UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Quarterly period Ended: March 31, 2004; or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period _________ to __________
Commission File Number: 0-2616
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CONSUMERS FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1666392
------------------------------ -----------------
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
132 Spruce Street, Cedarhurst, NY 11516
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(Address of principal executive offices) (Zip Code)
(516) 792-0900
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all
Reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that a
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ ] No [X]
The number of shares outstanding of the registrant's common stock,
$0.001 par value, as of January 12, 2005, was 38,167,499.
Transitional Small Business Disclosure Format. Yes [ ] No [X]
CONSUMERS FINANCIAL CORPORATION
Report on Form 10-QSB
For the Quarter Ended March 31, 2004
INDEX
Page
Part I. Financial Information
Item 1. Financial Statements (unaudited)................... 3
Consolidated Balance Sheet ........................ 4
Consolidated Statements of Operations ............. 5
Consolidated Statements of Cash Flows.............. 6
Notes to the Consolidated Financial Statements .... 7
Item 2. Management's Discussion and Analysis
or Plan of Operation .............................. 10
Item 3. Controls and Procedures ........................... 14
Part II. Other Information
Item 1. Legal Proceedings ................................. 14
Item 2. Changes in Securities ............................. 15
Item 3. Defaults Upon Senior Securities ................... 15
Item 4. Submission of Matters to a Vote of
Security Holders .................................. 15
Item 5. Other Information ................................. 15
Item 6. Exhibits and Reports on Form 8-K .................. 15
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004 December 31, 2003
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets
ASSETS
March 31, December 31,
2004 2003
------------ ------------
(Unaudited)
CURRENT ASSETS
Cash $ 22,425 $ 100
Prepaid expenses 13,300 13,300
------------ ------------
Total Current Assets 35,725 13,400
------------ ------------
FIXED ASSETS, NET 1,801 2,047
------------ ------------
OTHER ASSETS
Restricted cash held in escrow 284,799 284,402
Prepaid insurance 45,442 48,767
------------ ------------
Total Other Assets 330,241 333,169
------------ ------------
TOTAL ASSETS $ 367,767 $ 348,616
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Bank overdraft $ -- $ 7,242
Accounts payable and accrued expenses 473,589 347,582
Contingent liability 355,676 355,676
Reserve for partnership liabilities 200,000 200,000
Notes payable 110,000 20,000
Notes payable - related 35,905 38,806
------------ ------------
Total Current Liabilities 1,175,170 969,306
------------ ------------
TOTAL LIABILITIES 1,175,170 969,306
------------ ------------
REDEEMABLE PREFERRED STOCK
Preferred stock; Series A, 8.50 % cumulative convertible,
10,000,000 shares authorized, 68,376 shares issued and
outstanding 675,785 675,129
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock; 40,000,000 shares authorized,
at $0.01 par value, 17,550,731 shares issued
and outstanding, respectively 175,507 175,507
Additional paid-in capital 11,526,516 11,526,316
Treasury stock - preferred (18,070) (18,070)
Deferred compensation (48,638) (85,800)
Deficit accumulated prior to the development stage (12,893,772) (12,893,772)
Deficit accumulated during the development stage (224,731) --
------------ ------------
Total Stockholders' Equity (Deficit) (1,483,188) (1,295,819)
------------ ------------
TOTAL LIABILITIES, REDEEMABLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) $ 367,767 $ 348,616
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
4
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
From Inception
of the
For the Three Development Stage
Months Ended on January 1, 2004
March 31, Through
------------------------------ March 31,
2004 2003 2004
------------ ------------ ------------
REVENUES $ -- $ -- $ --
EXPENSES
General and Administrative 216,627 126,211 216,627
Depreciation 246 -- 246
------------ ------------ ------------
Total Expenses 216,873 126,211 216,873
------------ ------------ ------------
LOSS FROM OPERATIONS (216,873) (126,211) (216,873)
------------ ------------ ------------
OTHER EXPENSES
Interest income 396 888 396
Interest expense (7,400) -- (7,400)
Other income -- 29 --
------------ ------------ ------------
Total Other Expenses (7,004) 917 (7,004)
------------ ------------ ------------
NET LOSS $ (223,877) $ (125,294) $ (223,877)
============ ============ ============
BASIC LOSS PER SHARE $ (0.01) $ (0.02)
============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 17,550,731 5,276,781
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
5
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
From Inception
of the
For the Three Development Stage
Months Ended on January 1, 2004
March 31, Through
------------------------ March 31,
2004 2003 2004
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(223,877) $(125,294) $(223,877)
Adjustments to reconcile net loss to
net cash used by operating activities:
