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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K



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(Mark One)



|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------



For the fiscal year ended January 31, 2004



OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



For the transition period from
 to



Commission file number 0-23410



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CROWN FINANCIAL GROUP, INC.

(formerly M.H. MEYERSON & CO., INC.)



(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|New Jersey                                                     |  | 13-1924455                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



Newport Tower, 525
Washington Blvd., Jersey City, New Jersey 07310

(Address of principal executive offices) (Zip Code)



Registrants telephone number, including area code: (201) 459-9500



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Securities registered pursuant to Section 12(b) of the Act: None



Securities registered pursuant to Section 12(g) of the Act:



Common Stock, par value $0.01 per share

(Title of Class)



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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.    Yes    x    No ̈



Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K. ̈



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the
Act).    Yes ̈No  x



At April 29, 2004, 11,503,970 shares of Common Stock, $0.01 par value, of the registrant
(the Common Stock) were outstanding. The aggregate market value of the Common Stock held by non-affiliates of the registrant was $25,279,997 based on the closing price of $3.84 per share on July 31, 2003.



DOCUMENTS INCORPORATED BY REFERENCE



Portions of the information set forth in the definitive proxy statement to be filed by the
registrant within 120 days of the close of the fiscal year are incorporated by reference in Part III.



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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 subsidiaries.



FORWARD-LOOKING STATEMENTS



Certain statements set forth in the Companys Annual Report on Form 10-K for the year ended January 31, 2004 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 and elsewhere as appropriate. This Annual Report on Form 10-K, including the Consolidated Statements of Financial Condition and the notes
thereto, should be read in its entirety 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, http://www.crownfin.com.





PART I





Item 1.
Business.



OVERVIEW



CROWN FINANCIAL GROUP, INC. (the Company), formerly known as M.H. MEYERSON &
CO., INC., established in 1960, is a leading market maker currently making markets in approximately 8,500 securities traded on the Nasdaq National Market System, Nasdaq SmallCap, the OTC Bulletin Board, and the Pink Sheets. Market-Making accounted
for 85% or more of the Companys revenues for the fiscal year ended January 31, 2004. The Company is registered with the SEC and is a member of the NASD.



In January 2003, the senior management of the Company concluded a thorough examination of the firms market-making approach and business focus. It was determined that a
change in the Companys business model as well as hiring of key management personnel possessing a thorough understanding of the marketplace and changing market dynamics were in the best interest of the shareholders.



Effective January 14, 2003 the Board of Directors appointed John P. Leighton as Co-Chairman
and Chief Executive Officer. Mr. Leighton, formerly head of institutional sales of Knight Equity Markets, L.P. (formerly Knight Securities, L.P.) (Knight) with over 26 years experience in the securities industry, assumed the additional
role of President. Mr. Leighton subsequently installed a management team with extensive relevant industry and professional experience. In one form or another, this team spent nearly five years together at Knight. The Company is highly confident that
this new management team has the vision and experience to execute its business plan, quickly and successfully. In mid-September 2003, a new finance team was also appointed to further the implementation of this new business plan.



On April 22, 2003, Martin H. Meyerson, Co-Chairman and founder of the Company, retired and
Mr. Leighton became Chairman. Mr. Meyerson devoted 42 years to the Company.



At
the annual meeting of the shareholders held on October 16, 2003, the Company received shareholder approval of its corporate name change from M. H. Meyerson & Co., to Crown Financial Group, Inc. The Companys new management believes that the
new name will assist in the re-branding of the Company as a dynamic, innovative and leading liquidity provider. As a result of the re-branding process, the Company changed its Nasdaq ticker symbol for its publicly traded common stock to CFGI (see
Part 2, Item 5 Market for Registrants Common Equity and Related Stockholder Matters) from MHMY as of the opening of trading on Monday, October 20, 2003 as well as its Market Participant ID for trade comparison and clearance purposes to CRWN on
August 18, 2003.



The Companys new management team has been executing its
business plan and implementing new trading methodologies in order to create a dynamic, innovative and service-oriented liquidity provider. New management finds the time and circumstances propitious for such an endeavor. Over the last several years,
the brokerage industry has experienced significant consolidation through merger and acquisition, the collapse of the Internet bubble, a protracted bear market, the implementation of decimalization and the resulting reduction in spreads or minimum
price variations (MPV). Exacerbating these adverse conditions is an increase in competition for execution services from Electronic Communications Networks (ECNs) and regional securities exchanges trading via unlisted trading
privileges (UTP Exchanges). These factors have reduced significantly the number of securities dealers making markets in



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Nasdaq and non-Nasdaq OTC securities over the past several years, especially since the decimalization of and reduction in
trading increments in the first quarter of 2001.



The presence of ECNs and UTP
Exchanges means that the national market for the trading of Nasdaq stocks has become more fragmented. These ECNs and UTP Exchanges are members-only trading systems and, unless they agree otherwise, they cannot be accessed through the facilities of
The Nasdaq Stock Market, Inc. Notwithstanding their inaccessibility, their top-of-book is included in the national best bid/offer (NBBO), which drives the pricing of order executions. Moreover, without the ability to execute against the
quote of these away markets, market makers cannot use those bids and offers to manage the risks attendant to their inventories. In other words, market makers cannot lay off risk to those other buyers and sellers, who may well be driving the pricing
for trades, making it much more difficult to manage their inventories and influence pricing of liquidity.



Consolidation in the industry has included the acquisition of many of the largest wholesale market makers by global financial companies. These acquisitions were initiated during the previous bull market. Because
market conditions have been so severe, many brokers determined that they were over staffed in the current market environment and were forced to reduce their market making activities and headcounts. A few brokers have ceased market making entirely.
These conditions created a significant opportunity for the remaining market makers to obtain greater market share.



Competition and choice in a trading partner drives the marketplace. Brokers that use wholesale market makers like to have more than one relationship. Liquidity is
extremely important to brokers to satisfy their customers buying and selling instructions in such a way as to achieve best executions for their orders. Dealers provide that liquidity; having several dealers from which to choose from enables
brokers to manage the risks that one dealers trading system does not accept the brokers orders. In addition, routing orders to more than one dealer creates competition among those dealers to win a larger percentage of the brokers
better order flow. Brokers are searching for other destinations for their order flow. The Company intends to take advantage of the consolidation in the marketplace.



The Company finds its greatest opportunity in the market segments vacated by the retreating brokerage firms, principally, Nasdaq Small Cap,
Bulletin Board (OTCBB) and Pink Sheet stocks. They are market sectors where the Company has specialized in trading and market making. Managements business model has been validated in a recent report by AutEx/BlockDATA, a Thomson
Financial subsidiary and the industrys primary overall ranking service for market makers. This industry reporting service publishes daily trading volume and market share statistics reported by market makers. In that report, the Company ranked
sixth in Bulletin Board and ninth in Nasdaq SmallCap share volume in these markets for the 2002 calendar year and sixth and fifth, respectively, in calendar year 2003. Many market makers ranked above the Company have either closed or reduced their
involvements in these markets over the last year. The Company believes that it is well positioned to fill this void by offering brokers, dealers, and institutional investors another choice of liquidity provider, and in the process garnering market
share and pricing power.



The Company has instituted stringent cost controls,
and continues to monitor its costs diligently. The Company has shifted away from fixed labor costs for its sales and trading personnel, and towards variable labor costs that are aligned more closely with the profitability of the Company. The Company
continues to focus on ways to reduce operating costs even further while seeking additional sources of top line revenue. The Company has been able to achieve this through salary reductions, reduction in headcounts, and through the utilization of
state-of-the-art technology. Additionally, many senior managers agreed to forgo part of their salaries until the Companys operations and financial condition stabilized. Beginning in the fiscal year ended January 31, 2004, management that had
forgiven salaries and bonus, have been receiving salaries, but at levels that are below those contained in employment contracts or otherwise agreed to when those individuals joined the Company. Additionally, the Companys Compensation
Committee is currently evaluating various alternative compensation arrangements for its management and employees that will be aligned more closely with the profitability of the Company.



Success, as represented by profitability for a wholesale market-maker, is to a great extent a function of overall transactional volume and
revenue capture per share. As the number of market-making firms decreases, the Company has positioned itself to exploit this opportunity. While margins on a per trade basis remain small, the management is confident that relatively low fixed overhead
and innovative trading efficiencies, combined with a highly variable compensation structure, will allow the Company to increase margins and revenue capture.



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 (the Restatement). 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 under
the direct oversight of the Companys Audit Committee. 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. The Company committed significant human and financial resources to ensure the review was completed in a thorough, independent and expeditious manner.



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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. On March 9, 2004, the Company filed with the SEC the Amended Annual Report on Form 10-K/A for the year ended
January 31, 2003, the Amended Quarterly Report on Form 10-Q/A for the quarter ended April 30, 2003 and the Amended Quarterly Report on Form 10-Q/A for the quarter ended July 31, 2003. At the same time, the Company also filed the Quarterly Report on
Form 10-Q for the quarter ended October 31, 2003, thus completing the Restatement efforts.



DIVISIONS AND OPERATIONS



Broker Dealer Sales



The Broker Dealer Sales Group provides
execution services to correspondent broker dealers and is dedicated to ensuring that orders, the majority of which are electronically transmitted, are executed efficiently, effectively; pursuant to client specifications and best execution
guidelines. Our broker-dealer clients include global, national and regional broker-dealers and on-line brokers.



Institutional Sales Group



The Companys Institutional Sales Group is responsible for servicing institutional clients order execution and trade allocations. Our institutional sales force is experienced in effectively addressing the trade execution needs of
our clients, and is dedicated to growing and maintaining execution-based relationships with institutions and ensuring a high level of execution quality. Our institutional clients primarily include mutual funds, pension plans, plan sponsors, hedge
funds, trusts and endowments.



Over-The-Counter Market Making
& Listed Trading



The Companys Over-The-Counter Market Making and
Listed Trading Desk services block transactions in stocks listed on Nasdaq, the NYSE and AMEX. We are a leading market maker currently trading in over 8,500 securities listed on Nasdaq National Market System, Nasdaq SmallCap Market, the OTC Bulletin
Board and the Pink Sheets. Based on information published by Autex/BlockDATA for calendar year 2003, we were ranked sixth in share volume in the OTC Bulletin Board and fifth in Nasdaq SmallCap Market. As a market maker, we provide trade executions
by offering to buy securities from, or sell securities to, institutions and broker-dealers.



The Company has also expanded its trading department to trade in stocks listed on foreign exchanges such as the Euronext, the Australian Stock Exchange, the Tokyo Stock Exchange and the Hong Kong Stock Exchange
through the Companys International Trading Group. We display the prices at which we are willing to bid, meaning buy, or ask, meaning sell, these securities and adjust our bid and ask prices in response to the forces of supply and demand for
each security. When acting as principal, we commit our own capital and derive revenues from the difference between the price paid when securities are bought and the price received when those securities are sold. We also provide trade executions on
an agency or riskless principal basis, generating commissions or commission equivalents, respectively.



Retail Client Services



The Company has exited the retail segment of its business based on its assessment that these activities do not support our core business. We completed the transfer of the majority of our retail customer accounts to another firm on March 27,
2004.



Investment Banking



Historically, the Companys investment banking activities have focused on developing
small-cap companies. The Company pursues investment banking transactions and services spanning both debt and equity on an agency basis.





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Fixed Income Securities Trading



The Companys Fixed Income Trading is engaged in the trading of debt instruments including U.S. Treasury and agency obligations,
corporate and municipal debt securities on an agency basis.



BUSINESS PLAN



New management intends to increase its revenue through various initiatives
while maintaining discipline on cost controls to generate earnings. As described in the Overview section, the market making industry has been under pressure due to the adverse market conditions through the first half of fiscal 2003, as well as
certain market structure changes, in particular the movement in the first quarter of 2001 to decimalization with the one-cent minimum price increment. It is now more important than ever to make markets and conduct institutional sales trading from an
efficient platform, i.e., one built on low cost and high technology.



Products



The Company intends to build its revenue base in a
variety of ways. Essentially, the Company will provide or has begun to provide various aggressively priced, value-added products that meet the diverse liquidity requirements of our clients such as:



Market Making/Block TradingThe Company engages in the traditional facilitation of
transactions through the limited commitment of capital and the application of sophisticated trading methodologies and skills. Market makers do generate revenues in this segment of the market, but because their overhead is much higher than the
Companys, they have difficulties generating earnings. The increased risk and value-added trading capability, including analytical trading services such as volume weighted average price (VWAP), would demand the highest fees. The
Company believes that it will obtain orders because so many dealers have vacated the space, causing brokers to look for more execution destinations.



Fee Based TradingThe Company transacts business on an agency or riskless principal basis with an attached commission (agency) or markup/markdown (riskless
principal). The Company offers full access to its trading skills and tools, including analytical trading services such as best efforts VWAP, to achieve the buy-side traders goal of receiving complete transparency on all customer prints.
Throughout this whole process the Company will be acting simply on a pass-through basis, without incurring any risk to capital.



Low Cost Client ServicesThe Company intends to remain a low cost provider of execution services. The Companys relatively low cost technology platform allows
the Company to generate economies of scale, which can be passed along to the Companys customers through our pricing schedules. This also allows us to attract talented institutional sales traders, broker-dealer sales representatives, and market
makers through highly competitive payouts.



TechnologyFor the
self-directed, buy-side client, Crown sponsored access to ECNs provides the asset manager with unequalled access to liquidity in the national market for Nasdaq securities. Sponsored access puts the trading tools into the hands of the buy-side trader
who chooses the execution destination for the institutional client. The Company will act as the asset managers broker and route the order as directed.



Expansion Strategy



Crown Financial International Limited (CFIL), a wholly owned subsidiary of the Company, was established on June 2, 2003, and is currently in the process of
applying for a broker-dealer license with the U.K. Financial Services Authority (FSA) to begin operations. The Companys London subsidiary will be an introducing broker and will route order flow from European brokers, dealers, and
asset managers to the Companys Jersey City trading desks. Many securities firms have abandoned this line of business for which management believes a real need exists in Europe. The Company can reach various European asset managers as well as
broker-dealers. The Company intends to operate the London office out of a U.K. registered subsidiary that will exist to arrange trades on an agency basis. As of January 31, 2004, there were 5 employees employed on a full-time basis at the London
office of CFIL.



Clearing Arrangements



The Company clears its securities transactions on a fully disclosed basis with Spear, Leeds
& Kellogg (SLK), a subsidiary of Goldman Sachs & Co., for market making and had utilized Fiserv Securities, Inc. (Fiserv) for retail, institutional and prime broker clearing. Currently, SLK clears all market-making
trades for our trading desk and recently began clearing the institutional accounts. The Company also utilizes SLKs Redibook Plus as an available service for the trading departments. In addition, the Company entered into a $2,000,000 NASD
approved subordinated loan agreement with SLK on June 3, 1997, effective August 1, 1997, originally maturing on August 31, 1999 and extended to August 31, 2003. Management has renegotiated rates with SLK that decrease as transactions increase,
thereby helping to control variable costs as business increases. In this connection, SLK agreed to extend the maturity date of our subordinated loan from August 31, 2003 to August 31, 2005.



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The Company does not hold client funds or securities and does not directly process back office operations. All clearing
activities are carried on a fully disclosed basis with our clearing brokers. These clearing services are furnished to the Company and its clients for a fee and include billing, custody of securities, credit review (including for margin accounts) and
similar activities. However, if the Companys customers do not pay or deliver securities for a trade or if they do not properly maintain their credit balances on margin accounts, and there is a loss for which the Company cannot
collect from our customer, the Company is generally liable for such losses. The Company maintains its back office and compliance divisions to supervise its activities generally and to ensure financial and regulatory compliance with applicable rules.



Technology



The Companys technology strategy incorporates a blend of vendor applications and
proprietary innovation. The Company applies a comparative advantage model in determining what is outsourced, and what is developed internally. In-house technology development delivers automated, analytical market making solutions, execution products
custom-tailored to service a wide array of customer trading strategies, liquidity gateway services including smart order routing and trade executions.



The Company continues to develop new execution products to meet the requirements of a broad spectrum of customer trading strategies. The Companys emerging suite of
analytical trading tactics and tools offers the best of all possible execution worlds.



| |  | The commitment to our clients to provide sophisticated automated market making technologies required to compete, on our customers behalf, in todays millisecond, sub-penny
markets.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Multiple execution modes ranging from automatic internalized execution, automatic takeout, and pegged order posting execution.
| | - | ------------------------------------------------------------------------------------------------------------------------------



| |  | Market center aggregation technology that uncovers liquidity from Super Montage participants, all major ATS and ECNs, and our own book.
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| |  | State of the art analytical trading tools that utilize sophisticated algorithmic models and Tactic Engine technology.
| | - | ---------------------------------------------------------------------------------------------------------------------



The Company is a leader in providing FIX and TCP/IP-based connectivity solutions to the
capital markets community. Crown is a major tenant in the Radianz secure IP Virtual Financial Network (VFN). This network provides meshed B2B connectivity to the financial community. Radianz helps to keep connectivity infrastructure costs low as the
need to have dedicated lines to each order flow provider is eliminated.



The
Company has recently migrated to Sungards latest version of their industry-leading equities order management system, Smart Brass. We extend the benefits of a dedicated service-bureau trading platform to our customers. At the same time, our
partnership with Sungard allows us the freedom to offer state-of-the-art proprietary order management and execution services to our customers that augment traditional Brass processing techniques.



We have augmented Sungards Powernet, with our own proprietary direct market access
technologyproviding what we believe unsurpassed smart order routing, designed to suit all types of customer-requested special handling.



The Company recently introduced to clients an Internet browser-based, full-service equities and equity option trading portal named e*Crown. Our platform has
been designed to provide investment professionals with the tools necessary to compete in the market place. e*Crown provides seamless electronic trading capability from order entry to trade execution and reporting.



VENDORS



The Company uses numerous third party vendors to obtain market data and software, including stock quotations, stock trading charts, news and
financial data. The Company has alternate sources for these services and, accordingly, does not consider itself dependent on any one or more of these suppliers. The Company reviews its relationships with vendors regularly and replaces certain
vendors as needed to maintain the most cost effective and efficient network available for its traders and representatives.



COMPETITION



The securities industry is very competitive and, with technical innovation, is becoming even more so. Accordingly, the Company seeks to compete based upon our strengths, which include:



| |  | our skilled and experienced management team
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| |  | quality of execution
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| |  | customer service
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| |  | superior technology
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| |  | innovative analytical trading models
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| |  | robust trading systems
| | - | ----------------------



| |  | universal electronic connectivity
| | - | ---------------------------------



| |  | relationships with our broker-dealer and institutional clients
| | - | --------------------------------------------------------------



The Company utilizes what it considers the best and most reliable information technologies to compete and continually enhance the quality of services provided. The
Company competes with large and small brokerage firms, which utilize both traditional methods and electronic commerce to transact their business.



The Company encounters intense competition in all aspects of the securities business and competes directly with other securities firms, a significant number of which have
substantially greater capital and other resources. Many of these competitors offer a wider range of financial services. The Companys strategy to bridge this gap is to focus on its core businesses of execution services and create alliances with
third party market product vendors thus broadening its product line without the need for significant capital outlay. The Company believes that the principal competitive factors in the securities industry are the quality and ability of professional
personnel and relative prices of services and products offered.



Market makers
also compete against alternative trading venues, such as electronic communications networks, commonly referred to as ECNs. ECNs provide market participants with the ability to trade securities anonymously, manage inventory and obtain immediate
display of their limit orders. ECNs provide a neutral forum in which third parties can display and match their limit orders, but unlike market makers, do not commit capital or provide enhanced liquidity to the marketplace. As a result, ECNs are more
attractive to the marketplace for transactions in highly liquid securities, such as those in the Nasdaq 100, than for transactions in less liquid securities. ECNs have the ability to charge access fees to counterparties who access their liquidity.
ECNs accounted for approximately 43% of Nasdaq volume in 2003 compared with the estimated 20% of Nasdaq volume they provided in 1999. ECNs also account for a small, but rising, portion of listed share volume.



In addition, over the past three years, competition for order flow in the U.S. equity markets
has intensified due to the implementation of the SEC Rules 11Ac1-5 and 11Ac1-6. These rules, applicable to broker-dealers add greater disclosure to execution quality and order-routing practices. Rule 11Ac1-5 requires market centers that trade
national market system securities to make available to the public monthly electronic reports that include uniform statistical measures of execution quality on a security-by-security basis. Rule 11Ac1-6 requires broker-dealers that route equity and
option orders on behalf of their customers to make publicly available quarterly reports that describe their order routing practices and disclose the venues to which customer orders are routed for execution. These statistics on execution quality vary
by order sender based on their mix of business. This rule also requires the disclosure of payment for order flow arrangements as well as internalization practices. The intent of this rule is to encourage routing of order flow to destinations based
primarily on the demonstrable quality of executions at those destinations, supported by the order entry firms fiduciary requirement to seek to obtain best execution for their customers orders.



GOVERNMENT REGULATION



The securities industry in the United States is subject to extensive regulation under both federal and state laws. The Company is registered
as a broker-dealer with the SEC and NASD. Much of the regulation of broker-dealers has been delegated to self-regulated organizations, principally the NASD, Nasdaq and national securities exchanges. These self-regulatory organizations adopt rules
(subject to approval by the SEC) that govern the industry and conduct regular and periodic examinations of our operations. Securities firms are also subject to regulation by state securities administrators in those states in which they conduct
business.



Significant legislation, rule-making and market structure changes
have occurred over the last few years that have had an impact on the Company. First, decimalization was introduced in January 2001 in NYSE and AMEX listed securities, and in Nasdaq markets in April 2001. Decimalization, combined with the one-penny
minimum price increment, has had a dramatic reduction in average spreads, which in turn has had a profound effect on our profitability. Second, in 2002 Nasdaq launched SuperMontage, a Nasdaq routing and execution system. SuperMontage transformed
Nasdaq from a quote-driven market to a full-order-driven market as quotes and orders are treated the same. Under SuperMontage, market makers and ECNs are able to show trading interest at five different price levels, allowing investors to see
individual and aggregated interest across all market participants at the National Best Bid or Offer (NBBO)



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and four additional layers above or below the NBBO. Third, the introduction of SuperMontage, which is not used by all
market participants, and the increase in trading of Nasdaq-listed securities by other exchanges has created market fragmentation. This lack of linkage between market centers has resulted in an increase in locked and crossed markets, fragmented
liquidity pools and different market centers using different sets of regulatory rules and regulations. Fourth, the U.S. Patriot Act of 2001, enacted in response to the terrorist attacks on September 11, 2001, contains anti-money laundering and
financial transparency laws and mandates the implementation of various new regulations applicable to broker-dealers and other financial services companies, including standards for verifying client identification at account opening, and obligations
to monitor client transactions and report suspicious activities. The increased obligations of financial institutions to identify their customers, watch for and report suspicious transactions, respond to requests for information by regulatory
authorities and law enforcement agencies, and to share information with other financial institutions, requires the implementation and maintenance of internal practices, procedures and controls which will increase our costs and may subject us to
regulatory inquiries, claims or penalties. Lastly, the Sarbanes-Oxley Act of 2002 has led to sweeping changes in corporate governance. This far reaching legislation has significantly affected public companies by enacting provisions covering
corporate governance, board of directors and audit committee structure, management and control structure, new disclosure requirements, oversight of the accounting profession and auditor independence. The SEC also responded by, among other things,
requiring chief executive officers and chief financial officers of public companies to certify the accuracy of certain financial reports and other SEC filings.



