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| KENT > SEC Filings for KENT > Form 10-Q on 13-Nov-2008 | All Recent SEC Filings |
13-Nov-2008
Quarterly Report
The following discussion and analysis should be read in conjunction with the Annual Report on Form 10-KSB for the fiscal year ended December 31, 2007 of Kent Financial Services, Inc. ("Kent" or the "Company") 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.
Kent's business is comprised of the management of Kent International Holdings, Inc. ("Kent International") and Kent Educational Services, Inc. ("Kent Educational"). Kent was formed in 1988 as a Delaware corporation and reincorporated in Nevada in 2006 by a merger into a newly formed, wholly owned Nevada subsidiary with the same name that was the surviving corporation of the merger.
Kent International
Kent International is a publicly traded company (stock symbol "KNTH.PK") currently seeking to redeploy its assets into an operating business. The Company owned approximately 53.28% of Kent International at September 30, 2008. All of Kent International's assets, excluding its portfolio of pharmaceutical patents (which have a zero carrying value on the consolidated financial statements), are invested in cash and United States Treasury Bills. Kent International's current business plan is to serve as a vehicle for the acquisition of or merger or consolidation with another company. Kent International may use its available working capital, capital stock, debt or a combination of these to start a business or to effect a business combination with a company seeking to establish a public trading market for its securities while avoiding the time delays, significant expense, loss of voting control and other burdens including significant professional fees of an initial public offering. A 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.
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, Kent International 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 Kent International is 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. Kent International also faces 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.
Kent International 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.
Kent Educational
Kent Educational, 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. The Academy brings together educators from school districts to engage in quality programs related to curriculum, assessment, and instructional strategies that have the potential to assist them in their own development as well as to enhance the learning of their students. Similarly, it offers administrators the latest programs in leadership practices that can support their school district's goals and give them the skills to achieve their specific objectives.
The Academy's sole full time executive officer resigned on December 15, 2007. This individual was primarily responsible for business development and coordinating services. As a result, The Academy is currently continuing to provide services to new and existing clients through an outsourcing platform and commission based business development contractors.
The Academy has also produced an innovative educational DVD entitled "Sex Over Sixty". The Academy has produced this DVD based on research that enables those people over 60 to learn about their changing bodies and experience a healthier, happier sex life. "Sex Over Sixty" provides frank answers to sexual questions that mature adults face as they age, experience health problems, or begin dating again after a loss or divorce. The DVD was released on October 16, 2007; however, as with any new media release, the possible commercial success of this DVD is uncertain. Initial marketing will be constrained by a modest advertising budget. Initial sales results have been disappointing.
Kent Educational and The Academy are consolidated in the accompanying financial statements. The Company has determined that continued revenue growth and profitability at The Academy are uncertain. As a result, losses may be incurred.
Results of Operations
The Company had a net loss of $93,000, or $.03 basic and diluted loss per share, for the quarter ended September 30, 2008 compared to a net loss of $165,000, or $.06 basic and diluted loss per share, for the comparable quarter in 2007. For the nine months ended September 30, 2008, the Company had a net loss of $226,000, or $0.08 basic and fully diluted loss per share, compared to a net loss of $365,000, or $0.13 basic and fully diluted loss per share, for the same period in 2007. The decreases in net losses were mainly the result of decreased expenses offset by decreased interest revenue, seminar fees and administrative fees paid by an un-affiliated investment partnership during the period.
Revenue
Seminar fees based on seminars held by The Academy decreased to $50,000 and $184,000 for the three and nine months ended September 30, 2008, respectively, compared to $125,000 and $356,000 for the three and nine months ended September 30, 2007. These decreases are the result of the departure of The Academy's executive director who was primarily responsible for business development. The Academy has approximately $193,500 under contract for services to be rendered during the 2008-2009 school year. The Company recognizes seminar revenue when the services are provided.
Interest income decreased to $65,000 and $248,000 for the three and nine months ended September 30, 2008, respectively, from $153,000 and $469,000, respectively, for the same periods in 2007. The decreases of $88,000 and $221,000, respectively, are due to lower yields on invested balances.
Although, the Company did not realize any gains or losses on securities transactions during the three months ended September 30, 2008, during the nine months ended September 30, 2008 $1,000 in losses on securities transactions were realized. Realized gains on securities transactions were approximately $7,000 for the three and nine months ended September 30, 2007.
