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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB/A
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2004
Commission File Number: 0-2616
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CONSUMERS FINANCIAL CORPORATION
(Name of Small Business Issuer 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
(Address of Principal Executive Offices) (Zip Code)
(516) 792-0900
(Issuer's Telephone Number, including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, ($0.001 par value; voting)
8.5 % Preferred Stock, Series A; ($1.00 par value; non-voting)
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|
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |_|
The Issuer's revenues for the most recent fiscal year ended December 31,
2004 were $-0-. The aggregate market value of the voting and non-voting common
equity held by non-affiliates of the registrant on October 1, 2005 based upon
the average bid and ask price of the common stock on the OTC Bulletin Board for
such date, was $546,753. The number of shares of the Registrant's common stock
issued and outstanding on October 17, 2005, was 54,675,311 (post-split).
Transitional Small Business Disclosure Format. Yes |_| No |x|
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TABLE OF CONTENTS
PART I
Item 1. Description of Business
Item 2. Description of Property
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Item 6. Management's Discussion and Analysis or Plan of Operation
Item 7. Financial Statements
Item 8. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure
Item 8A. Controls and Procedures
Item 8B. Other Information
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act
Item 10. Executive Compensation
Item 11. Security Ownership of Certain Beneficial Owners and Management
Related Stockholder Matters
Item 12. Certain Relationships and Related Transactions
Item 13. Exhibits
Item 14. Principal Accountant Fees and Services
CAUTIONARY STATEMENT
Some of the statements contained in this Form 10-KSB for Consumers
Financial Corporation and Subsidiaries ("the Company") discuss future
expectations, contain projections of results of operation or financial condition
or state other "forward-looking" information. These statements are subject to
known and unknown risks, uncertainties, and other factors that could cause the
actual results to differ materially from those contemplated by the statements.
The forward-looking information is based on various factors and is derived using
numerous assumptions. Important factors that may cause actual results to differ
from projections include, for example:
o the success or failure of management's efforts to implement their
business strategy;
o the ability of the Company to raise sufficient capital to meet
operating requirements;
o the effect of changing economic conditions;
o the ability of the Company to attract and retain quality employees;
and
o other risks which may be described in future filings with the SEC.
Words such as "anticipates," "expects," "intends," "plans," "believes,"
"seeks," "estimates," and variations of such words and similar expressions are
intended to identify such forward-looking statements. These statements are not
guarantees of future performance and are subject to certain risks, uncertainties
and assumptions that are difficult to predict. Therefore, actual results and
outcomes may differ materially from what is expressed or forecasted in any such
forward-looking statements. Such risks and uncertainties include those set forth
herein under "Risk Factors" as well as those noted in the documents incorporated
herein by reference. Unless required by law, the Company undertakes no
obligation to update publicly any forward-looking statements, whether as a
result of new information, future events or otherwise.
PART I
ITEM 1. BUSINESS
GENERAL
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
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.
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.
On January 1, 2004, the Company re-entered the development stage, whereby
the Company began to reformulate its business plan, and sought to accumulate the
financing and strategic alliances necessary to implement its plan. As of
December 31, 2004 Company remains in the development stage, as principal
operations have not materially commenced. Currently, the Company is actively
seeking out new business ventures and opportunities. The Company is seeking to
expand its operations into the real estate, construction management, medical
technologies and insurance industries, through an aggressive acquisition
strategy.
PLAN OF OPERATIONS
As discussed above, 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 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
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.
On February 28 2005 and amended on April 4, 2005, the Company entered into
an Investment Exchange Agreement ("the Agreement") with Cross Capital Fund, LLC
("the Fund"). According to the terms of the Agreement, the Company made a
capital contribution of 4,000,000 Series D convertible preferred shares to the
Fund and the Company received from the Fund an Investor Membership Interest in
the amount of $4,000,000. In addition, the Company agreed to pay to the Fund a
monthly maintenance fee of $10,000.
COMPETITION
Each of the industry segments in which the Company intends to operate is
highly competitive. Many of the Company's potential competitors have
significantly greater financial, technical, sales, marketing and other resources
as well as greater name recognition and a larger customer base than the Company.
While the Company believes it can successfully compete in selected niche markets
in each of its intended industry segments, there is no assurance that the
Company will be able to develop sufficient revenues and cash flows from these
businesses to operate profitably and compete effectively with other companies.
EMPLOYEES AND AGENTS
As of September 1, 2005, the Company had only one full-time employee, who
also acts as the sole officer of the Company. Jack I. Ehrenhaus, the Company's
President, chairman, and chief executive officer, currently receives cash or
stock compensation from the Company in his capacity as officer and employee. Mr.
Shalom Maidenbaum, who was the Company's Vice President, resigned as an officer
and director of the Company during the 4th Quarter of 2003. Mr. Donald Hommell
was terminated by a majority vote as officer and director of the Company in
November, 2004.
The Company maintained insurance coverage against employee dishonesty,
theft, forgery and alteration of checks and similar items until October 2003.
Although the Company is in the process of obtaining new coverage, there can be
no assurance that the Company will be able to obtain such coverage or that it
will not experience uninsured losses.
ITEM 2. PROPERTIES
The Company leased approximately 400 square feet of office space, on a
month-to-month basis, at 1525 Cedar Cliff Drive, Camp Hill, Pennsylvania until
October 31, 2003. The monthly rent for this space was $400. The Company leases
an additional 800 square feet of office space in Cedarhurst, New York under a
lease that expired on December 31, 2003 and is now on a month-to-month basis.
The monthly rent for this space is $850 per month. Until December 31, 2002, the
Company also leased approximately 1,100 square feet of warehouse space for the
storage of its records. The monthly rent for this space was approximately $650.
The Company terminated this lease as of December 31, 2002 and effective January
1, 2003, entered into a month-to-month lease for approximately 550 square feet
at a monthly rent of $325. The Company's office and warehouse space are adequate
for its current needs
ITEM 3. LEGAL PROCEEDINGS
Life of the South
The Company was in arbitration against its co-defendant, Life of the South, from
a previously settled claim. Life of the South was seeking to recover from the
Company its share of the settlement totaling $17,500, its unreimbursed fees of
$27,825 plus interest, attorney fees and cost of arbitration from the Company.
During the year ended December 31, 2004 the case was decided in favor of the
Company, and the Company was granted an award of $18,952, and Life of the
South's claim was denied in its entirety.
Securities and Exchange Commission Investigation
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.
Robert Half International
On July 25, 2005, Robert Half International ("RHI"), a professional staffing
agency, filed a claim against the Company in which RHI seeks $46,855 ("the
award"), from the Company, being the purported value of services performed by
RHI on behalf of the Company. The Company is currently in the process of
attempting to negotiate a settlement with RHI for an amount less than the full
award amount. If such negotiations are unsuccessful, the Company will ultimately
be forced to pay to RHI the full award amount.
Gold Op Holdings
During the 2004 and 2005 calendar years, the Company issued an aggregate total
of 6,400,000 post-split common shares ("the shares") to Gold Op Holdings, Inc.
in exchange for a promissory note totaling $1,000,000 ("the Note"). In July
2005, the Company had not received any payments on the Note, and elected to
issue a demand letter for the return of the shares. The Company received not
response to the demand letter. In July 2005, a summons and complaint was served
on Gold Op Holdings, Inc., to enforce the note, and or return the shares.
Through the date of this report the Company has received on response from Gold
Op, and the Company intends to seed a summary judgment against Gold Op.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In October of 2003, Mr. Donald J. Hommel was dismissed with cause as
President and Chief Executive Officer of the Company by a majority vote of the
shareholders. Mr. Hommel was replaced in these positions by Mr. Jack I.
Ehrenhaus in October, 2003.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Consumers Financial Corporation common stock was traded on the NASDAQ
National Market System with a ticker symbol of CFIN until June 1, 1998 when it
was de-listed by NASDAQ for non-compliance with NASDAQ's market value of public
float requirements. The Company's Convertible Preferred Stock, Series A, was
also traded on the NASDAQ National Market System until March 16, 1998, when it
was also delisted by NASDAQ for non-compliance with the public float requirement
of a minimum of 750,000 shares. Since the shareholders of the Company approved
the Plan of Liquidation on March 24, 1998, the Company did not appeal the
delisting decision for either the common or preferred stock, nor did it take any
steps to come into compliance with the new rules or attempt to seek inclusion on
the NASDAQ Small Cap Market. The Company is currently delisted to the Pink
Sheets as a result of its untimely filing of it 3rd Quarter Report on Form
10-QSB.
Quarterly high and low bid prices for the Company's common stock, based on
information provided by The National Association of Securities Dealers ("NASD")
through the NASD OTC Bulletin Board, are presented below. Such prices do not
reflect prices in actual transactions and exclude retail mark-ups and mark-downs
and broker commissions.
1st 2nd 3rd 4th 1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
2004 2004 2004 2004 2003 2003 2003 2003
Common Stock
High 1.10 0.80 1.30 1.10 4.50 3.00 4.30 1.50
Low 0.50 0.30 0.50 0.20 4.50 3.00 2.50 0.80
As of December 31, 2004, there were approximately 6,446 shareholders of
record who collectively held 3,793,159 common shares and 18 shareholders of
record of the Convertible Preferred Stock, Series A, who held 72,226 shares. The
number of shareholders presented above excludes individual participants in
securities positions listings.
Dividends on both the Company's common stock and Convertible Preferred
Stock Series A are declared by the Board of Directors. No common stock dividends
have been paid since 1994. The payment of dividends on the common stock in the
future, if any, will be subordinate to the preferred stock, must comply with the
provisions of the Pennsylvania Business Corporation Law and will be determined
by the Board of Directors. In addition, the payment of such dividends will
depend on the Company's financial condition, results of operations, capital
requirements and such other factors as the Board of Directors deems relevant.
Dividends on the preferred stock are paid quarterly on the first day of January,
April, July and October at an annual rate of $.85 per share. The dividends
payable, collectively totaling $58,198, due on January 1, April 1, July 1 and
October 1, 2003 have not been declared or paid by the Company. In addition, the
dividends payable on January 1, April 1, July 1 and October 1, 2004 also has not
been declared or paid by the Company. The aggregate dividends in arrears for all
quarters equals $74,205. When the Company is in arrears as to dividends or
sinking fund appropriations for the preferred stock, dividends to holders of the
Company's common stock as well as purchases, redemptions or acquisitions by the
Company of its common stock are restricted. Since the Company is in default with
respect to the payment of preferred dividends and the aggregate amount of the
deficiency is equal to at least four quarterly dividends, the holders of the
preferred stock are entitled, only while such arrears exists, to elect two
additional members to the then existing Board of Directors. The preferred
shareholders have not elected these two additional directors as of this date.