The regulatory environment in which we operate is subject to constant change. Our business, financial condition and operating results may be adversely affected as a
result of new or revised legislation or regulations imposed by the U.S. Congress, the SEC, other U.S. governmental regulatory authorities, or the NASD. Our business, financial condition and operating results also may be adversely affected by changes
in the interpretation or enforcement of existing laws and rules by these governmental authorities.



Additional regulation, changes in existing laws and rules, or changes in interpretations or enforcement of existing laws and rules often directly affect the method of operation and profitability of regulated
broker-dealers.



The NASD and Net Capital Requirements



Regulatory bodies, including the NASD, are charged with safeguarding the
integrity of the securities and with protecting the interests of investors participating in those markets. Broker-dealers are subject to regulations covering all aspects of the securities business, including sales methods, trade practices among
broker-dealers, use and safekeeping of clients funds and securities, capital structure, record keeping and the conduct of directors, officers and employees.



The SEC, NASD and various other regulatory agencies have rigid rules, including the maintenance of specific levels of net capital by
securities brokers and dealers pursuant to the SECs Uniform Net Capital Rule 15c3-1 with which the Company must comply. As part of the Restatement (see Overview above), the Company has restated its net capital, as defined, in accordance with
the restated Statements of Financial Condition for the period from January 31, 2002 to January 31, 2004, and has reported the restated amounts 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, but did not maintain minimum net capital, in accordance with SEC rules, of $1,000,000. 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 $1,805,660, $805,660 in excess of the
Companys minimum net capital requirement of $1,000,000. The Company has reported its past net capital deficiencies to the SEC and NASD.



Additionally, the Company had been under a routine finance and operations review by the NASD staff from February 2003 to August 2003. Before this, the Company had 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, which was addressed during the Restatement.



On March 30, 2004, the Company filed requests with the SEC and the NASD to extend the filing deadline of its Annual Report for the fiscal
year ended January 31, 2004 (the Annual Report) required under Exchange Act Rule 17a-5. The Company was granted an extension to file its Annual Report by no later than April 30, 2004. The Company was unable to file the Annual Report by
the March 31, 2004 deadline due to the Companys recent commitment of substantial effort, resources and time to preparing and filing restated financial reports on an amended Annual Report on Form 10-K/A for the year ended January 31, 2003;
amended Quarterly Reports on Form 10-Q/A for the quarters ended April 30, 2003 and July 31, 2003; as well as a Quarterly Report on Form 10-Q for the quarter ended October 31, 2003. On March 9, 2004, the Company completed and filed all public reports
subject to the Restatement.



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On April 21, 2004, the Company filed notice to the SEC and NASD in compliance with Rule 17a-11(b)(1) of the Securities
Exchange Act of 1934, as amended (the Exchange Act), of the Companys April 1, 2004 intra-day net capital deficiency, including a detailed accounting of the events that led to the deficiency. This deficiency arose, in part, due to a
failure of the Companys computerized primary risk management and assessment tool. On the morning of April 1, 2004, the Company received a significant increase in program trading volume and the impact on the Companys trading positions
went undetected for a period of time due to a failure of the computer system. When the computer risk and assessment system was restarted and magnitude of the positions became apparent, the Company took immediate action to stop accepting the program
trades and to reduce its trading positions in order to assess its capital position and to analyze the sequence of events that led to the system failure. As of the close of business on April 1, 2004, the firm was back in net capital compliance. As a
result of the preliminary investigation, which took several weeks to compile, the Company determined that a supervisory failure, in combination with the system failure, were the causal factors of the deficiency. As corrective actions, (1) personnel
changes, including suspensions and demotions, were executed and (2) the Company is developing a separate, redundant computerized risk management and assessment system.



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, 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 Exchange Act. The Company appealed the Panels decision to the Nasdaq Listing and Hearing Review Council, which subsequently affirmed the delisting determination. The Companys
securities remain quoted in the Pink Sheets and, while there can be no assurance, the Companys securities may become eligible to quoted on the OTC-Bulletin Board.



The SEC



In November 2003, the Company received an informal inquiry from the SEC in response to our announcement of the discovery of errors in the Companys financial
statements prepared by the former management. The Company initially responded to the SEC inquiry in December 2003, and since then we have had ongoing discussions with the SEC concerning the progress and results of the Companys investigation.
The Company intends to cooperate fully with the SECs informal inquiry.



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 for the years ended December 31, 2002 and 2001 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.



PERSONNEL



As of January 31, 2004, the
Company employed a total of 113 full-time persons, whose primary roles are: 63 trading, 15 information systems technology, 8 senior management, 11 back office personnel, 8 legal and compliance, 1 in human resources, 4 finance, 2 investment banking,
and 1 fixed income. The Company believes its relations with its employees are good and the Company has no collective bargaining agreements with any labor unions.



The Companys registered representatives are required to take and pass examinations and fulfill additional required continuing
education requirements administered by the NASD and state authorities in order to be qualified to transact business. The Companys success will depend on its ability to hire and retain additional qualified trading, technical and financial
personnel, who are generally in demand.



RISK FACTORS



Set forth below are certain risks and uncertainties relating to the Companys business.
These are not the only risks and uncertainties the Company faces. Additional risks and uncertainties not presently known to the Company or that the Company currently deems



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immaterial may also impair the Companys business. If any of the following risks actually occur, the Companys
business, operating results or financial condition could be materially adversely affected.



General risks associated with fluctuations in the securities business



The securities industry has undergone several fundamental changes over the last six years as a result of new regulations at the federal and state level, the emergence of electronic communication networks, the
increased prominence of retail investors, consolidation among firms in the securities industry, and the increased use of technology. These changes have resulted in an increase in the volume of equity securities traded in the U.S. equity markets and
a decrease in quoted spreads between the bid and the ask prices. The introduction of decimalization and the one-penny minimum price increment in 2001 further reduced quoted spreads with a resulting decrease in our profitability and revenue capture
per trade. There can be no assurance that the spreads market makers receive upon execution of trades in equity securities will not continue to decrease in the future. Any further decline in the quoted spreads between the bid and ask prices could
have a material adverse effect on the Companys business, financial condition and operating results.



Harm from regulatory and legal uncertainties



The securities industry in the United States is subject to extensive regulation under both federal and state laws. Market makers are subject to regulations concerning certain aspects of their business, including trade
practices, best execution practices, capital structure, record retention, and the conduct of directors, officers and employees. The Companys operations and profitability may be directly affected by, among other things, additional legislation,
changes in rules promulgated by the SEC, NASD, the Federal Reserve, the various stock exchanges, other self-regulatory organizations or governmental bodies, or changes in the interpretation or enforcement of existing laws and rules. Failure to
comply with any of these laws, rules or regulations could result in censures, fines, the issuance of cease-and-desist orders or the suspension or disqualification of the Companys directors, officers or employees. The Companys ability to
comply with applicable laws and rules is largely dependent on its internal system to ensure compliance, as well as its ability to attract and retain qualified compliance personnel. The Company could be subject to disciplinary or other actions in the
future due to claimed noncompliance, which could have a material adverse effect on its business, financial condition and results of operations.



Risk of loss associated with market-making and trading activities



The Company conducts its market-making activities predominantly as a principal, which exposes the Companys capital to significant
risks. These activities involve the purchase, sale or a short sale of securities for the Companys own account and, accordingly, involve risks of price fluctuations and poor liquidity, or rapid changes in the liquidity of markets that may limit
or restrict the Companys ability to either resell securities the Company purchases or to repurchase securities the Company sells in such transactions.



From time to time, the Company may have large position concentrations in securities of a single issuer or issuers engaged in a specific industry, which might result in
higher trading losses than would occur if the Companys positions and activities were less concentrated. The success of the Companys market-making activities depends upon its ability to attract order flow, the skill of its personnel,
general market conditions, the price volatility of specific securities, and the availability of capital. To attract order flow, the Company must be competitive on order execution quality, technology, reputation, and customer service.



In the Companys role as a market maker, we attempt to derive a profit from the
difference between the price at which it buys and sells securities. Competitive forces, however, often require the Company to match the quotes other market makers display and to hold varying amounts of securities in inventory. By having to
maintain inventory positions, the Company is subject to a high degree of market risk. There can be no assurance that the Company will be able to manage such risk successfully or that the Company will not experience significant losses from such
activities. All of the above factors could materially adversely affect the Companys business, financial condition and operating results.



Harm by adverse economic, political, and market conditions



By its nature, the securities business generally is volatile. It is directly affected by numerous national and international factors that are beyond the Companys
control including, among others, economic, political and market conditions; the availability of short-term and long-term funding and capital; the level and volatility of interest rates; legislative and regulatory changes; currency values and
inflation. Any one or more of these factors may contribute to lower levels of activity in the securities markets generally, or increased market volatility, which could result in lower revenues from the Companys market-making activities. Any
reduction in revenues or any loss resulting from the above factors could have a material adverse effect on the Companys business financial condition and operating results.



Harm from competition to market share and financial performance



The Company derives substantially all of its revenues from market-making activities. The
market for these services is rapidly evolving and competitive. The Company expects the competitive environment to continue and intensify in the future. The Company faces direct competition in its equity market-making business primarily from national
and regional broker-dealers, alternative trading systems, such as ECNs, and regional exchanges trading stocks via unlisted trading privileges.



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The Company competes in market making primarily on the basis of execution standards, its relationship with its customers,
reputation and technology. A number of the Companys competitors have greater financial, technical, marketing and other resources than the Company. Some of the Companys competitors offer a wider range of services and financial products
than the Company. These competitors may be able to respond more quickly to new or evolving opportunities, technologies and customer requirements than the Company and may be able to undertake more extensive promotional activities and offer more
attractive terms to clients. Moreover, current and potential competitors have established or may establish cooperative relationships among themselves or with third parties or may consolidate to enhance their services and products. In addition,
during fiscal year 2004, the Company derived 38% of its trading volume from two customers and there is no assurance that business will persisit at these levels. The Company believes that new competitors may also emerge and they may acquire
significant market share. There can be no assurance that the Company will be able to compete effectively with current or future competitors, which could have a material adverse effect on its business, financial condition and results of operations.



Seasonality in securities business



The Company has experienced, and may experience in the future, seasonality in our business.
The Company has historically experienced a decrease in revenues in the third quarter of the year, due to lower volumes typically associated with the summer months. The Company believes that this seasonal trend will continue for the foreseeable
future and that the Companys business, financial conditions and operating results may be adversely affected by such trends in the future. As a result, period-to-period comparisons of the revenues and operating results of the Company are not
necessarily meaningful and reliance upon such comparisons as indicators of future performance may be generally misplaced.



Harm from systems failures and delays



The Companys market-making activities are heavily dependent on the integrity and performances of the computer and communications systems supporting them. The
Companys systems and operations are vulnerable to damage or interruption from human error, natural disasters, power loss, computer viruses, intentional acts of vandalism, and similar events. Extraordinary trading volumes or other events could
cause the Companys computer systems to operate at an unacceptably low speed or even fail. Any significant degradation or failure to the Companys computer systems or any other systems in the trading process could cause clients to suffer
delays in trading. Such delays could cause substantial losses for the Companys clients and could subject the Company to claims from its clients for losses.



Systems failures and delays may occur and could cause, among other things, unanticipated disruptions in service to the Companys
clients, slower system response times resulting in client dissatisfaction, and harm to its reputation. If any of these events were to occur, the Company could suffer a loss of clients or a reduction in the growth of its client base, increased
operating expenses, financial losses, or other client claims, and regulatory sanctions or additional regulatory burdens. In addition, the Company currently does not have a live disaster recovery center. If the Company is prevented from using its
current trading operations, the Company will not have business continuity. This could have a material adverse effect on the Companys business, financial condition and operating results.



Harm from capacity constraints of systems



If the Companys business significantly increases, the Company will need to expand and
upgrade its transaction processing systems, network infrastructure and other aspects of its technology. Many of the Companys systems are designed to accommodate additional growth without redesign or replacement; however, the Company may need
to continue to make investments in additional hardware and software to accommodate growth. The Company may not be able to project accurately the rate, timing or cost of any increases in its business, or to expand and upgrade its systems and
infrastructure to accommodate any increases in a timely manner. Failure to make necessary expansions and upgrades to the Companys systems and infrastructure could lead to failures and delays, which could have a material adverse effect on the
Companys business, financial condition and results of operations.



Failure to keep pace with change, technological or otherwise



The markets in which the Company competes are characterized by rapidly changing technology, evolving industry standards, frequent new product and service announcements, introductions and enhancements and changing customer demands. If the
Company is not able to keep up with these rapid changes on a timely and cost-effective basis, the Company may be at a competitive disadvantage. In addition, the widespread adoption of new Internet, networking or telecommunications technologies, or
other technological changes could require the Company to incur substantial expenditures to modify or adapt its services or infrastructure. Any failure by the Company to anticipate or respond adequately to technological advancements, customer
requirements, or changing industry standards, or any delays in the development, introduction or availability of new services, products or enhancements could have a material adverse effect on the Companys business, financial condition and
operating results.



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Harm from negative publicity



As a result of actions taken by our former finance department necessitating the Restatement, the Company has been and may continue to be the
subject of negative publicity focusing on the financial statement errors and subsequent restatement, notwithstanding the fact that the Restatement effort is completed. This negative publicity may have contributed and may continue to contribute to
significant declines in the prices of our publicly traded securities.



Our senior management is relatively new to the Company and is required to devote significant attention to matters arising from actions of prior management



During the fiscal year ending January 31, 2004, we replaced our entire senior management and our finance department. Our new finance
department began its activities in September 2003. Our new senior management teams ability to overhaul the finance department has been hindered by their need to spend significant time and effort dealing with our internal review of prior
finance departments actions, including communicating with regulators, auditors and other external advisors, developing effective corporate governance procedures, and designing and implementing effective internal controls. During the
Restatement and in order to complete the process, our new management has depended in part on advisors, including certain former directors. In addition on March 25, 2004, the Companys Chief Executive Officer, John Leighton, was granted an
administrative leave and an interim Chief Executive Officer, Charles B. Kennedy, was appointed. We cannot assure you that this major restructuring of our senior management and finance department, and the accompanying distractions, in this
environment, will not adversely affect our results of operations.



Harm from regulatory uncertainties and legal proceedings



We
have received and continue to receive requests and inquiries from the SEC, NASD, shareholders and others seeking information regarding our financial condition and operations, accounting and related internal controls, and details related to the
financial statement errors and the April 1, 2004 intra-day net capital deficiency. We cannot predict if such inquiries ultimately lead to formal investigations and enforcement actions by the SEC or the NASD, or other government agencies. If such
investigations materialize, it is possible that we may be required to pay material fines, consent to injunctions on future conduct, and lose the ability to conduct securities business or suffer other penalties, each of which could have a material
adverse effect on our business. We cannot assure you that the effects and results of such potential investigations will not be material and adverse to our business, financial condition, results of operations and liquidity. In addition, the Company
could be subject to claims, lawsuits, regulatory examinations, and other proceedings. As described under Item 2, Legal Proceedings, the Company is currently contesting liability and/or the amount of damages in several pending matters and the
ultimate outcome of these matters could have a material adverse effect on its business financial condition and results of operation.



The Companys income and benefit plan tax returns and withholding practices are periodically examined by various tax authorities. 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. It is possible that we will be subject to future examinations by various authorities, including the Internal Revenue Service and the Department of Labor. We cannot predict if such examinations will commence,
nor can we predict what the results of these potential examinations may be. If such examinations materialize, we cannot assure you that the ultimate resolution of such potential examinations will not have a material adverse effect on our financial
condition, results of operations and liquidity.



Declines in
the price and liquidity of the Companys common shares



The market
price of the Companys common shares has declined considerably since the disclosure of the Companys financial misstatements in October 2003 and the liquidity has also declined considerably after the Companys publicly traded
securities were delisted from the Nasdaq SmallCap Market on December 1, 2003. In addition, our publicly traded securities, and the global stock markets generally, have experienced significant price and volume fluctuations over the past year. We
cannot assure you that the price of our publicly traded securities will not decline further or will not continue to experience significant price and volume fluctuations. In addition, we believe that factors such as quarterly fluctuations in
financial results, earnings below analysts estimates and financial performance and other activities of other publicly traded companies in our industry could cause the price of our publicly traded securities to fluctuate substantially.



Failure to raise additional capital to finance operations



The Company relies on its existing capital, as well as its ability to
raise additional capital on an ongoing basis from various sources, including its directors, officers and employees, to finance its operations. We must continue to raise additional capital until such time when the Company generates sufficient cash
flows from its continuing operations. There can be no assurances that the Company will be able to raise additional capital sufficient to fund its operations. If the Company is unable to raise sufficient additional capital, the Companys ability
to remain in business will be materially impaired.



Failure
to maintain capital requirements



The SEC, the NASD and various other
regulatory agencies have stringent rules regarding the maintenance of specific levels of net capital by securities broker-dealers. Net capital is an SEC-defined measure of a broker-dealers readily available liquid assets, reduced by its total
liabilities other than approved subordinated debt. If the Company fails to maintain the required net capital, the SEC could suspend or revoke the Companys registration, or the NASD and other regulatory bodies could suspend or expel the
Company, which could ultimately lead to its liquidation. The Companys ability to monitor and assess its capital position at any given time can be drastically impaired by systems failure. Moreover, if the Company falls below certain early
warning levels, the NASD could force the Company to constrict its business by reducing the number of markets it makes.



If the net capital rules are changed or expanded, or if there is an unusually large charge against net capital, operations that require the intensive use of capital would
be limited. A significant operating loss, damages from litigation or any unusually large charge against net capital could adversely affect the Companys ability to expand or even maintain its present levels of business, which could have a
material adverse effect on the Companys business, financial condition and results of operations.



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Of the Companys $3,000,000 in subordinated loans that existed on January 31, 2003, $2,000,000 was due and payable
on August 31, 2003. By agreement dated July 22, 2003, the Company and SLK have agreed to extend the date of maturity from August 31, 2003 to August 31, 2005 of the NASD approved $2,000,000 subordinated loan. The extension of the maturity of the
subordinated loan occurred in conjunction with a renegotiation of the clearing services SLK provides to Crown. There is no guarantee that the Company will be able to renew that loan before it matures on August 31, 2005. If the Company is unable to
renew or replace that loan, the Companys ability to remain in business will be materially impaired.



At January 31, 2003, we did not maintain our required minimum net capital, as defined in the SECs uniform net capital rule, of $1,000,000. At January 31, 2004, we had net capital, as defined, of $1,805,660,
which exceeded our required minimum net capital of $1,000,000. We cannot assure you, however, that we will be able to raise additional capital needed to maintain our required net capital, as defined, and continue our securities business.



During the period from January 31, 2002 to January 31, 2004, the Companys net
capital, as defined and restated, fell below our required minimum net capital of $1,000,000 for 13 of 25 month-end periods. It is possible that we will be required to pay material fines, lose the ability to conduct securities business or suffer
other penalties to be imposed by the NASD, each of which could have a material adverse effect on our business.



Item 2. Properties.



The Company
currently leases office space in a building known as the Newport Office Tower located at 525 Washington Blvd., Jersey City, New Jersey. The lease is in effect through July 31, 2011 with one 5-year renewal option at the end of the original term. Rent
charges on this office for the years ended January 31, 2004, 2003 and 2002 were $882,113, $870,430 and $838,745, respectively.



The Company had subleased approximately 5,800 square feet of the 35th floor space to ViewTrade Holdings, Inc., an entity in which the Company owns approximately a 15%
interest (the Viewtrade Sublease). This agreement had a nine-month term with automatic 90-day extensions and 90-day non-renewal notification requirements. The Viewtrade Sublease terminated February 29, 2004.



The Company leases an apartment adjacent to its offices for overnight use by out-of-town
clients, employees or directors when they are visiting the Company. The lease was signed on February 13, 2004, and is in effect for 12 months through February 28, 2005. As of January 31, 2004, the future minimum rental commitment under this
non-cancelable apartment lease is $2,550 per month through February 28, 2005.



The Company established a wholly owned subsidiary, Crown Financial International Limited (CFIL) in London, the United Kingdom. CFIL currently leases office space in a building 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 are denominated in British pounds and for the period from September 1, 2003 to January 31, 2004 translated to
approximately $48,068. As of January 31, 2004, the future minimum rental commitment under this non-cancelable office lease is $8,845 per month through August 31, 2004.



The following table lists all of our properties:



|                        |  |                        |  |              |  |            
|----------------------- |  | ---------------------- |  | ------------ |  | -----------
|Facilities              |  | Type of Facility       |  | Owned/Leased |  | Square Feet
|                        |  |                        | 
|United States           |  |                        |  |              |  |            
|Jersey City, New Jersey |  | Corporate Headquarters |  | Leased       |  | 31,155     
|Jersey City, New Jersey |  | Corporate Apartment    |  | Leased       |  | 1,072      
|                        |  |                        | 
|International           |  |                        |  |              |  |            
|London, England         |  | European Sales Office  |  | Leased       |  | 415        



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Item 3. 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, 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.



As a regulated broker-dealer, the Company is subject to extensive oversight under federal and state laws. Changes in market structure and the need to remain competitive
require constant changes to our systems and order handling procedures. The Company continuously makes these changes while endeavoring to comply with extensive complex rules and laws. Compliance, surveillance or 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 the SEC or SROs that arise from its trading activity. In some instances, these matters may rise to an SEC or SRO disciplinary action and/or civil
or administrative action.