Other income for the three months ended September 30 2008 and 2007 was consistent at $9,000. For the nine months ended September 30, 2008, other income decreased to $89,000 from $129,000 for the nine months ended September 30, 2007 caused primarily by the decrease in administrative fees paid by an un-affiliated investment partnership. As these administrative fees fluctuate based on the performance of the investment partnership, we cannot be certain they will recur.
Expenses
General and administrative expenses decreased to $236,000 and $789,000 for the three and nine months ended September 30, 2008, respectively, from $517,000 and $1,426,000 for the same periods in 2007. The decreases of $281,000 and $637,000 for the three and nine months respectively, can be primarily attributed to reductions of $257,000 and $511,000 in personnel expenses as a result of the resignation of several employees, including our former President in August of 2007 and the Executive Director of The Academy in December of 2007. Other significant reductions in expenses included legal fees which decreased $15,000 and rental expense which decreased approximately $19,000. The decreases were partially offset by increases in expenses at the Academy related to production, marketing and fulfillment costs for the Sex Over Sixty DVD of approximately $57,000 and expenses at Kent International of approximately $24,000 in consulting and due diligence expenses related to a proposed acquisition that was terminated prior to closing..
Our consolidated subsidiary, Kent International recorded a charge of approximately $38,000 in June 2007 to write off certain website development costs related to our social networking website, ChinaUSPals.com. These costs were associated with a beta version of the website that the Company is no longer utilizing.
Liquidity and Capital Resources
At September 30, 2008, the Company had cash and cash equivalents of approximately $1.033 million. Cash and cash equivalents consist of cash held in banks and brokerage firms and U.S. Treasury Bills with original maturities of three months. The Company had short-term investments, consisting of U.S. Treasury Bills with original maturities of six months, of $11.153 million at September 30, 2008 with yields ranging from 1.98% to 2.19%. Working capital at September 30, 2008 was approximately $12.127 million. Management believes its cash and cash equivalents are sufficient for its business activities for at least the next 12 months and for the costs of seeking an acquisition of an operating business.
Net cash used in operations was $215,000 in the nine months ended June 30, 2008, compared to net cash used in operations of $685,000 in the comparable period of 2007. Cash used in operations is a direct result of operating expenses offset by operating revenues and adjusted for changes in operating assets and liabilities. The decrease in net cash used in operations was largely the result of the decrease in expenses as described above.
Net cash of approximately $1.125 million was provided by investing activities during the nine months ended September 30, 2008 by the sales and maturities of short-term investments and marketable securities of $12.699 million offset by the purchase of short-term investments of approximately $11.549 million and acquisition of property and equipment of $25,000. Net cash of $614,000 was provided by investing activities during the period ended September 30, 2007 by the sales and maturities of short-term investments and marketable securities of $14.611 million offset by the purchase of short-term investments of $14.103 million and capitalized costs for the development of www.chinauspals.com.
In the nine month periods ended September 30, 2008 and 2007, net cash used in financing activities for the repurchase of the Company's common stock was approximately $9,000 and $16,000, respectively. Kent International also used approximately $3,000 and $6,000 to repurchase its stock in the nine months ended September 30, 2008 and 2007, respectively.
Other Disclosures - Related Party Transactions
The Company receives a monthly management fee of $21,000 from Kent International for management services. These services include, among other things, preparation of periodic and other filings with the Securities and Exchange Commission, evaluating merger and acquisition proposals, providing internal accounting services and shareholder relations. This arrangement may be terminated at will by either party. The monthly management fee revenue and offsetting expense is eliminated during consolidation. The Company is the owner of approximately 53.28% of Kent International's outstanding common stock at September 30, 2008. Paul O. Koether, Chairman of the Company is also the Chairman of Kent International and the beneficial owner of approximately 58.3% of the Company's outstanding common stock. Bryan P. Healey, Chief Financial Officer and Director of the Company, is also the Chief Financial Officer and Director of Kent International as well as the son-in-law of Paul O. Koether.
The Company and its consolidated subsidiaries reimburse an affiliate, Bedminster Management Corp., for the allocated direct cost of group health insurance and office supplies. These reimbursements were $16,032 and $43,364 in the three and nine months ended September 30, 2008, respectively and $19,399 and $69,854 in the three and nine months ended September 30, 2007, respectively. Bedminster Management Corp. facilitates the allocation of certain central administrative costs on a cost reimbursement basis resulting in no income or loss and is owned equally by Kent, Kent International and T.R. Winston & Company, LLC.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
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