SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
-------------------
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES
EXCHANGE ACT OF 1934
For the transition period from____________________ to ________________
Commission file number 0-26014
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CRW Financial, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 23-2691986
- ------------------------------- ------------------
(State or other jurisdiction or (I.R.S. employer
incorporation or organization) identification no.)
200 Four Falls Corporate Center, Suite 415, West Conshohocken, PA 19428
- ------------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: 610/878-0879
------------
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Former name, former address and former fiscal year, if changed
since last report.
Indicate by check 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 ____
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares of the registrant's common stock outstanding as of May
10, 1999 was 6,917,521.
<PAGE>
CRW FINANCIAL, INC. AND SUBSIDIARIES
INDEX
PAGE
----
PART I - FINANCIAL INFORMATION
ITEM 1- FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
AT DECEMBER 31, 1998 AND MARCH 31, 1999 3
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 4
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 5
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 9
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 11
<PAGE>
In addition to historical information, this Quarterly Report contains
forward-looking statements relating to such matters as anticipated financial
performance, business prospects and similar matters. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements. In order to comply with the terms of the safe harbor, the Company
notes that a variety of factors could cause the Company's actual results and
experience to differ materially from the anticipated results or other
expectations expressed in the Company's forward-looking statements. The risks
and uncertainties that may affect the operation, performance, development and
results of the Company's business include, but are not limited to, those matters
discussed herein in the section entitled "Management's Discussion and Analysis
of Financial Condition and Results of Operations." The words "believe,"
"expect," "anticipate," "project" and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which reflect management's analysis only as of
the date hereof. The Company undertakes no obligation to publicly revise these
forward-looking statements to reflect events or circumstances that arise after
the date hereof.
2
<PAGE>
CRW FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS DECEMBER 31, 1998 MARCH 31, 1999
------ ----------------- ---------------
(unaudited)
CURRENT ASSETS: (In Thousands, Except Share Amounts)
<S> <C> <C>
Cash $ 2,118 $ 1,656
Other current assets 339 200
-------- --------
Total current assets 2,457 1,856
PROPERTY AND EQUIPMENT, net 40 38
INVESTMENT IN TELESPECTRUM WORLDWIDE INC 13,611 14,811
DEFERRED INCOME TAX ASSET 2,317 1,868
-------- --------
$ 18,425 $ 18,573
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 63 $--
Accrued expenses 533 100
-------- --------
Total current liabilities 596 100
-------- --------
DEFFERED INCOME TAXES 5,795 5,795
-------- --------
STOCKHOLDERS' EQUITY:
Preferred Stock, no par value, 500,000 shares authorized,
no shares issued and outstanding -- --
Common Stock $.01 par value, 20,000,000 shares authorized
6,435,486 and 6,917,521 shares issued
and outstanding, respectively 69 69
Additional paid-in capital 41,278 41,278
Accumulated deficit (29,313) (28,669)
-------- --------
Total stockholders' equity 12,034 12,678
-------- --------
$ 18,425 $ 18,573
======== ========
</TABLE>
See notes to condensed consolidated financial statements
3
<PAGE>
CRW FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1999
---- ----
(In Thousands, except share amounts)
<S> <C> <C>
NET REVENUES $ -- $ --
OPERATING EXPENSES, excluding
Non-cash charges 157 70
DEPRECIATION AND AMORTIZATION 3 2
------- -------
Operating Income (Loss) (160) (72)
INTEREST INCOME (EXPENSE) (9) 21
GAIN ON SALE OF NCO GROUP, INC. WARRANT 1,914 --
EQUITY IN EARNINGS (LOSS) OF TELESPECTRUM WORLDWIDE INC (2,475) 1,200
------- -------
Income (loss) from continuing operations
before income taxes (730) 1,149
INCOME TAXES (BENEFIT) (291) 449
------- -------
INCOME (LOSS) FROM CONTINUING OPERATIONS (439) 700
INCOME FROM DISCONTINUED OPERATIONS,
NET (Note 6) 121 --
LOSS ON SALE OF DISCONTINUED OPERATIONS, NET (Note 4) -- (56)
------- -------
NET INCOME (LOSS) $ (318) $ 644
======= =======
BASIC NET INCOME (LOSS) PER SHARE:
Continuing Operations $ (0.07) $ 0.10
Discontinued Operations 0.02 (0.01)
$ (0.05) $ 0.09
======= =======
