<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ______ to
Cherokee Banking Company
------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Georgia 6711 58-2432974
- ------------------------------ ---------------------------- ------------------------------------
(State of Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
Incorporation or organization) Classification Code Number)
1275 Riverstone Parkway
Canton, Georgia 30114
- ------------------------------- ------------------------------------
(Address of principal executive (Zip Code)
offices)
770-479-3400
------------------
(Telephone Number)
Not Applicable
--------------
(Former name, former address
and former fiscal year,
if changed since last report)
</TABLE>
Check whether the issurer: (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 registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES NO XX
--
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:
No shares of common stock, $5 par value per share, issued and outstanding as
of March 31, 1999. Registrant has recently completed an offering of its stock
pursuant to a Registration Statement on Form SB-2, which the SEC declared
effective on April 1, 1999. In this offering, 738,659 shares were sold, and are
deemed outstanding as of July 19,1999.
Transitional Small Business Disclosure Format (check one): YES NO XX
-- --
<PAGE>
CHEROKEE BANKING COMPANY
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The financial statements of Cherokee Banking Company ("Cherokee") are set
forth in the following pages.
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<PAGE>
CHEROKEE BANKING COMPANY
(A Development Stage Corporation)
Balance Sheet
March 31, 1999
Assets
------
Cash $ 3,461
Deferred offering expenses 15,000
Other assets 11,156
---------
$ 29,617
=========
Liabilities and Stockholder's Equity
------------------------------------
Note payable - line of credit $ 140,000
---------
Commitments
Stockholder's equity:
Preferred stock, no par value; 2,000,000 shares authorized;
no shares issued and outstanding ---
Common stock, no par value; 10,000,000 shares authorized;
10 shares issued and outstanding 10
Deficit accumulated during the development stage (110,393)
---------
Total stockholder's equity (110,383)
---------
$ 29,617
=========
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<PAGE>
CHEROKEE BANKING COMPANY
(A Development Stage Corporation)
Statements of Operations
For the Three Months Ended March 31, 1999
and the Period from October 9, 1998 (inception) to March 31, 1999
Three Months Cumulative
Ended Through
March 31, 1999 March 31, 1999
-------------- --------------
Expenses:
Salaries and employee benefits $31,491 31,491
Regulatory Fees 2,780 20,180
Legal and professional 13,000 34,250
Interest 1,285 1,285
Occupancy 2,478 2,478
Other operating 18,945 20,709
------- -------
Net loss $69,979 110,393
======= =======
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<PAGE>
CHEROKEE BANKING COMPANY
(A Development Stage Corporation)
Statements of Cash Flows
For the Three Months Ended March 31, 1999
and the Period from October 9, 1998 (inception) to March 31, 1999
<TABLE>
<CAPTION>
Three Months Cumulative
Ended Through
March 31, 1999 March 31, 1999
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(69,979) (110,393)
Adjustments to reconcile net loss to net cash used by
operating activities:
Change in other (1,156) (11,156)
-------- --------
Net cash used by operating activities (71,135) (121,549)
-------- --------
Cash flows from investing activities, consisting of
Deferred offering expenses (15,000) (15,000)
-------- --------
Cash flows from financing activities, consisting of:
Proceeds from line of credit 80,000 140,000
Sale of organization shares of common stock --- 10
-------- --------
Net cash provided by financing activities 80,000 140,010
-------- --------
Net change in cash and cash equivalents (6,135) 3,461
Cash and cash equivalents at beginning of period 9,596 ---
-------- --------
Cash and cash equivalents at end of period $ 3,461 3,461
======== ========
Supplemental cash flow information:
Cash paid for interest $ 1,285 1,285
</TABLE>
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<PAGE>
CHEROKEE BANKING COMPANY
(A Development Stage Corporation)
Notes to Financial Statements
(1) Organization
------------
Cherokee Banking Company ("Cherokee") was incorporated for the purpose of
becoming a bank holding company. Cherokee intends to acquire 100% of the
outstanding common stock of Cherokee Bank, N.A. (the Bank) (Proposed),
which will operate in the Cherokee County, Georgia area. The organizers of
the Bank filed a joint application to charter the Bank with the Office of
the Comptroller of Currency and the Federal Deposit Insurance Corporation
on December 14, 1998. Provided that the application is timely approved and
necessary capital is raised, it is expected that operations will commence
in the third quarter of 1999.
Operations through March 31, 1999 relate primarily to expenditures by the
organizers for incorporating and organizing Cherokee. All expenditures by
the organizers are considered expenditures of Cherokee.
Cherokee plans to raise between $6,500,000 and $10,000,000 through an
offering of its common stock at $10 per share, of which $6,000,000 will be
used to capitalize the Bank. The organizers and directors expect to
subscribe for a minimum of approximately $1,420,000 of Cherokee's stock.
