CROWN FINANCIAL GROUP INC - 10-Q Quarterly Report

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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, 2003

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 ¨

As of the date of the filing of this Form 10-Q, we are current with respect to the filing of our Form 10-Q for the quarter ended October 31, 2003. The Company initially delayed filing this report as it was in the process of restating certain of its public reports as a result of the recently discovered financial overstatements as described in this Quarterly Report.

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 October 31, 2003 the number of shares outstanding of the Registrant’s Common Stock was: 10,423,463.

Crown Financial Group, Inc.

FORM 10-Q QUARTERLY REPORT

For the Quarter Ended October 31, 2003

TABLE OF CONTENTS


		Page
PART I FINANCIAL INFORMATION:
Item 1.	Consolidated Financial Statements	9
	Consolidated Statements of Financial Condition	9
	Consolidated Statements of Operations	10
	Consolidated Statements of Stockholders’ Equity	11
	Consolidated Statements of Cash Flows	12
	Notes to Consolidated Financial Statements	13
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	34
PART II OTHER INFORMATION:
Item 1.	Legal Proceedings	35
Item 2.	Changes in Securities and Use of Proceeds	36
Item 3.	Defaults Upon Senior Securities	37
Item 4.	Submission of Matters to a Vote of Security Holders	37
Item 5.	Other Information	37
Item 6.	Exhibits and Reports on Form 8-K	37
Signatures
Certifications

Unless the context otherwise requires, the “Company”, “Crown”, “We”, or “our” shall mean Crown Financial Group, Inc., f/k/a M.H. Meyerson & Co., Inc., and its consolidated subsidiary.

FORWARD-LOOKING STATEMENTS

Certain statements set forth in the Company’s Quarterly Report on Form 10-Q for the three months ended October 31, 2003 constitute forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and are subject to the safe harbor created by such section. Certain factors that could cause results to differ materially from those described in the forward looking statements are described in Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operation – Certain Factors Affecting Results of Operations and elsewhere as appropriate. This Quarterly Report on Form 10-Q, including the Statements of Financial Condition and the notes thereto, should be read in its entirety together with the Form 10-K/A for the year ended January 31, 2003, filed with the SEC on March 9, 2004 for a complete understanding.

AVAILABLE INFORMATION

Our reports, proxy and information statements and other information filed with the SEC are also available at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549 (1-800-SEC-0330), and are also available from the SEC’s website. The SEC’s Internet address is http://www.sec.gov. The Company provides a link to our filings at the SEC’s website on the Company’s website, www.crownfin.com.

INTRODUCTORY NOTE

This Quarterly Report for the quarter ended October 31, 2003, includes the effect of the restatement of the Company’s financial statements for the years ended January 31, 2003, 2002 and 2001 (see “Restatement of Financial Statements” within Note 2 to the Consolidated Financial Statements) and revisions to disclosure and presentation of the Company’s Consolidated Financial Statements for the three and nine months ended October 31, 2002, to be consistent with the restated financial statements.

The items amended and supplemented are as follows:


Part I, Item 1.		Consolidated Financial Statements

Part I, Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations

Part I, Item 3.		Quantitative and Qualitative Disclosures About Market Risk

Part I, Item 4.		Controls and Procedures

Part II, Item 1.		Legal Proceedings

Part II, Item 2.		Changes in Securities and Use of Proceeds

Part II, Item 4.		Submission of matters to a Vote of Security Holders

Part II, Item 6.		Exhibits and Reports on Form 8-K

DOCUMENTS INCORPORATED BY REFERENCE

None.

However, as this Form 10-Q for the three and nine months ended October 31, 2003 contain restatements of previously issued annual and interim financial information, and numerous significant events have occurred since June 16, 2003, the date of our most recent filing of the Quarterly Report, we urge you to also refer to the Current Reports on Form 8-K, the Amended Annual Report on Form 10-K/A and the Quarterly Reports on Form 10-Q/A filed since January 23, 2003 as listed below.

•

Current Report on Form 8-K filed with the SEC on January 23, 2003

•

Current Report on Form 8-K filed with the SEC on February 19, 2003

•

Current Report on Form 8-K filed with the SEC on June 17, 2003

•

Current Report on Form 8-K/A filed with the SEC on June 27, 2003

•

Current Report on Form 8-K filed with the SEC on August 7, 2003

•

Current Report on Form 8-K filed with the SEC on August 18, 2003

•

Current Report on Form 8-K filed with the SEC on September 17, 2003

•

Current Report on Form 8-K filed with the SEC on October 23, 2003

•

Current Report on Form 8-K filed with the SEC on October 30, 2003

•

Current Report on Form 8-K filed with the SEC on November 5, 2003

•

Current Report on Form 8-K filed with the SEC on November 17, 2003

•

Current Report on Form 8-K filed with the SEC on November 24, 2003

•

Current Report on Form 8-K filed with the SEC on November 28, 2003

•

Current Report on Form 8-K filed with the SEC on December 15, 2003

•

Current Report on Form 8-K filed with the SEC on December 18, 2003

•

Amended Annual Report on Form 10-K/A for the year ended January 31, 2003 filed with the SEC on March 9, 2004

•

Amended Quarterly Report on Form 10-Q/A for the quarterly period ended April 30, 2003 filed with the SEC on March 9, 2004

•

Amended Quarterly Report on Form 10-Q/A for the quarterly period ended July 31, 2003 filed with the SEC on March 9, 2004

RESTATEMENT OF FINANCIAL STATEMENTS

In January of 2003, John P. Leighton became the Company’s Co-Chairman and Chief Executive Officer. Subsequently, he assumed the role of sole Chairman and President, and installed a new management team and a new business plan. In mid-September 2003, a new finance team was also appointed to further the implementation of this new business plan as the new management believed that the previously engaged accounting and finance personnel performing these functions during the previous periods did not possess adequate experience and expertise.

On October 17, 2003, as part of the closing of the Company’s financial records for the month of September 2003, the new finance team of the Company determined that certain items in the Company’s previously issued unaudited financial statements for the interim periods of the year ended January 31, 2004, were misstated. Additionally, the Company had been under a routine finance and operations review by the National Association of Securities Dealers, Inc. (“NASD”) staff from February 2003 to August 2003. Before this, the Company has also been subject to a special financial examination by the NASD in 2002 covering the periods of April-June 2002 and October-December 2002. On September 17, 2003 and October 22, 2003, respectively, contemporaneously to the discovery of the misstatements described above, reports were issued by the NASD documenting their findings of the routine finance and operations review in 2003, and the special financial examination in 2002. These reports identified, among other things, certain adjustments required to correct improper methods in accruing certain expenses and related liabilities.

The Company immediately commenced an internal review to determine the scope of the financial statement misstatements and to issue restated financial statements for any prior periods materially impacted by the misstatements. The internal review was conducted by the Company’s new management team. The Company’s independent auditors, Sanville & Company and Ernst & Young LLP, (which replaced Sanville & Company as the Company’s independent auditors for the fiscal year ended January 31, 2004) also participated in the review. As the restatement of the Company’s financial statements would have an effect on its compliance with the SEC’s net capital requirements, the Company secured a capital infusion of approximately $1.7 million in the form of a capital contribution (without the issuance of additional shares of Common Stock). The Company committed significant human and financial resources to ensure the review was completed in a thorough, independent and expeditious manner.

As a result of the findings of the review, the Company has restated its financial statements for the years ended January 31, 2003, 2002 and 2001, including the corresponding interim periods, and the quarterly periods ended April 30, 2003 and July 31, 2003.

Set forth below are the nature of the principal adjustments made in restating the Company’s financial statements:

•

Adjustments to clearing broker balances. It was determined that the clearing broker statements were incorrectly reconciled to the accounting records, and the methodology for recording balances with clearing brokers was not consistently applied. As a result, amounts recognized as trading revenues and expenses, and net securities balances were overstated and trading accounts were double counted.

•

Adjustments to expenses and accruals. It was determined that accruals for certain expenses were not recorded on a timely basis and that certain expenses were only expensed when paid, as opposed to when incurred. This resulted in timing differences as expenses were recognized in the Statements of Operations in the wrong periods.

•

Adjustments to prepaid expenses. It was determined that certain prepaid expenses were not recorded and amortized correctly, resulting in timing differences as expenses were recognized in the Statements of Operations in the wrong periods.

•

Adjustments to the accounting for the consolidation and sale of the Company’s subsidiary, Emeyerson.com, Inc. (“EMEY”). It was determined that EMEY was not consolidated by the Company for the six months ended July 31, 2001, and that the sale of EMEY in exchange for an interest in ViewTrade on July 25, 2001 was incorrectly accounted for. This resulted in an understatement of the Company’s consolidated revenue and expenses, a failure to recognize the gain on the sale of EMEY, and an understatement of the initial fair value of the Company’s investment in ViewTrade. The understatement of the initial fair value of the Company’s investment in ViewTrade also affected the Company’s subsequent assessments of the recoverability of that investment, and the restatement has led to the recording of subsequent impairments in investment in ViewTrade.

•

Adjustments to compensation and consulting expense due to issuance of stock options. It was determined that the compensation and consulting expense related to the issuance of stock options to consultants and employees were not properly recorded.

•

Adjustments to various classifications within the Statements of Operations and Statements of Financial Condition. It was determined that there were errors in the classification of certain assets and expenses within the line items in the Statements of Operations and Statements of Financial Condition that resulted in the need to reclassify the presentation of those items.

•

Other adjustments.

Following its decision to restate its financial statements for the matters described above, the Company also reclassified certain prior year financial statement amounts to conform to the current year presentation.

Each of the restatement adjustments are described further below:

Adjustments to clearing broker balances:

As a result of errors and omissions in the reconciliation of the Company’s accounting records to the statements from dealers and clearing brokers, amounts reflected as revenues and net securities owned were overstated and trading accounts were double counted. The restatement has led to a reduction in the net securities owned/sold and receivable from broker-dealers’ balances in the Statement of Financial Condition of $1,194,025 as at January 31, 2003. In the Statements of Operations for the three months and nine months ended October 31, 2002, this adjustment has led to net movements in trading revenues, commissions, clearing costs and other trading expenses consisting of an aggregate increase of $62,325 ($0.01 per share) and an aggregate decrease of $675,570 ($0.10 per share), respectively.

Adjustments to expenses and accruals:

The Company determined that accruals for certain expenses were not recorded on a timely basis and that certain expenses were recognized when paid, as opposed to when incurred. As a result the affected expenses were recognized in the results of operations in the wrong periods. The financial statements have been restated to accrue the expenses and related liabilities in the correct periods. These restatements have led to an increase in accrued expenses of $799,294 as at January 31, 2003. The adjustments for the three and nine months ended October 31, 2002 decreased expenses by $240,854 ($0.04 per share) and increased expenses by $413,817 ($0.06 per share), respectively.

Adjustments to prepaid expenses:

In connection with its review of the accrual of expenses, the Company also discovered that prepaid expenses were incorrectly recorded and amortized, as a result of which those expenses were recognized in the results of operations in the wrong periods. The financial statements have been restated to amortize the prepaid expenses to the correct periods. These restatements have led to an increase in prepaid expenses of $86,123 at January 31, 2003. The total adjustment in expenses amortized to the statement of operations for the three and nine months ended October 31, 2002, is an increase in expenses of $48,456 ($0.01 per share) and $46,593 ($0.01 per share), respectively.

Adjustments to the consolidation and sale of subsidiary:

The Company determined that it did not consolidate its interest in the losses of its subsidiary, EMEY, for the six months before its sale on July 25, 2001. This has been corrected for the year ended January 31, 2002. As part of the consolidation of EMEY for the years ended January 31, 2001 and 2000, the Company incorrectly recognized a current tax benefit for its share of the operating losses of EMEY. As EMEY had no history of income, this benefit should have been subject to a valuation allowance offsetting its effect on the income tax provision. This tax adjustment has also been corrected for the years ended January 31, 2001 and 2000.

In addition, the Company did not properly account for the sale of EMEY. In July 2001, the Company’s subsidiary EMEY agreed to merge with VTS Acquisition Corp (subsequently renamed ViewTrade Financial Network Inc.), a wholly owned subsidiary of ViewTrade Holding Corporation (“ViewTrade”). In connection with the merger, the stockholders of EMEY received ownership interests in ViewTrade aggregating 28.3994% in exchange for 100% ownership of EMEY. On the date of the merger, the Company owned 54.29% of EMEY. As a result, the Company received an ownership interest of 15.418% of ViewTrade and such investment was not recorded at a fair value of $1,383,569. The Company did not properly account for the gain on the sale of this subsidiary (representing the difference between the Company’s investment in EMEY and the fair value of the interest in ViewTrade it received), and has restated its financial statements to record a gain on sale of subsidiary of $23,997 for the year ended January 31, 2002, and a net increase in the fair value of the Company’s investment in ViewTrade of $1,043,569 as at the date of the merger. The accounting for the sale has been corrected for the year ended January 31, 2002.