Bad debt expense -- 27,500 --
Depreciation 246 246
Amortization of deferred compensation 37,162 37,162
Changes in operating assets and liabilities:
Change in restricted cash (397) (397)
(Increase) decrease in prepaid expenses 3,325 12,778 3,325
Increase (decrease in accounts payable and
accrued expenses 126,009 7,671 126,009
Other -- (556) --
--------- --------- ---------
Net Cash Used by Operating Activities (57,532) (77,901) (57,532)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan to majority shareholder -- (27,500) --
Purchase of fixed assets -- (2,946) --
--------- --------- ---------
Net Cash Used by Investing Activities -- (30,446) --
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from notes payable 90,000 -- 90,000
Net proceeds from notes payable - related (2,901) -- (2,901)
Change in bank overdraft (7,242) -- (7,242)
--------- --------- ---------
Net Cash Provided by Financing Activities 79,857 -- 79,857
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH 22,325 (108,347) 22,325
CASH AT BEGINNING OF PERIOD 100 165,758 100
--------- --------- ---------
CASH AT END OF PERIOD $ 22,425 $ 57,411 $ 22,425
========= ========= =========
SUPPLIMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
CASH PAID FOR:
Interest $ -- $ -- $ --
Income Taxes $ -- $ -- $ --
NON-CASH FINANCING ACTIVITIES
The accompanying notes are an integral part of these
consolidated financial statements.
6
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
Notes to the Consolidated Financial Statements
March 31, 2004 and December 31, 2003
NOTE 1 - CONDENSED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared by
the Company without audit. In the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to present
fairly the financial position, results of operations, and cash flows at
for the three months ended March 31, 2004 and 2003, and from inception of
the development stage on January 1, 2004 through March 31, 2004, and for
all periods presented herein, have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or
omitted. It is suggested that these condensed financial statements be read
in conjunction with the financial statements and notes thereto included in
the Company's December 31, 2003 audited financial statements. The results
of operations for the periods ended March 31, 2004 and 2003 are not
necessarily indicative of the operating results for the full years.
NOTE 2 - GOING CONCERN
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. However, at
March 31, 2004, the Company had minimal current assets totaling $35,725,
and its current liabilities of $1,175,170 exceeded its current assets by
$1,139,445, the Company had an accumulated deficit of $13,118,503, and was
delinquent in its payments on certain accounts payable. These matters
raise substantial doubt about the Company's ability to continue as a going
concern.
CFC Partners is currently pursuing various business opportunities for the
Company, including strategic alliances, as well as the merger or
combination of existing businesses within the Company. The new management
of the Company is initially focusing on joint ventures with, or
acquisitions of companies in the real estate, construction management and
medical technology sectors as well as the direct purchase of
income-producing real estate. However, there is no assurance that the
Company's efforts in this regard will be successful. In fact, given the
Company's current cash position, without new revenues and/or immediate
financing, the Company's efforts to develop the above-referenced
businesses are not likely to succeed.
7
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
Notes to the Consolidated Financial Statements
March 31, 2004 and December 31, 2003
NOTE 2 - GOING CONCERN (Continued)
The Company's ability to continue as a going concern is dependent on its
success in developing new cash revenue sources or, alternatively, in
obtaining short-term financing while its businesses are being developed.
There are no assurances that such financing can be obtained or, if
available, be obtained at terms acceptable to the Company. To the extent
that such financing is equity-based, this may result in significant
ownership dilution for the existing company shareholders.
The consolidated financial statements presented herein do not include any
adjustments that might result from the outcome of this uncertainty.
In addition, due to the fact that the Company's planned principal
operations have not materially commenced and the Company has not developed
an on-going flow of revenues, the Company is considered to have entered
the development-stage. January 1, 2004 is the date management has
determined most accurately reflects the Company's re-entrance into the
development stage.
NOTE 3 - SIGNIFICANT EVENTS
During February 2004, the Company entered into a Memorandum of
Understanding with a privately-held corporation located in Connecticut
with the intent of a possible business combination either directly with
the Company, through a controlled subsidiary of the Company or with a
public shell available to the Company. The Company is in the preliminary
investigative stages of its customary due diligence and this combination
is subject to certain conditions precedent that are material to the
transaction and whose outcome in subject to material uncertainty at the
present time.
