<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: SEPTEMBER 30, 2000
------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For transition period from ____________ to ____________
Commission File No.: 0-22936
-------
CROWN NORTHCORP, INC.
---------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 22-3172740
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1251 DUBLIN ROAD, COLUMBUS, OHIO 43215
--------------------------------------
(Address of principal executive offices)
(614) 488-1169
--------------
(Issuer's telephone number)
N/A
---
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No ___
---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS.
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes ___ No ___
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
As of October 31, 2000, the issuer had 10,946,788 shares of its common
stock, par value $.01 per share, outstanding.
Transitional Small Business Disclosure Format (check one).
Yes No X
--- ---
<PAGE> 2
CROWN NORTHCORP, INC.
FORM 10-QSB
QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
INDEX
PART I-FINANCIAL INFORMATION PAGES
---------------------------- -----
<S> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of September 30, 2000
and December 31, 1999 .................................................................... 1
Condensed Consolidated Statements of Operations for the
third quarter and the nine months ended September 30, 2000 and 1999 ...................... 2
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 2000 and 1999 ............................................ 3
Notes to Condensed Consolidated Financial Statements-
September 30, 2000 and 1999 .............................................................. 4
Item 2. Management's Discussion and Analysis ..................................................... 8
PART II-OTHER INFORMATION
-------------------------
Item 1. Legal Proceeding ......................................................................... 13
Item 2. Changes in Securities ................................................................... 13
Item 3. Defaults Upon Senior Securities .......................................................... 13
Item 4. Submission of Matters to a Vote of Security Holders ...................................... 13
Item 5. Other Information ........................................................................ 13
Item 6. Exhibits and Reports on Form 8-K ......................................................... 14
(a) Exhibits .......................................................................... 14
(b) Reports on Form 8-K ............................................................... 14
Signatures .......................................................................................... 15
Exhibit Index ....................................................................................... 16
</TABLE>
<PAGE> 3
CROWN NORTHCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 2000 1999
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 78,201 $ 2,210,451
Accounts receivable - net $ 358,790 $ 486,166
Prepaid expenses and other assets $ 101,942 $ 93,859
----------- -----------
Total current assets $ 538,933 $ 2,790,476
PROPERTY AND EQUIPMENT - Net $ 203,672 $ 268,794
RESTRICTED CASH $ 500,000 $ 500,000
OTHER ASSETS - net $ 838,888 $ 1,135,704
----------- -----------
TOTAL $ 2,081,493 $ 4,694,974
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES $ 1,217,556 $ 894,917
LONG-TERM OBLIGATIONS:
Notes and bonds payable - less current portion $ 72,497 $ 1,680,000
Allowance for loan losses & other $ 669,672 $ 729,146
----------- -----------
Total long-term obligations $ 742,169 $ 2,409,146
REDEEMABLE PREFERRED STOCK $ 500,000 $ 500,000
SHAREHOLDERS' EQUITY:
Common stock $ 112,609 $ 112,609
Additional paid-in capital $ 6,518,208 $ 6,068,208
Accumulated deficit ($6,941,996) ($5,222,853)
Treasury stock, at cost ($ 67,053) ($ 67,053)
----------- -----------
Total shareholders' equity ($ 378,232) $ 890,911
----------- -----------
TOTAL $ 2,081,493 $ 4,694,974
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE> 4
CROWN NORTHCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THIRD QUARTER
--------------------------------------
2000 1999
--------------------------------------
<S> <C> <C>
REVENUES:
Management fees $ 138,891 $ 560,008
Disposition and incentive fees $ 33,554 $ 631,796
Other $ 281,518 $ 327,078
--------------------------------------
Total revenues $ 453,963 $ 1,518,882
--------------------------------------
EXPENSES:
Personnel $ 688,266 $ 1,074,918
Occupancy, insurance and other $ 278,542 $ 492,724
Interest $ 1,068 $ 41,207
Depreciation and amortization $ 278,942 $ 93,988
--------------------------------------
Total expenses $ 1,246,818 $ 1,702,837
--------------------------------------
INCOME (LOSS) BEFORE NON-RECURRING ITEMS
AND INCOME TAXES $ (792,855) $ (183,955)
