Edgar Filing: CROWN NORTHCORP INC

U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB

(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934

For the quarterly period ended: March 31, 2005

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934

For transition period from ____________ to ____________

Commission File No.: 0-22936

Crown NorthCorp, Inc.
---------------------
(Exact name of small business issuer as specified in its charter)

Delaware 22-3172740
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

P.O. Box 613, Cheyenne, Wyoming 82001
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(Address of principal executive offices)

(614) 488-1169
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(Issuer's telephone number)

N/A
---
(Former name, former address and former fiscal year,
if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS.

Check whether the registrant filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. Yes [ ] No [ ]

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.

As of May 12, 2005, the issuer had 15,940,116 shares of its common stock,
par value $.01 per share, outstanding.

Transitional Small Business Disclosure Format (check one). Yes[ ] No [X]

CROWN NORTHCORP, INC.
FORM 10-QSB
QUARTERLY PERIOD ENDED MARCH 31, 2005

INDEX

PAGES
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PART I

Item 1. Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets as of March 31, 2005
and December 31, 2004.................................................. 1

Condensed Consolidated Statements of Operations for the
first quarter and the three months ended March 31, 2005 and 2004....... 2

Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 2005 and 2004 ............................ 3

Notes to Condensed Consolidated Financial Statements-
March 31, 2005 and 2004................................................ 4

Item 2. Management's Discussion and Analysis................................... 8

Item 3. Controls and Procedures................................................ 13

PART II

Item 1. Legal Proceeding....................................................... 13

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds............ 13

Item 3. Defaults Upon Senior Securities........................................ 13

Item 4. Submission of Matters to a Vote of Security Holders.................... 13

Item 5. Other Information...................................................... 13

Item 6. Exhibits............................................................... 13

CROWN NORTHCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2005 AND DECEMBER 31, 2004

UNAUDITED
2005 2004
------------ ------------

ASSETS

CURRENT ASSETS:
Cash and cash equivalents $ 1,859,424 $ 3,287,104
Accounts receivable 1,795,707 1,756,639
Prepaid expenses and other assets 1,263,101 734,219
------------ ------------

Total current assets 4,918,232 5,777,962

PROPERTY AND EQUIPMENT - Net 303,242 283,236

RESTRICTED CASH 344,465 351,131

OTHER ASSETS
Investment in partnerships and joint ventures 1,089,789 889,449
Other investments 1,013,112 974,652
Loan servicing rights- net 5,462,726 6,548,653
Capitalized software cost - net 845,630 775,974
Acquisition Costs 2,091 2,091
Deposits 41,679 42,059
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Total other assets 8,455,027 9,232,878
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TOTAL $ 14,020,966 $ 15,645,207
============ ============

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable 914,311 993,236
Accrued expenses:
Other 752,228 778,125
------------ ------------

Total current liabilities 1,666,539 1,771,361

LONG-TERM OBLIGATIONS:
Allowance for loan losses & other 235,979 235,979
------------ ------------
Total long-term obligations 235,979 235,979

SHAREHOLDERS' EQUITY:
Common stock 159,401 159,401
Additional paid-in capital 20,117,522 20,117,522
Accumulated comprehensive income 480,944 536,241
Accumulated deficit (8,462,361) (6,998,239)
Treasury stock, at cost (177,058) (177,058)
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Total shareholders' equity 12,118,448 13,637,867
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TOTAL $ 14,020,966 $ 15,645,207
============ ============

See notes to condensed consolidated financial statements.

CROWN NORTHCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004

2005 2004
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REVENUES:
Management fees $ 260,349 $ 127,225
Servicing fees, net 1,044,852 646,189
Interest income 20,685 121,630
Income from partnerships and joint ventures 188,875 -
Other 170,839 201,559
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Total revenues 1,685,600 1,096,603
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EXPENSES:
Personnel 1,253,320 1,020,252
Occupancy, insurance and other 655,517 634,691
Interest - 2,336
Write off mortgage servicing rights 1,069,182 -
Depreciation and amortization 171,703 147,221
------------ ------------
Total expenses 3,149,722 1,804,500
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INCOME (LOSS) BEFORE INCOME TAXES (1,464,122) (707,897)

INCOME TAX (BENEFIT) - -
------------ ------------

NET INCOME (LOSS) (1,464,122) (707,897)

OTHER COMPREHENSIVE INCOME
Unrealized Gain - 3,208
Foreign currency translation adjustment (55,297) -
------------ ------------

COMPREHENSIVE NET INCOME (LOSS) $ (1,519,419) $ (704,689)
============ ============

LOSS PER SHARE - BASIC AND DILUTED $ (0.10) $ (0.05)
============ ============

WEIGHTED AVERAGE SHARES OUTSTANDING 14,746,106 14,056,106
============ ============

See notes to condensed consolidated financial statements.

