UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
COMMISSION FILE NUMBER: 0-2616
CONSUMERS FINANCIAL CORPORATION
1200 CAMP HILL BY-PASS
CAMP HILL, PA 17011
PENNSYLVANIA 23-1666392
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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 XX 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 April 30, 2000
$.01 Stated Value 2,578,295 shares
INDEX
PAGE
PART I. FINANCIAL INFORMATION NUMBER
Item 1. Financial Statements:
Consolidated Statements of Net Assets in Liquidation - 3
March 31, 2000 and December 31, 1999
Consolidated Statements of Changes in
Net Assets in Liquidation - For the Three
Months Ended March 31, 2000 and 1999 4
Notes to Consolidated Financial Statements 5 - 9
Item 2. Management s Discussion and Analysis of Financial Condition
and Results of Operations 10 - 14
Item 3. Quantitative and Qualitative Disclosure About Market Risk 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 16 - 17
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF NET ASSETS IN LIQUIDATION
<TABLE>
<CAPTION> MARCH 31,
2000 December 31,
(in thousands) (UNAUDITED) 1999
<S> <C> <C>
Assets
Investments:
Fixed maturities $901 $896
Mortgage loans on real estate 1,544 1,552
Short-term investments 1,081 1,146
Total investments 3,526 3,594
Cash 170 274
Accrued investment income 30 19
Reinsurance recoverable 10,956 11,404
Other receivables 502 484
Prepaid reinsurance premiums 23,242 27,644
Property and equipment 1,168 1,179
Other assets 152 150
Total assets 39,746 44,748
Liabilities and Redeemable Preferred Stock
Liabilities:
Future policy benefits 8,850 9,078
Unearned premiums 23,242 27,644
Other policy claims and benefits payable 2,145 2,365
Other liabilities 1,324 1,329
35,561 40,416
Redeemable preferred stock:
Series A, 8 1/2% cumulative convertible, authorized 632,500
shares; issued and outstanding 2000, 461,461 shares;
1999, 463, 461 shares; net of $430 reduction in 2000
and $303 in 1999 to reflect estimated liquidation value 4,185 4,332
Total liabilities and redeemable preferred stock 39,746 44,748
Net assets in liquidation $0 $0
</TABLE>
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>(in thousands) 2000 1999
<S> <C> <C>
Revenues:
Earned premiums $111
Net investment income $69 74
Net fees from sale of customer accounts 54 78
Joint venture income 7 41
Miscellaneous 31 31
161 335
Benefits and expenses:
Policyholder benefits 117
Rent and related costs 13 60
Salaries, wages and employee benefits 77 92
Professional fees 60 62
Taxes, licenses and fees 21 24
Miscellaneous 74 50
245 405
Excess of benefits and expenses over revenues (84) (70)
Adjustment of liabilities to estimated settlement amounts 37 11
Change in unrealized appreciation of debt securities 4 (12)
Preferred stock dividends (98) (102)
Adjustment of preferred stock to estimated realizable value 127
Retirement of treasury shares - preferred 14
Decrease in net assets for the period 0 (173)
Net assets at beginning of period 0 383
Net assets at end of period $0 $210
</TABLE>
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
(IN PROCESS OF LIQUIDATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
1. OVERVIEW AND BASIS OF ACCOUNTING:
The operating losses incurred by the Company from 1993 to 1997 significantly
reduced its net worth and liquidity position. As a result, in late 1997, the
Company signed an agreement to sell its core credit insurance and related
products business, which had been its only remaining business operation,
following the sales in 1994 and 1997 of all of its universal life insurance
business and the 1996 sale of its auto auction business. Settlement on the
sale of the credit insurance business took place in May 1999. The Company s
income or loss from operations now consists principally of (i) fee revenues
received from Life of the South Corporation (LOTS), a Georgia-based
financial services holding company which acquired the Company s credit
insurance customer accounts, (ii) investment income on remaining assets, and
(iii) corporate expenses.
On March 24, 1999, the Company s shareholders approved a Plan of Liquidation
and Dissolution, as discussed in Note 2 below. Accordingly, the Company
adopted a liquidation basis of accounting for periods subsequent to March
24, 1998. Under the liquidation basis of accounting, assets are stated at
their estimated net realizable values and liabilities are stated at their
anticipated settlement amounts. Prior to March 25, 1998, the Company
reported the results of its operations and its asset and liability amounts
using accounting principles applicable to going concern entities.
