. KoetherPaul
                  O. KoetherChairman
                  of the Board and Director(Principal
                  Executive Officer)Dated:
                  March 29, 2006
              
              /s/
                  Sue Ann MerrillSue
                  Ann MerrillChief
                  Financial Officer and Secretary(Principal
                  Financial and Accounting Officer)Dated:
                  March 29, 2006
              
              /s/
                  Qun Yi Zheng, Ph.D.Qun
                  Yi Zheng, Ph.D.PresidentDated:
                  March 29, 2006
              
              /s/
                  William Mahomes, Jr.William
                  Mahomes, Jr.DirectorDated:
                  March 29, 2006
              
              /s/
                  Casey K. TjangCasey
                  K. TjangDirectorDated:
                  March 29, 2006
              
              /s/
                  M. Michael WitteM.
                  Michael WitteDirector
 
 III-13