UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
T
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended:
March 31,
2008
OR
£
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from: ________ to ________.
Commission
File No.:
1-7986
Kent
Financial Services, Inc.
(Exact
name of registrant as specified in its charter)
|
Nevada
|
|
75-1695953
|
|
|
(State
or other jurisdiction of incorporation or organization)
|
|
(I.R.S.
Employer Identification No.)
|
|
211 Pennbrook Road, P.O. Box
97, Far Hills, New Jersey 07931
(Address
of principal executive offices)
(908)
766-7221
(Registrant's
telephone number)
Indicate
by check mark whether the registrant(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
T
No
£
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer”,
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check One)
Large
accelerated filer
£
|
Accelerated
filer
£
|
Non-accelerated
filer
£
|
Small
reporting company
T
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
£
No
T
State the
number of shares outstanding of each of the issuer's classes of common equity as
of the latest practicable date: As of May 1, 2008, the issuer had
2,792,022 shares of its common stock, par value $.10 per share,
outstanding.
KENT
FINANCIAL SERVICES, INC. AND SUBSIDIARIES
FORM
10-Q
For The
Quarterly Period Ended March 31, 2008
Table Of
Contents
|
|
Page
Number
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|
|
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PART
I. FINANCIAL INFORMATION
|
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3
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4
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5
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6
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11
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14
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15
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PART
II. OTHER INFORMATION
|
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16
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16
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16
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16
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16
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16
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18
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PART
I
-
FINANCIAL INFORMATION
Item
1.
-
Financial
Statements
KENT
FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(In
thousands, except share and per share amounts)
ASSETS
|
|
March 31,
2008 (Unaudited)
|
|
|
December 31,
2007
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,103
|
|
|
$
|
135
|
|
Short-term
investments
|
|
|
11,284
|
|
|
|
12,270
|
|
Marketable
securities
|
|
|
105
|
|
|
|
117
|
|
Accounts
receivable
|
|
|
108
|
|
|
|
98
|
|
Prepaid
expenses and other current assets
|
|
|
30
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
12,630
|
|
|
|
12,638
|
|
|
|
|
|
|
|
|
|
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Property
and equipment, net of accumulated depreciation of $2
|
|
|
6
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
16
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
12,652
|
|
|
$
|
12,706
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
300
|
|
|
$
|
269
|
|
|
|
|
|
|
|
|
|
|
Noncurrent
liabilities:
|
|
|
|
|
|
|
|
|
Accrued
post employment obligations
|
|
|
698
|
|
|
|
685
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
998
|
|
|
|
954
|
|
|
|
|
|
|
|
|
|
|
Minority
interest in subsidiaries
|
|
|
5,059
|
|
|
|
5,083
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
Preferred
stock without par value; 500,000 shares authorized; none
outstanding
|
|
|
-
|
|
|
|
-
|
|
Common
stock, $.10 par value; 8,000,000 shares authorized; 2,792,022 shares
issued and outstanding
|
|
|
279
|
|
|
|
279
|
|
Additional
paid-in capital
|
|
|
12,390
|
|
|
|
12,390
|
|
Accumulated
deficit
|
|
|
(6,062
|
)
|
|
|
(5,997
|
)
|
Accumulated
other comprehensive loss
|
|
|
(12
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
6,595
|
|
|
|
6,669
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
12,652
|
|
|
$
|
12,706
|
|
See
accompanying notes to consolidated financial statements.
KENT
FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
(In
thousands, except per share data)
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
Revenues:
|
|
|
|
|
|
|
Seminar
fees
|
|
$
|
70
|
|
|
$
|
107
|
|
Interest
|
|
|
96
|
|
|
|
159
|
|
Investing
losses
|
|
|
(1
|
)
|
|
|
|
|
Other
income
|
|
|
70
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
|
235
|
|
|
|
367
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
323
|
|
|
|
427
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes and minority interest
|
|
|
(88
|
)
|
|
|
(60
|
)
|
Provision
for income taxes
|
|
|
(1
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
Loss
before minority interest
|
|
|
(89
|
)
|
|
|
(70
|
)
|
Minority
interest in subsidiaries losses
|
|
|
24
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(65
|
)
|
|
|
(53
|
)
|
|
|
|
|
|
|
|
|
|
Other
comprehensive loss:
|
|
|
|
|
|
|
|
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Unrealized
loss on available for sale securities
|
|
|
(9
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss
|
|
$
|
(74
|
)
|
|
$
|
(55
|
)
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per common share
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding (in 000's)
|
|
|
2,792
|
|
|
|
2,799
|
|
See
accompanying notes to consolidated financial statements.