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 consolidated net
assets in liquidation as of March 31, 2000 and the consolidated changes in
its net assets for the three months ended March 31, 2000 and 1999. Certain
prior year amounts have been reclassified to conform with classifications
used for 2000.
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 1999 Form 10-K.
The changes in net assets for the three months ended March 31, 2000 are not
necessarily indicative of the changes to be expected for the full year.
2. DISCONTINUED OPERATIONS AND PLAN OF LIQUIDATION:
On December 30, 1997, the Company entered into agreements with LOTS and
American Republic Insurance Company (American Republic), pursuant to which
the Company (i) sold its credit insurance and fee income accounts to LOTS
effective October 1, 1997, (ii) sold its September 30, 1997 inforce block of
credit insurance business to American Republic, LOTS financial partner in
the transaction, effective January 1, 1998 and (iii) sold one of its wholly-
owned reinsurance subsidiaries to LOTS as of August 31, 1998. LOTS and the
Company also agreed that, with respect to the Company s principal insurance
subsidiary, new credit insurance business produced by that subsidiary s
former customer accounts, which were transferred to LOTS, would continue to
be written on the policy or certificate forms of the subsidiary until
September 30, 1999 (November 15, 1999 with respect to Pennsylvania
premiums). These premiums and the related insurance risk were also reinsured
100% to American Republic.
The sale of the inforce block of business referred to in (ii) above was
completed in May 1998 after the required approvals of the Company s
preferred and common shareholders and state insurance regulators in the
states of Delaware and Ohio were received. Settlement on the sale of the
reinsurance subsidiary referred to in (iii) above occurred in September
1998.
In addition to approving the sale of the inforce credit insurance business,
at the Special Meeting of Shareholders held on March 24, 1999, the Company s
shareholders also approved a Plan of Liquidation and Dissolution, pursuant
to which the Company is now liquidating its remaining assets and providing
for all of its liabilities. The Company eventually intends to make a cash
distribution to its preferred shareholders and ultimately distribute its
remaining cash, if any, to its common shareholders. Pursuant to the terms
of its agreement with LOTS, the Company will continue receiving payments
from LOTS from the sale of the Company s customer accounts until September
30, 2002. In 2002, the Company may also receive a payment from a contingency
fund established by the parties. The allocation of the contingency fund
balance between the Company and LOTS will be based on the claims experience
on the inforce credit insurance business from October 1, 1997 to September
30, 2002. As a result, the distribution, if any, to the Company s common
shareholders will not be made until late in 2002 when all amounts due from
LOTS have been received.
The Company has made substantial personnel reductions during the past
several years as a result of the discontinuation of its various businesses.
As of May 12, 2000, three people were employed on a full-time basis by the
Company.
3. INCOME TAXES:
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax liabilities and assets are as
follows (in 000's):
<TABLE>
<CAPTION> March 31, December 31,
2000 1999
<S> <C> <C>
Deferred tax assets:
Future policy benefits $60
Net operating loss carryforwards $1,153 2,300
Other 193 303
1,346 2,663
Valuation allowance for deferred tax assets (1,346) (2,663)
0 0
Deferred tax liabilities 0 0
Net deferred tax asset $0 $0
</TABLE>
4. COMMITMENTS AND CONTINGENCIES:
In 1989, the Company entered into an agreement for the lease of
approximately 44,500 square feet of office space. The term of the lease was
ten years with an option to renew for one additional term of five years.
Until March 1994, monthly lease payments were $35,000. In March 1994, the
Company exercised its option to acquire a 50% interest in this property at a
price of $1,750,000. The Company continued to lease the portion of the
building it did not own, but at a monthly rent of $17,000, through July
1999, when its lease expired. The Company also leased a portion of the
unused office space to various third party tenants. Income from these leases
totaled $12,000 in the first quarter of 2000 and $61,000 for the same period
in 1999. The building lease was classified as an operating lease. The
Company has no other significant leases.
In connection with the cancellation of a joint venture agreement in 1996,
the Company agreed to pay its former joint venture partner a pro rata share
of the proceeds it receives from the sale of its credit insurance accounts.