On September 11, 2001, the ViewTrade head office located in the World Trade Center was destroyed. ViewTrade suffered declines in revenues due to the breakdown in their operations, as well as the decline in market conditions affecting ViewTrade’s business immediately following the terrorist attack. Following these events, the Company has recorded as an adjustment an impairment charge to their investment in ViewTrade of $1,184,008 ($0.18 per share) for the year ended January 31, 2002. The continuing decline in market conditions affecting ViewTrade’s business resulted in a further impairment charge of $94,817 ($0.01 per share) for the year ended January 31, 2003. These adjustments led to a decrease in the value of the investment in ViewTrade of $1,184,008, offset by the increase of $1,043,569 above (aggregate decrease of $140,439) as at January 31, 2002. These adjustments resulted in a net decrease in the value of the investment in ViewTrade of $235,256 as at January 31, 2003.

Adjustments to compensation and consulting expense due to issuance of stock options:

As part of the review performed by the new finance department during October 2003, it was discovered that compensation expense was not properly recognized for certain stock options granted to employees and consultants. The Company determined that in prior periods, stock options were granted to employees below fair market value and that there were repricings of existing stock options, both of which resulted in adjustments to stock compensation expense as permitted under the relevant provisions of Accounting Principles Board Opinion No. 25 (which the Company uses for accounting for employee and director stock options and awards as permitted under Statement of Financial Accounting Standards (“SFAS”) No. 123). In addition, stock options were also granted to consultants without recognizing the corresponding consulting cost as required by SFAS No. 123, which required additional adjustments. There were no adjustments for the three and nine months ended October 31, 2002.

Adjustments to various classifications within the Statements of Operations and the Statements of Financial Condition:

None of the reclassifications had any impact on the Company’s net loss or net loss per share for the three and nine months ended October 31, 2002. There were also certain errors in the classification of assets within the Statements of Financial Condition at January 31, 2003, resulting in reclassifications between other assets and various other asset line items. Such reclassifications had no effect on the Company’s total stockholders’ equity.

Other adjustments:

A number of other adjustments to the Company’s previously filed financial statements are also necessary, most notably:

The Company discovered a reduction to the tax benefit recorded for the year ended January 31, 2002 of $423,180 or $0.06 per share, that was originally recorded in the quarter ended April 30, 2002 instead of in the year ended January 31, 2002. This adjustment has been reflected in the Statements of Operations for the nine months October 31, 2002, and in the year ended January 31, 2002.

The Company issued 50,000 shares of stock to the Vice-President of Operations on February 1, 2000 in exchange for a non-recourse loan in the amount of $200,000. This loan was originally included in receivables from trading and sales personnel, but has been reclassified to stockholders’ equity (contra-equity) as of January 31, 2003 and 2002.

As part of the reconciling process performed by the Company on the clearing broker statements, the number of outstanding shares as per the accounting records was reconciled to the transfer agent, resulting in an increase of 25,000 shares to the total shares of common stock outstanding as at January 31, 2003.

The following summarizes the effect of these adjustments on the previously reported net loss and net loss per share:


	For the three months ended October 31, 2002
	Net loss			Net loss per share
As previously reported	$	(1,953,551	)	$	(0.30	)
Reconciliation of clearing broker statements		62,325			0.01
Accrual of expenses		240,854			0.04
Prepaid expenses		(48,456	)		(0.01	)

As restated	$	(1,698,828	)	$	(0.26	)


	For the nine months ended October 31, 2002
	Net loss			Net loss per share
As previously reported	$	(4,502,526	)	$	(0.68	)
Reconciliation of clearing broker statements		(675,570	)		(0.10	)
Accrual of expenses		(413,817	)		(0.06	)
Prepaid expenses		(46,593	)		(0.01	)
Tax benefit		423,180			0.06

As restated	$	(5,215,326	)	$	(0.79	)

The impact on the Statements of Operations, Statements of Financial Condition and Statements of Cash Flows, as a result of the above adjustments, is illustrated on a condensed basis below. Also see Note 2 in notes to the Consolidated Financial Statements. The amounts previously reported are derived from the original Form 10-Q for the quarter ended October 31, 2002, as well as the original Form 10-K for the year ended January 31, 2003:


	For the three months ended October 31, 2002						For the nine months ended October 31, 2002
	Amounts previously reported			As restated			Amounts previously reported			As restated
Statements of Operations:

Total revenues	$	1,949,844		$	2,169,218		$	7,474,905		$	6,621,941

Total expenses		3,903,395			3,864,832			11,553,927			11,828,275

Net loss	$	(1,953,551	)	$	(1,698,828	)	$	(4,502,526	)	$	(5,215,326	)

Basic earnings per share	$	(0.30	)	$	(0.26	)	$	(0.68	)	$	(0.79	)

Diluted earnings per share	$	(0.30	)	$	(0.26	)	$	(0.68	)	$	(0.79	)

Shares used in basic earnings per share calculation		6,606,818			6,606,964			6,606,818			6,606,819

Shares used in diluted earnings per share calculation		6,606,818			6,606,964			6,606,818			6,606,819


	January 31, 2003
	Amounts previously reported		As restated
Statements of Financial Condition:

Total assets	$	10,520,816	$	9,063,178

Total liabilities		8,821,170		9,625,349

Total stockholders’ equity		1,699,646		(562,171	)

Total liabilities and stockholders’ equity	$	10,520,816	$	9,063,178


	For the nine months ended October 31, 2002
	Amounts previously reported			As restated
Statements of Cash Flows:

Net cash used in operating activities	$	(748,768	)	$	(765,262	)

Net cash provided by financing activities		297			297

Net cash provided by investing activities		7,860			24,354

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

CROWN FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)


	October 31, 2003			January 31, 2003
				(restated)
Assets
Cash and cash equivalents	$	1,771,486		$	961,465
Deposit with and receivables from brokers and dealers		4,578,222			3,473,248
Securities owned, held at clearing brokers, at market value		1,902,725			1,128,631
Other investments		274,435			778,597
Furniture, equipment, capitalized software and leasehold improvements, net of accumulated depreciation and amortization		1,417,603			632,334
Receivables from trading personnel		397,834			730,139
Insurance recovery		1,000,000			1,000,000
Income taxes		11,277			24,669
Other assets		351,866			334,095

Total assets	$	11,705,448		$	9,063,178

Liabilities and Stockholders’ Equity
Liabilities:
Securities sold but not yet purchased	$	767,226		$	222,663
Accrued compensation expense		478,211			254,682
Accrued NASD arbitration awards		5,000,000			5,000,000
Accounts payable and accrued expenses		1,485,272			1,148,004

Total liabilities		7,730,709			6,625,349

Commitments and contingent liabilities

Subordinated loans		2,000,000			3,000,000


Stockholders’ equity:
Common stock, $0.01 par value, 25,000,000 shares authorized; 10,423,463 shares issued and outstanding at October 31, 2003 and 7,556,964 shares issued and outstanding at January 31, 2003, as restated		104,235			75,570
Treasury stock, at cost		(200,000	)		—
Unearned compensation		(93,360	)		(97,071	)
Notes receivable from stock issuance		—			(200,000	)
Additional paid-in capital		23,376,332			16,872,876
Accumulated deficit		(21,212,468	)		(17,213,546	)

Total stockholders’ equity		1,974,739			(562,171	)

Total liabilities and stockholders’ equity	$	11,705,448		$	9,063,178

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

Certain prior period amounts have been recast to conform to the current presentation.

CROWN FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	For the three months ended October 31,						For the nine months ended October 31,
	2003			2002			2003			2002
				(restated)						(restated)
Revenues
Net trading revenues	$	5,235,371		$	1,671,570		$	11,558,311		$	5,480,159
Commissions		308,214			280,822			973,851			622,338
Underwriting and investment banking fees		74,017			122,973			234,889			226,896
Interest and other		86,436			93,853			277,699			292,548

Total revenues		5,704,038			2,169,218			13,044,750			6,621,941

Expenses
Employee compensation and benefits		3,163,624			1,532,423			7,952,412			4,658,474
Execution and clearance fees		1,012,019			682,662			2,915,796			1,971,184
Communications and data processing		588,815			487,116			1,644,726			1,905,964
Occupancy and equipment rentals		341,443			355,590			1,018,431			1,001,049
Professional fees		523,532			270,015			1,746,164			535,423
Business development		163,590			106,035			398,125			219,405
Depreciation and amortization		54,556			52,500			158,724			159,076
Other expenses		633,026			378,491			1,185,279			1,377,700

Total expenses		6,480,605			3,864,832			17,019,657			11,828,275

Loss before income taxes		(776,567	)		(1,695,614	)		(3,974,907	)		(5,206,334	)
Income tax expense		8,320			3,214			24,015			8,992

Net loss	$	(784,887	)	$	(1,698,828	)	$	(3,998,922	)	$	(5,215,326	)


Basic earnings per share	$	(0.08	)	$	(0.26	)	$	(0.43	)	$	(0.79	)


Diluted earnings per share	$	(0.08	)	$	(0.26	)	$	(0.43	)	$	(0.79	)


Shares used in basic earnings per share calculation		9,955,182			6,606,964			9,264,864			6,606,819


Shares used in diluted earnings per share calculation		9,955,182			6,606,964			9,264,864			6,606,819

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

Certain prior period amounts have been recast to conform to the current presentation.

CROWN FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)


	Common Stock			Treasury Stock			Unearned Compensation			Notes Receivable From Stock Issuance			Additional Paid-In Capital		Retained Earnings/ (Accumulated Deficit)			Total Stockholders' Equity
	Shares	Amount
	Shares	Amount
Balances at January 31, 2003, as restated	7,556,964	$	75,570	$	-		$	(97,071	)	$	(200,000	)	$	16,872,876	$	(17,213,546	)	$	(562,171	)
Net loss	—		—		—			—			—			—		(3,998,922	)		(3,998,922	)
Shares repurchased as treasury stock	—		—		(200,000	)		—			200,000			—		—			—
Options granted to employees	—		—		—			(98,755	)		—			127,320		—			28,565
Options granted to consultants	—		—		—			(63,250	)		—			67,500		—			4,250
Amortization of unearned Compensation	—		—		—			165,716			—			—		—			165,716
Options exercised	271,456		2,715		—			—			—			353,936		—			356,651
Subordinated debt converted to common shares	366,838		3,668		—			—			—			996,332		—			1,000,000
Cash contribution to equity	—		—		—			—			—			1,830,000		—			1,830,000
Shares issued	2,228,205		22,282		—			—			—			3,128,368		—			3,150,650

Balances at October 31, 2003	10,423,463	$	104,235	$	(200,000	)	$	(93,360	)	$	—		$	23,376,332	$	(21,212,468	)	$	1,974,739

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

Certain prior period amounts have been recast to conform to the current presentation.

CROWN FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	For the nine months ended October 31,
	2003			2002
				(restated)
Cash flows from operating activities
Net loss	$	(3,998,922	)	$	(5,215,326	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		158,724			159,076
Compensation and consulting expense on options granted		198,531			—
Change in assets and liabilities
(Increase) decrease in assets:
Receivable from brokers and dealers		(1,104,974	)		535,109
Securities owned, held at clearing brokers, at market value		(774,094	)		2,995,305
Receivables from trading personnel		332,305			(609,366	)
Income tax receivable		13,392			2,410,923
Other assets		(17,771	)		382,080
Increase (decrease) in operating liabilities:
Securities sold, not yet purchased		544,563			(644,053	)
Payable to brokers and dealers		—			(166,864	)
Accrued compensation expense		223,528			(460,494	)
Accounts payable, accrued expenses and other liabilities		337,267			(151,652	)

Net cash used in operating activities		(4,087,451	)		(765,262	)

Cash flows from investing activities
Other investments		504,162			23,994
Purchase of furniture, equipment and capitalized software		(943,993	)		360

Net cash (used in) provided by investing activities		(439,831	)		24,354

Cash flows from financing activities
Net proceeds from sale of common stock		3,150,650			—
Net proceeds from exercise of stock options		356,653			297
Cash contribution		1,830,000			—

Net cash provided by financing activities		5,337,303			297

Net increase (decrease) in cash and cash equivalents		810,021			(740,611	)
Cash and cash equivalents at beginning of period		961,465			851,343

Cash and cash equivalents at end of period	$	1,771,486		$	110,732

Supplemental disclosure of cash flow information:
Cash paid for interest	$	87,536		$	64,458

Cash paid for income taxes	$	21,235		$	—

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

Certain prior period amounts have been recast to conform to the current presentation.