Except as described herein, the Company is not known
to be a party to any litigation or arbitration which would have a material adverse impact on the Company or its operations.



RAINBOW MEDICAL (FLORIDA)



Harry Binder, on behalf of himself and all others similarly situated, Plaintiff, v. Rainbow Medical Inc., Rainbow Pediatrics, Inc., M.H. Meyerson & Co., Inc., Hugo
D. Goldstraj, M.D, Marcela C. Goldstraj, M.D., Roberto P. Novo, M.D., Sandra R. Giblin, Martin Leventhal, Gina Bertinelli, Defendants, Circuit Court of the Eleventh Judicial Circuit, Miami Dade, Florida, Case No. 00-24851 CA.



On September 19, 2000, plaintiff commenced a class action lawsuit alleging that the class,
consisting of all investors who purchased investment units in Rainbow Medical, Inc. (Rainbow) in a $2.5 million private placement offering in June 1997, purchased units which became worthless when, after the offering closed, certain
officers and inside directors of Rainbow, specifically defendants Hugo D. Goldstraj, M.D., Marcela C. Goldstraj, M.D., and Roberto P. Novo, M.D., looted Rainbow and stole the proceeds of the offering. The Company was the placement and selling agent
for the private placement. Martin Leventhal, C.P.A., a director of the Company became an outside director of Rainbow after the offering closed.



Plaintiff in its Amended Complaint claims against the Company and Leventhal for breach of fiduciary duty, negligent misrepresentation and negligence. Plaintiff alleges
that the Company failed to make certain disclosures in the offering memorandum concerning legal proceedings involving Rainbows officers, that the Company failed to ensure that Rainbow engaged in certain corporate actions and that Rainbow
failed to use the offering proceeds in the manner stated in the offering memorandum. Plaintiff seeks approximately $2.6 million in damages on behalf of the class of investors.



On July 19, 2001, plaintiff Harry Binder, as the putative class representative, filed a motion to have the lawsuit certified as a class
action. On December 11, 2001, the Trial Court issued an Order denying the motion. Plaintiff appealed the Courts Order denying class certification. On November 27, 2002, the Third District Court of Appeal, Florida issued a decision affirming
the Trial Courts denial of class certification. Accordingly, the only claims that now remain in the case are plaintiffs individual claims, which seek damages of $37,500, together with interest and attorneys fees. The Company
intends to defend itself vigorously against any litigation by plaintiff of his individual claims, and has not recorded a provision for any loss that may be incurred as a result of the action.





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FEDERAL SECURITIES CLAIMS (NEW JERSEY)



In re M.H. Meyerson & Co., Inc. Securities Litigation, United
States District Court, District of New Jersey, 02 div. 2724.



On June 6,
2002, the plaintiff (who is also the plaintiff in the Florida lawsuit discussed above) filed a Class Action Complaint against the Company and defendants, Martin Meyerson, Kenneth Koock, Estate of Eugene Whitehouse, Jeffrey Meyerson, Bertram Siegel,
Martin Leventhal and Alfred Duncan who are directors of the Company. In their complaint, Plaintiffs allege fraud claims under the federal securities law relating to the Companys disclosures, and alleged failures to disclose certain information
relating to prior litigations involving the Company, the efforts of the Companys subsidiary, eMeyerson.com, Inc., to develop an electronic trading program through a license agreement with TradinGear.com, Inc., and a litigation arising from
eMeyersons termination of that agreement, and other matters. Plaintiffs seek damages in excess of $15 million for the alleged class.



Subsequently, a virtually identical class action lawsuit was filed by other plaintiffs against the same defendants in the same court, Choung v. M.H. Meyerson & Co.,
Inc., et al., U.S. District Court of New Jersey, 02 Civ. 3622. On September 24, 2002, the District Court consolidated the two cases under the caption, In re M.H. Meyerson & Co. Securities Litigation, Master File No. 02-CV-2724. The
plaintiffs have served an Amended Complaint, which repeats the allegations of the initial pleading.



Upon the Companys motion, and pursuant to an Order of the U.S. District Court dated September 29, 2003, the consolidated action was dismissed with leave to amend within thirty days. On or about October 30, 2003,
plaintiffs filed a Second Amended Consolidated Class Action Complaint (Second Amended Complaint). All defendants have recently filed a motion to dismiss the Second Amended Complaint.



The Company believes that the allegations of the Second Amended Complaint are meritless and
fail to state legally valid claims. The defendants intend to continue to contest the allegations vigorously, and have not recorded a provision for any loss that may be incurred as a result of the action.



Plaintiffs recently filed a motion for leave to file a Third Amended Complaint which seeks to
include facts arising from the Companys recent restatement of its financial results. The Company is currently drafting a response to the motion.



C.V.I. GROUP ARBITRATION



C.V.I. Group v. M.H. Meyerson & Co., Inc. and Bear Stearns & Co., Inc.



In May 1999, claimants filed a Statement of Claim in arbitration with the National Association of Securities Dealers (NASD) alleging that the Company
wrongfully transferred 20,000,000 shares of Whitehall Enterprises, Inc. that were deposited with the Company and its then clearing agent, Bear Stearns & Co., Inc. (Bear Stearns). Claimants contend that their damages are based upon
the market price of the shares at the date of the transfer, $.25 per share. This claim is partially covered by the Companys Broker/Dealer Errors and Omissions Policy for a net amount of $1,000,000.



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The Company denied all liability and asserted that the transfer of the shares were authorized and duly executed by each
of the claimant entities, EMES, SLR, and Ontario, to Global Financial. Each of EMES, SLR, and Ontario, in its respective Power of Attorney, appointed Global Financial as its agent and attorney-in-fact with full and unlimited power and authority to
buy, sell, assign, endorse, and transfer all securities of any nature standing anywhere in the name, respectively, of EMES, SLR, and Ontario. Claimants sent copies of each of the Powers of Attorney to the Company to facilitate the transfer of the
shares to Global Financial.



The evidence showed that claimants did not send a
revocation of the Powers of Attorney until January 27, 2000three days after the shares were transferred. Moreover, the Powers of Attorney specifically stated that any revocation is ineffective for any transaction that was initiated before a
revocation. This matter was arbitrated in Buffalo, NY on October 15-17, 2001.



On January 8, 2002, the NASD arbitration panel awarded $5,000,000 in compensatory damages against the Company and Bear Stearns. The award was joint and several against both firms. Neither Bear Stearns nor the Company asserted cross claims
against each other in the arbitration. Either may attempt, subject to defenses of the other, to assert a cross claim against the other under the clearing agreement or other law for its share of the award. The Company and Bear Stearns have each filed
motions to vacate the award in its entirety with the U.S. District Court for the District of New Jersey. Bear Stearns has also requested the Court to vacate the award as to itself, if the Court does not vacate the entire award. These motions
together, with the Claimants motion to confirm, are expected to be resolved sometime during the second calendar quarter of 2004, but have not been resolved as of the date of the filing of this report.



While both the management of the Company and its legal counsel believe that a vacation or
modification of the award is possible, due to the fact that the legal grounds for vacating an award are somewhat narrow, the Company recorded the $5,000,000 adverse award as a liability in its financial statements. Because the award is joint and
several, and may be overturned, the Company has not accrued a reserve for interest on the award. The Company has a Securities Broker/Dealers Professional Liability Insurance policy with coverage of $1,000,000 for each loss. The insurance
company has acknowledged that the adverse arbitration award is covered under the policy. The Company has recorded a $1,000,000 insurance receivable in the consolidated financial statements.



HOOVER ARBITRATION



James D. Hoover, Jr. and Kimberly R. Hoover v. M.H. Meyerson & Co, Inc., Martin H. Meyerson and Ronald Heller, NASD Arbitration No.
03-02234



In March 2003, claimants filed a Statement of Claim in
arbitration with the NASD alleging the respondents engaged in excessive and unauthorized trading and entered into unsuitable investments in the claimants account. Claimants further alleged that respondent, Heller, solicited investments in
several private placements in which respondents had vested interests. Claimants seek damages in the amount of $2.5 million. In May 2003, the Company filed its answer denying the allegation and moved to dismiss the claim.



The Company believes that the allegations in the Statement of Claim are meritless. The
Company intends to continue to contest the allegations vigorously.



NEWMAN
ARBITRATIONS



Annette Newman, IRA v. M.H. Meyerson & Co, Inc., NASD
Arbitration No. 02-07064



Claimant filed arbitration with the NASD alleging
a former registered representative of the Company recommended and entered into unsuitable investments for claimants account. Claimant also alleged that the registered representative engaged in unauthorized trading in the claimants
account. Claimant seeks damages in the amount of $113,000. In March 2003, the Company filed its answer denying all allegations.



Martin Newman and Annette Newman v. M.H. Meyerson & Co, Inc., NASD Arbitration No. 03-00129



In January 2003 claimants filed a Statement of Claim in arbitration with the NASD alleging a former registered representative of the Company
engaged in excessive trading and made unauthorized investments in the claimants account. Claimants also alleged that Company failed to supervise adequately the activities of its representative. Claimants seek damages in the amount of $120,100.
On April 3, 2003, the Company filed its answer denying all allegations.



Other matters



In March 2004, in connection with a U.S.
Securities and Exchange Commission (SEC) investigation of trade activity, conduct, supervision and record-keeping at Knight Trading Group, Inc. (Knight), the SEC staff and the NASD Department of Market Regulation served Wells
Notices to John Leighton, a former Knight Senior Vice President and others. Mr. Leighton is the Companys



16



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Chairman, Chief Executive Officer and President. The Wells Notices indicate that the regulators are considering
recommending civil injunctive and administrative enforcement actions for possible violations of securities laws. The Company is not a party to this matter.



On March 25, 2004, the Company announced that the Board accepted Mr. Leightons request for administrative leave to devote his full attention to addressing the
aforementioned regulatory issues arising out of his tenure with another NASD member firm. The Board also accepted Mr. Leightons nomination of Charles B. Kennedy III as acting CEO and President.



Miscellaneous



From time to time, certain of the Companys past and present officers, directors and employees have been named as parties in lawsuits,
securities arbitration and administrative claims. These past and present officers, directors and employees are currently the subject of proceedings that are in their initial stages. In the opinion of management, based upon consultation with legal
counsel, the Company is not currently a party to any other legal or arbitration proceeding not already disclosed, the adverse outcome of which, individually or in the aggregate, that can be predicted with any reasonable certainty, could have a
material adverse effect on the Companys business, consolidated financial condition and consolidated operating results.



Dissatisfied customers of the Companys broker-dealer clients may complain to the NASD or the SEC who may investigate those complaints. These complaints may even
rise to the level of arbitration or disciplinary action. In addition, the securities industry is subject to extensive regulation under federal, state and applicable international laws. As a result, the Company is required to comply with many complex
laws and rules and the Companys ability to so comply is dependent in large part upon the establishment and maintenance of a qualified compliance system. The Company is aware of no other SEC or NASD review, or NASD arbitration that would have a
materially adverse impact on the Companys business, financial condition and operating results.



Item 4. Submission of Matters to a Vote of Security Holders



No matters were submitted to a vote of security holders of the Company during the fourth quarter of the fiscal year ended January 31, 2004.



PART II



Item 5. Market For Registrants Common Equity and Related Stockholder Matters.



The Companys Common Stock was traded on the Nasdaq SmallCap Market (SmallCap) under the symbol CFGI (formerly
MHMY) until November 28, 2003. The Nasdaq Listing Qualifications Panel determined to delist the Companys securities due to the Companys inability to comply with the public reporting continued listing requirement due to the
Restatement (see Overview in Item 1, Part I of this Form 10-K). As a result of the delisting, the Companys securities were moved from the SmallCap Market to the Pink Sheets where they are currently traded under CFGI.PK. The Company appealed
the Nasdaq Panels action, but the determination was affirmed by the NASDAQ Listing and Review Council. The Companys securities will remain being traded on the Pink Sheets and, while there can be no assurance, the Companys
securities may become eligible to be quoted on the OTC-Bulletin Board.



The
following sets forth for the fiscal quarters as indicated the high and low sales prices for the Companys Common Stock on the NMS (National Market System) and the SmallCap from February 1, 2002 through January 31, 2004. Such information
reflects interdealer quotations, without retail mark-up, markdown or commissions, and may not necessarily represent actual transactions.



|                 |  |      |      |     |   |     
|---------------- |  | ---- | ---- | --- | - | ----
|                 |  | High |      | Low
|Fiscal Year 2003 |  |      |      |     |   |     
|1st Quarter      |  | $    | 0.85 |     | $ | 0.31
|2nd Quarter      |  | $    | 0.71 |     | $ | 0.16
|3rd Quarter      |  | $    | 0.42 |     | $ | 0.15
|4th Quarter      |  | $    | 1.03 |     | $ | 0.33
|                 |  |     
|Fiscal Year 2004 |  |      |      |     |   |     
|1st Quarter      |  | $    | 1.80 |     | $ | 0.93
|2nd Quarter      |  | $    | 3.97 |     | $ | 1.18
|3rd Quarter      |  | $    | 4.75 |     | $ | 2.01
|4th Quarter      |  | $    | 2.69 |     | $ | 1.41



The number of shareholders of record
of the Companys Common Stock on January 31, 2004 was approximately 107, and the number of beneficial holders of the Companys Common Stock held in street name by various security clearing houses is estimated by management to be an
additional 1,805 holders.



17



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The Company has not declared any dividends on its Common Stock since January 31, 2003, and does not plan on any dividend
payments in the near future.



Securities Authorized for Issuance Under
Equity Compensation Plans



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 8,000,000 shares of Common Stock. As of January 31, 2004, 6,522,521
options have been granted under these plans.



The following table provides
information as of January 31, 2004, with respect to securities authorized for issuance under equity compensation plans.



|                                                          |  |                                                                      |  |                                                      |  |                                                           
|--------------------------------------------------------- |  | -------------------------------------------------------------------- |  | ---------------------------------------------------- |  | ----------------------------------------------------------
|Plan Category                                             |  | Number of Securities to beIssued Upon Exercise ofOutstanding Options |  | Weighted-AverageExercise Price ofOutstanding Options |  | Number of SecuritiesRemaining Availablefor Future Issuance
|                                                          |  |                                                                      | 
|Equity compensation plansapproved by security holders     |  | 5,023,291                                                            |  | $2.29                                                |  | 1,477,479                                                 
|                                                          |  |                                                                      | 
|Equity compensation plans notapproved by security holders |  | 0                                                                    |  | N/A                                                  |  | 0                                                         



Recent sales of unregistered
securities



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          
|Alfred 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 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
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.



18



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



Item 6. Selected Financial Data.



The selected historical consolidated financial data presented below for the five years ended January 31, 2004, were derived from the Companys consolidated financial
statements. This data should be read in conjunction with the Companys Consolidated Financial Statements and related notes and the discussion under Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere in this Annual Report on Form 10-K.



The
selected financial data for the year ended January 31, 2004 has been derived from the consolidated financial statements audited by Ernst & Young, LLP, certified public accountants, whose report with respect to the fiscal year ended January 31,
2004 is included in this Annual Report on Form 10-K. The selected financial data for each of the two years in the period ended January 31, 2003 have been derived from financial statements audited by Sanville & Company, certified public
accountants, whose report with respect thereto appears elsewhere in this Annual Report. The selected financial data for each of the two years in the period ended January 31, 2001 have been derived from financial statements audited by Vincent R.
Vassallo, certified public accountant.



|                                        |  |             |            |      |   |           |      |  |      |            |      |   |            |  |   |           
|--------------------------------------- |  | ----------- | ---------- | ---- | - | --------- | ---- |  | ---- | ---------- | ---- | - | ---------- |  | - | ----------
|                                        |  | January 31,
|                                        |  | 2004        |            | 2003 |   |           | 2002 |  | 2001 |            | 2000
|                                        |  |             |            |      |  
|STATEMENTS OF FINANCIAL CONDITION DATA: |  |             |            |      |   |           |      |  |      |            |      |   |            |  |   |           
|Assets                                  |  | $           | 12,947,385 |      | $ | 9,063,178 |      |  | $    | 16,567,767 |      | $ | 35,689,372 |  | $ | 36,794,290
|Liabilities                             |  |             | 8,196,483  |      |   | 6,625,349 |      |  |      | 8,075,430  |      |   | 9,913,990  |  |   | 12,948,157
|Subordinated loans                      |  |             | 2,000,000  |      |   | 3,000,000 |      |  |      | 2,000,000  |      |   | 2,000,000  |  |   | 2,000,000 
|Minority interest in subsidiary         |  |             |           |      |   |          |      |  |      |           |      |   | 1,923,462  |  |   | 680,852   
|Stockholders equity                    |  |             | 2,750,902  |      |   | (562,171  | )    |  |      | 6,492,337  |      |   | 21,851,920 |  |   | 21,165,281



|                                          |  |                                |            |   |      |   |            |      |  |   |             |   |  |      |            |   |  |   |           
|----------------------------------------- |  | ------------------------------ | ---------- | - | ---- | - | ---------- | ---- |  | - | ----------- | - |  | ---- | ---------- | - |  | - | ----------
|                                          |  | For the Year Ended January 31,
|                                          |  | 2004                           |            |   | 2003 |   |            | 2002 |  |   | 2001        |   |  | 2000
|STATEMENTS OF OPERATIONS DATA:            |  |                                |            |   |      |   |            |      |  |   |             |   |  |     
|REVENUES                                  |  |                                |            |   |      |   |            |      |  |   |             |   |  |      |            |   |  |   |           
|Net trading revenues                      |  | $                              | 17,922,780 |   |      | $ | 7,659,032  |      |  | $ | 15,173,605  |   |  | $    | 66,937,422 |   |  | $ | 57,690,503
|Commissions                               |  |                                | 1,296,896  |   |      |   | 997,660    |      |  |   | 1,149,168   |   |  |      | 1,951,047  |   |  |   | 1,992,818 
|Underwriting and investment banking fees  |  |                                | 185,548    |   |      |   | 295,346    |      |  |   | 77,657      |   |  |      | 2,274,166  |   |  |   | 1,621,399 
|Gain on sale of subsidiary                |  |                                |           |   |      |   |           |      |  |   | 23,997      |   |  |      |           |   |  |   |          
|Interest and other                        |  |                                | 361,620    |   |      |   | 319,551    |      |  |   | 1,285,425   |   |  |      | 1,227,089  |   |  |   | 816,820   
|                                          |  |                                |            |   |      |   |            |      |  |   |             |   |  |      |            |   |  |   |           
|Total revenues                            |  |                                | 19,766,844 |   |      |   | 9,271,589  |      |  |   | 17,709,852  |   |  |      | 72,389,724 |   |  |   | 62,121,540
|                                          |  |                                |            |   |      |   |            |      |  |   |             |   |  |      |            |   |  |   |           
|                                          |  |                                |            |   |     
|EXPENSES                                  |  |                                |            |   |      |   |            |      |  |   |             |   |  |      |            |   |  |   |           
|Employee compensation and benefits        |  |                                | 11,998,428 |   |      |   | 6,992,365  |      |  |   | 10,341,313  |   |  |      | 30,886,661 |   |  |   | 28,516,771
|Execution and clearance charges           |  |                                | 4,056,383  |   |      |   | 2,672,898  |      |  |   | 7,516,361   |   |  |      | 28,930,685 |   |  |   | 18,620,819
|Professional fees                         |  |                                | 2,339,357  |   |      |   | 876,851    |      |  |   | 986,957     |   |  |      | 3,027,445  |   |  |   | 1,276,145 
|Communications and data processing        |  |                                | 2,331,515  |   |      |   | 2,774,176  |      |  |   | 4,793,450   |   |  |      | 4,875,907  |   |  |   | 4,616,220 
|Occupancy and equipment rentals           |  |                                | 1,376,469  |   |      |   | 1,299,593  |      |  |   | 1,120,274   |   |  |      | 1,044,700  |   |  |   | 1,034,680 
|Postage, printing and office supplies     |  |                                | 540,665    |   |      |   | 484,105    |      |  |   | 1,146,588   |   |  |      | 1,456,289  |   |  |   | 945,876   
|Business development                      |  |                                | 523,196    |   |      |   | 318,708    |      |  |   | 752,732     |   |  |      | 1,292,837  |   |  |   | 841,989   
|Depreciation and amortization             |  |                                | 178,265    |   |      |   | 94,043     |      |  |   | 218,208     |   |  |      | 429,909    |   |  |   | 388,817   
|Interest expense                          |  |                                | 128,123    |   |      |   | 124,672    |      |  |   | 78,464      |   |  |      | 141,140    |   |  |   | 145,929   
|NASD arbitration settlements              |  |                                | (168,610   | ) |      |   | 321,996    |      |  |   | 5,000,000   |   |  |      |           |   |  |   |          
|Impairment of investment                  |  |                                |           |   |      |   | 94,817     |      |  |   | 1,184,008   |   |  |      |           |   |  |   |          
|Restatement costs                         |  |                                | 505,612    |   |      |   |           |      |  |   |            |   |  |      |           |   |  |   |          
|Other expenses                            |  |                                | 1,105,062  |   |      |   | 749,043    |      |  |   | 2,392,115   |   |  |      | 1,801,121  |   |  |   | 2,123,690 
|                                          |  |                                |            |   |      |   |            |      |  |   |             |   |  |      |            |   |  |   |           
|Total expenses                            |  |                                | 24,914,465 |   |      |   | 16,803,267 |      |  |   | 35,530,470  |   |  |      | 73,886,694 |   |  |   | 58,510,936
|                                          |  |                                |            |   |      |   |            |      |  |   |             |   |  |      |            |   |  |   |           
|INCOME (LOSS) BEFORE TAXES                |  |                                | (5,147,621 | ) |      |   | (7,531,678 | )    |  |   | (17,820,618 | ) |  |      | (1,496,970 | ) |  |   | 3,610,604 
|PROVISION FOR (BENEFIT FROM) INCOME TAXES |  |                                | 32,765     |   |      |   | 23,977     |      |  |   | (2,234,474  | ) |  |      | 241,990    |   |  |   | 2,123,699 
|MINORITY INTEREST                         |  |                                |           |   |      |   |           |      |  |   | 767,855     |   |  |      | 800,099    |   |  |   | 100,920   
|                                          |  |                                |            |   |      |   |            |      |  |   |             |   |  |      |            |   |  |   |           
|NET INCOME (LOSS)                         |  | $                              | (5,180,386 | ) |      | $ | (7,555,655 | )    |  | $ | (14,818,289 | ) |  | $    | (938,861   | ) |  | $ | 1,587,825 
|                                          |  |                                |            |   |      |   |            |      |  |   |             |   |  |      |            |   |  |   |           



19



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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.



