UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(as amended November 25, 2005)
| (MARK ONE) | | |
| | | |
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the fiscal quarter ended June 30, 2004
000-32745
Commission File Number
CONSUMER DIRECT OF AMERICA
(Exact name of Registrant as Specified in its Charter)
| | Nevada | | 88-0471353 | |
| | | | | |
| | (State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification Number) | |
6630 S. Sandhill Rd.
Las Vegas, Nevada 89107
(Address of Principal Executive Offices including Zip Code)
(702) 547-7300
(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:
State the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date
8,635,000 shares of Common Stock outstanding as of June 30, 2004
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 o
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 l0-QSB, or any amendment to this Form 10-QSB
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes o No x
| | CONSUMER DIRECT OF AMERICA | |
| | | |
| Item 1. | Consolidated Financial Statements | |
| | | |
| | | 3 |
| | | |
| | | 4 |
| | | |
| | | 5 |
| | | |
| | | 6 |
| | | |
| Item 2. | | 7 |
| | | |
| Item 3. | | 10 |
| | | |
| | PART II - OTHER INFORMATION | |
| | | |
| Item 1. | | 11 |
| | | |
| Item 4. | | 11 |
| | | |
| Item 6. | | 11 |
| | | |
| | 12 |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSUMER DIRECT OF AMERICA BALANCE SHEETS
| | | June 30, 2004 | | December 31, 2003 | |
| | | (unaudited) | | (audited) | |
| Assets | | | | | |
| Current assets: | | | | | |
| Cash and cash equivalents | | $ | -- | | $ | 2,589 | |
| Accounts receivable and receivables from loans sold, net | | | 136,848 | | | 650,507 | |
| Prepaid and other current assets | | | 301,980 | | | -- | |
| Total current assets | | | 438,828 | | | 614,096 | |
| Property and equipment, net | | | 1,244,605 | | | 1,560,567 | |
| | | | | | | | |
| Other assets: | | | | | | | |
| Goodwill | | | 1,871,361 | | | 1,871,361 | |
| Other assets, net | | | 712,829 | | | 111,294 | |
| Total other assets | | | 2,615,065 | | | 1,983,285 | |
| Total assets | | $ | 4,298,498 | | $ | 4,157,948 | |
| Liabilities and Stockholders' Deficit | | | | | | | |
| Current liabilities: | | | | | | | |
| Accounts payable and accrued expenses | | $ | 1,730,113 | | $ | 1,298,451 | |
| Bridge notes payable | | | 766,429 | | | 295,600 | |
| Interest payable | | | 73,559 | | | 52,683 | |
| Stock subscription payable | | | 16,414 | | | | |
| Notes payable | | | 38,500 | | | 58,500 | |
| Notes payable - related party | | | -- | | | -- | |
| Line of credit | | | -- | | | 29,669 | |
| Total current liabilities | | | 2,608,601 | | | 1,698,634 | |
| | | | | | | | |
| Long-term liabilities: | | | | | | | |
| Notes payable - stockholders, less current maturities | | | -- | | | -- | |
| Total long- term liabilities | | | -- | | | -- | |
| Total liabilities | | | 2,608,601 | | | 1,698,634 | |
| | | | | | | | |
| Stockholders' equity (deficit): | | | | | | | |
| | | | | | | | |
| Common stock, $0.001 par value, 100,000,000 shares authorized, 8,635,000 and 3,088,520 shares issued and outstanding at June 30, 2004 and December 31, 2003, respectively | | | 8,635 | | | 3,088 | |
| | | | | | | | |
| Preferred Stock, $0.01 par value, 15,000,000 shares authorized, -0- shares issued and outstanding at June 30, 2004 and December 30, 2004, respectively | | | -- | | | -- | |
| | | | | | | | |
| Additional paid-in capital - Common stock | | | 9,037,812 | | | 7,868,648 | |