NON-RECURRING ITEMS:
Employment contract settlement $ (275,000)
Income (loss) form discontinued operations $ (101,219)
Loss on disposal of European interests, including
$35,000 provision for operating losses during phase-out $ (141,280)
Gain on sale of building $ 56,205
--------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES $ (1,011,650) $ (426,454)
INCOME TAX (BENEFIT) $ 0 $ 0
--------------------------------------
NET INCOME (LOSS) $ (1,011,650) $ (426,454)
======================================
LOSS PER SHARE - BASIC AND DILUTED $ (0.09) $ (0.04)
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 10,759,490 11,176,951
======================================
YEAR TO DATE
---------------------------------
2000 1999
---------------------------------
<S> <C> <C>
REVENUES:
Management fees $ 1,154,568 $ 1,880,801
Disposition and incentive fees $ 233,554 $ 697,978
Other $ 1,057,491 $ 854,174
---------------------------------
Total revenues $ 2,445,613 $ 3,432,953
---------------------------------
EXPENSES:
Personnel $ 2,501,885 $ 3,181,343
Occupancy, insurance and other $ 1,033,278 $ 1,369,926
Interest $ 19,116 $ 141,988
Depreciation and amortization $ 396,935 $ 273,439
---------------------------------
Total expenses $ 3,951,214 $ 4,966,696
---------------------------------
INCOME (LOSS) BEFORE NON-RECURRING ITEMS
AND INCOME TAXES $ (1,505,601) ($ 1,533,743)
NON-RECURRING ITEMS:
Employment contract settlement $ (275,000)
Income (loss) form discontinued operations $ (11,606)
Loss on disposal of European interests, including
$35,000 provision for operating losses during phase-out $ (141,280)
Gain on sale of building $ 86,470 $ 260,616
---------------------------------
INCOME (LOSS) BEFORE INCOME TAXES ($1,694,131) $ (1,426,013)
INCOME TAX (BENEFIT) $ 400 $ 0
---------------------------------
NET INCOME (LOSS) $( 1,694,531) $ (1,426,013)
=================================
LOSS PER SHARE - BASIC AND DILUTED $ (0.16) $ (0.13)
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 10,405,132 11,120,400
=================================
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 5
CROWN NORTHCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(1,694,531) $(1,426,013)
Foreign currency translation adjustment $ 48,457
-------------------------------
$(1,694,531) $(1,377,556)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization 482,418 444,791
Gain on sale of corporate office building (86,470) (260,616)
Other - net - 84,939
Change in operating assets and liabilities:
Accounts receivable 420,646 571,195
Subscription receivable Preferred Stock Series CC (293,270)
Prepaid expenses and other assets (8,083) (12,182)
Accounts payable and accrued expenses 315,245 (402,474)
---------- ----------
Net cash used in operating activities (864,045) (951,903)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of corporate office building 0 1,545,876
Net proceeds from sale of European investment 2,744,000
Decrease in restricted cash 1,555,787
Purchase of property and equipment (22,086) (42,399)
Decrease in goodwill (225,000) -
Distribution from subsidiary 61,828 -
Other 14,556 (103,619)
---------- ----------
Net cash used in investing activities (170,702) 5,699,645
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 297,497 125,000
Principal payments on notes payable (1,845,000) (3,691,236)
Redemption of preferred stock (500,000) -
Proceeds from issuance of preferred stock 500,000
Increase in additional paid-in capital 450,000 -
---------- ----------
Net cash provided (used) by financing activities (1,097,503) (3,566,236)
---------- ----------
NET INCREASE (DECREASE) IN CASH DURING THE YEAR (2,132,250) 1,181,506
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,210,451 1,942,068
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 78,201 $ 3,123,574
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
CASH PAID FOR INTEREST $ 13,383 $ 85,860
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements
3
<PAGE> 6
CROWN NORTHCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
1. GENERAL AND BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of Crown NorthCorp, Inc. and subsidiaries reflect all material
adjustments consisting of only normal recurring adjustments which, in
the opinion of management, are necessary for a fair presentation of
results for the interim periods. Certain information and footnote
disclosures required under generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of
the Securities and Exchange Commission, although the company believes
that the disclosures are adequate to make the information presented not
misleading. These financial statements should be read in conjunction
with the year-end financial statements and notes thereto included in
the company's Form 10-KSB for the year ended December 31, 1999. Certain
reclassifications have been made to the 1999 amounts to conform to the
2000 presentation.
