form10qsb.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-QSB

x	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: June 30, 2007

o	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ___________.

Commission File No.: 0-20726

Kent International Holdings, Inc.

(Exact name of small business issuer as specified in its charter)

Nevada		20-4888864
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

376 Main Street, PO Box 74, Bedminster, NJ 07921

(Address of principal executive offices)

(908) 234-1881

(Issuer's telephone number)

N/A

(Former name, former address and former fiscal year,

if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes x No o

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court.

Yes o No o

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common equity as of the latest practicable date: As of July 31, 2007, the issuer had 3,567,956 shares of its common stock, par value $.002 per share, outstanding.

Transitional Small Business Disclosure Format (check one): Yes o No x

KENT INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

FORM 10-QSB

For The Quarterly Period Ended June 30, 2007

Table Of Contents

		Page Number

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

Consolidated Balance Sheet as of June 30, 2007		3

Consolidated Statements of Operations Three and Six Months Ended June 30, 2007 and 2006		4

Consolidated Statements of Cash Flows Six Months Ended June 30, 2007 and 2006		5

Notes to Consolidated Financial Statements		6

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	8

Item 3.	Controls and Procedures	12

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	13

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	13

Item 3.	Defaults Upon Senior Securities	13

Item 4.	Submission of Matters to a Vote of Security Holders	13

Item 5.	Other Information	13

Item 6.	Exhibits	13

Signatures		15

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PART I.

FINANCIAL INFORMATION

ITEM 1.

Financial Statements

KENT INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

AS OF JUNE 30, 2007

(in 000’s, except share and per share amounts)

(UNAUDITED)

ASSETS

Current Assets:
Cash and cash equivalents	$	86
Short-term investments		10,647
Accounts receivable		14
Prepaid expenses and other current assets		24

Total current assets		10,771

Property and equipment, net of accumulated depreciation of $1		6

Other assets		6

Total assets	$	10,783


LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable and accrued expenses	$	72

Stockholders' equity:
Preferred stock, $.002 par value; 2,000,000 shares authorized; none outstanding		-
Common stock, $.002 par value; 10,000,000 shares authorized; 3,567,956 shares issued and outstanding		7
Additional paid-in capital		99,369
Accumulated deficit		(88,665	)

Total stockholders' equity		10,711

Total liabilities and stockholders' equity	$	10,783

See accompanying notes to consolidated financial statements.

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KENT INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in 000’s, except per share amounts)

(UNAUDITED)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2007			2006			2007			2006
Revenues:
Interest	$	132		$	121		$	265		$	236
Other income		12						12

Total revenues		144			121			277			236

Expenses:
General and administrative		198			219			397			400
Write off capitalized software costs		38						38

Total Expenses		236			219			435			400

Loss before income taxes		(92	)		(98	)		(158	)		(164	)
Provision for income taxes											1

Net loss	$	(92	)	$	(98	)	$	(158	)	$	(165	)


Basic and diluted net loss per common share	$	(0.03	)	$	(0.03	)	$	(0.04	)	$	(0.05	)

Basic and diluted weighted average number of common shares outstanding		3,568			3,574			3,569			3,585

See accompanying notes to consolidated financial statements.

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KENT INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in 000’s)

(UNAUDITED)

	Six Months Ended
	June 30,
	2007			2006
Cash flows from operating activities:
Net loss	$	(158	)	$	(165	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		3
Write off capitalized software costs		38
Interest receivable on short-term investments		3			(5	)
Change in accounts receivable		(14	)
Change in prepaid expenses and other current assets		(3	)		(19	)
Change in accounts payable and accrued expenses		(2	)		(34	)

Net cash used in operating activities		(133	)		(223	)

Cash flows from investing activities:
Purchase of short-term investments		(10,624	)		(10,871	)
Acquisition of property and equipment		(14	)
Maturities and sales of short-term investments		10,837			10,830

Net cash provided by (used in) investing activities		199			(41	)

Cash flows from financing activities:
Repurchase of common stock		(6	)		(68	)

Net cash used in financing activities		(6	)		(68	)

Net increase (decrease) in cash and cash equivalents		60			(332	)
Cash and cash equivalents at beginning of period		26			425

Cash and cash equivalents at end of period	$	86		$	93

Supplemental disclosure of cash flow information:
Cash paid for:
Taxes	$	1		$	1

See accompanying notes to consolidated financial statements.