CROWN FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

OCTOBER 31, 2003

(unaudited)

1. Organization and Description of the Business

CROWN FINANCIAL GROUP, INC. (the “Company”), formerly M.H. MEYERSON & CO., INC., is a leading market maker currently making markets in excess of 8,500 securities listed on the Nasdaq National Market System, Nasdaq SmallCap, OTC Bulletin Board and the Pink Sheets. The Company is a registered broker-dealer with the United States Securities and Exchange Commission (“SEC”) and is a member of the National Association of Securities Dealers, Inc. (“NASD”).

In January of 2003, John Leighton became the Company’s Co-Chairman and Chief Executive Officer, subsequently assumed the role of sole Chairman and President, and installed a new management team and new business plan.

During the nine months ended October 31, 2003, this new management team has implemented and will continue to implement steps to create a dynamic, innovative and service-oriented liquidity provider. To effectuate this transformation further, the Company began doing business as Crown Financial Group on April 9, 2003. The Company believes its greatest opportunity, as a service oriented liquidity provider, is to implement innovative technologies across equities, market-making, institutional and broker dealer sales and trading.

2. Restatement of Previously Issued Financial Statements

Set forth below are the nature of the principal adjustments made in restating the Company’s financial statements:

•

Other adjustments.

Each of the restatement adjustments are described further below:

Adjustments to clearing broker balances:

Adjustments to expenses and accruals:

Adjustments to prepaid expenses:

Adjustments to the consolidation and sale of subsidiary:

Adjustments to compensation and consulting expense due to issuance of stock options:

Adjustments to various classifications within the Statements of Operations and the Statements of Financial Condition:

The Company determined that errors were made in the classification of certain expenses within the line items within the Statements of Operations for the three and nine months ended October 31, 2002. These misclassifications have been corrected for all periods presented. Employee benefits such as medical insurance were reclassified from other expenses to employee compensation and benefits. Execution and clearance fees originally classified within net trading revenues and commissions have been reclassified to execution and clearance fees. The write-down of a tax receivable balance was reclassified from income tax expense to other expenses. Reclassifications of expenses were also required between execution and clearance fees, and communications and data processing. Income from the sub-lease of office space has been reclassified from occupancy and equipment rental to interest and other income, and interest income has been reclassified from net trading revenues to interest and other income. None of the reclassifications had any impact on the Company’s net loss or net loss per share for the three and nine months ended October 31, 2002. There were also certain errors in the classification of assets within the Statements of Financial Condition at January 31, 2003, resulting in reclassifications between other assets and various other asset line items. Such reclassifications had no effect on the Company’s total stockholders’ equity.

Other adjustments:

A number of other adjustments to the Company’s previously filed financial statements are also necessary, most notably:

The Company discovered a reduction to the tax benefit recorded for the year ended January 31, 2002 of $423,180 or $0.06 per share, that was originally recorded in the quarter ended April 30, 2002 instead of in the year ended January 31, 2002. This adjustment has been reflected in the Statements of Operations for the nine months ended October 31, 2002, and in the year ended January 31, 2002.

The following summarizes the effect of these adjustments on the previously reported net loss and net loss per share:


	For the three months ended October 31, 2002
	Net loss			Net loss per share
As previously reported	$	(1,953,551	)	$	(0.30	)
Reconciliation of clearing broker statements		62,325			0.01
Accrual of expenses		240,854			0.04
Prepaid expenses		(48,456	)		(0.01	)

As restated	$	(1,698,828	)	$	(0.26	)


	For the nine months ended October 31, 2002
	Net loss			Net loss per share
As previously reported	$	(4,502,526	)	$	(0.68	)
Reconciliation of clearing broker statements		(675,570	)		(0.10	)
Accrual of expenses		(413,817	)		(0.06	)
Prepaid expenses		(46,593	)		(0.01	)
Tax benefit		423,180			0.06

As restated	$	(5,215,326	)	$	(0.79	)

The impact on the Statements of Operations, Statements of Financial Condition and Statements of Cash Flows, as a result of the above adjustments, is as follows. The amounts previously reported are derived from the original Form 10-K for the year ended January 31, 2003, as well as the original Form 10-Q for the quarter ended October 31, 2002. The Company also reclassified certain prior year financial statement amounts to conform to the current year presentation.


	For the three months ended October 31, 2002						For the nine months ended October 31, 2002
	Amounts previously reported			As restated			Amounts previously reported			As restated
Statements of Operations:

Revenues
Net trading revenues	$	1,616,809		$	1,671,570		$	6,575,269		$	5,480,159
Commissions		197,048			280,822			563,164			622,338
Underwriting and investment banking fees		—			122,973			—			226,896
Interest and other		135,987			93,853			336,472			292,548


Total revenues		1,949,844			2,169,218			7,474,905			6,621,941


Expenses
Employee compensation and benefits		1,540,565			1,532,423			4,671,910			4,658,474
Execution and clearance charges		383,683			682,662			1,660,443			1,971,184
Communications and data processing		—			487,116			—			1,905,964
Occupancy and equipment rentals		671,184			355,590			1,772,835			1,001,049
Professional fees		276,517			270,015			643,427			535,423
Business development		—			106,035			—			219,405
Depreciation and amortization		—			52,500			—			159,076
Other expenses		1,031,446			378,491			2,805,312			1,377,700


Total expenses		3,903,395			3,864,832			11,553,927			11,828,275


Loss before income taxes		(1,953,551	)		(1,695,614	)		(4,079,022	)		(5,206,334	)
Income tax expense		—			3,214			423,504			8,992


Net loss	$	(1,953,551	)	$	(1,698,828	)	$	(4,502,526	)	$	(5,215,326	)


Basic earnings per share	$	(0.30	)	$	(0.26	)	$	(0.68	)	$	(0.79	)


Diluted earnings per share	$	(0.30	)	$	(0.26	)	$	(0.68	)	$	(0.79	)


Shares used in basic earnings per share calculation		6,608,818			6,606,964			6,606,818			6,606,819


Shares used in diluted earnings per share calculation		6,606,818			6,606,964			6,606,818			6,606,819


	January 31, 2003
	Amounts previously reported			As restated
Statements of Financial Condition:

Assets
Cash and cash equivalents	$	961,465		$	961,465
Deposit with and receivables from brokers and dealers		4,152,243			3,473,248
Securities owned, held at clearing brokers, at market value		1,302,826			1,128,631
Other investments		562,969			778,597
Furniture, equipment, capitalized software and leasehold improvements, net of accumulated depreciation and amortization		840,962			632,334
Receivables from trading and sales personnel		—			730,139
Insurance recovery		—			1,000,000
Income taxes		—			24,669
Other assets		2,700,351			334,095


Total assets	$	10,520,816		$	9,063,178


Liabilities and Stockholders’ Equity
Securities sold but not yet purchased	$	217,777		$	222,663
Accrued compensation expense		254,683			254,682
Accrued NASD arbitration award		5,000,000			5,000,000
Accounts payable and accrued expenses		348,710			1,148,004


Total liabilities		5,821,170			6,625,349


Commitments and contingent liabilities

Subordinated loans		3,000,000			3,000,000


Stockholders’ equity:

Common stock, $0.01 par value, 25,000,000 shares authorized; 10,423,463 shares issued and outstanding at October 31, 2003 and 7,556,964 shares issued and outstanding at January 31, 2003, as restated		75,320			75,570
Unearned compensation		—			(97,071	)
Notes receivable from stock issuance		—			(200,000	)
Additional paid-in capital		12,223,933			16,872,876


Accumulated deficit		(10,599,607	)		(17,213,546	)


Total stockholders’ equity		1,699,646			(562,171	)


Total liabilities and stockholders’ equity	$	10,520,816		$	9,063,178


	For the nine months ended October 31, 2002
	Amounts previously reported			As restated
Statements of Cash Flows:

Net cash used in operating activities	$	(748,768	)	$	(765,262	)

Net cash provided by financing activities		297			297

Net cash provided by investing activities		7,860			24,354

3. Summary of Significant Accounting Policies

Basis and form of presentation

The accompanying unaudited restated financial statements include the accounts of the Company and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim period. Certain footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to SEC rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. The nature of the Company’s business is such that the results of an interim period are not necessarily indicative of the results for the full year. These unaudited restated financial statements should be read in conjunction with the restated financial statements and notes thereto included in the Company’s Amended Annual Report on Form 10-K/A for the year ended January 31, 2003 as filed with the SEC on March 9, 2004.

Certain prior period amounts have been recast to conform to the current year presentation.

Cash and cash equivalents

Cash and cash equivalents represent demand deposit accounts at banks.

Capitalized software

The Company capitalizes certain costs incurred in connection with developing or obtaining internal use software pursuant to Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use . Unamortized capitalized software development costs of $572,138 are carried in furniture, equipment, capitalized software and leasehold improvements in the Statement of Financial Condition as of October 31, 2003. Capitalized software in service is amortized over its estimated useful life of three years.

Other Investments

Other investments, which includes the Company’s investment in ViewTrade, Inc., are accounted for at the lower of cost or fair value. The fair value of other investments, for which a quoted market or dealer price is not available, is based on management’s estimate. Among the factors considered by management in determining the fair value of investments are the financial condition, operating results and cash flows of the issuer, the long-term business potential of the issuer, the terms and liquidity of the investment, the sales price of recently issued securities the quoted market price of securities with similar quality and yield that are publicly traded, and other factors generally pertinent to the valuation of investments

Market-making activities

Securities owned and securities sold but not yet purchased are carried at market value and are recorded on a trade date basis with unrealized gains and losses included in net trading revenue. Net trading revenue (trading gains, net of trading losses) and commissions and related expenses, including compensation and benefits, execution and clearance fees and payments for order flow, are also recorded on a trade date basis. The Company’s clearing agreements call for payment of or receipt of interest income, net of interest expense, for facilitating the settlement and financing of securities transactions.

Estimated fair value of financial instruments

The Company’s securities owned and securities sold but not yet purchased are carried at market value, which is estimated using market quotations available from major securities exchanges and clearing brokers. Management estimates that the fair values of other financial instruments recognized on the Statements of Financial Condition (including receivables, payables and accrued expenses) approximate their carrying values.

Depreciation, amortization and occupancy

Furniture and equipment are being depreciated on a straight-line basis over their estimated useful lives of three to seven years. Leasehold improvements are being amortized on a straight-line basis over the shorter of the estimated useful life of the asset or the remaining life of the related office lease.

Income taxes

The Company files a federal income tax return as well as state income tax returns in certain jurisdictions.

At October 31, 2003 the Company had a Federal net operating loss carryforward of approximately $ 16,000,000. The Federal net operating loss begins to expire in the fiscal year ended in 2022 and expires completely in the fiscal year ended 2023.

In addition, the Company has state net operating loss carryforwards. The state net operating loss carryforwards range by jurisdiction up to approximately $ 22,500,000. These state net operating loss carryforwards expire between fiscal years ended in 2009 and 2010.

Please note that the deferred tax asset is subject to a 100% valuation allowance. Pursuant to SFAS No. 109, as management does not believe that it is more likely than not to realize the benefit of such assets, the deferred tax asset is subject to the valuation allowance.

The following table reconciles the provision to the U.S. federal statutory income tax (benefit) rate:


	For the three months ended October 31, 2003	For the nine months ended October 31, 2003
U.S. federal statutory income tax rate	35.0 %	35.0 %
Valuation allowance	(34.7)%	(34.7)%
Other	(0.5)%	(0.5)%

Effective income tax (benefit) rate	(0.2)%	(0.2)%

Stock-Based Compensation

The Company has established employee stock option plans administered by the Board of Directors. Under the plans, options may be granted to employees of the Company and other qualified individuals up to an aggregate of 7,000,000 shares of Common Stock. As permitted by Statement of Financial Accounting Standards (“SFAS”) No. 123 Accounting for Stock-Based Compensation, the Company accounts for the stock options issued to employees and directors as fixed plan options using the intrinsic value method prescribed by Accounting Principles Board Opinion (“APB”) No. 25, Accounting for Stock Issued to Employees. Accordingly, compensation cost is recorded only to the extent, if any, that the exercise price of the option is less than the market price of the underlying common stock on the date of grant. Any such compensation expense is charged to income over the service period (vesting period).