2. LOSS PER COMMON SHARE
The losses per share for the third quarter and nine months ended
September 30, 2000 and 1999 are computed based on the loss applicable
to common stock divided by the weighted average number of common shares
outstanding during each period. The company's Series AA and Series BB
Preferred Stock, which were redeemed in December 1999, contained
beneficial conversion features of $1,997,268 and $500,000 respectively.
The resulting discounts totaling $2,497,268 were recognized as
preferred stock dividends at the dates of issuance since they were
immediately convertible into common shares, resulting in a reduction of
net income (loss) available to common shareholders. As the company had
net losses applicable to common stock for the third quarter and nine
months ended September 30, 2000 and 1999, there are no potential common
shares to be included in the computation of the diluted per-share
amount.
4
<PAGE> 7
3. RECEIVABLES
Receivables consist of the following at September 30, 2000 and December
31, 1999:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Trade $ 164,939 $ 550,818
Affiliated Entities 0 32,130
Preferred Stock Subscription 293,270 0
Shareholders 105 38,218
---------- ----------
Total $ 458,314 $ 621,166
Less: Allowance for doubtful accounts (99,524) (135,000)
---------- -----------
Receivables-net $ 358,790 $ 486,166
========= =========
</TABLE>
The shareholders receivable is for unreimbursed travel expenses that
were reimbursed in July 2000.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at September 30, 2000
and December 31, 1999:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Total property and equipment $1,337,370 $1,323,742
Less accumulated depreciation (1,133,698) (1,054,948)
---------- -----------
Property and equipment - net $ 203,672 $ 268,794
=========== ===========
</TABLE>
5
<PAGE> 8
5. PREFERRED STOCK
Effective September 15, 2000, Crown entered into an agreement to sell
to Crown NorthCorp Limited, a company organized under the laws of the
United Kingdom, for $500,000 cash one share of Series CC Convertible
Preferred Stock, par value $.01 per share. Limited is wholly owned by
Royal Investments Corp.; Royal, in turn, is wholly owned by Ronald E.
Roark, Chairman and Chief Executive Officer of the company. The holder
of the Series CC Preferred is entitled to a liquidation preference of
$500,000 plus interest thereon at the rate of 6% per annum from the
date of issuance. The holder of the Series CC Preferred is also
entitled to quarterly cash dividends of 6% per annum on the liquidation
preference. Such dividends are cumulative and are payable solely to the
extent that corporate funds are legally available for payment thereof
and that Crown's board of directors declares such dividends. At any
time before September 15, 2005, the Series CC Preferred is convertible
at the option of the holder into 5,000,000 shares of Crown's common
stock, par value $.01 per share. At September 30, 2000, the company
carried a subscription receivable of $293,270 attributable to the
Series CC Preferred.
The company had 1,000,000 authorized shares of preferred stock. The
Series CC Preferred is the only preferred stock outstanding.
6. CONTINGENCIES
The company has certain contingent liabilities resulting from
litigation and claims incident to the ordinary course of business. As
to two recently filed lawsuits (one seeking a fee allegedly due under a
financial advisory contract and the other alleging a sum due under a
promissory note) management at this time is unable to predict whether
these matters will materially affect the financial statements of the
company. Management does not believe that the probable resolution of
other contingencies will materially affect the financial statements of
the company.
7. STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities" which establishes accounting and
reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities. The company will be required to implement the provisions of
this statement beginning January 1, 2001. The company does not
anticipate that adoption of this statement will materially impact its
financial position, results of operations or cash flows.
8. SEGMENT INFORMATION
In 1999, the company sold its European operations and curtailed its
mortgage
6
<PAGE> 9
origination businesses, each of which had constituted a business
segment. Crown presently operates in one business segment as determined
in accordance with SFAS No. 131 "Disclosures about Segment of an
Enterprise and Related Information."