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KENT INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

Notes To Consolidated Financial Statements

(Unaudited)

NOTE A - Basis of Presentation

The accompanying unaudited financial statements of Kent International Holdings, Inc. and subsidiaries (“Kent International” or the “Company”) as of June 30, 2007 and for the three and six months ended June 30, 2007 and 2006 reflect all material adjustments consisting of only normal recurring adjustments that, in the opinion of management, are necessary for a fair presentation of results for the interim periods. Certain information and footnote disclosures required under accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, although the Company believes that the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2006 as filed with the Securities and Exchange Commission.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The results of operations for the three and six months ended June 30, 2007 and 2006 are not necessarily indicative of the results to be expected for the entire year or for any other period.

NOTE B - 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. The Company believes that the management fee is less than the cost for the Company to perform these services. This arrangement may be terminated at will by either party. Kent is the beneficial owner of approximately 53.25% of the Company’s outstanding common stock at June 30, 2007. Paul O. Koether, Chairman of the Company is also the Chairman of Kent and the beneficial owner of approximately 55.1% of Kent’s outstanding common stock. Qun Yi Zheng, President of the Company is also the President of Kent and Bryan P. Healey, Chief Financial Officer of the Company is also the Chief Financial Officer of Kent. Bryan P. Healey is the son-in-law of Paul O. Koether.

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NOTE C – Website Development Costs

The Company 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 the Company is no longer utilizing.

NOTE D - 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. No shares were acquired during the three months ended June 30, 2007; however, 2,000 shares were acquired during the six months ended June 30, 2007. This program has no expiration date and 133,536 shares remained authorized for repurchase under the program.

NOTE E - Basic and Diluted Net Loss Per Share

The Company reports income (loss) per share under the requirements of Statement of Financial Accounting Standards No. 128, “Earnings per Share”. Basic income (loss) per share includes the weighted average number of common shares outstanding during the year. Diluted income (loss) per share includes the weighted average number of shares outstanding and dilutive potential common shares, such as warrants and options. The Company had 290,000 and 350,150 common stock options outstanding at June 30, 2007 and 2006, respectively. Since the Company had losses in the three and six months ended June 30, 2007 and 2006, the stock options outstanding would have an anti-dilutive effect on net loss per share and as such are not included in the calculation.

NOTE F - Stock Options Plans

Kent International has issued certain common stock options to its employees, directors and consultants. At June 30, 2007, Kent International had 290,000 common stock options outstanding, and none were issued during the three and six months ended June 30, 2007.

Until December 31, 2005, the Company applied Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its common stock options. Accordingly, no compensation cost had been recognized for the common stock options issued. In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment," (“SFAS 123(R)”), a revision of SFAS 123, "Accounting for Stock-Based Compensation.” SFAS 123(R) requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. The compensation cost is measured based on the fair value of the equity or liability instruments issued. SFAS 123(R) was effective as of the beginning of the first interim or annual period beginning after December 15, 2005. Kent International adopted SFAS 123(R) on January 1, 2006. The adoption did not have an impact on the Company’s financial position or results of operations as all stock options granted to date were fully vested prior to January 1, 2006.

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NOTE G – Net Operating Loss Carryforwards

As of December 31, 2006, Kent International had approximately $81 million of net operating loss carryforwards (“NOL”) for income tax purposes. In addition, Kent International has approximately $2 million of research and development and foreign tax credit carryforwards available to offset future federal income tax, subject to limitations for alternative minimum tax. The NOL’s and tax credit carryforwards expire in various years from 2007 through 2026. 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, 2006 do not satisfy the realization criteria set forth in SFAS No. 109 and has recorded a valuation allowance for the entire net tax asset. By recording a valuation allowance for the entire amount of future tax benefits, the Company has not recognized a deferred tax benefit for income taxes in its statements of operations.

NOTE H – Financial Advisor and Placement Agent Agreement

The Company has been retained by Eastern Environment Solutions Corp. (“EESC”), a publicly traded waste management company based in Harbin, China, as financial advisor and placement agent in connection with a private offering of securities. Pursuant to an agreement between EESC and Kent International, EESC agreed to pay the Company (i) a fee of $10,000 for the preparation of a placement memorandum, (ii) a fee equal to six percent of the capital provided to EESC at the closing of a successful placement of securities, and (iii) five year common stock purchase warrants equal to six percent of the shares placed at a price per share equal to the same price per share as those issued in the transaction (i.e. if 5,000,000 shares are issued for $8,750,000, Kent International would receive warrants to purchase 300,000 shares at $1.75 per share). Any fees paid to the Company under clause (i) would be deducted from any fee to which the Company is entitled under clause (ii). A placement memorandum was prepared and delivered to EESC in June 2007.

