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| KNTH.PK > SEC Filings for KNTH.PK > Form 10-Q on 12-Nov-2008 | All Recent SEC Filings |
12-Nov-2008
Quarterly Report
The following discussion and analysis should be read in conjunction with the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 2007 as well as the Company's financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. Statements in this report relating to future plans, projections, events or conditions are forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those described. The Company expressly disclaims any obligation or undertaking to update these statements in the future.
Business Activities
Our current business plan is to serve as a vehicle for the acquisition of or merger or consolidation with another company (a ''target business''). We intend to use our available working capital, capital stock, debt or a combination of these to effect a business combination with a target business which we believe has significant growth potential. The business combination may be with a financially stable, mature company or a company that is in its early stages of development or growth, which could include companies seeking to obtain capital and to improve their financial stability. We will not restrict our search to any particular industry. Rather, we may investigate businesses of essentially any kind or nature and participate in any type of business that may, in our management's opinion, meet our business objectives as described in this report. We emphasize that the description in this report of our business objectives is extremely general and is not meant to restrict the discretion of our management to search for and enter into potential business opportunities. We have not chosen the particular business in which we will engage and have not conducted any market studies with respect to any business or industry for you to evaluate the possible merits or risks of the target business or the particular industry in which we may ultimately operate. To the extent we enter into a business combination with a financially unstable company or an entity in its early stage of development or growth, including entities without established records of sales or earnings, we will become subject to numerous risks inherent in the business and operations of financially unstable and early stage or potential emerging growth companies. In addition, to the extent that we effect a business combination with an entity in an industry characterized by a high level of risk, we will become subject to the currently unascertainable risks of that industry. An extremely high level of risk frequently characterizes certain industries that experience rapid growth. In addition, although we will endeavor to evaluate the risks inherent in a particular industry or target business, we cannot assure you that we will properly ascertain or assess all significant risk factors.
Additionally, Kent International has developed a niche social networking website, www.ChinaUSPals.com, designed to promote cultural exchange between the citizens of the United States and those of the People's Republic of China. Membership to the site is free, thus, any potential revenues will be derived from advertisements placed on the site by third parties. The site provides users with access to other users' personal profiles and enables the user to send private messages to other registered users of similar interests in order to develop lasting friendships or simply attain a pen pal. ChinaUSPals.com also features user generated discussion forums and blogs as well as user submitted videos and pictures. In July, we reached an agreement with Wizart Studios, LLC, a New York based web design firm, to redesign and market the site in return for a 19% equity interest in ChinaUSPals.com, Inc., the site's holding company. The redesigned site was launched on August 6, 2008. Since then, site membership has grown to over 1,100 members from the approximately 150 members prior to the redesign.
While we are encouraged by the membership and traffic growth since the redesign, we cannot be certain that the growth rate will continue or that existing members will continue using the site. We also face the risk that our website will not be viewable in China or will be deliberately blocked by the government of the People's Republic of China. Internet usage and content are heavily regulated in China and compliance with these laws and regulations may cause us to change or limit our business practices in a manner adverse to our business.
The Company does not expect that these activities will generate any significant revenues for an indefinite period as these efforts are in their early stages. As a result, these programs may produce significant losses until such time as meaningful revenues are achieved.
Results of Operations
Kent International had a net loss of $64,000, or $.02 basic and fully diluted loss per share, for the quarter ended September 30, 2008 compared to a net loss of $154,000, or $0.04 basic and fully diluted loss per share, for the same period of 2007. For the nine months ended September 30, 2008, the Company had a net loss of $118,000, or $0.03 basic and fully diluted loss per share, compared to a net loss of $312,000, or $0.09 basic and fully diluted loss per share, for the same period in 2007. The decrease in the net losses in both periods were a result of decreases in personnel expenses offset by decreased interest revenue and increased consulting and due diligence expenses related to a proposed acquisition that was terminated prior to closing.
Revenues
Interest income decreased to $57,000 and $218,000 for the three and nine months ended September 30, 2008, respectively, from $131,000 and $397,000 for the three and nine months ended June 30, 2007, respectively. A lower yield on short-term investments and cash equivalents was the reason for the decrease.
