Item 1. -
BUSINESS
General
Except for the historical information contained herein, the matters discussed in this Annual Report on Form 10-K are forward-looking statements that involve risks and uncertainties. For a discussion of certain factors which may affect the outcome projected in such statements, see Item 1A
Item 1A. -
RISK FACTORS
Our business operations produce losses
The Company had very limited business operations during 2009 and 2008, and the Company had net losses of $474,618 and $190,937 in 2009 and 2008, respectively. At December 31, 2009, the accumulated deficit was $89,474,026. At the end of 2009, the Company initiated its broker-dealer operations; however, the Company does not expect that its securities broker-dealer or its business development activity will generate any significant revenues for an indefinite period as these efforts are in their early stages. As a result, these activities will produce losses until such time as meaningful revenues are achieved.
Broker-Dealer Risks
The securities industry is, by its nature, subject to various risks, particularly in volatile or illiquid markets, including the risk of losses resulting from the ownership of securities, customer fraud, employee errors and misconduct and litigation. Kent Capital is engaged in an extremely competitive business and its competitors include organizations that have substantially more employees and greater financial resources. Kent Capital will also compete for investment funds with banks, insurance companies, hedge funds, private equity funds and other investment companies.
The expenses related to identifying a target business and to complete a business combination will increase the losses of the Company.
Until presented with a specific opportunity for a business combination, the Company is unable to ascertain with any degree of certainty the time and costs required to select and evaluate a target business and to structure and complete the business combination. Any costs incurred in connection with the identification and evaluation of a prospective target business with which a business combination is not ultimately completed will result in a loss to the Company and reduce the amount of capital otherwise available to complete a business combination and thereafter operate the acquired business. Kent International cannot assure you that it will be successful in identifying a target business and completing a business combination on terms favorable to its stockholders, if at all.
The tax treatment of a potential business combination is not clear.
The Company will endeavor to structure a business combination so as to achieve the most favorable tax treatment to it and to the target business and the stockholders of both companies. Kent International cannot assure you, however, that the Internal Revenue Service or appropriate state tax authorities will agree with the Company’s tax treatment of the business combination.
We have limited ability to evaluate the target business' management; we cannot anticipate what role, if any, the Company’s management will play in a combined business and whether our management has the necessary experience to manage the combined business; we do not know if we will be able to recruit more management if necessary.
Although the Company intends to carefully scrutinize the management of a prospective target business before effecting a business combination, it cannot assure you that its assessment of the target's management will prove to be correct. In addition, the Company cannot assure you that the target's future management will have the necessary skills, qualifications or abilities to manage a public company. Furthermore, the future role of the Company’s officers and directors, if any, in the target business cannot presently be stated with any certainty. While it is possible that one or more of the Company’s officers and directors will remain associated in some capacity following a business combination, it is uncertain whether all of them will devote their full efforts to the Company’s affairs after a business combination. Moreover, the Company cannot assure you that its officers and directors will have significant experience or knowledge relating to the operations of the particular target business.
The Company may seek to recruit additional management personnel to supplement the incumbent management of the target business. The Company cannot assure you, however, that it will be able to recruit additional managers who have the requisite skills, knowledge or experience necessary to enhance the incumbent management and successfully operate the target business.
In our search for an appropriate combination partner, we will have to compete with other entities with more experience and greater resources; after a successful business combination we will have to face the competitors of the operating company we combine with.
The Company may encounter intense competition from other entities seeking to combine with a privately held operating company. Many of these entities, including financial consulting companies and venture capital firms, have longer operating histories and have extensive experience in identifying and effecting business combinations. Many of these competitors also possess significantly greater financial, technical and other resources than does the Company. Kent International cannot assure you that it will be able to effectively compete with these entities. Consequently, Kent International may acquire a company with less favorable prospects then it would otherwise prefer, thus making its long-term prospects for success less likely.
If the Company effects a business combination, it will become subject to competition from the competitors of the acquired business. In particular, industries that experience rapid growth frequently attract larger numbers of competitors, including competitors with greater financial, marketing, technical and other resources than the Company. The Company cannot ascertain the level of competition it will face if it effects a business combination, and it cannot assure you that it will be able to compete successfully with these competitors.
Our social networking website might not be viewable in China.
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 Pink Sheets are characterized by high volatility which may negatively affect our stock price.
Our common stock is quoted on the Pink Sheets under the symbol “KNTH”. The Pink Sheets and the price of our common stock are characterized by high volatility. The Company cannot guarantee any market for its shares of common stock, and cannot guarantee that any stable market for its shares of common stock will develop or be sustained. The Company cannot predict the effect, if any, that our business activities or a business combination might have on the market price.
Employees
The company does not have any compensated employees.
ITEM 2.
ITEM 2. -
PROPERTIES
The Company’s executive offices are located in Raleigh, North Carolina in premises provided by Kent Financial Services Inc. The Company pays Kent Financial Services a monthly management fee of $21,000 for management services. No separate payment is made for use of the premises.
ITEM 3.
ITEM 3. -
LEGAL PROCEEDINGS
None
PART II
ITEM 4.
ITEM 4. -
MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITOES
Shareholders of Record
At February 26, 2010, the Company had approximately 394 stockholders of record.
Market Information
Since June 8, 2006, the Company’s common stock has been quoted on The Pink Sheets, under the symbol “KNTH”. The table below sets forth the high and low sales price per share of the Common Stock for the periods indicated, as reported in The Pink Sheets
Dividends
The Company has not paid any cash dividends on its common stock since its inception and does not anticipate paying any cash dividends in the foreseeable future.
Purchase of Equity Securities
In October 2000, the Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to 320,000 shares of its Common Stock at prices deemed favorable from time to time 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 repurchased during the quarter ended December 31, 2009. At December 31, 2009, there were 121,068 shares remaining authorized for repurchase under the program. All shares repurchased were returned to the status of authorized but unissued shares.