DILUTED NET INCOME (LOSS) PER SHARE:
Continuing Operations $ (0.07) $ 0.09
Discontinued Operations 0.02 (0.01)
------- -------
$ (0.05) $ 0.08
======= =======
</TABLE>
See notes to condensed consolidated financial statements
4
<PAGE>
CRW FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1998 1999
---- ----
(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ (318) $ 644
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Gain on sale of NCO Group, Inc. warrant (1,914) --
Equity in (earnings) loss of TeleSpectrum 2,475 (1,200)
Loss on sale of CMC -- 56
Discontinued operations - non-cash charges
and working capital charges 95 --
Depreciation and amortization 3 2
Deferred tax provision (benefit) (291) 449
Decrease in other assets (19) 83
Increase (decrease) in liabilities
Accounts payable (139) (63)
Accrued expenses (1,291) (433)
------- -------
Net cash used in operating activities (1,399) (462)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of NCO Group, Inc. warrant 2,664 --
Purchases of property and equipment (15) --
------- -------
Net cash provided by investing activities 2,649 --
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 44 --
Repayments of long term debt (655) --
------- -------
Net cash used in financing activities (611) --
------- -------
INCREASE (DECREASE) IN CASH 639 (462)
CASH, BEGINNING OF PERIOD 1,646 2,118
------- -------
CASH, END OF PERIOD $ 2,285 $ 1,656
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
CRW FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Background:
CRW Financial, Inc. ("CRW" or "the Company") was a subsidiary of Casino
& Credit Services, Inc. ("CCS") prior to May 11, 1995, and CRW's operations were
a division of CCS from July 1992 to May 11, 1995 when CCS contributed all of its
assets and subsidiaries other than Central Credit, Inc. ("CCI") to a newly
formed subsidiary, CRW Financial, Inc. CCS then spun-off CRW in a distribution
of CRW stock to CCS shareholders on May 11, 1995. The historical financial
statements of CRW have been deemed to be those of CCS, restated to present CCI
as a discontinued operation.
CRW founded TeleSpectrum Worldwide Inc. in April 1996. TeleSpectrum
Worldwide Inc. ("TLSP") provides teleservices solutions to clients in the
telecommunications, insurance, financial services, pharmaceuticals, and
healthcare, consumer products and high technology industries. CRW formed TLSP in
April 1996 to acquire several teleservices businesses in connection with an
initial public offering of TLSP's common stock. CRW accounts for its investment
in TLSP under the equity method of accounting. In 1996, CRW recorded a
$32.1million increase, net of deferred income taxes, to its investment in TLSP
to reflect the increase in TLSP's equity due to its initial public offering of
its common stock and other issuances of its common stock in connection with the
acquisitions of certain businesses. In 1997, CRW wrote-down its investment in
TLSP by $23.3 million, net of deferred income taxes based on TLSP's net loss of
$160.4 million in 1997. TLSP's net loss included a goodwill write-off of $139.1
million. For the three months ended March 31, 1999, CRW recorded a $1.2 million
increase to its investment in TLSP based on TLSP's net income of $4.7 million
for the three months ended March 31, 1999.
In February, 1997, CRW sold the assets of its collection business to
NCO Group, Inc. (see Note 4). On October 30, 1998, CRW sold its Casino Money
Centers, Inc. ("CMC") subsidiary to Innovative Financial Systems, Inc., an
unrelated third party, (see Note 4). Accordingly, the accompanying financial
statements have been restated to present the collection business and CMC as
discontinued operations. On September 3, 1998, CRW entered into a definitive
merger agreement with TLSP pursuant to which each share of CRW Financial, Inc.
will be exchanged for .709 share of TLSP stock. CRW and TLSP have filed a
preliminary merger proxy with the Securities and Exchange Commission and
currently expect the merger to close in the second quarter of 1999.
The continuing operations consist of the CRW's corporate management
costs. CRW has no other operating activities.
2. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in conformity with generally accepted accounting principles.
The interim financial information, while unaudited, reflects all normal
recurring adjustments which are, in the opinion of management, necessary for a
fair presentation of the interim financial statements. The results for the three
months ended March
6
<PAGE>
31, 1999 are not necessarily indicative of results expected for the full year.
These financial statements should be read in conjunction with the audited
financial statements and the notes thereto included in the CRW Financial, Inc.
Annual Report on Form 10-K for the year ended December 31, 1998.