GENERAL



The following discussions should be read in conjunction with the Consolidated Financial Statements and notes thereto appearing elsewhere in
this Annual Report on Form 10-K.



CRITICAL ACCOUNTING POLICIES



Our critical accounting policies are more fully described in Note 2 of
Notes to the Consolidated Financial Statements. However, certain accounting policies and estimates are particularly important to the understanding of the our consolidated financial position and consolidated results of operations and require the
application of significant judgment by our management or can be materially affected by changes, from period to period, in economic factors or conditions that are outside the control of management. As a result, they are subject to an inherent degree
of uncertainty. In applying these policies, our management uses their judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on our historical operations, our future business
plans and projected financial results, the terms of existing contracts, our observance of trends in the industry and information available from other outside sources, as appropriate. The following discusses our critical accounting policies and
estimates.



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. 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).



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. Such assumptions may change over time.



Allowance for doubtful accountsIn the third quarter of fiscal 2003, the Company began recording an allowance against accounts receivable from trading and sales personnel. That allowance is $360,697 at January 31, 2004. Accounts
receivable from trading and



20



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sales personnel 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. New management has assessed the probability of collection for each receivable and has established an allowance consistent with that assessment. 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 a lengthy history about
collections from its traders and sales persons. We will reassess and refine our methodology continuously as the new management accumulates sufficient history of collections from its traders and sales persons, and that process may result in changes
to our estimates.



Capitalization of proprietary softwareDuring
the year ended January 31, 2004, the Company began capitalizing 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 $773,203 are carried in furniture, equipment, capitalized software and leasehold improvements in the Consolidated Statement of Financial Condition as
of January 31, 2004. Of that amount, $455,784 represents software that is still in development and is not being amortized while $317,419 represents software that has been placed in service and is being amortized. Capitalized software in service is
amortized over its estimated useful life of three years.



Contingent
liabilitiesAs discussed in Note 18 of Notes to Consolidated Financial Statements, the Company is the defendant in several law suits or arbitrations brought by brokerage customers or investors who purchased securities in offerings for which
the Company acted as underwriter or placement agent. The claims in these actions represent contingent liabilities, which are accounted for under SFAS No. 5, Accounting for Contingencies. Under SFAS No. 5. a loss and a liability is recorded
for a settlement or award when management concludes that such loss is probable and can be reasonably estimated. In many of the actions described in Note 18, we intend to vigorously defend ourselves, and/or are presently unable to predict the
outcome, and therefore to date have not accrued for any losses. However, as these actions proceed and more information becomes available, our assessment of the future outcome of a matter may change or, notwithstanding our defenses, we may choose to
settle a matter or a plaintiff may receive an award, at which time a loss may be recorded. The actual future outcomes of these matters may differ from our assessments at any point in time, and significant differences could have a material affect on
our financial position and results of operations.



Income taxesAs
part of the process of preparing our financial statements, we are required to estimate our income taxes. This process involves estimating our actual current tax exposure, together with assessing temporary differences resulting from the difference in
the financial reporting and tax treatments of specific items, such as stock compensation, the valuation of financial instruments, the allowance for doubtful accounts, and other items. These differences result in deferred tax assets and liabilities.
We also record a deferred tax asset for net operating loss carryforwards. We then assess the likelihood that our deferred tax assets will be recovered from future taxable income, and to the extent we believe that recovery is not likely, we must
establish a valuation allowance. Our future tax expense as reported in the financial statements will be affected by the extent to which we establish a valuation allowance or the increase or decrease in the allowance during a period. To date, we have
recorded a valuation allowance of $11,657,935, the entire amount of our deferred tax assets (primarily net operating loss carryforwards), as currently we cannot determine that it is more likely than not that we will generate sufficient taxable
income in the U.S. to use those net operating loss carryforwards. In the event that actual results differ from these estimates, or we adjust these estimates in future periods, we may need to adjust the valuation allowance, which could materially
impact our financial position and results of operations.



RECENTLY ISSUED
ACCOUNTING PRONOUNCEMENTS



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 did not have an effect on our consolidated 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



21



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hedging instruments entered into after June 30, 2003. The adoption of this statement did not have a material impact on our consolidated 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 consolidated financial statements.



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 proceedings in an 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;
| | - | -------------------



| |  | 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.



22



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RESULTS OF OPERATIONS





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
| | - | ------------------



| |  | professional fees related to the Restatement
| | - | --------------------------------------------



| |  | 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.



Trends



We believe that our business is currently impacted by the following trends that may affect our financial condition and results of
operations. First, the continuing effects of decimalization and other market structure changes, competition and market conditions have resulted in a significant decline in revenue capture per share in our market-making operations. Average revenue
capture per share represents the total net trading revenue from our market-making operations divided by the volume of U.S. equity shares traded. Second, decimalization and other market structure changes, competition and market conditions have
triggered an industry shift from market makers trading OTC securities solely as principal to executing trades on a riskless principal or agency basis with institutions paying commission-equivalents or commissions, respectively, as declining spreads
reduce profits for principal equity trading and as firms become more risk-averse in their capital commitments. Currently, we execute the majority of our institutional client orders on a riskless principal or agency basis, charging commission
equivalents or commissions, and we execute the majority of our broker-dealer client orders as principal. Third, ECNs and other alternative trading systems, that can charge access fees to counterparties who access the liquidity provided by such ECNs,
now account for a significant amount of Nasdaq trading volume. Also, direct access trading solutions and application service providers are growing in popularity. The introduction of SuperMontage by Nasdaq and the increase in the trading of
Nasdaq-listed securities on other exchanges has increased market fragmentation, resulting in increased execution expenses, fragmented liquidity pools and different market centers using different sets of regulatory rules and regulations. Fourth, the
effects of decimalization and market conditions have resulted in consolidation in the equities and options market-making industries.



23



---

For example, in the calendar years 2003 and 2002, several equity market makers withdrew from providing market-making
services or scaled back the number of stocks in which they make markets.



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 properly manage inventory 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. Commissions and fees are primarily affected by changes in our trade and share volumes in listed securities and changes in commission rates.



We also earned 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 exited the retail business and transferred the majority of our retail customer accounts
to GunnAllen Financial, Inc. on March 27, 2004.



We earn underwriting and
advisory fees from our corporate clients, mostly on an agency 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 the number of our sales and trading professionals.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Other operating expenses are:



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



24



---

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



| | Postage, printing and office supplies expense which consists of expenditures related to mail, overnight shipping costs, and office supplies.
|- | --------------------------------------------------------------------------------------------------------------------------------------------



| | Business development expense, which primarily consists of travel, entertainment and advertising costs.
|- | ------------------------------------------------------------------------------------------------------



| | Depreciation and amortization expense from the depreciation of furniture and equipment and the amortization of leasehold improvements and capitalized software.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Interest expense, which primarily relates to subordinated debt interest.
|- | ------------------------------------------------------------------------



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













The following table sets forth, for the periods indicated, the results of operations as presented in the Companys Statements of Operations included in Item 8.
Financial Statements and Supplementary Data:



|                                                      |  |      |            |   |      |   |            |      |  |   |             |  
|----------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ----------- | -
|                                                      |  | 2004 |            |   | 2003 |   |            | 2002 | 
|                                                      |  |      |           
|REVENUES                                              |  |      |            |   |      |   |            |      |  |   |             |  
|Net trading revenues                                  |  | $    | 17,922,780 |   |      | $ | 7,659,032  |      |  | $ | 15,173,605  |  
|Commissions                                           |  |      | 1,296,896  |   |      |   | 997,660    |      |  |   | 1,149,168   |  
|Underwriting and investment banking fees              |  |      | 185,548    |   |      |   | 295,346    |      |  |   | 77,657      |  
|Gain on sale of subsidiary                            |  |      |           |   |      |   |           |      |  |   | 23,997      |  
|Interest and other                                    |  |      | 361,620    |   |      |   | 319,551    |      |  |   | 1,285,425   |  
|                                                      |  |      |            |   |      |   |            |      |  |   |             |  
|Total revenues                                        |  |      | 19,766,844 |   |      |   | 9,271,589  |      |  |   | 17,709,852  |  
|                                                      |  |      |            |   |      |   |            |      |  |   |             |  
|                                                      |  |      |           
|EXPENSES                                              |  |      |            |   |      |   |            |      |  |   |             |  
|Employee compensation and benefits                    |  |      | 11,998,428 |   |      |   | 6,992,365  |      |  |   | 10,341,313  |  
|Execution and clearance charges                       |  |      | 4,056,383  |   |      |   | 2,672,898  |      |  |   | 7,516,361   |  
|Professional fees                                     |  |      | 2,339,357  |   |      |   | 876,851    |      |  |   | 986,957     |  
|Communication and data processing                     |  |      | 2,331,515  |   |      |   | 2,774,176  |      |  |   | 4,793,450   |  
|Occupancy and equipment rentals                       |  |      | 1,376,469  |   |      |   | 1,299,593  |      |  |   | 1,120,274   |  
|Postage and shipping                                  |  |      | 540,665    |   |      |   | 484,105    |      |  |   | 1,146,588   |  
|Business development                                  |  |      | 523,196    |   |      |   | 318,708    |      |  |   | 752,732     |  
|Depreciation and amortization                         |  |      | 178,265    |   |      |   | 94,043     |      |  |   | 218,208     |  
|Interest expense                                      |  |      | 128,123    |   |      |   | 124,672    |      |  |   | 78,464      |  
|NASD arbitration settlements                          |  |      | (168,610   | ) |      |   | 321,996    |      |  |   | 5,000,000   |  
|Impairment of investment                              |  |      |           |   |      |   | 94,817     |      |  |   | 1,184,008   |  
|Restatement costs                                     |  |      | 505,612    |   |      |   |           |      |  |   |            |  
|Other expenses                                        |  |      | 1,105,062  |   |      |   | 749,043    |      |  |   | 2,392,115   |  
|                                                      |  |      |            |   |      |   |            |      |  |   |             |  
|Total expenses                                        |  |      | 24,914,465 |   |      |   | 16,803,267 |      |  |   | 35,530,470  |  
|                                                      |  |      |            |   |      |   |            |      |  |   |             |  
|Loss before income taxes and tax benefits             |  |      | (5,147,621 | ) |      |   | (7,531,678 | )    |  |   | (17,820,618 | )
|Provision for (benefit from) income taxes             |  |      | 32,765     |   |      |   | 23,977     |      |  |   | (2,234,474  | )
|Minority interest                                     |  |      |           |   |      |   |           |      |  |   | 767,855     |  
|                                                      |  |      |            |   |      |   |            |      |  |   |             |  
|Net loss                                              |  | $    | (5,180,386 | ) |      | $ | (7,555,655 | )    |  | $ | (14,818,289 | )
|                                                      |  |      |            |   |      |   |            |      |  |   |             |  
|Basic loss per share of common stock                  |  | $    | (0.53      | ) |      | $ | (1.13      | )    |  | $ | (2.24       | )
|                                                      |  |      |            |   |      |   |            |      |  |   |             |  
|Diluted loss per share of common stock                |  | $    | (0.53      | ) |      | $ | (1.13      | )    |  | $ | (2.24       | )
|                                                      |  |      |            |   |      |   |            |      |  |   |             |  
|Weighted average number of shares outstanding         |  |      | 9,717,730  |   |      |   | 6,661,377  |      |  |   | 6,616,329   |  
|                                                      |  |      |            |   |      |   |            |      |  |   |             |  
|Diluted weighted average number of shares outstanding |  |      | 9,717,730  |   |      |   | 6,661,377  |      |  |   | 6,616,329   |  
|                                                      |  |      |            |   |      |   |            |      |  |   |             |  





25



---

CALCULATION OF EARNINGS PER SHARE



The calculation of earnings (loss) per share on the financial statements included in this report is based on the weighted average number of
shares outstanding, as calculated.



FISCAL YEAR 2004 COMPARED WITH FISCAL
YEAR 2003



The net loss for the fiscal year ended January 31, 2004 was $5.2
million, resulting in a loss per share on a fully diluted basis of $0.53. This compares to a net loss of $7.6 million and loss per share of $1.13 on a fully diluted basis in the fiscal year ended January 31, 2003.



In 2004, total revenues increased 113.2% to $19.8 million, from $9.3 million in 2003,
primarily due to increased net trading revenues from our U.S. securities market-making activities.



Expenses increased 48.3% to $24.9 million in 2004, from $16.8 million in 2003, primarily as a result of increases in execution and clearance fees, employee compensation and benefits and professional fees.



Revenues



Net trading revenue from market-making activities increased 134.0% to $17.9 million in 2004, from $7.7 million in 2003. The increase was
primarily due to increases in trade and share volumes in 2004 compared to 2003. Volume increased due to both an overall increase in market volume and an increase in our market share resulting from the expansion and upgrading of our market-making
operation.



Underwriting and investment banking fees decreased 37.2% to
$185,548 in 2004, from $295,346 in 2003. This decrease is due to an absence of any significant underwriting transactions or advisory contracts in 2004.



Commissions increased 30.0% to $1.3 million in 2004, from $1.0 million in 2003. This increase is due to both increased market volume as well as an increase in our market
share in commission-based business in 2004.



Interest and other income
increased 13.2% to $361,620 in 2004, from $319,551 in 2003. This increase was primarily due to higher balances held at banks and our clearing brokers.



Expenses



Employee compensation and benefits expense increased 71.6% to $12.0 million in 2004, from $7.0 million in 2003. The increase was primarily due to higher sales and trading payouts as a result of increased gross trading
profits and margins, as well as the hiring of experienced senior management, sales and trading professionals. These increases were partially offset by the effects of reductions of sales and trading professionals that were replaced with more
experienced personnel, the elimination of our retail business, and the forfeiture of $0.6 million of salaries by management personnel.



Execution and clearance fees increased 51.8% to $4.1 million in 2004, from $2.7 million in 2003. The increase is due to increased trade and share volume as well as
increased costs related to executing orders through ECNs.



Communications
and data processing expense decreased 16.0% to $2.3 million in 2004, from $2.8 million in 2003. The decrease was generally attributable to the decrease in the headcount discussed above and cost reduction measures, including the elimination of
redundant equipment and services, and savings generated from the competitive bidding of certain contracts.



Occupancy and rental expense increased 5.9% to $1.4 million in 2004, from $1.3 million in 2003.



Professional fees increased 166.8% to $2.3 million in 2004, from $0.9 million in 2003. The increase is primarily due to increased legal costs associated with outstanding
litigation and arbitration matters as well as increased audit fees.



Postage,
printing and office supplies increased 11.7% to $540,665 in 2004 from $484,105 in 2003.



Business development expense increased 64.2% to $523,196 in 2004, from $318,708 in 2003. The increase is attributable to higher advertising, travel and entertainment costs compared to 2003 due to the implementation of our new business
model.



Depreciation and amortization increased 89.6% to $178,265 in 2004, from
$94,043 in 2003. This increase is primarily due to an increase in technology and software development expenditures in 2004.



Interest expense increased 2.7% to $128,123 in 2004, from $124,672 in 2003.



26



---

Expenses related to NASD arbitration settlements were $168,610 credit in 2004 as compared to a $321,996 charge in 2003.
In May 2003, the Company completed a transaction with Mr. Meyerson totaling $1,350,000 (the Transaction). As part of the Transaction, the Company received a reimbursement of Company expenses of $240,000 with respect to the NASD
arbitration settlement in connection with the claim in C.V.I. Group v. M.H. Meyerson & Co., Inc. and Bear Stearns & Co., Inc. (See Item 3. Legal Proceedings, C.V.I. Group Arbitration). This charge was originally recorded in 2003.



An impairment charge of $94,817 was recognized in 2003 on our investment in
ViewTrade, with no impairment charge recognized in 2004 (see Note 6 of Notes to Consolidated Financial Statements).



Restatement costs of $505,612 were incurred in 2004 in connection with our restatement of our 2001, 2002, 2003 and interim 2004 financial statements (see Note 2 of Notes
to Consolidated Financial Statements).



Other expense increased 47.5% to $1.1
million in 2004, from $0.7 million in 2003. This increase was primarily attributable to increased expenditures consistent with our new business model.



FISCAL YEAR 2003 COMPARED WITH FISCAL YEAR 2002



The net loss for the fiscal year ended January 31, 2003 was $7.6 million, resulting in a loss per share on a fully diluted basis of $1.13. This compares to a net loss of
$14.8 million and loss per share of $2.24 on a fully diluted basis in the fiscal year ended January 31, 2002.



In 2003, total revenues decreased 47.6% to $9.3 million, from $17.7 million in 2002, primarily due to decreased net trading revenues from our U.S. securities market-making activities. That was due to the continuing
effects of decimalization and other market structure changes, competition and declining market conditions, as well as $1 million in insurance recovery in 2002 related to an arbitration settlement (See Item 3. Legal Proceedings, C.V.I. Group
Arbitration).



Expenses decreased 52.7% to $16.8 million in 2003,
declining from $35.5 million in 2002, primarily as a result of decreases in execution and clearance fees, employee compensation and benefits and communications and data processing fees, as well as the effect on 2002 expenses of a $5 million
arbitration settlement (See Item 3. Legal Proceedings, C.V.I. Group Arbitration). The Company has provided a full valuation allowance related to future tax benefits.



Revenues



Net trading revenue from market-making activities decreased 49.5% to $7.7 million in 2003, from $15.2 million in 2002. The decrease was primarily due to the continuing
effects of decimalization and other market structure changes, competition and declining market conditions.



Underwriting and investment banking fees increased 280.3% to $295,346 in 2003, from $77,657 in 2002. This increase is due to an absence of any significant underwriting transactions or advisory contracts being referred
to us in 2002 due to deteriorating market conditions.



Commissions decreased
13.2% to $1 million in 2003, from $1.1 million in 2002. This decrease is primarily due to lower commission volumes from retail customers.



Interest and other income decreased 75.1% to $319,551 in 2003, from $1.3 million in 2002. This decrease was primarily due to the positive effect on 2002 of a $1 million
in insurance recovery related to an arbitration settlement (See Item 3. Legal Proceedings, C.V.I. Group Arbitration).



Gain on sale of subsidiary was $23,997 in 2002 due to the sale of our subsidiary, Emeyerson.com, Inc. on July 25, 2001.



Expenses



Employee compensation and benefits expense decreased 32.4% to $7 million in 2003, from $10.3 million in 2002. The decrease was primarily due
to lower compensation paid to production personnel and management due to a decline in trading revenues, as well as a lower headcount.



Execution and clearance fees decreased 64.4% to $2.7 million in 2003, from $7.5 million in 2002. The decrease is due to lower trade and share volume and reduced clearing
rates negotiated with our clearing brokers.



Communications and data processing
expense decreased 42.1% to $2.8 million in 2003, from $4.8 million in 2002. The decrease was generally attributable to a decrease in the headcount in our operations.



27



---

Occupancy and rental expense increased 16.0% to $1,299,593 in 2003, from $1,120,274 in 2002.



Professional fees decreased 11.2% to $876,851 in 2003, from $986,957 in 2002.



Business development expense decreased 57.7% to $318,708 in 2003, from $752,732 in 2002. The
decrease is attributable to lower advertising, travel and entertainment costs due to the decline in revenues.



Depreciation and amortization decreased 56.9% to $ 94,043 in 2003, from $ 218,208 in 2002. This decrease was primarily due to a decrease in expenditures on equipment in 2003 and 2002 compared to 2001.



Expenses related to NASD arbitration settlements decreased 93.6% to $321,996 in 2003, from $5
million in 2002. In 2002, the Company accrued an expense of $5 million related to an arbitration settlement in connection with the claim in C.V.I. Group v. M.H. Meyerson & Co., Inc. and Bear Stearns & Co., Inc. (See Item 3. Legal
Proceedings, C.V.I. Group Arbitration). This expense was partially offset by the insurance recovery of $1 million recorded in Interest and Other income.



An impairment charge of $94,817 was recognized in 2003 on our investment in ViewTrade, compared to the charge of $1,184,008 in 2002. The
much higher charge in 2002 is due to the unforeseen catastrophic events that occurred on September 11, 2001 in New York that destroyed the offices of ViewTrade and the adverse economic environment, both of which negatively impacted ViewTrades
earnings, and therefore the value of our investment in ViewTrade.



Other
expense decreased 68.7% to $0.7 million in 2003, from $2.4 million in 2002. This decrease was primarily attributable to lower expenditures on overheads consistent with the decline in revenues and reduction in headcount.



LIQUIDITY AND CAPITAL RESOURCES



The Companys 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 74% and 61% of total assets at January 31, 2004 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.



The Company also maintains cash 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 a minimum of $1,000,000 in cash or securities at SLK, and $100,000 in clearing deposits at Fiserv, at all times. We maintained cash balances at SLK and Fiserv of $3,311,739 and $169,148 at January 31, 2004,
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
$509,355 and $508,850 in cash at Bear Stearns, our former clearing broker, at January 31, 2004 and 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 settlement related to C.V.I. Group v. M.H. Meyerson & Co., Inc. and Bear Stearns & Co., Inc. (See Item 3. Legal Proceedings, C.V.I. Group Arbitration), 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.



Net cash used in operating activities was $5,740,172 in 2004, $1,062,560 in 2003, and $8,232,689 in 2002, respectively. Our net cash used in operating activities is materially impacted by changes in our results of
operations, as well as the level of our long and short securities positions, and the cash and equity balances at our clearing brokers. The negative operating cash flows in each of 2004, 2003 and 2002 were principally financed by the Companys
cash on hand at the beginning of those years, as well as from the issuance of common stock or subordinated loans during each year.



Net cash used in investing activities was $1,099,996 in 2004 and $1,392,122 in 2002, compared to $72,385 provided by investing activities in 2003, respectively. The 2004
investing outflows resulted from the purchase of fixed assets and the capitalization of internally developed software during the year. The cash inflows in 2003 were primarily due to the disposition of certain non-marketable investments. The 2002
cash outflows were primarily due to the disposal of our subsidiary, eMeyerson.com, and the resultant relinquishment of our share of the cash in the subsidiary.