Equity Compensation Plan Information
The following table sets forth information about the shares of the Company’s common stock that may be issued upon the exercise of options granted to employees under the Company’s 1986 Stock Option Plan:
The Company’s 1986 Stock Option Plan (“1986 Plan”) authorizes the grant of stock options to officers and employees of the Company to purchase an aggregate of 300,000 shares of common stock. The stock options granted under the plan may be incentive stock options (“ISO”) or nonstatutory stock options (“NSO”). The Board of Directors may set the rate at which the options expire, subject to limitations discussed below. However, no options shall be exercisable after the tenth anniversary of the date of grant or, in the case of ISOs, three months following termination of employment, except in cases of death or disability, for which the time or exercisability is extended. In the event of dissolution, liquidation or other corporate reorganization, all stock options outstanding under the 1986 Plan would become exercisable in full.
ISOs may not be granted at an exercise price of less than the fair market value of the common stock at the date of grant. If an ISO is granted to an employee who owns more than 10% of the Company’s total voting stock, such exercise price shall be at least 110% of fair market value of the common stock, and the ISO shall not be exercisable until after five years from the date of grant. The exercise price of each NSO may not be less than 85% of the fair market value of the common stock at the date of grant.
The plan also provides for stock appreciation rights, which may be granted with respect to any stock option. No stock appreciation rights have been granted through December 31, 2009.
ITEM 5.
ITEM 5. -
SELECTED FINANCIAL DATA
Not Applicable.
ITEM 6.
ITEM 6. -
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.
Organization
Kent International Holdings, Inc. (“Kent International” or “Company”), previously known as Cortech, Inc. (“Cortech”), was a biopharmaceutical company whose primary focus had been the discovery and development of novel therapeutics for the treatment of inflammatory disorders. Cortech was incorporated in 1982 in Colorado and reincorporated in Delaware in 1991. On May 25, 2006, Cortech was reincorporated in Nevada by a merger with its wholly owned subsidiary, Kent International Holdings, Inc. The reincorporation effected a change in Cortech’s legal domicile from Delaware to Nevada and a change in the name from Cortech, Inc. to Kent International Holdings, Inc.
Business Activities
Kent International’s business plan is to serve as a vehicle for the acquisition of or merger or consolidation with another company (a ‘‘target business’’). We intend to use our available working capital, capital stock, debt or a combination of these to effect a business combination with a target business which we believe has significant growth potential. The 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. We will not restrict our search to any particular industry. Rather, we may investigate businesses of essentially any kind or nature and participate in any type of business that may, in our management’s opinion, meet our business objectives as described in this report. We emphasize that the description in this report of our business objectives is extremely general and is not meant to restrict the discretion of our management to search for and enter into potential business opportunities. We have not chosen the particular business in which we will engage and have not conducted any market studies with respect to any business or industry for you to evaluate the possible merits or risks of the target business or the particular industry in which we may ultimately operate. To the extent we enter into a business combination with a financially unstable company or an entity in its early stage of development or growth, including entities without established records of sales or earnings, we will become subject to numerous risks inherent in the business and operations of financially unstable and early stage or potential emerging growth companies. In addition, to the extent that we effect a business combination with an entity in an industry characterized by a high level of risk, we will become subject to the currently unascertainable risks of that industry. An extremely high level of risk frequently characterizes certain industries that experience rapid growth. In addition, although we will endeavor to evaluate the risks inherent in a particular industry or target business, we cannot assure you that we will properly ascertain or assess all significant risk factors.
Additionally, Company’s wholly owned subsidiary, Kent Capital, Inc. (“Kent Capital”), is a securities broker-dealer. Kent Capital’s membership agreement with the Financial Industry Regulatory Authority (FINRA) allows it to operate under three business lines; Private Placements, Real Estate Syndication and Trading Securities for Our Own Account. The Company intends to operate the broker dealer in an attempt to generate revenue and earnings. However, management will continue to pursue merger or acquisition opportunities that offer potentially profitable uses for the Company’s available capital as discussed below. The Company’s initial investment in Kent Capital was $350,000, with the potential to increase the investment to $2,500,000 or more within the next year, depending on the prospects for potential return on the investment.
To generate Private Placement revenue Kent Capital may raise capital from accredited and institutional investors for direct equity investments in real estate and real estate related projects. These projects could include foreclosure properties, land (both finished and unfinished lots), partially finished commercial or residential projects, farmland or timberland, medical properties, student housing properties, multi-family properties, and energy efficiency, cogeneration, solar or wind projects. Kent Capital would market these opportunities only to accredited investors who might be high net worth individuals or institutions.
Real Estate Syndication may be a derivative of Kent Capital’s real estate related Private Placement business as we may at times acquire a property or project prior to seeking investor interest. In most cases, Kent Capital would then act as the sponsor of the syndicate and sell limited partnership interests in the property or project while remaining the general partner. In other cases, Kent Capital may decide to hold the property for future resale. Kent Capital will have the ability to close acquisitions quickly without requiring us to raise investor capital. This would allow Kent Capital to market the opportunity to appropriate investors without time constraints.
Kent Capital is also approved for Trading Securities for Its Own Account. As a result of the current condition of the financial markets, management believes that there are opportunities to acquire equity in publicly traded companies at historically low values. Management may invest a portion of Kent Capital’s capital in such opportunities. These investments would be made with the purpose of selling them for a capital gain at some future point. All trading would be performed in a brokerage account opened in Kent Capital’s name at a discount brokerage such as Charles Schwab or Fidelity in order to minimize commission expenses and trading costs.
Kent International also operates 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. The site was redesigned in preparation for the 2008 Olympics and re-launched on August 6, 2008. Since then, site membership has grown to over 6,200 members from the approximately 150 members prior to the redesign.