On March 19, 2004 the Company executed a loan agreement with Thomas
Willemsen in the amount of $50,000 for operating capital. This is an
unsecured loan which is due on June 19, 2004.
On March 22, 2004 the Company executed a loan agreement with Adar Ulster
Realty in the amount of $40,000 for operating capital. This is an
unsecured loan which is due on May 22, 2004.
8
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
Notes to the Consolidated Financial Statements
March 31, 2004 and December 31, 2003
NOTE 4 - LITIGATION
The Company is currently in arbitration against its co-defendant, Life of
the South, from a previously settled claim. Life of the South is seeking
to recover from the Company its share of the settlement totaling $17,500,
unreimbursed fees of $27,825 plus interest, attorney fees and cost of
arbitration from the Company. The arbitration is in its initial stages and
while the outcome can not be predicted, the Company believes the
arbitration will be settled in favor of the Company.
In addition, the Company has been party to subsequent legal disputes,
notably with respect to a Securities and Exchange Commission investigation
that was settled in October 2004. This investigation was initiated with
respect to the Company's dismissal of its certified auditor of record,
Marcum & Kliegman, LLC. The Company received notification from the SEC
Division of Enforcement on October 14, 2004 that a settlement offer was
being submitted to the Commission. The terms of the proposed settlement
would stipulate that the Company violated Section 13(a) of the Exchange
Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. Further, the
Commission would not pursue any actions against Messrs. Ehrenhaus or
Hommel. Through the date of this report, the Company has not received
notification as to whether the Commission has accepted the terms of this
proposed settlement.
NOTE 5 - SUBSEQUENT EVENTS
On June 1, 2004 the Company issued 2,471,700 shares of its previously
unissued common stock to both Donald Hommel and Jack Ehrenhaus as payment
for executive services rendered under the terms of the officers'
respective employment agreements. In addition, the Company issued an
aggregate of 1,437,368 to Mr. Hommel and Mr. Ehrenhaus, as bonus
compensation per the terms of the aforementioned employment agreements.
All shares issued on this date were valued at market value of $0.05 per
share, resulting in an aggregate compensation expense of $319,038.
On July 23, 2004 the Company issued 8,000,000 shares of common stock to
Cove Hill, Inc. as consideration for certain fund-raising services to be
performed. The shares were valued at $0.125 per share, for a total of
$1,000,000. The shares have been held in an escrow account since the date
of issuance, pending the completion of certain due diligence measures and
the Company completing certain filings with the Securities and Exchange
Commission. On October 12, 2004 the Company issued an additional 6,000,000
shares to Cove Hill, Inc., which shares are also being held in escrow
under the same provisions. The additional shares were issued at $0.0714
per share, and the original 8,000,000 shares were revalued to $0.0714 per
share, thus maintaining the aggregate total of the shares at $1,000,000.
As of the date of this report, Cove Hill has not received the shares, and
has not begun to perform the agreed upon fundraising services, as the due
diligence provisions have not been fully satisfied.
In October 2004 the Company's Board of Directors resolved to terminate for
cause the Company's President and Chief Executive Officer Donald J.
Hommel. Mr. Jack Ehrenhaus was appointed by the Board to fill these
executive offices.
9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
CAUTIONARY FORWARD - LOOKING STATEMENT
The following discussion should be read in conjunction with the
Company's financial statements and related notes.
Certain matters discussed herein may contain forward-looking statements
that are subject to risks and uncertainties. Such risks and uncertainties
include, but are not limited to, the following:
- the volatile and competitive nature of the Company's business,
- the uncertainties surrounding the rapidly evolving markets in
which the Company competes,
- the arrangements with present and future customers and third
parties.
Should one or more of these risks or uncertainties materialize or
should any of the underlying assumptions prove incorrect, actual results of
current and future operations may vary materially from those anticipated.
Business Overview
Consumers Financial Corporation (the "Company") was formed in 1966 as
20th Century Corporation (a Pennsylvania corporation) and adopted its present
name in 1980. The Company was an insurance holding company which, until late
1997, was a leading provider, through its subsidiaries, of credit life and
credit disability insurance in the states of Pennsylvania, Delaware, Maryland,
Nebraska, Ohio and Virginia. In connection with its credit insurance operations,
the Company also marketed, as an agent, an automobile extended service warranty
product. The Company operated through various wholly-owned subsidiaries since it
was formed; however, as of December 31, 2002, all of these subsidiaries have
either been sold or liquidated and dissolved. From 1992 through 1997, the
Company also sold all of its in-force insurance policies to various third party
insurers.