CROWN NORTHCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004

2005 2004
------------ ------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(1,464,122) $ (707,897)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 175,728 154,727
Provision for impairment to mortgage servicing rights 1,069,182 -
Equity in income from investment in partnerships and joint ventures (223,043) -
Change in operating assets and liabilities:
Accounts receivable (209,818) 775,610
Prepaid expenses and other assets (537,666) (457,511)
Accounts payable and accrued expenses 178,871 (311,028)
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Net cash provided (used) in operating activities (1,010,868) (546,099)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (248,045) (11,838)
Increase in warehoused loans (35,101) (46,049)
Decrease (increase) in restricted cash 5,484 (126,653)
Other investments (20,575) -
Deposits (46) -
----------- -----------

Net cash provided (used) in investing activities (298,283) (184,540)
----------- -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable - 158,351
Principal payments on notes payable - (4,213)
----------- -----------

Net cash provided (used) by financing activities - 154,138
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NET INCREASE (DECREASE) IN CASH DURING THE QUARTER (1,309,151) (576,501)
Effect of exchange rate on cash (118,529) 89,128
CASH AND CASH EQUIVALENTS AT BEGINNING OF QUARTER 3,287,104 2,052,065
----------- -----------

CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 1,859,424 $ 1,564,692
=========== ===========

SUPPLEMENTAL CASH FLOW INFORMATION:
CASH PAID FOR INTEREST $ - $ 327
=========== ===========

See notes to condensed consolidated financial statements.

CROWN NORTHCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005 AND 2004
(UNAUDITED)

1. General and Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of
Crown NorthCorp, Inc. and subsidiaries reflect all material adjustments
consisting of only normal recurring adjustments which, in the opinion of
management, are necessary for a fair presentation of results for the
interim periods. Certain information and footnote disclosures required
under generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the Securities and
Exchange Commission, although the company believes that the disclosures
are adequate to make the information presented not misleading. These
financial statements should be read in conjunction with the year-end
financial statements and notes thereto included in the company's Form
10-KSB for the year ended December 31, 2004. Investments in majority-owned
affiliates where the company does not have a majority voting interest and
non-majority-owned affiliates are accounted for on the equity method. All
significant inter-company balances and transactions have been eliminated.
Certain reclassifications of prior year amounts have been made to conform
to the current year presentation.

2. Significant Accounting Policies

Acquisitions

Effective December 31, 2003, the company acquired 100% of the issued and
outstanding stock of Royal Investments Corp. for 12,000,000 shares of
common stock of the company. Crown now holds as treasury stock 1,125,803
shares of the company formerly owned by Royal. Through this transaction,
the company has acquired Crown NorthCorp Limited ("CNL"), a corporation
organized under the laws of the United Kingdom, and CNL's operating
subsidiaries, including Crown Mortgage Management ("CMM"). The acquisition
was accounted for using the purchase method of accounting and,
accordingly, the results of operations will be reflected in the financial
statements from January 1, 2004 forward. Royal was a Delaware corporation
whose sole shareholder was the company's chairman and chief executive
officer.

Foreign Currency Translation

Results of operations for the company's non-U.S. subsidiaries and
affiliates are translated from the designated functional currency to the
U.S. dollar using average exchange rates during the period, while assets
and liabilities are translated at the

average monthly exchange rate in effect at the reporting date. Resulting
gains or losses from translating foreign currency financial statements are
reported as other comprehensive income (loss). The effect of changes in
exchanges rates between the designated functional currency and the
currency in which a transaction is denominated are recorded as foreign
currency transaction gains (losses).

Capitalized Software Costs

The company follows the accounting guidance as specified in Statement of
Position ("SOP") 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." The company capitalizes
significant costs in the acquisition or development of software for
internal use, including the costs of the software, materials, consultants,
interest and payroll and payroll-related costs for employees incurred in
developing internal-use computer software once final selection of the
software is made. Costs incurred prior to the final selection of software
and costs not qualifying for capitalization are charged to expense.

Investments in Partnerships and Joint Ventures

Certain of Crown's general partner and joint venture investments (ranging
from 1% to 50%) are carried at cost, adjusted for the company's
proportionate share of undistributed earnings and losses because the
company exercises significant influence over their operating and financial
activities.

