Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.  x

 

 

 

 

Kent Educational

Kent Educational is a wholly owned subsidiary of Kent that has a 60% controlling interest in The Academy for Teaching and Leadership, Inc., a Delaware corporation (“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.  

Academy programs for school leaders include “Solutions for Superintendents”, “Strategies for School Leaders”, “Effective Presentation Skills”, “Leading and Coaching in a Complex Environment”.  Programs designed for educators include “Coaching the Literacy Coach”, “Differentiating the Curriculum”, “Classroom Management for the Elementary and Middle School Teacher” and “Designing and Delivering Effective Instruction”.

Risk Factors Related to the Company

The Company’s business success is wholly dependent on the success of Kent International and Kent Educational.

Kent’s business is comprised entirely of the management of Kent International and Kent Educational.  Accordingly, any risks affecting those companies constitute risks to Kent at the same time.

The Company could be exposed to environmental liabilities of an inactive subsidiary.

As described in Item 3 (“Legal Proceedings”), a wholly owned subsidiary of Kent without assets is subject to a potential significant environmental claim of approximately $2.5 million.  Due to the corporate separateness, we believe that Kent should not be exposed to its subsidiary’s environmental liabilities; however, no assurance can be given that such would be the case.

Risk Factors Related to Kent International

For a discussion of Kent International’s risk factors, please refer to Kent International’s annual report for the year ended December 31, 2007 filed on form 10-KSB under SEC file no. 000-20726.

Risk Factors Related to Kent Educational

The Academy is in its early stages of operations.

In 2007, its third year of operations, The Academy had revenues of approximately $493,000 and a net loss of approximately $7,000.  Continued revenue growth and profitability are uncertain.  As a result, losses may be incurred.

 

 

 

The Academy is currently reviewing its strategic options.

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 or services.

The educational services sector in New Jersey is highly competitive.

The Academy operates in a highly fragmented market with numerous small service providers and no dominant competition.  There can be no assurance that The Academy will maintain or improve its competitive position or that no single competitor or group of competitors will dominate the market in the future.

The resources allocated for educational purposes are unforeseeable.

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 eight 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.

Employees

As of February 29, 2008, the Company and its subsidiaries had two full-time employees and one part-time employee.

Item 2.                      DESCRIPTION OF PROPERTY

None.

Item 3.                      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 $2,459,593.92 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 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.

 

 

Item 4.                      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company held its Annual Meeting of Stockholders on December 17, 2007.  Management's nominees, Paul O. Koether, William Mahomes, Jr., Casey K. Tjang, M. Michael Witte, and Bryan P. Healey were elected to the Board of Directors.

The following is the vote tabulation for all nominees:

							ABSTENTIONS AND
	FOR		AGAINST		WITHHELD		BROKER NONVOTES
Paul O. Koether	1,540,689		-		-		-
William Mahomes, Jr.	1,540,689		-		-		-
Casey K. Tjang	1,540,689		-		-		-
M. Michael Witte	1,540,689		-		-		-
Bryan P. Healey	1,540,689		-		-		-

PART II

Item 5.                      MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Shareholders of Record

As of February 29, 2008, the Company had 1,394 stockholders of record of its common stock.  The closing price of the common stock was $1.93 on February 29, 2008.

Market Information

The Company's common stock trades on the NASDAQ Capital Market under the symbol "KENT".

The table below lists the high and low bid prices for the common stock as reported by NASDAQ for the periods indicated. These prices represent inter-dealer quotations without retail markups, markdowns or commissions, and may not represent actual transactions.

 

		High				Low
Calendar Quarter:
First Quarter		$	3.73			$	2.21
Second Quarter			2.81				1.94
Third Quarter			2.40				1.98
Fourth Quarter			2.50				2.01
First Quarter		$	2.67			$	2.32
Second Quarter			2.64				2.25
Third Quarter			2.29				2.16
Fourth Quarter			2.49				2.18

 

Dividends

The Company did not declare or pay any dividends in 2007 or 2006.

Equity Compensation Plan Information

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, the former 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 year ended December 31, 2007 as no options were earned during this period; however, approximately $36,000 in stock-based compensation expense was recorded for the year ending December 31, 2006.  At December 31, 2007, the Company had no common stock options outstanding.

 

The following table provides a summary of the securities authorized for issuance under equity compensation plans, the weighted average price and number of securities remaining available for issuance, at December 31, 2007.

 

 

Plan Category		(a) Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights		(b) Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights		(c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans Excluding Securities Reflected in Column (a)
Equity Compensation Plans Approved by Security Holders
2005 Stock Option Plan		N/A		N/A		400,000
Equity Compensation Plans not Approved by Security Holders		N/A		N/A		N/A
Total		N/A		N/A		400,000

Repurchase Plans

 

SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

(COMMON STOCK-AUGUST 2004 REPURCHASE PLAN) (1)

 

Period		Total Number of Shares Purchased				Average Price Paid per Share				Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs				Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
October 1, 2007 - October 31, 2007						$	2.11								97,708
November 1, 2007 - November 30, 2007															97,708
December 1, 2007 - December 31, 2007							2.05								97,648
Total						$	2.09								97,648

 

(1)	In August 2004, the Board of Directors approved a plan to repurchase up to 200,000 shares of the Company’s common stock. This plan has no expiration date.

