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 APRIL 30, 2004
COMMISSION FILE NUMBER 0-23410
CROWN FINANCIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
| NEW JERSEY | 13-1924455 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
525 Washington Boulevard, Jersey City, NJ 07310
(Address of principal executive offices and zip code)
Registrant’s telephone number, including area code: (201) 459-9500
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2) Yes ¨ No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
At June 10, 2004, the number of shares outstanding of the Registrant’s Common Stock was 13,157,570.
FORM 10-Q QUARTERLY REPORT
For the Three Months Ended April 30, 2004
TABLE OF CONTENTS
| Page | ||||
| Item 1. |
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| 3 | ||||
| 4 | ||||
| 5 | ||||
| 6 | ||||
| 7 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
16 | ||
| Item 3. |
22 | |||
| Item 4. |
22 | |||
| Item 1. |
23 | |||
| Item 2. |
Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities |
24 | ||
| Item 3. |
24 | |||
| Item 4. |
24 | |||
| Item 5. |
24 | |||
| Item 6. |
25 | |||
| 26 | ||||
Unless the context otherwise requires, the “Company”, “Crown”, “We”, or “Our” shall mean Crown Financial Group, Inc.
2
Consolidated Statements of Financial Condition
(Unaudited)
| April 30, 2004 |
January 31, 2004 |
|||||||
| ASSETS |
||||||||
| Cash and cash equivalents (Note 2) |
$ | 1,757,592 | $ | 2,375,720 | ||||
| Deposits with and receivables from brokers and dealers (Note 4) |
4,344,223 | 3,990,242 | ||||||
| Securities owned, held at clearing brokers, at market value (Notes 2 and 3) |
2,070,061 | 3,233,596 | ||||||
| Furniture, equipment, capitalized software, and leasehold improvements at cost, net of accumulated depreciation and amortization |
1,991,069 | 1,725,426 | ||||||
| Receivables from trading and sales personnel, net of reserves (Note 2) |
142,187 | 186,641 | ||||||
| Insurance recovery receivable |
1,000,000 | 1,000,000 | ||||||
| Prepaid expenses |
116,233 | 214,548 | ||||||
| Other assets |
278,498 | 221,212 | ||||||
| Total assets |
$ | 11,699,863 | $ | 12,947,385 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Liabilities: |
||||||||
| Securities sold, not yet purchased (Notes 2 and 3) |
$ | 525,061 | $ | 492,081 | ||||
| Accrued compensation expense |
595,263 | 1,250,573 | ||||||
| Accrued NASD arbitration award |
5,000,000 | 5,000,000 | ||||||
| Accounts payable and accrued expenses |
1,347,650 | 1,453,829 | ||||||
| Total liabilities |
7,467,974 | 8,196,483 | ||||||
| Commitments and contingent liabilities (Note 9) |
||||||||
| Subordinated loans |
2,000,000 | 2,000,000 | ||||||
| Stockholders’ equity: |
||||||||
| Common stock, $0.01 par value, 25,000,000 shares authorized; 11,553,970 shares issued and outstanding at April 30, 2004 and 11,425,333 shares issued and outstanding at January 31, 2004 |
115,540 | 114,253 | ||||||
| Unearned compensation (Note 2) |
(44,455 | ) | (65,215 | ) | ||||
| Treasury stock (50,000 shares) |
(200,000 | ) | (200,000 | ) | ||||
| Additional paid-in capital |
25,508,933 | 25,295,796 | ||||||
| Accumulated deficit |
(23,148,129 | ) | (22,393,932 | ) | ||||
| Total stockholders’ equity |
2,231,889 | 2,750,902 | ||||||
| Total liabilities and stockholders’ equity |
$ | 11,699,863 | $ | 12,947,385 | ||||
See accompanying notes which are an integral part of these financial statements
3
Consolidated Statements of Operations
(Unaudited)
| For the three months ended April 30, |
||||||||
| 2004 |
2003 |
|||||||
| REVENUES |
||||||||
| Net trading revenues |
$ | 6,046,031 | $ | 1,720,432 | ||||
| Commissions |
402,424 | 342,095 | ||||||
| Underwriting and investment banking fees |
50,000 | 70,896 | ||||||
| Interest and other |
9,890 | 92,159 | ||||||
| Total revenues |
6,508,345 | 2,225,582 | ||||||
| EXPENSES |
||||||||
| Employee compensation and benefits |
3,567,870 | 1,666,435 | ||||||
| Execution and clearance charges |
1,055,706 | 857,693 | ||||||
| Communication and data processing |
921,709 | 533,220 | ||||||
| Occupancy and equipment rentals |