3. Loss Per Common Share

The losses per share for the three months ended March 31, 2005 and 2004
are computed based on the loss applicable to common stock divided by the
weighted average number of common shares outstanding during each period.

4. Property and Equipment

Property and equipment consists of the following at March 31, 2005 and
December 31, 2004:

2005 2004
------------ ------------

Property and equipment $ 1,403,246 $ 1,365,133
Less accumulated depreciation (1,100,004) (1,081,897)
----------- -----------
Property and equipment - net $ 303,242 $ 283,236
=========== ===========

5. Preferred Stock

The company has 1,000,000 authorized shares of preferred stock. At March
31, 2005 and December 31, 2004, Crown had no outstanding shares of
preferred stock.

6. Contingencies

The company has certain contingent liabilities resulting from contractual
requirements in the United Kingdom in regards to employment contracts
acquired in the merger with Royal. Upon termination (but only in the event
of redundancy, as defined under the employment laws of the United
Kingdom), 11 employees may be entitled to receive severances based upon a
formula taking into account years and weekly pay.

The company has certain other contingent liabilities resulting from claims
incident to the ordinary course of business. Management believes that the
probable resolution of such contingencies will not materially affect the
consolidated financial statements of the company.

7. Statements of Financial Accounting Standards

SFAS No. 141 "Business Combinations" and SFAS No. 142 "Goodwill and Other
Intangible Assets" were issued by the Financial Accounting Standards Board
in July 2001. SFAS No. 141 requires that purchase method of accounting be
used for all business combinations entered into after June 30, 2001. SFAS
No. 142 changes the accounting for goodwill from an amortization method to
an impairment only approach. Thus, amortization of goodwill, including
goodwill recorded in past business combinations ceased upon SFAS No. 142,
which for Company was January 1, 2002. The adoption of this standard did
not materially impact the Company's financial position, results of
operations or cash flows.

SFAS No. 123 (revised 2004) "Share-Based Payment" (SFAS No 123R), was
issued December 2004, amends SFAS No. 123 and supersedes Accounting
Principles Board Opinion No. 23, "Accounting for Stock Issued to
Employees," and its related implementation guidance. SFAS No. 123R
establishes standards for the accounting for transactions in which an
entity exchanges its equity instruments for goods or services. It also
addresses transactions in which an entity incurs liabilities in exchange
for goods or services that are based on the fair value of the entity's
equity instruments or that may be settled by the issuance of such equity
instruments. SFAS No. 123R requires a public entity to measure the cost of
employee services received in exchange for an award of equity instruments
based on the grant-date fair value of the award. That costs is to be
recognized over the period during which an employee is required to provide
services in exchange for the award. SFAS No. 123R is

effective as of the beginning of the first interim or annual reporting
period that begins after December 15, 2005. The Company does not
anticipate that the adoption of this statement will have a material effect
on the financial position or results of operations.

SFAS No. 153 "Exchanges of Nonmonetary Assets, an amendment of Accounting
Principles Board Opinion No. 29" eliminates the exception for nonmonetary
exchanges of similar productive assets and replaces it with a general
exception of exchanges of nonmonetary assets that do not have commercial
substance. A nonmonetary exchange has commercial substance if the future
cash flows of the entity are expected to change significantly as a result
of the exchange. SFAS No. 153 is effective for nonmonetary asset exchanges
occurring in the fiscal period beginning after June 15, 2005. The Company
does not anticipate that the adoption of this statement will have a
material effect on the financial position or results of operations.

In December 2003, the FASB issued a revision to Interpretation No. 46,
"Consolidation of Variable Interest Entities, an Interpretation of ARB No.
51" ("FIN 46R") issued in January 2003. FIN 46R clarifies the application
of ARB No. 51, "Consolidated Financial Statements," with respect to
certain entities in which equity investors do not have the characteristics
of a controlling financial interest or do not have sufficient equity at
risk for the entity to finance its activities without additional
subordinated financial support. FIN 46R requires the consolidation of
these entities, known as variable interest entities ("VIEs"), by the
primary beneficiary of the entity. The primary beneficiary is the entity,
if any, that will absorb a majority of the entity's expected losses,
receive a majority of the entity's expected residual returns, or both.
Among other changes, the revisions of FIN 46R clarified some requirements
of the original FIN 46 issued in January 2003, eased some implementation
problems and added new scope exceptions. FIN 46R deferred the effective
date of the interpretation for public companies to the end of the first
reporting period after March 15, 2004, except that all public companies
must at minimum apply the provisions of the interpretation to entities
that were previously considered "special-purpose entities" under the FASB
literature prior to the issuance of FIN 46R by the end of the first
reporting period ending after December 15, 2003. During the year ended
December 31, 2003, adoption of FIN 46R did not have a material impact on
the Company's financial statements.

