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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(MARK ONE)

For the fiscal quarter ended September 30, 2003

Commission file number

CONSUMER DIRECT OF AMERICA,
INC.

6330 S. Sandhill Rd Suite 8
Las Vegas, Nevada 89120
(Address of Principal Executive Offices including Zip Code)

(702) 547-7322
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

COMMON STOCK, $0.001 PAR VALUE
(Title of Class)

     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 the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x]    No [   ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not 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-Q, or any amendment to this Form 10-Q

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     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [   ]   No [x]

     Aggregate market value of Common Stock held by shareholders based on the closing price of the registrant’s Common Stock on the OTC:BB on September 30, 2003: $12,115,260.

DOCUMENTS INCORPORATED BY REFERENCE

     Certain portions of the registrant’s Proxy Statement for its Annual Meeting of Stockholders to be held on September 6, 2003 are incorporated by reference hereof.

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ITEM 1. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the financial statements and the related notes thereto included elsewhere in this document. This discussion contains, in addition to historical information, forward-looking statements that involve risks and uncertainties. The Company’s actual results could differ materially from the results discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below, as well as those discussed below under Factors Affecting Future Operating Results. The Company disclaims any obligation to update information contained in any forward- looking statement.

OVERVIEW

The Company is a direct-to-consumer mortgage banker/broker whose revenues are derived primarily from the origination commissions earned on the closing of mortgage and home equity loans that it sells. The Company also earns income from third parties who hire our Direct Marketing Group to sell products for them. During the third quarter of 2003, the Company completed an internally funded expansion program in order to facilitate its strategy of acquisition of medium sized independent mortgage brokerage businesses. The Company increased the size of its main HQ facility to 18,000 sq. ft. from 13,800 sq. ft. and upgraded its data center to provide for extended capacity. The data center expansion, software upgrade, “hot lead” marketing program, and administrative capacity were increased in order to facilitate the acquisition of independent mortgage brokers seamlessly into the Company’s infrastructure. The expansion program was completed during the third quarter of 2003.

During the third quarter of 2003, the Company improved in virtually all operating categories. Net income was once again positive as the Company completed its transition of its loan officers from a 100% commission program to a split based schedule. Branch offices were consolidated from eleven to six and overhead costs were reduced. Loan volume production increased and the number of real estate transactions closed by our real estate division increased over the same period last year. Management installed the “LoanMaker” System which is its name for the “hot Lead Transfer” system we employ to generate leads for our loan officers. This added to the overall productivity of each loan officer and thus contributed additional margin to the Company. The Company continued its strategy to generate a higher percentage of its loan production from purchase based transactions and continue to reduce its dependence on the volatile refinance market. We expect to have a blended mix of purchase to refinance business of 60% -40% by the end of the third quarter. The current mix is 50% - -50%.

As the Company plans to add mortgage branches by acquisition, the marketing center will increase its operations related to “hot loan leads” and will expand the physical plant to accommodate the planned expansion. All operating units within the Company are profitable.

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COMPARISON OF FINANCIAL RESULTS QUARTER ENDING 9/30/02 and 9/30/03

The selected financial data below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and is qualified by reference to the Financial Statements and Notes thereto appearing elsewhere in this document. The balance sheet data as of September 30, 2003 and the income statement data for the same period ended September 30, 2002 are derived from, and are qualified by reference to, the audited financial statements of the Company included elsewhere in this document.

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PROFITABILITY BY SEGMENT

     The Company reports each of its operating segments of the business as a separate profit center within the whole of the business. Given the business strategy for growth by acquisition, the Company maintains a higher than normal management structure for a mortgage operation of its current size. This over-configuration is necessary in order to attract the type of acquisition candidates the Company is seeking and the relative ratio of expense should decline as acquisitions and new revenue is added to the enterprise. Operating Segments shown below indicate how well each unit is performing and unprofitable segments are eliminated (Telco). All current operating segments of the business are profitable as of the current period.

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REVENUES

Revenues for the quarter ended September 30, 2003 decreased to $2.479 million from $2.804 million for the quarter ended September 30, 2002. This represents an 11.5% decrease in revenue over the same period one year before. This decrease resulted primarily from the discontinuance of the Direct Marketing Division’s campaigns in the Telco market. The company has needed its resources in Direct Marketing to be refocused on its core financial services products and moved away from the more volatile and less dependable telco product sales.

OPERATING EXPENSES

Total operating expenses decreased to $2.291 million for the quarter ended September 30, 2003 from $2.795 million for the quarter ended September 30, 2002. The decrease is primarily due reduced costs of operations and elimination and consolidation of various salaried positions.

Depreciation. Depreciation expense increased from $131 thousand in 2002 to $153 thousand in 2003. The primary increase was the addition of call center hardware and branch upgrades.

Operating Income The Company posted a net ordinary income profit of $33.8 thousand dollars for the period ending September 30, 2003. This represented an increase in profitability over the same period in 2002 of $159 thousand dollars. The increase represents a 481% improvement in earnings over the 2002 period. This is due to the internal structural changes made by management including creating greater margins in the loan commission program from our loan officers due to wider use of the Company’s “hot lead” program.

