Summary of KENT FINANCIAL SERVICES INC

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the Company's Financial Statements and Notes thereto included elsewhere in this Form 10-K. 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 projected and include, but are not limited to, the risks discussed below, the risks discussed in the section of this Form 10-K entitled "Risk Factors" and risks discussed elsewhere in this Form 10-K. The Company expressly disclaims any obligation or undertaking to update these statements in the future.

The Company's business is comprised of the management of Kent International Holdings, Inc. ("Kent International") and Kent Educational Services, Inc. ("Kent Educational").

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 53.44% of Kent International at December 31, 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 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. As a part of the agreement, Kent International will be responsible for the costs of marketing the site until revenue is generated. The redesigned site was launched on August 6, 2008. Since then, site membership has grown to over 3,100 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 has also produced an innovative educational DVD entitled "Sex Over Sixty". The Academy worked to produce 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, sales results have been disappointing.

Kent Educational and The Academy are consolidated in the accompanying financial statements. The Academy is currently reviewing its strategic options including hiring an executive officer, partnering with a competitor, continuing to provide services to existing clients through an outsourcing platform, or discontinuation of services.

Results of Operations

The Company had a consolidated net loss of $296,281, ($.11 basic and fully diluted loss per share) in 2008, compared to a consolidated net loss of $551,641 ($.20 basic and fully diluted loss per share) in 2007. The decrease in the net loss was 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.

Revenues

Seminar fees based on seminars held by The Academy decreased to $285,643 for the year ended December 31, 2008, compared to $480,612 for the year ended December 31, 2007. The decrease is the result of the departure of The Academy's executive director who was primarily responsible for business development. The Academy currently has approximately $160,667 under contract for services to be rendered in 2009. The Company recognizes seminar revenue when the services are provided.

Interest income was $300,274 and $612,858 in 2008 and 2007, respectively, a decrease of $312,584. The decrease was primarily caused by lower yields on invested balances.

Net unrealized losses on available for sale securities were $43,149, and realized gains were $36,180 for the year ended December 31, 2008 as compared to net unrealized losses on available for sale securities of $2,675, and realized gains of $6,574 for the year ended December 31, 2007. Since marketable securities are classified as available for sale securities, unrealized losses during the years ended December 31, 2008 and 2007 were recorded as an adjustment to accumulated other comprehensive income in stockholder's equity.

For the year ended December 31, 2008, other income decreased to $88,022 from $138,102 for the comparable period in 2007, caused by the decrease in administrative fees paid by an un-affiliated investment partnership. These administrative fees fluctuate based on the performance of the investment partnership; as a result, based upon current global financial market conditions we do not believe that these fees will continue at the same level.

Expenses

General and administrative expenses decreased to $1,104,337 for the year ended December 31, 2008 from $1,804,717 for 2007. The decrease in expenses of $700,830 or 39% is primarily attributed to a $555,262 decrease in personnel costs. Other material decreases were accounting and legal fees of $23,556, rental expenses of $17,550, expenses related to travel and entertainment associated with our ongoing business development activities of $18,993, Directors' fees of $19,700 and the costs of providing seminars by The Academy of $17,312.

Other

In 2008, Kent International repurchased 12,468 shares of common stock in open market transactions for $20,764. The Company recorded an extraordinary gain of approximately $8,838, as the amount paid for the shares was less than the fair value of the net assets recorded.

Liquidity and Capital Resources

At December 31, 2008, the Company had cash and cash equivalents of $1,990,753. 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 $10.09 million at December 31, 2008 with yields ranging from 0.12% to 0.20%. Working capital at December 31, 2008 was approximately $11.93 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 $227,549 for the year ended December 31, 2008, compared to net cash used in operations of $655,144 in 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 general and administrative expenses offset by the decrease in interest earned on invested balances.

$2,152,213 was provided by investing activities during the year ended December 31, 2008 by the sales and maturities of short-term investments of $23.776 million offset by the purchase of short-term investments of $21.638 million and $24,954 for the acquisition of a vehicle for The Academy. $645,615 was provided by investing activities during the year ended December 31, 2007 by the sales and maturities of short-term investments of $25.582 million offset by the purchase of short-term investments of $24.958 million and $14,266 for capital costs for ChinaUSPals.com. Net sales of marketable securities were $39,245 and $36,419 in 2008 and 2007, respectively.

The Company used $48,074 for financing activities for the year ended December 31, 2008 to repurchase 32,729 shares of common stock compared to the $16,756 used for financing activities for the year ended December 31, 2007 to repurchase 7,770 shares of common stock. Kent International also used $20,764 and $5,343 to repurchase their stock in the years ended December 31, 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. Additionally, Kent International's executive offices are located in the premises provided by the Company; however, no separate payment is made for use of the premises. 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 beneficial owner of approximately 53.44% of Kent International's outstanding Common Stock at December 31, 2008. Paul O. Koether, Chairman of the Company is also the Chairman of Kent International and the beneficial owner of approximately 59.11% 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 and 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 approximately $60,802 and $83,481 in the years ended December 31, 2008 and 2007, respectively. Bedminster Management Corp. facilitates the allocation of certain central administrative costs on a cost reimbursement basis 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.

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. In our preparation of the financial statements for 2008, there were no estimates made which were (a) subject to a high degree of uncertainty or (b) material to our results.

We made no material changes to our critical accounting policies in connection with the preparation of financial statements for 2008.

New Accounting Pronouncements

FASB issued SFAS No. 157 ("SFAS 157") "Fair Value Measurements" on September 15, 2006. SFAS 157 enhances existing guidance for measuring assets and liabilities using fair value. Previously, guidance for applying fair value was incorporated in several accounting pronouncements. The new statement provides a single definition of fair value, together with a framework for measuring it, and requires additional disclosure about the use of fair value to measure assets and liabilities. While the statement does not add any new fair value measurements, it does change current practice. One such change is a requirement to adjust the value of nonvested stock for the effect of the restriction even if the restriction lapses within one year. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The adoption of SFAS 157 is not expected to have a material impact on the financial statements of the Company.

In December 2007, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 141 (R), Business Combinations, and SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements. SFAS No. 141 (R) requires an acquirer to measure the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at their fair values on the acquisition date, with goodwill being the excess value over the net identifiable assets acquired. SFAS No.160 clarifies that a noncontrolling interest in a subsidiary should be reported as equity in the consolidated financial statements. The calculation of earnings per share will continue to be based on income amounts attributable to the parent. SFAS No. 141 (R) and SFAS No. 160 are effective for financial statements issued for fiscal years beginning after December 15, 2008. Early adoption is prohibited. We have not yet determined the effect on our consolidated financial statements, if any, upon adoption of SFAS No. 141 (R) or SFAS No. 160. SFAS 141 (R) will significantly affect the accounting for future business combinations and we will determine the accounting as new combinations are determined.