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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 JULY 31, 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 September 13, 2004, the number of the Registrant’s common stock shares issued and outstanding was 18,463,902.

 

Table of Contents

TABLE OF CONTENTS

 

     Page

PART I FINANCIAL INFORMATION:

    

Item 1.

    Consolidated Financial Statements     
     Consolidated Statements of Financial Condition as of July 31 and January 31, 2004    3
     Consolidated Statements of Operations for the three and six months ended July 31, 2004 and July 31, 2003    4
     Consolidated Statement of Changes in Stockholders’ Equity for the six months ended July 31, 2004    5
     Consolidated Statements of Cash Flows for the six months ended July 31, 2004 and July 31, 2003    6
     Notes to Consolidated Financial Statements    7

Item 2.

    Management’s Discussion and Analysis of Financial Condition and Results of Operations    18

Item 3.

    Quantitative and Qualitative Disclosures About Market Risk    26

Item 4.

    Controls and Procedures    26

PART II OTHER INFORMATION:

    

Item 1.

    Legal Proceedings    27

Item 2.

    Unregistered Sales of Equity Securities and Use of Proceeds    28

Item 3.

    Defaults Upon Senior Securities    28

Item 4.

    Submission of Matters to a Vote of Security Holders    28

Item 5.

    Other Information    28

Item 6.

    Exhibits and Reports on Form 8-K    28

Signatures

   30

 

Unless the context otherwise requires, the “Company”, “Crown”, “We”, or “Our” shall mean Crown Financial Group, Inc., and its consolidated subsidiary.

 

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PART I. FINANCIAL INFORMATION

 

Item 1. Consolidated Financial Statements

 

CROWN FINANCIAL GROUP, INC.

 

Consolidated Statements of Financial Condition

 

    

July 31,

2004

    

January 31,

2004

  
     (unaudited)        

ASSETS

                 

Cash and cash equivalents

    $ 3,211,671     $ 2,375,720  

Deposits with and receivables from brokers and dealers

      2,988,808       3,990,242  

Securities owned, held at clearing brokers, at market value

      901,493       3,233,596  

Furniture, equipment, capitalized software, and leasehold improvements at cost, net of accumulated depreciation and amortization

      2,144,424       1,725,426  

Receivables from trading and sales personnel, net of reserves

      143,645       186,641  

Insurance recovery receivable

      1,000,000       1,000,000  

Prepaid expenses

      381,601       214,548  

Other assets

      134,525       221,212  
    
 

Total assets

    $ 10,906,167     $ 12,947,385  
    
 

LIABILITIES AND STOCKHOLDERS’ EQUITY

                 

Liabilities:

                 

Securities sold, not yet purchased

    $ 85,661     $ 492,081  

Accrued compensation expense

      200,854       1,250,573  

Accrued NASD arbitration liability

      5,000,000       5,000,000  

Accounts payable and accrued expenses

      1,192,628       1,453,829  
    
 

Total liabilities

      6,479,143       8,196,483  
    
 

Commitments and contingent liabilities

                 

Subordinated loans

      2,000,000       2,000,000  
    
 

Stockholders’ equity:

                 

Common stock, $0.01 par value, 25,000,000 shares authorized; 13,636,359 shares issued and outstanding at July 31, 2004 and 11,425,333 shares issued and outstanding at January 31, 2004

      136,364       114,253  

Unearned compensation

      (26,514 )     (65,215 )

Treasury stock, at cost (50,000 shares)

      (200,000 )     (200,000 )

Additional paid-in capital

      27,253,670       25,295,796  

Accumulated deficit

      (24,736,496 )     (22,393,932 )
    
 

Total stockholders’ equity

      2,427,024       2,750,902  
    
 

Total liabilities and stockholders’ equity

    $ 10,906,167     $ 12,947,385  
    
 

 

See accompanying notes which are an integral part of these consolidated financial statements.

 

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CROWN FINANCIAL GROUP, INC.

Consolidated Statements of Operations

 

(Unaudited)

 

    

For the three months ended

July 31,

    

For the six months ended

July 31,

  
     2004
     2003
     2004
     2003
  

REVENUES

                                 

Net trading revenues

    $ 2,940,608     $ 4,602,509     $ 8,986,639     $ 6,322,941  

Commissions

      244,741       323,542       647,165       665,637  

Underwriting and investment banking fees

      —         89,975       50,000       160,871  

Settlement proceeds

      700,000       —         700,000       —    

Gain on sale of investment

      145,256       —         145,256       —    

Interest and other

      7,780       99,106       17,670       191,264  
    
 
 
 

Total revenues

      4,038,385       5,115,132       10,546,730       7,340,713  
    
 
 
 

EXPENSES

                                 

Employee compensation and benefits

      2,481,000       3,053,071       6,048,870       4,719,507  

Communications and data processing

      973,016       522,691       1,894,725       1,055,911  

Execution and clearance charges

      718,251       1,046,085       1,773,957       1,903,778  

Professional fees

      480,648       782,807       800,211       1,222,632  

Occupancy and equipment rentals

      352,392       335,734       685,126       676,988  

Business development

      104,820       118,267       355,470       234,535  

Depreciation and amortization

      122,448       51,059       230,812       104,167  

Postage, printing and office supplies

      31,631       231,434       89,820       360,068  

Interest expense

      27,703       52,405       47,703       79,470  

NASD settlements

      39,513       (240,000 )     39,513       (247,110 )

Restatement costs

      —         —         283,775       —    

Other expenses

      282,659       249,003       610,562       429,106  
    
 
 
 

Total expenses

      5,614,081       6,202,556       12,860,544       10,539,052  
    
 
 
 

Loss before income taxes

      (1,575,696 )     (1,087,424 )     (2,313,814 )     (3,198,339 )

Provision for income taxes

      12,671       12,483       28,750       15,695  
    
 
 
 

Net loss

    $ (1,588,367 )   $ (1,099,907 )   $ (2,342,564 )   $ (3,214,034 )
    
 
 
 

Basic loss per share of common stock

    $ (0.12 )   $ (0.11 )   $ (0.19 )   $ (0.36 )
    
 
 
 

Diluted loss per share of common stock

    $ (0.12 )   $ (0.11 )   $ (0.19 )   $ (0.36 )
    
 
 
 

Weighted average number of shares outstanding

      13,089,684       9,603,865       12,293,732       8,913,895  
    
 
 
 

Diluted weighted average number of shares outstanding

      13,089,684       9,603,865       12,293,732       8,913,895  
    
 
 
 

 

See accompanying notes which are an integral part of these consolidated financial statements.

 

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CROWN FINANCIAL GROUP, INC.

Consolidated Statement of Changes in Stockholders’ Equity

 

For the Six Months Ended July 31, 2004

 

(Unaudited)

 

    Common Stock
  

Unearned

Compensation

    

Treasury

Stock

    

Additional

Paid-In

Capital

    

(Accumulated
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

   —       —       —         —         —         (2,342,564 )     (2,342,564 )

Options granted or modified

   —       —       —         —         2,100       —         2,100  

Options forfeited

   —       —       —         —         (27,858 )     —         (27,858 )

Amortization of unearned compensation

   —       —       38,701       —         —         —         38,701  

Options exercised

   3,637     37     —         —         4,787       —         4,824  

Shares issued

   2,207,389     22,074     —         —         1,978,845       —         2,000,919  
   
 
 
 
 
 
 

Balances at July 31, 2004

   13,636,359   $ 136,364   $ (26,514 )   $ (200,000 )   $ 27,253,670     $ (24,736,496 )   $ 2,427,024