On March 24, 1998, the Company's shareholders approved a Plan of
Liquidation and Dissolution (the "Plan of Liquidation"), pursuant to which the
Company would be liquidated and dissolved. The Plan of Liquidation permitted the
Board of Directors to continue to consider other alternatives to liquidating the
Company if such alternatives were deemed by the Board to be in the best interest
of the Company and its shareholders. It became apparent to the Board during 2001
that the common shareholders would not receive any distribution under the Plan
of Liquidation, and the preferred shareholders would receive less than the full
liquidation value of their shares. Consequently, the Board concluded that
selling the Company for its value as a "public company shell" was a better
alternative for the common and preferred shareholders than liquidating the
Company. Accordingly, in August 2001, the Company sent request for proposal
letters to several investor groups that had expressed an interest in acquiring
the Company, and also issued a press release soliciting similar offers. In
October 2001, the Board of directors met to consider three offers which were
10
received, one of which was from CFC Partners, Ltd. ("CFC Partners"). Following
its review of each offer, the Board determined that the offer from CFC Partners
was the best offer. In February 2002, the Company and CFC Partners entered into
an option agreement (the "Option Agreement") which permitted CFC Partners to
acquire a 51.2% interest in the Company's common stock for $108,000, or $.04 per
common share. The purchase price was deposited into an escrow account held by
the Company in March 2002.
The option held by CFC Partners was exercisable within 15 business days
following the completion by the Company of a tender offer to its preferred
shareholders. The completion of the tender offer was, in turn, dependent on the
sale of the Company's remaining insurance subsidiary, since substantially all of
the Company's assets were held by the subsidiary and state insurance laws would
not permit the withdrawal of those assets. In June 2002, the Company completed
the sale of the insurance subsidiary, and in August 2002, the Company purchased
377,288 shares of preferred stock at $4.40 per preferred share plus accrued
dividends, representing 83.4% of the then total shares outstanding, from those
preferred shareholders who elected to tender their shares.
On August 28, 2002, CFC Partners exercised its option to acquire a
majority of the outstanding common shares of the Company. Accordingly, on that
date, the Board of Directors terminated the Plan of Liquidation and authorized
the issuance of 2,700,000 shares of common stock to CFC Partners. In accordance
with the Option Agreement with CFC Partners, the Company deposited the sum of
$331,434 into an escrow account, such amount representing the tender price of
$4.40 per preferred share multiplied by the 75,326 preferred shares not tendered
at that time.
On May 8, 2003, Vaughn Partners LLC ("Vaughn"), an Illinois limited
liability company in which the Company owns a 37.5% interest, acquired a
garden-type apartment complex located in Springfield, Illinois for a purchase
price of $5,440,940. The purchase price was comprised of (i) a $4,650,000
interest only bank loan secured by a first mortgage lien on the property payable
in two years, (ii) a $1,200,000 second mortgage on the property with principal
amounts of $500,000 due six months from acquisition and $700,000 due twelve
months from acquisition, (iii) a $100,000 interest-free loan made by a private
investor due in full on June 13, 2003 and which accrues interest at an annual
rate of 18% beyond its due date, and (iv) $200,000 in cash which was contributed
by third party investors to Vaughn. Vaughn is currently in default on the second
mortgage and on the $100,000 private investor loan. As a result of the default
under the second mortgage, the second mortgagee has the right to, among other
rights, sell the property, collect all rental income from the property and
exclude Vaughn from the proceeds thereof. As a result of the default under the
$100,000 loan, Vaughn is liable for accrued interest from June 15, 2003 at an
annual rate of 18% plus all costs and fees incurred by the lender in collecting
the amounts due under the note. The Company has no obligations under or
guarantees of these notes and the Company's financial risk is limited to its
investment in Vaughn, which is carried at zero value, with the exception of a
reserve in the amount of $200,000 which was created in order to absorb any
liabilities arising from the Vaughn partnership.
