SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003, OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______
Commission File Number: 0-2616
CONSUMERS FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1666392
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1525 Cedar Cliff Drive, Camp Hill, PA 17011
(Address of principal executive offices) (Zip Code)
717-730-6306
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
filing such requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Outstanding at
Class of Common Stock May 10, 2003
--------------------- ------------
$.01 Stated Value 5,276,781 shares
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARY
TABLE OF CONTENTS
NUMBER PAGE
- ------ ----
PART I. FINANCIAL INFORMATION
--------------------------------
Item 1. Consolidated Financial Statements:
Balance Sheets - March 31, 2003 and December 31, 2002 3
Statements of Operations and Comprehensive Loss - For the
Three Months Ended March 31, 2003 and 2002 4
Statements of Cash Flows - For the Three Months Ended
March 31, 2003 and 2002 5
Notes to Consolidated Financial Statements 6 - 10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11 - 14
Item 3. Quantitative and Qualitative Disclosure About Market Risk 15
Item 4. Controls and Procedures 15
PART II. OTHER INFORMATION
-----------------------------
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 17
CERTIFICATIONS
--------------
Pursuant to Section 302 of Sarbanes-Oxley Act 19 - 20
Pursuant to Section 906 of Sarbanes-Oxley Act 21 - 22
Consumers Financial Corporation Page 2
Form 10-Q March 31, 2003
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
2003 2002
===============================================================================================
(Unaudited) (See Note 2)
ASSETS
Current assets:
Cash and cash equivalents $ 57,411 $ 165,758
Prepaid expenses 29,420 30,420
- -----------------------------------------------------------------------------------------------
Total current assets 86,831 196,178
Furniture and equipment, net of accumulated depreciation 2,782
Restricted cash held in escrow account 314,945 314,225
Prepaid insurance 75,585 87,363
- -----------------------------------------------------------------------------------------------
Total assets $ 480,143 $ 597,766
===============================================================================================
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
SHAREHOLDERS' EQUITY DEFICIENCY
Current liabilities:
Accounts payable $ 40,314 $ 32,168
Other 21,659 22,134
- -----------------------------------------------------------------------------------------------
Total current liabilities 61,973 54,302
- -----------------------------------------------------------------------------------------------
Redeemable preferred stock:
Series A, 8 1/2% cumulative convertible, authorized 632,500
shares; issued and outstanding, 75,326 shares; redemption
amount $753,260 740,688 739,949
- -----------------------------------------------------------------------------------------------
Shareholders' equity deficiency:
Common stock, $.01 stated value, authorized 10,000,000
shares; issued and outstanding 5,276,781 shares 52,768 52,768
Capital in excess of stated value 8,938,865 8,938,865
Deficit (9,314,151) (9,188,118)
- -----------------------------------------------------------------------------------------------
Total shareholders' equity deficiency (322,518) (196,485)
- -----------------------------------------------------------------------------------------------
Total liabilities, redeemable preferred stock and
Shareholders' equity deficiency $ 480,143 $ 597,766
===============================================================================================
See Notes to Consolidated Financial Statements
Consumers Financial Corporation Page 3
Form 10-Q March 31, 2003
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 2003 MARCH 31, 2002
=========================================================================================
(See Note 2)
Non-operating revenues:
Net investment income $ 888 $ 19,638
Miscellaneous 29 15,803
- -----------------------------------------------------------------------------------------
917 35,441
- -----------------------------------------------------------------------------------------
Non-operating expenses:
Salaries and employee benefits 23,822 43,616
Professional fees 42,640 39,844
Other fees 7,541 8,264
Insurance 11,779 12,506
Taxes, other than income 3,058 7,635
Provision for loss on loan receivable 27,500
Miscellaneous 9,871 18,673
- -----------------------------------------------------------------------------------------
126,211 130,538
- -----------------------------------------------------------------------------------------
Loss before income taxes (125,294) (95,097)
Income taxes -- --
- -----------------------------------------------------------------------------------------
Net loss (125,294) (95,097)
Other comprehensive loss, change in
unrealized appreciation of debt securities (14,955)
- -----------------------------------------------------------------------------------------
Comprehensive loss ($125,294) ($110,052)
=========================================================================================
Per share data:
Basic and diluted loss per common share ($0.03) ($0.08)
Weighted average number of common
shares outstanding 5,276,781 2,576,781
- -----------------------------------------------------------------------------------------
Cash dividends declared per common share None None
=========================================================================================