Certain prior period amounts have been reclassified to conform with the
current period presentation.
3. Basic and Diluted Net Income (Loss) Per Common Share
The Company has adopted SFAS No. 128, "Earnings per Share". SFAS No.
128 requies a dual presentation of "Basic" and "Diluted" EPS on the face of the
income statement. Basic EPS is computed by dividing net income (loss) by the
weighted average number of shares of common stock outstanding for the period.
Diluted EPS includes the effect, if any, from the potential exercise or
conversion of securities, such as stock options, which would result in the
issuance of shares of common stock. The weighted average number of shares of
common stock outstanding at March 31, 1999 and 1998 for the purposes of
computing basic and diluted EPS was 6,917,521 and 7,872,408 and 6,447,170 and
6,447,170, respectively.
4. Sale of Collection Business and Casino Money Centers, Inc.
On February 2, 1997, CRW sold the assets of its Collection Business to
NCO Group, Inc. ("NCOG") for consideration appraised at $12,800,000, consisting
of $3,750,000 in cash, 517,767 shares of NCOG common stock, and a warrant to
purchase 375,000 shares of NCOG stock at $18.42 per share. CRW recorded an
after-tax gain of $1,383,000 on the sale of the Collection Business. The gain
did not result in the payment of any Federal income taxes as the Company had
sufficient net operating loss carryforwards to offset taxes due on the gain. The
appraisal of the consideration paid by NCOG indicated that the fair value of the
517,767 shares of NCOG common stock received by CRW on February 2, 1997 was
$8,300,000, or $16.05 per share, and that the fair value of the warrant to
purchase 375,000 shares of NCOG common stock at $18.42 per share was $750,000.
In July 1997, the Company sold its 517,767 shares of NCOG common stock for
$9,624,000 resulting in a gain of approximately $1,324,000. In February 1998,
the Company sold its warrant to purchase 375,000 shares of NCOG common stock for
approximately $2,664,000, resulting in a gain of approximately $1,914,000.
On October 30 1998, CRW sold all of the outstanding stock of CMC to
Innovative Financial Systems, Inc. ("IFS") for $2,250,000 in cash. The purchase
price was payable $1,950,000 on October 30, 1998 and $300,000 in February 1999,
subject to a final purchase price adjustment.
5. Investment in TeleSpectrum Worldwide Inc.
The Company's common stock investment in TLSP is accounted for on the
equity method. The net investment balance at March 31, 1999 is $14,811,000. The
condensed results of operations of TLSP for the three months ended March 31,
1999 and 1998 are as follows (in thousands):
7
<PAGE>
1999 1998
---- ----
Condensed Statement of Operations Information:
Revenue $ 47,925 $ 39,634
Operating Income (Loss) 4,914 (9,990)
Net Income (Loss) 4,742 (10,069)
March 31,
1999 1998
---- ----
Condensed Balance Sheet Information:
Current Assets $51,229 $62,740
Non-current Assets 67,122 64,231
Current Liabilities 33,130 49,037
Non-current Liabilities 3,570 7,258
Stockholders' Equity 81,651 70,676
As of March 31, 1999, CRW owned 6,946,583 shares of TLSP common stock.
During the first quarter of 1998, a warrant to purchase 75,445 shares of TLSP
common stock from the Company was exercised pursuant to the cashless exercise
provision of the warrant, whereby the warrant was cancelled in exchange for the
Company's transfer to the warrant holder of 45,974 shares of TLSP common stock.
After this exercise and as of March 31, 1999, warrants to purchase 678,410
shares of TLSP from CRW for $1.50 per share remained outstanding. Therefore, if
all the remaining warrants to purchase TLSP stock are exercised, CRW will
receive approximately $1,017,000 of consideration and would then own 6,268,173
shares of TLSP common stock.
6. Discontinued Operations
Below is a summary of the operating results for C MC which as discussed
in Notes 1 and 4 was sold on October 30, 1998 and has been classified as a
discontinued operation (In thousands):
Three Months Ended
March 31, 1999 March 31, 1998
-------------- --------------
Net Revenues $ -- $1,658
Operating Expenses, -- 1,457
-------- ------
Operating Income -- 201
Income Taxes -- 80
-------- ------
Income from discontinued operations $ -- $ 121
======== ======
8
<PAGE>
7. Common Stock Equivalents
As of March 31, 1999, the Company had outstanding the following common
stock equivalents:
Number of Aggregate
Common Stock Exercise
Equivalents Proceeds
------------ --------
Incentive and non-qualified options
to purchase common stock 1,122,500 $2,767,375
Convertible subordinated note 51,433 83,579
Warrants to purchase common stock 362,500 987,250
--------- ----------
1,536,433 $3,838,204
========= ==========
All of the common stock equivalents listed above are exercisable.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CRW's operating results have been restated to reflect the classification of the
Collection Business and CMC as discontinued operations.