| Treasury stock | | | (556,600 | ) | | -- | |
| Accumulated deficit | | | (6,799,950 | ) | | (5,412,422 | ) |
| Total stockholders' (deficit) | | | 1,689,897 | | | 2,459,314 | |
| Total liabilities and stockholders' (deficit) | | $ | 4,298,498 | | $ | 4,157,948 | |
The accompanying notes are an integral part of these financial statements
CONSUMER DIRECT OF AMERICA STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2004 AND 2003
| | | Three Months Ended | | Three Months Ended | | Six Months Ended | | Six Months Ended | |
| | | | | | | | | | |
| Revenues | | | | | | | | | |
| Loan origination and sale of mortgage loans | | $ | 1,132,585 | | $ | 2,320,158 | | $ | 2,185,379 | | $ | 5,030,676 | |
| Marketing revenues and commissions | | | -- | | | 300,707 | | | -- | | | 300,707 | |
| Licensing Agreements | | | | | | 378,878 | | | | | | 378,878 | |
| Rental income | | | 4,464 | | | (4,153 | ) | | 4,464 | | | (4,153 | ) |
| Total revenue | | | 1,137,049 | | | 2,995,590 | | | 2,189,843 | | | 5,706,108 | |
| | | | | | | | | | | | | | |
| Expenses | | | | | | | | | | | | | |
| Selling, general and administrative | | | 1,656,587 | | | 2,677,952 | | | 3,656,141 | | | 5,793,141 | |
| Depreciation expense | | | 166,963 | | | 151,884 | | | 333,941 | | | 298,673 | |
| Total expenses | | | 1,823,550 | | | 2,829,836 | | | 3,990,082 | | | 6,091,814 | |
| | | | | | | | | | | | | | |
| Loss from operations | | | (686,501 | ) | | 165,754 | | | (1,800,239 | ) | | (385,706 | ) |
| | | | | | | | | | | | | | |
| Other (expense) income | | | | | | | | | | | | | |
| Interest expense | | | (50,805 | ) | | (793 | ) | | (57,145 | ) | | (36,385 | ) |
| Debt discount expense | | | -- | | | -- | | | -- | | | -- | |
| Other income | | | -- | | | -- | | | 469,856 | | | -- | |
| Total other (expense) income | | | (50,805 | ) | | (793 | ) | | 412,711 | | | (36,385 | ) |
| | | | | | | | | | | | | | |
| Loss before minority shareholder interest | | | (737,306 | ) | | 164,961 | | | (1,387,528 | ) | | (422,091 | ) |
| | | | | | | | | | | | | | |
| Loss applicable to minority shareholder interest | | | -- | | | -- | | | -- | | | -- | |
| | | | | | | | | | | | | | |
| Net loss | | | (737,306 | ) | | 164,961 | | | (1,387,528 | ) | | (422,091 | ) |
| | | | | | | | | | | | | | |
| Dividends on preferred shares | | | -- | | | -- | | | -- | | | -- | |
| | | | | | | | | | | | | | |
| Net loss applicable to common shareholders | | $ | (737,306 | ) | $ | 164,961 | | $ | (1,387,528 | ) | $ | (422,091 | ) |
| | | | | | | | | | | | | | |
| Net loss per share, basic and diluted | | $ | (0.24 | ) | $ | 0.07 | | $ | (0.45 | ) | $ | (0.20 | ) |
| | | | | | | | | | | | | | |
| Net loss per common share, applicable to common shareholders, basic and diluted | | $ | (0.24 | ) | $ | 0.07 | | $ | (0.45 | ) | $ | (0.20 | ) |
| | | | | | | | | | | | | | |
| Weighted average number of common shares outstanding, basic and diluted | | | 3,088,529 | | | 2,436,304 | | | 3,088,529 | | | 2,081,165 | |
The accompanying notes are an integral part of these financial statements
CONSUMER DIRECT OF AMERICA STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
| | | Six Months Ended June 30, 2004 | | Six Months Ended June 30, 2003 | |
Cash flows from operating activities: | | | | | |
| Net (loss) | | $ | (1,387,528 | ) | $ | (422,091 | ) |
| | | | | | | | |
Adjustments to reconcile net loss from operations to net cash used in operations: | | | | | | | |