Kent International 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. While management had been encouraged by the membership and traffic growth since the redesign, membership growth has dramatically declined in the past few months. Accordingly, the Company is reviewing strategic options available to ChinaUSPals.com including selling the site or shutting down the site’s operations. The Company has ceased all paid advertising for the site in order to minimize operational costs.
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.
Results of Operations
Kent International had a net loss of $474,618, or $0.13 basic and fully diluted loss per share, for the year ended December 31, 2009 compared to a net loss of $190,937, or $0.05 basic and fully diluted income per share, for the year ended December 31, 2008. The increase in the net loss was a result of decreased interest revenue and increased consulting and due diligence expenses related to a proposed acquisition that was terminated prior to closing.
Revenues
Revenues were $19,441 and $265,579 for the years ended December 31, 2009 and 2008, respectively. Interest income decreased to $16,316 in 2009 from $264,329 in 2008 due to dramatically lower yields on invested balances. The Company recorded $3,125 and $1,250 in other income for 2009 and 2008, respectively, in connection with a patent licensing agreement with the University of Colorado. These patents are recorded on the Company’s books at a zero carrying value and the Company does not anticipate significant earnings in the future in connection with the agreement.
Expenses
General and administrative expenses were $492,990 in 2009 compared to $456,006 in 2008. The increase can be primarily attributed to $95,051 expended during 2009 in consulting and due diligence expenses related to a proposed acquisition that was terminated prior to closing, as compared to $58,227 expended during 2008 in consulting and due diligence expenses related to a separate proposed acquisition that was terminated prior to closing. Other material expense increases during 2009 were $18,000 in consulting expenses related to the licensing of Kent Capital, Inc. and $12,149 related to the operation of ChinaUSPals.com. These increases were partially offset by significant reductions in expenses such as travel and entertainment expense which decreased $12,900 and depreciation expense which decreased from $5,917 to zero.
Liquidity and Capital Resources
At December 31, 2009, the Company had cash and cash equivalents of $9,924,385. Cash and cash equivalents consist of cash held in banks and brokerage firms, or U.S. treasury bills with original maturities of three months. Working capital at December 31, 2009 was approximately $9.890 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 or starting an operating business.
Net cash of $455,662 was used in operations during 2009, an increase of $295,723 over the $159,939 used in operations during 2008. This increase resulted from the combination of the decrease in interest revenue and the increase in expenses as previously described.
Net cash of $10,089,167 and $443,243 was provided by investing activities in 2009 and 2008, respectively, by the amount that the sales and maturities exceeded the purchases of short-term investments. The proceeds from the maturities of six-month U.S. treasury bills during 2009 were primarily reinvested in U.S treasury bills with original maturities of three months, effectively transferring the categorization from short term investments to cash equivalents for reporting purposes.
The Company used nil cash for financing activities for the year ended December 31, 2009 compared to $20,764 used to repurchase 12,468 shares during 2008.
Factors Which May Affect Future Results
Future earnings of the Company are dependent on interest rates earned on the Company’s invested balances, revenues generated at Kent Capital and expenses incurred. Kent International expects to incur significant expenses in connection with its objective of redeploying its assets into an operating business, including its broker-dealer subsidiary, Kent Capital, and with the operation of the website.
Other Disclosures - Related Party Transactions
A monthly management fee of $21,000 is paid to Kent Financial Services, Inc. (“Kent”), a Nevada corporation, for management services. These services include, among other things, periodic and other filings with the Securities and Exchange Commission, evaluating merger and acquisition proposals, internal accounting and shareholder relations. This arrangement may be terminated at will by either party. Kent was the beneficial owner of approximately 53.44% of the Company’s outstanding common stock at February 26, 2010. Paul O. Koether, Chairman of the Company is also the Chairman of Kent and the beneficial owner of approximately 59.54% of Kent’s outstanding common stock. Bryan P. Healey, Chief Financial Officer of the Company is also the Chief Financial Officer of Kent and the son-in-law of Paul O. Koether.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
Contractual Commitments
The Company has no contractual commitments.
Other Matters
As of December 31, 2009, Kent International had approximately $39.7 million of net operating loss carryforwards (“NOL”) for income tax purposes. In addition, Kent International has approximately $1.25 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 NOLs and tax credit carryforwards expire in various years from 2010 through 2028. 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 December 31, 2009 do not satisfy realization criteria 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.
ITEM 7.
ITEM 7. -
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements filed with this item are listed below:
Report of Independent Registered Public Accounting Firm
Financial Statements:
Consolidated Balance Sheets as of December 31, 2009 and 2008
Consolidated Statements of Operations for the Years ended December 31, 2009 and 2008
Consolidated Statements of Cash Flows for the Years ended December 31, 2009 and 2008
Consolidated Statements of Stockholders’ Equity for the Years ended
December 31, 2009 and 2008
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders’ of Kent International Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Kent International Holdings, Inc. as of December 31, 2009 and 2008 and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2009. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Kent International Holdings, Inc. and subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America.
/s/ Paritz & Company, P.A.
March 24, 2010
Hackensack, New Jersey
KENT INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
BALANCE SHEETS
As of December 31, 2009 and 2008
See accompanying notes to consolidated financial statements.
KENT INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
See accompanying notes to consolidated financial statements.
KENT INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
See accompanying notes to consolidated financial statements.
KENT INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
See accompanying notes to consolidated financial statements.