Income per Share. The basic diluted net income per share rose over 400% in the period over the same period in 2002.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s sources of cash flow include cash commissions from the brokerage of mortgages, service release premiums, borrowings under institutional credit facilities, marketing fees, and interest income. The Company’s uses of cash include operating expenses, payment of interest, and capital expenditures primarily comprised of facility expansion, furniture, fixtures, computer equipment, software and leasehold improvements.

Net cash used in operating activities was $(479,551) for the nine months ended September 30, 2003. Net cash used in operating activities during the nine months ended September 30, 2002, was $ (1,015,547). The Company improved its Net Cash position by over 2:1 over the prior period one year ago. This is due to increased profitability of the business and cost reductions which have come on-line.

The Company believes that its existing cash and cash equivalents as of September 30, 2003 will be sufficient to fund its operating activities, capital expenditures and other obligations for the next twelve months.

ITEM 2. PROPERTIES

The Company leases the premises in Irvine, California. The lease provides for monthly payments of $5,048 with the company responsible for insurance, property taxes and utility costs associated with the property. The term of the lease is sixty (60) months ending in March 2004.

The Company leases the premises at Sandhill Road in Las Vegas, Nevada. The lease provides for monthly payments of $14,838 with the company responsible for insurance, property taxes and utility costs associated with the property. The term of the lease is thirty six (36) months ending in July 2005. The Company also leases the premises at Meadows Lane in Las Vegas, Nevada. The lease provides for monthly payments of $8,910 on a month to month basis with the company responsible for insurance, property taxes and utility costs associated with the property.

The Company leases the premises in Lakewood, Colorado. The lease provides for monthly payments of $3,444 for 2003 and thereafter, and $3,336 for 2002, with the company responsible for insurance, property taxes and utility costs associated

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with the property. The term of the lease is thirty six and one-half (36.5) months ending in February 2004.

The rent expense for all facilities for the year ended December 31, 2002 and 2001 is $277,406.

ITEM 3. LEGAL PROCEEDINGS

The company has filed an action against a former employee and director to rescind the acquisition of Lending Services Corp. The litigation also states the basis of the case is for fraud, breach of agreement, and for recovery of assets converted by the former employee. A criminal action associated with this case has also been filed by the Company with the Las Vegas Metro Police Department and the District Attorney of Clark County, Nevada.

ITEM 4. FACTORS AFFECTING FUTURE OPERATING RESULTS

The following important factors, among others, could cause actual results to differ materially from those contained in forward-looking statements made in this report or presented elsewhere by management from time to time.

While We Have Achieved two Profitable Quarters During Fiscal 2003, We Have a History of Losses, and We May Not Be Able to Maintain Profitability

While we achieved a profitable quarter as of September 30, 2002, we have an accumulated deficit of $3.978 million. Because we expect our operating costs will increase to accommodate expected growth in loan applications, we will need to generate significant revenues to maintain profitability. We may not sustain or increase profitability on a quarterly or annual basis in the future. If revenues grow more slowly than we anticipate, or if operating expenses exceed our expectations or cannot be adjusted accordingly, our business, results of operations and financial condition will be adversely affected.

We Have a Limited Operating History and Consequently Face Significant Risks and Challenges in Building Our Business

We cannot assure you that we will be able to operate successfully if a downturn in the mortgage business occurs. As a result of our limited operating history, our recent growth and our reporting responsibilities as a public company, we may need to expand operational, financial and administrative systems and control procedures to enable us to further train and manage our employees and coordinate the efforts of our underwriting, accounting, finance, marketing, and operations departments.

Our Quarterly Financial Results Are Vulnerable to Significant Fluctuations and Seasonality, Which Could Adversely Affect Our Stock Price

Our revenues and operating results may vary significantly from quarter to quarter due to a number of factors. Certain months or quarters have historically experienced a greater volume of purchase money mortgage and auto loan applications and funded loans. As a result, we believe that quarter-to-quarter comparisons of our operating results are not a good indication of our future performance. It is possible that in some future periods our operating results may be below the expectations of public market analysts and investors. In this event, the price of our common stock may fall.

Interest Rate Fluctuations Could Significantly Reduce Customers’ Incentive to Refinance Existing Mortgage Loans

A significant percentage of our mortgage customers use our services to refinance existing mortgages and they are motivated to do so primarily when interest rates fall below the rates of their existing mortgages. In the event interest rates significantly increase, consumers’ incentive to refinance will be greatly reduced and the number of loans that we originate could significantly decline.

Uncertainty With Respect to the Time It Takes to Close Mortgage Loans Can Lead to Unpredictable Revenue and Profitability

The time between the date an application for a mortgage loan is received from a customer and the date the loan closes can be lengthy and unpredictable. The loan application and approval process is often delayed due to factors over which we have little or no control, including the timing of the customer’s decision to commit to an available interest rate, the close of

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escrow date for purchase loans, the timeliness of appraisals and the adequacy of the customer’s own disclosure documentation. Purchase mortgage loans generally take longer to close than refinance loans as they are tied to the close of the property sale escrow date. This uncertain timetable can have a direct impact on our revenue and profitability for any given period. We may expend substantial funds and management resources supporting the loan completion process and never generate revenue from closed loans. Therefore, our results of operations for a particular period may be adversely affected if the mortgage loans applied for during that period do not close in a timely manner or at all.