In the event of a liquidation of the Company, the holders of the preferred
stock are entitled to receive $10 per share plus all unpaid and accrued
dividends prior to any distribution to be made to the holders of common stock.
The difference between the fair value of the preferred stock at the date
of issue and the mandatory redemption value is being recorded through periodic
accretions with an offsetting charge to the deficit. Such accretions totaled
$3,453 and $4,134 for the years ended December 31, 2004 and 2003, respectively.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following table summarizes certain information contained in or derived
from the Consolidated Financial Statements and the Notes thereto.
Years Ended December 31,
--------------------------------------------------------------
2004 2003 2002 2001 2000
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Selling, general and
administrative expenses $ 1,241,271 $ 3,212,949 $ 527,805 $ 869,196 $ 2,501,146
Other income 22,550 16,813 584,589 268,369 949,066
Income (Loss) before income taxes (1,218,721) (3,196,136) 56,784 (600,827) (1,552,080)
Income taxes -- -- -- -- --
Net Income (Loss) (1,218,721) (3,196,136) 56,784 (600,827) (1,552,080)
Other comprehensive income (loss) -- -- (54,702) 27,539 44,015
Comprehensive income (loss) $(1,218,721) $(3,196,136) $ 2,082 $ (573,288) $ (1,508,065)
Per share data (a):
Basic and diluted loss per
common share $ (0.47) $ (3.38) $ (0.80) $ (3.90) $ (7.60)
Weighted average number of common
shares outstanding 2,575,076 946,372 350,124 257,770 257,823
Total assets $ 64,838 $ 348,616 $ 597,766 $ 2,832,651 $ 25,304,782
Redeemable preferred stock 678,582 675,129 739,949 4,428,381 4,444,197
Shareholders' deficiency (1,309,656) (1,295,819) (196,485) (2,079,119) (1,124,157)
Cash dividends declared per common share NONE NONE NONE NONE NONE
(a) The per share data presented above has not been adjusted to reflect the
effect of a one-for-ten reverse common stock split approved by the Company's
common shareholders on March 15, 2003 but has yet to be effected by the Company.
See Note 11 of the Notes to Consolidated Financial Statements appearing
elsewhere in this Form 10-K.
OVERVIEW
At the Special Meeting of Shareholders held on March 24, 1998, the
Company's preferred and common shareholders approved the sale of the Company's
credit insurance and related products business, which comprised the Company's
only remaining business operation. In connection with the sale of its inforce
credit insurance business, the Company also sold its credit insurance customer
accounts and one of its life insurance subsidiaries.
On August 28, 2002, the Board of Directors appointed Donald J. Hommel, the
president of CFC Partners as a Director of the Company to fill an existing
vacancy on the Board. Following such appointment, the Company's officers
resigned as planned and the Board elected Mr. Hommel as the Company's President
and Chief Executive Officer. In addition, James C. Robertson and John E.
Groninger, who had been Directors of the Company for more than 30 years, also
resigned as planned.
On October 17, 2002, the Board of Directors appointed Shalom S.
Maindenbaum, Esq., as a Director of the Company to fill an existing vacancy on
the Board. In addition, the Directors elected Mr. Hommel as the Company's
Treasurer and Mr. Maidenbaum as the Company's Vice President and Secretary. On
March 13, 2003, the Board of Directors appointed William T. Konczynin as an
additional Director to fill an existing vacancy and Chairman of the Audit
Committee. Jack I. Ehrenhaus was appointed as Chairman of the Board in April
2003 and has served as the Company's Chief Operating Officer effective January
1, 2003
As a result of the approval of the Plan of Liquidation, the Company
adopted a liquidation basis of accounting in its financial statements for the
period from March 25, 1998 to August 28, 2002. Under this basis of accounting,
assets were stated at their estimated net realizable values and liabilities were
stated at their anticipated settlement amounts. As a result of the transaction
with CFC Partners and the related termination of the Plan of Liquidation,
effective August 29. 2002, the Company re-adopted accounting principles
applicable to going concern entities. Furthermore, as discussed elsewhere in
this Form 10-K, the Company has restated its liquidation-basis financial
statements for prior periods to conform such statements to the current
presentation.
At December 31, 2004, Vaughn operated a garden-type apartment complex in
Springfield, Illinois as its sole operation. The Company intends to acquire
additional real estate operations exclusive of Vaughn and to establish
majority-owned operating subsidiaries to accommodate these acquisitions in the
future.
At December 31, 2004 the Company had no business operations and its
revenue and expenses during the previous five years have been non-operating in
nature.
At December 31, 2004 the Company's shareholders' deficiency totaled
$1,925,819, as compared with a shareholders' deficiency of $1,295,819 at
December 31, 2003.
For the year ended December 31, 2004 the Company's net loss was $1,278,616
as compared with a net loss of $3,752,404 for the year ended December 31, 2003.
Dividends to preferred shareholders totaled $-0- and $-0- in 2004 and
2003, respectively.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2004
For the year ended December 31, 2004, the Company reported a net loss of
$1,218,721 as compared with a loss of $3,196,136 for 2003. In 2004, the Company
incurred an expense of $162,656 pertaining to a loss on the Company's stock
subscription receivable, $457,938 in officer compensation and other consulting
expenses paid for by the issuance of shares of common stock, and approximately
$535,320 in additional selling, general and administrative expenses against a
nominal amount of non-operating income. During the same period in 2003, the
Company reported a net loss of $3,196,136 primarily as a result of one
$2,553,398 in salaries and wages, and $631,152 in other general and
administrative expenses.
FINANCIAL CONDITION
CAPITAL RESOURCES
Other than as described below, the Company currently has no material
commitments for any capital expenditures. However, if the Company develops
certain planned strategic alliances or identifies a target company to be merged
or otherwise combined with the Company, the Company's plans regarding capital
expenditures and related commitments are likely to change.
During the year ended December 31, 2004, the Company's cash and cash
equivalents increased by $14,907 to $15,007, principally as a result of the
Company paying officer salaries through the issuance of common stock, coupled
with the Company receiving cash loans from its primary officer, Jack Ehrenhaus.
The Company has no ability to pay any additional expenses until it either
develops new revenue sources or obtains financing.
LIQUIDITY
In connection with the acquisition of the Company by CFC Partners,
substantially all of the Company's remaining liquid assets were used to complete
a tender offer to the preferred shareholders in August 2002. At December 31,
2003, the Company had a bank overdraft of $7,242. Furthermore, as of that date,
the Company had no significant business operations, sources of operating
revenues and cash flows. From that time the only significant sources of capital
for the Company were through debt and equity financing. The Company is currently
pursuing various business opportunities, including strategic alliances as well
as the merger or combination of existing businesses with the Company, in order
to develop revenue streams and increase positive cash flow. The Company's
management is initially focusing on joint ventures with, or acquisitions of,
companies in the real estate, construction management and medical technology
segments. However, there are no assurances that the Company's effort in this
regard will be successful.
As indicated above, the Company currently has no ability to pay any
significant additional expenses until it either develops new revenue sources or
obtains financing. Without new revenues and/or immediate financing, management's
efforts to develop the Company's real estate, construction and medical
technology businesses are not likely to succeed.
During the year ended December 31, 2004, the Company's operating
activities used $81,924 in cash, as compared to $236,700 in the 2003 calendar
year. This decrease is attributable primarily to a sharp decrease in the value
of common stock issued for services rendered in 2003 to 2004. The Company had
cash on had totaling $15,007 at December 31, 204.
GOING CONCERN AND MANAGEMENT PLANS
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern.
However, at December 31, 2004 the Company had current assets of $28,308,
current liabilities of $695,912, a shareholders' deficit of $1,309,656 and
was delinquent in its payment to several of its existing creditors. These
matters raise substantial doubt about the Company's ability to continue as
a going concern.
The Company 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. Furthermore, the Company has finalized an
Investment Exchange Agreement with Cross Capital Fund, which management
anticipates will be the source of future capital inflows in the form of
dividends. 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.
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 dilution to the
existing shareholders.
The consolidated financial statements presented herein do not
include any adjustments that might result from the outcome of this
uncertainty.
REDEEMABLE PREFERRED STOCK
On August 23, 2002, the Company completed a tender offer to all of
its preferred shareholders, pursuant to which it purchased 377,288 shares
representing 83.4% of the shares then outstanding, at $4.40 per share plus
accrued dividends. The tender offer was completed in conjunction with and
was a condition of the Option Agreement by CFC Partners. Since all of the
Company's remaining assets would have been distributed to the preferred
shareholders if the Company had been liquidated, the Board of Directors
believed that the exercise of the option, and the related termination of
the Plan of Liquidation, should not take place until the preferred
shareholders had been given a chance to exchange their shares for cash.
The terms of the redeemable preferred stock require the Company,
when and as appropriated by the Board out of funds legally available for
that purpose, to make annual payments to a sinking fund. Such payments
were to have commenced on July 1, 1998. The preferred stock terms also
provide that any purchase of preferred shares by the Company will reduce
the sinking fund requirements by an amount equal to the redemption value,
$10 per share, of the shares acquired. As a result of the Company's
purchases of preferred stock in the open market and in the tender offer
described above, no sinking fund payment for the preferred stock is due
until July 1, 2006. However, in connection with the exercise of the option
by CFC partners, the Company deposited $331,434 into a bank escrow account
for the benefit of the remaining preferred shareholders.
The redeemable preferred stock is redeemable at the option of the
Company at any time, in whole or in part, for a redemption price of $10
per share plus all unpaid and accrued dividends.
Dividends at an annual rate of $.85 per share are cumulative from
the original issue date of the preferred stock. Dividends are payable
quarterly on January 1, April1, July 1 and October1 of each year. The
dividends payable on January 1, 2004 and for all four quarters of 2003
have not been declared or paid by the Company. Dividends in arrears for
the five quarters total $74,205, $60,783 of which relate to the four
quarterly dividends for 2003. When the Company is in arrears as to
dividends or sinking fund appropriations for the preferred stock,
dividends to holders of the Company's common stock as well as purchases,
redemptions or acquisitions by the Company of shares of the Company's
common stock are restricted. Since the Company is in default with respect
to the payment of preferred dividends and the aggregate amount of the
deficiency is equal to at least four quarterly dividends, the holders of
the preferred stock are entitled, only while such arrearage exists, to
elect two additional members to the then existing Board of Directors. The
preferred shareholders have not elected these two additional directors as
of this date.