As required by SFAS No. 123, stock options issued to other than employees or directors are valued at fair value, using the Black-Scholes option pricing model, and the value of the options is charged to expense as the options vest.

As required by SFAS No. 123, as amended by SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure (“SFAS 148”), the Company has computed for pro forma disclosure purposes, the fair value of options granted to employees and directors using the Black-Scholes option pricing model. It should be noted that the Black-Scholes option-pricing model was developed for use in estimating the fair value of the traded options, which have no vesting restrictions and are fully transferable, and therefore are different from employee and director options which have both vesting and transfer restrictions which may affect their value. In addition, option valuation models required the input of highly subjective assumptions including the expected stock price volatility. In applying the Black-Scholes option pricing model, the Company used the following assumptions:


	For the three months ended October 31,
	2003		2002
Risk free interest rate	2.84	%	2.77	%
Weighted average expected life of options (years)	4.00		4.00
Expected volatility of Company’s common stock	170	%	168	%
Expected dividends	—		—

The following pro forma information of net loss and net loss per share was determined as if the Company had accounted for the stock option plans under the fair value method of SFAS 123:


	For the three months ended October 31,						For the nine months ended October 31,
	2003			2002			2003			2002
				(restated)						(restated)
Net loss as reported	$	(784,887	)	$	(1,698,828	)		(3,998,922	)	$	(5,215,326	)
Deduct: Total stock-based compensation expense determined under fair value based method for all awards		(205,189	)		(10,269	)		(385,553	)		(10,269	)
Add: Total stock-based compensation expense determined under intrinsic value based method for all awards		24,518			—			198,531			—

Pro forma net loss	$	(965,558	)	$	(1,709,097	)	$	(4,185,944	)	$	(5,225,595	)

Loss per share:
Basic and diluted net loss per share as reported	$	(0.08	)	$	(0.26	)	$	(0.43	)	$	(0.79	)
Basic and diluted net loss per share pro forma	$	(0.10	)	$	(0.26	)	$	(0.45	)	$	(0.79	)

The weighted average fair value of the stock options granted was $2.45 and $0.23 for the three months ended October 31, 2003 and 2002, and $2.34 and $0.23 for the nine months ended October 31, 2003 and 2002, respectively.

Other

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

4. Securities Owned and Securities Sold But Not Yet Purchased

Securities owned and securities sold, not yet purchased are carried at market value and consist of the following:


	October 31, 2003		January 31, 2003
			(restated)
Securities owned:
Equities	$	1,879,728	$	1,098,819
State and Municipal Obligations		20,504		27,325
Other		2,493		2,487

	$	1,902,725	$	1,128,631

Securities sold but not yet purchased:
Equities	$	767,226	$	222,663

5. Deposits with and Receivables from Brokers and Dealers

Amounts receivable from brokers and dealers consist of the following:


	October 31, 2003		January 31, 2003
			(restated)
Receivables:
Clearing brokers	$	4,069,372	$	2,964,398
Other		508,850		508,850

	$	4,578,222	$	3,473,248

Amounts receivable from clearing brokers represents interest bearing cash balances including, or net of, amounts related to securities transactions that have not yet reached their contracted settlement date, which is generally within three business days of the trade date. Other receivables consist of a deposit with Bear Stearns, the Company’s previous clearing broker, which is being held subject to the resolution of the CVI Group matter discussed in note 20 of Part II, Item 8 ‘Financial Statements and Supplementary Data’ in the Amended Form 10-K/A for the year ended January 31, 2003.

6. Significant Customers

The Company considers significant customers to be customers who account for 10% or more of the total trades by the Company during the period. The Company had two such significant customers accounting for 25% and 12% of the total trades, respectively during the quarter ended October 31, 2003. These two customers accounted for 23% and 13% of the total trades for the nine months ended October 31, 2003.

The Company’s customers include both institutions and broker-dealers. Institutional clients primarily include mutual funds, pension plans, plan sponsors, hedge funds, trusts and endowments. Broker-dealer clients include global, national and regional broker-dealers and on-line brokers.

7. Commitments and Contingent Liabilities

The nature of the Company’s business subjects it to claims, lawsuits, regulatory examinations, and other proceedings in the ordinary course of business. While the Company is contesting liability and/or the amount of damages in each pending matter, the ultimate outcome of the matters and claims pending against the Company cannot be determined at this time, and the results of these matters cannot be predicted with certainty. There can be no assurance that these matters will not have a material adverse effect on the Company’s results of operations in any future period, depending partly on the results for that period, and a substantial judgment could have a material adverse impact on the Company’s financial condition, results of operations, or cash flows. However, it is the opinion of management, after consultation with legal counsel, that the ultimate outcome of these existing claims and proceedings will not have a material adverse impact on the financial condition, results of operations, or cash flows of the Company. For further information, see note 20 of Part II, Item 8 ‘Financial Statements and Supplementary Data’ in the Amended Annual Report on Form 10-K/A for the fiscal year ended January 31, 2003.

The Company indemnifies its clearing broker for losses that it may sustain from the customer accounts introduced by the Company and carried by the clearing broker. These processes are monitored by the clearing-broker. In accordance with applicable margin lending practices, customer balances are typically collateralized by customer securities or supported by other types of recourse provisions.

The Company leases office space under noncancelable operating leases. The office leases contain certain escalation clauses whereby the rental commitments may be increased if certain conditions are satisfied and specify yearly adjustments to the lease amounts based on annual adjustments to the Consumer Price Index. Rental expense under the office leases was $240,340 and $217,608 for the three months ended October 31, 2003 and 2002, respectively. For the nine months ended October 31, 2003 and 2002, rental expense was $680,228 and $652,823 respectively.

The Company leases certain computer and other equipment under noncancelable operating leases. As of October 31, 2003, future minimum rental commitments under all noncancelable office leases, computer leases and equipment leases were as follows :


	Office Leases		Other Obligations		Total
Three months ended January 31, 2004	$	249,953	$	34,296	$	284,249
Year ended January 31, 2005		958,090		137,186		1,095,276
Year ended January 31, 2006		884,450		11,432		895,882
Year ended January 31, 2007		905,946		—		905,946
Year ended January 31, 2008		921,300		—		921,300
Thereafter through July 31, 2011		3,128,747		—		3,128,747

	$	7,048,486	$	182,914	$	7,231,400

In addition, the Company has entered into guaranteed employment contracts with certain of its employees of approximately $1,750,000 for the year ended January 31, 2004, $1,650,000 for the year ended January 31, 2005 and $675,000 for the year ended January 31, 2006. During the year ended January 31, 2004, these employees forfeited $557,853 of compensation payments.

8. Earnings per Share

Basic earnings per common share (“EPS”) have been calculated by dividing net loss by the weighted average shares of Common Stock outstanding during each respective period. Diluted EPS reflects the potential reduction in EPS using the treasury stock method to reflect the impact of common share equivalents if stock awards such as stock options and restricted stock were exercised or converted into common stock.

The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the three and nine months ended October 31, 2003 and 2002:


	For the three months ended October 31,
	2003						2002
	Numerator/ net loss			Denominator/ shares			Numerator/ net loss (restated)			Denominator/ shares (restated)
Loss and shares used in basic calculations	$	(784,887	)		9,955,182		$	(1,698,828	)		6,606,964
Effect of dilutive stock based awards		—			—			—			—
Loss and shares used in diluted calculations	$	(784,887	)		9,955,182		$	(1,698,828	)		6,606,964
Basic earnings per share				$	(0.08	)				$	(0.26	)
Diluted earnings per share				$	(0.08	)				$	(0.26	)


	For the nine months ended October 31,
	2003						2002
	Numerator/ net loss			Denominator/ shares			Numerator/ net loss (restated)			Denominator/ shares (restated)
Loss and shares used in basic calculations	$	(3,998,922	)		9,264,864		$	(5,215,326	)		6,606,819
Effect of dilutive stock based awards		—			—			—			—
Loss and shares used in diluted calculations	$	(3,998,922	)		9,264,864		$	(5,215,326	)		6,606,819
Basic earnings per share				$	(0.43	)				$	(0.79	)
Diluted earnings per share				$	(0.43	)				$	(0.79	)

At October 31, 2003 and 2002, respectively, 5,416,727 and 1,728,947 stock options were outstanding but were considered anti-dilutive and were properly excluded from the calculation of weighted average shares for diluted EPS.

9. Stock-Based Compensation

The Company established the 2003 Equity Incentive Plan, 2000 Stock Option Plan, and 1993 Employee Stock Option Plan (together, the “Plans”) to provide long-term incentive compensation to selected employees, officers, directors and independent contractors of the Company. The Plans are administered by the compensation committee of the Company’s Board of Directors, and allow for the grant of options as defined by the Plans.

It is the Company’s policy to grant options for the purchase of shares of Common Stock at or about fair market value, which the 2003 Equity Incentive Plan defines as a default of the average of the high and low closing price of Common Stock of the five trading days prior to the grant date. Options and awards generally vest over a defined period and expire on the fifth anniversary of the grant date, pursuant to the terms of the option agreement.

The Company’s 162(m) Committee sets performance based compensation for the Company’s CEO and key executive officers, certifies the results of such performance at the end of the annual performance period and awards the resulting performance-based compensation to such key executives.

10. Net Capital Requirements

As a registered broker-dealer, the Company is subject to regulatory requirements intended to ensure the general financial soundness and liquidity of broker-dealers and requiring the maintenance of minimum levels of net capital, as defined in SEC Rule 15c3-1. These regulations also prohibit a broker-dealer from repaying subordinated borrowings, paying cash dividends, making loans to its parent, affiliates or employees, or otherwise entering into transactions which would result in a reduction of its total net capital to less than 120% of its required minimum capital. Moreover, broker-dealers are required to notify the SEC prior to repaying any subordinated borrowings, paying dividends and making loans to its parent, affiliates or employees, or otherwise entering into transactions, which, if executed, would result in a reduction of 30% or more of its excess net capital (net capital less minimum requirement). The SEC has the ability to prohibit or restrict such transactions if the result is detrimental to the financial integrity of the broker-dealer. At October 31, 2003, the Company had net capital of $1,367,292, which was $367,292 in excess of its minimum net capital requirement of $1,000,000.

11. Related Parties

The Company has retained an interest in ViewTrade of approximately 15% through ViewTrade’s acquisition of the Company’s former subsidiary, EMeyerson.com, Inc . This investment is $104,474 as at October 31, 2003 and January 31, 2003 and is included in ‘Other Investments’ in the Consolidated Statements of Financial Condition. Licensing fees for use of software provided by ViewTrade was $23,370 and $40,727 for the three and nine months ended October 31, 2003, respectively and is included in ‘Communications and Data Processing’ in the Consolidated Statement of Operations. ViewTrade subleases space from the Company which resulted in sublease income of $48,703 and $81,272 for the three months ended October 31, 2003 and 2002, respectively and $165,608 and $170,505 for the nine months ended October 31, 2003 and 2002, respectively. This income is included in ‘Other Income’ in the Consolidated Statements of Operations.

12. Significant Transactions

The Company established the 2003 Equity Incentive Plan (the “Plan”) approved by the Board of Directors on March 31, 2003, with amendments approved on September 3, 2003, and final approval granted by shareholders at the Annual Meeting on October 16,2003, to provide employees, non-employees and independent contractors incentives to increase their proprietary interest in the Company’s business. The Plan is administered by a committee established by the Company’s Board of Directors, and allow for the grant of ‘incentive stock options’ and nonqualified options to those selected by the committee in its sole discretion. It is the Company’s policy to grant options for the purchase of shares of Common Stock at or about fair market value, which the Plan defines as a default of the average of the high and low closing price of Common Stock of the five trading days prior to the grant date. Options and awards generally vest over a defined period and expire on the fifth anniversary of the grant date, pursuant to the terms of the option agreement. The Company has the right to fully vest employees in their option grants upon retirement. The Company granted 3,521,117 options under this Plan on October 27, 2003.

On October 16, 2003, the Company’s shareholders approved a change in our corporate name to Crown Financial Group, Inc.