KENT
FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In
thousands)
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(65
|
)
|
|
$
|
(53
|
)
|
Adjustments
to reconcile net loss to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
1
|
|
|
|
2
|
|
Interest
receivable on short-term investments
|
|
|
(61
|
)
|
|
|
(126
|
)
|
Stock-based
compensation expense
|
|
|
|
|
|
|
9
|
|
Minority
interest in subsidiaries losses
|
|
|
(24
|
)
|
|
|
(17
|
)
|
Change
in accounts receivable
|
|
|
(10
|
)
|
|
|
19
|
|
Change
in prepaid expenses and other assets
|
|
|
34
|
|
|
|
(33
|
)
|
Change
in accounts payable and accrued expenses
|
|
|
44
|
|
|
|
(19
|
)
|
Change
in deferred revenue
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(81
|
)
|
|
|
(230
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Acquistion
of property and equipment
|
|
|
|
|
|
|
(14
|
)
|
Purchase
of short-term investments
|
|
|
(371
|
)
|
|
|
(1,174
|
)
|
Sales
and maturities of short-term investments
|
|
|
1,420
|
|
|
|
1,428
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by investing activities
|
|
|
1,049
|
|
|
|
240
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Repurchase
of common stock by subsidiary
|
|
|
|
|
|
|
(6
|
)
|
Repurchase
of common stock
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
Net
cash used in financing activities
|
|
|
-
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
968
|
|
|
|
(5
|
)
|
Cash
and cash equivalents at beginning of period
|
|
|
135
|
|
|
|
167
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
1,103
|
|
|
$
|
162
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid for:
|
|
|
|
|
|
|
|
|
Taxes
|
|
$
|
1
|
|
|
$
|
6
|
|
See
accompanying notes to consolidated financial statements.
KENT
FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
For the
Periods Ending March 31, 2008 and 2007
(UNAUDITED)
NOTE A
-
Basis of
Presentation
The
accompanying unaudited consolidated financial statements of Kent Financial
Services, Inc. and subsidiaries (the "Company") reflect all material adjustments
consisting of only normal recurring adjustments which, in the opinion of
management, are necessary for a fair presentation of results for the interim
periods. Certain information and footnote disclosures required under
accounting principles generally accepted in the United States of America have
been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission, although the Company believes that the
disclosures are adequate to make the information presented not
misleading. These consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 2007 as filed with the Securities and Exchange
Commission.
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. Estimates that are particularly susceptible to change
include assumptions used in determining the fair value of securities owned and
non-readily marketable securities.
The
results of operations for the three months ended March 31, 2008 are not
necessarily indicative of the results to be expected for the entire year or for
any other period.
NOTE B
–
Business and Segment
Information
The
Company's business is comprised of the management of Kent International and Kent
Educational. The Company has determined that its operations can be
segregated into two principal operating segments which are business development
activities and education services. We define operating segments as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the Chairman in deciding how to
allocate resources and in assessing performance.
Kent
International is a publicly traded company (stock symbol “KNTH.PK”) currently
seeking to redeploy its assets into an operating business through an acquisition
or merger. Kent Financial Services owned approximately 53.25% of Kent
International at March 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 activity is reported in
the business development activities segment.
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.
We 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.
The
education services segment represents the activity of Kent Educational; which is
a wholly owned subsidiary of the Company 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, provides educators various programs designed to improve
themselves, their students, and their schools.