In the event of a liquidation of the Company, the holders of the
preferred stock are entitled to receive $10 per share plus all unpaid and
accrued dividends prior to any distribution to be made to the holders of
common stock.
The difference between the fair value of the preferred stock at the
date of issue and the mandatory redemption value is being recorded through
periodic accretions with an offsetting charge to the deficit. Such
accretions totaled $3,453 and $3,595 for the years ended December 31, 2004
and 2003, respectively.
CRITICAL ACCOUNTING POLICIES
The Company prepares its consolidated financial statements in
conformity with accounting principles generally accepted in the United
States of America. The preparation of these financial statements 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.
In December 2001, the Securities and Exchange Commission ("SEC")
requested that all registrants list their critical accounting policies in
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations of their Form 10-K. The SEC defined a critical
accounting policy as one that is important to the portrayal of the
company's financial condition and results of operations and requires
management's subjective or complex judgments. Accordingly, the Company has
described its critical accounting policies below:
DEFERRED TAX VALUATION ALLOWANCE
Periodically, management reviews the adequacy of its deferred tax
valuation allowance. This review entails estimating: the Company's future
taxable income through fiscal 2004. A reduction in the valuation allowance
can result in a decrease in the Company's income tax expense. Conversely,
an increase in the valuation allowance can lead the Company to report its
income tax at a higher rate. Since future results may differ materially
from those estimates, the Company's estimate of the amount of deferred tax
assets that will be ultimately realized could differ materially.
CONTRACTUAL OBLIGATIONS
The Company has no long-term contractual obligations or guarantees.
All leases are on a month-to-month basis and the Company has not entered
into any off balance sheet transactions. The Company's exposure as a 47.5%
partner of Vaughn is limited to the loss of its investment in Vaughn,
which is carried at zero. The Company is not liable, directly or
indirectly, for any of the obligations of Vaughn. All of the obligations
of the Company are unsecured.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
----
Report of Independent Registered Accounting Firm F-3
Report of Independent Accountants
Consolidated Balance Sheet as of December 31, 2004 F-4
Consolidated Statements of Operations for the years
ended December 31, 2004 and 2003, and from inception
of the development stage on January 1, 2003 through
December 31, 2004 F-5
Consoldated Statements of Shareholders' Deficiency for
the years ended December 31, 2004 and 2003 F-6
Consolidated Statements of Cash Flows for the the years
ended December 31, 2004 and 2003, and from inception
of the development stage on January 1, 2003
through December 31, 2004 F-8
Notes to Consolidated Financial Statements F-10
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES.
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
TABLE OF CONTENTS
Report of Independent Registered Public Accounting Firm.................. F-3
Consolidated Balance Sheet............................................... F-4
Consolidated Statements of Operations.................................... F-5
Consolidated Statements of Stockholders' Equity (Deficit)................ F-6
Consolidated Statements of Cash Flows ................................... F-8
Notes to the Financial Statements........................................ F-10
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors
Consumers Financial Corporation and Subsidiaries
(A Development Stage Company)
Cedarhurst, New York
[Insert audit report here]
F-3
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
December 31,
2004
------------
ASSETS
CURRENT ASSETS
Cash $ 15,007
Prepaid expenses, current portion 13,301
-----------
Total Current Assets 28,308
-----------
FIXED ASSETS, NET (Note 5) 1,065
-----------
OTHER ASSETS
Prepaid expenses, non-current portion 35,465
-----------
Total Other Assets 35,465
-----------
TOTAL ASSETS $ 64,838
===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 535,489
Note payable (Note 16) 110,000
Notes payable - related parties (Note 17) 50,423
-----------
Total Current Liabilities 695,912
-----------
REDEEMABLE PREFERRED STOCK
Preferred stock, 10,000,000 shares authorized, 68,376 shares
issued and outstanding 678,582
-----------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $0.01 par value, 40,000,000 shares authorized,
3,793,149 shares issued and outstanding
37,932
Additional paid-in capital 12,473,129
Treasury stock, preferred (18,070)
Stock receivable (242,969)
Deficit accumulated prior to the development stage (9,188,118)
Deficit accumulated during the development stage (4,371,560)
-----------
Total Stockholders' Equity (Deficit) (1,309,656)
-----------
TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT) $ 64,838
===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
From Inception
of the
Development
Stage
On January 1,
2003, Through
For the years ended December 31, December 31,
-------------------------------- --------------
2004 2003 2004
----------- ----------- --------------
REVENUES $ -- $ -- $ --
EXPENSES
General and administrative 535,320 631,152 1,166,472
Bad debt expense 84,375 27,500 111,875
Salaries and wages 457,938 2,553,398 3,011,336
Depreciation 982 899 1,881
Stock subscription bad debt 162,656 -- 162,656
----------- ----------- -----------
Total Expenses 1,241,271 3,212,949 4,454,220
----------- ----------- -----------
LOSS FROM OPERATIONS (1,241,271) (3,212,949) (4,454,220)
OTHER INCOME (EXPENSES)
Interest income 1,848 2,461 4,309
Interest expense (17,808) (5,648) (23,456)
Gain on extinguishment of debt 36,023 20,000 56,023
Other income 2,487 -- 2,487
----------- ----------- -----------
Total Other Income (Expenses) 22,550 16,813 39,363
----------- ----------- -----------
Net Loss $(1,218,721) $(3,196,136) (4,414,857)
=========== =========== ===========
PER SHARE DATA:
Basic loss per common share (Note 12) $ (0.47) $ (3.38)
=========== ===========
Weighted average number of common shares outstanding
2,575,076 946,372
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
Treasury Stock,
Common Stock Additional Preferred
------------------ Paid-In ---------------- Deferred Stock Accumulated
Shares Amount Capital Shares Amount Compensation Receivable Deficit
--------- ------- ----------- ------ -------- ------------ ---------- ------------
Balance at inception of the
development stage on
January 1, 2003 527,678 $ 5,277 $ 8,986,356 -- $ -- $ -- $-- $ (9,188,118)
Common stock issued for services
rendered 35,300 353 137,957 -- -- -- -- --
Redemption of preferred stock -- -- -- (2,600) (6,760) -- -- 18,813
Common stock issued for services
rendered 14,000 140 18,060 -- -- -- -- --
Redemption of preferred stock -- -- -- (785) (2,041) -- -- 5,691
Common shares issued for
investments to related party 122,727 1,227 268,773 -- -- -- -- --
Common shares issued for
services rendred by officers 600,000 6,000 1,260,000 -- -- -- -- --
Common shares issued as bonuses
for officers 391,304 3,913 876,521 -- -- -- -- --
Common shares issued for services
rendered 9,200 92 22,908 -- -- -- -- --
Redemption of preferred stock -- -- -- (3,565) (9,269) -- -- 25,841
Common shares issued for cash 20,800 208 25,792 -- -- -- -- --
Common shares issued for services
rendered 33,000 330 85,470 -- -- (85,800) -- --
Common shares issued for services
rendered 1,064 11 2,435 -- -- -- -- --
Accretion of difference between
carrying value and mandatory
redemption value of preferred stock -- -- -- -- -- -- -- (3,595)
Net loss for the year ended
December 31, 2003 (3,196,136)
--------- ------- ----------- ------ -------- -------- --- ------------
Balance, December 31, 2003 1,755,073 $17,551 $11,684,272 (6,950) $(18,070) $(85,800) $-- $(12,337,504)
--------- ------- ----------- ------ -------- -------- --- ------------
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Treasury Stock,
Common Stock Additional Preferred
------------------ Paid-In ---------------- Deferred Stock Accumulated
Shares Amount Capital Shares Amount Compensation Receivable Deficit
--------- ------- ----------- ------ -------- ------------ ----------- ------------
Balance, December 31, 2003 1,755,073 $17,551 $11,684,272 (6,950) $(18,070) $(85,800) $ -- $(12,337,504)
Common shares issued to
officers for accrued salary 638,076 6,381 312,857 -- -- 85,800 -- --
Common shares issued for
subscription receivable 800,000 8,000 992,000 -- -- -- (1,000,000) --
Decrease in subscription
receivable due to decrease in
market value of shares -- -- (428,571) -- -- -- 428,571 --
Common shares issued as
additional consideration on
subscription receivable 600,000 6,000 422,571 -- -- -- (428,571) --
Decrease in subscription
receivable due to decrease in
market value of shares -- -- (510,000) -- -- -- 510,000 --
Impairment of subscription
receivable based upon
uncertainty of collection -- -- -- -- -- -- 247,031 --
Accretion of difference between
carrying value and mandatory
redempton value of preferred
stock -- -- -- -- -- -- -- (3,453)
Net loss for the year ended
December 31, 2004 -- -- -- -- -- -- -- (1,218,721)
--------- ------- ----------- ------ -------- -------- ----------- ------------
Balance, December 31, 2004 3,793,149 $37,932 $12,473,129 (6,950) $(18,070) $ -- $ (242,969) $(13,559,678)
========= ======= =========== ====== ======== ======== =========== ============
Deficit accumulated prior to the development stage $ (9,188,118)
Deficit accumulated during the development stage (4,371,560)
------------
Total accumulated deficit $(13,559,678)
============
The accompanying notes are an integral part of these consolidated
financial statements.