Net cash provided by financing activities was $8,254,423, $1,100,297, and $24,208 for the years ended January 31, 2004, 2003 and 2002, respectively. The net increase
in 2004 was due to a combination of two common stock private placements totaling $4,995,725, two cash contributions to equity totaling $1,830,000, a sale of assets totaling $980,000 and option exercises totaling $448,698. On June 12, 2003, the
Company completed a private placement in which shares of Company common stock were offered without registration and subject to restrictions under the Securities Act, and the securities laws of certain states, in reliance on the private



28



---

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 consisted of two tranches: (i) the first tranche began at the end of March 2003 and ended in the first week of April 2003 in which the Company raised
$955,000 through the issuance of 636,666 shares of Common Stock; and (ii) the second tranche began in mid-May 2003 and concluded on June 12, 2003 in which the Company raised an additional $1,462,500 through the issuance of 974,997 shares of Common
Stock. The second private placement commenced in October 2003 and raised $1,933,984 through the issuance of 954,118 shares of common stock and 5,000 warrants to the Companys directors and employees, and private investors through January 31,
2004. The Company took possession of municipal bonds from J.S.A. Investments LLC that were subsequently liquidated into cash of $1,700,000 on October 17, 2003. In May 2003, the Company completed a transaction with Martin H. Meyerson, the
Companys former Chairman and Chief Executive Officer, totaling $1,350,000, whereby he made a $130,000 cash contribution to equity, he purchased $980,000 of assets and he reimbursed the Company for $240,000 of expenditures related to certain
regulatory matters. The net increase in 2003 was due to the issuance of our common stock through a private placement for $100,000 to a member of our new management team, and the issuance of additional subordinated debt of $1,000,000 to Mr. Leighton
and Joelle A. Meyerson, the spouse of Mr. Meyerson. The net increase in 2002 was due to issuance of our common stock to our employees who exercised their stock options, offset by the repurchase and retirement of treasury stock.



All proceeds from the issuance of common stock and warrants during the year ended January 31,
2004 were used for the Companys working capital purposes and to increase the Companys level of stockholders equity and the Companys net capital as defined in SEC Rule 15c3-1.



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.



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 January 31, 2004 are summarized below:



|                                |  |                 |           |           |   |           |  |                  |           |       |   |           |  |   |          
|------------------------------- |  | --------------- | --------- | --------- | - | --------- |  | ---------------- | --------- | ----- | - | --------- |  | - | ---------
|                                |  | Payments due in
|For the years ended January 31  |  | 2005            |           | 2006-2007 |   | 2008-2009 |  | 2010- Thereafter |           | Total
|Operating lease contracts(1)    |  | $               | 1,153,469 |           | $ | 1,831,710 |  | $                | 1,819,233 |       | $ | 2,233,150 |  | $ | 7,037,562
|Guaranteed employment contracts |  |                 | 1,125,000 |           |   | 400,000   |  |                  |          |       |   |          |  |   | 1,525,000
|                                |  |                 |           |           |   |           |  |                  |           |       |   |           |  |   |          
|Total                           |  | $               | 2,278,469 |           | $ | 2,231,710 |  | $                | 1,819,233 |       | $ | 2,233,150 |  | $ | 8,562,562
|                                |  |                 |           |           |   |           |  |                  |           |       |   |           |  |   |          

(1) Note 18 to the Consolidated Financial Statements included in Item 8, Financial Statements and
Supplementary Data.



Off-Balance Sheet Arrangements



As of January 31, 2004, we did not have any off-balance sheet arrangements, as defined in
Item 303(a)(4)(ii) of SEC Regulation S-K.



ITEM 7A. Quantitative and
Qualitative Disclosures About Market Risk.



The Companys market
making activities expose the Company to significant risks, including but not limited to changes in price and/or liquidity of its trading positions. The Company uses an automated trading system to provide management with a real-time overview of its
traders activity, positions, and profit/loss. Each traders total positions are regularly reviewed and limited by management. This automated trading system also provides management with a screen that permits them to monitor trade
positions.



In the course of the Companys business, it maintains
inventory, consisting mainly of Nasdaq and OTC securities and municipal bonds. The market value of the Companys inventory was $3.2 million in long positions and $0.5 million in short positions at January 31, 2004 and $1.1 million in long
positions and $0.2 million in short positions at January 31, 2003. The loss to the Company, assuming a 10% decline in prices, would be $274,152 due to the losses on the long positions being partially offset by gains on the short positions.



The Company invests, from time to time, in certificates of deposit and/or
maintain interest bearing balances in its accounts with its clearing brokers, for working capital purposes, which are classified as cash equivalents and receivables from clearing brokers, respectively, in the Statements of Financial Condition. The
receivables from clearing brokers, less the portion required to meet margin



29



---

requirements, are all available for immediate withdrawal, and the certificates of deposit are for periods of 31 days or
less, and do not present a material market risk. The Company does not normally trade or carry positions in listed derivative instruments.



Item 8. Financial Statements and Supplementary Data.



INDEX TO FINANCIAL STATEMENTS



|                                                                                                               |  |     
|-------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                               |  | Page
|Independent Auditors Reports                                                                                  |  | 31  
|Consolidated Statements of Financial Condition at January 31, 2004 and 2003                                    |  | 33  
|Consolidated Statements of Operations for the years ended January 31, 2004, 2003 and 2002                      |  | 34  
|Consolidated Statements of Changes in Stockholders Equity for the years ended January 31, 2004, 2003 and 2002 |  | 35  
|Consolidated Statements of Cash Flows for the years ended January 31, 2004, 2003 and 2002                      |  | 36  
|Notes to Consolidated Financial Statements                                                                     |  | 37  



30



---

Report of Independent Auditors



To the Shareholders and Board of Directors

of Crown Financial Group, Inc. (formerly

M.H. Meyerson & Co., Inc.)



We have audited the accompanying consolidated statement of financial condition of Crown
Financial Group, Inc. (the Company) as of January 31, 2004, and the related consolidated statements of operations, changes in stockholders equity, and cash flows for the year then ended. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.



We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.



In our opinion, the consolidated financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Crown Financial Group, Inc. at January 31, 2004, and the consolidated results of its operations and its cash flows for the year then ended, in conformity with accounting principles
generally accepted in the United States.





|                   |  |                       
|------------------ |  | ----------------------
|New York, New York |  | /s/ Ernst & Young, LLP
|April 5, 2004      |  |                       



31



---

INDEPENDENT AUDITORS REPORT



To the Shareholders and

Board of Directors

CROWN FINANCIAL GROUP, INC.

(formerly M. H.
MEYERSON & CO., INC.)



We have audited the accompanying consolidated
statements of financial condition of CROWN FINANCIAL GROUP, INC. (the Company), formerly M. H. MEYERSON & CO., INC., as of January 31, 2003, and the related consolidated statements of operations, changes in stockholders equity,
and cash flows for each of the two years in the period ended January 31, 2003. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our
audits.



We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the consolidated financial statements referred to above, after the restatement described in Note 2, present fairly, in all material respects, the financial position of CROWN FINANCIAL GROUP, INC., as
of January 31, 2003, and the results of their operations and their cash flows for each of the two years in the period ended January 31, 2003, in conformity with accounting principles generally accepted in the United States of America.





|                                                                                                                            |  |                              |  | 
|--------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- |  | 
|Abington, Pennsylvania                                                                                                      |  | /s/ Sanville & Company      
|March 20, 2003, except for the matters                                                                                      |  | Certified Public Accountants
|disclosed in notes 2, 20 and 22,(from the January 31, 200310-K/A filed March 9, 2004)
as to which the date is March 9, 2004 |  |                             
|                                                                                                                            |  |                             





32



---

CROWN FINANCIAL GROUP, INC.

(formerly M. H. MEYERSON & CO., INC. )

Consolidated Statements of Financial
Condition

January 31, 2004 and 2003



|                                                                                                                                                                                                    |  |      |             |   |      |   |             |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | -
|                                                                                                                                                                                                    |  | 2004 |             |   | 2003 |  
|ASSETS                                                                                                                                                                                              |  |      |             |   |      |   |             |  
|Cash and cash equivalents (Note 2)                                                                                                                                                                  |  | $    | 2,375,720   |   |      | $ | 961,465     |  
|Deposit with and receivables from brokers and dealers (Note 8)                                                                                                                                      |  |      | 3,990,242   |   |      |   | 3,473,248   |  
|Securities owned, held at clearing brokers, at market value (Notes 2 and 4)                                                                                                                         |  |      | 3,233,596   |   |      |   | 1,128,631   |  
|Other investments (Notes 2 and 12)                                                                                                                                                                  |  |      | 107,236     |   |      |   | 778,597     |  
|Furniture, equipment, capitalized software and leasehold improvements, net of accumulated depreciation and amortization (Notes 2 and
7)                                                             |  |      | 1,725,426   |   |      |   | 632,334     |  
|Receivables from trading and sales personnel, net of reserve (Note 2)                                                                                                                               |  |      | 186,641     |   |      |   | 730,139     |  
|Insurance recovery receivable                                                                                                                                                                       |  |      | 1,000,000   |   |      |   | 1,000,000   |  
|Income tax receivable                                                                                                                                                                               |  |      |            |   |      |   | 24,669      |  
|Prepaid expenses                                                                                                                                                                                    |  |      | 214,548     |   |      |   | 277,619     |  
|Other assets                                                                                                                                                                                        |  |      | 113,976     |   |      |   | 56,476      |  
|                                                                                                                                                                                                    |  |      |             |   |      |   |             |  
|Total assets                                                                                                                                                                                        |  | $    | 12,947,385  |   |      | $ | 9,063,178   |  
|                                                                                                                                                                                                    |  |      |             |   |      |   |             |  
|                                                                                                                                                                                                    |  |     
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                |  |      |             |   |      |   |             |  
|Securities sold, not yet purchased (Notes 2 and 4)                                                                                                                                                  |  | $    | 492,081     |   |      | $ | 222,663     |  
|Accrued compensation expense                                                                                                                                                                        |  |      | 1,250,573   |   |      |   | 254,682     |  
|Accrued NASD arbitration award                                                                                                                                                                      |  |      | 5,000,000   |   |      |   | 5,000,000   |  
|Accounts payable and accrued expenses                                                                                                                                                               |  |      | 1,453,829   |   |      |   | 1,148,004   |  
|                                                                                                                                                                                                    |  |      |             |   |      |   |             |  
|Total liabilities                                                                                                                                                                                   |  |      | 8,196,483   |   |      |   | 6,625,349   |  
|                                                                                                                                                                                                    |  |      |             |   |      |   |             |  
|                                                                                                                                                                                                    |  |     
|Commitments and contingent liabilities (Note 18)                                                                                                                                                    |  |      |             |   |      |   |             |  
|                                                                                                                                                                                                    |  |     
|Subordinated loans (Note 13)                                                                                                                                                                        |  |      | 2,000,000   |   |      |   | 3,000,000   |  
|                                                                                                                                                                                                    |  |      |             |   |      |   |             |  
|Stockholders Equity:                                                                                                                                                                               |  |      |             |   |      |   |             |  
|Common stock, $0.01 par value, 25,000,000 shares authorized; 11,425,333 shares issued and outstanding at January 31, 2004 and 7,556,964 shares
issued and outstanding at January 31, 2003 (Note 17) |  |      | 114,253     |   |      |   | 75,570      |  
|Unearned compensation (Note 2)                                                                                                                                                                      |  |      | (65,215     | ) |      |   | (97,071     | )
|Notes receivable from stock issuance                                                                                                                                                                |  |      |            |   |      |   | (200,000    | )
|Treasury stock (200,000 shares)                                                                                                                                                                     |  |      | (200,000    | ) |      |   |            |  
|Additional paid-in capital                                                                                                                                                                          |  |      | 25,295,796  |   |      |   | 16,872,876  |  
|Accumulated deficit                                                                                                                                                                                 |  |      | (22,393,932 | ) |      |   | (17,213,546 | )
|                                                                                                                                                                                                    |  |      |             |   |      |   |             |  
|Total stockholders equity                                                                                                                                                                          |  |      | 2,750,902   |   |      |   | (562,171    | )
|                                                                                                                                                                                                    |  |      |             |   |      |   |             |  
|Total liabilities and stockholders equity                                                                                                                                                          |  | $    | 12,947,385  |   |      | $ | 9,063,178   |  
|                                                                                                                                                                                                    |  |      |             |   |      |   |             |  



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



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



33



---

CROWN FINANCIAL GROUP, INC.

(formerly M. H. MEYERSON & CO., INC. )

Consolidated Statements of Operations

For the Years Ended January 31, 2004, 2003 and 2002



|                                                           |  |      |            |   |      |   |            |      |  |   |             |  
|---------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ----------- | -
|                                                           |  | 2004 |            |   | 2003 |   |            | 2002 | 
|REVENUES                                                   |  |      |            |   |      |   |            |      |  |   |             |  
|Net trading revenues                                       |  | $    | 17,922,780 |   |      | $ | 7,659,032  |      |  | $ | 15,173,605  |  
|Commissions                                                |  |      | 1,296,896  |   |      |   | 997,660    |      |  |   | 1,149,168   |  
|Underwriting and investment banking fees                   |  |      | 185,548    |   |      |   | 295,346    |      |  |   | 77,657      |  
|Gain on sale of subsidiary                                 |  |      |           |   |      |   |           |      |  |   | 23,997      |  
|Interest and other                                         |  |      | 361,620    |   |      |   | 319,551    |      |  |   | 1,285,425   |  
|                                                           |  |      |            |   |      |   |            |      |  |   |             |  
|Total revenues                                             |  |      | 19,766,844 |   |      |   | 9,271,589  |      |  |   | 17,709,852  |  
|                                                           |  |      |            |   |      |   |            |      |  |   |             |  
|                                                           |  |      |           
|EXPENSES                                                   |  |      |            |   |      |   |            |      |  |   |             |  
|Employee compensation and benefits                         |  |      | 11,998,428 |   |      |   | 6,992,365  |      |  |   | 10,341,313  |  
|Execution and clearance charges                            |  |      | 4,056,383  |   |      |   | 2,672,898  |      |  |   | 7,516,361   |  
|Professional fees                                          |  |      | 2,339,357  |   |      |   | 876,851    |      |  |   | 986,957     |  
|Communication and data processing                          |  |      | 2,331,515  |   |      |   | 2,774,176  |      |  |   | 4,793,450   |  
|Occupancy and equipment rentals                            |  |      | 1,376,469  |   |      |   | 1,299,593  |      |  |   | 1,120,274   |  
|Postage, printing and office supplies                      |  |      | 540,665    |   |      |   | 484,105    |      |  |   | 1,146,588   |  
|Business development                                       |  |      | 523,196    |   |      |   | 318,708    |      |  |   | 752,732     |  
|Depreciation and amortization                              |  |      | 178,265    |   |      |   | 94,043     |      |  |   | 218,208     |  
|Interest expense                                           |  |      | 128,123    |   |      |   | 124,672    |      |  |   | 78,464      |  
|NASD arbitration settlements (Note 2)                      |  |      | (168,610   | ) |      |   | 321,996    |      |  |   | 5,000,000   |  
|Impairment of investment (Note 6)                          |  |      |           |   |      |   | 94,817     |      |  |   | 1,184,008   |  
|Restatement costs (Note 2)                                 |  |      | 505,612    |   |      |   |           |      |  |   |            |  
|Other expenses                                             |  |      | 1,105,062  |   |      |   | 749,043    |      |  |   | 2,392,115   |  
|                                                           |  |      |            |   |      |   |            |      |  |   |             |  
|Total expenses                                             |  |      | 24,914,465 |   |      |   | 16,803,267 |      |  |   | 35,530,470  |  
|                                                           |  |      |            |   |      |   |            |      |  |   |             |  
|                                                           |  |      |           
|Loss before income taxes and tax benefits                  |  |      | (5,147,621 | ) |      |   | (7,531,678 | )    |  |   | (17,820,618 | )
|Provision for (benefit from) income taxes (Notes 2 and 15) |  |      | 32,765     |   |      |   | 23,977     |      |  |   | (2,234,474  | )
|Minority interest                                          |  |      |           |   |      |   |           |      |  |   | 767,855     |  
|                                                           |  |      |            |   |      |   |            |      |  |   |             |  
|Net loss                                                   |  | $    | (5,180,386 | ) |      | $ | (7,555,655 | )    |  | $ | (14,818,289 | )
|                                                           |  |      |            |   |      |   |            |      |  |   |             |  
|                                                           |  |      |           
|Basic loss per share of common stock (Note 2)              |  | $    | (0.53      | ) |      | $ | (1.13      | )    |  | $ | (2.24       | )
|                                                           |  |      |            |   |      |   |            |      |  |   |             |  
|Diluted loss per share of common stock (Note 2)            |  | $    | (0.53      | ) |      | $ | (1.13      | )    |  | $ | (2.24       | )
|                                                           |  |      |            |   |      |   |            |      |  |   |             |  
|Weighted average number of shares outstanding              |  |      | 9,717,730  |   |      |   | 6,661,377  |      |  |   | 6,616,329   |  
|                                                           |  |      |            |   |      |   |            |      |  |   |             |  
|Diluted weighted average number of shares outstanding      |  |      | 9,717,730  |   |      |   | 6,661,377  |      |  |   | 6,616,329   |  
|                                                           |  |      |            |   |      |   |            |      |  |   |             |  



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



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



34



---

CROWN FINANCIAL GROUP, INC.

(formerly M. H. MEYERSON & CO., INC. )

Consolidated Statements of Changes in
Stockholders Equity

For the Years Ended January 31, 2004, 2003 and 2002



|                                           |  |              |   |  |                      |         |   |                                     |   |          |               |  |   |                          |   |  |                                          |          |   |                          |   |            |   |  |   |             |   |  |   |             |  
|------------------------------------------ |  | ------------ | - |  | -------------------- | ------- | - | ----------------------------------- | - | -------- | ------------- |  | - | ------------------------ | - |  | ---------------------------------------- | -------- | - | ------------------------ | - | ---------- | - |  | - | ----------- | - |  | - | ----------- | -
|                                           |  | Common Stock |   |  | UnearnedCompensation |         |   | NotesReceivable From Stock Issuance |   |          | TreasuryStock |  |   | AdditionalPaid-InCapital |   |  | Retained Earnings/ (Accumulated Deficit) |          |   | TotalStockholdersEquity |  
|                                           |  | Shares       |   |  | Amount               |         |   |                                     |   |          |               | 
|Balances at January 31, 2001               |  | 6,625,715    |   |  | $                    | 66,257  |   |                                     | $ |         |               |  | $ | (200,000                 | ) |  | $                                        |         |   |                          | $ | 16,825,265 |   |  | $ | 5,160,398   |   |  | $ | 21,851,920  |  
|Net loss                                   |  |             |   |  |                      |        |   |                                     |   |         |               |  |   |                         |   |  |                                          |         |   |                          |   |           |   |  |   | (14,818,289 | ) |  |   | (14,818,289 | )
|Options granted                            |  |             |   |  |                      |        |   |                                     |   |         |               |  |   |                         |   |  |                                          |         |   |                          |   | (568,750   | ) |  |   |            |   |  |   | (568,750    | )
|Options exercised                          |  | 9,799        |   |  |                      | 98      |   |                                     |   |         |               |  |   |                         |   |  |                                          |         |   |                          |   | 24,400     |   |  |   |            |   |  |   | 24,498      |  
|Income tax benefitstock options exercised |  |             |   |  |                      |        |   |                                     |   |         |               |  |   |                         |   |  |                                          |         |   |                          |   | 3,248      |   |  |   |            |   |  |   | 3,248       |  
|Treasury stock retired                     |  | (29,000      | ) |  |                      | (290    | ) |                                     |   |         |               |  |   |                         |   |  |                                          |         |   |                          |   |           |   |  |   |            |   |  |   | (290        | )
|                                           |  |              |   |  |                      |         |   |                                     |   |          |               |  |   |                          |   |  |                                          |          |   |                          |   |            |   |  |   |             |   |  |   |             |  
|Balances at January 31, 2002               |  | 6,606,514    |   |  |                      | 66,065  |   |                                     |   |         |               |  |   | (200,000                 | ) |  |                                          |         |   |                          |   | 16,284,163 |   |  |   | (9,657,891  | ) |  |   | 6,492,337   |  
|Net loss                                   |  |             |   |  |                      |        |   |                                     |   |         |               |  |   |                         |   |  |                                          |         |   |                          |   |           |   |  |   | (7,555,655  | ) |  |   | (7,555,655  | )
|Shares issued                              |  | 200,000      |   |  |                      | 2,000   |   |                                     |   |         |               |  |   |                         |   |  |                                          |         |   |                          |   | 98,000     |   |  |   |            |   |  |   | 100,000     |  
|Shares issued as compensation              |  | 750,000      |   |  |                      | 7,500   |   |                                     |   |         |               |  |   |                         |   |  |                                          |         |   |                          |   | 390,000    |   |  |   |            |   |  |   | 397,500     |  
|Options granted                            |  |             |   |  |                      |        |   |                                     |   | (97,071  | )             |  |   |                         |   |  |                                          |         |   |                          |   | 100,421    |   |  |   |            |   |  |   | 3,350       |  
|Options exercised                          |  | 450          |   |  |                      | 5       |   |                                     |   |         |               |  |   |                         |   |  |                                          |         |   |                          |   | 292        |   |  |   |            |   |  |   | 297         |  
|                                           |  |              |   |  |                      |         |   |                                     |   |          |               |  |   |                          |   |  |                                          |          |   |                          |   |            |   |  |   |             |   |  |   |             |  
|Balances at January 31, 2003               |  | 7,556,964    |   |  |                      | 75,570  |   |                                     |   | (97,071  | )             |  |   | (200,000                 | ) |  |                                          |         |   |                          |   | 16,872,876 |   |  |   | (17,213,546 | ) |  |   | (562,171    | )
|Net loss                                   |  |              |   |  |                      |         |   |                                     |   |          |               |  |   |                          |   |  |                                          |          |   |                          |   |            |   |  |   | (5,180,386  | ) |  |   | (5,180,386  | )
|Purchase of common stock for treasury      |  |             |   |  |                      |        |   |                                     |   |         |               |  |   | 200,000                  |   |  |                                          | (200,000 | ) |                          |   |           |   |  |   |            |   |  |   |            |  
|Shares and warrants issued                 |  | 3,149,056    |   |  |                      | 31,490  |   |                                     |   |         |               |  |   |                         |   |  |                                          |         |   |                          |   | 4,964,235  |   |  |   |            |   |  |   | 4,995,725   |  
|Subordinated debt converted to equity      |  | 366,838      |   |  |                      | 3,668   |   |                                     |   |         |               |  |   |                         |   |  |                                          |         |   |                          |   | 996,332    |   |  |   |            |   |  |   | 1,000,000   |  
|Cash contributions to equity               |  |             |   |  |                      |        |   |                                     |   |         |               |  |   |                         |   |  |                                          |         |   |                          |   | 1,830,000  |   |  |   |            |   |  |   | 1,830,000   |  
|Options granted                            |  |             |   |  |                      |        |   |                                     |   | (170,968 | )             |  |   |                         |   |  |                                          |         |   |                          |   | 187,180    |   |  |   |            |   |  |   | 16,212      |  
|Amortization of unearned compensation      |  |             |   |  |                      |        |   |                                     |   | 202,824  |               |  |   |                         |   |  |                                          |         |   |                          |   |           |   |  |   |            |   |  |   | 202,824     |  
|Options exercised                          |  | 352,475      |   |  |                      | 3,525   |   |                                     |   |         |               |  |   |                         |   |  |                                          |         |   |                          |   | 445,173    |   |  |   |            |   |  |   | 448,698     |  
|                                           |  |              |   |  |                      |         |   |                                     |   |          |               |  |   |                          |   |  |                                          |          |   |                          |   |            |   |  |   |             |   |  |   |             |  
|Balances at January 31, 2004               |  | 11,425,333   |   |  | $                    | 114,253 |   |                                     | $ | (65,215  | )             |  | $ |                         |   |  | $                                        | (200,000 | ) |                          | $ | 25,295,796 |   |  | $ | (22,393,932 | ) |  | $ | 2,750,902   |  
|                                           |  |              |   |  |                      |         |   |                                     |   |          |               |  |   |                          |   |  |                                          |          |   |                          |   |            |   |  |   |             |   |  |   |             |  



The accompanying notes
are an integral part of these consolidated financial statements



35



---

CROWN FINANCIAL GROUP, INC.