See Notes to Consolidated Financial Statements
Consumers Financial Corporation Page 4
Form 10-Q March 31, 2003
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 2003 MARCH 31, 2002
============================================================================================
(See Note 2)
Cash flows from operating activities:
Net loss ($125,294) ($95,097)
- --------------------------------------------------------------------------------------------
Adjustments to reconcile net loss to cash
flows used in operating activities:
Provision for loss on loan receivable 27,500
Change in receivables (13,524)
Change in prepaid expenses 12,778 (37,176)
Change in other liabilities 7,671 15,255
Other (556) (353)
- --------------------------------------------------------------------------------------------
Total adjustments 47,393 (35,798)
- --------------------------------------------------------------------------------------------
Net cash used in operating activities (77,901) (130,895)
- --------------------------------------------------------------------------------------------
Cash flows from investing activities:
Repayment of mortgage loan 4,114
Loan to majority shareholder (27,500)
Purchase of furniture and equipment (2,946)
- --------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (30,446) 4,114
============================================================================================
Cash flows from financing activities:
Option agreement deposit 108,000
Cash dividends to preferred shareholders' (96,180)
- --------------------------------------------------------------------------------------------
Net cash provided by financing activities -- 11,820
- --------------------------------------------------------------------------------------------
Net decrease in cash (108,347) (114,961)
Cash and cash equivalents at beginning of period 165,758 1,802,265
- --------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 57,411 $ 1,687,304
============================================================================================
See Notes to Consolidated Financial Statements
Consumers Financial Corporation Page 5
Form 10-Q March 31, 2003
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
1. OVERVIEW AND BASIS OF PRESENTATION:
Since 1998, the Company has had no business operations, and its revenues
and expenses have consisted principally of investment income on remaining assets
and corporate 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 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 could
obtain a majority interest in the Company's common stock. In August 2002, the
option was exercised and 2,700,000 new common shares (approximately 51.2% of the
total outstanding shares) 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 paid a substantial portion of its remaining assets to its preferred
shareholders in connection with a tender offer to those shareholders (see Note
8).
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. However, as a result
of the cumulative effect of the events discussed above, at March 31, 2003, the
Company had only $57,411 in cash and cash equivalents and a shareholders' equity
deficiency of $322,518. Furthermore, as of that date, the Company had no
business operations and no sources of operating revenues. CFC Partners is
currently pursuing various business opportunities for the Company, including
strategic alliances, as well as the merger or combination of existing businesses
with 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 businesses. However, there is no
assurance that the Company's efforts in this regard will be successful.
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 new businesses are being developed. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
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.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting only of normal
recurring items) necessary to present fairly the Company's financial position as
of March 31, 2003 and the results of its operations and its cash flows for the
three months ended March 31, 2003 and 2002.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's 2002 Form 10-K.
The results of operations for the three months ended March 31, 2003 are not
necessarily indicative of the results to be expected for the full year.
Consumers Financial Corporation Page 6
Form 10-Q March 31, 2003
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
2. RESTATEMENT OF FINANCIAL STATEMENTS:
In connection with the acquisition of the Company by CFC Partners on August
28, 2002 and the related termination of the Plan of Liquidation, the Company
re-adopted accounting principles applicable to going-concern entities as of that
date. The Company's consolidated financial statements had been prepared using a
liquidation basis of accounting since March 25, 1998 when the Plan of
Liquidation was approved by the Company's shareholders. In order to provide
comparative financial information, the Company has restated its
liquidation-basis financial statements for prior periods to conform to the
current presentation which utilizes accounting principles applicable to
going-concern entities. Accordingly, in the accompanying consolidated financial
statements, the Statement of Changes in Net Assets in Liquidation for the three
months ended March 31, 2002, as originally prepared on a liquidation basis of
accounting, has been replaced by a Statement of Operations and a Statement of
Cash Flows.
For the three months ended March 31, 2002, the Company originally reported
an excess of expenses over revenues of $95,097.