Accordingly, over the next two and one-half years, the Company will pay its
former partner approximately 19% of any gross fee revenues received from
LOTS for the sale of its customer accounts.
Reinsured risks would give rise to liability to the insurance subsidiaries
only in the event that the reinsuring company is unable to meet its
obligations under the reinsurance agreements in force.
In November 1997, the Company and a third party reinsurer were sued by a
former general agency with whom the Company had a partnership agreement. The
partnership agreement provided that the agency would market universal life
insurance business for the Company, pursuant to specific criteria
established by the Company, and would also be entitled to a share of the
profits, if any, which arose from the business produced. The claimant is
seeking monetary damages to compensate it for the Company s alleged failure
to share profits and for other alleged losses resulting from the Company s
rejection of policy applications involving unacceptable risks. While
management believes this claim is completely without merit and intends to
vigorously defend itself in this matter, the ultimate outcome of this claim
cannot be determined at this time. The Company has filed two counterclaims
against this agency seeking damages for losses the Company sustained as a
result of the agency s alleged breach of the partnership agreement and to
recover an unpaid loan made to the agency.
During 1999, a dispute arose between the Company and LOTS relating to the
payment of investment income on the assets which were transferred to LOTS in
connection with the sale of the inforce credit insurance business.
Subsequent to the closing of the transaction, LOTS claimed that the Company
owes it approximately $1,400,000 for investment earnings on the amount
transferred from the period from October 1, 1997, the effective date of the
agreement, to May 13, 1998, the date of settlement on the sale transaction.
In October 1999, LOTS informed the Company that it would begin withholding
from the Company the fee income payments which are contractually due to the
Company from the sale of the credit insurance accounts. As of March 31,
2000, net fee income totaling $191,000 has been withheld by LOTS. At
December 31, 1999, $137,000 had been withheld. The withheld amounts have
been included with Other Receivables on the Consolidated Statements of Net
Assets in Liquidation. The Company believes LOTS claim for investment
income is without merit and intends to take all actions necessary to collect
the fee income amounts to which it is contractually entitled. As required by
the agreements entered into by the parties, this matter will be settled
through arbitration. The ultimate outcome of this dispute cannot be
determined at this time.
Certain claims, suits and complaints arising in the ordinary course of
business have been filed or are pending against the Company or its
subsidiaries. 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 result in a significant effect on
the financial condition or future operating results of the Company or its
subsidiaries. The Company has taken certain income tax positions in previous
years that it believes are appropriate. If such positions were to be
successfully challenged by the Internal Revenue Service, the Company could
incur additional income taxes as well as interest and penalties. Management
believes that the ultimate outcome of any such challenges will not have a
material effect on the Company s financial statements.
5. REDEEMABLE PREFERRED STOCK:
The terms of the Company s 8.5% redeemable preferred stock require the
Company to make annual payments to a sinking fund. The first such payment
was due in July 1998. The preferred stock terms also provide that any
purchase of preferred shares by the Company will reduce the sinking fund
requirements by the redemption value of the shares acquired. As a result of
the Company s purchases of preferred stock prior to 1998, no sinking fund
payment was due in 1998, and the required payment due for 1999 was reduced
from $550,000 to $414,610. The purchase of 18,000 preferred shares in 1999
and 2,000 shares in the first quarter of 2000 further reduced the sinking
fund deficiency to $214,610 at March 31, 2000. As a result of the Company s
inability to make the sinking fund payment, it may not pay any dividends to
common shareholders and may not purchase, redeem or otherwise acquire any
common shares.
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 net assets
liquidation at March 31, 2000 and the changes in its net assets in
liquidation for the three months then ended is presented below. Information
relating to 1999 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 1999
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 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 was 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. At the Special Meeting, the shareholders
also approved a Plan of Liquidation and Dissolution, pursuant to which the
Company is now liquidating its remaining assets so that it can pay or provide
for all of its liabilities, distribute cash to its preferred shareholders, up
to the liquidation preference of those shares, and distribute the remaining
cash, if any, to its common shareholders.