KENT INTERNATIONAL HOLDINGS, INC. AND SUDSIDIARY
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2009 and 2008
NOTE 1 - Organization
Kent International Holdings, Inc. (“Kent International” or “Company”), previously known as Cortech, Inc. (“Cortech”), was a biopharmaceutical company whose primary focus had been the discovery and development of novel therapeutics for the treatment of inflammatory disorders. Cortech was incorporated in 1982 in Colorado and reincorporated in Delaware in 1991. On May 25, 2006, Cortech was reincorporated in Nevada by a merger with its wholly owned subsidiary, Kent International Holdings, Inc. The reincorporation effected a change in Cortech’s legal domicile from Delaware to Nevada and a change in the name from Cortech, Inc. to Kent International Holdings, Inc.
Nature of Business and Associated Risk
Kent International’s business plan is to serve as a vehicle for the acquisition of or merger or consolidation with another company (a ‘‘target business’’). We intend to use our available working capital, capital stock, debt or a combination of these to effect a business combination with a target business which we believe has significant growth potential. The 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. We will not restrict our search to any particular industry. Rather, we may investigate businesses of essentially any kind or nature and participate in any type of business that may, in our management’s opinion, meet our business objectives as described in this report. We emphasize that the description in this report of our business objectives is extremely general and is not meant to restrict the discretion of our management to search for and enter into potential business opportunities. We have not chosen the particular business in which we will engage and have not conducted any market studies with respect to any business or industry for you to evaluate the possible merits or risks of the target business or the particular industry in which we may ultimately operate. To the extent we enter into a business combination with a financially unstable company or an entity in its early stage of development or growth, including entities without established records of sales or earnings, we will become subject to numerous risks inherent in the business and operations of financially unstable and early stage or potential emerging growth companies. In addition, to the extent that we effect a business combination with an entity in an industry characterized by a high level of risk, we will become subject to the currently unascertainable risks of that industry. An extremely high level of risk frequently characterizes certain industries that experience rapid growth. In addition, although we will endeavor to evaluate the risks inherent in a particular industry or target business, we cannot assure you that we will properly ascertain or assess all significant risk factors.
Additionally, the Company’s wholly owned subsidiary, Kent Capital, Inc. (“Kent Capital”), is a securities broker-dealer. Kent Capital’s membership agreement with the Financial Industry Regulatory Authority (FINRA) allows it to operate under three business lines; Private Placements, Real Estate Syndication and Trading Securities for Our Own Account. The Company intends to operate the broker dealer in an attempt to generate revenue and earnings. However, management will continue to pursue merger or acquisition opportunities that offer potentially profitable uses for the Company’s available capital as discussed below. The Company’s initial investment in Kent Capital was $350,000, with the potential to increase the investment to $2,500,000 or more within the next year, depending on the prospects for potential return on the investment.
To generate Private Placement revenue Kent Capital may raise capital from accredited and institutional investors for direct equity investments in real estate and real estate related projects. These projects could include foreclosure properties, land (both finished and unfinished lots), partially finished commercial or residential projects, farmland or timberland, medical properties, student housing properties, multi-family properties, and energy efficiency, cogeneration, solar or wind projects. Kent Capital would market these opportunities only to accredited investors who might be high net worth individuals or institutions.
Real Estate Syndication will be a derivative of Kent Capital’s real estate related Private Placement business as we may at times acquire a property or project prior to seeking investor interest. In most cases, Kent Capital would then act as the sponsor of the syndicate and sell limited partnership interests in the property or project while remaining the general partner. In other cases, Kent Capital may decide to hold the property for future resale. Kent Capital will have the ability to close acquisitions quickly without requiring us to raise investor capital. This would allow Kent Capital to market the opportunity to appropriate investors without time constraints.
Kent Capital is also approved for Trading Securities for Its Own Account. As a result of the current condition of the financial markets, management believes that there are opportunities to acquire equity in publicly traded companies at historically low values. Management may invest a portion of Kent Capital’s capital in such opportunities. These investments would be made with the purpose of selling them for a capital gain at some future point. All trading would be performed in a brokerage account opened in Kent Capital’s name at a discount brokerage such as Charles Schwab or Fidelity in order to minimize commission expenses and trading costs.
Kent International also operates 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. The site was redesigned in preparation for the 2008 Olympics and re-launched on August 6, 2008. Since then, site membership has grown to over 6,200 members from the approximately 150 members prior to the redesign.
Kent International 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. While management had been encouraged by the membership and traffic growth since the redesign, membership growth has dramatically declined in the past few months. Accordingly, the Company is reviewing strategic options available to ChinaUSPals.com including selling the site or shutting down the site’s operations. The Company has ceased all paid advertising for the site in order to minimize operational costs.
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.
NOTE 2 - Significant Accounting Policies
Use of 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of Kent International and its 81% subsidiary, ChinaUSPals, Inc., and its wholly owned subsidiaries Kent Capital, Inc. and Kent Energy Solutions, Inc. Intercompany balances and transactions between the Company and its subsidiaries have been eliminated.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash in banks and brokerage firms and U.S. Treasury Bills with original maturities of three months.
Short-term Investments
Short-term investments consist of U.S. Treasury Bills with original maturities of six months and are valued at cost plus accrued interest, which approximates fair value.
Basic and Diluted Net Loss Per Share
Basic loss per common share is computed by dividing the net loss by the weighted-average number of common shares outstanding. Diluted loss per share is computed by dividing the net loss by the sum of the weighted-average number of common shares outstanding plus the dilutive effect of shares issuable through the exercise of stock options.
We have excluded 120,000 and 100,000 Common Stock options from the calculation of diluted loss per share for the years ended December 31, 2009 and 2008, respectively, which, if included, would have an antidilutive effect.
Income Taxes
The Company recognizes deferred tax assets and liabilities related to the expected future tax consequences of events that have been recognized in the Company’s financial statements and tax returns. However, if it is more likely than not that some portion or all of the net deferred tax assets will not be realized, a valuation allowance is established and the tax benefit is not recognized in the statements of operations.