3. ACQUISITION OF THE COMPANY:
On August 28, 2002, CFC Partners exercised its option to acquire 2,700,000
shares of the Company's common stock. The option was granted to CFC Partners
through an option agreement dated February 13, 2002. 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 represent approximately 51.2% of
the outstanding common stock of the Company.
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, inasmuch 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 (see Note 8).
The new management of the Company is currently pursuing various business
opportunities for the Company. Managements efforts have initially been focused
on joint ventures with or acquisitions of companies in the real estate,
construction management and medical technology businesses.
With respect to the real estate business, in April 2003, CFC Partners
entered into agreements to acquire a garden apartment complex in Springfield,
Illinois and a high-rise residential building in Chicago, Illinois. CFC Partners
intends to assign all of its rights and obligations under these agreements to
the Company. The Company is also negotiating the acquisition of several
additional garden apartment complexes in other locations and is negotiating with
a town in Long Island, New York to acquire property for the purpose of
developing condominiums and townhouses.
In connection with its construction management business, the Company
intends to manage all of its real estate development and other real estate
activities and will selectively pursue the management of outside projects as
well.
Consumers Financial Corporation Page 7
Form 10-Q March 31, 2003
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
3. ACQUISITION OF THE COMPANY (CONTINUED):
With regard to the medical technology business, in April 2003, CFC Partners
entered into a letter of intent with a leading radiologist and operator of
several radiology centers in the metropolitan New York area to purchase, develop
and operate positron emission tomography (PET) imaging centers, initially in the
New York area. CFC Partners also intends to assign all of its rights and
obligations in this joint venture to the Company.
4. LOAN RECEIVABLE
During the three months ended March 31, 2003, the Company made payments
totaling $27,500 to certain individuals who had previously loaned funds to CFC
Partners so that CFC Partners could purchase its majority interest in the
Company's common stock. Since any obligation to repay these individuals, one of
whom is a director of the Company, is the responsibility of CFC Partners and not
the Company, CFC Partners has agreed to repay this amount 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 non-operating expenses.
5. RESTRICTED ASSETS
As required by the terms of the option agreement with CFC Partners, the
Company deposited $331,434 (representing the tender 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, are restricted in that they may only be
used by the Company to pay dividends or make other distributions to the
preferred shareholders. At March 31, 2003 and December 31, 2002, these assets
consisted entirely of money market funds.
6. INCOME TAXES:
The Company follows the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Valuation allowances are established, if necessary, to
reduce the deferred income tax asset account to the amount that will more likely
than not be realized.
At March 31, 2003 and December 31, 2002, the Company's only deferred tax
assets consisted of (i) $67,995 and $2,038,000, respectively, arising from net
operating loss carry forwards and (ii) $4,457,000 arising from a capital loss
carry forward which results from the sale of the stock of Consumers Life. These
deferred tax assets have been fully offset by a valuation allowance. The
Company's deferred tax assets at March 31, 2003 do not include any net operating
losses generated by Consumers Life since that subsidiary was sold in June 2002
and its prior losses are no longer available to offset future taxable income of
the Company. At March 31, 2003 and December 31, 2002, the Company had no
material deferred tax liabilities.
No provision for income taxes has been made in the consolidated financial
statements because of the above referenced operating loss and capital loss carry
forwards, which have been fully offset by a valuation allowance.
Consumers Financial Corporation Page 8
Form 10-Q March 31, 2003
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
7. CONTINGENCIES:
Certain claims have been filed against the Company. In the opinion of
management, based on opinions of legal counsel, adequate reserves, if deemed
necessary, have been established for these matters, and their outcome will not
have a significant effect on the financial condition or future operating results
of the Company.
8. 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
(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. 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 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 trust account
for the benefit of the remaining preferred shareholders (see Note 5).
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
the first day of January, April, July and October. The dividends payable on
January 1 and April 1, 2003 have not been declared or paid by the Company. 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. If the Company is in default with respect to the
payment of preferred dividends and the aggregate amount of the deficiency is
equal to four quarterly dividends, the holders of the preferred stock shall be
entitled, only while such arrearage exists, to elect two additional members to
the then existing Board of Directors.
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
$739 and $4,444 in the first quarter of 2003 and 2002, respectively.