On October 16, 2003, the Company took possession of municipal bonds from J.S.A. Investments LLC that were subsequently liquidated into cash on October 17, 2003. The registrant assumed title of the proceeds from the liquidation in the amount of $1.7 million on October 17, 2003. This equity contribution added $1.7 million cash to the Company’s equity and did not create any liability or require any financial consideration on behalf of the registrant. J.S.A. Investment LLC is a limited liability company managed by Joelle A. Meyerson, the spouse of the Company’s founder and former Chief Executive Officer, Martin H. Meyerson.

On October 30, 2003 the Company completed a conversion, with NASD approval, of $1,000,000 in subordinated indebtedness into equity. Pursuant to this conversion, $1,000,000 of subordinated debt was tendered in exchange for the issuance of registrant’s common stock. The $1,000,000 consisted of two loans each with a principal amount of $500,000. The loans were with John P. Leighton, the Company’s Chairman, Chief Executive Officer and President; and Joelle A. Meyerson, the spouse of the Company’s former founder and Chief Executive Officer, Martin H. Meyerson, respectively. As a result of these transactions, the Company’s stockholders’ equity increased by $1,000,000 and its liabilities decreased by $1,000,000.

Commencing in October 2003, the Company sold in a series of private offerings shares of Company common stock that were offered without registration and subject to restrictions under the Securities Act of 1933, as amended (“Securities Act”), and the securities laws of certain states, in reliance on the private offering exemptions contained in Sections 4(2), 4(6) and/or 3(b) of the Securities Act and on Regulation D promulgated thereunder, and in reliance on similar exemptions under applicable state laws (the “Private Placement”). The Private Placement raised $100,000 in October 31, 2003 through the issuance of 28,986 shares of common stock by purchases from the Company’s Chairman and Chief Executive Officer, John P. Leighton.

Certain members of the Company’s management agreed to forgo salary. Total salary forfeitures during the three and nine months ended October 31, 2003 was $137,500 and $393,269, respectively.

Item 2.

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

GENERAL

The following discussion of the Company’s financial condition and results of operations has been revised to reflect the restatement. In addition, the Company updated its disclosure with respect to recently issued accounting standards and critical accounting policies, and revised quantitative and qualitative disclosures about market risk The following discussion should be read in conjunction with the restated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q as well as the amended Annual Report on Form 10-K/A.

RESTATEMENT OF 2003, 2002 and 2001 FINANCIAL STATEMENTS

We have restated our financial statements for the years ended January 31, 2003, 2002 and 2001, including the corresponding interim periods, and the quarterly periods ended April 30, 2003 and July 31, 2003.

As discussed in Note 2 of Notes to restated Consolidated Financial Statements included elsewhere in the Quarterly Report, set forth below are the principal restatement adjustments included in the restatement of the previously issued financial statements:

•

Other adjustments.

Each of the restatement adjustments are described further below:

Adjustments to clearing broker balances:

As a result of errors and omissions in the reconciliation of the Company’s accounting records to the statements from dealers and clearing brokers, amounts reflected as revenues and net securities owned were overstated and trading accounts were double counted. The restatement has led to a reduction in the net securities owned/sold and receivable from broker-dealers’ balances in the Statement of Financial Condition of $1,194,025 as at January 31, 2003. In the Statements of Operations for the three and nine months ended October 31, 2002, this adjustment has led to net movements in trading revenues, commissions, clearing costs and other trading expenses consisting of an aggregate increase of $62,325 ($0.01 per share) and an aggregate decrease of $675,570 ($0.10 per share), respectively.

Adjustments to expenses and accruals:

Adjustments to prepaid expenses:

Adjustments to the consolidation and sale of subsidiary:

Adjustments to compensation and consulting expense due to issuance of stock options:

Adjustments to various classifications within the Statements of Operations and the Statements of Financial Condition:

Other adjustments:

A number of other adjustments to the Company’s previously filed financial statements are also necessary, most notably:

The Company discovered a reduction to the tax benefit recorded for the year ended January 31, 2002 of $423,180 or $0.06 per share, that was originally recorded in the quarter ended April 30, 2002 instead of in the year ended January 31, 2002. This adjustment has been reflected in the Statements of Operations for the six months ended July 31, 2002, and in the year ended January 31, 2002.

The following summarizes the effect of these adjustments on the previously reported net loss and net loss per share:


	For the three months ended October 31, 2002
	Net loss			Net loss per share
As previously reported	$	(1,953,551	)	$	(0.30	)
Reconciliation of clearing broker statements		62,325			0.01
Accrual of expenses		240,854			0.04
Prepaid expenses		(48,456	)		(0.01	)

As restated	$	(1,698,828	)	$	(0.26	)


	For the nine months ended October 31, 2002
	Net loss			Net loss per share
As previously reported	$	(4,502,526	)	$	(0.68	)
Reconciliation of clearing broker statements		(675,570	)		(0.10	)
Accrual of expenses		(413,817	)		(0.06	)
Prepaid expenses		(46,593	)		(0.01	)
Tax benefit		423,180			0.06

As restated	$	(5,215,326	)	$	(0.79	)

Forward Looking Information

This report contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and information relating to the Company that are based on management’s exercise of business judgment as well as assumptions made by and information currently available to management. When used in this document, the words “anticipate,” “believe,” “estimate,” “expect,” and “intend” and words of similar import, are intended to identify any forward-looking statements. You should not place undue reliance on these forward-looking statements. These statements reflect our current view of future events and are subject to certain risks and uncertainties as noted below. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results could differ materially from those anticipated in these forward-looking statements.

Although we believe that our expectations are based on reasonable assumptions, we can give no assurance that our expectations will materialize. Many factors could cause actual results to differ materially from our forward-looking statements. Several of these factors include, without limitation the Company’s ability to:

•

finance and manage expected growth;

•

provide ongoing competitive services and pricing;

•

retain and attract key personnel;

•

attract new subscribers while minimizing subscriber attrition;

•

address legal proceeding in a effective manner;

•

the adoption of new, or changes in, accounting principles;

•

the value of our securities positions and our ability to manage the

•

risks attendant thereto;

•

the volume of our market-making activities;

•

the dollar value of securities traded;

•

volatility in the securities markets;

•

the demand for our investment banking and advisory services;

•

investor sentiment;

•

seasonality;

•

our ability to manage personnel, overhead and other expenses;

•

changes in payments for order flow and clearing costs;

•

the changes in senior management and sales, trading and technology

•

professionals;

•

legislative, legal and regulatory changes;

•

regulatory matters;

•

professional fees related to the restatement

•

technological changes and events; and

•

competition and market and macroeconomic conditions.

We undertake no obligation and do not intend to update, revise or otherwise publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of any unanticipated events.

Overview

Certain Factors Affecting Results of Operations

Our results of operations may be materially affected by market fluctuations, industry and regulatory changes and by economic factors. We have experienced, and expect to continue to experience, significant fluctuations in operating results due to a variety of factors, including, but not limited to:

•

the value of our securities positions and our ability to manage the associated risks

•

the volume of our market-making activities

•

the dollar value of securities traded

•

volatility in the securities markets

•

the demand for our investment banking and advisory services

•

investor sentiment

•

seasonality

•

our ability to manage personnel, overhead and other expenses

•

changes in payments for order flow and clearing costs

•

the changes in senior management and sales, trading and technology professionals

•

legislative, legal and regulatory changes

•

regulatory matters

•

technological changes and events; and

•

competition and market and macroeconomic conditions.

Such factors may also have an impact on our ability to achieve our strategic objectives, including, without limitation to, increases in our market share and revenue capture in our market-making operations. If demand for our market-making services declines and we are unable to adjust our cost structure on a timely basis, our operating results could be materially and adversely affected.

As a result of the foregoing factors, period-to-period comparisons of our revenues and operating results are not necessarily meaningful and such comparisons cannot be relied upon as indicators of future performance. There also can be no assurance that we will be able to return to profitability.

Revenues

Our revenues consist principally of net trading revenue from U.S. securities market-making activities. Net trading revenue, which consists of trading gains net of trading losses and commission equivalents, is primarily affected by changes in U.S. equity trade and share volumes, our average revenue capture per share, dollar value of equities traded, our ability to derive trading gains by taking proprietary positions, changes in our execution standards, volatility in the marketplace, our mix of broker-dealer and institutional clients and by regulatory changes and evolving industry customs and practices.

Securities transactions with clients are executed as principal, riskless principal or agent. Profits and losses on principal transactions and commission equivalents on riskless principal transactions are included within net trading revenue, and commissions earned on agency transactions are included within commissions. We execute the majority of our institutional client orders on a riskless principal or agency basis, generating commission equivalents or commissions. We execute the majority of our broker-dealer client orders as principal. We also receive fees for providing certain information to market data providers and for directing trades to certain destinations for execution. Commissions and fees are primarily affected by changes in our trade and share volumes in listed securities and changes in commission rates.

We also earn commissions from our retail customers, which are primarily affected by changes in our retail customers’ trade and share volume, changes in the number of retail customer accounts, as well as changes in commission rates. As a part of the new management’s focus on market making activities, the Company intends to exit the retail business, and has made arrangements to transfer certain of our retail customer accounts to GunnAllen Financial, Inc. by the end of March 2004.

We earn underwriting and advisory fees from our corporate clients, mostly on a referral basis. Underwriting and investment banking fees are primarily affected by the level of underwriting and advisory assignments we obtain, as well as volatility in the marketplace and investor sentiment.

We earn interest income from our cash held at banks and cash held in trading accounts at clearing brokers. The Company’s clearing agreements call for payment or receipt of interest income, net of transaction-related interest charged by clearing brokers for facilitating the settlement and financing of securities transactions. Net interest is primarily affected by interest rates, the changes in cash balances held at banks and clearing brokers and our level of securities positions owned compared to our securities positions in which we are short.

Expenses

Our principal operating expenses consist of employee compensation and benefits, execution and clearance charges, and communication and data processing.

•

Employee compensation and benefits expense primarily consists of salaries and wages paid to all employees and profitability based compensation, which includes compensation paid to market-making and sales personnel primarily based on their individual and overall performance and incentive compensation paid to other employees based on our overall profitability. Compensation for employees engaged in sales activities is determined primarily based on a percentage of their gross revenues net of expenses including payments for execution and clearance costs and overhead allocations. Employee compensation and benefits expense fluctuates, for the most part, based on changes in net trading revenue, our profitability and our number of employees.

•

Execution and clearance fees primarily represent clearance fees paid to clearing brokers for equities transactions, transaction fees paid to Nasdaq, execution fees paid to third parties, primarily for executing trades in listed securities on the NYSE and AMEX, and for executing orders through ECNs. Execution and clearance fees primarily fluctuate based on changes in equity trade and share volume, clearance fees charged by clearing brokers and fees paid to access ECNs and exchanges.

•

Communications and data processing expense primarily consists of costs for obtaining market data, telecommunications services and systems maintenance. Communication and data processing fees primarily fluctuate based on changes in equity trade and share volume.

Other operating expenses are:

•

Occupancy and equipment rentals expense, which primarily consists of rental payments on office and equipment leases.

•

Professional fees, which consist of legal, auditing and other professional fees, as well as fees paid to computer programming, systems and management consultants.

•

Business development expense, which primarily consists of travel, sales and advertising costs.

•

Depreciation and amortization expense from the depreciation of furniture and equipment and the amortization of leasehold improvements.

•

Other expenses, which primarily consist of administrative expenses and other operating costs such as regulatory fees and general office expenses.

Results of Operations

Three Months Ended October 31, 2003 and 2002 (RESTATED)

The net loss for the three months ended October 31, 2003 was $784,887, resulting in a loss per share on a fully diluted basis of $0.08. This compares to a net loss of $1,698,828 and a loss per share of $0.26 on a fully diluted basis for the comparable period in 2002. In the three months ended October 31, 2003, total revenues increased 163.0% to $5,704,038 from $2,169,218 for the comparable period in 2002, primarily due to an increase in trading and commission revenues. This is a result of the Company’s strategic restructuring and the hiring of experienced professionals to accomplish its new vision.

Expenses increased 67.7% in the three months ended October 31, 2003 to $6,480,605 from $3,864,832 in the comparable period in 2002. The increase is directly related to the increased level of trading activity and the restructuring.

The Company has provided a full valuation allowance related to potential future tax benefits associated with the tax loss carry forward and current year losses.