NOTE I - New Accounting Pronouncements

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

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the Company’s Annual Report on Form 10-KSB for the fiscal year ended December 31, 2006 as well as the Company’s financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-QSB. Statements in this report relating to future plans, projections, events or conditions are forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those described. The Company expressly disclaims any obligation or undertaking to update these statements in the future.

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Business Activities

In November 2005, the Company hired Dr. Qun Yi Zheng as its President. From 1995 to 2005, Dr. Zheng was associated with Pure World, Inc., a leading manufacturer of natural products. Dr. Zheng was President of Pure World from January 2004 until it was sold in July 2005. Under Dr. Zheng, Kent International intends to pursue business opportunities in China, Eastern Europe and the United States. The Company may consider potential opportunities in a number of areas including, but not limited to, outsourcing for U.S. companies, consulting for U.S. and non U.S. companies interested in cross-border business relationships, surveys of small businesses for sale in China, Eastern Europe and the United States and import/export distribution contracts.

Additionally, Kent International has developed a niche social networking website, www.chinauspals.com, designed to promote cultural exchange between the citizens of the United States and those of the People’s Republic of China. Membership to the site is free, thus, any potential revenues will be derived from advertisements placed on the site by third parties. The site provides users with access to other users’ personal profiles and enables the user to send private messages to other registered users of similar interests in order to develop lasting friendships or simply attain a pen pal. Chinauspals.com also features user generated discussion forums and blogs as well as user submitted videos and pictures.

We face the risk that our website will not be viewable in China or will be deliberately blocked by the government of the People’s Republic of China. Internet usage and content are heavily regulated in China and compliance with these laws and regulations may cause us to change or limit our business practices in a manner adverse to our business.

The Company does not expect that these activities will generate any significant revenues for an indefinite period as these efforts are in their early stages. As a result, these programs may produce significant losses until such time as meaningful revenues are achieved.

Results of Operations

Kent International had a net loss of $92,000, or $0.03 basic and fully diluted loss per share, for the quarter ended June 30, 2007 compared to a net loss of $98,000, or $0.03 basic and fully diluted loss per share, for the same period of 2006. For the six months ended June 30, 2007, the Company had a net loss of $158,000, or $0.04 basic and fully diluted loss per share, compared to a net loss of $165,000, or $0.05 basic and fully diluted loss per share, for the same period in 2006. The decrease in the net loss was largely a result of the Company’s increased interest revenue on short-term investments and cash on deposit offset by increased website operational expenses.

Revenues

Interest income increased to $132,000 and $265,000 for the three and six months ended June 30, 2007, respectively, from $121,000 and $236,000 for the same periods in 2006. A higher yield on short-term investments and cash equivalents was the reason for the increase.

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The Company recorded $11,700 in other income in the three and six months ended June 30, 2007. Of that amount, $10,000 was related to the preparation of a placement memorandum, described further in Other Disclosures. The remaining $1,700 was related to a one-time sourcing arrangement wherein the Company imported chemical compounds from China for resale to a pharmaceutical company. The Company did not have any revenues other than interest income during the three and six months ended June 30, 2006.

Expenses

General and administrative expenses were $198,000 and $397,000 in the three and six months ended June 30, 2007, respectively, compared to $219,000 and $400,000 in the three and six months ended June 30, 2006, respectively. The decreases of $21,000 and $3,000, respectively are primarily attributed to a decrease of approximately $13,000 in travel and entertainment expenses related to our ongoing business development activities, a decrease of approximately $12,000 in legal fees related to our reincorporation in Nevada in 2006, and a decrease in other administrative expenses of approximately $17,000. These decreases were partially offset by an approximately $39,000 increase in expenses associated with operating www.chinauspals.com including salary and benefits for a Marketing Director, depreciation, hosting fees and marketing materials.

Liquidity and Capital Resources

At June 30, 2007, the Company had cash and cash equivalents of approximately $86,000. 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 approximately $10.647 million at June 30, 2007. Working capital at June 30, 2007 was approximately $10.699 million. Management believes its cash, cash equivalents and short-term investments are sufficient for its operations for at least the next twelve months and for the costs of seeking an acquisition of or starting an operating business.