Continuing Operations
Three Months Ended March 31, 1999 and March 31, 1998
Operating Expenses. Operating expenses decreased $88,000 (55%) to
$72,000 for the three months ended March 31, 1999 from $160,000 for the three
months ended March 31, 1998, primarily due to a decrease in salary expenses for
administration of the Company, consisting mainly from a $69,000 decrease in
salary during the quarter for the Chief Executive Officer of the Company.
Operating Income (Loss). The Company's operating loss was $72,000 for
the three months ended March 31, 1999 compared to $160,000 for the three months
ended March 31, 1998 due to the decrease in operating expenses.
Interest Income (Expense). Interest income was $21,000 for the three
months ended March 31, 1999 compared to $(9,000) of interest expense for the
three months ended March 31, 1998 due to proceeds from the sale of the Company's
warrant to purchase NCOG stock in the first quarter of 1998, the proceeds of
which were used to repay all of the Company's debt and due to interest income on
proceeds from the sale of CMC in the fourth quarter of 1998.
9
<PAGE>
Income Taxes. An income tax provision of $449,000 was recorded for the
three months ended March 31, 1999 compared to a benefit of $211,000 for the
three months ended March 31, 1998. The effective income tax rate was
approximately 40% in 1998 and 1999.
INFLATION
Inflation has not had a significant impact on the Company's operations
to date.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 1999 net cash used in operating
activities was $462,000 compared to $1,399,000 of cash used in operating
activities for the three months ended March 31, 1998. The decrease in cash used
in operating activities in the 1999 period was primarily due to a decrease in
cash used to pay accrued expenses.
Net cash provided by investing activities during the three months ended
March 31, 1999 was zero compared to $2,649,000 of cash provided by investing
activities for the three months ended March 31, 1998 primarily due to $2,664,000
of proceeds from the Company's sale of its NCO Group warrant in the 1998 period.
Net cash used in financing activities during the three months ended
March 31, 1999 was zero compared to $611,000 of cash used in financing
activities for the three months ended March 31, 1998 primarily due to $655,000
of repayments of long-term debt in the 1998 period.
CRW believes that its cash on hand will be adequate to meet its needs
through December 31, 1999.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Exhibits.
Number Document
--------- --------
<S> <C>
3.1 Restated Certificate of Incorporation of the Company (1)
3.2 Amendment to Restated Certificate of Incorporation of the Company (2)
3.3 Amended Bylaws of the Company (3)
27 Financial Data Schedule
</TABLE>
(1) Filed as an Exhibit to the Company's Form 10-K for the fiscal year ended
December 31, 1995 and incorporated herein by reference.
(2) Filed as an Exhibit to the Company's Form 10-K for the fiscal year ended
December 31, 1996 and incorporated herein by reference.
(3) Filed as an Exhibit to the Company's Registration Statement on Form S-1
(File No. 33-62700) and incorporated herein by reference.
(b) No reports on Form 8-K were filed by the Company during the quarter
ended March 31, 1999.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
CRW FINANCIAL, INC.
-------------------
(Registrant)
Date: May 13, 1999 BY: /s/ Jonathan P. Robinson
------------------------
Jonathan P. Robinson,
Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,656
<SECURITIES> 0
<RECEIVABLES> 200
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,856
<PP&E> 38
<DEPRECIATION> 0
<TOTAL-ASSETS> 18,593
<CURRENT-LIABILITIES> 100
<BONDS> 0
0
0
<COMMON> 69
<OTHER-SE> 12,609
<TOTAL-LIABILITY-AND-EQUITY> 18,573
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 70
<TOTAL-COSTS> 72
<OTHER-EXPENSES> (1,200)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (21)
<INCOME-PRETAX> 0
<INCOME-TAX> 1,149
<INCOME-CONTINUING> 449
<DISCONTINUED> 700
<EXTRAORDINARY> (56)
<CHANGES> 0
<NET-INCOME> 644
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.08
</TABLE>