Revenues

Net trading revenue increased 213.2% to $5,235,371 in the three months ended October 31, 2003, from $1,671,570 for the comparable period in 2002. The increase was primarily due to the continued implementation of our new business plan, including the additions of highly skilled professionals.

Commissions increased 9.8% to $308,214 for the three months ended October 31, 2003, from $280,822 in the comparable period for 2002. The increase reflects a growth in the Company’s sales business.

Underwriting and investment banking fees decreased 39.8% to $74,017 for the three months ended October 31, 2003, from $122,973 in the comparable period in 2002. This decrease is due to fewer investment banking introductory fees.

Interest and other revenues decreased 7.9% to $86,436 for the three months ended October 31, 2003, from $93,853 in the comparable period for 2002.

Expenses

Employee compensation and benefits expense increased 106.4% to $3,163,624 for the three months ended October 31, 2003, from $1,532,423 in the comparable period in 2002. This increase was due to the increased productivity of traders as well as additions to management and administrative personnel, offset by the compensation payments of $137,500 forfeited by employees during the three months ended October 31, 2003.

Execution and clearance fees increased 48.2% to $1,012,019 in the three months ended October 31, 2003, from $682,662 for the comparable period in 2002, due to the increase in equity trades executed.

Communications and data processing increased 20.9% to $588,815 in the three months ended October 31, 2003, from $487,116 for the comparable period in 2002, due to increased headcount and increased trade volumes

Occupancy and equipment rental expense decreased to 4.0% to $341,443 for the three months ended October 31, 2003, compared to $355,590 for the comparable period in 2002.

Professional fees increased 93.9% to $523,532 in the three months ended October 31, 2003, from $270,015 for the comparable period in 2002. The increase related primarily to the development of new products and to ongoing litigation in connection with the legal matters detailed in our Amended Form 10-K/A for the year ended January 31, 2003.

Business development expense increased 54.3% to $163,590 for the three months ended October 31, 2003, from $106,035 for the comparable period in 2002. The increase reflects management’s efforts to communicate the new capabilities of the Company to the market place.

Depreciation and amortization was $54,556 for the three months ended October 31, 2003, compared to $52,500 for the comparable period in 2002.

Other expenses increased 67.2% to $633,026 for the three months ended October 31, 2003, from $378,491 for the comparable period in 2002. The increase is primarily related to a settlement with the NASD related to alleged rule violations and an increase in software licensing fees in connection with the development of technology-based trading solutions.

Nine Months Ended October 31, 2003 and 2002 (RESTATED)

The net loss for the nine months ended October 31, 2003 was $3,998,922, resulting in a loss per share on a fully diluted basis of $0.43. This compares to a net loss of $5,215,326 and a loss per share of $0.79 on a fully diluted basis for the comparable period in 2002. In the nine months ended October 31, 2003, total revenues increased 97.0% to $13,044,750 from $6,621,941 for the comparable period in 2002, due to an increase in trading and commission revenues. This is a result of the Company’s strategic restructuring and hire of proven professionals to accomplish its new vision.

Expenses increased 43.9% in the nine months ended October 31, 2003 to $17,019,657 from $11,828,275 in the comparable period in 2002. The increase is directly related to the increased level of trading activity and professional fees.

The Company has provided a full valuation allowance related to potential future tax benefits associated with the tax loss carry forward and current year losses.

Revenues

Net trading revenue increased 110.9% to $11,558,311 in the nine months ended October 31, 2003, from $5,480,159 for the comparable period in 2002. The increase was primarily due to increased trade volumes due to an improved marketplace, and the implementation of our new business plan, including the additions of skilled professionals.

Commissions increased 56.5% to $973,851 for the nine months ended October 31, 2003, from $622,338 in the comparable period for 2002. The increase reflects a growth in the Company’s institutional sales business, improved market conditions and customers selecting agency transactions instead of net trading.

Underwriting and investment banking fees was $234,889 for the nine months ended October 31, 2003, from $226,896 in the comparable period in 2002.

Interest and other revenue decreased by 5.1% from $277,699 for the nine months ended October 31, 2003, to $292,548 in the comparable period in 2002.

Expenses

Employee compensation and benefits expense increased 70.7% to $7,952,412 for the nine months ended October 31, 2003, from $4,658,474 in the comparable period in 2002. This increase was due to the increased productivity of traders as well as strategic additions to management and administrative personnel, offset by the compensation payments of $393,269 forfeited by employees during the nine months ended October 31, 2003.

Execution and clearance fees increased 47.9% to $2,915,796 in the nine months ended October 31, 2003, from $1,971,184 in the comparable period in 2002. The increase is due to higher trade and sales volumes. As our net trading revenues expanded substantially by 110.9%, the execution and clearance fees were more moderately affected due to a negotiation of more favorable arrangements with our clearing brokers.

Communications and data processing decreased 13.8% to $1,644,726 in the nine months ended October 31, 2003, from $1,905,964 for the comparable period in 2002, due to management’s curtailment of unnecessary services.

Occupancy and equipment rental expense increased to 1.7% to $1,018,431 for the nine months ended October 31, 2003, compared to $1,001,049 for the comparable period in 2002. The increase was due to the new property space being leased in London that commenced on September 1, 2003.

Professional fees increased 226.1% to $1,746,164 in the nine months ended October 31, 2003, from $535,423 for the comparable period in 2002. This increase relates primarily to the development of new products and to ongoing litigation associated with the matters described in our Amended Form 10-K/A for the year ended January 31, 2003.

Business development expense increased 81.5% to $398,125 for the nine months ended October 31, 2003, from $219,405 for the comparable period in 2002. The increase primarily reflects management’s efforts to communicate the new capabilities of the Company to the market place.

Depreciation and amortization expenses was $158,724 for the nine months ended October 31, 2003, compared to $159,076 for the comparable period in 2002.

Other expenses decreased by 13.9% to $1,185,279 for the nine months ended October 31, 2003, compared to $1,377,700 for the comparable period in 2002. The additional expense in 2002 is primarily related to a settlement with the NASD related to alleged rule violations.

Liquidity and capital resources

The Company’s restated statements of financial position reflect a liquid financial position as cash and assets readily convertible to cash, principally receivables from brokers and dealers and securities owned ) represent 69% and 59% of total assets at October 31, 2003 and January 31, 2003, respectively. Receivables from brokers and dealers include interest-bearing cash balances held with clearing brokers, including, or net of, amounts related to securities transactions that have not yet reached their contracted settlement date, which is generally within three business days of the trade date. Securities owned principally consist of equity securities that trade on Nasdaq, on the OTC Bulletin Board and in the Pink Sheets.

Net cash used in operating activities for the nine months ended October 31, 2003, was $4,087,451 and $765,262, as restated for the nine months ended October 31, 2002. Our net cash provided by or used in operating activities is materially impacted by changes in our market-making activities: our long and short securities positions, as well as cash and equity balances at our clearing brokers.

Net cash used in investing activities for the nine months ended October 31, 2003 was $439,831 and net cash provided by operating activities for the nine months ended October 31, 2003 was $ 24,354, as restated. The decrease in 2003 was primarily due to the purchase of furniture, equipment and capitalized software, offset by a decrease in other investments.

Net cash provided by financing activities for the nine months ended October 31, 2003 and 2002 was $5,337,303 and $297, respectively. The net increase in 2003 was due to the Company raising additional capital from members of the new management team and other employees in February 2003 by issuing shares of Common Stock for an aggregate purchase price of $638,753. In addition, the Company raised $2,417,500 in a private placement that concluded on June 12, 2003. On October 16, 2003, the Company took possession of municipal bonds from J.S.A. Investments LLC that were subsequently liquidated into cash on October 17, 2003. The registrant assumed title of the proceeds from the liquidation in the amount of $1.7 million on October 17, 2003. This equity contribution added $1.7 million cash to the Company’s equity and did not create any liability. In October 2003 there was also a Private Placement that raised $100,000 through the issuance of 28,986 shares of Common Stock by purchases from the Company’s Chairman and Chief Executive Officer, John P. Leighton.

The Company historically financed its operations with existing capital and funds generated from operations, as well as proceeds from our stock issuances. In addition, the Company received $1,700,000 in an equity contribution agreement as more fully described in Note 12 in the Notes to Financial Statements of this Form 10-Q. Additionally, in private placement transactions, the Company raised $100,000 during October 2003 as more fully described in Note 12 in the Notes to Financial Statements.

The Company maintains cash and securities balances at our clearing brokers, SLK and Fiserv, in accordance with our clearing agreements, which are required for us to conduct our operations. We are required to maintain $1,000,000 in cash and securities at SLK and $100,000 in cash at all times. We maintained cash balance at SLK and Fiserv of $3,738,317 and $331,210 at October 31, 2003, and $2,694,796 and $269,603 at January 31, 2003, respectively. We are restricted from using the cash balances at SLK and Fiserv, based on our margin requirements, which are determined based on our securities inventory levels. In addition, we had $508,695 and $508,850 in cash at Bear Stearns, our former clearing broker, at October 31, 2003 and January 31, 2003, respectively, in connection with a NASD arbitration settlement. The cash balance at Bear Stearns is being held subject to the resolution of the arbitration award related to C.V.I. Group v. M.H. Meyerson & Co., Inc. and Bear Stearns & Co., Inc. (see the section entitled “Legal Proceedings”, in Part I, Item 3 of our Amended Annual Report on Form 10-K/A for the year ended January 31, 2003), and is not available for use by the Company for any other purpose. The restricted cash above is included in “Receivables from brokers and dealers”.

Loss before income taxes, depreciation and amortization was $ 772,011 and $ 1,643,114 for the three months ended October 31, 2003 and 2002, respectively. Depreciation expense was $ 54,556 and $52,500 for the three months ended October 31, 2003 and 2002, respectively.

As a registered broker-dealer, the Company is subject to the requirements of Rule 15c3-1 (the “Net Capital Rule”) under the Securities Exchange Act of 1934, as amended. The rule requires the broker-dealer to have at all times sufficient liquid assets to cover its current indebtedness. Specifically, the Net Capital Rule prohibits a broker-dealer from permitting its “aggregate indebtedness” from exceeding fifteen times its net capital as those terms are defined. On October 31, 2003, the Company’s aggregate indebtedness and net capital were $6,963,483 and $1,367,292, respectively, a ratio of 5.09 to 1.00.

The Company currently does not have any outstanding bank borrowings or long-term debt, and does not have any available lines of credit.

The Company has not declared and paid, nor does it expect to declare and pay any dividends on the Common Stock in the near term.

The Company entered into an NASD approved subordinated loan agreement with Spear, Leeds Kellogg, L.P. dated June 3, 1997 and effective August 1, 1997. The loan is for $2,000,000 and the maturity of the subordinated loan is August 31, 2005. The loan is subject to monthly interest payments at the prime rate and is unsecured.

The Company does not have any additional debt commitments or long-term debt at October 31, 2003.

Contractual Obligations

In connection with its operating activities, the Company enters into certain contractual obligations. The Company’s future cash payments associated with its contractual obligations pursuant to its operating leases and guaranteed employment contracts longer than one year as of October 31, 2003 are summarized below:


	Payments due in
For the year ended January 31	2004		2005-2006		2007-2008		2009-Thereafter		Total
Operating lease contracts(1)	$	284,249	$	1,991,158	$	1,827,246	$	3,128,747	$	7,231,400
Guaranteed employment contracts(1)		1,750,000		2,325,000		—		—		4,075,000

Total	$	2,034,249	$	4,316,158	$	1,827,246	$	3,128,747	$	11,306,400

(1)	See Note 7 to the Consolidated Financial Statements included elsewhere in this document.

During the year ended January 31, 2004, these employees forfeited $557,853 of compensation payments.

The Company’s wholly owned subsidiary, Crown Financial International Limited currently leases approximately 415 square feet of space in an office building known located at 23 Berkeley Square in London, the United Kingdom. The lease was signed on August 19, 2003, and is in effect for 12 months through August 31, 2004. Rent charges on this office for the period from September 1, 2003 to January 31, 2004 was $ 48,068. As of January 31, 2004, future minimum rental commitments under this non-cancelable office lease is $ 10,520 per month through August 31, 2004.

Subsequent Events

Commencing in October 2003, the Company sold in a series of private offerings shares of Company common stock and warrants without registration and subject to restrictions under the Securities Act of 1933, as amended (“Securities Act”), and the securities laws of certain states, in reliance on the private offering exemptions contained in Sections 4(2), 4(6) and/or 3(b) of the Securities Act and on Regulation D promulgated thereunder, and in reliance on similar exemptions under applicable state laws (the “Private Placement”). Subsequent to October 31, 2003, the Company raised $2,001,025 through the issuance of 1,000,132 shares of common stock and 5,000 warrants to the Company’s directors and employees, and private investors through February 25, 2004.

