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| KENT > SEC Filings for KENT > Form 10-Q on 11-May-2009 | All Recent SEC Filings |
11-May-2009
Quarterly Report
The following discussion and analysis should be read in conjunction with the Annual Report on Form 10-K for the fiscal year ended December 31, 2008, 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 53.44% of Kent International at March 31, 2009. 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 4,000 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.
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 net loss of $106,728 or $.04 basic and diluted loss per share, for the three months ended March 31, 2009 compared to a net loss of $64,640, or $.02 basic and diluted loss per share for the comparable quarter in 2008. The increase in the net loss was mainly the result of decreased interest revenue and administrative fees paid by an un-affiliated investment partnership offset by decreased expenses during the period.
Revenue
Seminar fees based on seminars held by The Academy increased to $110,283 for the three months ended March 31, 2009 compared to $69,798 for the three months ended March 31, 2008. The majority of the increase was caused by the timing of the seminars provided in 2009 versus those provided in 2008. Several of the seminars provided in the first quarter of 2009 were provided to the identical clients in the second quarter of 2008, resulting in an earlier recognition of income in 2009. The Company recognizes seminar revenue when the services are provided.
Interest and dividend income was $7,583 and $95,209 for the periods ending March 31, 2009 and 2008, respectively, a decrease of $87,626 due to a decrease in the yields on invested balances from 3.2% to 0.2%.
The Company realized gains on securities transactions of $10,034 for the three months ended March 31, 2009 as compared to the realized losses on securities transactions of $660 for the three months ended March 31, 2008.
For the three months ended March 31, 2009, other income decreased to $2,479 from $69,827 for the three months ended March 31, 2008 caused primarily 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 return to 2008 levels for the foreseeable future.
Expenses
General and administrative expenses were $251,859 in the three months ended March 31, 2009 compared to $322,159 in the three months ended March 31, 2008, a decrease of $70,300. This decrease can be primarily attributed to a $54,774 reduction in expenses related to the production and fulfillment of the Sex Over Sixty DVD. Other significant reductions in expenses included personnel costs which decreased $13,312 and travel and entertainment expenses which decreased $10,800.
Liquidity and Capital Resources
At March 31, 2009, the Company had cash and cash equivalents of $1,788,910. 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 approximately $10.096 million at March 31, 2009 with a yield of 0.2%. Working capital at March 31, 2009 was approximately $11.8 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 $211,877 in the three months ended March 31, 2009, compared to net cash used in operations of $81,878 in the comparable period of 2008. 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 increase in net cash used in operations was largely the result of the decrease in revenues as described above.
Net cash of $10,034 was provided by investing activities during the period ended March 31, 2009 by the gain generated by the net purchases and sales of marketable securities. Net cash of $1,050,004 was provided by investing activities during the period ended March 31, 2008 by the sales and maturities of short-term investments of $1,419,363 and marketable securities of $1,315, offset by the purchase of short-term investments of $370,674.
Nil cash was used for financing activities in the periods ending March 31, 2009 and 2008.
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 was the beneficial owner of approximately 53.44% of Kent International's outstanding Common Stock at March 31, 2009. 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 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 $18,407 and $14,393 in the three months ended March 31, 2009 and 2008, 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.
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