Consumers Financial Corporation Page 9
Form 10-Q March 31, 2003
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
9. PER SHARE INFORMATION:
THREE THREE
MONTHS MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
2003 2002
- -------------------------------------------------------------------------------
Net loss ($125,294) ($95,097)
Preferred stock dividend requirement (16,007) (96,180)
Accretion of carrying value of preferred stock (739) (4,444)
- -------------------------------------------------------------------------------
Numerator for basic loss per share - income
(loss) attributable to common shareholders (142,040) (195,721)
Effect of dilutive securities 0 0
- -------------------------------------------------------------------------------
Numerator for diluted loss per share ($142,040) ($195,721)
===============================================================================
Denominator for basic loss per share -
weighted average shares outstanding 5,276,781 2,576,781
Effect of dilutive securities 0 0
- -------------------------------------------------------------------------------
Denominator for diluted loss per share 5,276,781 2,576,781
- -------------------------------------------------------------------------------
Basic and diluted loss per common share ($0.03) ($0.08)
===============================================================================
Consumers Financial Corporation Page 10
Form 10-Q March 31, 2003
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
A review of the significant factors which affected the Company's financial
condition at March 31, 2003 and its results of operations for the three months
then ended is presented below. Information relating to the three months ended
March 31, 2002 is also presented for comparative purposes. This analysis should
be read in conjunction with the Consolidated Financial Statements and the
related Notes appearing elsewhere in this Form 10-Q and in the Company's 2002
Form 10-K.
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. This Form 10-Q may include
forward-looking statements which reflect the Company's current views with
respect to future events and financial performance. These forward-looking
statements are identified by their use of such terms and phrases as "intends",
"intend", "intended", "goal", "estimate", "estimates", "expects", "expect",
"expected", "project", "projected", "projections", "plans", "anticipates",
"anticipated", "should", "designed to", "foreseeable" future", "believe",
"believes" and "scheduled" and similar expressions. Readers are cautioned not to
place undue reliance on these forward-looking statements which speak only as of
the date the statement was made. The Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise.
OVERVIEW
At a 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 was the Company's only remaining
business operation. In connection with the sale of its in force credit insurance
business, the Company also sold its credit insurance customer accounts and one
of its life insurance subsidiaries. At the special meeting, the shareholders
also 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. Because the common
shareholders would not receive a distribution under the plan of liquidation and
dissolution, and the preferred shareholders would receive less than the full
liquidation value of their shares, the Board of Directors determined 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 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 which permitted CFC Partners to acquire a 51.2% interest in the
Company at $.04 per share. The option held by CFC Partners was exercisable
within 15 business days following the completion by the Company of a tender
offer to the preferred shareholders. The completion of this 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.
In July 2002, the Board of Directors approved a tender offer to the Company's
preferred shareholders at a price of $4.40 per share, and on July 19, 2002,
tender offer materials were mailed to the holders of the preferred stock. On
August 23, 2002, the Company purchased 377,288 shares of preferred stock, or
83.4% of the total preferred shares outstanding, from those shareholders who
elected to tender their shares.
Consumers Financial Corporation Page 11
Form 10-Q March 31, 2003
On August 28, 2002, the Board of Directors terminated the Plan of
Liquidation and authorized the issuance of 2,700,000 shares of common stock to
CFC Partners. Donald J. Hommel, the president of CFC Partners, was also
appointed as a Director of the Company to fill an existing vacancy on the Board.
Following such appointment, the Company's officers resigned 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.
On October 17, 2002, the Board of Directors appointed Shalom S. Maidenbaum,
Esq. as an additional 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.
As a result of the approval of the Plan of Liquidation, the Company adopted
a liquidation basis of accounting 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 in Note 2 of the notes to consolidated financial
statements appearing elsewhere in this Form 10-Q, the Company has restated its
liquidation-basis financial statements for prior periods to conform such
statements to the current presentation.
At March 31, 2003, the Company had no business operations; however, the
Company's new management is currently pursuing various business ventures. Their
initial focus is on joint ventures with or acquisitions of companies in the real
estate, construction management and medical technology businesses. As discussed
in Note 3 of the notes to consolidated financial statements appearing elsewhere
in this Form 10-Q, in April 2003, CFC Partners entered into two agreements to
acquire investment properties in Springfield and Chicago, Illinois. CFC Partners
intends to assign all of its rights and obligations under these agreements to
the Company. In addition, the Company is negotiating the acquisition of several
other investment properties as well as the purchase of another property for
residential development. The Company intends to manage all of its real estate
development and other real estate activities through its construction management
business and will selectively pursue the management of outside projects as well.