Expenses
General and administrative expenses were $121,000 in the three months ended September 30, 2008 compared to $287,000 in the three months ended September 30, 2007, a decrease of $166,000. For the nine months ended September 30, 2008, general and administrative expenses were $336,000, compared to $685,000 for the same period in 2007, a decrease of $349,000. The decrease for the above mentioned periods can be primarily attributed to reductions of $178,000 and $321,000 for the three and nine months, respectively, in personnel related expenses as a result of the resignation of our former President in August of 2007. Other significant reductions in expenses included international travel expenses which decreased $8,000 and $20,000, respectively, and rental expense which decreased $5,400 and $16,200, respectively. These decreases were partially offset in the three months ended September 30, 2008 by $24,000 in consulting and due diligence expenses related to a proposed acquisition that was terminated prior to closing.
Liquidity and Capital Resources
At September 30, 2008, the Company had cash and cash equivalents of approximately $13,000. Cash and cash equivalents consist of cash held in banks and brokerage firms. The Company had short-term investments, consisting of U.S. Treasury Bills with original maturities of six months, of approximately $10.455 million at September 30, 2008. Working capital at September 30, 2008 was approximately $10.439 million. Management believes its cash, cash equivalents and short-term investments are sufficient for its operations for at least the next twelve months and for the costs of seeking an acquisition of or starting an operating business.
Net cash of $158,000 was used in operations for the nine months ended September 30, 2008, a decrease of $275,000 from the $433,000 used in operations for the nine months ended September 30, 2007. Net cash used in operations for the periods was the result of the net losses for the periods coupled with the changes in operating assets and liabilities. The decrease in net cash used in operations was largely the result of the decrease in expenses.
Net cash of $146,000 was provided by investing activities during the nine months September June 30, 2008 by the sales and maturities of short-term investments offset by the purchase of short-term investments. Net cash of $418,000 was provided by investing activities during the nine months ended September 30, 2007 resulting from a net of $432,000 from the sales and purchases of short-term investments offset by $14,000 expended for website design.
The Company used $3,000 for financing activities for the nine months ended September 30, 2008 to repurchase 1,768 shares of common stock. The Company used $6,000 for financing activities for the nine months ended September 30, 2007 to repurchase 2,000 shares of common stock.
Factors That May Affect Future Results
Future earnings of the Company are dependent on interest rates earned on the Company's invested balances and expenses incurred. Kent International expects to incur significant expenses in connection with its objective of redeploying its assets into an operating business and with the operation of the website.
Other Disclosures - Related Party Transactions
A monthly management fee of $21,000 is paid to Kent Financial Services, Inc. ("Kent"), a Nevada corporation, for management services. These services include, among other things, periodic and other filings with the Securities and Exchange Commission, evaluating merger and acquisition proposals, internal accounting and shareholder relations. This arrangement may be terminated at will by either party. Kent was the beneficial owner of approximately 53.28% of the Company's outstanding common stock at September 30, 2008. Paul O. Koether, Chairman of the Company is also the Chairman of Kent and the beneficial owner of approximately 58.3% of Kent's outstanding common stock. Bryan P. Healey, Chief Financial Officer and Director of the Company is also the Chief Financial Officer and a Director of Kent as well as the son-in-law of Paul O. Koether.
Other Disclosures - Incorporation of Subsidiary
On July 29, 2008, we incorporated ChinaUSPals.com, Inc. as a holding company for our social networking website www.ChinaUSPals.com. 81,000 shares of the common stock of ChinaUSPals, Inc. were issued to Kent International as a part of the incorporation. Subsequently, the Company entered into an agreement with Wizart Studios, LLC, a New York based web design firm, to redesign and market the site. In return, Wizart Studios was issued 19,000 shares of common stock in ChinaUSPals.com, Inc. As a result, Kent International owns 81% of ChinaUSPals.com, Inc and Wizart Studios is the owner of the remaining 19%.
Contractual Obligations
The Company has no material contractual obligations.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
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