| Depreciation | | | 333,941 | | | 298,673 | |
Changes in operating assets and liabilities: | | | | | | | |
| (Increase) decrease in accounts receivable | | | 474,659 | | | 323,633 | |
| (Increase) decrease in prepaid expenses | | | -- | | | (30,871 | ) |
| (Increase) decrease in other assets | | | (866,583 | ) | | 18,157 | |
| Increase (decrease) in accounts payable and accrued expenses | | | 488,807 | | | (128,050 | ) |
| | | | | | | | |
| Net cash provided by (used in) operating activities | | | (956,704 | ) | | 59,451 | |
| | | | | | | | |
Cash flows from investing activities: | | | | | | | |
| | | | | | | | |
| Notes receivable | | | | | | ( 476,992 | ) |
| Purchase of fixed assets | | | (85,236 | ) | | (116,931 | ) |
| | | | | | | | |
| Net cash used in investing activities | | | (85,236 | ) | | (593,923 | ) |
| | | | | | | | |
Cash flows from financing activities: | | | | | | | |
| | | | | | | | |
| Net repayments on lines of credit | | | (29,669 | ) | | (29,669 | ) |
| Proceeds from bridge loans | | | 470,829 | | | -- | |
| Payments of notes payable | | | (20,000 | ) | | (286,718 | ) |
| Proceeds from notes payable | | | -- | | | 91,130 | |
| Purchase of treasury stock | | | (556,600 | ) | | -- | |
| Issuance of common stock | | | 5,547 | | | 13,795 | |
| Increase in additional paid in capital | | | 1,169,244 | | | 903,252 | |
| Dividends paid on preferred shares of subsidiary | | | -- | | | -- | |
| Net cash provided by financing activities | | | 1,039,351 | | | 691,790 | |
| | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | (2,589 | ) | | 157,318 | |
| | | | | | | | |
Cash and cash equivalents, beginning of period | | | 2,589 | | | 159,484 | |
| | | | | | | | |
Cash and cash equivalents, end of period | | | -- | | | 316,802 | |
| | | | | | | | |
Supplemental disclosure of cash flow information | | | | | | | |
| Interest paid | | | -- | | | 36,545 | |
The accompanying notes are an integral part of these financial statements
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2004
(1) | Basis of Presentation: |
The unaudited financial statements as of June 30, 2004 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, 2004 audited financial statements and notes thereto.
Since inception through June 30, 2004, the Company has suffered recurring losses from operations of approximately $6,799,950. Although a substantial portion of the Company’s cumulative net loss is attributable to non-cash operating expenses, management believes that it will need additional equity or debt financing to be able to sustain its operations until it can achieve profitability, if ever. These matters raise substantial doubt about the Company’s ability to continue as a going concern.
During the three months ended June 30, 2004, the Company issued 4,444,000 shares of common stock in conjunction with a $5,000,000 stock subscription and 1,103,000 shares of common stock in conjunction with the conversion of $1,450,600 in Bridge Notes.
During the three months ended June 30, 2004, the Company issued Bridge Financing Notes ("The Notes") to obtain $406,358 in additional financing. The loans were issued to assist the Company with its operating expenses. Company assets are being used as collateral to secure the notes. The note terms call for each promissory note to be repaid with 10% interest in cash.
On June 30, 2004, the Company issued 1,103,000 shares of common stock in conjunction with the conversion of $1,450,600 in Bridge Notes.