7
<PAGE> 10
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS
THE COMPANY'S BUSINESSES
Crown derives its primary revenues from the financial services it provides to
owners and operators of commercial real estate interests. The company's revenues
include loan servicing fees, interest and investment income and third-party
asset management and disposition fees. As revenues have decreased and operating
losses continued, Crown in recent months has reduced staff and closed certain
offices. The company is focusing its resources on restoring profitable
operations in its core businesses.
FORWARD LOOKING STATEMENTS
The statements contained in this report that are not purely historical are
forward-looking statements within the meaning of Section 21E of the Exchange
Act, including statements regarding the company's expectations, hopes,
intentions or strategies regarding the future. Forward-looking statements
include terminology such as "anticipate," "believe," "has the opportunity,"
"seeking to," "attempting," "would," "contemplated," "believes" or comparable
terminology. All forward-looking statements included in this document are based
on information available to the company on the date hereof, and Crown assumes no
obligation to update any such forward-looking statements. It is important to
note that the company's actual results could differ materially from those in
such forward-looking statements. The factors listed below are among those that
could cause actual result to differ materially from those in forward-looking
statements. Additional risk factors are listed from time to time in the
company's reports on Forms 10-QSB, 8-K and 10-KSB.
Among the risk factors that could materially and adversely affect the future
operating results of the company are:
- The company has reduced staff and closed certain offices following a
significant loss of business from a major client earlier this year.
Crown's ability to operate will be impaired if it does not promptly and
successfully restructure its business.
- The company's liquidity remains very limited. To continue to operate,
Crown must increase revenues and achieve profitable operations before
existing capital resources are exhausted.
- While Crown is attempting to restructure, it continues to operate at a
loss. Additional revenues are necessary to eliminate these losses.
- Crown currently operates as a rated servicer, although one rating
agency has classified the company "ratings watch negative." If Crown's
ratings are withdrawn or downgraded, it would limit the company's
ability to conduct business in certain ommercial real estate markets.
The company's financial condition may adversely
8
<PAGE> 11
affect its ratings.
OUTLOOK
Crown offers financial services to the commercial real estate industry including
loan servicing as well as management and advisory services. The company's
business volume has decreased and it has reduced staff and closed certain
offices. Its liquidity and capital resources are very limited. Crown is
attempting to restructure itself in a manner that will allow it to continue to
provide specialized services related to real estate.
As part of its staff reductions, Crown, effective September 1, 2000, entered
into agreements settling and terminating the employment agreements of six
executive officers. In settlement of contractual obligations, the officers as a
group received $100,000 in immediate payments, certain officers are to receive
$125,000 in deferred payments and Crown agreed to assume a certain debt of DRS
Realty Services, Inc.
Effective September 15, 2000, the company agreed to issue one share of Series CC
Convertible Preferred Stock in exchange for total consideration of $500,000. See
"Note 5--Preferred Stock--to the Consolidated Financial Statements."
Loan servicing has been a core business of the company. Crown's servicing
portfolio has reduced in size following the transfer of a large customer
relationship in July 2000. As Crown consolidates and restructures its
operations, the company is evaluating strategic options with respect to the
servicing portfolio.
Crown continues to derive revenue from third-party management. Services in this
area generally include work on assets and financing structures presenting unique
and complex issues. The company anticipates expanding the management services it
offers to holders of real estate interests.
Given the company's limited resources, for the foreseeable future, it does not
intend to engage in mortgage banking for correspondents or other activities not
directly related to its core management and servicing businesses.
For Crown to continue operations, the company must promptly use its limited
capital resources to develop new business to generate increased revenues. There
can be no assurance that any measures the company takes will produce the
intended results or lead to sustained or profitable operations.