Net cash of $133,000 was used in operations for the six months ended June 30, 2007, a decrease of $90,000 from the $223,000 used in operations for the six months ended June 30, 2006. Net cash used in operations for the periods was the result of the net losses for the periods coupled with the changes in operating assets and liabilities. The decrease in net cash used in operations was largely the result of the timing of both interest received on short term investments and payments for accounts payable and not an indication of decreasing expenses.

Net cash of $199,000 was provided by investing activities during the six months ended June 30, 2007 resulting from $213,000 from net purchases and sales or maturities of short-term investments offset by $14,000 expended for website design. Net cash of $41,000 was used in investing activities for the six months ended June 30, 2006 resulting from the purchases and maturities of short-term investments.

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The Company used $6,000 for financing activities in the six months ended June 30, 2007 to repurchase 2,000 shares of common stock compared to the $68,000 used for financing activities in the six months ended June 30, 2006 to repurchase 24,960 shares of common stock.

Factors That May Affect Future Results

Future earnings of the Company are dependent on interest rates earned on the Company’s invested balances and expenses incurred. Kent International expects to incur significant expenses in connection with its objective of redeploying its assets into an operating business and with the operation of the website.

Other Disclosures – Related Party Transactions

Other Disclosures – Financial Advisory Agreement

Contractual Obligations

The Company has no material contractual obligations other than those relating to employment as described in our Annual Report on Form 10-KSB for the year ended December 31, 2006.

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Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

ITEM 3.

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). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures are effective. 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 June 30, 2007, that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.

Compliance with Section 404 of Sarbanes-Oxley Act

To achieve compliance with Section 404 of the Sarbanes-Oxley Act of 2002 (the “Act”) by December 31, 2007, the Company expects to begin, in the third quarter of fiscal 2007, the system and process documentation and evaluation needed to comply with Section 404.

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PART II.

OTHER INFORMATION

ITEM 1.

Legal Proceedings

None.

ITEM 2.

Unregistered Sale of Equity Securities and Use of Proceeds

None.

ITEM 3.

Defaults Upon Senior Securities

None.

ITEM 4.

Submission of Matters to a Vote of Security Holders

None.

ITEM 5.

Other Information

None.

ITEM 6.

Exhibits

2.1		Agreement and Plan of Merger dated as of April 28, 2006 by and between Cortech, Inc. and Kent International Holdings, Inc. ⁽¹⁾

2.2		Certificate of Ownership and Merger of Cortech, Inc. with and into Kent International Holdings, Inc., as filed with the Delaware Secretary of State on May 25, 2006.⁽²⁾

2.3		Articles of Merger of Cortech, Inc. and Kent International Holdings, Inc., as filed with the Nevada Secretary of State on May 25, 2006. ⁽²⁾

3.1		Articles of Incorporation of Kent International Holdings, Inc. ⁽¹⁾

3.2		Bylaws of Kent International Holdings, Inc. ⁽¹⁾

3.3		Certificate of Designation for Series A Junior Participating Preferred Stock. ⁽³⁾

10.1		Employment Agreement dated November 25, 2005 between Cortech, Inc., and Dr. Qun Yi Zheng ⁽⁴⁾**

10.2		Placement Agent agreement with Eastern Environment Solutions, Corp.*

10.39		Amended and Restated 1986 Incentive Stock Option Plan of the Company.⁽⁵⁾**

10.40		Amended and Restated 1992 Non-employee Directors’ Stock Option Plan of the Company.⁽⁶⁾**

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10.41		1993 Equity Incentive Plan of the Company, as amended.⁽⁷⁾**

10.97		Form of Option Agreement for Directors’ Non-Plan Options.⁽⁷⁾**

31.1		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

31.2		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

32		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

(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 Form 8-K filed on June 2, 2006, and incorporated herein by reference.

(3)	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.

(4)	Filed as an exhibit to Cortech, Inc’s. Form 8-K filed on December 1, 2005. **

(5)	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.

(6)	Filed as an exhibit to the Company’s annual report on Form 10-K for the year ended December 31, 1993, and incorporated herein by reference.

(7)	Filed as an exhibit to Cortech, Inc.’s annual report on Form 10-K for the year ended December 31, 1997, and incorporated herein by reference.

*	Filed Herewith

**	Compensatory Plan

	KENT INTERNATIONAL HOLDINGS, INC.

Date: July 31, 2007	By:	/s/ Bryan P. Healey
		Bryan P. Healey
		Chief Financial Officer, Treasurer and Secretary
		(Principal Accounting and Financial Officer and officer duly authorized to sign on behalf of the small business issuer)