In its November 26, 2003 notice to the Company, the Nasdaq Listing Qualifications Panel (the “Panel”) determined to delist the Company’s securities on the Nasdaq SmallCap Market effective as of December 1, 2003. The Panel’s determination was based, in part, and as a result of the Company’s previously announced discovery of financial misstatements by the Company’s former finance department and the Company’s notice to the marketplace not to rely on the Company’s previously disclosed financial statements until the conclusion of its internal review conducted under the oversight of the Company’s Audit Committee. Following delisting, the Company’s common stock became quoted in the Pink Sheets. The Company’s common stock will not be eligible to trade on the OTC Bulletin Board until the Company becomes current in all of its periodic filings in compliance with the reporting requirements pursuant to Section 13 of the Securities Exchange Act of 1934, as amended. The Company has appealed the decision to the Nasdaq Listing and Hearing Review Council (the “Listing Council”), and filed an appeal on December 11, 2003. However, the appeal did not stay delisting and there is no assurance that the Listing Council will reverse the delisting determination.

Jack Baker, Senior Vice President and Manager of Institutional Sales, voluntarily resigned from the Company effective January 31, 2004.

Critical Accounting Policies

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. We believe that, of our significant accounting policies, the following policies involve a higher degree of judgment.

Market-Making Activities—Securities owned and securities sold but not yet purchased, which primarily consist of listed and OTC stocks and listed options contracts, are carried at market value and are recorded on a trade date basis. Market value is estimated daily using market quotations available from major securities exchanges and dealers. We typically act as principal in market-making activities, and do not receive a fee or commission for making market in these stocks. Net trading revenues are generated from the difference between the price we pay to buy securities and the price we are paid when we sell securities. Volatility of stock prices, which can result in significant price fluctuations in short periods of time, may result in trading gains or losses.

Other investments—Other investments, which is comprised principally of the Company’s investment in ViewTrade, Inc., are accounted for at the lower of cost or fair value. The fair value of other investments, for which a quoted market or dealer price is not available, is based on management’s estimate. Among the factors considered by management in determining the fair value of investments are the financial condition, operating results and cash flows of the issuer, the long-term business potential of the issuer, the terms and liquidity of the investment, the sales price of recently issued securities the quoted market price of securities with similar quality and yield that are publicly traded, and other factors generally pertinent to the valuation of investments. The fair value of these investments is subject to a high degree of volatility and may be susceptible to significant fluctuations in the near term. Investments are reviewed on an ongoing basis to ensure that the valuations have not been impaired.

Stock Options—As permitted by Statement of Financial Accounting Standards (“SFAS”) No. 123 Accounting for Stock-Based Compensation, the Company accounts for the stock options issued to employees and directors as fixed plan options using the intrinsic value method prescribed by Accounting Principles Board Opinion (“APB”) No. 25, Accounting for Stock Issued to Employees. Accordingly, compensation cost is recorded only to the extent, if any, that the exercise price of the option is less than the market price of the underlying common stock on the date of grant. Any such compensation expense is charged to income over the service period (vesting period).

Writedown of Fixed Assets—Writedowns of fixed assets are recognized when it is determined that the carrying amount of the fixed asset is not recoverable or has been impaired. The amount of the writedown is determined by the difference between the carrying amount and the fair value of the fixed asset. In determining recoverability and impairment, an estimated fair value is obtained through research and inquiry of the market participants including but not limited to brokers and appraisers.

Allowance for doubtful accounts—In the third quarter of 2003, the Company recorded an allowance against accounts receivable from trading personnel of $242,029. Accounts receivable from trading representatives represent amounts owed to the Company by its traders and sales persons for draws (i.e., advance compensation payments) in excess of their profits and commissions earned. We have provided an allowance against such receivables for an amount that the new management considers more likely not to be realized. However, estimating the allowance is highly subjective, and estimates may differ significantly from the actual amount because the majority of our traders and sales persons are new to the Company, and the Company’s new management does not have sufficient history of collections from its traders and sales persons. The Company estimates the amount of such allowance based on available industry data on variables such as average employee turnover, as well as the new management’s prior experience in the industry. We will reassess and refine our methodology continuously as the new management accumulates sufficient history of collections from its traders and sales persons.

Recently Issued Accounting Standards

In November 2002, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation (“FIN”) No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45 requires that a liability be recorded in the guarantor’s balance sheet upon issuance of a guarantee. In addition, FIN 45 requires disclosures about the guarantees that an entity has issued, including a rollforward of the entity’s product warranty liabilities. We adopted the disclosure provisions of FIN 45 effective January 31, 2003. The adoption of this Interpretation did not have a material impact on our financial statements.

In November 2002, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue No. 02-3, Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities. EITF Issue No. 02-3 precludes mark-to-market accounting for energy-trading contracts that are not derivatives pursuant to SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. We adopted the provisions of this consensus effective November 1, 2002. The adoption of this consensus had no effect on our financial statements.

In December 2002, the FASB issued SFAS No. 148 (“SFAS No. 148”), Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123. This Statement amends FASB Statement No. 123 (“SFAS No. 123”), Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. We adopted the disclosure provisions of SFAS No. 148 effective January 31, 2003, and continue to follow APB No. 25. The adoption of this statement did not have a material impact on our financial statements.

In January 2003, the FASB issued FIN No. 46, Consolidation of Variable Interest Entities. The FASB subsequently revised and issued FIN No. 46 (Revised) in December 2003. FIN No. 46 requires a company to consolidate a variable interest entity (“VIE”) if the company has variable interests that give it a majority of the expected losses or a majority of the expected residual returns of the entity. Before FIN No. 46, VIEs were commonly referred to as SPEs. As the Company does not have any interests in VIEs, the adoption of this statement will not have an effect on our financial statements.

In April 2003, the FASB issued SFAS No. 149 (“SFAS No. 149”), Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under FASB No. 133 Accounting for Derivative Instruments and Hedging Activities. This Statement is effective for derivative contracts and hedging instruments entered into after June 30, 2003. The adoption of this statement did not have a material impact on our financial statements.

In May 2003, the FASB issued SFAS No. 150 (“SFAS No. 150”), Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity, and imposes certain additional disclosure requirements. The provisions of SFAS No. 150 are effective for financial instruments entered into or modified after May 31, 2003 and must be applied to all financial instruments at the beginning of the third quarter of 2003. The adoption of this statement did not have an effect on our financial statements.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

We employ position management systems that provide real-time, on-line position management and inventory control. We monitor our risks by reviewing trading positions and their appropriate risk measures. We have established a system whereby transactions are monitored by senior management on a real-time basis as are individual and aggregate dollar and inventory position totals and real-time profits and losses. The management of trading positions is enhanced by review of mark-to-market valuations and position summaries on a daily basis.

The fair value of these securities at October 31, 2003 was $1,902,725 in long positions and $767,226 in short positions. The potential change in fair value, using a hypothetical 10% decline in prices, is estimated to be a $113,550 loss as of October 31, 2003, due to the offset of losses in long positions with gains in short positions.

Item 4.

Controls and Procedures

In connection with the preparation and filing of this Quarterly Report on Form 10-Q, the Company, under the supervision and with the participation of the Company’s management, including the company’s new Chief Executive Officer (“CEO”) and new Chief Financial Officer (“CFO”) (collectively “the Certifying Officers”), carried out an evaluation of the effectiveness of its “disclosure controls and procedures” (as the term is defined in the Securities Exchange Act of 1934 (‘the Exchange Act”) Rules 13a-15(e) and 15d-15(e)) as those controls existed as of October 31, 2003 As defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act, as amended, the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, the CEO and CFO have concluded that the Company’s disclosure controls and procedures were not effective for the full quarter ended October 31, 2003 to ensure that material information is recorded, processed, summarized and reported by management of the Company on a timely basis in order to comply with the Company’s disclosure obligations under the Exchange Act, as amended, and the rules and regulations promulgated thereunder. An explanation of the deficiencies and remedies are set forth below. In compliance with Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350), each of the Certifying Officers executed an Officer’s Certification included in this Quarterly Report on Form 10-Q.

In September 2003, the Company hired new accounting and finance personnel. In the course of closing the Company’s books for the month of September 2003, these new accounting and finance personnel discovered and alerted the Company’s management to certain accounting misstatements. Specifically, these finance department personnel discovered that certain assets on the Company’s balance sheet relating to balances held by the Company at its clearing agent, SLK, were overstated, thus requiring an approximate $1.7 million write-down against the Company’s income statement in September 2003. Immediately upon this discovery, the finance department personnel notified the Company’s management, which, in turn, notified the Audit Committee, the Board of Directors, the recently appointed independent auditors, Ernst & Young LLP, and the Company’s former auditors, Sanville & Company.

The Company’s management, under the oversight of the Audit Committee, launched an internal investigation into the nature, effect and reasons for (including the reasons for the failure of the discovery of) these accounting errors. That investigation was intended to identify the nature and financial statement effects of the misstatements, and the persons, if any, responsible for the accounting errors, to designate and implement remedial measures to address consequences of the errors, and to assess the effectiveness of internal controls. For this purpose the Company’s management hired personnel believed to have the necessary experience and expertise who had no connection to the previous management or accounting personnel of the Company and terminated employees that were involved in activities related to the accounting errors. The Company also engaged other independent accountants, who did not and will not provide audit or review services to the Company, to assist with the investigation of the accounting errors. The Company’s management has held regular meetings since the discovery of the accounting errors. These meetings involve communications with the finance department, management personnel and Ernst & Young LLP and updates to the Board of Directors and Audit Committee members. The Company’s relative small size and single geographical location enable the Company’s management to monitor the progress of the ongoing investigation.

The Company concluded its inquiry on March 9, 2004 and has restated all applicable prior financial statements filed with the SEC. The Company’s prior independent auditors, Sanville & Company and Vincent R. Vassallo, have each reissued their reports on their respective audits of the Company’s financial statements. The Company has also restated financial statements for the Quarterly Reports on Form 10-Q for the quarters ended April 30, 2003 and July 31, 2003; and for the Annual Report on Form 10-K for the year ended January 31, 2003.

In the preliminary phases of the investigation the Company concluded that the previous accounting and finance personnel performing the accounting functions during the period in which the errors took place, did not possess adequate experience and expertise. Accordingly, the Certifying Officers have determined that the Company did not have sufficient financial expertise and appropriate systems, and consequently that controls did not operate effectively on a continuous basis throughout the reporting period. As a result, the Certifying Officers determined that the Company did not have an effective internal control environment for the full quarter ended October 31, 2003. The Certifying Officers, with Company’s management, immediately began the process of modifying its systems and financial functions as deemed appropriate in an attempt to ensure the internal controls and disclosure controls and procedures are effective in the future. In particular, the Company noted that it believed that the new Chief Financial Officer appointed in September, 2003, as well as a new corporate controller had the necessary knowledge of and experience in generally accepted accounting principles, the rules and regulations of the Commission, financial reporting practices, and internal controls.

The Company continuously evaluates and monitors the internal controls and disclosure controls and procedures in place. This ensures that the design and operation of the internal controls, and disclosure controls and procedures are reviewed and modified, as determined appropriate, as the operating processes change in relation to the changes of the Company s business resulting from reorganization of management and the addition of adequate lines of business. As of the date of filing of this Quarterly Report on Form 10-Q, except as disclosed above, there have not been any significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

On March 5, 2004, which is within the 90 day period prior to the filing of this Quarterly Report on Form 10-Q, under the supervision and with the participation of the Company’s management, including the Company’s CEO and CFO, the Company carried out a subsequent evaluation of the effectiveness of its “disclosure controls and procedures” (as the term is defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)). Based on this evaluation, the CEO and CFO have concluded that the Company’s newly implemented disclosure controls and procedures implemented since October 2003 are effective to ensure that material information is recorded, processed, summarized and reported by management of the Company on a timely basis in order to comply with the Company’s disclosure obligations under the Exchange Act, as amended, and the rules and regulations promulgated thereunder. No significant changes were made in our internal controls or in other factors that could significantly affect these controls subsequent to the date of this subsequent evaluation.

PART II OTHER INFORMATION

Item 1.