In addition, in April 2003, CFC Partners entered into a letter of intent to
purchase, develop and operate positron emission tomography (PET) imaging centers
in the New York area. CFC Partners intends to assign all of its rights and
obligations in this joint venture to the Company.
At March 31, 2003, the Company's shareholders' equity deficiency totaled
$322,518 compared to a shareholders' equity deficiency of $196,485 at December
31, 2002. For the three months ended March 31, 2003 and 2002, the Company's net
loss totaled $125,294 and $95,097, respectively.
RESULTS OF OPERATIONS
A discussion of the material factors which affected the Company's results
of operations for the three months ended March 31, 2003 and 2002 is presented
below.
THREE MONTHS ENDED MARCH 31, 2003
For the three months ended March 31, 2003, the Company reported a net loss
of $125,294 ($.03 per share) compared to a net loss of $95,097 ($.08 per share)
in the first quarter of 2002. Since the Company now has only a nominal amount of
revenues, the current year net loss is primarily the result of expenses incurred
while the Company is developing new businesses. During the first quarter of
2003, these costs consisted principally of salaries to two individuals, audit,
legal and consulting fees, insurance and a $27,500 provision for loss on a
receivable from the Company's majority shareholder.
Consumers Financial Corporation Page 12
Form 10-Q March 31, 2003
THREE MONTHS ENDED MARCH 31, 2002
The Company's net loss for the first quarter of 2002 was $95,097 ($.08 per
share). The Company's revenues for the period totaled $35,441, of which $19,638
was investment income. The Company's average invested assets during the quarter
were $2,660,000. The majority of these assets were distributed to the Company's
preferred shareholders in August 2002 in connection with a tender offer to those
shareholders. During the quarter, the Company incurred $43,616 in salaries and
related benefits as well as audit, legal and other professional fees of $39,844.
In addition to the net loss for the period, the Company also reported a loss of
$14,955 as a result of a reduction in the unrealized appreciation of certain
debt securities. This amount has been included in the calculation of
comprehensive loss for the three months ended March 31, 2002.
For the three months ended March 31, 2002, the excess of expenses over
revenues originally reported by the Company under the liquidation basis of
accounting is equal to the net loss reported in the accompanying consolidated
financial statements.
FINANCIAL CONDITION
CAPITAL RESOURCES
The Company currently has no 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.
For the three months ended March 31, 2003, the Company's cash and cash
equivalents decreased by $108,347 (from $165,758 at the beginning of the year to
$57,411 at March 31, 2003). The decrease is principally the result of the cash
expenses paid by the Company during the period and the $27,500 loan made to CFC
Partners, as discussed in Note 4 of the notes to consolidated financial
statements appearing elsewhere in this Form 10-Q.
LIQUIDITY
Historically, the Company's subsidiaries met most of their cash
requirements from funds generated from operations, while the Company generally
relied on its principal operating subsidiaries to provide it with sufficient
cash funds to maintain an adequate liquidity position. While the Company was in
liquidation, its principal sources of cash funds were investment income and
proceeds from the sales of non-liquid assets. 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 March 31, 2003, the Company had only $57,411 in cash and cash
equivalents. Furthermore, as of that date, the Company had no business
operations and no sources of operating revenues and cash flows. As indicated
above, the Company is currently pursuing various business opportunities,
including strategic alliances, as well as the merger or combination of existing
businesses with the Company. The Company's managements is initially focusing on
joint ventures with or acquisitions of companies in the real estate,
construction management and medical technology business segments. However, there
is no assurance that the Company's efforts in this regard will be successful.
Consumers Financial Corporation Page 13
Form 10-Q March 31, 2003
REDEEMABLE PREFERRED STOCK
As previously indicated, on August 23, 2002, the Company completed a tender
offer to all of its preferred shareholders, pursuant to which it purchased
377,288 shares (approximately 83.4% of the shares outstanding) at $4.40 per
share plus $47,445 in accrued dividends. The tender offer was completed in
conjunction with and was a condition to the exercise of the option 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 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, 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 trust account for the
benefit of the remaining preferred shareholders (see Note 5 of the notes to
consolidated financial statements appearing elsewhere in this Form 10-Q).