The
allocation of resources for educational purposes is currently under great
scrutiny in New Jersey. Funding for public schools in New Jersey
comes from either State aid or local property taxes. Although
property taxes have increased rapidly in New Jersey over the last seven years,
this has not resulted in additional educational expenditures, because the State
of New Jersey has at the same time reduced its aid allocated to public
schools. It is impossible to foresee the future developments of
property taxes and educational State aids. As public schools in New
Jersey are currently our primary customer, our revenue growth is restricted by
any limitation on these resources.
The
following table summarizes the assets and operations of the Company’s segments
as of and for the three months ended March 31, 2008 and 2007:
|
|
Business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development
|
|
|
Educational
|
|
|
All
Other
|
|
|
|
|
|
Consolidated
|
|
|
|
Activities
|
|
|
Services
|
|
|
Operations
|
|
|
Eliminations
|
|
|
Totals
|
|
Three Months Ended
March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
from external customers
|
|
|
|
|
$
|
71
|
|
|
$
|
68
|
|
|
|
|
|
$
|
139
|
|
Management
fees
|
|
|
|
|
|
|
|
|
|
63
|
|
|
$
|
(63
|
)
|
|
|
|
|
Interest
revenue
|
|
$
|
84
|
|
|
|
2
|
|
|
|
10
|
|
|
|
|
|
|
|
96
|
|
Investing
losses
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
Other
revenue
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
|
84
|
|
|
|
73
|
|
|
|
141
|
|
|
|
(63
|
)
|
|
|
235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
|
(114
|
)
|
|
|
(98
|
)
|
|
|
(174
|
)
|
|
|
63
|
|
|
|
(323
|
)
|
Income
tax expense
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
Minority
interest
|
|
|
14
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss by segment
|
|
$
|
(16
|
)
|
|
$
|
(16
|
)
|
|
$
|
(33
|
)
|
|
$
|
-
|
|
|
$
|
(65
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets by segment
|
|
$
|
10,580
|
|
|
$
|
352
|
|
|
$
|
1,720
|
|
|
$
|
-
|
|
|
$
|
12,652
|
|
|
|
Business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development
|
|
|
Educational
|
|
|
All
Other
|
|
|
|
|
|
Consolidated
|
|
|
|
Activities
|
|
|
Services
|
|
|
Operations
|
|
|
Eliminations
|
|
|
Totals
|
|
Three Months Ended
March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
from external customers
|
|
|
|
|
$
|
107
|
|
|
$
|
101
|
|
|
|
|
|
$
|
208
|
|
Management
fees
|
|
|
|
|
|
|
|
|
|
63
|
|
|
$
|
(63
|
)
|
|
|
|
|
Interest
revenue
|
|
$
|
134
|
|
|
|
3
|
|
|
|
22
|
|
|
|
|
|
|
|
159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
|
134
|
|
|
|
110
|
|
|
|
186
|
|
|
|
(63
|
)
|
|
|
367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
|
(200
|
)
|
|
|
(65
|
)
|
|
|
(225
|
)
|
|
|
63
|
|
|
|
(427
|
)
|
Income
tax expense
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
Minority
interest
|
|
|
31
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) by segment
|
|
$
|
(35
|
)
|
|
$
|
21
|
|
|
$
|
(39
|
)
|
|
$
|
-
|
|
|
$
|
(53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets by segment
|
|
$
|
10,874
|
|
|
$
|
520
|
|
|
$
|
2,002
|
|
|
$
|
-
|
|
|
$
|
13,396
|
|
NOTE C -
Securities Owned
Marketable
securities owned as of March 31, 2008 and December 31, 2007, comprised mainly of
portfolio positions (equity securities) held for capital appreciation consisted
of the following (all numbers in thousands):
|
|
|
|
|
March
31, 2008
|
|
|
December
31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
Owned
|
|
|
Estimated
Fair Value
|
|
|
Losses
in Accumulated Other Comprehensive Income
|
|
|
Estimated
Fair Value
|
|
|
Gains
in Accumulated Other Comprehensive Income
|
|
|
Losses
in Accumulated Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GolfRounds.com,
Inc.