11
Effective as of October 31, 2003, the Company approved an amended
operating agreement whereby Spartan would transfer to the Company 24.22% of its
interest in Vaughn in consideration for issuance by the Company of 250,000
shares of common stock. This amended operating agreement memorializing this
arrangement was not executed by members of Vaughn Partners holding 5% of the
membership interests and the 250,000 shares of common stock were not issued.
This amended operating agreement has therefore not and will not be ratified.
The 37.5% equity interest in Vaughn is being accounted for under the
equity method in the Company's financial statements at December 31, 2003.
On January 29, 2004, the Company, pursuant to approval by shareholders at
a special meeting held in August 2003, filed an amendment to its Articles of
Incorporation increasing its authorized capital shares to 50 million; 40 million
in common shares and 10 million in preferred shares.
Plan of Operation
Prior to the discontinuation of its business operations as noted above,
the Company operated in three industry segments: the Automotive Resource
Division, which marketed credit insurance and other products and services to its
automobile dealer customers, the Individual Life Insurance Division and the Auto
Auction Division. These segments did not include the corporate activities of the
Company. Effective with the real estate acquisition by Vaughn, the Company,
through its Vaughn subsidiary operates a garden-type apartment complex in
Springfield, Illinois.
The Company intends to initially expand into the real estate, construction
management, insurance agent and medical technology industries through a
combination of strategic alliances, mergers or consolidations, or acquisitions.
With respect to its plans for the real estate business, the Company
intends to acquire additional garden-type apartment complexes initially in
Illinois and New York and subsequently in other northeastern United States
locations. The Company also expects to become involved in real estate
development activity, initially in the New York area.
In connection with its construction management initiatives, the Company
intends to manage its real estate development activities as well as selected
outside projects.
With regard to the medical technology business, the Company plans to
develop, own and operate positron emission tomography ("PET") imaging centers
initially in the New York area and then in other regional locations. The Company
has formed a 55% owned subsidiary, P.E.T Centers of America LLC, and through
this subsidiary, has initiated some business arrangements, but none of
significant consequence to date. In September the Company, through its
subsidiary, had signed a lease for a PET center in Suffolk County, New York, but
subsequently the lease terminated. The Company received a letter from the
landlord dated November 11, 2003 claiming that the Company and the subsidiary
are liable to the landlord for all costs and expenses incurred in connection
12
with enforcing the lease provisions as well as liquidated damages provided for
in the lease (the present value of the lease payments discounted at 6%). The
Company has received no further communications from the landlord in connection
with its demand. The Company has accrued $355,676 associated with this
terminated lease.
During April, 2003, the Company entered into a Memorandum of Understanding
with Mariculture Systems, Inc. ("Mariculture") whereby the Company would acquire
60% of the outstanding shares of Mariculture in exchange for the Company's
management and financial expertise. Mariculture designs, builds and operates
aquaculture farms used for raising certain species of fish for the consumer
market. Although not aggressively pursued by either party to date, and still
requiring appropriate due diligence review and board approvals, this memorandum
has no expiration date and neither party has expressed an intent to terminate
it.
During February 2004, the Company entered into a Memorandum of
Understanding with a privately-held corporation located in Connecticut with the
intent of a possible business combination either directly with the Company,
through a subsidiary of the Company or with a public shell available to the
Company. The Company is in the preliminary investigative stages of its customary
due diligence and this combination is subject to certain conditions precedent
that are material to the transaction and whose outcome in subject to material
uncertainty at the present time.
The Company intends to move forward with its due diligence in this
transaction pursuant to this memorandum.
Results of Operations
A discussion of the material factors which affected the Company's results
of operations for the three months ended March 31, 2004 and 2003 is presented
below.
THREE MONTHS ENDED MARCH 31, 2004
For the three months ended March 31, 2004, the Company reported a net loss
of $223,877 ($0.01 per share) compared to a net loss of $125,294 ($0.02 per
share) in the first quarter of fiscal 2003. Since the Company now has only a
nominal amount of revenues, the current year net loss is primarily the result of
increased expenses incurred while the Company is developing new business
opportunities. During the first quarter of 2004, these expenses consisted
principally of salaries to two officers, audit, legal and consulting fees.
The Company's net loss for the first quarter of 2003 was $125,294 ($0.02
per share). The Company had zero operating revenue for the period. The net loss
consisted primarily of officer salaries and other expense incurred while
exploring business opportunities.