F-7
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
From Inception
of the
Development
Stage
On January 1,
For the years ended December 31, 2003, Through
-------------------------------- December 31,
2004 2003 2004
----------- ------------ --------------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss $(1,218,721) $(3,196,136) $(4,414,857)
Adjustments to reconcile net loss to net cash
used by operating activities:
Common stock issued for services 319,037 2,598,390 2,917,427
Depreciation 982 889 1,871
Stock subscription bad debt 247,031 -- 247,031
Change in operating assets and liabilities:
Change in prepaid expenses 13,302 (31,647) (18,345)
Change in restricted cash 284,401 11,753 296,154
Change in other assets -- 87,363 87,363
Change in deferred compensation 85,800 -- 85,800
Change in accounts payable and
accrued expenses 186,244 292,688 478,932
Increase in contingent and other liabilities -- -- --
----------- ----------- -----------
Net Cash Used in Operating Activities (81,924) (236,700) (318,624)
----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of fixed assets -- (2,936) (2,936)
----------- ----------- -----------
Net Cash Used In Operating Activities -- (2,936) (2,936)
----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES
Purchase of redeemable preferred stock -- (18,070) (18,070)
Change in bank overdraft (4,786) 7,242 2,456
Proceeds from notes payable 95,000 20,000 115,000
Payments on notes payable (5,000) -- (5,000)
Proceeds from notes payable - related 64,123 38,806 102,929
Payments on notes payable - related (52,506) -- (52,506)
Common stock issued for cash -- 26,000 26,000
----------- ----------- -----------
Net Cash Provided By Financing Activities 96,831 73,978 170,809
----------- ----------- -----------
INCREASE (DECREASE) IN CASH $ 14,907 $ (165,658) $ (150,751)
CASH AT BEGINNING OF YEAR $ 100 $ 165,758 $ 165,758
----------- ----------- -----------
CASH AT END OF YEAR $ 15,007 $ 100 $ 15,007
=========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
From Inception
of the
Development
Stage
On January 1,
For the years ended December 31, 2003, Through
-------------------------------- December 31,
2004 2003 2004
-------- ---------- --------------
SUPPLIMENTAL SCHEDULE OF CASH FLOW ACTIVITIES:
Cash Paid For:
Income taxes $ -- $ -- $ --
Interest $ -- $ -- $ --
Schedule of Non-Cash Financing Activities:
Common stock issued for services $319,037 $2,598,390 $2,917,427
Common stock issued for deferred compensation $ -- $ 85,800 $ 85,800
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
CONSUMERS FINANCIAL CORPORATION, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2004
NOTE 1 - OVERVIEW, GOING CONCERN, AND MANAGEMENTS' PLANS
Business Overview
From 1998 through February 2002, the Company had no significant business
operations, and its activity consisted principally of investment income on its
remaining assets and other administrative expenses. In March 1998, the Company's
shareholders approved a Plan of Liquidation and Dissolution (the "Plan of
Liquidation") pursuant to which the Company began liquidating its remaining
assets and paying-down or providing for all of its liabilities. However, in
February 2002, the Company entered into an option agreement with CFC Partners,
Ltd., a New York investor group ("CFC Partners"), pursuant to which CFC Partners
obtained a majority interest in the Company's common stock. In August 2002 (See
Note 3), the option was exercised and 270,000 new common shares (post-split),
representing approximately 51.2% of the then total outstanding shares of common
stock, were issued by the Company to CFC Partners. As a result of the
acquisition of the Company, the Plan of Liquidation was discontinued.
Immediately prior to the transaction with CFC Partners, the Company disbursed a
substantial portion of its remaining assets to its preferred shareholders in
connection with a tender offer to those shareholders.
From the time of its acquisition by CFC Partners through December 31, 2005, the
Company has been actively seeking out new business ventures and opportunities.
The Company is currently seeking to expand its operations into the real estate,
construction management, medical technologies and insurance industries, through
an aggressive acquisition strategy.
Going Concern and Managements' Plans
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. However, at December 31,
2004, the Company's current liabilities of $695,912 exceeded its current assets
by $667,604. Additionally, the Company had an accumulated deficit of $13,559,678
and was delinquent in its payments on certain accounts payable and other
liabilities. These matters raise substantial doubt about the Company's ability
to continue as a going concern.
The Company is currently pursuing various business opportunities and strategic
alliances, in addition to seeking out operating entities with the intent to
merge with or acquire these entities. Currently, the Company is focusing on
joint ventures with or acquisitions of companies in the medical technology and
real estate industries. 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.
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 dilution to the existing shareholders.
The consolidated financial statements presented herein do not include any
adjustments that might result from the outcome of this uncertainty.
F-10
CONSUMERS FINANCIAL CORPORATION, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (Continued)
December 31, 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Consumers
Financial Corporation and its former wholly-owned subsidiary, Consumers Life
Insurance Company ("Consumers Life") until June 19, 2002 when Consumers Life was
sold. The consolidated financial statements also include the Company's
wholly-owned subsidiary, Consumers Management Group, and its 55% owned
subsidiary, P.E.T. Centers of America, LLC. Neither of the subsidiaries had any
operations during the periods presented. All material inter-company balances and
transactions have been eliminated in consolidation.
Equity Method Investee
The Company carries its 37.5% investment in Vaughn at a value of zero, which was
the original cost, and accounts for its financial activity under the equity
method of accounting. Vaughn is operating at a loss and the Company is not
liable for any of the obligations of Vaughn, either direct or indirect, and is
under no requirement to contribute any capital to Vaughn.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity of
three months or less when purchased to be cash equivalents.
Income Taxes
The Company accounts for income taxes using the liability method, which requires
the determination of deferred tax assets and liabilities based on the
differences between the financial and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. Deferred tax assets are adjusted by a valuation allowance, if, based
on the weight of available evidence, it is more likely than not that some
portion of, or all of the deferred tax assets, will not be realized.
Fixed Assets
Fixed assets are stated at cost. Maintenance and repairs are charged to expenses
as incurred; costs of major additions and betterments are capitalized. When
equipment and fixtures are sold or otherwise disposed of, the cost and related
accumulated depreciation are eliminated from the accounts and any resulting gain
or loss is reflected in the Consolidated Statement of Operations.
Depreciation and Amortization
Depreciation of fixed assets is computed using the straight-line method at rates
adequate to allocate the cost of applicable assets over their expected useful
lives of three to five years.
Use of Estimates in the Financial Statements
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 these estimates.
F-11
CONSUMERS FINANCIAL CORPORATION, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (Continued)
December 31, 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Reclassifications
Certain accounts in the prior years' consolidated financial statements have been
reclassified for comparative purposes to conform with the presentation in the
current year consolidated financial statements. These reclassifications have no
effect on previously reported income.
Net Loss Per Share
Basic Income (Loss) Per Share is computed by dividing income (loss) available to
common shareholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS is based on the weighted-average number of shares of
common stock and common stock equivalents outstanding at year-end.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board "(FASB") issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 prescribes accounting and reporting
standards for all stock-based compensation plans, including employee stock
options, restricted stock, employee stock purchase plans and stock appreciation
rights. SFAS 123 requires compensation expense to be recorded (i) using the new
fair value method or (ii) using the existing accounting rules prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and related interpretations with pro forma disclosure of
what net income and earnings per share would have been had the Company adopted
the new fair value method. The Company intends to continue to account for its
stock based compensation plans in accordance with the provisions of APB 25.
On December 31, 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, "Accounting for Stock-Based Compensation-Transition and
Disclosure" ("SFAS 148"). SFAS 148 amends SFAS 123 to provide an alternative
method of transition to SFAS 123's fair value method of accounting for stock
based employee compensation. SFAS 148 also amends the disclosure provisions of
SFAS 123 and Accounting Principles Board Opinion No. 28, "Interim Financial
Reporting" ("APB 28"), to require disclosure in summary of significant
accounting policies of the effects of an entity's accounting policy with respect
to stock based employee compensation on reported net income and earnings per
share in annual and interim financial statements. While the statement does not
amend SFAS 123 to require companies to account for employee stock options using
the fair value method, the disclosure provisions of SFAS 123 are applicable to
all companies with stock based employee compensation, regardless of whether they
account for that compensation using the fair value method of SFAS 123 or the
intrinsic value method of APB 25. The adoption of SFAS 148 did not have an
impact on net income or pro forma net income applying the fair value method as
the Company did not have compensatory stock options or warrants for the years
ended December 31, 2004 and 2003.
In December 2004, the FASB issued Statement of Financial Accounting Standards
No. 123R, which addresses accounting for employee stock options. Statement 123R
requires that the cost of all employee stock options, as well as other
equity-based compensation arrangements, be reflected in the financial statements
based on the estimated fair value of the awards. The adoption of SFAS 123R is
not expected to have a material impact on the Company's consolidated financial
statements for the year ended December 31, 2005.
F-12
CONSUMERS FINANCIAL CORPORATION, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (Continued)
December 31, 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
New Accounting Pronouncements
In May 2003, the FASB issued Statement of Financial Accounting Standards No.
150, "Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity" (SFAS 150"). SFAS 150 addresses certain financial
instruments that, under previous guidance, could be accounted for as equity, but
now must be classified as liabilities in statements of financial position. These
financial instruments include: (i) mandatory redeemable financial instruments,
(ii) obligations to repurchase the issuer's equity shares by transferring
assets, and (iii) obligations to issue a variable number of shares. SFAS 150 is
generally effective for all financial instruments entered into or modified after
May 31, 2003, and otherwise effective at the first interim period beginning
after June 15, 2003. The adoption of the effective provisions of SFAS 150 did
not have any impact on the Company's consolidated financial position or
Statement of Operations.
In January 2003, and revised in December 2003, the FASB issued FASB
Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46").
This interpretation of Accounting Research Bulletin No. 51, "Consolidated
Financial Statements," addresses consolidation by business enterprises of
variable interest entities, which possess certain characteristics. FIN 46
requires that if a business enterprise has a controlling financial interest in a
variable interest entity, the assets, liabilities, and results of the activities
of the variable interest entity must be included in the consolidated financial
statements with those of the business enterprise. FIN 46 applies immediately to
variable interest entities created after January 31, 2003 and to variable
interest entities in which an enterprise obtains an interest after that date.
The consolidation requirements apply to older entities in the first fiscal year
or interim period after June 15, 2003. The adoption of the effective provisions
of Interpretation 46 did not have any impact on the Company's consolidated
financial position or statement of operations
NOTE 3 - ACQUISITION OF THE COMPANY
On August 28, 2002, CFC Partners, pursuant to an Option Agreement, exercised its
option to acquire 270,000 shares (post-split) of the Company's common stock. The
option price of $108,000 had previously been deposited by CFC Partners into an
escrow account held by the Company. The newly issued shares represented
approximately 51.2% of the then outstanding common stock of the Company.