Legal Proceedings

The nature of the Company’s business subjects it to claims, lawsuits, regulatory examinations, and other proceedings in the ordinary course of business. While the Company is contesting liability and/or the amount of damages in each pending matter, the ultimate outcome of the matters described in Note 20 to the Notes to the Consolidated Financial Statements included in Part II, Item 8 of our Amended Annual Report on Form10-K/A, and other proceedings and claims pending against the Company cannot be determined at this time, and the results of these matters cannot be predicted with certainty. There can be no assurance that these matters will not have a material adverse effect on the Company’s results of operations in any future period, depending partly on the results for that period, and a substantial judgment could have a material adverse impact on the Company’s financial condition, results of operations, or cash flows. However, it is the opinion of management at this time, after consultation with legal counsel and information currently available, that the ultimate outcome of these existing claims and proceedings will not have a material adverse impact on the financial condition of the Company, although they might be material to operating results for any particular period, depending, in part upon operating results for that period.

For further information on Legal Proceedings, see the section entitled “Legal Proceedings”, in Part I, Item 3 of our Amended Annual Report on Form 10-K/A for the year ended January 31, 2003. Since the filing of our amended Annual Report on Form 10-K/A on March 9, 2004, and based on management’s review with outside counsel, no material developments have occurred.

The NASD and Net Capital Requirements

As a regulated broker-dealer, the Company is subject to extensive oversight under federal and state laws. Compliance, surveillance of trading issues, common in the securities industry, and which are monitored or reported to the self-regulatory organizations (“SRO”), are reviewed in the ordinary course of business by our primary regulators: the SEC and the NASD. As an order flow execution destination, the Company is named periodically, or is asked to respond to a number of regulatory matters brought by SROs that arise from its trading activity. In some instances, these matters may rise to an SRO disciplinary action and/or civil or administrative action.

The Company has restated its net capital, as defined, in accordance with the restated statement of financial condition for the period from January 31, 2002 to December 31, 2003, and filed amended regulatory reports to the NASD and the SEC contemporaneously with these restated filings. Based on the amended regulatory filings to the NASD and the SEC, as of January 31, 2003, the Company was required to maintain minimum net capital, in accordance with SEC rules, of $1,000,000 and had negative total net capital of approximately $114,958. Contemporaneously with these amended filings, the Company has reported past net capital deficiencies to the NASD.

Additionally, the Company has been under a routine finance and operations review by the NASD staff since February 2003. Prior to this, the Company has also been subject to a special financial examination by the NASD in 2002 covering the periods of April-June 2002 and October-December 2002. On September 17, 2003 and October 22, 2003 respectively, reports were issued by the NASD documenting their findings of the routine finance and operations review in 2003, and the special financial examination in 2002. These reports identified, among other things, certain adjustments to the Company’s financial statements required to correct improper methods utilized by the Company’s former finance and accounting personnel in accruing certain expenses and related liabilities. Our amended regulatory reports filed with the NASD also showed that, for the period from January 31, 2002 to January 31, 2004, the Company had net capital that was less than required by the SEC’s uniform net capital rule in 13 of 25 month-end periods. As a part of the NASD’s ongoing monitoring of our compliance with the SEC’s uniform net capital rule, for a period of time we were furnishing to the NASD our net capital computation on a weekly basis. As of January 31, 2004, the Company had total net capital of approximately $1,921,359, approximately $921,359 in excess of the Company’s minimum net capital requirement of $1,000,000.

The Nasdaq

In its November 26, 2003 notice to the Company, the Nasdaq Listing Qualifications Panel (the “Panel”) determined to delist the Company’s securities on the Nasdaq SmallCap Market effective as of December 1, 2003 (refer to disclosures made in Form 8-K filed with the SEC on November 28, 2003). The Panel’s determination was based on, in part, and as a result of the Company’s previously announced discovery of financial misstatements by the Company’s former finance department and the Company’s notice to the marketplace not to rely on the Company’s previously disclosed financial statements until the conclusion of its internal review conducted under the oversight of the Company’s Audit Committee. The overstatement was discovered during the new finance department’s closing of the Company’s financial records for the month of September 2003. Following delisting from the Nasdaq SmallCap Market, the Company’s common stock became quoted in the Pink Sheets. Since it was not eligible to trade on the OTC Bulletin Board until the Company was current in all of its periodic filings in compliance with the reporting requirements pursuant to Section 13 of the Securities Exchange Act of 1934, as amended. The Company has appealed the decision to the Nasdaq Listing and Hearing Review Council (the “Listing Council”), and filed an appeal on December 11, 2003. However, the appeal did not stay delisting and there is no assurance that the Listing Council will reverse the delisting determination. In the event the Listing Council does not reverse the Panel’s delisting determination, the Company’s securities would remain quoted in the Pink Sheets until and unless the Company determines to seek relisting on Nasdaq.

The SEC

In November 2003 the Company received an informal inquiry from the SEC in response to our discovery of financial misstatements by the Company’s former finance department. In December 2003, the Company commenced a dialogue with the SEC regarding the Company’s discovery of financial misstatements by the former finance department. The Company has maintained an ongoing dialogue with the SEC and intends to continue to cooperate with the SEC in conjunction with the overstatements and restatements.

The Department of Labor

The Company is also subject to oversight by the U.S. Department of Labor in connection with our benefit plan. The annual 401(k) benefit plan audits had not been completed by the prior management on a timely basis. These audits are currently being performed and may lead to further examinations by the Department of Labor.

Item 2.

Changes in Securities and Use of Proceeds

As more fully disclosed in our amended Annual Report on Form 10-K/A filed with the SEC on March 8, 2004, on October 30, 2003, the Company completed a conversion, with NASD approval, of $1 million in subordinated indebtedness into equity. Pursuant to this conversion, $1 million of subordinated debt was tendered in exchange for the issuance of registrant’s common stock. The $1 million consisted of two loans each with a principal amount of $500,000. The loans were with John P. Leighton, the Company’s Chairman, Chief Executive Officer and President; and Joelle A. Meyerson, the spouse of the Company’s former founder and Chief Executive Officer, Martin H. Meyerson, respectively. The common stock totaling 366,838 shares were issued on October 30, 2003, the transaction date, at a price of $2.726 per share, determined by the greater of the: (i) the closing bid price on the date of the transaction; or (ii) the average of the closing bid prices on the five business days preceding the transaction date. The Shares were issued without registration and are subject to restrictions under the Securities Act of 1933.

In October 2003, the Company sold in a series of private offerings shares of Company common stock that were offered without registration and subject to restrictions under the Securities Act, and the securities laws of certain states, in reliance on the private offering exemptions contained in Sections 4(2), 4(6) and/or 3(b) of the Securities Act and on Regulation D promulgated thereunder, and in reliance on similar exemptions under applicable state laws (the “Private Offerings”). The Private Offerings raised $100,000 on October 31, 2003 through the issuance of 28,986 shares of common stock by purchases from the Company’s Chairman and Chief Executive Officer, John P. Leighton.

Subsequent to October 31, 2003, the Company sold shares in private offerings to the following directors and senior and executive officers:


Name	Title	Date	Shares	Cash Consideration
John Leighton	CEO & President	November 17, 2003	53,648	$	125,000
Michael Silver	SVP & Head of OTC Trading	November 17, 2003	53,648	$	125,000
John Leighton	CEO & President	November 21, 2003	21,459	$	50,000
Robert Slezak	Director and Chairman of the Audit Committee	November 21, 2003	85,836	$	200,000
Albert Duncan	Independent Director	November 21, 2003	5,000	$	11,650
Andrew Wimpfheimer	Independent Director	November 21, 2003	128,755	$	300,000
John Cunningham	SVP & Chief Administrative Officer	January 9, 2004	12,500	$	21,875
Michael Silver	SVP & Head of OTC Trading	February 25, 2004	50,000	$	105,000
Robert Thornton	SVP, Controller	February 25, 2004	25,000	$	52,500

The Company sold an additional 564,286 shares and 5,000 warrants in private offerings to non-executive and non-senior officer employees and private investors for a total consideration of $1,010,000 between November 21, 2003 and February 25, 2004. All of the above sales consisted of sales of common stock and warrants without registration and subject to restrictions under the Securities Act and the securities laws of certain states, in reliance on the private offering exemptions contained in Sections 4(2), 4(6) and/or 3(b) of the Securities Act and on Regulation D promulgated thereunder, and in reliance on similar exemptions under applicable state laws.

Proceeds from the issuance of common stock and warrants as described in this Item 2 of this Form 10-Q were used for the Company’s working capital purposes and to increase the Company’s level of shareholders’ equity and the Company’s net capital as defined in SEC Rule 15c3-1.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Submission of Matters to a Vote of Security Holders

The Company held its annual shareholders meeting on October 16, 2003, at which certain matters, such as the amendments to our Certificate of Incorporation, election of members of the board of directors, and approval of the 2003 compensation plan and our external auditors were submitted to a vote of shareholders, and were approved. For a more complete summary of the results of the annual shareholders’ meeting, see the Report on Form 8-K filed October 23, 2003.

Item 5.

Other Information

None.

Item 6.

Exhibits and Reports on Form 8-K

(a) Reports on Form 8-K:

The following reports on Form 8-K were filed during the quarter ended October 31, 2003:

On August 7, 2003 the Registrant filed a Current Report on Form 8-K announcing the extension of the date of maturity of its NASD approved subordinated loan with Spear, Leeds & Kellogg, L.P. from August 31, 2003 to August 31, 2005.

On August 18, 2003 the Registrant filed a Current Report on Form 8-K announcing the change of its market participation identification symbols.

On September 17, 2003 the Registrant filed a Current Report on Form 8-K announcing the appointment of Robert I. Turner as Vice Chairman and Chief Financial Officer and the appointment of Jack Baker as Senior Vice President and Manager of Institutional Sales

On September 17, 2003 the Registrant filed a Current Report on Form 8-K announcing its earnings results for the quarter ended July 31, 2003.

On October 23, 2003 the Registrant filed a Current Report on Form 8-K announcing: (i) the overstatement of certain balance sheet items and its intention to file restated reports upon conclusion of its review being conducted under the oversight of the Audit Committee and (ii) an equity contribution of $1.7 million to the registrant’s equity without any liability or financial consideration on behalf of the registrant; (iii) the results of the Registrant’s annual shareholder’s meeting held on October 16, 2003 and (iv) the change of the Registrant’s publicly traded stock symbol from “MHMI” to “CFGI”.

On October 30, 2003 the Registrant filed a Current Report on Form 8-K announcing Robert L. Slezak joined the registrant’s Board of Directors as the new Chairman of the Audit Committee.

The following reports on Form 8-K were filed subsequent to the quarter ended October 31, 2003:

On November 5, 2003, the Registrant filed a Current Report on Form 8-K announcing that the Registrant completed, with NASD approval, a conversion of $1,000,000 in subordinated indebtedness into equity.

On November 17, 2003, the Registrant filed a Current Report on Form 8-K announcing the modification of its trading symbol effective November 17, 2003 from “CFGI” to “CFGIE” and an update on the Company’s financial review.

On November 28, 2003 the Registrant filed a Current Report on Form 8-K announcing that it will be de-listed from the Nasdaq SmallCap Market effective as of the opening of the market on December 1, 2003 as a result of the Company’s previously announced discovery of financial misstatements.

On December 18, 2003 the Registrant filed a Current Report on Form 8-K announcing: (i) it will not file its Quarterly Report on Form 10-Q for the quarter ended October 31, 2003 until the completion and filing of restated financial reports included in the Registrant’s requisite prior periodic reports affected by the recently uncovered accounting overstatements; and (ii) updates on legal matters.

No financial statements were filed with any of the foregoing financial reports on Form 8-K.

(b) Exhibits


Exhibit No.		Exhibit

3.1	(i)	Restated Certificate of Incorporation of Crown Financial Group, Inc.

10.1		First Amended Employment Agreement dated October 17, 2003 by and between Crown Financial Group, Inc. and John P. Leighton.

10.2		Second Amended Employment Agreement dated December 8, 2003 by and between Crown Financial Group, Inc. and John P. Leighton.

10.3		Third Amended Employment Agreement dated January 16, 2003 by and between Crown Financial Group, Inc. and John P. Leighton.

10.4		Subscription Agreement between Crown Financial Group, Inc and John P. Leighton

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Jersey City, State of New Jersey, on this 9th day of March, 2004.


CROWN FINANCIAL GROUP, INC.

By:		/s/ JOHN P. LEIGHTON
		John P. Leighton Chairman, Chief Executive Officer and President

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