13
Liquidity
During the three months ended March 31, 2004 and 2003, the Company used
cash in operations of $57,532 and $77901, respectively. The Company had cash on
hand of $22,425 as of March 31, 2004 compared to $57,411 cash as of March 31,
2003. The Company received $90,000 cash proceeds from the issuance of notes
payable during the three months ended March 31, 2004.
The Company anticipates that it will need to raise approximately
$2,000,000 in cash in the next twelve months to cover general and administrative
expenses and other anticipated cash needs, particularly for additional due
diligence on acquisition candidates. The Company may seek to raise such needed
funds through the sale of its shares of stock or by borrowing. No assurance can
be given that the Company will be able to raise the necessary funds on terms
acceptable to the Company if at all.
Item 3. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures. The Company's
Chief Executive Officer, Jack I. Ehrenhaus, and Chief Financial Officer, Jack I.
Ehrenhaus, have reviewed the Company's disclosure controls and procedures as of
the end of the period covered by this report. Based upon this review, Mr.
Ehrenhaus believes that the Company's disclosure controls and procedures are
effective in ensuring that material information related to the Company is made
known to him by others within the Company.
(b) Changes in Internal Controls Over Financial Reporting. There have
been no significant changes in internal controls over financial reporting that
occurred during the fiscal period covered by this report that have materially
affected, or are reasonably likely to materially affect, the registrant's
internal control over financial reporting.
PART II - OTHER INFORMATION.
Item 1. Legal Proceedings.
The Company is currently in arbitration against its co-defendant, Life of the
South, from a previously settled claim. Life of the South is seeking to recover
from the Company its share of the settlement totaling $17,500, unreimbursed fees
of $27,825 plus interest, attorney fees and cost of arbitration from the
Company. The arbitration is in its initial stages and while the outcome can not
be predicted, the Company believes the arbitration will be settled in favor of
the Company.
In addition, the Company has been party to subsequent legal disputes,
notably with respect to a Securities and Exchange Commission investigation that
was settled in October 2004. This investigation was initiated with respect to
the Company's dismissal of its certified auditor of record, Marcum & Kliegman,
LLC. The Company received notification from the SEC Division of Enforcement on
October 14, 2004 that a settlement offer was being submitted to the Commission.
The terms of the proposed settlement would stipulate that the Company violated
Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13
thereunder. Further, the Commission would not pursue any actions against Messrs.
14
Ehrenhaus or Hommel. Through the date of this report, the Company has not
received notification as to whether the Commission has accepted the terms of
this proposed settlement.
Item 2. Changes in Securities.
Recent Sales of Unregistered Securities
None
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of our shareholders during the first
quarter.
Item 5. Other Information.
Recent Sale of Unregistered Securities
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) List of Exhibits attached or incorporated by referenced pursuant to
Item 601 of Regulation S-B.
Exhibit Description
------- -----------
(2) Plan of acquisition, reorganization, arrangement, liquidation or
succession (1)
(3) Articles of incorporation and by-laws (i)
(4) Instruments defining the rights of security holders, including
indentures (i)
(9) Voting trust agreements (ii)
(10) Material contracts (ii)
(11) Statement re: computation of per share earnings (ii)
(12) Statement re: computation of ratios (ii)
(13) Annual report to security holders (ii)
(16) Letter re: change in certifying accountants (i)
(18) Letter re: change in accounting principles (ii)
(21) Subsidiaries of the registrant (iii)
(22) Published report regarding matters submitted to a vote of
security holders (i)
(23) Consents of experts and counsel (ii)
(24) Power of attorney (ii)
(31.1) Certification of Chief Executive Officer (Section 302 of
Sarbanes-Oxley Act) (iii)
(31.2) Certification of Chief Financial Officer (Section 302 of
Sarbanes-Oxley Act) (iii)
(32.1) Certification of Chief Executive Officer (Section 906 of
Sarbanes-Oxley Act) (iv)
(32.2) Certification of Chief Financial Officer (Section 906 of
Sarbanes-Oxley Act) (iv)
(i) Information or document provided in previous filing with the
Commission
(ii) Information or document not applicable to registrant
(iii) Information or document included as exhibit to this Form 10-K
(iv) Document furnished with this Form 10-K
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the period covered by
this report.
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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.
CONSUMERS FINANCIAL CORPORATION
Dated: January 12, 2005
By /s/ Jack I. Ehrenhaus
--------------------------------------
Jack I. Ehrenhaus
President, Chief Executive Office and
Chief Financial Officer
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