RESULTS OF OPERATIONS FOR THE THIRD QUARTER ENDED SEPTEMBER 30, 2000 COMPARED TO
THE THIRD QUARTER ENDED SEPTEMBER 30, 1999
Total revenues decreased $1,064,919 to $453,963 for the third quarter of 2000
from $1,518,882 during the same period in 1999. Management fees decreased
$421,117 to
9
<PAGE> 12
$138,891 in the third quarter of 2000 from $560,008 for the comparable period in
1999. Management fees are recorded as services required under a contract are
performed. As defined in the applicable contracts, they are derived either from
percentages of the aggregate value of assets under management or from original
base monthly amounts and are generally comprised of ongoing fees with the
opportunity for additional, incentive-based compensation at the end of an
engagement. Management fees decreased primarily due to the termination in July
2000 of the servicing contract with the company's largest client.
Disposition fees are recorded as revenue when a disposition has been consummated
and the asset owner has received the gross proceeds from a transaction.
Disposition fees are generally based on a percentage of the proceeds of an asset
disposition, as defined by the contracts, or a fixed amount per disposition.
Certain contracts provide for incentive fees if the company achieves net cash
collections in excess of thresholds established in the contracts. Disposition
and incentive fee revenues decreased to $33,554 in the third quarter of 2000
from $631,796 during the corresponding period in 1999. This revenue component
for 1999 included approximately $572,000 attributable to management and
disposition services provided at market value for a shareholder.
Other revenues for 2000 primarily include interest income, income from joint
ventures and net servicing revenues. Other fees decreased $45,560 to $281,518 in
the third quarter of 2000 from $327,078 in the same period in 1999. The decrease
is attributable to a decrease in interest income resulting from lower escrow
balances on deposit with depository institutions due to the terminated servicing
contract previously mentioned.
Personnel expenses include salaries, related payroll taxes and benefits, travel
and living expenses and professional development expenses. Personnel expenses
decreased $386,652 to $688,266 for the third quarter of 2000 from $1,074,918 for
the same period in 1999. The decreases were primarily caused by lower staffing
levels required due to the reduction in business volume.
Occupancy, insurance and other operating expenses decreased to $278,542 for the
third quarter of 2000 from $492,724 for the third quarter of 1999. The reduction
was due primarily to lower space and operating costs as a result of moves to
smaller, lower-cost office space following lease expirations.
Interest expense decreased $40,139 to $1,068 for the third quarter of 2000 from
$41,207 for the third quarter of 1999. This reduction is directly attributable
to the elimination of the company's operating lines of credit and a reduction in
corporate debt.
Depreciation and amortization increased to $278,942 for the third quarter of
2000 from $93,988 for the corresponding period in 1999. The increase is
primarily due to the write off of $225,000 of goodwill which was associated with
the December 1999 transaction in which Crown assumed the assets and operation of
DRS Realty.
Non-recurring items impacted earnings during the third quarter of 2000 by
$218,795. The majority of this was attributable to the settlement of employment
contracts.
10
<PAGE> 13
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO
THE NINE MONTHS ENDED SEPTEMBER 30, 1999
Total revenues decreased $987,340 to $2,445,613 in the first nine months of 2000
from $3,432,953 during the same period in 1999. Management fees decreased by
$726,233 in 2000 from the comparable period in 1999. Asset management contracts
with various clients, including investment banking firms and partnerships, have
historically provided the company's primary revenues through management,
disposition and incentive fees.
Disposition and incentive fee revenues decreased by $464,424 to $233,554 in the
first nine months of 2000 from $697,978 during the corresponding period in 1999.
Other fees increased $203,317 to $1,057,491 in the first nine months of 2000
from $854,174 for the same period in 1999. Interest income increased $282,379 to
$802,538 for the first nine months of 2000 from $520,159 for the comparable
period in 1999. This was attributable to an increase in interest income
resulting from higher escrow cash balances on deposit with depository
institutions prior to the servicing contract termination previously mentioned.
Income from European operations has been eliminated through the sale of those
operations in 1999.
Personnel expenses decreased $679,458 to $2,501,885 for the first nine months of
2000 from $3,181,343 for the same period in 1999. The decreases are primarily
attributable to lower current staffing levels.
Occupancy, insurance and other operating expenses decreased $336,648 to
$1,033,278 for the first nine months of 2000 from $1,369,926 for the first nine
months of 1999. The decrease is primarily due to reduced operations and lower
space costs.