|
|
|
4.35
|
%
|
|
$
|
90
|
|
|
$
|
(12
|
)
|
|
$
|
92
|
|
|
|
|
|
$
|
(10
|
)
|
All
other equity securities
|
|
|
N/A
|
|
|
|
15
|
|
|
|
|
|
|
|
24
|
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
105
|
|
|
$
|
(12
|
)
|
|
$
|
116
|
|
|
$
|
7
|
|
|
$
|
(10
|
)
|
During
the first quarter of 2007, the Company reclassified its marketable securities
from trading securities to available for sale securities. 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.
NOTE D -
Capital Stock
Activity
Dividends
No
dividends were declared or paid during the three months ended March 31,
2008.
Common
Stock Repurchases
In August
2004, the Board of Directors approved a plan to repurchase up to 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. This program has no
expiration date. No shares were acquired during the quarter ended
March 31, 2008. As of March 31, 2008, 102,352 shares under this plan
had been repurchased, canceled and returned to the status of authorized but
unissued shares.
NOTE E -
Net Income (Loss) Per
Share
The
Company reports net income (loss) per share under the requirements of Statement
of Financial Accounting Standards No. 128, “Earnings per
Share”. Basic income (loss) per share includes the weighted average
number of common shares outstanding during the year. Diluted income
(loss) per share includes the weighted average number of shares outstanding and
dilutive potential common shares, such as warrants and options. The
Company had no common stock options outstanding at March 31, 2008 and 300,000
outstanding at March 31, 2007. Because the Company had losses in the
three months ended March 31, 2008 and 2007, any stock options outstanding would
have an anti-dilutive effect on net loss per share and as such are not included
in the calculations.
NOTE
F - Stock Option Plans
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)”), a revision of SFAS No. 123, “Accounting for Stock-Based
Compensation” (“SFAS 123”) SFAS 123(R) requires that the compensation
cost relating to share-based payment transactions be recognized in financial
statements. The compensation cost is measured based on the fair value
of the equity or liability instruments issued. SFAS 123(R) was effective as of
the beginning of the first interim or annual period beginning after December 15,
2005. The Company adopted SFAS 123(R) on January 1,
2006.
On
November 25, 2005, shareholders of the Company approved the 2005 Stock Option
Plan making a total of 400,000 common stock options available for
issuance. Subsequently, 300,000 options were awarded to Dr. Qun Yi
Zheng as President of Kent on the same date. 33,000 of these options
were immediately exercisable with an additional 33,000 becoming exercisable on
the first eight anniversaries of the grant date. On August 31, 2007,
the effective date of Dr. Zheng’s resignation, the 66,000 common stock options
that had become exercisable were forfeited as were the 234,000 options that were
still unexercisable. The Company did not record stock-based
compensation expense for the three months ended March 31, 2008 as no options
were earned during this period; however, approximately $9,000 in stock-based
compensation expense was recorded for the three month period ending March 31,
2007. At March 31, 2008, the Company had no common stock options
outstanding.
All
options granted had an exercise price equal to or more than the market price of
the Company’s stock on the grant date. For purposes of calculating
the compensation cost consistent with SFAS 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 duration of 7 years.
Kent
International Stock Options Plans
Kent
International has issued certain common stock options to its employees,
directors and consultants. At March 31, 2008 and December 31, 2007,
Kent International had 120,000 common stock options outstanding. Any
exercises of these common stock options could have a dilutive effect on the
percentage of Kent International owned by the Company.
Until
December 31, 2005, Kent International applied APB 25 and related interpretations
in accounting for its options. Accordingly, no compensation cost had
been recognized for common stock options issued. In January 2006,
Kent International adopted SFAS 123(R). As all outstanding common
stock options were fully vested prior to January 1, 2006, no compensation
expense was recognized in the financial statements in the three month periods
ending March 31, 2008 and 2007.