Stock Based Compensation Expense
The Company uses the Black-Scholes option valuation model to estimate the fair value of its stock options at the date of grant. The Black-Scholes option valuation model requires the input of subjective assumptions to calculate the value of stock options. The Company uses historical data among other information to estimate the expected price volatility, the expected annual dividend, the expected option life and the expected forfeiture rate. The grant date estimated fair value is recognized over the period during which an employee is required to provide service in exchange for the award, which is generally the option vesting period.
New Accounting Pronouncements
As of September 2009, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC” or the “Codification”) 105-10 (formerly FASB Statement No. 168 “FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles). This standard establishes only two levels of U.S. generally accepted accounting principles (“GAAP”), authoritative and nonauthoritative. The Codification became the single source of authoritative, nongovernmental GAAP, except for rules and interpretive releases of the SEC, which are sources of authoritative GAAP for SEC registrants. All other non-grandfathered, non-SEC accounting literature not included in the Codification became nonauthoritative. ASC 105-10 does not change previously issued GAAP, but reorganizes GAAP into Topics. In circumstances where previous standards require a revision, the FASB will issue an Accounting Standards Update (“ASU”) on the Topic. Our adoption of ASC 105-10 did not have any impact on the Company’s financial statements.
NOTE 3 - Property, Plant & Equipment
Net property, plant and equipment as December 31, 2009 and 2008 consisted of:
NOTE 4 - Income Taxes
As of December 31, 2009, the Company had approximately $39.7 million of net operating loss carryforwards (“NOL”) for income tax purposes and approximately $1.25 million of research and development and foreign tax credit carryforwards available to offset future federal income tax, subject to limitations for alternative minimum tax. Approximately $24.1 million in NOLs and $602k in tax credits expired at the end of 2009 and the remaining NOLs and tax credit carryforwards expire in various years from 2010 through 2024 as shown on the following table:
Income tax expense for the years ended December 31, 2009 and 2008 consisted entirely of New Jersey State income taxes. The income tax expense for the years ended December 31, 2009 and 2008 is different from the amount computed by multiplying total earnings before income taxes by the statutory Federal income tax rate of 35%. The reasons for this difference and the related tax effect are as follows:
Deferred income taxes reflect the net effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial statement purposes and the amounts used for income tax purposes, and (b) operating loss and tax credit carryforwards.
The tax effect of significant items comprising the Company’s net deferred tax asset as of December 31, 2009 and 2008 is as follows:
Management believes the deferred tax assets as of December 31, 2009 do not satisfy the realization criteria set forth in United States accounting standards and has recorded a valuation allowance for the entire net tax asset.
The Tax Reform Act of 1986 contained provisions that may limit the NOL and credit carryforwards available to be used in any given year upon the occurrence of certain events, including significant changes in ownership of a company of greater than 50% within a three-year period which results in an annual limitation on the Company’s ability to utilize its NOLs and tax credit carryforwards from tax periods prior to the ownership change.
NOTE 6 - Stockholders’ Equity
Preferred Stock
The Company is authorized to issue 2,000,000 shares of $.002 par value preferred stock, which may be issued with various terms in one or more series, as the Board of Directors may determine. No preferred stock has been issued as of December 31, 2009.
Common Stock
In October 2000, the Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to 320,000 shares of its Common Stock at prices deemed favorable from time to time 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. Although the Company did not repurchase any shares during the year ended December 31, 2009, during the year ended December 31, 2008 the Company acquired 12,468 shares at a cost of $20,764. As of December 31, 2009, 121,068 shares remaining authorized for repurchase under the program. All shares repurchased were returned to the status of authorized but unissued shares.
Stock Option Plans
Kent International has issued certain common stock options to its employees, directors and consultants. At December 31, 2009, Kent International had 200,000 common stock options outstanding.
The Company’s 1986 Stock Option Plan (“1986 Plan”) authorizes the grant of stock options to officers and employees of the Company to purchase an aggregate of 300,000 shares of common stock. The stock options granted under the plan may be incentive stock options (“ISO”) or nonstatutory stock options (“NSO”). The Board of Directors may set the rate at which the options expire, subject to limitations discussed below. However, no options shall be exercisable after the tenth anniversary of the date of grant or, in the case of ISOs, three months following termination of employment, except in cases of death or disability, for which the time or exercisability is extended. In the event of dissolution, liquidation or other corporate reorganization, all stock options outstanding under the 1986 Plan would become exercisable in full.
ISOs may not be granted at an exercise price of less than the fair market value of the common stock at the date of grant. If an ISO is granted to an employee who owns more than 10% of the Company’s total voting stock, such exercise price shall be at least 110% of fair market value of the common stock, and the ISO shall not be exercisable until after five years from the date of grant. The exercise price of each NSO may not be less than 85% of the fair market value of the common stock at the date of grant.
The plan also provides for stock appreciation rights, which may be granted with respect to any stock option. No stock appreciation rights have been granted through December 31, 2009.
A summary of the status of the Company’s 1986 Plan as of December 31, 2009 and 2008 and changes during the years ended on those dates is presented below:
For all options outstanding and exercisable at December 31, 2009, the exercise price ranges are:
NOTE 7 - Stock Based Compensation
The Company recorded stock based compensation expense during 2009 and 2008 for the options granted to an employee in May 2008. The options granted had an exercise price greater than the market price of the Company’s stock on the grant date. For purposes of calculating the compensation cost, the fair value of the 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 25.31 percent; risk free interest rate of 3.125 percent; and weighted average expected life of 6.5 years. The Company recognized approximately $8,788 and $5,858 in stock based compensation expense for the years ended December 31, 2009 and 2008, respectively. As of December 31, 2009 there was $29,289 of total unrecognized compensation cost related to non-vested awards granted under this plan, which is expected to be recognized on a straight line basis over the vesting term.