Item 2. - Management's Discussion and Analysis

THE COMPANY'S BUSINESSES

Crown provides comprehensive financial services to the holders of real estate
interests in Europe and the United States. Principal business activities include
third-party asset management and loan servicing. The company's other businesses
include an interest in a company that originates sub-prime residential real
estate loans in the United Kingdom. Crown's business lines in Europe and the
United States generate revenues in several ways: agreements to manage
commercial, multifamily and residential real estate and loan assets for the
account of others; loan servicing and mortgage management on an active or
standby basis of individual loans, loan portfolios and assets in securitized
transactions; fees and other income associated with loan origination and the
securitization of those loans; risk management, fund management, financial
advisory and due diligence services; and administration of the interests of
various corporations, partnerships, investments consortiums and special-purpose
entities.

Crown generated net income in 2004 primarily from asset sales that resulted in
very significant returns from the residual interest the company held in a
securitization of tax-exempt bonds. A substantial portion of the loss being
reported in the first quarter of 2005 is attributable to a charge to earnings to
adjust downward the value of the company's servicing rights as a result of a
contract termination. Additionally, the company projects that, in the second
quarter of 2005, it may achieve very significant financial benefits from the
disposition of certain assets managed under contract. Separate and apart from
these events, the company continues to sustain losses from operations. Crown is
actively deploying its resources, primarily in Europe, to replace expiring or
terminating contracts, pursue opportunities in the banking sector and otherwise
seek to expand its businesses and attempt to return to operating profitability.
These efforts may include the formation of partnerships, business combinations
or other arrangements or transactions to leverage the company's liquidity and
capital resources, maximize the value of its core businesses, provide
opportunities for recurring revenue and improve operating results.

FORWARD LOOKING STATEMENTS

The statements contained in this report that are not purely historical are
forward-looking statements within the meaning of Section 21E of the Exchange
Act, including statements regarding the company's expectations, hopes,
intentions or strategies regarding the future. Forward-looking statements
include terminology such as "anticipate," "believe," "has the opportunity,"
"seeking to," "attempting," "appear," "would," "contemplated," "believes," "in
the future" or comparable language. All forward-looking statements included in
this document are based on information available to the company on the date
hereof, and the company assumes no obligation to update any such forward-looking
statements. It is important to note that the company's actual results could
differ materially from those in such forward-looking statements. The factors
listed below are among those that could cause actual result to differ materially
from those in forward-looking statements. Additional risk

factors are listed from time to time in the company's reports on Forms 10-QSB,
8-K and 10-KSB.

Among the risk factors that could materially and adversely affect the future
operating results of the company are:

- Crown continues to sustain losses from operations. Management believes
that its core asset management and servicing businesses in Europe will
provide significant financial returns that will lead to business growth
and operating profitability, but there can be no assurance of these
results.

- Crown has and will continue to attempt to utilize proceeds from the
disposition of assets under management to maintain and expand business
volumes, primarily in Europe. There can be no assurance that the company
will be able to successfully redeploy these proceeds to generate new
business that results in operating profitability.

- Crown's capital resources remain limited when compared to virtually all of
its competitors. To successfully compete for many business opportunities,
the company will need to form partnerships, alliances or other
combinations if it cannot increase its capital through profitable
operations or other means.

- Crown and certain of its subsidiaries operate as rated servicers. If these
entities were to no longer be rated, or if those ratings were lowered,
there would be an adverse effect on the company's operations. Crown's
business volumes may affect its servicer ratings.

OUTLOOK

The company seeks to realize value from European operations and then to build
upon and expand those operations. Most notably, the company anticipates in the
near future entering into agreements that could yield very substantial cash
returns to Crown in the second quarter of 2005 arising from the disposition of a
managed portfolio. The transaction would also provide a platform to possibly
expand asset management and servicing opportunities in Europe.