332,734 | 341,256 | ||||||
| Professional fees |
319,564 | 439,825 | ||||||
| Business development |
250,650 | 116,268 | ||||||
| Depreciation and amortization |
108,363 | 53,108 | ||||||
| Postage, printing and office supplies |
58,189 | 128,633 | ||||||
| Interest expense |
20,000 | 27,065 | ||||||
| Restatement costs (Note 2) |
283,775 | — | ||||||
| Other expenses |
327,902 | 172,992 | ||||||
| Total expenses |
7,246,462 | 4,336,495 | ||||||
| Loss before income taxes |
(738,117 | ) | (2,110,913 | ) | ||||
| Provision for income taxes (Note 2) |
16,080 | 3,214 | ||||||
| Net loss |
$ | (754,197 | ) | $ | (2,114,127 | ) | ||
| Basic loss per share of common stock (Note 2) |
$ | (0.07 | ) | $ | (0.26 | ) | ||
| Diluted loss per share of common stock (Note 2) |
$ | (0.07 | ) | $ | (0.26 | ) | ||
| Weighted average number of shares outstanding (Note 2) |
11,480,090 | 8,200,849 | ||||||
| Diluted weighted average number of shares outstanding (Note 2) |
11,480,090 | 8,200,849 | ||||||
See accompanying notes which are an integral part of these financial statements
4
Consolidated Statement of Changes in Stockholders’ Equity
For the Three Months Ended April 30, 2004
(Unaudited)
| Common Stock |
Unearned Compensation |
Treasury Stock |
Additional Paid-In Capital |
Retained Earnings/ Deficit) |
Total Stockholders’ Equity |
|||||||||||||||||||
| Shares |
Amount |
|||||||||||||||||||||||
| Balances at January 31, 2004 |
11,425,333 | $ | 114,253 | $ | (65,215 | ) | $ | (200,000 | ) | $ | 25,295,796 | $ | (22,393,932 | ) | $ | 2,750,902 | ||||||||
| Net loss |
— | — | — | — | — | (754,197 | ) | (754,197 | ) | |||||||||||||||
| Options granted or modified |
— | — | — | — | 2,100 | — | 2,100 | |||||||||||||||||
| Amortization of unearned compensation |
— | — | 20,760 | — | — | — | 20,760 | |||||||||||||||||
| Options exercised |
3,637 | 37 | — | — | 4,787 | — | 4,824 | |||||||||||||||||
| Shares issued |
125,000 | 1,250 | — | — | 206,250 | — | 207,500 | |||||||||||||||||
| Balances at April 30, 2004 |
11,553,970 | $ | 115,540 | $ | (44,455 | ) | $ | (200,000 | ) | $ | 25,508,933 | $ | (23,148,129 | ) | $ | 2,231,889 | ||||||||
See accompanying notes which are an integral part of these financial statements
5
Consolidated Statements of Cash Flows
(Unaudited)
| For the three months ended April 30, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ | (754,197 | ) | $ | (2,114,127 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
108,363 | 53,108 | ||||||
| Compensation expense on options granted |
22,860 | 42,745 | ||||||
| Changes in assets and liabilities: |
||||||||
| (Increase) decrease in assets: |
||||||||
| Deposits with and receivables from brokers and dealers |
(353,981 | ) | (359,233 | ) | ||||
| Securities owned, held at clearing brokers, at market value |
1,163,535 | 59,646 | ||||||
| Receivables from trading and sales personnel |
44,454 | (123,598 | ) | |||||
| Prepaid expenses |
98,315 | (4,440 | ) | |||||
| Other assets |
(57,286 | ) | (19,688 | ) | ||||
| Increase (decrease) in liabilities: |
||||||||
| Securities sold, not yet purchased |
32,980 | 303,560 | ||||||
| Accrued compensation expense |
(655,310 | ) | (39,394 | ) | ||||
| Accounts payable and accrued expenses |
(106,178 | ) | (105,743 | ) | ||||
| Net cash used in operating activities |
(456,445 | ) | (2,307,164 | ) | ||||
| Cash flows from investing activities: |
||||||||
| Fixed asset purchases and software capitalizations, net of disposals |
(374,006 | ) | — | |||||
| Security investments |
— | 53,200 | ||||||
| Net cash provided by (used in) investing activities |
(374,006 | ) | 53,200 | |||||
| Cash flows from financing activities: |
||||||||
| Common stock issued |
207,500 | 1,588,152 | ||||||
| Options exercised |
4,823 | 14,384 | ||||||
| Net cash provided by financing activities |
212,323 | 1,602,536 | ||||||
| Net decrease in cash and cash equivalents |
(618,128 | ) | (651,428 | ) | ||||
| Cash and cash equivalents at beginning of period |
2,375,720 | 961,465 | ||||||
| Cash and cash equivalents at end of period |
$ | 1,757,592 | $ | 310,037 | ||||