NOTE 8 - Related Party Transactions
A monthly management fee of $21,000 is paid to Kent Financial Services, Inc. (“Kent”), a Nevada corporation, for management services. These services include, among other things, periodic and other filings with the Securities and Exchange Commission, evaluating merger and acquisition proposals, internal accounting and shareholder relations. This arrangement may be terminated at will by either party. Kent was the beneficial owner of approximately 53.44% of the Company’s outstanding common stock at December 31, 2009. Paul O. Koether, Chairman of the Company is also the Chairman of Kent and the beneficial owner of approximately 59.54% of Kent’s outstanding common stock. Bryan P. Healey, Chief Financial Officer of the Company is also the Chief Financial Officer of Kent and the son-in-law of Paul O. Koether.
NOTE 9 - Subsequent Events
Subsequent events were evaluated as of March 24, 2010, the day the financial statements were available to be issued.
Item 8.
Item 8. -
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 8A. -
CONTROLS AND PROCEDURES
Evaluation of Disclosure 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 regarding a lack of adequate segregation of duties. Accordingly, based on their evaluation of our disclosure controls and procedures as of December 31, 2009, 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 December 31, 2009 that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. We have assessed the effectiveness of those internal controls as of December 31, 2009, using the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) Internal Control - Intergrated Framework as a basis for our assessment.
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
A material weakness in internal controls is a deficiency in internal control, or combination of control deficiencies, that adversely affects the Company’s ability to initiate, authorize, record, process, or report external financial data reliably in accordance with accounting principles generally accepted in the United States of America such that there is more than a remote likelihood that a material misstatement of the Company’s annual or interim financial statements that is more than inconsequential will not be prevented or detected. In the course of making our assessment of the effectiveness of internal controls over financial reporting, we identified a material weakness in our internal control over financial reporting. This material weakness 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.
As we are not aware of any instance in which the company failed to identify or resolve a disclosure matter or failed to perform a timely and effective review, we determined that the addition of personnel to our bookkeeping and accounting operations is not an efficient use of our resources at this time.
Because of the above condition, the Company’s internal controls over financial reporting were not effective as of December 31, 2009.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
Item 8B -
OTHER INFORMATION
None.
PART III
ITEM 9.
ITEM 9. -
DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The Board of Directors will serve until the next Annual Meeting or until their successors have been duly elected and qualified. The Company's officers are elected by and serve at the leave of the Board. The directors and executive officers of the Company at February 26, 2010 were as follows:
Paul O. Koether, has been Chairman and Chief Executive Officer since September 1998, as well as President from October 2003 until November 2005 and August 2007 through the present, of the Company. Mr. Koether was Chairman from April 1988 to July 2005, President from April 1989 to February 1997 and director from March 1988 to July 2005 of Pure World, Inc., (“Pure World”) and from December 1994 until July 2005 a director and from January 1995 to July 2005 Chairman of Pure World’s wholly owned subsidiary, Pure World Botanicals, Inc., a manufacturer and distributor of natural products. Mr. Koether was Chairman from 1990 until August 2003 and a registered representative since 1989 of T. R. Winston & Company, LLC. (“Winston”). Since 1987, Mr. Koether has been Chairman, Director and Chief Executive Officer of Kent Financial Services, Inc. (“Kent Financial”) as well as President of Kent Financial from October 1990 until November 2005 and August 2007 through present. Bryan P. Healey, Chief Financial Officer and Director of the Company is the son-in-law of Paul O. Koether.
Mr. Koether’s extensive executive experience in a multitude of industries including the securities, banking, real estate, nutraceutical and investment banking industries makes him essential to the Company’s success.
Diarmuid F. Boran, has been a Director of the Company since May 2003. Mr. Boran currently serves as Chief Operating Officer of Brandmeyer Enterprises. He has been employed by the company since May 2008. From November 2006 through May 2008 he was employed by Enturia, Inc., most recently as Vice President, Corporate Development. From March 2005 through May 2006 he was the Entrepreneur in Residence for the Kansas Technology Enterprise Corporation (KTEC). He worked as an independent consultant from January 2003 to February 2005 and from April 2001 to October 2001. From October 2001 to December 2002, Mr. Boran was employed by EMD Pharmaceuticals, Inc., an affiliate of Merck KGaA, Darmstadt, Germany, most recently as Leader, Oncology Licensing and Business Development. From May 2000 to September 2000 Mr. Boran served as Senior Vice President, Business Development for DJ Pharma, Inc. which was then acquired by Biovail Pharmaceuticals, Inc. Mr. Boran served as Senior Vice President, Business Development for Biovail until April 2001.
Mr. Boran has had significant experience in mergers and acquisitions as well as business development throughout his career. His background is valuable to the Company as it reviews potential merger or acquisition candidates.
Rocco Mastrodomenico, Director of the Company since November 2005, is a Certified Public Accountant. Mr. Mastrodomenico has been a manager with Pereira and Azevedo, LLC a certified public accounting firm, since August 2009. He has been President of Imperial Consulting Services, LLC since July 2005. Mr. Mastrodomenico was a Supervisor with Sobel & Company, LLC, a certified public accounting and consulting firm from October 2002 until June 2005. From May 1999 until September 2002, Mr. Mastrodomenico was involved with several different companies within the financial services industry, including Financial Analyst with T.R. Winston and Controller of Pure World Botanicals, Inc. From September 1996 to April 1999, Mr. Mastrodomenico was with Deloitte & Touche, LLP.
Mr. Mastrodomenico’s experience in corporate finance and accounting is important to the Company as both the Chairman of the Audit Committee as well as evaluating potential merger and acquisition candidates.