Non-recurring items impacted earnings during the first nine months of 2000 by
$188,530. The majority of this was attributable to the settlement of employment
contracts.
11
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
Cash and cash equivalents decreased to $78,201 at September 30, 2000 from
$2,210,451 at December 31, 1999. The decrease is primarily attributable to the
repayment of approximately $1,800,000 of short-term debt and to continued
operating losses. The company presently has no bank credit facilities. Crown is
actively seeking to improve its liquidity and operating capacity by generating
revenues from new business.
Crown is incurring operating cash deficits and is presently applying proceeds on
hand toward those deficits. The company anticipates obtaining additional working
capital through the collection of the subscription receivable for the Series CC
Preferred. The company is also seeking new sources of revenues to reduce or
eliminate operating deficits. There can be no assurance that these efforts will
be successful.
HISTORICAL CASH FLOWS
Operating activities used cash flows of $864,045 during the first nine months of
2000 compared to a $951,903 use in the corresponding period of 1999. The use of
funds in 2000 is primarily attributable to the company's net operating loss for
the nine-month period ending September 30, 2000 adjusted for a reduction in
accounts receivable of $420,646 and a $315,245 increase in accounts payable and
short-term debt.
Investing activities used cash flows of $170,702 during the first nine months of
2000. Similar activities provided funds of $5,699,645 during the comparable time
period in 1999. The sale of the corporate headquarters building in May 1999
coupled with the sale of Crown's European operations in August 1999 were the
primary sources of cash during that period.
Financing activities used cash flows of $1,097,503 during the first nine months
of 2000 while using funds of $3,566,236 for the respective time period in 1999.
In January 2000, the company paid off short-term debt totaling $1,760,000. In
addition, the company redeemed $500,000 of preferred stock in March 2000 for a
cash payment of $50,000, increasing paid-in capital by $450,000. The company
also issued Series CC Convertible Preferred Stock in September 2000 resulting in
a net increase in capital for the period of approximately $206,000.
12
<PAGE> 15
PART II-OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS
The company is a party to routine litigation incidental to its business.
Management does not believe that the resolution of the bulk of this litigation
will materially affect the financial position or liquidity of the company. Two
lawsuits have been recently filed against the company: the first seeking a fee
allegedly due under a financial advisory contract and the second alleging a sum
due under a promissory note. While the company believes it has meritorious
defenses to these matters, at this point, management is unable to predict
whether they will materially affect the company's prospects, financial position
or liquidity.
ITEM 2. - CHANGES IN SECURITIES
Effective September 15, 2000, Crown entered into an agreement to sell to Crown
NorthCorp Limited for $500,000 cash one share of Series CC Convertible Preferred
Stock, par value $.01 per share. See "Note 5--Preferred Stock--to the
Consolidated Financial Statements." The Series CC Preferred was issued without
registration pursuant to the exemptions contained in Section 4(2) of the
Securities Act and Rule 506 thereunder based upon the accreditation of the
purchaser and the size of the offering, among other things.
ITEM 3. - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. - OTHER INFORMATION
None
13
<PAGE> 16
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Numbers
-------
4.6 Certificate of Designation for Series CC Convertible Preferred
Stock, par value $.01 per share, of Crown NorthCorp, Inc.
10.83 Purchase and sale agreement between Crown NorthCorp, Inc. and
Crown NorthCorp Limited.
27 Financial Data Schedule
(b) Reports on Form 8-K
None
14
<PAGE> 17
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CROWN NORTHCORP, INC.
Dated: November 14, 2000 By: /s/ Ricky L. Lewis
-----------------------------------------
Ricky L. Lewis, Vice President,
Treasurer and Chief Financial
Officer
By: /s/ Stephen W. Brown
-----------------------------------------
Stephen W. Brown, Secretary
15
<PAGE> 18
INDEX TO EXHIBITS
4.6 Certificate of Designation for Series CC Convertible Preferred
Stock, par value $.01 per share, of Crown NorthCorp, Inc. (1)
10.83 Purchase and sale agreement between Crown NorthCorp, Inc. and
Crown NorthCorp Limited. (1)
27 Financial Data Schedule (1)
---------------
(1) Filed herewith.
16