(formerly M. H. MEYERSON & CO., INC. )

Consolidated Statements of Cash Flows

For the Years Ended January 31, 2004, 2003 and 2002



|                                                                            |  |      |            |   |      |   |            |      |  |   |             |  
|--------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ----------- | -
|                                                                            |  | 2004 |            |   | 2003 |   |            | 2002 | 
|Cash flows from operating activities:                                       |  |      |            |   |      |   |            |      |  |   |             |  
|Net loss                                                                    |  | $    | (5,180,386 | ) |      | $ | (7,555,655 | )    |  | $ | (14,818,289 | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |      |            |   |      |   |            |      |  |   |             |  
|Depreciation and amortization                                               |  |      | 178,265    |   |      |   | 94,043     |      |  |   | 218,208     |  
|Common stock and options issued as compensation                             |  |      | 219,036    |   |      |   | 400,850    |      |  |   | (568,750    | )
|Minority interest                                                           |  |      |           |   |      |   |           |      |  |   | (767,855    | )
|Impairment of investment                                                    |  |      |           |   |      |   | 94,817     |      |  |   | 1,184,008   |  
|Gain on sale of subsidiary                                                  |  |      |           |   |      |   |           |      |  |   | (23,997     | )
|Income tax benefit from stock options exercised                             |  |      |           |   |      |   |           |      |  |   | (3,248      | )
|Reserve for receivables from trading and sales personnel                    |  |      | 360,697    |   |      |   |           |      |  |   |            |  
|Changes in assets and liabilities:                                          |  |      |            |   |      |   |            |      |  |   |             |  
|(Increase) decrease in assets:                                              |  |      |            |   |      |   |            |      |  |   |             |  
|Deposit with and receivables from brokers and dealers                       |  |      | (516,994   | ) |      |   | 1,712,024  |      |  |   | (1,908,058  | )
|Securities owned                                                            |  |      | (2,104,965 | ) |      |   | 3,097,467  |      |  |   | 9,432,161   |  
|Receivables from trading and sales personnel                                |  |      | (297,199   | ) |      |   | (428,263   | )    |  |   | (301,876    | )
|Insurance recovery                                                          |  |      |           |   |      |   |           |      |  |   | (1,000,000  | )
|Income tax receivable                                                       |  |      | 24,669     |   |      |   | 2,423,021  |      |  |   | 1,311,123   |  
|Prepaid expenses                                                            |  |      | 63,071     |   |      |   | (93,168    | )    |  |   | (184,451    | )
|Other assets                                                                |  |      | (57,500    | ) |      |   | 642,385    |      |  |   | 1,006,884   |  
|Increase (decrease) in liabilities:                                         |  |      |            |   |      |   |            |      |  |   |             |  
|Payable to brokers and dealers                                              |  |      |           |   |      |   | (166,864   | )    |  |   | 166,864     |  
|Securities sold, not yet purchased                                          |  |      | 269,418    |   |      |   | (1,034,826 | )    |  |   | (1,595,728  | )
|Accrued compensation expense                                                |  |      | 995,891    |   |      |   | (479,824   | )    |  |   | (3,538,553  | )
|Accrued NASD arbitration awards                                             |  |      |           |   |      |   |           |      |  |   | 5,000,000   |  
|Accounts payable and accrued expenses                                       |  |      | 305,825    |   |      |   | 231,433    |      |  |   | (1,841,132  | )
|                                                                            |  |      |            |   |      |   |            |      |  |   |             |  
|Net cash used in operating activities                                       |  |      | (5,740,172 | ) |      |   | (1,062,560 | )    |  |   | (8,232,689  | )
|                                                                            |  |      |            |   |      |   |            |      |  |   |             |  
|                                                                            |  |      |           
|Cash flows from investing activities:                                       |  |      |            |   |      |   |            |      |  |   |             |  
|Other investments                                                           |  |      | 171,361    |   |      |   | 72,025     |      |  |   | (71,763     | )
|Cash relinquished on disposal of subsidiary                                 |  |      |           |   |      |   |           |      |  |   | (1,312,796  | )
|Fixed asset purchases and software capitalizations, net of disposals        |  |      | (1,271,357 | ) |      |   | 360        |      |  |   | (7,563      | )
|                                                                            |  |      |            |   |      |   |            |      |  |   |             |  
|Net cash (used in) provided by investing activities                         |  |      | (1,099,996 | ) |      |   | 72,385     |      |  |   | (1,392,122  | )
|                                                                            |  |      |            |   |      |   |            |      |  |   |             |  
|                                                                            |  |      |           
|Cash flows from financing activities:                                       |  |      |            |   |      |   |            |      |  |   |             |  
|Proceeds from subordinated loans                                            |  |      |           |   |      |   | 1,000,000  |      |  |   |            |  
|Treasury stock purchased and retired                                        |  |      |           |   |      |   |           |      |  |   | (290        | )
|Sale of assets to related party                                             |  |      | 980,000    |   |      |   |           |      |  |   |            |  
|Cash contributions to equity                                                |  |      | 1,830,000  |   |      |   |           |      |  |   |            |  
|Common stock issued                                                         |  |      | 4,995,725  |   |      |   | 100,000    |      |  |   |            |  
|Options exercised                                                           |  |      | 448,698    |   |      |   | 297        |      |  |   | 24,498      |  
|                                                                            |  |      |            |   |      |   |            |      |  |   |             |  
|Net cash provided by financing activities                                   |  |      | 8,254,423  |   |      |   | 1,100,297  |      |  |   | 24,208      |  
|                                                                            |  |      |            |   |      |   |            |      |  |   |             |  
|                                                                            |  |      |           
|Net increase (decrease) in cash and cash equivalents                        |  |      | 1,414,255  |   |      |   | 110,122    |      |  |   | (9,600,603  | )
|Cash and cash equivalents at beginning of year                              |  |      | 961,465    |   |      |   | 851,343    |      |  |   | 10,451,946  |  
|                                                                            |  |      |            |   |      |   |            |      |  |   |             |  
|Cash and cash equivalents at end of year                                    |  | $    | 2,375,720  |   |      | $ | 961,465    |      |  | $ | 851,343     |  
|                                                                            |  |      |            |   |      |   |            |      |  |   |             |  
|                                                                            |  |      |           
|Supplemental disclosures of cash flow information                           |  |      |            |   |      |   |            |      |  |   |             |  
|Cash paid during the year for:                                              |  |      |            |   |      |   |            |      |  |   |             |  
|Interest                                                                    |  | $    | 100,839    |   |      | $ | 29,299     |      |  | $ | 78,464      |  
|Income taxes                                                                |  | $    | 23,804     |   |      | $ |           |      |  | $ | 274,018     |  



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



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



36



---

CROWN FINANCIAL GROUP, INC.

(formerly M. H. MEYERSON & CO., INC. )

Notes to Consolidated Financial
Statements



1. ORGANIZATION



CROWN FINANCIAL GROUP, INC. (the Company), formerly M.H. MEYERSON & CO., INC.
is a registered broker dealer with the United States Securities and Exchange Commission (SEC) and the National Association of Securities Dealers (NASD). The Company provides securities trading, underwriting, investment
banking and brokerage services for individuals, institutions and corporations. The Company, like other broker dealers, is directly affected by general economics and market conditions, including fluctuations in volume and price level of securities,
changes in interest rates, all of which have an impact on the Companys liquidity.



2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Basis of
Presentation



The consolidated financial statements include the
accounts of the Company and its more than 50% owned subsidiary eMeyerson.com, Inc. (the Subsidiary). During the second quarter of fiscal year ended January 31, 2002 the Company disposed of its interest in the Subsidiary through a merger
with an affiliate of ViewTrade, Inc. (ViewTrade). Prior to the transaction, the Company owned approximately 54% of the Subsidiary, which is consolidated in the Companys financial statements through the date of sale of July 25,
2001. After the transaction, the Companys present interest in ViewTrade Holding Corporation, the parent company of ViewTrade, is approximately 15% and is included in Other Investments.



The consolidated financial statements also include its wholly owned subsidiary, Crown
Financial International Limited (CFIL), which was established on June 2, 2003, in London, England.



All significant intercompany balances and transactions have been eliminated.



Use of Estimates



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 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.



Securities Owned, Securities Sold, Not Yet Purchased and Related Revenue Recognition



Securities transactions, and related commission revenue and expense, if applicable, are
recorded on a trade date basis.



Securities owned and securities sold, 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.



The
market value of securities owned, and securities sold, not yet purchased, which consist of equities, corporate obligations, United States government obligations, and state and municipal obligations, is determined by the Company utilizing quoted
market prices, dealer quotes and prices obtained from independent third parties.



Substantially all of the Companys financial assets and liabilities are carried at market value or at amounts which, because of the short-term nature of the financial instruments, approximate current fair value.



Underwriting fees are recorded at the time the underwriting is completed.



Cash and Cash Equivalents



Cash and cash equivalents represent demand deposit accounts at banks.



37



---

Concentration of Credit Risks



The Company maintains its cash in bank deposit accounts that, at times, may exceed federally insured limits. The Company has not experienced
any losses in such accounts. Management believes the Company is not exposed to any significant credit risk related to cash.



Other Investments



Other investments, which include 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.



Furniture, Equipment, Capitalized Software
and Leasehold Improvements



Furniture and equipment is stated at cost,
less accumulated depreciation. Office furniture and equipment are depreciated over their estimated useful lives, ranging from three to seven years using the straight-line method. Leasehold improvements are amortized over the shorter of the remaining
life of the lease or the estimated economic life of the improvements.



During
the year ended January 31, 2004, the Company began capitalizing 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 $773,203 are carried in furniture, equipment, capitalized software and leasehold improvements in the Consolidated Statement of Financial Condition as
of January 31, 2004. Of that amount, $455,784 represents software that is still in development and is not being amortized while $317,419 represents software that has been placed in service and is being amortized. Capitalized software in service is
amortized over its estimated useful life of three years.



Receivables
from Trading and Sales Personnel



Some trading and sales personnel
receive draws, which represent advances against future commission payments. Receivables from trading and sales personnel result when the cumulative earned commission payments are less than the cumulative draws paid. The Company expects to collect
these receivables from future earned commissions.



The Company has established
a reserve as an offset to the receivable balance on the basis of a review of historical collections and estimates of future collections. At January 31, 2004, the reserve amount is $360,697.



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 8,000,000 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 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). The Company recognized $152,036 and $3,350 of compensation expense on such grants during the years ended January 31, 2004, and 2003,
respectively. In addition, options which are repriced are subject to variable accounting, whereby the intrinsic value of these options are measured at each reporting period and recognized as compensation expense, until the options are exercised,
forfeited or expire. The Company recognized $783,750 of compensation benefit on such grants during the year ended January 31, 2002, representing a decrease in the intrinsic value which had been recognized as compensation expense in prior periods.



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. The Company recognized $67,000 and $215,000 of expense on such grants during the years ended
January 31, 2004, and 2002, respectively.



As required by SFAS No. 123, as
amended by SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure, the Company has computed for pro forma disclosure purposes, the fair value of options granted to employees and directors using the



38



---

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 Year endedJanuary 31, |  
|                                                  |  | 2004                          |   |  | 2003 |   |  | 2002 |  
|Risk free interest rate                           |  | 2.81                          | % |  | 2.53 | % |  | 4.03 | %
|Weighted average expected life of options (years) |  | 4.00                          |   |  | 4.00 |   |  | 3.52 |  
|Expected volatility of Companys common stock     |  | 170                           | % |  | 178  | % |  | 122  | %
|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 No. 123:



|                                                                                                         |  |                                |            |   |      |   |            |      |  |   |             |  
|-------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ---------- | - | ---- | - | ---------- | ---- |  | - | ----------- | -
|                                                                                                         |  | For the Year ended January 31, |           
|                                                                                                         |  | 2004                           |            |   | 2003 |   |            | 2002 | 
|Net loss as restated and reported                                                                        |  | $                              | (5,180,386 | ) |      | $ | (7,555,655 | )    |  | $ | (14,818,289 | )
|Deduct: Total stock-based compensation expense determined under fair value based method for all awards   |  |                                | (2,037,482 | ) |      |   | (138,984   | )    |  |   | (484,470    | )
|Add: Total stock-based compensation expense determined under intrinsic value based method for all awards |  |                                | 219,036    |   |      |   | 3,350      |      |  |   | (568,750    | )
|                                                                                                         |  |                                |            |   |      |   |            |      |  |   |             |  
|Pro forma net loss                                                                                       |  | $                              | (6,998,832 | ) |      | $ | (7,691,289 | )    |  | $ | (15,871,509 | )
|                                                                                                         |  |                                |            |   |      |   |            |      |  |   |             |  
|Earning per share:                                                                                       |  |                                |            |   |      |   |            |      |  |   |             |  
|Basic and diluted net loss per share as reported                                                         |  | $                              | (0.53      | ) |      | $ | (1.13      | )    |  | $ | (2.24       | )
|Basic and diluted pro forma net loss per share                                                           |  | $                              | (0.72      | ) |      | $ | (1.15      | )    |  | $ | (2.40       | )



The weighted average fair value of the
stock options granted was $2.33, $0.62 and $0.80 for the years ended January 31, 2004, 2003 and 2002.



The stratified weighted average exercise price and weighted average grant-date fair value of options granted are as follows:





|                                        |  |                |  |                                  |  |                                        
|--------------------------------------- |  | -------------- |  | -------------------------------- |  | ---------------------------------------
|Year Ended January 31, 2004            
|                                       
|Exercise Price Compared to Market Price |  | Number Granted |  | Weighted- Average Exercise Price |  | Weighted- Average Grant-Date Fair Value
|                                       
|                                        |  |                | 
|Less than market price                  |  | 276,500        |  | $0.76                            |  | $1.18                                  
|Equal to market price                   |  | 3,956,248      |  | 2.59                             |  | 2.37                                   
|Greater than market price               |  | 80,000         |  | 4.05                             |  | 3.62                                   
|                                       
|Year Ended January 31, 2003            
|                                       
|Exercise Price Compared to Market Price |  | Number Granted |  | Weighted- Average Exercise Price |  | Weighted- Average Grant-Date Fair Value
|                                       
|                                        |  |                | 
|Less than market price                  |  | 345,000        |  | $0.52                            |  | $0.78                                  
|Equal to market price                   |  | 288,712        |  | 0.40                             |  | 0.37                                   
|Greater than market price               |  | 124,000        |  | 2.19                             |  | 0.69                                   



39



---

|                                        |  |                |  |                                  |  |                                        
|--------------------------------------- |  | -------------- |  | -------------------------------- |  | ---------------------------------------
|Year Ended January 31, 2002            
|                                       
|Exercise Price Compared to Market Price |  | Number Granted |  | Weighted- Average Exercise Price |  | Weighted- Average Grant-Date Fair Value
|                                       
|                                        |  |                | 
|Less than market price                  |  | 67,500         |  | $1.21                            |  | $1.08                                  
|Equal to market price                   |  | 261,401        |  | 1.29                             |  | 0.94                                   
|Greater than market price               |  |               |  |                                 |  |                                       



Unearned Compensation



Unearned compensation represents the portion of option related charges
which will be amortized as compensation expense over the remainder of the applicable vesting periods.



NASD Arbitration Settlements



In
the year ended January 31, 2002, the Company recorded a $5,000,000 charge related to the C.V.I. Group Arbitration, as discussed in Note 18. In the year ended January 31, 2003, the Company recorded $321,996 of additional NASD settlements, including a
$240,000 settlement related to a regulatory matter. In the year ended January 31, 2004, the Company recorded a credit of $168,610 related to NASD settlements, which is comprised of $71,390 of settlements related to regulatory matters and a $240,000
credit representing Martin H. Meyersons reimbursement of the previous year charge, as discussed at Note 12.



Restatement Costs



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.



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. 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.



As a result of the findings of the review, the Company restated its financial statements for the years ended January 31, 2003, 2002 and 2001, including the corresponding
2003 interim periods, and the quarterly periods ended April 30, 2003 and July 31, 2003. The restated financial statements were filed with the SEC in March, 2004 in amended annual and quarterly reports.



The internal review and the restatement of the financial statements required significant
outside resources in the form of accounting services in order to complete the process on a timely basis. The direct accounting costs isolated as Restatement Costs represent the professional fees incurred during the year ended January 31, 2004
related to this project. During the two months subsequent to January 31, 2004, an additional $283,775 of Restatement Costs were incurred in order to complete the restatement project.



Income Taxes



The Company provides for current and deferred taxes payable or refundable utilizing the liability method prescribed by SFAS No. 109. That method recognized deferred
assets and liabilities for differences between the financial reporting and tax bases of assets and liabilities, utilizing currently enacted tax laws and rates. Deferred tax expenses or benefits represent changes in deferred tax assets or liabilities
between years.



Earnings Per Common Share



Basic earnings per common share (EPS) have been calculated by dividing net loss
by the weighted average shares of Common Stock outstanding during the year. 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 year ended January 31, 2004:



|                                             |  |                             |            |   |                     |          
|-------------------------------------------- |  | --------------------------- | ---------- | - | ------------------- | ---------
|                                             |  | Year ended January 31, 2004
|                                             |  | Numerator/ Net Loss         |            |   | Denominator/ Shares
|Loss and shares used in basic calculations   |  | $                           | (5,180,386 | ) |                     | 9,717,730
|Effect of dilutive stock based awards        |  |                             |           |   |                     |         
|Loss and shares used in diluted calculations |  |                             | (5,180,386 | ) |                     | 9,717,730
|                                             |  |                            
|Basic earnings per share                     |  | $                           | (0.53      | ) |                     |          
|Diluted earnings per share                   |  | $                           | (0.53      | ) |                     |          



At January 31, 2004, 5,023,291 stock
options were outstanding but were considered anti-dilutive and were properly excluded from the calculation of weighted average shares for diluted EPS.





40



---

3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS



In January 2003, the Financial Accounting Standards Board (FASB) issued FIN No. 46, Consolidation of Variable Interest
Entities. The FASB subsequently revised and issued Financial Interpretation (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 special purpose entities. As the Company does not have any interests
in VIEs, the adoption of this statement did not have an effect on its consolidated financial statements.



In April 2003, the FASB issued 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 the Companys consolidated financial statements.



In May 2003, the FASB issued 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 the Companys consolidated financial statements.



4. SECURITIES OWNED AND SECURITIES SOLD, NOT YET PURCHASED



Marketable securities owned consist of investment securities at quoted market values. Securities not readily marketable include investment securities (a) for which there is no market on a securities exchange or no
independent publicly quoted market, (b) that cannot be publicly offered or sold unless registration has been effected under the Securities Act of 1933, or (c) that cannot be offered or sold because of other arrangements, restrictions, or conditions
applicable to the securities or to the Company.



|                                       |  |             |           |      |   |          
|-------------------------------------- |  | ----------- | --------- | ---- | - | ---------
|                                       |  | January 31,
|                                       |  | 2004        |           | 2003
|Securities owned, marketable:          |  |             |           |      |   |          
|State and municipal obligations        |  | $           |          |      | $ | 27,325   
|Equities                               |  |             | 3,222,383 |      |   | 1,098,819
|Other                                  |  |             | 11,213    |      |   | 2,487    
|                                       |  |             |           |      |   |          
|                                       |  | $           | 3,233,596 |      | $ | 1,128,631
|                                       |  |             |           |      |   |          
|Securities sold but not yet purchased: |  |             |           |      |   |          
|Equities                               |  | $           | 492,081   |      | $ | 222,663  
|                                       |  |             |           |      |   |          
|                                       |  | $           | 492,081   |      | $ | 222,663  
|                                       |  |             |           |      |   |          



5. DISPOSITION OF INVESTMENT IN
SUBSIDIARY



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
recorded at a fair value of $1,383,569. The Company recorded a pretax gain of $23,997 on the exchange of its interest in EMEY for the interest in ViewTrade, representing the difference between the carrying amount of the Companys investment in
EMEY and the fair value of the interest in ViewTrade received.



6.
IMPAIRMENT OF INVESTMENT



On September 11, 2001, the ViewTrade head office
located in the World Trade Center was destroyed. As a result, ViewTrade suffered significant financial difficulties due to the breakdown in their operations, as well as the decline in market conditions affecting ViewTrades business immediately
following the terrorist attack. These events resulted in the Company recording a charge related to the impairment of their investment in ViewTrade of $1,184,008 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 for the year ended January 31, 2003, bringing the carrying value of ViewTrade to $104,744.