(4) | Litigation - Rescission of Asset Purchase Agreement |
During January 2004 the Company entered into an agreement to acquire certain stated assets and to assume certain stated liabilities of Consulting Services LLC., a Georgia corporation ("CSLLC") through a stock exchange to be effected pursuant to an Asset Acquisition Agreement. According to the Agreement, CSLLC should transfer to the Registrant (the Company) the stated assets and stated liabilities of CSLLC and the Registrant should issue to the two stockholders of CSLLC an aggregate of 4,764,427 shares of the common stock, par value $0.001, per share, of the Registrant. The amount of consideration was determined by arms-length negotiations between the Registrant and the stockholders of CSLLC.
These financial statements have been prepared by the Company, 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 accounting principles generally accepted in the United States of America have been omitted. Operating results for the three and six months ended June 30, 2004 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2004.
The unaudited interim consolidated financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the past fiscal year ended December 31, 2003, included in the Company’s Annual Report on Form 10-KSB.
Earnings per share have been calculated based upon the weighted average number of common shares outstanding during both reporting periods.
| Item 2. | 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
Consumer Direct of America (The "Company") is a direct-to-consumer mortgage broker and banker with revenues derived primarily from origination commissions earned on the closing of first and second mortgages on single-family residences ("mortgage loans" and "home equity loans"). The Company currently employs over 300 people, 150 of which are residential mortgage and/or real estate brokerage professionals. The Company has closed loan volume of over $800 million for the year ended December 31, 2003. The Company has acquired and intends to acquire other businesses in the direct-to consumer mortgage brokerage business and may acquire other businesses that are outside the direct-to-consumer mortgage brokerage business. The Company believes it has the infrastructure, systems, direct marketing call center support and operational management necessary to properly integrate more acquisitions in order to establish and support a national network.
Results of Operations
Three Months Ended June 30, 2004 Compared to Three Months Ended June 30, 2003
Net revenues from origination and/or sale of loans decreased 0.8% or $1.8 million, to $1,137,000 for the quarter ended June 30, 2004 from $2,995,000 for the quarter ended June 30, 2003. The decrease in revenues can be attributed to the discontinued operation of the acquisition of Las Vegas Mortgage.
Total operating expenses decreased $1,006,000 or 34% to $1,824,000 for the quarter ended June 30, 2004 from $2,678,000 for the quarter ended June 30, 2003. The decrease is related to expenses relating to the discontinued operation of the acquisition of Las Vegas Mortgage.
We had a net loss of $737,306 for the quarter ended June 30, 2004 compared to net income of $164,961 for the same quarter of 2003. The increase in the loss for the June 30, 2004 quarter was due to the reduction in revenues partially offset by the reduction in expenses associated with the discontinued operations of Las Vegas Mortgage.
Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003
Net revenues from origination and/or sale of loans decreased $3.5 million, to $2.2 million for the six months ended June 30, 2004 from $5.7 million for the six months ended June 30, 2004. The decrease resulted primarily from discontinued operations associated with the acquisition of Las Vegas Mortgage and its net branch system.
Total operating expenses decreased $2.1 million to $4.0 million for the six months ended June 30, 2004 from $6.1 million for the six months ended June 30, 2003. The increase is related to expenses relating to the Company’s discontinued operations of its acquisition of Las Vegas Mortgage.
We had a net loss of $1,387,528 for the six months ended June 30, 2004 compared to net loss of $422,091 for the six months ended June 30, 2003. The increase in the loss for the June 30, 2004 period was to the reduction in revenues partially offset by the reduction in expenses associated with the discontinued operations of Las Vegas Mortgage.
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Liquidity and Capital Resources
The Company's sources of cash flow include cash commissions from the brokerage of mortgages, 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.
Historically we have funded operations through a combination of borrowings and issuance of stock. We currently intend to retain our earnings for the foreseeable future to help increase our liquidity. Management continues to explore investment alternatives to aid in its liquidity, but there can be no reliance made on such.
The Company believes that its existing cash and cash equivalents as of June 30, 2004 will be sufficient to fund its operating activities, capital expenditures and other obligations for the next twelve months. However, if during that period or thereafter the Company is not successful in generating sufficient cash flow from operations, or in raising additional funds when required in sufficient amounts and on terms acceptable to the Company, it could have a material adverse effect on the Company's business, results of operations and financial condition. If additional funds are raised through the issuance of equity securities, the percentage ownership of its then-current stockholders would be reduced.