NOTE G -
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 beneficial owner of approximately
53.25% of Kent International’s outstanding Common Stock at March 31,
2008. Paul O. Koether, Chairman of the Company is also the Chairman
of Kent International and the beneficial owner of approximately 56.22% 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 approximately $14,000 and $24,000 in
the three months ended March 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.
NOTE H -
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,
594
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
and
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.
NOTE
I – Net Operating Loss Carryforwards
As of
December 31, 2007, the Company had approximately $3.3 million of net operating
loss carryforwards (“NOL”) for income tax purposes. In addition, Kent
International had approximately $77.6 million of NOL and $1.85 million of
research and development and foreign tax credit carryforwards available to
offset future federal income tax, subject to limitations for alternative minimum
tax. The NOL’s and tax credit carryforwards expire in various years
from 2008 through 2027. The Company’s and Kent International’s use of
operating loss carryforwards and tax credit carryforwards is subject to
limitations imposed by the Internal Revenue Code. Management believes
that the deferred tax assets as of March 31, 2008 do not satisfy the realization
criteria set forth in SFAS No. 109 and has recorded a valuation allowance for
the entire net tax asset. By recording a valuation allowance for the
entire amount of future tax benefits, the Company has not recognized a deferred
tax benefit for income taxes in its statements of operations.
NOTE
J
- New Accounting
Pronouncements
In
December 2007, the FASB issued SFAS No. 141 (R),
Business Combinations
, and
SFAS No. 160,
Non-controlling
Interests in Consolidated Financial Statements
. SFAS No. 141
(R) requires an acquirer to measure the identifiable assets acquired, the
liabilities assumed, and any non-controlling 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
non-controlling interest in a subsidiary should be reported as equity in the
consolidated financial statement. 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 financial statements, if any, upon adoption of SFAS
No. 141 (R) or SFAS No. 160.
Item
2.
-
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
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 53.25% of Kent International at March 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 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.
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 reviewing its strategic options including hiring a replacement for the
executive officer, partnering with a competitor, continuing to provide services
to existing clients through an outsourcing platform, or discontinuation of
services.
The
Academy has also produced an innovative educational DVD entitled “
Sex Over
Sixty”
. The Academy has 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, as with
any new media release, the possible commercial success of this DVD is
uncertain. Initial marketing, which has commenced, 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 $65,000 or $.02 basic and diluted loss per share, for
the three months ended March 31, 2008 compared to a net loss of $53,000, or $.02
basic and diluted loss per share for the comparable quarter in
2007. The increase in the net loss was mainly the result of decreased
interest revenue, seminar fees 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 decreased to $70,000 for the three
months ended March 31, 2008 compared to $107,000 for the three months ended
March 31, 2007. This decrease is the result of the departure of The
Academy’s executive director who was primarily responsible for business
development. The Company recognizes seminar revenue when the services
are provided.
Interest
income was $96,000 and $159,000 for the periods ending March 31, 2008 and 2007,
respectively, a decrease of $63,000 due to lower yields on invested
balances.
The
Company realized losses on securities transactions of approximately $1,000 for
the three months ended March 31, 2008. In comparison, no gains or
losses on securities transactions were reported during the three months ended
March 31, 2007.
For the
three months ended March 31, 2008, other income decreased to $70,000 from
$101,000 for the three months ended March 31, 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 were $323,000 in the three months ended March 31,
2008 compared to $427,000 in the three months ended March 31, 2007, a decrease
of $77,000. This decrease can be primarily attributed to a reduction
of $121,000 in personnel expenses as a result of the resignation of several
employees including our former President in August of 2007. Other
significant reductions in expenses included legal fees which decreased $17,000,
travel and entertainment expenses which decreased $6,000 and rental expense
which decreased $6,000. These decreases were partially offset by
increases in expenses at the Academy related to seminars held of approximately
$7,000 and production, marketing and fulfillment costs for the
Sex Over Sixty
DVD of
approximately $55,000.