41



---

7. FURNITURE, EQUIPMENT, CAPITALIZED SOFTWARE AND LEASEHOLD IMPROVEMENTS



Furniture, equipment, capitalized software and leasehold improvements is summarized as
follows:



|                       |  |                  |  |                                           |  |           
|---------------------- |  | ---------------- |  | ----------------------------------------- |  | ----------
|                       |  | January 31, 2004
|                       |  |                 
|                       |  | Gross Assets     |  | Accumulated Depreciation and Amortization |  | Net Assets
|                       |  |                 
|                       |  |                  | 
|Equipment              |  | $1,914,403       |  | $(1,428,981)                              |  | $485,422  
|Leasehold improvements |  | 870,604          |  | (417,152)                                 |  | 453,452   
|Capitalized software   |  | 793,398          |  | (20,195)                                  |  | 773,203   
|Furniture              |  | 444,550          |  | (431,201)                                 |  | 13,349    
|                       |  |                 
|Total                  |  | $4,022,955       |  | $(2,297,529)                              |  | $1,725,426
|                       |  |                 
|                       | 
|                       |  | January 31, 2003
|                       |  |                 
|                       |  | Gross Assets     |  | Accumulated Depreciation and Amortization |  | Net Assets
|                       |  |                 
|Equipment              |  | $1,477,426       |  | $(1,301,639)                              |  | $175,787  
|Leasehold improvements |  | 838,376          |  | (419,764)                                 |  | 418,612   
|Furniture              |  | 438,207          |  | (400,272)                                 |  | 37,935    
|                       |  |                 
|Total                  |  | $2,754,009       |  | $(2,121,675)                              |  | $632,334  
|                       |  |                 



Depreciation and amortization expense
totaled $178,265, $94,043 and $218,208, for the years ended January 31, 2004, 2003 and 2002, respectively. Depreciation expense related to furniture and equipment totaled $160,683 and amortization expense related to leasehold improvements and
capitalized software totaled $17,582, for the year ended January 31, 2004.



8. DEPOSIT WITH AND RECEIVABLE FROM BROKERS AND DEALERS



The
Company maintains clearing agreements with Spear, Leads & Kellogg (SLK) and Fiserv Securities, Inc., (Fiserv), who acquired Investec Ernst and Companys clearing business in November of 2002. Under the agreement with
SLK, the Company maintains a clearing deposit of $1,000,000. The Company primarily clears its proprietary equity market making activity through SLK. Under the agreement with Fiserv the Company maintains a clearing deposit of $100,000. The Company
primarily clears its proprietary municipal bond business and customer transactions through Fiserv.



At January 31, 2004 and 2003, amounts receivable from and payable to brokers and dealers consist of the following:



|                 |  |      |           |      |   |          
|---------------- |  | ---- | --------- | ---- | - | ---------
|                 |  | 2004 |           | 2003
|Receivable:      |  |      |           |      |   |          
|Clearing brokers |  | $    | 2,380,887 |      | $ | 1,864,398
|Deposits         |  |      | 1,100,000 |      |   | 1,100,000
|Other            |  |      | 509,355   |      |   | 508,850  
|                 |  |      |           |      |   |          
|                 |  | $    | 3,990,242 |      | $ | 3,473,248
|                 |  |      |           |      |   |          



9. ACCRUED COMPENSATION EXPENSE



Accrued compensation expense includes bonus payments owed to employees plus
amounts owed to market makers and salespersons. Monthly commission payments to these individuals are generally paid by the middle of the following month.



10. COMPUTATION FOR DETERMINATION OF RESERVE REQUIREMENTS



The Company operates in accordance with the exemptive provisions of paragraph (k)(2)(ii) of the SEC Rule 15c3-3. All transactions are cleared through SLK and Fiserv.





42



---

11. 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 year.
The Company had two such significant customers, both of which are U.S. broker-dealers, which accounted for 26% and 12% of the total trades for the year ended January 31, 2004. The Company had one such significant customer accounting for 13% of the
total trades for the year ended January 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.



12. RELATED PARTY TRANSACTIONS



Transactions with related parties are summarized as follows:



|                                                                                                |  |                        |   |      |   |      |  |   |       
|----------------------------------------------------------------------------------------------- |  | ---------------------- | - | ---- | - | ---- |  | - | ------
|                                                                                                |  | Year ended January 31,
|                                                                                                |  | 2004                   |   | 2003 |   | 2002
|Maintenance charges paid on space owned by the principal shareholder (included in rent expense) |  | $                      |  |      | $ |     |  | $ | 10,020
|Rent for space which is leased in the name of the principal shareholder                         |  | $                      |  |      | $ |     |  | $ | 11,185



The Company loaned Anthony F.
Dudzinski, the Companys former Vice-President of Operations, $200,000 to purchase 50,000 shares of the Companys stock. The loan matured February 21, 2004 and was non-interest bearing. The shares of the Company were pledged as collateral
for the loan. On March 20, 2003, pursuant to an agreement with the former officer, the Company acquired the 50,000 shares of common stock, in exchange for the release of certain obligations and rights of the former officer, including a forgiveness
of $200,000 in loans.



Effective January 14, 2003, Mr. Leighton has contributed
$500,000 in the form of a subordinated note (See Note 13) to the Company. A certain member of the new management team also purchased 200,000 shares of Common Stock for an aggregate purchase price of $100,000.



In May 2003, the Company completed a transaction with Martin H. Meyerson, the Companys
former Chairman and Chief Executive Officer, totaling $1,350,000 (the Transaction). The Transaction consisted of a sale of a combination of $500,000 of investments and $480,000 of receivables from trading personnel for $980,000, a cash
contribution of $130,000 recognized in additional paid-in-capital and a reimbursement to the Company of $240,000 of expenses incurred by the Company in connection with certain regulatory matters. The reimbursement of $240,000 is included as a
reduction of NASD arbitration settlements expense in the Consolidated Statement of Operations. The assets sold to Mr. Meyerson were valued at the greater of fair market value or cost. The Transaction increased the Companys cash position, and
in the process, increased the Companys net capital by a like amount.



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 Company assumed title to the proceeds from the liquidation in the amount of $1,700,000
on October 17, 2003. This equity contribution added $1,700,000 in cash to the Companys equity and did not create any liability or require any financial consideration on behalf of the Company. J.S.A. Investment LLC is a limited liability
company managed by Joelle A. Meyerson, the spouse of Mr. Meyerson.



The Company
acquired an interest in ViewTrade of approximately 15% through ViewTrades acquisition of the Companys former subsidiary, EMeyerson.com, Inc. This investment is $104,744 as at January 31, 2004 and 2003 and is included in Other Investments
in the Consolidated Statements of Financial Condition. ViewTrade subleased space from the Company which resulted in sublease income of approximately $214,310 and $248,201 for the years ended January 31, 2004, and 2003, respectively. This income is
included in Other Income in the Consolidated Statements of Operations. The Viewtrade sub-lease terminated February 29, 2004.



As described in Note 13, the Company had certain subordinated loans from Mr. Leighton and Joelle A. Meyerson which in October, 2003 were converted into equity.



13. SUBORDINATED LOANS



The Company entered into a NASD approved subordinated loan agreement with SLK dated June 3,
1997 and effective August 1, 1997. The loan is for $2,000,000 and is matured on August 31, 1999 but was extended to August 31, 2003. It was subject to monthly interest payments at the Prime Rate and is unsecured. By agreement dated July 22, 2003,
the Company and SLK have agreed to extend the date of maturity of the NASD approved subordinated loan agreement dated June 3, 1997, as amended, from August 31, 2003 to August 31, 2005. The extension of the maturity of the subordinated loan occurred
in conjunction with a renegotiation of the clearing services SLK provides to the Company.



43



---

The Company has entered into a NASD approved subordinated loan agreement with two stockholders. The first agreement, with
Mr. Leighton, was effective December 10, 2002 in the amount of $500,000. This agreement bears interest at an annual rate of 6% and was due to mature December 31, 2003. The second agreement, with Joelle A. Meyerson, was effective January 14, 2003 in
the amount of $500,000. This agreement bears interest at an annual rate of 6% and was due to mature January 31, 2004.



On October 30, 2003, the Company completed a conversion, with NASD approval, of the $1,000,000 in subordinated indebtedness discussed above into equity. Pursuant to this
conversion, $1,000,000 of subordinated debt was tendered in exchange for the issuance of 366,838 shares of the Companys common stock. The $1,000,000 consisted of two loans each with a principal amount of $500,000. The loans were with
Mr. Leighton and Joelle A. Meyerson, the spouse of Mr. Meyerson and were due to mature on December 31, 2003 and January 31, 2004, 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.



All of the
aforementioned subordinated loans are considered debt for purposes of the debt to debt-equity ratio.



14. 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 the 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 before 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 January 31, 2004, 2003 and 2002, the Company had net capital of $1,805,660, negative net capital of $114,958, and positive net capital of $2,360,417, respectively, compared to a
minimum net capital requirement each year of $1,000,000.



As discussed in Note
2 regarding Restatement Costs, the Company has restated its financial statements for the years ended January 31, 2003, 2002 and 2001, including the corresponding 2003 interim periods, and the quarterly periods ended April 30, 2003 and
July 31, 2003.



Net capital was recalculated for each month end from
January 31, 2002 through January 31, 2004 and these adjusted net capital amounts were disclosed in our amended 10-K/A filing for the year ended January 31, 2003. The restatement resulted in hindsight net capital deficiencies at six of the month-ends
during the year ended January 31, 2004.



15. INCOME TAXES



The Company files a federal income tax return as well as state income tax returns in certain
jurisdictions. Additionally, the Company has a U.K.-based subsidiary that pays taxes in the U.K.



The Companys deferred tax assets are subject to a 100% valuation allowance as currently management is unable to conclude that it is more likely than not the Company will generate sufficient future taxable income
to realize the deferred tax assets.



The provision (benefit) for income taxes
consists of the following:



|                                                                                                      |  |                                |        |    |      |   |        |      |  |   |            |   
|----------------------------------------------------------------------------------------------------- |  | ------------------------------ | ------ | -- | ---- | - | ------ | ---- |  | - | ---------- | --
|                                                                                                      |  | For the year ended January 31, |       
|                                                                                                      |  | 2004                           |        |    | 2003 |   |        | 2002 | 
|Current:                                                                                              |  |                                |        |    |      |   |        |      |  |   |            |   
|U.S. federal                                                                                          |  | $                              |       |    |      | $ |       |      |  | $ | (2,261,721 | ) 
|U.S. state                                                                                            |  |                                | 28,556 |    |      |   | 23,977 |      |  |   | 27,247     |   
|Foreign                                                                                               |  |                                | 4,209  |    |      |   |       |      |  |   |           |   
|                                                                                                      |  |                                |        |    |      |   |        |      |  |   |            |   
|                                                                                                      |  |                                | 32,765 |    |      |   | 23,977 |      |  |   | (2,234,474 | ) 
|                                                                                                      |  |                                |        |    |      |   |        |      |  |   |            |   
|Deferred:                                                                                             |  |                                |        |    |      |   |        |      |  |   |            |   
|U.S. federal                                                                                          |  |                                |       |    |      |   |       |      |  |   |           |   
|U.S. state                                                                                            |  |                                |       |    |      |   |       |      |  |   |           |   
|Foreign                                                                                               |  |                                |       |    |      |   |       |      |  |   |           |   
|                                                                                                      |  |                                |        |    |      |   |        |      |  |   |            |   
|                                                                                                      |  |                                |       |    |      |   |       |      |  |   |           |   
|                                                                                                      |  |                                |        |    |      |   |        |      |  |   |            |   
|Provision (benefit) for income taxes                                                                  |  | $                              | 32,765 |    |      | $ | 23,977 |      |  | $ | (2,234,474 | ) 
|                                                                                                      |  |                                |        |    |      |   |        |      |  |   |            |   
|                                                                                                     
|The following table reconciles the provision to the U.S. federal statutory income tax (benefit) rate: | 
|                                                                                                      | 
|                                                                                                      |  | For the year ended January 31, |       
|                                                                                                      |  | 2004                           |        |    | 2003 |   |        | 2002 | 
|U.S. federal statutory income tax rate                                                                |  |                                | 35.0   | %  |      |   | 35.0   | %    |  |   | 35.0       | % 
|Valuation allowance                                                                                   |  |                                | (33.9  | )  |      |   | (33.6  | )%   |  |   | (22.1      | )%
|Other                                                                                                 |  |                                | (1.7   | )% |      |   | (1.7   | )%   |  |   | (0.4       | )%
|                                                                                                      |  |                                |        |    |      |   |        |      |  |   |            |   
|Effective income tax (benefit) rate                                                                   |  |                                | (0.6   | )% |      |   | (0.3   | )%   |  |   | 12.5       | % 
|                                                                                                      |  |                                |        |    |      |   |        |      |  |   |            |   



44



---

Deferred income taxes reflect the net tax effects of temporary differences between the financial reporting and tax bases
of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when such differences are expected to reverse. Significant components of the Companys deferred tax assets at January 31, 2004, and 2003 are
as follows:



|                                          |  |                                |             |   |      |   |            |  
|----------------------------------------- |  | ------------------------------ | ----------- | - | ---- | - | ---------- | -
|                                          |  | For the year ended January 31, |            
|                                          |  | 2004                           |             |   | 2003 |  
|Deferred tax assets                       |  |                                |             |   |      |   |            |  
|Net operating losses                      |  | $                              | 7,358,022   |   |      | $ | 5,330,414  |  
|Stock option compensation                 |  |                                | 335,128     |   |      |   | 248,467    |  
|Fixed assets and other amortizable assets |  |                                | 70,903      |   |      |   | 89,675     |  
|Reserves                                  |  |                                | 1,781,345   |   |      |   | 1,633,717  |  
|Charitable contributions                  |  |                                | 78,207      |   |      |   | 75,716     |  
|Valuation of investments                  |  |                                | 2,034,330   |   |      |   | 2,032,344  |  
|                                          |  |                                |             |   |      |   |            |  
|Total gross deferred tax assets           |  | $                              | 11,657,935  |   |      | $ | 9,410,333  |  
|Valuation allowance                       |  | $                              | (11,657,935 | ) |      | $ | (9,410,333 | )
|                                          |  |                                |             |   |      |   |            |  
|Net deferred tax asset                    |  |                                |            |   |      |   |           |  
|                                          |  |                                |             |   |      |   |            |  



At January 31, 2004 the Company had a
Federal net operating loss carryforward of approximately $17,000,000. The Federal net operating loss begins to expire in the fiscal year ended in 2022 and expires completely in the fiscal year ended 2024. In addition, the Company has state net
operating loss carryforwards. The state net operating loss carryforwards range by jurisdiction up to approximately $23,500,000. These state net operating loss carryforwards expire between fiscal years ended in 2009 and 2011.



16. 401(K) SAVINGS PLAN



The Company has 25,000,000 shares of authorized common stock with a par value of $0.01, of which 11,425,333 and 7,556,964 shares were issued
and outstanding at January 31, 2004 and 2003, respectively. In addition, the Company has 200,000 shares of authorized preferred stock, of which none have been issued and outstanding.



Employees of the Company may participate in a 401(K) savings plan, whereby the employees may elect to make contributions pursuant to a
salary reduction agreement upon meeting age and length-of-service requirements. The Company made no contributions to the plan for the years ended January 31, 2004, 2003 or 2002.



17. CAPITAL STOCK, STOCK OPTIONS, AND OTHER AWARDS



The Company has 25,000,000 shares of authorized common stock with a par value of $0.01, of which 11,425,333 and 7,556,964 shares were issued
and outstanding at January 31, 2004 and 2003, respectively. In addition, the Company has 200,000 shares of authorized preferred stock, of which none have been issued and outstanding.



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 8,000,000 shares of Common stock. As of January 31, 2004, 6,522,521 options have been granted under these plans.



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 allows 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 during 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.



45



---

A summary of the status of the Companys stock options as of January 31, 2004, 2003 and 2002 and changes during the
years then ended is presented below.



|                          |  |           |   |  |                                 |     
|------------------------- |  | --------- | - |  | ------------------------------- | ----
|                          |  | Total     |   |  | Weighted-Average Exercise Price
|Balance, January 31, 2001 |  | 1,740,984 |   |  | $                               | 3.69
|Granted                   |  | 328,901   |   |  |                                 | 1.27
|Cancelled                 |  | (120,163  | ) |  |                                 | 4.78
|Exercised                 |  | (9,325    | ) |  |                                 | 2.50
|Expired                   |  | (65,000   | ) |  |                                 | 2.25
|                          |  |           |   |  |                                 |     
|Balance, January 31, 2002 |  | 1,875,397 |   |  | $                               | 3.26
|                          |  |           |   |  |                                 |     
|Granted                   |  | 757,712   |   |  |                                 | 0.75
|Cancelled                 |  | (382,429  | ) |  |                                 | 3.68
|Exercised                 |  | (450      | ) |  |                                 | 0.66
|Expired                   |  | (207,500  | ) |  |                                 | 2.67
|                          |  |           |   |  |                                 |     
|Balance, January 31, 2003 |  | 2,042,730 |   |  | $                               | 2.31
|                          |  |           |   |  |                                 |     
|Granted                   |  | 4,312,748 |   |  |                                 | 2.50
|Cancelled                 |  | (811,105  | ) |  |                                 | 3.22
|Exercised                 |  | (352,475  | ) |  |                                 | 1.27
|Expired                   |  | (168,607  | ) |  |                                 | 5.49
|                          |  |           |   |  |                                 |     
|Balance, January 31, 2004 |  | 5,023,291 |   |  | $                               | 2.29
|                          |  |           |   |  |                                 |     



The following tables provide further
details relating to the Companys stock options outstanding as of January 31, 2004:



|                         |  |                     |  |                                 |      |                                                      |     
|------------------------ |  | ------------------- |  | ------------------------------- | ---- | ---------------------------------------------------- | ----
|                         |  | Options Outstanding
|Range of Exercise Prices |  | NumberOutstanding   |  | Weighted-Average Exercise Price |      | Weighted-Average RemainingContractual Life(in years)
|Below$1.39              |  | 1,027,868           |  | $                               | 0.67 |                                                      | 3.38
|$1.40$2.63              |  | 266,675             |  |                                 | 2.16 |                                                      | 3.34
|$2.64$2.64              |  | 3,559,748           |  |                                 | 2.64 |                                                      | 7.48
|$2.65$6.04              |  | 142,500             |  |                                 | 4.52 |                                                      | 3.39
|$6.05Above              |  | 26,500              |  |                                 | 7.00 |                                                      | 0.26
|                         |  |                     |  |                                 |      |                                                      |     
|Balance, 1/31/2004       |  | 5,023,291           |  | $                               | 2.29 |                                                      | 6.26
|                         |  |                     |  |                                 |      |                                                      |     



|                         |  |                     |  |                                 |     
|------------------------ |  | ------------------- |  | ------------------------------- | ----
|                         |  | Options Exercisable
|Range of Exercise Prices |  | NumberExercisable   |  | Weighted-Average Exercise Price
|Below$1.39              |  | 434,968             |  | $                               | 0.74
|$1.40$2.63              |  | 82,675              |  |                                 | 2.23
|$2.64$2.64              |  | 975,000             |  |                                 | 2.64
|$2.65$6.04              |  | 115,000             |  |                                 | 4.57
|$6.05Above              |  | 26,500              |  |                                 | 7.00
|                         |  |                     |  |                                 |     
|Balance, 1/31/2004       |  | 1,634,143           |  | $                               | 2.32
|                         |  |                     |  |                                 |     



46



---

In January 2003, Mr. Leighton was issued 750,000 shares of the Companys stock in connection with his employment
agreement. The 750,000 shares were valued at the closing price of the Companys stock at the signing of Mr. Leightons agreement. A value of $397,500 of compensation expense was recorded in the financial statements.



In addition, the Company has issued 5,000 fully-vested warrants in connection with the
issuance of stock to an outsider, with an exercise price of $5.00 and an expiration date of November 21, 2006.



18. COMMITMENTS AND CONTINGENT LIABILITIES



The Company has entered into arrangements with organizations, including clearing brokers, which provide for indemnification against losses, costs, claims and liabilities arising from the performance of their obligations under our agreement,
except for gross negligence or bad faith. The Company has had no claims or payments pursuant to these or prior agreements, and we believe the likelihood of a claim being made is remote. 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, including a British pound denominated lease related to its U.K. subsidiary. 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. The Company leases
certain computer and other equipment under noncancelable operating leases. Additionally, the Company leases its office equipment under various leases expiring in 2005 and 2006.



The rental expense for the years ended January 31, 2004, 2003 and 2002 was $1,100,980, $1,040,122 and $1,176,785, respectively.



As of January 31, 2004, future minimum rental commitments under all noncancelable office
leases, computer leases and equipment leases were as follows:



|                                 |  |               |           |                   |   |         |  |   |          
|-------------------------------- |  | ------------- | --------- | ----------------- | - | ------- |  | - | ---------
|For the years ended January 31,  |  | Office Leases |           | Other Obligations |   | Total  
|2005                             |  | $             | 974,418   |                   | $ | 179,051 |  | $ | 1,153,469
|2006                             |  |               | 887,000   |                   |   | 29,249  |  |   | 916,249  
|2007                             |  |               | 905,946   |                   |   | 9,515   |  |   | 915,461  
|2008                             |  |               | 921,300   |                   |   |        |  |   | 921,300  
|2009                             |  |               | 897,933   |                   |   |        |  |   | 897,933  
|Thereafter through July 31, 2011 |  |               | 2,233,150 |                   |   |        |  |   | 2,233,150
|                                 |  |               |           |                   |   |         |  |   |          
|                                 |  | $             | 6,819,747 |                   | $ | 217,815 |  | $ | 7,037,562
|                                 |  |               |           |                   |   |         |  |   |          



Effective September 25, 2001, the
Company subleased a portion of its office space under an agreement which calls for monthly payments of $16,335. The sublease is for a term of three months with automatic renewals. This sub-lease terminated February 29, 2004.



The Company has entered into guaranteed employment contracts with certain of its employees of
approximately $1,125,000 for the year ended January 31, 2005 and $400,000 for the year ended January 31, 2006. During the year ended January 31, 2004, these employees have forfeited $557,853 of compensation payments and the Company has not assumed
any future obligations related to these forfeitures.



The following litigation
and arbitration matters are pending at January 31, 2004:



RAINBOW MEDICAL
(FLORIDA)



Harry Binder, on behalf of himself and all others similarly
situated, Plaintiff, v. Rainbow Medical Inc., Rainbow Pediatrics, Inc., M.H. Meyerson & Co., Inc., Hugo D. Goldstraj, M.D, Marcela C. Goldstraj, M.D., Roberto P. Novo, M.D., Sandra R. Giblin, Martin Leventhal, Gina Bertinelli, Defendants,
Circuit Court of the Eleventh Judicial Circuit, Miami Dade, Florida, Case No. 00-24851 CA.