Bryan P. Healey, a certified public accountant, has been Vice-President, Secretary and Chief Financial Officer of the Company since May 2006 and a Director since November 2007. Mr. Healey has also been Vice-President, Secretary and Chief Financial Officer since May 2006 and a Director since November 2007 of Kent Financial Services, Inc. Since October 2009, Mr. Healey has been Chief Financial Officer of Kent Capital, Inc., a registered securities broker-dealer and subsidiary of Kent International. From July 2006 to October 2009, Mr. Healey was a registered representative of T. R. Winston & Company, LLC, an independent securities brokerage firm based in Bedminster, NJ. From September 1995 to April 2006, Mr. Healey was with Bowman & Company, L.L.P., the largest CPA firm in Southern New Jersey, in various positions including audit manager from July 2001 to April 2006.
Mr. Healey’s comprehensive knowledge and experience in corporate finance and accounting makes him an important asset to the Company.
Board Leadership Structure
Mr. Koether serves as our Chairman of the Board and as our Chief Executive Officer. The Board believes that because the CEO is ultimately responsible for executing the strategic direction of the Company and for the performance of the Company, the CEO is the director best qualified to act as Chairman of the Board. Additionally, given the size of the Company’s operations, it would be unduly burdensome on the Company to hire an individual to serve as the CEO. Further, as the controlling shareholder of Kent Financial Services, Inc., the Company’s majority shareholder, Mr. Koether has the ability to influence operational and strategic decisions through voting control.
Board’s Oversight of Risk Management
The Board has an active role, as a whole and also at the audit committee level, in overseeing management of the Company’s risks. The Audit Committee oversees management of financial, accounting and internal control risks.
Audit Committee
The Board has an Audit Committee, which consists of Mr. Boran and Mr. Mastrodomenico, each of whom has been determined by the Board to be independent.
Audit Committee Financial Expert
The Board of Directors of the Company has determined that Rocco Mastrodomenico is an audit committee financial expert as that term is defined under SEC rules.
Nominating Committee; Compensation Committee
The Board of Directors has neither a nominating committee nor a compensation committee. The Board believes that its numbers are sufficiently small that nominations and determinations of compensation can be addressed by the entirety of the Board.
Code of Ethics
The Company has adopted a Code of Ethics that applies to its principal executive officer and principal financial officer. Stockholders may write to Bryan P. Healey, the Secretary of the Company, at the Company’s principal executive office at 10911 Raven Ridge Road, Suite 103-45, Raleigh, NC 27614, to request a copy of the Code of Ethics, and the Company will provide it to any person without charge upon such request.
ITEM 10.
ITEM 10. -
EXECUTIVE COMPENSATION
Summary Compensation Table
The table shown below includes information concerning the annual compensation for services in all capacities to the Company for the fiscal years ended December 31, 2009, 2008 and 2007, for those persons who were, at December 31, 2009, 2008 and 2007, the chief executive officer, the principal financial officer and the most highly paid executive officer other than the chief executive officer and principal financial officer (the "Named Officers"). The Company did not compensate any officers over $100,000 other than the Named Officers.
(1)
Mr. Koether and Mr. Healey were elected to their current positions on September 20, 1998 and May 15, 2006, respectively, and receive no cash compensation or fees for their services. Mr. Healey was awarded 100,000 common stock options on May 8, 2008 (see note 7 of the notes to consolidated financial statements “Stock-based Compensation” for more details)
(2)
Amount includes $13,518 paid by Kent International in 2007 for Dr. Zheng’s country club membership, $1,846 paid in 2007 for Dr. Zheng’s life insurance premium and $18,490 paid in 2007 to lease an automobile used for business purposes. All Other Compensation also includes $130,000 paid in accordance with the separation agreement with Dr. Zheng dated August 24, 2007. Dr. Zheng resigned effective August 31, 2007.
Outstanding Equity Awards at Fiscal Year End
No stock options were awarded to the Named Executive Officers in 2009. No stock appreciation rights were granted to the Named Executive Officers in 2009 or 2008.
The table below contains information concerning the fiscal year-end value of unexercised options held by the Named Executive Officers as of December 31, 2009. No options were exercised by any Named Executive Officer in 2009 or 2008.
Long-Term Incentive Plan Awards Table and Defined Benefit or Actuarial Plan Table
The Company does not maintain any long-term incentive plans or defined benefit or actuarial plans.
Equity Compensation Plan Information
The following table shows information with respect to each equity compensation plan under which the Company’s Common Stock is authorized for issuance as of the end of fiscal year 2009.
Director Compensation Table
Directors who are not employees of the Company receive a monthly fee of $500 plus $1,000 for each day of attendance at board and committee meetings and $500 for each day of attendance telephonically at board and committee meetings. During 2009, the Company paid directors fees in the aggregate amount of approximately $17,000. The table below includes information about compensation paid to our non-employee directors during 2009.
ITEM 11.
ITEM 11. -
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth the beneficial ownership of Common Stock of the Company as of February 26, 2010, by each person who was known by the Company to beneficially own more than 5% of the Common Stock, by each current director and nominee, each Named Executive Officer, and by all current directors and Named Executive Officers as a group:
* Less than one percent
(1)This table is based upon information supplied by the Company’s officers, directors and principal stockholders and Form 4’s filed with the Securities Exchange Commission (the “SEC”). Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, the Company believes that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned. Applicable percentages are based on 3,555,488 shares outstanding on February 26, 2010, adjusted as required by rules promulgated by the SEC. Included in such number of shares beneficially owned are shares subject to options currently exercisable or becoming exercisable within 60 days: Paul O. Koether (100,000); Bryan P. Healey (20,000) and all directors and executive officers as a group (120,000).
(2)Includes 1,900,000 shares held by Kent Financial Services, Inc. (“Kent”), a Nevada Corporation. Mr. Koether is the Chairman and Chief Executive Officer of Kent and Mr. Healey is the Secretary and Chief Financial Officer of Kent. Mr. Koether and Mr. Healey disclaim beneficial ownership of those shares.