The January 1, 2003 and April 1, 2003 dividends payable on the Company's
redeemable preferred stock have not been declared or paid by the Company. 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. If the Company is in default with respect to the
payment of preferred dividends and the aggregate amount of the deficiency is
equal to four quarterly dividends, the holders of the preferred stock shall be
entitled, only while such arrearage exists, to elect two additional members to
the then existing Board of Directors.
Consumers Financial Corporation Page 14
Form 10-Q March 31, 2003
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The requirements for certain market risk disclosures are not applicable to
the Company because, at March 31, 2003 and December 31, 2002, the Company
qualifies as a "small business issuer" under Regulation S-B of the Federal
Securities Laws. A small business issuer is defined as any United States or
Canadian issuer with revenues or public float of less than $25 million.
ITEM 4. CONTROLS AND PROCEDURES
The Company has not conducted any business operations since 1997 and was in
the process of completing a plan of liquidation until August 2002, when CFC
Partners acquired a majority interest in the Company. As discussed in Item 2 of
this Form 10-Q, the Company's new management is pursuing various business
opportunities for the Company. However, at March 31, 2003, the Company did not
yet have any business operations. Further, for the three months ended March 31,
2003, the Company had a very limited number of transactions to record in its
financial records.
The Company's management is responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) for the Company. To the extent applicable to the Company's current
non-operating status, appropriate disclosure controls and procedures are in
place to ensure that material information relating to the Company is available
and provided to the Company's management, including its chief executive officer
and chief financial officer, particularly during the period in which the
Company's periodic reports on Form 10-K and 10-Q are being prepared. Management,
with the participation of the Company's chief executive officer and chief
financial officer, has evaluated the effectiveness of the design and operation
of the Company's disclosure controls and procedures as of a date within 90 days
prior to the filing date of this Form 10-Q and believes, as a result of that
evaluation, that such controls and procedures are effective in timely alerting
the chief executive officer and chief financial officer of material information
relating to the Company and required to be included in the Company's periodic
Securities and Exchange Commission filings.
The Company's chief executive officer and chief financial officer are not
aware of any significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record, process,
summarize and report financial data, nor are they aware of any fraud, whether or
not material, that involves management or other employees who have a significant
role in the Company's internal controls. Furthermore, there have not been any
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of the evaluation
referred to above.
There were no significant changes in the Company's internal controls or, to
the knowledge of the management of the Company, in other factors that could
significantly affect these controls subsequent to the evaluation date.
Consumers Financial Corporation Page 15
Form 10-Q March 31, 2003
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The registrant is not involved in any pending legal proceedings other than
routine litigation incidental to the conduct of its previous business.
ITEM 2. CHANGES IN SECURITIES
During the three months ended March 31, 2003, there have been no
limitations or qualifications, through charter documents, loan agreements or
otherwise, placed upon the holders of the registrant's common or preferred stock
to receive dividends, except as described in Item 3 below.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The January 1, 2003 and April 1, 2003 dividends payable on the Company's
redeemable preferred stock have not been declared or paid by the Company. The
amount of these dividends totals $32,014. 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. If the Company is in default with respect to the payment of
preferred dividends and the aggregate amount of the deficiency is equal to four
quarterly dividends, the holders of the preferred stock shall be entitled, only
while such arrearage exists, to elect two additional members to the then
existing Board of Directors.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a special meeting of shareholders held on January 9, 2003, the Company's
common shareholders were asked to vote upon a proposal to reinstate the voting
rights of the 2,700,000 shares of common stock of the Company owned by CFC
Partners. Under Pennsylvania law, the shares issued to CFC Partners were not
permitted to vote on any matters unless and until such voting rights were
restored by the holders of a majority of the outstanding common shares of the
Company, excluding the shares owned by CFC Partners. A total of 1,319,491 shares
(or 50.99% of the outstanding shares entitled to vote) voted in favor of the
proposal to reinstate the voting rights of the CFC Partners shares, 24,069
shares (.93%) voted against the proposal and 14,633 shares (.57%) voted to
abstain with respect to this proposal. As a result, the shares of common stock
held by CFC Partners now have full voting rights.