The agreement with the purchaser of the credit insurance operations provides
that the proceeds from the sale of the customer accounts are to be received as
fee income on a quarterly basis until September 2002, based on the amount of
credit insurance premiums produced by those accounts. However, as discussed in
Note 4 of the Notes to Consolidated Financial Statements appearing elsewhere in
this Form 10-Q, a dispute arose during 1999 between the Company and the
purchaser regarding the payment of investment income on the assets which were
transferred to the purchaser in connection with the sale of the inforce credit
insurance business. Until the dispute is resolved, the purchaser is withholding
the above-referenced fee income from the Company to offset the investment
income it believes it is due. At March 31, 2000, $191,000 of net fee income
was being held by the purchaser. As required by the agreements between the
parties, this matter will be settled through arbitration.
The Company may also receive a payment from a contingency fund established
by the Company and the purchaser based on the claims experience of the inforce
credit insurance business from October 1, 1997 to September 30, 2002. However,
based on the claims experience to date, as provided by the purchaser, the
Company would not be entitled to any portion of the contingency fund. Because
of the fee income payments and the potential payment from the contingency fund,
the distribution, if any, to the Company s common shareholders will not be made
until late in 2002, when all amounts due from the purchaser have been received.
As a result of the approval of the Plan of Liquidation, the Company adopted
a liquidation basis of accounting in its financial statements for periods
subsequent to March 24, 1998. Under liquidation accounting rules, assets are
stated at their estimated net realizable values and liabilities are stated at
their anticipated settlement amounts. Prior to March 25, 1998, the Company
reported the results of its operations and its asset and liability amounts
using accounting principles applicable to going concern entities.
The Company s net assets in liquidation remained at zero at March 31, 2000,
since the reductions for the period, which primarily arose from an excess of
benefits and expenses over revenues of $84,000 and preferred stock dividends of
$98,000, were offset by a corresponding reduction in the estimated liquidation
value of the preferred stock. The reduction in the carrying value of the
preferred stock totaled $127,000 for the quarter. In the first quarter of
1999, the Company s net assets in liquidation declined from $383,000 to
$210,000 due to an excess of benefits and expenses over revenues of $70,000
and preferred dividends totaling $102,000.
RESULTS OF OPERATIONS AND CHANGES IN NET ASSETS
As a result of the sale of its remaining business and the adoption of the
Plan of Liquidation, the Company s income and expenses now consist principally
of (i) fee income from the sale of the Company s customer accounts, (ii)
investment income on existing assets and (iii) corporate expenses, primarily
salaries and professional fees. A discussion of the material factors which
affected the changes in the Company s net assets in liquidation for the three
months ended March 31, 2000 and 1999 is presented below.
For the three months ended March 31, 2000 and 1999, the Company s benefits
and expenses exceeded its revenues by $84,000 and $70,000, respectively.
Investment income declined slightly from $74,000 in 1999 to $69,000 in the
current year due to a reduction in invested assets. Fee income from the sale of
the credit insurance customer accounts also decreased from $78,000 to $54,000,
principally because of the purchaser s cancellation of certain unprofitable
accounts during 1999. These revenue reductions were more than offset by lower
personnel costs and lower rent and related costs in the first quarter of 2000.
The decrease in rental costs, which totaled $13,000 in 2000 compared to $60,000
in 1999, is the result of the expiration of the lease on the Company s home
office building in July 1999. The Company owns a one-half interest in the
building, and, from 1994 to 1999, it leased the portion of the building it did
not own. The home office building is now under contract to be sold on June 1,
2000. After the building is sold, the Company intends to rent a minimal amount
of office space elsewhere under a short-term lease arrangement.
In addition to the reductions in net assets arising from the excess of
benefits and expenses over revenues, net assets in liquidation also decreased
during both periods as a result of preferred shareholder dividends, which
totaled $98,000 in the first quarter of 2000 and $102,000 for the same period
in 1999.
<PAGE>
Although no adjustment was made during the first quarter of
2000 to the liability for the Company's underfunded pension plan, management
continues to monitor changes in long-term interest rates to determine if the
current estimate should be revised. The amount of the ultimate pension
liability, and consequently the need for any increase or decrease in the
liability, is dependent on a number of factors, the most important of which is
the prescribed interest rate which is in effect at the time the plan is
terminated.