At the August 28, 2002 meeting of the Board of Directors, Donald J. Hommel, the
then-President of CFC Partners, was appointed as a Director of the Company to
fill an existing vacancy on the Board. Following this appointment, the Company's
officers resigned as planned and the Board elected Mr. Hommel as the Company's
President and Chief Executive Officer. In addition, the Company's two Directors,
other than Mr. Hommel, also resigned as planned. In October 2002, at a
subsequent meeting of the Board of Directors, Mr. Shalom S. Maidenbaum was
appointed to fill an existing vacancy and officers were elected. In March 2003,
William Konczynin was appointed as an additional director and Chairman of the
Audit Committee, and in April 2003, Jack Ehrenhaus was appointed as Chairman of
the Board and Chief Operating Officer, effective January 1, 2003. Mr. Hommel was
terminated by the Company' in November, 2004, and Mr. Ehrenhaus was elected to
be the Company's sole officer.
In connection with the issuance of the new shares to CFC Partners, the Board of
Directors also terminated the Plan of Liquidation. The Board had previously
determined that selling the Company for its value as a "public company shell"
was a better alternative for the shareholders than the Plan of Liquidation, in
as much as the common shareholders were not expected to receive any distribution
in a liquidation of the Company. The preferred shareholders were given an
opportunity to exchange their shares for cash in a tender offer completed by the
Company on August 23, 2002.
F-13
CONSUMERS FINANCIAL CORPORATION, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (Continued)
December 31, 2004
NOTE 3 - ACQUISITION OF THE COMPANY (Continued)
The new management of the Company is currently pursuing various business
opportunities for the Company. Management's efforts have initially been focused
on joint ventures with, or acquisition of, companies in the real estate,
construction management and medical technology sectors as well as the direct
purchase of income-producing real estate.
NOTE 4 - RESTRICTED ASSETS
As required by the terms of the Option Agreement with CFC Partners, in October
2002, the Company deposited $331,434 (representing the tender offer price of
$4.40 multiplied by the 75,326 shares of preferred stock not tendered) into a
bank escrow account for the benefit of the remaining preferred shareholders. The
funds in this account, including any earnings thereon, were restricted in that
they were only be used by the Company to pay dividends or make other
distributions to the holders of the preferred stock. In September 2004, however,
the funds were deemed to have been legally released from any remaining
restrictions, and were transferred from escrow into the Company's checking
account. The funds were then utilized in the course of business activities. At
December 31, 2004, there were no funds remaining in this escrow account.
NOTE 5 - PROPERTY AND EQUIPMENT
As of December 31, 2004, the Company's fixed assets consisted of the following:
Property & equipment:
Data processing equipment and software $ 2,946
Less: accumulated depreciation (1,881)
-------
Balance $ 1,065
=======
Depreciation expense was $982 and $899 and for the years ended December 31,
2004, and 2003, respectively.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Rental expense in 2004 and 2003 was approximately $11,050 and $18,100,
respectively. All leases currently in effect are on a month-to-month basis.
F-14
CONSUMERS FINANCIAL CORPORATION, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (Continued)
December 31, 2004
NOTE 7 - REDEEMABLE PREFERRED STOCK
On August 23, 2002, the Company completed a tender offer to all of the preferred
shareholders, pursuant to which it purchased 377,288 shares (approximately 83.4%
of the shares outstanding) at $4.40 per share plus accrued dividends. The tender
offer was completed in conjunction with and was a condition to the exercise of
the option by CFC Partners (See Note 4). Since all of the Company's remaining
assets would have been distributed to the holders of the preferred stock if the
Company had been liquidated, the Board of Directors believed that the exercise
of the option (and the related termination of the Plan of Liquidation) should
not take place until the preferred shareholders had been given a chance to
exchange their shares for cash.
The terms of the preferred stock require the Company, when and as appropriated
by the Board out of funds legally available for that purpose, to make annual
payments to a sinking fund. Such payments were to have commenced on July 1,
1998. The preferred stock terms also provide that any purchase of preferred
shares by the Company will reduce the sinking fund requirements by an amount
equal to the redemption value ($10 per share) of the shares acquired. As a
result of the Company's purchases of preferred stock in the open market and in
the tender offer described above, no sinking fund payment for the preferred
stock is due until July 1, 2006. However, in connection with the exercise of the
option by CFC Partners, the Company deposited $331,434 into a bank escrow
account for the benefit of the remaining preferred shareholders. The redeemable
preferred stock is redeemable at the option of the Company at any time, as a
whole or in part, for a redemption price of $10 per share plus all unpaid and
accrued dividends.
Dividends at an annual rate of $0.85 per share are cumulative from the date of
original issue of the preferred stock. Dividends are payable quarterly on the
first day of January, April, July and October. The dividends payable on January
1, April 1, July 1 and October 1, 2003 have not been declared or paid by the
Company. In addition, the dividend payable at January 1, 2004 has also not been
declared or paid by the Company. Dividends in arrears for the five quarters as
of January 1, 2004 total $74,205, $58,198 of which relates to the four quarters
of 2003.
When the Company is in arrears as to preferred dividends or sinking fund
appropriations for the preferred stock, dividends to holders of the Company's
common stock as well as purchases, redemptions or acquisitions by the Company of
shares of the Company's common stock are restricted. Since the Company is in
default with respect to the payment of preferred dividends and the aggregate
amount of the deficiency is equal to at least four quarterly dividends, the
holders of the preferred stock are entitled, only while such arrearage exists,
to elect two additional members to the then existing Board of Directors. The
preferred shareholders have not elected these two additional directors as of
this date.
In event of a liquidation of the Company, the holders of the preferred stock are
entitled to receive $10 per share plus all unpaid and accrued dividends prior to
any distribution to be made to the holders of common stock.
The preferred stock is convertible at any time, unless previously redeemed, into
shares of common stock at the rate of 0.1482 shares of common stock (post-split)
for each share of preferred stock (equivalent to a conversion price of $6.75 per
share).
The difference between the fair value of the preferred stock at the date of
issue and the redemption value is being recorded through periodic accretions,
using the interest method, with an offsetting charge to the deficit. Such
accretions totaled $3,452 and $3,595, in the years ended December 31, 2004 and
2003, respectively.
F-15
CONSUMERS FINANCIAL CORPORATION, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (Continued)
December 31, 2004
NOTE 8 - CHANGES TO THE COMPANY'S ARTICLES OF INCORPORATION
At the Special Meeting of the Shareholders of the Company held on August 27,
2004, the shareholders were asked to consider and vote upon a proposal to amend
the Company's Articles of Incorporation (i) to effect a one-for-ten reverse
stock split of the Company's common stock by reducing the number of issued and
outstanding shares of common stock; (ii) to authorize 50 million shares of
capital stock of the Company, 40 million shares will relate to common stock and
10 million shares will relate to preferred stock; and (iii) to permit action
upon the written consent of less than all the shareholders of the Company,
pursuant to section 2524 of the Pennsylvania Business Corporation Law of 1988.
Although the meeting occurred and the three actions were approved by the
shareholders, at this time the Company's management has only effected two out of
three of such authorized actions. On January 29, 2004, an amendment to the
Company's Articles of Incorporation was filed with the Pennsylvania Department
of State Corporation Bureau which (i) increased the authorized share capital of
the Company to 50 million shares, divided into 40 million shares of common stock
and 10 million shares of preferred stock and (ii) authorizing the Company to
take action upon the written consent of shareholders holding the minimum number
of votes that would be necessary to authorize the action at a meeting at which
all shareholders entitled to vote thereon were present and voting.
NOTE 9 - INCOME TAXES
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
Net deferred tax assets consist of the following components as of December 31,
2004 and 2003:
2004 2003
------------ -----------
Deferred tax assets:
NOL carryover $ 2,618,027 $ 2,059,212
Accrued expenses 156,548 135,500
Valuation allowance (2,774,575) (2,194,712)
------------ -----------
Net deferred tax asset $ -- $ --
============ ===========
The income tax provision differs from the amount of income tax determined by
applying the U.S. federal and state income tax rates of 39% to pretax income
from continuing operations for the years ended December 31, 2004 and 2003 due to
the following:
2004 2003
--------- -----------
Book loss $(500,415) $(1,463,438)
Other 197 1,626
Reserve liability (21,078) 78,000
Stock for services / options expense (99,618) 941,534
Valuation allowance 379,522 442,278
--------- -----------
$ -- $ --
========= ===========
F-16
CONSUMERS FINANCIAL CORPORATION, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (Continued)
December 31, 2004
NOTE 9 - INCOME TAXES (Continued)
At December 31, 2004, the Company had net operating loss carryforwards of
approximately $379,522 that may be offset against future taxable income from the
year 2004 through 2024. No tax benefit has been reported in the December 31,
2004 financial statements since the potential tax benefit is offset by a
valuation allowance of the same amount.
Due to the change in ownership provisions of the Tax Reform Act of 1986, net
operating loss carryforwards for Federal income tax reporting purposes are
subject to annual limitations. Should a change in ownership occur, net operating
loss carryforwards may be limited as to use in future years.
NOTE 10 - EQUITY INVESTMENTS
Vaughn Partners, LLC
In May 2003, Vaughn Partners LLC, an Illinois limited liability company
("Vaughn") in which the Company owns a 37.5 % interest, acquired a garden
apartment style real estate project in Springfield, Illinois. Of the remaining
interest in the LLC, 37.5% is owned by Spartan Properties ("Spartan") and 25% by
other investors. Vaughn acquired this property for a purchase price of
$5,440,940, comprised of (i) a $4,650,000 interest-only bank loan secured by a
first mortgage lien on the property payable in two years at an annual interest
rate of 7.25% and with monthly interest payments approximating $28,100; (ii) a
$1,200,000 second mortgage on the property at an annual interest rate of 13%
with principal amounts of $500,000 due six months from the date of acquisition
and $700,000 due twelve months from the date of acquisition with monthly
interest payments due on the outstanding balance (iii) a $100,000 interest-free
loan made by a private investor that was due and payable on June 13, 2003 and
which accrues interest at an annual rate of 18% beyond its due date and (iv)
$200,000 in cash contributed by third party investors to Vaughn. 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 amounts due under the note. The Company is in discussions with the
lender regarding repayment of this loan. Vaughn also obtained a $600,000
construction loan from the bank under similar terms as the mortgage, of which
$30,357 has not been used, for the purpose of completing certain renovation to
the property.
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 25,000 (post-split)
shares of common stock. This Amended Operating Agreement memorializing this
arrangement was not executed by members of Vaughn holding 5% of the membership
interests and the 25,000 shares of common stock were not issued. This Amended
Operating Agreement has therefore not and will not be ratified.
Vaughn properties operated at a loss for the fiscal year ended December 31,
2003. Since the Company has no basis in the partnership, there is no adjustment
to the valuation of the equity investment.