47



---

On September 19, 2000, plaintiff commenced a class action lawsuit alleging that the class, consisting of all investors
who purchased investment units in Rainbow Medical, Inc. (Rainbow) in a $2.5 million private placement offering in June 1997, purchased units which became worthless when, after the offering closed, certain officers and inside directors of
Rainbow, specifically defendants Hugo D. Goldstraj, M.D., Marcela C. Goldstraj, M.D., and Roberto P. Novo, M.D., looted Rainbow and stole the proceeds of the offering. The Company was the placement and selling agent for the private placement. Martin
Leventhal, C.P.A., a director of the Company became an outside director of Rainbow after the offering closed.



Plaintiff in its Amended Complaint claims against the Company and Leventhal for breach of fiduciary duty, negligent misrepresentation and negligence. Plaintiff alleges that the Company failed to make certain
disclosures in the offering memorandum concerning legal proceedings involving Rainbows officers, that the Company failed to ensure that Rainbow engaged in certain corporate actions and that Rainbow failed to use the offering proceeds in the
manner stated in the offering memorandum. Plaintiff seeks approximately $2.6 million in damages on behalf of the class of investors.



On July 19, 2001, plaintiff Harry Binder, as the putative class representative, filed a motion to have the lawsuit certified as a class action. On December 11, 2001, the
Trial Court issued an Order denying the motion. Plaintiff appealed the Courts Order denying class certification. On November 27, 2002, the Third District Court of Appeal, Florida issued a decision affirming the Trial Courts denial of
class certification. Accordingly, the only claims that now remain in the case are plaintiffs individual claims, which seek damages of $37,500, together with interest and attorneys fees. The Company intends to defend itself vigorously
against any litigation by plaintiff of his individual claims, and has not recorded a provision for any loss that may be incurred as a result of the action.



FEDERAL SECURITIES CLAIMS (NEW JERSEY)



In re M.H. Meyerson & Co., Inc. Securities Litigation, United States District Court, District of New Jersey, 02 div. 2724.



On June 6, 2002, the plaintiff (who is also the plaintiff in the Florida lawsuit discussed
above) filed a Class Action Complaint against the Company and defendants, Martin Meyerson, Kenneth Koock, Estate of Eugene Whitehouse, Jeffrey Meyerson, Bertram Siegel, Martin Leventhal and Alfred Duncan who are directors of the Company. In their
complaint, Plaintiffs allege fraud claims under the



48



---

federal securities law relating to the Companys disclosures, and alleged failures to disclose certain information
relating to prior litigations involving the Company, the efforts of the Companys subsidiary, eMeyerson.com, Inc., to develop an electronic trading program through a license agreement with TradinGear.com, Inc., and a litigation arising from
eMeyersons termination of that agreement, and other matters. Plaintiffs seek damages in excess of $15 million for the alleged class.



Subsequently, a virtually identical class action lawsuit was filed by other plaintiffs against the same defendants in the same court, Choung v. M.H. Meyerson & Co.,
Inc., et al., U.S. District Court of New Jersey, 02 Civ. 3622. On September 24, 2002, the District Court consolidated the two cases under the caption, In re M.H. Meyerson & Co. Securities Litigation, Master File No. 02-CV-2724. The
plaintiffs have served an Amended Complaint, which repeats the allegations of the initial pleading.



Upon the Companys motion, and pursuant to an Order of the U.S. District Court dated September 29, 2003, the consolidated action was dismissed with leave to amend within thirty days. On or about October 30, 2003,
plaintiffs filed a Second Amended Consolidated Class Action Complaint (Second Amended Complaint). All defendants have recently filed a motion to dismiss the Second Amended Complaint.



The Company believes that the allegations of the Second Amended Complaint are meritless and
fail to state legally valid claims. The defendants intend to continue to contest the allegations vigorously and have not recorded a provision for any loss that may be incurred as a result of the action.



Plaintiffs recently filed a motion for leave to file a Third Amended Complaint which seeks to
include facts arising from the Companys recent restatement of its financial results. The Company is currently drafting a response to the motion.



C.V.I. GROUP ARBITRATION



C.V.I. Group v. M.H. Meyerson & Co., Inc. and Bear Stearns & Co., Inc.



In May 1999, claimants filed a Statement of Claim in arbitration with the National Association of Securities Dealers (NASD) alleging that the Company
wrongfully transferred 20,000,000 shares of Whitehall Enterprises, Inc. that were deposited with the Company and its then clearing agent, Bear Stearns & Co., Inc. (Bear Stearns). Claimants contend that their damages are based upon
the market price of the shares at the date of the transfer, $.25 per share. This claim is partially covered by the Companys Broker/Dealer Errors and Omissions Policy for a net amount of $1,000,000.



The Company denied all liability and asserted that the transfer of the shares were authorized
and duly executed by each of the claimant entities, EMES, SLR, and Ontario, to Global Financial. Each of EMES, SLR, and Ontario, in its respective Power of Attorney, appointed Global Financial as its agent and attorney-in-fact with full and
unlimited power and authority to buy, sell, assign, endorse, and transfer all securities of any nature standing anywhere in the name, respectively, of EMES, SLR, and Ontario. Claimants sent copies of each of the Powers of Attorney to the Company to
facilitate the transfer of the shares to Global Financial.



The evidence showed
that claimants did not send a revocation of the Powers of Attorney until January 27, 2000, which was three days after the shares were transferred. Moreover, the Powers of Attorney specifically stated that any revocation is ineffective for any
transaction that was initiated before a revocation. This matter was arbitrated in Buffalo, NY on October 15-17, 2001.



On January 8, 2002, the NASD arbitration panel awarded $5,000,000 in compensatory damages against the Company and Bear Stearns. The award was joint and several against
both firms. Neither Bear Stearns nor the Company asserted cross claims against each other in the arbitration. Either may attempt, subject to defenses of the other, to assert a cross claim against the other under the clearing agreement or other law
for its share of the award. The Company and Bear Stearns have each filed motions to vacate the award in its entirety with the U.S. District Court for the District of New Jersey. Bear Stearns has also requested the Court to vacate the award as to
itself, if the Court does not vacate the entire award. These motions together, with the Claimants motion to confirm, are expected to be resolved sometime during the second calendar quarter of 2004, but have not been resolved as of the date of
the filing of this report.



While both the management of the Company and its
legal counsel believe that a vacation or modification of the award is very possible, due to the fact that the legal grounds for vacating an award are somewhat narrow, the Company has elected to record the $5,000,000 adverse award as a liability in
its financial statements. Because the award is joint and several, and may be overturned, the Company has not accrued a reserve for interest on the award. The Company has a Securities Broker/Dealers Professional Liability Insurance policy with
coverage of $1,000,000 for each loss. The insurance company has acknowledged that the adverse arbitration award is covered under the policy. Accordingly, the Company has recorded a $1,000,000 insurance receivable in the consolidated financial
statements.



49



---

HOOVER ARBITRATION



James D. Hoover, Jr. and Kimberly R. Hoover v. M.H. Meyerson & Co, Inc., Martin H. Meyerson and Ronald Heller, NASD Arbitration No. 03-02234



In March 2003, claimants filed a Statement of Claim in arbitration with the NASD alleging the
respondents engaged in excessive and unauthorized trading and entered into unsuitable investments in the claimants account. Claimants further alleged that respondent, Heller, solicited investments in several private placements in which
respondents had vested interests. Claimants seek damages in the amount of $2.5 million. In May 2003, the Company filed its answer denying the allegation and moved to dismiss the claim.



The Company believes that the allegations in the Statement of Claim are meritless. The Company intends to continue to contest the
allegations vigorously.



NEWMAN ARBITRATIONS



Annette Newman, IRA v. M.H. Meyerson & Co, Inc., NASD Arbitration No. 02-07064



Claimant filed arbitration with the NASD alleging a former registered
representative of the Company recommended and entered into unsuitable investments for claimants account. Claimant also alleged that the registered representative engaged in unauthorized trading in the claimants account. Claimant seeks
damages in the amount of $113,000. In March 2003, the Company filed its answer denying all allegations.



Martin Newman and Annette Newman v. M.H. Meyerson & Co, Inc., NASD Arbitration No. 03-00129



In January 2003 claimants filed a Statement of Claim in arbitration with the NASD alleging a former registered representative of the Company engaged in excessive trading
and made unauthorized investments in the claimants account. Claimants also alleged that Company failed to supervise adequately the activities of its representative. Claimants seek damages in the amount of $120,100. On April 3, 2003, the
Company filed its answer denying all allegations.



Miscellaneous



From time to time, certain of the Companys past and present
officers, directors and employees have been named as parties in lawsuits, securities arbitration and administrative claims. These past and present officers, directors and employees are currently the subject of proceedings that are in their initial
stages. In the opinion of management, based upon consultation with legal counsel, the Company is not currently a party to any other legal or arbitration proceeding not already disclosed, the adverse outcome of which, individually or in the
aggregate, that can be predicted with any reasonable certainty, could have a material adverse effect on the Companys business, financial condition and operating results.



Dissatisfied customers of the Companys broker-dealer clients may complain to the NASD or the SEC who may investigate those complaints.
These complaints may even rise to the level of arbitration or disciplinary action. In addition, the securities industry is subject to extensive regulation under federal, state and applicable international laws. As a result, the Company is required
to comply with many complex laws and rules and the Companys ability to so comply is dependent in large part upon the establishment and maintenance of a qualified compliance system. The Company is aware of no other SEC or NASD review, or NASD
arbitration that would have a materially adverse impact on the Companys business, financial condition and operating results.



19. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT RISK



As a market maker of over-the-counter and listed stocks, the majority of the Companys securities transactions are conducted as
principal with broker-dealers and institutional counterparties primarily located in the United States. The Company clears all of its securities transactions through clearing brokers. Accordingly, a substantial portion of the Companys credit
exposures is concentrated with its clearing brokers. The clearing brokers can re-hypothecate the securities held on behalf of the Company. The Companys policy is to monitor regularly the credit standing of the clearing brokers and all
counterparties with which it conducts business.



Securities sold, not yet
purchased represent obligations to purchase such securities (or underlying securities) at a future date. The Company may incur a loss if the market value of the securities subsequently increases.





50



---

20. SUBSEQUENT EVENTS



In March 2004, after completing the filing of the restated financial statements discussed at Note 2, Robert I. Turner retired from his officer positions of the Company as
Executive Vice President, Chief Financial Officer and Treasurer and he resigned from the Board of Directors. Robert S. Thornton, who has served as the Companys Controller since September 2003, was appointed as Chief Financial Officer and
Treasurer.



In March 2004, in connection with a U.S. Securities and Exchange
Commission (SEC) investigation of trade activity, conduct, supervision and record-keeping at Knight Trading Group, Inc. (Knight), the SEC staff and the NASD Department of Market Regulation served Wells Notices to John
Leighton, a former Knight Senior Vice President and others. Mr. Leighton is the Companys Chairman, Chief Executive Officer and President. The Wells Notices indicate that the regulators are considering recommending civil injunctive and
administrative enforcement actions for possible violations of securities laws. The Company is not a party to this matter.



On March 25, 2004, the Company announced that the Board accepted Mr. Leightons request for administrative leave to devote his full attention to addressing the
aforementioned regulatory issues. The Board also accepted Mr. Leightons nomination of Charles B. Kennedy III as Interim Chief Executive Officer and President.



21. SUMMARY QUARTERLY FINANCIAL DATA (UNAUDITED)



The following is the summarized quarterly financial data for the years ended January 31, 2004 and 2003:



|                                   |  |                                     |            |   |                |   |            |               |  |   |                |   |  |   |            |  
|---------------------------------- |  | ----------------------------------- | ---------- | - | -------------- | - | ---------- | ------------- |  | - | -------------- | - |  | - | ---------- | -
|                                   |  | For the year ended January 31, 2004 |           
|                                   |  | First Quarter                       |            |   | Second Quarter |   |            | Third Quarter |  |   | Fourth Quarter |  
|Total revenues                     |  | $                                   | 2,225,582  |   |                | $ | 5,115,132  |               |  | $ | 5,704,038      |   |  | $ | 6,722,092  |  
|Net loss                           |  |                                     | (2,114,127 | ) |                |   | (1,099,907 | )             |  |   | (784,887       | ) |  |   | (1,181,465 | )
|Basic earnings per common stock:   |  | $                                   | (0.26      | ) |                | $ | (0.11      | )             |  | $ | (0.08          | ) |  | $ | (0.11      | )
|Diluted earnings per common stock: |  | $                                   | (0.26      | ) |                | $ | (0.11      | )             |  | $ | (0.08          | ) |  | $ | (0.11      | )



|                                   |  |                                     |            |   |                |   |            |               |  |   |                |   |  |   |            |  
|---------------------------------- |  | ----------------------------------- | ---------- | - | -------------- | - | ---------- | ------------- |  | - | -------------- | - |  | - | ---------- | -
|                                   |  | For the year ended January 31, 2003 |           
|                                   |  | First Quarter                       |            |   | Second Quarter |   |            | Third Quarter |  |   | Fourth Quarter |  
|Total revenues                     |  | $                                   | 2,002,823  |   |                | $ | 2,449,901  |               |  | $ | 2,169,218      |   |  | $ | 2,649,647  |  
|Net loss                           |  |                                     | (2,088,135 | ) |                |   | (1,428,363 | )             |  |   | (1,698,828     | ) |  |   | (2,340,329 | )
|Basic earnings per common stock:   |  | $                                   | (0.32      | ) |                | $ | (0.22      | )             |  | $ | (0.26          | ) |  | $ | (0.33      | )
|Diluted earnings per common stock: |  | $                                   | (0.32      | ) |                | $ | (0.22      | )             |  | $ | (0.26          | ) |  | $ | (0.33      | )



Item 9. Changes in and
Disagreements With Accountants on Accounting and Financial Disclosure.



None.



Item 9A. Controls and Procedures



As of the end of the period covered by this annual report, the Company carried out, under the
supervision of and with the participation of the Companys management, including the Companys Chief Executive Officer and Chief Financial Officer (the Certifying Officers), an evaluation of the effectiveness of its
disclosure controls and procedures (as the term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act)). Based on this evaluation, the Certifying
Officers have concluded that the Companys disclosure controls and procedures 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, and the rules and regulations promulgated thereunder.



Further, there were no changes in the Companys internal controls over financial reporting during the fourth fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Companys internal controls over financial reporting.





51



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PART IIIITEMS 10, 11, 12, 13, and 14



Item 10. Directors and Executive Officers of Registrant.



The Company incorporates herein by reference the applicable information regarding Directors
and Executive Officers of the Registrant from the Companys definitive proxy statement to be filed by the Company within 120 days of the close of the fiscal year.



Item 11. Executive Compensation.



The Company incorporates herein by reference the applicable information regarding Executive Compensation from the Companys definitive proxy statement to be filed by
the Company within 120 days of the close of the fiscal year.



Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.



The Company incorporates herein by reference the applicable information regarding Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters from the Companys definitive proxy
statement to be filed by the Company within 120 days of the close of the fiscal year.



Item 13. Certain Relationships and Related Transactions.



The
Company incorporates herein by reference the applicable information regarding Certain Relationships and Related Transactions from the Companys definitive proxy statement to be filed by the Company within 120 days of the close of the fiscal
year.



Item 14. Principal Accountant Fees and Services.



The Company incorporates herein by reference the applicable information regarding Principal
Accountant Fees and Services from the Companys definitive proxy statement to be filed by the Company within 120 days of the close of the fiscal year.



52



---

PART IV



Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.



(a) Exhibits:



Reference is made to Item 8 for a list of the financial statements included in this Report.



|              |  |                                                                                                                                                                 |  |    
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---
|ExhibitNumber |  | Description of Exhibit                                                                                                                                          |  |    
|              |  |                                                                                                                                                                
|3.1           |  | Articles of Incorporation, as amended                                                                                                                           |  | (1)
|              |  |                                                                                                                                                                
|3.2           |  | By-Laws                                                                                                                                                         |  | (1)
|              |  |                                                                                                                                                                
|4.1           |  | Common Stock Specimen                                                                                                                                           |  | (1)
|              |  |                                                                                                                                                                
|10.1          |  | Employment Agreement between the Company and Martin H. Meyerson                                                                                                 |  | (1)
|              |  |                                                                                                                                                                
|10.4          |  | Letter Agreement, dated as of January 14, 2003, by and between M.H. MEYERSON & CO., INC. and John P. Leighton                                                   |  | (2)
|              |  |                                                                                                                                                                
|10.5*         |  | Employment Agreement, dated as of January 14, 2003, by and between M.H. MEYERSON & CO., INC. and John P. Leighton                                               |  | (2)
|              |  |                                                                                                                                                                
|10.6*         |  | Option Agreement, dated as of January 14, 2003, by and between M.H. MEYERSON & CO., INC. and John P. Leighton                                                   |  | (2)
|              |  |                                                                                                                                                                
|10.7          |  | Stock Purchase Warrant dated as of January 14, 2003, issued by M.H. MEYERSON & CO., INC. to John P. Leighton                                                    |  | (2)
|              |  |                                                                                                                                                                
|10.8          |  | First Amendment, dated as of January 30, 2003, to Letter Agreement, dated as of January 14, 2003, by and between M.H. MEYERSON & CO., INC. and John P. Leighton |  | (3)
|              |  |                                                                                                                                                                
|10.9          |  | Termination of Option Agreement, dated as of January 30, 2003, by and between M.H. MEYERSON & CO., INC. and John P. Leighton                                    |  | (3)
|              |  |                                                                                                                                                                
|10.10*        |  | Employment Agreement, dated as of February 14, 2003, by and between M.H. MEYERSON & Co., INC. and Timothy Demarest                                              |  | (5)
|              |  |                                                                                                                                                                
|11            |  | Calculation of Earnings Per Share of the Company                                                                                                                |  | (5)
|              |  |                                                                                                                                                                
|14            |  | Code of Ethics                                                                                                                                                  |  | (6)
|              |  |                                                                                                                                                                
|16            |  | Letter to Registrant from Vincent Vassallo, CPA dated March 1, 2002                                                                                             |  | (4)
|              |  |                                                                                                                                                                
|21            |  | List of Subsidiaries                                                                                                                                            |  | (5)
|              |  |                                                                                                                                                                
|23.1          |  | Consent of Independent Auditors, Ernst & Young, LLP                                                                                                             |  | (5)
|              |  |                                                                                                                                                                
|23.2          |  | Consent of Independent Auditors, Sanville & Company                                                                                                             |  | (5)
|              |  |                                                                                                                                                                
|31.1          |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                              |  | (5)
|              |  |                                                                                                                                                                
|31.2          |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                              |  | (5)
|              |  |                                                                                                                                                                
|32.1          |  | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                              |  | (5)
|              |  |                                                                                                                                                                
|32.2          |  | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                              |  | (5)

---

|* | Indicates a management contract or compensatory plan required to be filed as an exhibit.
|- | ----------------------------------------------------------------------------------------

|(1) | Incorporated herein by reference from the Registration Statement (Reg. No. 33-70566) filed by the Company on Form SB-2.
|--- | -----------------------------------------------------------------------------------------------------------------------

|(2) | Incorporated herein by reference from the Report on Form 8-K filed by the Company on January 23, 2003.
|--- | ------------------------------------------------------------------------------------------------------

|(3) | Incorporated herein by reference from the Report on Form 8-K filed by the Company on February 19, 2003.
|--- | -------------------------------------------------------------------------------------------------------

|(4) | Incorporated herein by reference from the Report on Form 8-K/A filed by the Company on March 18, 2002.
|--- | ------------------------------------------------------------------------------------------------------

|(5) | Filed herewith.
|--- | ---------------

|(6) | To be filed in the Companys definitive proxy statement within 120 days of the end of the fiscal year.
|--- | ------------------------------------------------------------------------------------------------------







(b) Reports on Form 8-K:



---

The following reports on Form 8-K were filed during the last quarter of the fiscal year ended January 31, 2004:





On November 25, 2003, a Form 8-K was filed by the Company under Item 2 Acquisition or Disposition of Assets.



On November 17, 2003, a Form 8-K was filed by the Company under Item 5 Other Events and Regulation FD Disclosure.



On November 28, 2003, a Form 8-K was filed by the Company under Item 5 Other Events and
Regulation FD Disclosure.



On December 17, 2003, a Form 8-K was filed by
the Company under Item 5 Other Events and Regulation FD Disclosure.



On March 10, 2004, a Form 8-K was filed by the Company under Item 5 Other Events and Regulation FD Disclosure.



On April 13, 2004, a Form 8-K was filed by the Company under Item 5 Other Events and Regulation FD Disclosure.



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





---

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.



CROWN FINANCIAL GROUP, INC. (formerly M. H. MEYERSON & CO., INC. ) (Registrant)By:

/S/    CHARLES B. KENNEDY IIICharles B. Kennedy IIIInterim Chief Executive Officer and President




Date: April 30, 2004



Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



|                                                          |  |                                                                                                           |  |               
|--------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------- |  | --------------
|Signature                                                 |  | Title                                                                                                     |  | Date          
|                                                          |  |                                                                                                          
|/S/    JOHN P. LEIGHTONJohn P. Leighton                   |  | Chairman and Director                                                                                     |  | April 30, 2004
|                                                          |  |                                                                                                          
|/S/    CHARLES B. KENNEDY IIICharles B. Kennedy III       |  | Senior Vice President, Interim Chief Executive Officer and President (Principal Executive Officer)        |  | April 30, 2004
|                                                          |  |                                                                                                          
|/S/    JEFFREY M. HOOBLERJeffrey M. Hoobler               |  | Executive Vice President, Chief Operating Officer and Director                                            |  | April 30, 2004
|                                                          |  |                                                                                                          
|/S/    ROBERT S. THORNTONRobert S. Thornton               |  | Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) |  | April 30, 2004
|                                                          |  |                                                                                                          
|/S/    ALFRED T. DUNCANAlfred T. Duncan                   |  | Director                                                                                                  |  | April 30, 2004
|                                                          |  |                                                                                                          
|/S/    SUSAN STRANAHAN
CIALLELLASusan Stranahan Ciallella |  | Director                                                                                                  |  | April 30, 2004
|                                                          |  |                                                                                                          
|/S/    HENRY Y.L. TOHHenry Y. L. Toh                      |  | Director                                                                                                  |  | April 30, 2004
|                                                          |  |                                                                                                          
|/S/    ANDREW WIMPFHEIMERAndrew Wimpfheimer               |  | Director                                                                                                  |  | April 30, 2004