The pending transaction involving a managed portfolio is an example of how, in
recent years, holders of real estate interests in Europe have increasingly
utilized asset securitizations and other complex capital markets transactions to
realize value from their investments. Management believes this trend will
continue and that Crown is well positioned to benefit from it. The company
provides comprehensive, integrated services addressing all phases of the life
cycle of an asset from acquisition to disposition. The structuring of these
transactions typically requires the involvement of a rated servicer; Crown is
the first service in Europe to receive multiple ratings for both commercial and
residential servicing from three rating agencies. Additionally, the market
knowledge Crown

has obtained from operations in several countries is an aid in identifying and
pursuing emerging opportunities.

The company's loan servicing and mortgage management business in Europe includes
a wide range of commercial, multifamily and residential loans. Crown provides
servicing on both an active and standby basis. Commercial loan servicing volumes
have been affected by the termination of a servicing contract between one of
Crown's European subsidiaries and Morgan Stanley Mortgage Servicing ("MSMS").
The company continues to obtain additional commercial servicing business. The
residential servicing portfolio continues to grow as a result of loan
origination activity. The company, in conjunction with it joint venture partner,
is also implementing plans to expand its master servicing business.

Crown holds a minority interest in Rooftop Mortgages Limited, which is
originating a steadily increasing volume of sub-prime residential loans in the
United Kingdom. The company anticipates a continued strong volume of residential
originations, although growth may be tempered by a moderation in the increase in
housing prices in the United Kingdom. Crown continues to develop the capability
to begin originating commercial mortgage loans in the U.K. later this year.
Similar to the residential activity, these commercial originations should also
increase loan servicing and mortgage management portfolios. The company is also
exploring opportunities in the banking sector to further expand lending and
servicing opportunities in Europe.

The company continues to have discussions with possible strategic partners
regarding ongoing operations in the United States. Opportunities under
consideration may possibly increase the servicing portfolio in the U.S. through
participation in loan origination programs or other means. Presently, operations
in the U.S. continue in transition following the disposition in 2004 of a
substantial portion of assets under management in the U.S. A small number of
assets remain under management in the United States and efforts are under way to
resolve these.

Crown continues to primarily focus on realizing value from its existing business
activities in Europe and then translating that value into expanded operations in
Germany, Scandinavia, the United Kingdom and other European markets as well as
the United States. As it has done in the past, Crown will continue to explore
partnerships and other business structures with existing or new clients that
facilitate the development of business both in Europe and the United States. The
company is prepared to provide investment capital to such entities to advance
growth opportunities that maximize the value of Crown's comprehensive financial
services and provide recurring revenue to its business lines. Crown believes
that proceeding in this manner is the most effective way of expanding the
company's revenues and returning it to operating profitability.

RESULTS OF OPERATIONS FOR THE FIRST QUARTER ENDED MARCH 31, 2005 COMPARED TO THE
FIRST QUARTER ENDED MARCH 31, 2004

Total revenues increased $588,997 to $1,685,600 for the first three months of
2005 from

$1,096,603 during the same period in 2004. The majority of the increase is
attributable to servicing fees and management fees generated in Europe as well
as partnership income generated from the company's European operations.

Management fees increased $133,124 to $260,349 for the three months ended March
31, 2005 from $127,225 for the corresponding period in 2004. This increase can
be attributed in large measure to the receipt of approximately $190,000 as part
of a final settlement of an early termination of a servicing contract between
one of the company's European subsidiaries and MSMS. This increase was offset by
a decrease in fees earned in the U.S. of some $76,000 due to a reduction in
assets managed.

Servicing fees increased to $1,044,852 for the quarter ending March 31, 2005
from $646,189 for the quarter ending March 31, 2004. This $398,663 increase is
the result of additional service fees earned from European operations of
approximately $374,000 and a one-time prepayment fee collected in the U.S. of
some $25,000. The increase in the service fees from European operations is due
to a significant increases in the portfolio of serviced loans.

Interest income declined to $20,685 for the quarter ended March 31, 2005 from
$121,630 for the corresponding period in 2004. This decrease is due almost
entirely to the resolution of a substantial portion of a portfolio of
interest-bearing notes owned by one of the company's European subsidiaries.

Income from partnerships and joint ventures was $188,875 for the three months
ended March 31, 2005 as compared to $0 for the corresponding period in 2004. The
increase is the result of the company's minority investment in Rooftop
Mortgages.

Other income declined $30,721 to $170,838 for the quarter ending March 31, 2005
from $210,559 for the quarter ending March 31, 2004. The decline is due
primarily to the reduction in income tax refunds to certain of the company's
European subsidiaries.