F-17
CONSUMERS FINANCIAL CORPORATION, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (Continued)
December 31, 2004
NOTE 10 - EQUITY INVESTMENTS (Continued)
Other Investments
On September 4, 2003, the Company's Board of Directors approved the payment of
broker's fees to the Company's majority shareholder, CFC Partners, for real
estate and other contracts obtained by CFC Partners and assigned to the Company.
The Board agreed to pay CFC Partners an amount equal to 5% of the contract price
following completion of each transaction. Such payments may be in the form of
cash or common stock of the Company. In that regard, the Board authorized the
issuance to CFC Partners of 122,727 shares (post-split) of the Company's common
stock in connection with the acquisition of the Springfield, Illinois real
estate. The cost of this transaction to the Company, as measured by the market
value of the shares at the time of issuance, was approximately $270,000 which
was expensed in 2003.
NOTE 11 - ISSUANCES OF COMMON STOCK
During 2004, the Company issued common stock as follows (all issuances
referenced include the effects of the Company's reverse stock-split in August,
2005):
Common Capital in
Issue Stock $.01 Stated Excess of
Issued To Purpose Date Shares Value Stated Value
----------------- ----------------------- -------- --------- ----------- ------------
Jack I. Ehrenhaus Employment Agreement 6/17/04 247,170 2,472 121.113
Donald J Hommel Employment Agreement 6/17/04 247,170 2,472 121,113
Jack I Ehrenhaus 2004 Bonus 6/17/04 71,868 719 35,315
Donald J Hommel 2004 Bonus 6/17/04 71,868 719 35,315
Total Issuances to Executives 638,076 6,382 268,366
--------- ------- ----------
Cove Hill, Inc. Fundraising Services 7/28/04 800,000 8,000 992,000
Cove Hill, Inc. Fundraising Services 10/12/04 600,000 6,000 422,571
Total Issuances for Fundraising Services 1,400,000 14,000 1,414,571
--------- ------- ----------
Total Issuances 2,038,077 $20,382 $1,682.937
========= ======= ==========
Stock Issuances to Officers
On September 1, 2003, the Company entered into employment agreements with each
of Donald J. Hommel, President and Chief Executive Officer and Jack I.
Ehrenhaus, Chairman and Chief Operating Officer of the Company. Pursuant to
these agreements, each officer was entitled to an annual salary of $225,000, as
well as annual bonuses as determined by the Board of Directors. During the year
ended December 31, 2004, the Board resolved to issue an aggregate of 494,340
(post-split) shares of common stock as payment of $247,170 in accrued salary to
Mr. Hommel and Mr. Ehrenhaus. In addition, the Board resolved to issue an
aggregate of 143,737 (post-split) shares (valued at an aggregate of $71,868) as
a bonus to Mr. Hommel and Mr. Ehrenhaus.
F-18
CONSUMERS FINANCIAL CORPORATION, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (Continued)
December 31, 2004
NOTE 11 - ISSUANCES OF COMMON STOCK (Continued)
Other Stock Issuances
In July 2004, the Company issued 800,000 (post-split) common shares to Cove
Hill, Inc. ("Cove Hill") as consideration for Cove Hill promise to provide
$1,000,000 in funding for the Company. The shares were issued at a market value
of $1.25 per share.
In October 2004, Cove Hill had been unable to provide the promised funding for
the Company. As the market value for the Company's common stock had fallen from
July to October 2004, Cove Hill asked to be issued additional shares, so as to
ensure the market value of the total shares held by Gold Op would be equal to
$1,000,000. Therefore, in October 2004, the Company issued an additional 600,000
(post-split) common shares to Cove Hill. On this date, the 1,400,000 shares held
by Cove Hill had a market value of $0.741 per share.
NOTE 12 - LOSS PER SHARE
The following table set forth the computation of basic and diluted loss per
share data:
Years ended December 31,
-------------------------
2004 2003
----------- -----------
Net loss - numerator $(1,218,721) $(3,196,136)
----------- -----------
Denominator for basic loss per share -
weighted average shares (post-split) 2,575,076 946,372
----------- -----------
Basic loss per common share $ (0.47) $ (3.38)
The redeemable preferred stock is convertible at any time, unless previously
redeemed, into shares of common stock at the rate of 0.1482 shares of common
stock (post-split) for each share of preferred stock (equivalent to a conversion
price of $6.75 per share). None of the common shares contingently issuable upon
the conversion of the preferred stock have been included in the computation of
diluted per share information as the effects would be anti-dilutive.
F-19
CONSUMERS FINANCIAL CORPORATION, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (Continued)
December 31, 2004
NOTE 13 - EXECUTIVE EMPLOYMENT AGREEMENTS
On September 1, 2003, the Company entered into employment agreements Donald J.
Hommel as President and Chief Executive Officer and Jack I. Ehrenhaus as
Chairman and Chief Operating Officer. Each agreement provided for annual
compensation of $225,000 in base salary with annual increases of 10% and annual
bonuses as determined by the Board, which can range up to twice the amount of
the base salary but in no event will the bonus be less than 50% of the base
salary. Each officer is also entitled to an automobile allowance of $750 per
month and reimbursement of all business expenses. The term of each employment
agreement is ten years. If the Company terminates either officer without cause
prior to the term, the officer is entitled to a severance payment equal to his
salary for the remainder of the ten year term or two years' salary, whichever is
greater. If there is a material change in the Company that causes a substantial
reduction in the officer's duties, or a liquidation, transfer of assets or
merger and the Company is not the surviving entity, the officer is entitled to a
severance payment. Each officer also agreed that if the Company has a cash flow
shortfall, the officer will take stock in lieu of cash at a 20% discount to the
stock price at the payment date. In October of 2004, Mr. Hommel was dismissed
with cause from his positions with the Company by a majority vote of the
shareholders. Mr. Hommel's employment agreement was thus rendered void, and the
Company had not further obligations to Mr. Hommel relating to this employment
agreement. As of December 31, 2004, Mr. Ehrenhaus is the sole officer of the
Company, and his Employment Agreement has remained in full effect.
NOTE 14 - RELATED PARTY TRANSACTIONS
During the first quarter of 2003, the Company made payments totaling $27,500 to
certain individuals so that CFC Partners could purchase its majority interest in
the Company's common stock. Since any obligation to repay this loan by these
individuals, one of whom is a director of the Company, is the responsibility of
CFC Partners, CFC Partners have agreed to repay this loan to the Company.
However, because CFC Partners currently has no ability to repay the amount
borrowed, this loan has been fully reserved in the Company's consolidated
financial statements through a charge to bad debt expense.
During 2003 and 2004, the Company received unsecured loans from officers of the
Company to meet operating costs. These loans, from Mr. Hommel and Mr. Ehrenhaus,
bear no interest and have no specific repayment terms. In November 2003, the
Company terminated Mr. Hommel, and paid in full all obligations owing to him at
that time. As of December 31, 2004, the balance on the Company's unsecured loan
from Mr. Ehrenhaus totaled $50,421. No payments of principal have been made on
this loan.
NOTE 15 - LEGAL PROCEEDINGS
Life of the South
The Company was in arbitration against its co-defendant, Life of the South, from
a previously settled claim. Life of the South was seeking to recover from the
Company its share of the settlement totaling $17,500, its unreimbursed fees of
$27,825 plus interest, attorney fees and cost of arbitration from the Company.
During the year ended December 31, 2004 the case was decided in favor of the
Company, and the Company was granted an award of $18,952, and Life of the
South's claim was denied in its entirety.
F-20
CONSUMERS FINANCIAL CORPORATION, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (Continued)
December 31, 2004
NOTE 15 - LEGAL PROCEEDINGS (Continued)
Securities and Exchange Commission Investigation
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.
Robert Half International
On July 25, 2005, Robert Half International ("RHI"), a professional staffing
agency, filed a claim against the Company in which RHI seeks $46,855 ("the
award"), from the Company, being the purported value of services performed by
RHI on behalf of the Company. The Company is currently in the process of
attempting to negotiate a settlement with RHI for an amount less than the full
award amount. If such negotiations are unsuccessful, the Company will ultimately
be forced to pay to RHI the full award amount.
Gold Op Holdings
During the 2004 and 2005 calendar years, the Company issued an aggregate total
of 6,400,000 post-split common shares ("the shares") to Gold Op Holdings, Inc.
in exchange for a promissory note totaling $1,000,000 ("the Note"). In July
2005, the Company had not received any payments on the Note, and elected to
issue a demand letter for the return of the shares. The Company received not
response to the demand letter. In July 2005, a summons and complaint was served
on Gold Op Holdings, Inc., to enforce the note, and or return the shares.
Through the date of this report the Company has received no response from Gold
Op, and the Company intends to seed a summary judgment against Gold Op.
NOTE 16 - NOTES PAYABLE
Notes payable consist of the following at December 31, 2004:
Note payable to unrelated individual, accrues interest
at 8.0% per annum, unsecured, currently in default $ 40,000
Note payable to unrelated individual, accrues interest
at 10.0% per annum, unsecured, currently in default $ 50,000
Note payable to unrelated individual, accrues interest
at 8.0% per annum, unsecured, currently in default $ 20,000
--------
Total Notes Payable $110,000
========
At December 31, 2004, the Company was in default on each of its three notes
payable. The note holders have not initiated any legal actions against the
Company to collect the outstanding balances. Accrued interest on notes payable
at December 31, 2004 was $13,700.
F-21
CONSUMERS FINANCIAL CORPORATION, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (Continued)
December 31, 2004
NOTE 17 - NOTES PAYABLE - RELATED PARTIES
Beginning in October 2003, the Company has periodically borrowed working capital
from Jack Ehrenhaus, the Company's president and chief executive. These
borrowings have no specific payment terms, with the exception of being due on
demand. The outstanding balances accrue interest at a rate of 8.0% per annum.
During the year ended December 31, 2004, the Company borrowed $40,623 from Mr.
Ehrenhaus, and made payments totaling $6,000 on the outstanding balance. At
December 31, 2004, the note payable to Mr. Ehrenhaus totaled $50,423, plus
$2,633 in accrued interest.
NOTE 18 - SUBSEQUENT EVENTS
Cove Hill Stock Issuance
During the year ended December 31, 2004 the Company issued an aggregate of
1,400,000 post-split common shares to Cove Hill, Inc. as consideration for
certain fund-raising services to be performed. The shares were valued at $0.714
per share, for a total of $1,000,000. The shares were originally held in an
escrow account, pending the completion of certain due diligence measures and the
Company completing certain filings with the Securities and Exchange Commission.