(3)Includes 44,730 shares held in Mr. Koether’s IRA. Also includes 63,710 shares beneficially owned by the Marital Trust u/w/o Natalie Koether. As trustee, Mr. Koether may be deemed to own these shares beneficially.
(4)Includes 6,420 shares held in Mr. Healey’s IRA. Also includes 8,000 shares beneficially owned by Mr. Healey’s spouse.
(5)According to Form 4 filed on December 10, 2001 on behalf of Biotechnology Value Fund L.P., Biotechnology Value Fund II L.P., BVF Partners L.P., BVF, Inc., and BVF Investments L.L.C. (collectively “Biotechnology Value Fund”).
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act as amended and the regulations and rules promulgated thereunder require the Company's officers, directors and persons who own more than ten percent of a registered class of the Company's equity securities (“Principal Owners”) , (i) file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission and the National Association of Securities Dealers and (ii) furnish copies of these filings to the Company.
Based solely on the Company's review of the copies of such forms (and amendments) it has received and representations from certain reporting persons that they were not required to file Forms 5 for specified fiscal years, the Company believes that all its officers, directors and Principal Owners complied with all filing requirements applicable to them with respect to transactions during fiscal 2009.
ITEM 12.
ITEM 12. -
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Certain Relationships and Related Transactions
A monthly management fee of $21,000 is paid to Kent Financial Services, Inc. (“Kent”), a Nevada corporation, for management services. These services include, among other things, periodic and other filings with the Securities and Exchange Commission, evaluating merger and acquisition proposals, internal accounting and shareholder relations. This arrangement may be terminated at will by either party. Kent was the beneficial owner of approximately 53.44% of the Company’s outstanding common stock at December 31, 2009. Paul O. Koether, Chairman of the Company is also the Chairman of Kent and the beneficial owner of approximately 59.54% of Kent’s outstanding common stock. Bryan P. Healey, Chief Financial Officer of the Company is also the Chief Financial Officer of Kent and the son-in-law of Paul O. Koether.
Director Independence
The following members of the Board of Directors are “independent” as that term is defined in the Rules of the NASDAQ Stock Market: Diarmuid Boran and Rocco Mastrodomenico.
Item 13.
Item 13. -
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The Company’s Principal Accountant for 2009 and 2008 was Paritz and Company, P.A. (“Paritz”).
Year ended December 31, 2009
Audit Fees: The aggregate fees, including expenses, expected to be billed by Paritz in connection with the audit of the Company’s consolidated financial statements and for the review of the Company’s financial information included in the Company’s Annual Report on Form 10-K for the fiscal year ending December 31, 2009 are $13,000. The aggregate fees, including expenses, billed by Paritz in connection with the review of the Company’s financial information included in the Company’s quarterly reports on Form 10-Q filed during the fiscal year ending December 31, 2009 were $4,500.
Audit Related Fees: Paritz is expected to bill Kent Capital, Inc., the Company’s wholly owned subsidiary, $5,000 for the audit of its 2009 financial statements in accordance with FINRA and SEC requirements.
Tax Fees: The aggregate fees, including expenses, billed by Paritz in connection with the preparation of income tax returns for the Company during fiscal year ended December 31, 2009 were $2,000.
All Other Fees: No other fees were billed to the Company by Paritz during 2009.
Year ended December 31, 2008
Audit Fees: The aggregate fees, including expenses, billed by Paritz in connection with the audit of the Company’s consolidated financial statements and for the review of the Company’s financial information included in the Company’s Annual Report on Form 10-K for the fiscal year ending December 31, 2008 were $13,000. The aggregate fees, including expenses, billed by Paritz in connection with the review of the Company’s financial information included in the Company’s quarterly reports on Form 10-Q filed during the fiscal year ending December 31, 2008 were $4,500.
Audit Related Fees: No audit related fees were billed to the Company by Paritz in 2008.
Tax Fees: The aggregate fees, including expenses, billed by Paritz in connection with the preparation of income tax returns for the Company during fiscal year ended December 31, 2008 were $2,000.
All Other Fees: Paritz billed the Company $1,250 during 2008 for due diligence services related to a proposed acquisition that was terminated prior to closing.
Audit Committee Pre-Approval Policies and Procedures
The Audit Committee pre-approved all non-audit work performed by the Company’s principal accountant, specifically, the preparation of income tax returns for the Company.
The hours expended on Paritz’ engagement to audit the Company’s financial statements for 2009 that were attributed to work performed by persons other than full-time permanent employees of Paritz was not greater than 50% of the total hours expended.
ITEM 14.
ITEM 14. -
EXHIBITS
The following exhibits are filed as part of this report:
__________________________
(1)
Filed as an exhibit to the Company’s Definitive Information Statement on Form DEF 14C filed April 21, 2006, film number 06771307, and incorporated herein by reference.
(2)
Filed as an exhibit to the Company’s annual report on Form 10-K for the year ended December 31, 1995, and incorporated herein by reference.
(3)
Filed as an exhibit to the Company’s Registration Statement of Form S-1, filed October 13, 1992, file number 33-53244, or amendments thereto and incorporated herein by reference.
**
Compensatory Plan.
***
Filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Capacity
Date
/s/ Paul O. Koether
Chairman and Chief
March 30, 2010
Paul O. Koether
Executive Officer
(Principal Executive Officer)
/s/ Bryan P. Healey
Chief Financial Officer,
March 30, 2010
Bryan P. Healey
Treasurer, Secretary and
Director (Principal Financial
And Accounting Officer)
/s/ Diarmuid Boran
Director
March 30, 2010
Diarmuid Boran
/s/ Rocco Mastrodomenico
Director
March 30, 2010
Rocco Mastrodomenico