Liquidity
and Capital Resources
At March
31, 2008, the Company had cash and cash equivalents of approximately
$1,103,000. 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 $11.3 million at March
31, 2008 with yields ranging from 2.33% to 3.182%. Working capital at
March 31, 2008 was approximately $12.3 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 $81,000 in the three months ended March 31, 2008,
compared to net cash used in operations of $230,000 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 $1,049,000 was provided by investing activities during the
period ended March 31, 2008 by the sales and maturities of short-term
investments of $1.42 million offset by the purchase of short-term investments of
approximately $371,000. Net cash of $240,000 was provided by
investing activities during the period ended March 31, 2007 by the sales and
maturities of short-term investments of $1.428 million offset by the purchase of
short-term investments of $1.174 million and capitalized costs for the
development of
www.chinauspals.com
.
Nil cash
was used for financing activities in the period ending March 31,
2008. In the period ended March 31, 2007, net cash used in financing
activities for the repurchase of the Company’s common stock was
$9,000. Kent International also used approximately $6,000 to
repurchase its stock in the quarter ended March 31, 2007.
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
53.25% of Kent International’s outstanding Common Stock at March 31,
2008. Paul O. Koether, Chairman of the Company is also the Chairman
of Kent International and the beneficial owner of approximately 56.22% 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 approximately $14,000 and $24,000 in
the three months ended March 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.
ITEM
3.
|
Quantitative and
Qualitative Disclosure About Market
Risk.
|
Not
Applicable.
Item
4.
-
|
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) in ensuring that information required to be disclosed by
the Company in its reports is recorded, processed, summarized and reported
within the required time periods. In carrying out that evaluation,
management identified a material weakness (as defined in Public Company
Accounting Oversight Board Standard No. 2) in our internal control over
financial reporting.
The
material weakness identified by Management consisted of inadequate staffing and
supervision within the bookkeeping and accounting operations of our
company. The relatively small number of employees who have
bookkeeping and accounting functions prevents us from segregating duties within
our internal control system. The inadequate segregation of duties is
a weakness because it could lead to the untimely identification and resolution
of accounting and disclosure matters or could lead to a failure to perform
timely and effective reviews. However, as there has been no instance
in which the company failed to identify or resolve a disclosure matter or failed
to perform a timely and effective review, management determined that the
addition of personnel to our bookkeeping and accounting operations is not an
efficient use of our resources at this time.
Accordingly,
based on their evaluation of our disclosure controls and procedures as of March
31, 2008, the Company’s Chief Executive Officer and its Chief Financial Officer
have concluded that, as of that date, the Company’s controls and procedures were
not effective for the purposes described above.
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 March 31, 2008 that has materially affected or is
reasonably likely to materially affect the Company’s internal control over
financial reporting.
PART
II
-
|
OTHER
INFORMATION
|
ITEM
1.
-
|
Legal
Proceedings
|
None.
ITEM
2.
-
|
Unregistered Sales of
Equity Securities and Use of
Proceeds
|
None.
ITEM
3.
-
|
Defaults Upon Senior
Securities
|
None.
ITEM
4.
-
|
Submission of Matters
to a Vote of Security
Holders
|
None.
ITEM
5.
-
|
Other
Information
|
None.
|
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 Incorporation.
(3)
|
|
3.2(c)
|
Certificate
of Amendment to Certificate of Incorporation dated September 26, 1991.
(4)
|
|
10.1
|
Employment
Agreement dated December 31, 2002 by and between Kent Financial Services,
Inc. and Paul O. Koether. (5) **
|
|
10.2
|
Employment
Agreement dated May 1, 2006 by and between Kent Financial Services, Inc.
and Bryan P. Healey. (6) **
|
|
|
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
Certification
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
(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 8-K filed on May 1,
2006.
|
SIGNATURES
In
accordance with the requirements of the Exchange Act of 1934, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
|
KENT
FINANCIAL SERVICES, INC.
|
|
|
|
|
|
|
|
|
Dated:
May 9, 2008
|
|
By:
|
/s/ Bryan P. Healey
|
|
|
|
Bryan
P. Healey
|
|
|
|
Chief
Financial Officer and Secretary
|
|
|
|
(Principal
Financial and Accounting Officer)
|
18
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