-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q+3qHJ77ZJ1nachOMpoRKR/TuhCDKM9ZldXiEAMHdAajeAG+Whxe0h/VarAu5tlX 1ASqr0AjuEMybNjO8UqiVw== 0000950115-99-000712.txt : 19990514 0000950115-99-000712.hdr.sgml : 19990514 ACCESSION NUMBER: 0000950115-99-000712 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CRW FINANCIAL INC /DE CENTRAL INDEX KEY: 0000943809 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-CONSUMER CREDIT REPORTING, COLLECTION AGENCIES [7320] IRS NUMBER: 232691986 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26014 FILM NUMBER: 99620699 BUSINESS ADDRESS: STREET 1: 443 S GULPH RD CITY: KING OF PRUSSIA STATE: PA ZIP: 19406 BUSINESS PHONE: 6109625100 MAIL ADDRESS: STREET 1: 443 S GULPH RD CITY: KING OF PRUSSIA STATE: PA ZIP: 19406 10-Q 1 QUARTERLY REPORT 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 ------- CRW Financial, Inc. ------------------------------------------------------------------------ (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 ------------ ------------------------------------------------------------------------ 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. 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 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 CRW FINANCIAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS DECEMBER 31, 1998 MARCH 31, 1999 ------ ----------------- --------------- (unaudited) CURRENT ASSETS: (In Thousands, Except Share Amounts) 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 ======== ========
See notes to condensed consolidated financial statements 3 CRW FINANCIAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended March 31, ---------------------------- 1998 1999 ---- ---- (In Thousands, except share amounts) 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 ======= =======
See notes to condensed consolidated financial statements 4 CRW FINANCIAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, ------------------------------------ 1998 1999 ---- ---- (In Thousands) 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 ======= =======
See notes to condensed consolidated financial statements. 5 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 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 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 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 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 PART II - OTHER INFORMATION ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. Number Document --------- -------- 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
(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 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 EX-27 2 FDS
5 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 1,656 0 200 0 0 1,856 38 0 18,593 100 0 0 0 69 12,609 18,573 0 0 70 72 (1,200) 0 (21) 0 1,149 449 700 (56) 0 644 0.09 0.08
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