Personnel expenses include salaries, related payroll taxes and benefits, travel
and living expenses and professional development expenses. Personnel expenses
increased $233,068 to $1,253,320 for the first three months of 2005 from
$1,020,252 for the same period in 2004. The majority of the increase was due to
an increase in payroll and contract labor costs in Europe of approximately
$270,000 arising from addition personnel in the company's information
technology, compliance and loan servicing areas as well as start up cost
incurred for the new office located in Germany. Offsetting this increase were
reductions in U.S. payroll and travel of some $35,000. This decrease was brought
about by a decrease in staff and contract labor.

Occupancy, insurance and other operating expenses increased to $655,517 for the
first three months of 2005 from $634,691 for the first three months of 2004.
This $20,826 increase in these expenses was attributable to additional rating
agency expenses in Europe and increases in consultancy costs for Scandinavian
operations totaling approximately $81,000. Other increases of approximately
$42,000 relate to activities in the company's new office in Germany. In the
United States, the company incurred an increase in legal expense of
approximately $30,000. Offsetting these increases was a decrease of
approximately $110,000 in Europe on information technology infrastructure
upgrades and related expenses and a reduction in bad debt expense of
approximately $23,000.

The write down of capitalized mortgage servicing rights increased by
approximately $1,069,000. This write down was necessitated by the termination of
a sub-servicing agreement between one of the company's European subsidiaries and
MSMS, which termination MSMS advised was not for cause but rather the result of
a business decision to perform the servicing itself.. The termination was
effective as of March 31, 2005. In accordance with SFAS No. 5 "Accounting for
Contingencies," the company provided for the reduction in the value of its
servicing portfolio by making the $1,069,000 charge to current earnings at
March 31.

Depreciation and amortization increased to $171,703 for the first three months
of 2005 from $147,221 for the corresponding period in 2004. The majority of the
$24,482 increase is the result of increases in computer equipment and software.

LIQUIDITY AND CAPITAL RESOURCES

GENERAL

Cash and cash equivalents decreased by $1,309,151 to $1,859,424 at March 31,
2005 from $3,287,104 at December 31, 2004. The decrease was due primarily to the
funding of ongoing operations. The company's domestic and European operations
presently have no bank credit facilities. Crown anticipates significant
improvements in liquidity through the disposition of assets under management.
The company is also seeking to improve its cash resources by generating new
business revenues, raising additional capital and, in selected instances,
entering into strategic alliances.

Management anticipates that the results of operations for the coming year,
including the disposition of certain assets under management, will be sufficient
to fund its cash operating obligations. However, the company will continue to
seek to expand revenues from its existing client base while endeavoring to
develop new sources of revenue and capital.

HISTORICAL CASH FLOWS

Cash flows from operating activities required the use of $1,010,868 during the
first three months of 2005. Operating activities used $546,099 in the
corresponding period of 2004.

Investing activities used funds of $298,283 during the first three months of
2005. Similar activities used funds of $184,540 in 2004. The funds used in 2005
were a combination of funds used for investments of approximately $20,575 and
funds used for the purchase of equipment of approximately $248,000. The use of
funds in 2004 was a combination of funds used for the purchase of equipment and
an increase in restricted cash.

Financing activities provided cash flows of $154,138 during the first three
months of 2004. There were no comparable financing activities in 2005. The funds
provided in 2004 were the result of an increase in borrowings.

Item 3. - Controls and Procedures

Crown's principal executive and financial officers have evaluated the company's
disclosure controls and procedures in place on March 31, 2005 and have concluded
that they are effective. There have been no significant changes in Crown's
internal controls or in other factors since that date that could significantly
affect these controls.

PART II - OTHER INFORMATION

Item 1. - Legal Proceedings

None

Item 2. - Changes in Securities

None

Item 3. - Defaults Upon Senior Securities

None

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

None

Item 5. - Other Information

None

Item 6. - Exhibits and Reports on Form 8-K

(a) Exhibits

31.8 Certification of officers of Crown Filed herewith.
32.7 Certification of officers of Crown Filed herewith.

(b) Reports on Form 8-K

None

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

CROWN NORTHCORP, INC.

Dated: May 13, 2005 By: /s/ Rick Lewis
-----------------------------
Rick Lewis, Vice President,
Treasurer and Chief Financial
Officer

By: /s/ Stephen W. Brown
------------------------
Stephen W. Brown, Secretary

INDEX TO EXHIBITS

31.8 Certification of officers of Crown (1)
32.7 Certification of officers of Crown (1)

-------------
(1) Filed herewith.