In March 2005, the market value for the Company's common stock dropped to $0.16
per share, prompting the Company to issue an additional 5,000,000 post-split
shares to Cove Hill, in order to keep the market value of Cove Hill's shares at
an aggregate of $1,000,000.
In July 2005 the Company initiated the process of canceling the transaction with
Cove Hill, as no significant progress had been made in Cove Hill's fundraising
efforts. However, a certain amount of the shares issued to Cove Hill were sold
by Cove Hill, and the Company does not expect to recover 100% of the shares
issued. The Company anticipates being able to recoup 3,000,000 of the 6,400,000
shares issued to Gold Op. Due to this uncertainty of collection, the stock
subscription receivable has been written-down to its estimated collectible value
of $242,969 in these financial statements. The remaining amount has been
expensed as stock subscription bad debts and/or written-down as additional
paid-in capital during the year ended December 31, 2004.
Reverse Stock-Split
On August 25, 2005, the Company elected to amend its articles of incorporation
so as to complete a reverse stock-split of its common stock on a
ten-shares-for-one-share basis. All references to common stock activity within
these financial statements have been retroactively restated to show the effect
of this reverse stock-split.
Investment Exchange Agreement
On February 28 2005 and amended on April 4, 2005, the Company entered into an
Investment Exchange Agreement ("the Agreement") with Cross Capital Fund, LLC
("the Fund"). According to the terms of the Agreement, the Company made a
capital contribution of 4,000,000 Series D convertible preferred shares to the
Fund and the Company received from the Fund an Investor Membership Interest in
the amount of $4,000,000. In addition, the Company agreed to pay to the Fund a
monthly maintenance fee of $10,000.
F-22
CONSUMERS FINANCIAL CORPORATION, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (Continued)
December 31, 2004
NOTE 18 - SUBSEQUENT EVENTS (Continued)
Common Stock Issuances
In March 2005, the Company issued 5,000,000 shares of common stock to Gold Op
Holdings, Inc. as additional consideration for the Company's promissory note
receivable from Gold Op Holdings. Subsequent to this issuance, the Company has
requested that the shares be returned or the promissory note be enforced (see
note 15).
In June 2005, the Company issued 481,621 common shares to Cross Capital as
payment for services rendered.
In October 2005, the Company resolved to issued 45,900,541 shares of common
stock to Jack Ehrenhaus, the Company's sole executive officer, as payment of
accrued salaries and bonuses totaling $734,409.
F-23
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
As of September 18, 2003, Stambaugh Ness, PC resigned as the
principal independent accountants for the Company.
The report of Stambaugh Ness, PC on the financial statements for the
years ended December 31, 2002 and 2001 contained no adverse opinion or
disclaimer of opinion, and were not qualified or modified as to scope or
accounting principles. Although the financial statements audited by
Stambaugh Ness, PC for the year ended December 31, 2002 contained an
explanatory paragraph pertaining to the Company's ability to continue as a
going concern, such financial statements did not contain an adjustment
that might result from the uncertainty stated therein. In addition, during
the Company's years ended December 31, 2002 and 2001 and through September
18, 2003, there were no disagreements with Stambaugh Ness, PC on any
matters of accounting principles or practices, financial statement
disclosure or auditing scope or procedures; which disagreements, if not
resolved to the satisfaction of Stambaugh Ness, PC would have caused that
firm to make reference in connection with its report to the subject matter
of the disagreements or a reportable event.
As of September 23, 2003, the Board of Directors of the Company
approved the appointment of Marcum & Kliegman LLP as the Company's new
principal independent accountants commencing with the interim financial
statement review for the third quarter ending September 30, 2003 and the
audit for the year ending December 31, 2003.
During the years ended December 31, 2002 and 2001 and until
September 23, 2003, Marcum & Kliegman LLP had not been engaged by the
Company as an independent accountant to audit the financial statements of
the Company or any of its subsidiaries, nor had it been consulted
regarding the application of accounting principles to any specified
transaction, either completed or proposed, or the type of audit opinion
that might be rendered on the Company's financial statements, or any
matter that was the subject of a disagreement or reportable event
identified in response to paragraph (a) (1) (iv) of Item 304, as those
terms are used in Item 304 (a) (1) (iv) of Regulation S-K and the related
instructions to Item 304 of Regulation S-K.
The Company requested that Stambaugh Ness, PC furnish it with a
letter addressed to the Securities and Exchange Commission stating whether
or not it agrees with the above statements. A copy of such letter from
Stambaugh Ness, PC is filed as an Exhibit on Form 8-K filed with the
Securities and Exchange Commission on September 25, 2003.
In 2004 the accounting firm of Marcum & Kleigman resigned as the
Company's auditors of record. HJ & Associates, LLC was appointed to
replace Marcum & Kleigman in August, 2004.
ITEM 8A. CONTROLS AND PROCEDURES
A) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the Company
conducted an evaluation, under the supervision and with the participation
of the principal executive officer and principal financial officer, of the
Company's disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the
"Exchange Act")). Based on this evaluation, the principal executive
officer and principal financial officer have concluded that the Company's
disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in reports that it
files or submits under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in Securities and Exchange
Commission's rules and forms.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
Internal controls over financial reporting consists of control
processes designed to provide assurance regarding the reliability of
financial reporting and preparation of our financial statements in
accordance with accounting principles generally accepted in the United
States of America. To the extent that components of our internal controls
over financial reporting are included in our disclosure controls, they are
included in the scope of the evaluation by our chief executive officer and
chief financial officer referenced above. There have been no significant
changes in the Company's internal controls over financial reporting during
the Company's most recently completed fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the Company's
internal controls over financial reporting.
Our independent auditors have reported to our management certain
matters involving internal controls that our independent auditors
considered to be reportable conditions, and a material weakness, under
standards established by the American Institute of Certified Public
Accountants. The reportable conditions and material weaknesses relate to
the December 31, 2003 financial close process and absence of appropriate
reviews and approvals of transactions and accounting entries. Certain
adjustments were identified in the annual audit process, related to the
recording of stock-based compensation, prepaid expenses, accrued expenses,
preferred stock and accounting for an equity method investment. The
adjustments related to these matters were made by the Company in
connection with the preparation of the audited financial statements for
the year ended December 31, 2003.
B) CHANGES IN INTERNAL CONTROL 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.
ITEM 8B. OTHER INFORMATION
None.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Historically, the Board of Directors of the Company was divided into three (3)
groups, with the directors in each group serving terms of three (3) years.
However, due to the Directors' decision in 1996 to merge, sell or otherwise
dispose of the Company or its assets, the eventual approval by the shareholders
of the Plan of Liquidation in 1998 and the acquisition of a 51.2% interest in
the Company by CFC Partners, Ltd. on August 28, 2002, there had been no election
of Directors since 1995. On August 28, 2002 the Board of Directors appointed
Donald J. Hommel, the president of CFC Partners, as a Director of the Company to
fill an existing vacancy on the Board. Following such appointment, James C.
Robertson and John E. Groninger, who had been Directors of the Company for more
than 30 years, resigned as planned. Mr. Hommel was terminated by a majority vote
as president and director in October 2004, and was replaced by Jack. I
Ehrenhaus.
On October 17, 2002 the Board of Directors appointed Shalom S. Maidenbaum,
Esq. as a Director of the Company to fill an existing vacancy on the Board, and
on March 13, 2003, the Board of Directors appointed William T. Konczynin as an
additional Director and Chairman of the Audit Committee to fill an existing
vacancy. Mr. Jack I. Ehrenhaus was elected as Chairman of the Board in April
2003.
The table below sets forth the period for which the current Directors have
served as Directors of the Company, their principal occupation or employment for
the last five (5) years, and their other major affiliations and age as of May 1,
2004
Name
(Age) Principal Occupation for the Past Five Years, Office
Director Since (if any) Held, Director in the Company
----------------- ----------------------------------------------------
Jack I. Ehrenhaus President and Founder, NAIS Corporation Chairman,
(58) President, Chief Executive Officer,
2003 Principal Accounting Officer
None of our directors holds any directorships in companies with a class of
securities registered pursuant to Section 12 of the Securities Exchange Act or
subject to the requirements of Section 15(d) of such Act or any company
registered as an investment company under the Investment Company Act of 1940, as
amended.
Our directors are appointed for a one-year term to hold office until the
next annual general meeting of our shareholders or until removed from office in
accordance with our bylaws. Our officers are appointed by our Board of Directors
and hold office until removed by the Board.
The following information is provided as of September 1, 2005 for each
executive officer of the Company. The executive officers are appointed annually
by the Board of Directors and serve at the discretion of the Board.
NAME AGE OFFICE
----------------- --- -----------------------
Jack I. Ehrenhaus 57 Chief Operating Officer
Ehrenhaus was appointed and Chief Operating Officer in April 2003,
commencing January 1, 2003, and appointed as President and Chief Executive
Officer in October, 2004. Mr. Maidenbaum was appointed Vice President and
Secretary of the Company in October 2002 and resigned as an officer of the
Company during the 4th quarter of 2003.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "SEC"). Officers, directors and greater than ten percent shareholders are
required by SEC regulations to furnish the Company with copies of all Section
16(a) reports they file.
CODE OF ETHICS
At December 31, 2004, the Company had not yet adopted a Code of Ethics for
its Executive Officer and Directors. This delay has been a result of the
restructuring of the Company after its emergence its Plan of Liquidation coupled
with the focus of management on raising capital and implementation of a business
plan of action to preserve and increase its value to its common shareholders.
The Board of Directors of the Company is in the process of reviewing a
Code of Ethics and anticipates its adoption and implementation during the 2006
calendar year.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth information regarding the annual
compensation for services in all capacities to the Company for the years ended
December 31, 2004 and 2003, of the Chief Executive Officer and the Chief
Operating Officer whose annual compensation exceeded $100,000 and who were
serving as executive officers at the end of the fiscal year ended December 31,
2004.