 

 

 

Item 6.

MANAGEMENT'S DISCUSSION AND ANALYSIS

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-KSB.  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-KSB entitled “Description of Business” and risks discussed elsewhere in this Form 10-KSB.  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 53.25% of Kent International at December 31, 2007.  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 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 are 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 consolidated net loss of $551,000, ($.20 basic and fully diluted loss per share) in 2007, compared to a consolidated net loss of $546,000 ($.19 basic and fully diluted loss per share) in 2006.  The change in the net loss was mainly the result of increased interest revenue, seminar fees and administrative fees paid by an un-affiliated investment partnership offset by costs related to the separation agreement with Dr. Qun Yi Zheng, our former President.  Accordingly, results for 2007 and 2006 may not be comparable nor are they necessarily indicative of future results.

Revenues

Seminar fees based on seminars held by The Academy increased to $481,000 for the year ended December 31, 2007, compared to $378,000 for the year ended December 31, 2006.  This increase is a result of an increase in marketing efforts and name recognition during The Academy’s third year of operations.  The Academy currently has approximately $113,125 under contract for services to be rendered in 2008.  The Company recognizes seminar revenue when the services are provided.

Interest income was $613,000 and $619,000 in 2007 and 2006, respectively, a decrease of $6,000.  Although we enjoyed a higher yield on short-term investments and cash equivalents during the first six months of 2007 as compared to the first six months of 2006, the yield on our United States Treasury Bills purchased between June and December 2007 decreased resulting in a decrease in interest revenue for the year ended December 31, 2007.

Net unrealized losses on available for sale securities were $3,000, and realized gains were $7,000 for the year ended December 31, 2007.  Net investing gains were $28,000 for the year ended December 31, 2006.  As a result of the transfer in classification from trading securities to available for sale securities, unrealized losses during the year ended December 31, 2007 were recorded as an adjustment to accumulated other comprehensive income in stockholder’s equity instead of a component of operating income.  Accordingly, investing gains reported for the year ending December 31, 2007 are not comparable to those reported for the year ending December 31, 2006.

 

For the year ended December 31, 2007, other income increased to approximately $139,000 from approximately $60,000 for the comparable period in 2006, caused primarily by the increase 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.  The largest concentration of other income for the year ended December 31, 2006 was related to the one time sale of certain of Kent International’s pharmaceutical patent rights to Accuthera, Inc., a Colorado corporation, for $50,000 in September 2006.  These patents were previously recorded on the Company’s books at a zero carrying value.

Expenses

General and administrative expenses increased to $1,805,000 for the year ended December 31, 2007 from $1,766,000 for 2006.  The increase in expenses of 2.2% is primarily attributed to Kent International’s costs associated with the separation agreement with Dr. Qun Yi Zheng of approximately $136,000, expenses associated with operating www.ChinaUSPals.com of approximately $40,000 and expenses associated with Sex Over Sixty of approximately $62,000.  These increases were offset by decreases in accounting and legal fees of approximately $46,000, other general administrative expenses of $26,000 and expenses related to travel and entertainment associated with our ongoing business development activities of approximately $40,000.

The Company recorded a charge of approximately $90,000 to write off goodwill associated with the investment in The Academy.  Although seminar revenue increased $93,000 in 2007 as compared to 2006, The Academy experienced a net loss of approximately $7,000 due to costs associated with marketing a documentary DVD and consulting fees.  Additionally, as discussed in risk factors related to Kent Educational, The Academy is currently reviewing its strategic options after the resignation of its sole full time executive officer.  Consequently, management determined that as further revenue growth and profitability were uncertain, writing off the goodwill associated with the investment would be appropriate.

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 Kent International is no longer utilizing.

Other

In 2006, the Company acquired 69,834 additional shares of Kent International (then known as Cortech, Inc.) in open market transactions for approximately $192,000 recording an extraordinary gain of approximately $28,000, 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, 2007, the Company had cash and cash equivalents of $135,000.  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 $12.27 million at December 31, 2007 with yields ranging from 3.18% to 5.04%.  Working capital at December 31, 2007 was approximately $12.4 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 $649,000 for the year ended December 31, 2007, compared to net cash used in operations of $757,000 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 timing of interest received on short term investments, the timing of payments for accounts payable and the receipt of a larger than average administrative fee paid by an unaffiliated investment partnership, not an indication of decreasing expenses.  If net cash used in operations for the year ended December 31, 2007 were adjusted to eliminate the larger than average administrative fee, the net result would be $745,000 net cash used in operations.

$639,000 was provided by investing activities during the year ended December 31, 2007 by the sales and maturities of short-term investments of $25.58 million offset by the purchase of short-term investments of $24.96 million and $14,000 for capitalized costs related to the development of www.chinauspals.com.  The Company used $886,000 for investing activities during the year ended December 31, 2006 for the purchase of short-term investments of $24.3 million and the purchase of additional shares of Kent International of $192,000 offset by the sales and maturities of short-term investments of $23.6 million.

The Company used $17,000 for financing activities for the year ended December 31, 2007 to repurchase 7,770 shares of common stock compared to the $12,000 used for financing activities for the year ended December 31, 2006 to repurchase 5,335 shares of common stock.  Kent International also used approximately $5,000 and $68,000 to repurchase their stock in the years ended December 31, 2007 and 2006, 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