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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 OCTOBER 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 December 14, 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 October 31 and January 31, 2004    3
     Consolidated Statements of Operations for the three and nine months ended October 31, 2004 and October 31, 2003    4
     Consolidated Statement of Changes in Stockholders’ Equity for the nine months ended October 31, 2004    5
     Consolidated Statements of Cash Flows for the nine months ended October 31, 2004 and October 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    27
Item 4.    Controls and Procedures    27

PART II OTHER INFORMATION:

    
Item 1.    Legal Proceedings    28
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds    29
Item 3.    Defaults Upon Senior Securities    29
Item 4.    Submission of Matters to a Vote of Security Holders    29
Item 5.    Other Information    29
Item 6.    Exhibits and Reports on Form 8-K    29
Signatures    31

 

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

 

     October 31,
2004
     January 31,
2004
  
     (unaudited)        

ASSETS

                 

Cash and cash equivalents

    $ 2,238,767     $ 2,375,720  

Deposits with and receivables from brokers and dealers

      1,372,983       3,990,242  

Securities owned, held at clearing brokers, at market value

      1,836,131       3,233,596  

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

      2,282,880       1,725,426  

Receivables from trading and sales personnel, net of reserve

      135,695       186,641  

Insurance recovery receivable

      1,000,000       1,000,000  

Prepaid expenses

      361,487       214,548  

Other assets

      71,150       221,212  
    
 

Total assets

    $ 9,299,093     $ 12,947,385  
    
 

LIABILITIES AND STOCKHOLDERS’ EQUITY

                 

Liabilities:

                 

Securities sold, not yet purchased

    $ 526,963     $ 492,081  

Accrued compensation expense

      219,648       1,250,573  

Accrued NASD arbitration award

      1,000,000       5,000,000  

Accounts payable and accrued expenses

      1,410,388       1,453,829  
    
 

Total liabilities

      3,156,999       8,196,483  
    
 

Commitments and contingent liabilities

                 

Subordinated loan

      2,000,000       2,000,000  
    
 

Stockholders’ equity:

                 

Common stock, $0.01 par value, 25,000,000 shares authorized; 18,463,902 shares issued and outstanding at October 31, 2004 and 11,425,333 shares issued and outstanding at January 31, 2004

      184,639       114,253  

Unearned compensation

      (12,587 )     (65,215 )

Treasury stock, at cost (50,000 shares)

      (200,000 )     (200,000 )

Additional paid-in capital

      28,766,055       25,295,796  

Accumulated deficit

      (24,596,013 )     (22,393,932 )
    
 

Total stockholders’ equity

      4,142,094       2,750,902  
    
 

Total liabilities and stockholders’ equity

    $ 9,299,093     $ 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
October 31,
     For the nine months ended
October 31,
  
     2004
     2003
     2004
     2003
  

REVENUES

                                 

Net trading revenues

    $ 2,210,979     $ 5,235,371     $ 11,197,617     $ 11,558,311  

Commissions

      226,394       308,214       873,559       973,851  

Underwriting and investment banking fees

      —         74,017       50,000       234,889  

Settlement proceeds

      —         —         700,000       —    

Gain on sale of investment

      —         —         145,256       —    

Interest and other

      11,309       86,436       28,980       277,699  
    
 
 
 

Total revenues

      2,448,682       5,704,038       12,995,412       13,044,750  
    
 
 
 

EXPENSES

                                 

Employee compensation and benefits

      2,078,432       3,163,624       8,127,303       7,952,412  

Communications and data processing

      837,084       588,815       2,731,810       1,644,726  

Execution and clearance charges

      523,402       1,012,019       2,297,359       2,915,796  

Professional fees

      674,633       473,532       1,474,844       1,696,164  

Occupancy and equipment rentals

      357,446       341,443       1,042,572       1,018,431  

Business development

      127,681       163,590       483,150       398,125  

Depreciation and amortization

      128,637       54,556       359,448       158,724  

Licensing fees, dues and subscriptions

      43,194       71,150       214,743       130,045  

Postage, printing and office supplies

      23,188       122,079       113,008       482,146  

Interest expense

      22,903       35,058       70,606       114,529  

NASD settlements and awards

      (2,765,291 )     80,000       (2,725,778 )     (167,110 )

Restatement costs

      —         50,000       283,775       50,000  

Other expenses

      251,712       324,739       690,725       625,669  
    
 
 
 

Total expenses

      2,303,021       6,480,605       15,163,565       17,019,657  
    
 
 
 

Income (loss) before income taxes

      145,661       (776,567 )     (2,168,153 )     (3,974,907 )

Provision for income taxes

      5,178       8,320       33,928       24,015  
    
 
 
 

Net income (loss)

    $ 140,483     $ (784,887 )   $ (2,202,081 )   $ (3,998,922 )
    
 
 
 

Basic earnings (loss) per share of common stock

    $ 0.01     $ (0.08 )   $ (0.15 )   $ (0.43 )
    
 
 
 

Diluted earnings (loss) per share of common stock

    $ 0.01     $ (0.08 )   $ (0.15 )   $ (0.43 )
    
 
 
 

Weighted average number of shares outstanding

      18,356,842       9,955,182       14,329,885       9,264,864  
    
 
 
 

Diluted weighted average number of shares outstanding

      18,357,297       9,955,182       14,329,885       9,264,864  
    
 
 
 

 

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 Nine Months Ended October 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

    —        —        —         —                 (2,202,081 )     (2,202,081 )

Options granted or modified

    —        —        —         —         47,890       —         47,890  

Options forfeited

    —        —        —         —         (39,408 )     —         (39,408 )

Amortization of unearned compensation

    —        —        52,628       —                 —         52,628  

Options exercised

    6,937      69      —         —         6,173       —         6,242  

Shares issued for cash

    7,031,632      70,317      —         —         3,455,604       —         3,525,921  
    
  
  
 
 
 
 

Balances at October 31, 2004

    18,463,902    $ 184,639    $ (12,587 )   $ (200,000 )   $ 28,766,055     $ (24,596,013 )   $ 4,142,094  
    
  
  
 
 
 
 

 

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

 

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