We Have Recently Experienced Significant Growth in Our Business, and If We Are Unable to Manage this Growth, Our Business Will Be Adversely Affected

Over the past two years we have experienced significant growth, which has placed a strain on our resources and will continue to do so in the future. Our failure to manage this growth effectively could adversely affect our business. We may not be successful in managing or expanding our operations or maintaining adequate management, financial and operating systems and controls. Our headcount has grown substantially. At December 31, 2001 and 2002, we had 36 and 347 full-time employees, respectively.

The Termination of One or More of Our Mortgage Funding Sources Would Adversely Affect Our Business

Under our agreements with each of our lenders, we make extensive representations, warranties and various operating and financial covenants. A material breach of these representations, warranties or covenants could result in the termination of our agreements.

Our Business Will be Adversely Affected if We Are Unable to Safeguard the Security and Privacy of Our Customers’ Financial Data

We retain on our premises personal financial documents that we receive from prospective borrowers in connection with their loan applications. These documents are highly sensitive and if a third party were to misappropriate our customers’ personal information, customers could possibly bring legal claims against us. We cannot assure you that our privacy policy will be deemed sufficient by our prospective customers or compliant with any federal or state laws governing privacy, which may be adopted in the future.

CONTROLS AND PROCEDURES

Within 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company that is required to be included in the Company’s periodic filings with the Securities and Exchange Commission. There have been no significant changes in the Company’s internal controls or, to the Company’s knowledge, in other factors that could significantly affect those internal controls subsequent to the date the Company carried out its evaluation, and there have been no corrective actions with respect to significant deficiencies and material weaknesses.

The Company’s management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost- effective control system, misstatements due to error or fraud may occur and not be detected.

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ITEM 5. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-QSB

(a)  1. The following financial statements of CONSUMER DIRECT OF AMERICA INC., Inc. and its subsidiaries are found in this Annual Report on Form 10-Q for the quarter ended September 30, 2003:

CONSUMER DIRECT OF AMERICA INC., INC.
INDEX TO FINANCIAL STATEMENTS

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Pursuant to the requirements of the Securities and Exchange 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.

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INDEPENDENT ACCOUNTANTS’ REVIEW REPORT

To the Stockholders of
Consumer Direct of America
Las Vegas, Nevada

We have reviewed the accompanying balance sheets of Consumer Direct of America (a Nevada Corporation), as of September 30, 2003 and 2002, and the related statements of income and accumulated deficit for the three and nine months then ended, and the statement of cash flows for the nine months then ended, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. All of the information included in these financial statements is the representation of the management of Consumer Direct of America.

A review consists principally of inquiries of Company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with generally accepted accounting principles in the United States of America.

Chavez & Koch, CPA’s

November 13, 2003
Henderson, Nevada

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CONSUMER DIRECT OF AMERICA
BALANCE SHEETS
AS OF SEPTEMBER 30, 2003 AND 2002

The accompanying independent accountants’ review report and notes to financial statements should be
read in conjunction with these Balance Sheets.

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CONSUMER DIRECT OF AMERICA
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002

The accompanying independent accountants’ review report and notes to financial statements should be
read in conjunction with these Statements of Operations and Accumulated Deficit.

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CONSUMER DIRECT OF AMERICA
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002

The accompanying independent accountants’ review report and notes to financial statements should be
read in conjunction with these Statements of Cash Flows.

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CONSUMER DIRECT OF AMERICA
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2003

BASIS OF PRESENTATION

The unaudited financial statements as of September 30, 2003 included herein have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with United States generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. It is suggested that these financial statements be read in conjunction with the December 31, 2002 audited financial statements and notes thereto.

NOTE 1 – STOCKHOLDERS’ EQUITY

On July 28, 2003, the Company issued 25,000 shares of its $0.001 par value common stock for cash in the amount of $2,500. Of the total amount received, $25 is considered common stock and $2,475 is considered additional paid-in capital.

NOTE 2 – RESTRICTED CASH

On July 31, 2003, the Company deposited $500,006 in a non-interest bearing account in order to secure any possible short falls associated with the Company’s lines of credit.

NOTE 3 – LITIGATION

On May 8, 2002, a lawsuit was filed in the Superior Court of the State of California, Santa Ana, California, Case Number 02CC06670 against the Company, its chief executive officer and others. Plaintiffs sued for breach of fiduciary duty, fraudulent diversion of corporate funds, equitable execution on defendants’ property, conspiracy to convert corporate assets, defraud creditors, and use of corporate funds to benefit officers’ own business. The Company, its chief executive officer, and others have subsequently responded and brought forth a cross-complaint for wrongful termination, breach of agreement and conversion of interests.

On July 15, 2003 the case was dismissed without prejudice by the Superior Court of the State of California for the County of Orange.

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EXHIBIT INDEX