lease that expired on December 31, 2003 and is now on a month-to month basis. The monthly rent for this space is $850 per month. Until December 31, 2002, the Company also leased approximately 1,100 square feet of warehouse space for the storage of its records. The monthly rent for this space was approximately $650. The Company terminated this lease as of December 31, 2002 and effective January 1, 2003, entered into a month-to-month lease for approximately 550 square feet at a monthly rent of $325. The Company's office and warehouse space are adequate for its current needs
The following table summarizes certain information contained in or derived from the Consolidated Financial Statements and the Notes thereto.
On August 28, 2002, the Board of Directors appointed Donald J. Hommel, the president of CFC Partners as a Director of the Company to fill an existing vacancy on the Board. Following such appointment, the Company's officers resigned as planned and the Board elected Mr. Hommel as the Company's President and Chief Executive Officer. In addition, James C. Robertson and John E. Groninger, who had been Directors of the Company for more than 30 years, also resigned as planned.
At December 31, 2003, Vaughn operated a garden-type apartment complex in Springfield, Illinois as its sole operation. The Company intends to acquire additional real estate operations exclusive of Vaughn and to establish majority-owned operating subsidiaries to accommodate these acquisitions in the future.
At December 31, 2003 the Company had no business operations and its revenue and expenses during the previous five years have been non-operating in nature.
At December 31, 2003 the Company's shareholders' deficiency totaled $577,952 as compared with a shareholders' deficiency of $196,485 at December 31, 2002.
Dividends to preferred shareholders totaled $0, $255,813 and $385,572 in 2003, 2002 and 2001, respectively.
The improved results in 2002 also reflect reductions in salaries and professional fees as compared with 2001. Partially offsetting the non-recurring revenues and the reductions in salaries and professional fees were (i) a decline in investment income of approximately $105,000 due to both a decrease in the Company's invested asset base coupled with a decline in short-term interest rates and, (ii) an increase in insurance costs of approximately $30,370 over 2001.
On September 10, 2003, the Company entered into an agreement with Hudson Valley Home Builders & Developers Corp. ("Hudson") pursuant to which Hudson would use its commercially reasonable efforts to introduce funding sources to provide the Company with financing to consummate real estate transactions. Hudson agreed to provide the Company with financing
Pursuant to the agreement, Hudson and its investors would be entitled to 60% of the equity of a deal, as well as a cash payment equal to 10% of the consideration received by the Company from Hudson and its investors. Upon financing a real estate deal, the Company would issue to Hudson and its investors, a warrant to purchase shares of the Company. The Company agreed to file a registration statement for the shares issued to Hudson and its investors within 24 months of issuance and granted them piggyback registration rights after 18 months. Either party has the right to terminate the agreement by written notice to the other. To date, no funds have been generated by Hudson.
During October, 2003, the Company entered into a term sheet with Dutchess Private Equities Fund II LP, an equity funding group ("Dutchess") to provide the Company with a $2,000,000 equity line of credit to be used for general corporate purposes. A formal agreement with Dutchess for this equity line was executed on April 15, 2004 and provides that the market price of the Company's stock for the 5 consecutive days prior to the put date can not be below 75% of the closing bid price for the 10 trading days prior to the put date. The put date is the date that the Company submits notice to the investor that it desires to draw down a portion of the line. The purchase price for the shares to be paid to the investor is discounted to the lowest closing bid price of the stock during the 5 trading days immediately after a put date. The funds will be available to the Company upon an effective registration of the Company's stock issued pursuant to this agreement.
As indicated above, the Company currently has no ability to pay any additional expenses until it either develops new revenue sources or obtains financing. Without new revenues and/or immediate financing, management's efforts to develop the Company's real estate, construction and medical technology businesses are not likely to succeed.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
On August 23, 2002, the Company completed a tender offer to all of its preferred shareholders, pursuant to which it purchased 377,288 shares representing 83.4% of the shares then outstanding, at $4.40 per share plus accrued dividends. The tender offer was completed in conjunction with and was a condition of the Option Agreement by CFC Partners. Since all of the Company's remaining assets would have been distributed to the preferred shareholders if the Company had been liquidated, the Board of Directors believed that the exercise of the option, and the related termination of the Plan of Liquidation, should not take place until the preferred shareholders had been given a chance to exchange their shares for cash.
The 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 $4,134 and $84,448 for the twelve months ended December 31, 2003 and 2002, respectively.
In December 2001, the Securities and Exchange Commission ("SEC") requested that all registrants list their critical accounting policies in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of their Form 10-K. The SEC defined a critical accounting policy as one that is important to the portrayal of the company's financial condition and results of operations and requires management's subjective or complex judgments. Accordingly, the Company has described its critical accounting policies below:
Periodically, management reviews the adequacy of its deferred tax valuation allowance. This review entails estimating: the Company's future taxable income through fiscal 2004. A reduction in the valuation allowance can result in a decrease in the Company's income tax expense. Conversely, an increase in the valuation allowance can lead the Company to report its income tax at a higher rate. Since future results may differ materially from those estimates, the Company's estimate of the amount of deferred tax assets that will be ultimately realized could differ materially.
The following table contains our selected unaudited consolidated quarterly financial data:
We believe that you should not rely upon period-to-period comparisons of our financial results as an indication of future performance. Our results of operations have been subject to significant fluctuations, particularly on a quarterly basis, and results of operations could fluctuate significantly quarter-to-quarter and year-to-year.
Consolidated Statements of Cash Flows for the the years ended December 31, 2003, 2002 and 2001