Due to the continuing reduction in its net assets during the first three
months of 2000, the Company reduced the March 31, 2000 liquidation value of its
preferred stock from $4,332,000 ($9.35 per share) to $4,185,000 ($9.07 per
share).
ESTIMATED NET EXPENSES AND OTHER CHANGES IN NET ASSETS
DURING LIQUIDATION PERIOD
As explained above, the liquidation of the Company is expected to continue
until late in 2002 when all fee payments and the potential distribution from
the contingency fund are received. Until that time, certain corporate expenses
will continue to be incurred and investment income will continue to earn on
existing invested funds. In addition, dividends will continue to be payable
to the preferred shareholders until those shares are liquidated. The Board of
Directors may determine during the period that the amount of funds available
for ultimate distribution to shareholders would be increased by transferring
all of the Company's remaining net assets into a liquidating trust, in which
case the trustees of such trust would be responsible for completing the
liquidation of the remaining assets, paying all liabilities and making any
distributions to the preferred and common shareholders.
Based on management's estimates, which exclude the potential savings, if
any, from the use of a liquidating trust, the Company believes that its future
operating expenses and other changes in net assets, including preferred stock
dividends, will exceed fee income and other revenues during the remainder of
the liquidation period by approximately $600,000 to $700,000. Actual revenues
and expenses and other net asset changes could vary significantly from the
present estimates due to the uncertainties regarding (i) when certain assets
will be liquidated, (ii) when the distribution to the preferred shareholders
occurs, (iii) the outcome of the investment income dispute discussed
earlier, (iv) the level of actual expenses which will be incurred, (v) the
ultimate pension plan liability and (vi) the ultimate resolution of any future
contingencies which may arise.
FINANCIAL CONDITION
CAPITAL RESOURCES
Given its plans to liquidate and eventually dissolve, the Company has made
no commitments for capital expenditures and does not intend to make any such
commitments in the future. For the three months ended March 31, 2000, the
Company s cash and invested assets decreased by $172,000, from $3,868,000 at
the beginning of the year to $3,696,000 at March 31, 2000. The decline is
primarily attributable to the payment of $98,000 in preferred dividends and
the excess of expenses over revenues for the period. Invested assets at
March 31, 2000 and December 31, 1999 consisted principally of (i) U.S.
Treasury Notes, owned by the Company s insurance subsidiary, which are on
deposit with numerous state insurance departments in connection with licensing
requirements, (ii) three mortgage loans secured by commercial real estate,
including one loan granted to the co-owner of the Company s home office
building and secured by the co-owner s one-half interest in the building and
(iii) short-term investments, principally money market funds. The mortgage
loan granted to the co-owner of the Company s home office building, which had
a principal balance at March 31, 2000 of $1,176,000, will be repaid in full
on June 1, 2000, the expected closing date for the sale of the building. A
second loan, with a balance of $295,000 on March 31, 2000, will also be repaid
on or about June 30, 2000 when the mortgaged property is expected to be sold.
LIQUIDITY
The Company s subsidiaries have historically met most of their cash
requirements from funds generated from operations, while the Company has
generally relied on its principal operating subsidiaries to provide it with
sufficient cash funds to maintain an adequate liquidity position. As a result
of the Company s decision to sell its remaining operations, liquidate all of
its net assets and distribute cash to its shareholders, the Company s principal
sources of cash funds are the fee income discussed earlier, investment income
on existing assets and proceeds from the sale of non liquid assets. These funds
must be used to settle all remaining liabilities as they become due, to pay
operating expenses until the Company is dissolved and to pay dividends on the
preferred stock until a final distribution is made to the preferred
shareholders. The adequacy of the Company s liquidity position in the future
will be principally dependent on its ability to sell its home office building
and other non liquid assets and the timing of such sales, as well as on the
outcome of the investment income dispute referred to above and the level of
operating expenses the Company must incur during the liquidation period. The
Company s liquidity position is also dependent on its ability to sell its
wholly-owned subsidiary, Consumers Life Insurance Company, in that dividends
and other distributions to the Company from that subsidiary are limited by
state insurance laws. As a result of its operating losses in recent years,
Consumers Life is not permitted to make any distributions to the Company
without the approval of the Delaware Insurance Department.