Cash Flows
During the first six months of fiscal 2004 and 2003 we had net cash (used in) provided by operating activities of $(956,704) and $59,451 million, respectively. The primary sources of net cash used in were a decrease in other current assets and the net loss, for the month period ending June 30, 2004. The primary sources of net cash provided by was a increase in accounts receivable.
Net cash used for investing activities during the first six months of fiscal 2004 was $85,236, which was attributable to the purchase of property and equipment. Net cash used for investing activities during the first six months of fiscal 2003 was payment of notes receivable of $476,992 and $116,931 attributable to the purchase of property and equipment.
Net cash provided by financing activities for the six months ended June 30, 2004 was $1.0 million. This consisted primarily of an increase in additional paid in capital of $1.2 million. Net cash provided by financing activities for the six months ended June 30, 2003 was $691,790. This consisted primarily of an increase in additional paid in capital of $903,252.
Regulatory Trends
The regulatory environments in which we operate have an impact on the activities in which we may engage, how the activities may be carried out and the profitability of those activities. Therefore, changes to laws, regulations or regulatory policies can affect whether and to what extent we are able to operate profitably. For example, proposed state and federal legislation targeted at predatory lending could have the unintended consequence of raising the cost or otherwise reducing the availability of mortgage credit for those potential borrowers with less than prime-quality credit histories, thereby resulting in a reduction of otherwise legitimate sub-prime lending opportunities.
Forward-Looking Statements
Statements contained in this Form 10-QSB/A that are not historical facts are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In addition, words such as “believes,” “anticipates,” “expects” and similar expressions are intended to identify forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements or events, or timing of events, to differ materially from any future results, performance or achievements or events, or timing of events, expressed or implied by such forward-looking statements. We cannot assure that we will be able to anticipate or respond timely to the changes that could adversely affect our operating results in one or more fiscal quarters. Results of operations in any past period should not be considered indicative of results to be expected in future periods. Fluctuations in operating results may result in fluctuations in the price of our securities.
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
In the event we need to raise additional financing, there can be no assurance that any such financing will be available on acceptable terms. If such financing is not available on satisfactory terms, we may be unable to expand or continue our business as desired and operating results may be adversely affected. Debt financing will increase expenses and must be repaid regardless of operating results. Equity financing could result in dilution to existing stockholders. Some of the more prominent known risks and uncertainties of our business are set forth below. However, this section does not discuss all possible risks and uncertainties to which we are is subject, nor can it be assumed that there are not other risks and uncertainties which may be more significant.
While We Achieved a Profitable Quarter 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 June 30, 2002, we have an accumulated deficit of $6.8 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 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.
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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.
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.
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.
PART II - OTHER INFORMATION
In the normal course of business, the Company is involved in various legal actions. It is the opinion of management that none of these legal actions will have a material effect on the financial position or results of operations of the Company.
| Submission of Matters to a Vote of Security Holders |
None.
| Exhibits and Reports on Form 8-K |
INDEX OF EXHIBITS
Description of Exhibit | | Exhibit No. |
| | | |
| 302 Certifications | | 31 |
| (i) Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | |
| (ii) Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | |
| 906 Certifications | | 32 |
| (i) Certificate of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.** | | |
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | CONSUMER DIRECT OF AMERICA | |
| | | | | | |
| Date: | November 25, 2005 | | | | |
| | | | By: | /s/ Michael A. Barron | |
| | | | | Michael A. Barron | |
| | | | | Chief Executive Officer | |
| | | | | | |
| Date: | November 25, 2005 | | | | |
| | | | By: | /s/ Lee Shorey | |
| | | | | Lee Shorey | |
| | | | | Chief Financial Officer (Principal Accounting Officer) | |
12