SUMMARY COMPENSATION TABLE
OTHER
NAME AND POSITION ANNUAL
COMPENSATION YEAR SALARY BONUS COMPENSATION OTHER
------------------ ---- -------- -------- ------------ -------
Jack I. Ehrenhaus 2004 $236,250(7) $112,500 $ -0- $ -0-
Chairman and 2003 $ 35,192(1) $430,435(3) $ 690,000(6) $85,600(5)
Chief Operating
Officer
Donald J. Hommel 2004 $174,375(2) $ -0- $ -0- $ -0-
Former Chairman,
President and 2003 $ 35,192(4) $430,435(3) $690,000(6) $85,600(5)
Chief Executive
Officer
(1) Mr. Ehrenhaus was named as Chairman of the board of Directors and Chief
Operating Officer of the Company effective January 1, 2003, and President
and Chief Executive Officer of the Company starting in October, 2004.
(2) Represents payment of accrued salaries through the issuance of an
aggregate of 638,076 post-split shares of common stock.
(3) Mr. Ehrenhaus and Mr. Hommel each accepted stock in lieu of cash
compensation for services performed in 2003 at a value of $0.06 per share.
The 154,080 (post-split) shares for each of Mr. Hommel and Mr. Ehrenhaus
were issued in 2004
(4) Mr. Hommel was appointed to the Board of Directors, President and Chief
Executive Officer of the Company on August 28, 2002, and resigned these
positions in October, 2004. Mr. Hommel received no compensation for his
services as Chief Executive Officer in 2002.
(5) At a board meeting on September 4, 2003, the Board of Directors approved
bonuses for Donald J. Hommel, President and Chief Executive Officer, and
Jack I. Ehrenhaus, Chairman and Chief Operating Officer, of the Company.
Each of the individuals was issued 195,652 post-split shares of common
stock valued at $430,435.
(6) Issuance of 300,000 shares valued at $690,000 to each of Mr. Hommel and
Mr. Ehrenhaus pursuant to their respective employment agreements
(7) At December 31, 2004, much of the salaries earned by Mr. Ehrenhaus
remained unpaid. The Company recorded accrued salary payable to Mr.
Ehrenhaus of $380,599.
On September 1, 2003, the Company entered into employment agreements with
both Donald J. Hommel, President and Chief Executive Officer and Jack I.
Ehrenhaus, Chairman and Chief Operating Officer, of the Company. Each agreement
provides for annual compensation of $225,000 in base salary with annual
increases of 10% and annual bonuses as determined by the Board, which can range
up to twice the amount of the base salary but in no event will the bonus be less
than 50% of the base salary. Each officer is also entitled to an automobile
allowance of $750 per month and reimbursement of all business expenses. The term
of each employment agreement is ten years. If the Company terminates either
officer without cause prior to the term, the officer is entitled to a severance
payment equal to his salary for the remainder of the ten year term or two years'
salary, whichever is greater. If there is a material change in the Company that
causes a substantial reduction in the officer's duties, a liquidation or
transfer of assets, or merger and the Company is not the surviving entity, the
officer is entitled to a severance payment. In October of 2003, Mr. Donald J.
Hommel was dismissed with cause as President and Chief Executive Officer of the
Company by a majority vote of the shareholders. Mr. Hommel was replaced in these
positions by Mr. Jack I. Ehrenhaus in October, 2003.
The employment agreements also provided for the issuance of 300,000
post-split shares of the Company's common stock to each of the officers. These
shares were valued at an aggregate of $1,380,000.
Each officer also agreed that if the Company has a cash flow shortfall,
the officer will take stock in lieu of cash at a 20% discount to the stock price
at the payment date.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
No stock options or stock appreciation rights were granted by the Company
to the named executives officers in 2004.
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTIONS/SAR TABLE
At December 31, 2004, the Company had no stock options or stock
appreciation rights outstanding. Furthermore, the Company has no current plans
to grant any options or stock appreciation rights.
REPORT ON EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Board of Directors has the exclusive authority to establish
the level of base salary payable to the Chief Executive Officer ("CEO") and
certain other executive officers of the Company and to administer the Company's
equity incentive plans. The Board of Directors does not maintain a Compensation
Committee as the employments agreements executed in 2003 will determine the
individual bonus programs to be in effect for the CEO and certain executive
officers each fiscal year. Participants in deliberations of the Company's Board
of Directors concerning executive compensation were Donald J. Hommel, Jack I.
Ehrenhaus, Shalom S. Maidenbaum and William T. Konczynin.
GENERAL COMPENSATION PHILOSOPHY
Historically, the compensation policy of the Company is to offer the
Company's executive officers competitive opportunities based upon the overall
Company performance, their individual contribution to the financial success of
the Company and their personal performance. It is the Board's objective to have
a meaningful portion of each executive officer's compensation contingent upon
the performance of the Company, as well as the individual contribution of each
officer.
CEO COMPENSATION
On September 1, 2003, the Company entered into an employment agreement
with Donald J. Hommel, former President and Chief Executive Officer of the
Company. The agreement provides for annual compensation of $225,000 in base
salary with annual increases of 10% and annual bonuses as determined by the
Board, which can range up to twice the amount of the base salary but in no event
will the bonus be less than 50% of the base salary. Prior to his dismissal in
October 2004, Mr. Hommel was also entitled to an automobile allowance of $750
per month and reimbursement of all business expenses. The term of the employment
agreement was ten years. Because Mr. Hommel was dismissed for cause prior to the
ending of the contract term, Mr. Hommel was not entitled to a severance payment
of any kind.
The employment agreement also provided for the issuance of 300,000 post-split
shares of the Company's common stock to Mr. Hommel which were valued at an
aggregate of $690,000. Mr, Hommel also agreed that if the Company has a cash
flow shortfall, he will take stock in lieu of cash at a 20% discount to the
stock price at the payment dates. As of the date of this filing, the Company has
no obligations to Mr. Homell in relation to his compensation as CEO or the
above-mentioned employment agreement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of October 1, 2005, the beneficial
ownership of the Company's Common Stock, the only class of voting securities
outstanding, (i) by any person or group known by the Company to beneficially own
more than 5% of the outstanding Common Stock, (ii) by each Director and
executive officer and (iii) by all Directors and executive officers as a group.
Unless otherwise indicated, the holders of the shares shown in the table have
sole voting and investment power with respect to such shares.
AMOUNT
NATURE OF
PERCENT
BENEFICIAL OF
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP CLASS
-------------- --------------------------------------- ---------- -----
PRINCIPAL SHAREHOLDERS:
Common CFC Partners, Ltd.
132 Spruce Street, Cedarhurst, NY 11516 392,727 0.72
Donald J. Hommel
Common 132 Spruce Street, Cedarhurst, NY 11516 649,732 1.12
Jack I. Ehrenhaus
Common 132 Spruce Street, Cedarhurst, NY 11516 46,550,273 85.14
DIRECTORS AND EXECUTIVE OFFICERS:
Directors and Executive Officers:
Common Jack I. Ehrenhaus 46,550,273 85.14
132 Spruce Street, Cedarhurst, NY 11516
Common All Directors and Officers and 46,550,273 85.14
Principal Beneficial
Shareholders as a group
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS.
The Company has no compensation plans.
CHANGE OF CONTROL
Other than the right of the preferred shareholders to appoint two directors to
the board, there are no other arrangements, known to the Company, including any
pledge by any person of securities of the Company, the operation of which may at
a subsequent date result in a change in control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the years ended December 31, 2004 and 2003, there has not been, nor
is there currently proposed, any transaction or series of similar transactions
to which the Company, or any of its subsidiaries was or is to be a party in
which the amount involved exceeded or will exceed $60,000 and in which any
director, executive officer, security holder known to the Company to own more
than 5% of the Company's common stock or any member of the immediate family of
any of the foregoing persons had or will have a direct or indirect material
interest, other than the compensation agreements, issuance of shares to CFC, and
other arrangements, which are described above where required.
ITEM 13. EXHIBITS
a) Listing of Documents filed:
1. Financial Statements (included in Part II of this Report):
Report of Independent Public Accountants - Marcum & Kliegman, LLP
Report of Independent Public Accountants - Stambaugh Ness PC
Consolidated Balance Sheet - December 31, 2004 Consolidated
Statements of Operations and Comprehensive Income - For the years
ended December 31, 2004, and 2003 Consolidated Statements of
Shareholders' Deficiency - For the years ended December 31, 2004 and
2003 Consolidated Statements of Cash Flows - For the years ended
December 31, 2004 and 2003 Notes to Consolidated Financial
Statements
2. Financial Statement Schedules (included in Part IV of this Report):
Schedules other than those listed above have been omitted because they are
not required, not applicable or the required information is set forth in the
financial statements or notes thereto.
3. Exhibits:
(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:
No reports on Form 8-K were filed by the Company during the quarter ended
December 31, 2004.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Marcum & Kliegman LLP ("M&K") audited the Company's financial statements
for fiscal 2003; the fees billed for professional services by M&K were as
follows: Audit Fees--$100,000; Audit related fees $-0-; Tax Fees (for
preparation of federal and state income tax returns) $-0- and All Other Fees of
$-0-. The policy of the Audit Committee is that it must approve in advance all
services (audit and non-audit) to be rendered by the Company's independent
auditors. The Board of Directors established the Audit Committee during 2003
with the appointment of Mr. Konczynin to the Board of directors. For at least
two years prior to that, the Board of Directors did not have an Audit Committee.
The engagement of M&K for the audit for fiscal 2003 was approved in advance by
the Audit Committee.
Stambaugh Ness, PC ("SN") audited the Company's financial statements for
fiscal 2002; the fees billed for professional services by SN for 2002 were as
follows: Audit Fees--$26,225 including $9,225 for review services for the
Company's SEC filings during the first and second quarters of 2003; Tax Fees
(for preparation of federal and state income tax returns) $-0- and All Other
Fees of $-0-. The engagement of SN for the audit services for fiscal 2002 was
approved in advance by the Board of Directors.
HJ & Associates, LLC ("HJ") audited the Company's financial statements for
fiscal 2003; the fees billed for professional services by HJ for 2003 were as
follows: Audit Fees--$100,000; Tax Fees (for preparation of federal and state
income tax returns $-0-; and All Other Fees of $-0-. The engagement of HJ for
the audit services for fiscal 2003 andv2004 was approved in advance by the Board
of Directors.
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
By: /s/ Jack I. Ehrenhaus
------------------------
Jack I. Ehrenhaus
President, Chairman of the Board, Chief Executive Officer, Principal
Accounting Officer
Date: March 22, 2007
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
Signature Title Date
--------------------- ----------------------------------------------- --------------
/s/ Jack I. Ehrenhaus President, Chairman of the Board, Chief
Jack I. Ehrenhaus Executive Officer, Principal Accounting Officer March 22, 2007