A second special meeting of shareholders was held on March 15, 2003, at
which time the Company's common shareholders were asked to approve proposals to
amend the Company's Articles of Incorporation to (i) effect a one-for-ten
reverse stock split, (ii) increase the Company's authorized shares to 50 million
and (iii) permit action upon the written consent of less than all shareholders
of the Company, pursuant to the Pennsylvania Business Corporation Law. The March
15 meeting will be reconvened on a date to be determined so that the Company can
comply with Regulation 14C of the Securities Exchange Act of 1934 as it relates
to the dissemination of information required by Schedule 14C.
ITEM 5. OTHER INFORMATION
None
Consumers Financial Corporation Page 16
Form 10-Q March 31, 2003
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Part I
------
(11) Statement re computation of per share earnings (iv)
(15) Letter re unaudited interim financial information (ii)
(18) Letter re change in accounting principles (ii)
(19) Report furnished to security holders (ii)
(23) Consents of accountants (ii)
Part II
-------
(2) Plan of acquisition, reorganization, arrangement, liquidation or
succession (i)
(3) Articles of incorporation and by-laws (i)
(4) Instruments defining the rights of security holders, including
indentures (i)
(10) Material contracts (ii)
(22) Published report regarding matters submitted to a vote of
security holders (ii)
(23) Consents of experts and counsel (excluding accountants) (ii)
(24) Power of attorney (ii)
(99.1) Certification of Chief Executive Officer (Section 906 of
Sarbanes-Oxley Act) (iii)
(99.2) Certification of Chief Financial Officer (Section 906 of
Sarbanes-Oxley Act) (iii)
(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-Q. Any exhibits to such information or document are not
included herein.
(iv) Information contained in consolidated financial statements
or related notes
(b) Reports on Form 8-K
On January 21, 2003, the Company filed a Form 8-K to report that the
common shareholders of the Company had voted in favor of a proposal to
reinstate the voting rights of the 2,700,000 shares of common stock of the
Company owned by CFC Partners. The special meeting of shareholders was held
on January 9, 2003.
Consumers Financial Corporation Page 17
Form 10-Q March 31, 2003
SIGNATURES
Pursuant to the requirements 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
---------------------------------
Registrant
Date May 20, 2003 By /S/ Donald J. Hommel
---------------------- -------------------------------------
Donald J. Hommel
President and Chief Executive Officer
Date May 20, 2003 By /S/ Donald J. Hommel
---------------------- -------------------------------------
Donald J. Hommel
Chief Financial Officer
Consumers Financial Corporation Page 18
Form 10-Q March 31, 2003
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Donald J. Hommel, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Consumers
Financial Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. In my capacity as Chief Executive Officer and Chief Financial Officer,
I am responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and I have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant is made known to me by
others, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report the conclusions about the
effectiveness of the disclosure controls and procedures based on an
evaluation as of the Evaluation Date;
5. In my capacity as Chief Executive Officer and Chief Financial Officer,
I have disclosed, based on the most recent evaluation, to the
registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and
6. In my capacity as Chief Executive Officer and Chief Financial Officer,
I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of
the most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date May 20, 2003 By /S/ Donald J. Hommel
---------------------- ---------------------------------
Chief Executive Officer
Consumers Financial Corporation Page 19
Form 10-Q March 31, 2003
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Donald J. Hommel, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Consumers
Financial Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. In my capacity as Chief Executive Officer and Chief Financial Officer,
I am responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and I have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant is made known to me by
others, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report the conclusions about the
effectiveness of the disclosure controls and procedures based on an
evaluation as of the Evaluation Date;
5. In my capacity as Chief Executive Officer and Chief Financial Officer,
I have disclosed, based on the most recent evaluation, to the
registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. In my capacity as Chief Executive Officer and Chief Financial Officer,
I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of
the most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date May 20, 2003 By /S/ Donald J. Hommel
---------------------- ---------------------------------
Chief Financial Officer
Consumers Financial Corporation Page 20
Form 10-Q March 31, 2003