SINKING FUND FOR REDEEMABLE PREFERRED STOCK
The terms of the Company s 8.5% redeemable preferred stock require the
Company to make annual payments to a sinking fund. The first such payment was
due in July 1998. The preferred stock terms also provide that any purchase of
preferred shares by the Company will reduce the sinking fund requirements by
the redemption value of the shares acquired. As a result of the Company s
purchases of preferred stock prior to 1998, no sinking fund payment was due in
1998, and the required payment due for 1999 was reduced from $550,000 to
$414,610. The purchase of 18,000 preferred shares in 1999 and 2,000 shares in
the first quarter of 2000 further reduced the sinking fund deficiency to
$214,610 at March 31, 2000. As a result of the Company s inability to make the
sinking fund payment, it may not pay any dividends to common shareholders and
may not purchase, redeem or otherwise acquire any common shares.
INFLATION
Because of the Company s current plans to liquidate its assets, pay all of
its liabilities, distribute any remaining cash to its shareholders and
ultimately dissolve within the next three years, the effects of inflation
on the Company s operations are minimal.
YEAR 2000 COMPLIANCE
Because the Company is no longer conducting any business operations and is
in the process of liquidating its remaining assets, it is relying, both
directly and indirectly, on fewer computer systems than in the past to maintain
all of its financial and other records and to file all required financial
reports with state insurance departments and other regulators. In fulfilling
its continuing, although limited, responsibilities, the Company directly
utilizes only three computer systems, one for its general ledger accounting,
one for the preparation of prescribed regulatory reports to state insurance
departments and one for maintenance of its shareholder records (since the
Company continues to perform its own stock transfer agent functions).
Prior to December 31, 1999, the Company received written assurances from
software vendors that their respective systems were tested and would operate
problem free during and after the year 2000. The Company also obtained a year
2000 certification from the purchaser of its credit insurance business (since
it continues to receive certain financial reports from that company) stating
that all of its hardware and software systems were tested and were year 2000
compliant.
As of May 12, 2000, the Company has had no significant year 2000 computer
software problems. Based upon the information outlined above, management does
not believe that its very limited operations will be adversely impacted by any
year 2000 computer problems during the remainder of 2000.
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, 2000 and December 31, 1999, 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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Except for the matters discussed in Note 4 of the Notes to Consolidated
Financial Statements included elsewhere in this Form 10-Q, neither the
registrant nor its subsidiaries are involved in any pending legal
proceedings other than routine litigation incidental to the normal
conduct of its business nor have any such proceedings been terminated
during the three months ended March 31, 2000.
ITEM 2. CHANGES IN SECURITIES
During the three months ended March 31, 2000, 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.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The registrant has not defaulted in the payment of principal, interest
or in any other manner on any indebtedness and is current with all its
accounts. There is no arrearage in the payment of dividends on the
registrant's preferred stock. See Note 5 of the Notes to Consolidated
Financial Statements appearing elsewhere in this Form 10-Q for
information regarding the deficiency in the sinking fund for the
Company s redeemable preferred stock.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the stockholders of the
registrant during the three months ended March 31, 2000.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
(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)
(11) Statement re computation of per share earnings (ii)
(15) Letter re unaudited interim financial information (ii)
(18) Letter re change in accounting principles (ii)
(19) Report furnished to security holders (ii)
(22) Published report regarding matters submitted to a vote of
security holders (ii)
(23) Consents of experts and counsel (ii)
(24) Power of attorney (ii)
(27) Financial data schedule (iii)
(99) Additional exhibits (ii)
(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.
(b) No reports on Form 8-K were filed by the Company during the three
months ended March 31, 2000.
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 15, 2000 By /S/
James C. Robertson, President
(Chief Executive Officer)
Date May 15, 2000 By /S/
R. Fredric Zullinger
Senior Vice President,
Chief Financial Officer
and Treasurer
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<PERIOD-TYPE> 3-MOS 3-MOS YEAR
<FISCAL-YEAR-END> MAR-31-2000 MAR-31-1999 DEC-31-1999
<PERIOD-END> MAR-31-2000 MAR-31-1999 DEC-31-1999
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<UNDERWRITING-OTHER> 244,547 288,368 929,139
<INCOME-PRETAX> (83,362) (70,419) (251,749)
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