In connection with Cherokee's formation and initial offering, warrants will
be issued to the organizing stockholders. The warrants allow each holder to
purchase one additional share of common stock for each share purchased in
connection with the initial offering and are exercisable on each of the
three succeeding anniversaries of the date of opening of the Bank at the
initial offering price of $10 per share. These warrants expire ten years
after the date of grant. Cherokee has also reserved 30,000 shares for the
issuance of options under an employee incentive stock option plan.
(2) Summary of Significant Accounting Policies
------------------------------------------
Organization Costs
Costs incurred for the organization of Cherokee and the Bank (consisting
principally of legal, accounting, consulting and incorporation fees) are
being expensed as incurred.
Deferred Offering Expenses
Costs incurred in connection with the stock offering, consisting of direct,
incremental costs of the offering, are being deferred and will be offset
against the proceeds of the stock sale as a charge to additional paid in
capital.
Pre-Opening expenses
Costs incurred for overhead and other operating expenses are included in
the current period's operating results.
Proforma Net Loss Per Common Share
Proforma net loss per common share is calculated by dividing net loss by
the minimum number (650,000) of common shares, which would be outstanding
should the offering be successful, as prescribed in Staff Accounting
Bulletin Topic 1:B. The proforma net loss per share for the period ended
March 31, 1999 was $0.11, with a cumulative net loss per share from
inception to March 31, 1999 of $0.17.
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<PAGE>
CHEROKEE BANKING COMPANY
(A Development Stage Corporation)
Notes to Financial Statements, continued
(3) Liquidity and Going Concern Considerations
------------------------------------------
Cherokee incurred a net loss of $110,393 for the period from October 9,
1998 (inception) to March 31, 1999. At March 31, 1999, liabilities exceeded
assets by $110,383.
At March 31, 1999, Cherokee is funded by a line of credit from a bank.
Management believes that the current level of expenditures is well within
the financial capabilities of the organizers and adequate to meet existing
obligations and fund current operations, but obtaining final regulatory
approvals and commencing banking operations is dependent on successfully
completing the stock offering.
To provide permanent funding for its operation, Cherokee is offering a
minimum of 650,000 and a maximum of 1,000,000 shares of its no par value
common stock at $10 per share in an initial public offering. Costs related
to the organization and registration of Cherokee's common stock will be
paid from the gross proceeds of the offering. Shares issued which are
outstanding at March 31, 1999 will be redeemed concurrently with the
consummation of the offering. Should subscriptions for the minimum offering
not be obtained, amounts paid by the subscribers with their subscriptions
will be returned and the offer withdrawn.
(4) Line of Credit
--------------
Organization, offering and pre-opening costs incurred prior to the opening
for business will be funded under a $250,000 line of credit. The terms of
the existing line of credit, which is guaranteed by the organizers, include
a maturity of December 21, 1999 and interest, payable quarterly, calculated
at one percent below the prime interest rate.
(5) Preferred Stock
---------------
Shares of preferred stock may be issued from time to time in one or more
series as established by resolution of the Board of Directors of Cherokee.
Each resolution shall include the number of shares issued, preferences,
special rights and limitations as determined by the Board.
(6) Commitments and Related Party Transactions
------------------------------------------
A contract for the land on which the main office will be constructed has
been entered into with a total purchase price of $450,000, of which $10,000
has been paid as earnest money.
Cherokee intends to enter into an employment agreement with its President
and Chief Executive Officer, providing for an initial term of three years
commencing January 1, 1999. The agreement provides for a base salary, an
incentive bonus based on Cherokee's performance, stock options, and other
perquisites commensurate with his employment.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Since its inception on October 9, 1998, Cherokee's principal activities
have been related to its organization, the conducting of its initial public
offering, and the pursuit of approvals from the Office of the Comptroller of the
Currency (the "OCC") and Federal Deposit Insurance Corporation (the "FDIC") of
its application to charter a bank. Cherokee filed an application with the OCC on
December 14, 1998. The OCC granted preliminary approval of the application on
April 8, 1999, and the FDIC granted preliminary approval of the application on
May 14, 1999.
At March 31, 1999, Cherokee had total assets of $29,617. These assets
consisted principally of the payment for an option for the site for the Bank
premises of $10,000, deferred offering expenses of $15,000 and cash of $3,461.
Cherokee's liabilities at March 31, 1999 were $140,000, consisting of
advances under a line of credit from a bank. Cherokee had a stockholder's
deficit of $110,383 at March 31, 1999.
Cherokee had a net loss of $69,979 for the quarter ended March 31, 1999,
and $110,393 cumulatively from inception through March 31, 1999, or a pro forma
net loss of $0.11 per share for the quarter ended March 31, 1999 and $0.17 per
share cumulatively since inception (assuming the sale of the minimum number of
shares in the offering were outstanding during the entire period). This loss
resulted from expenses incurred in connection with activities related to the
organization of the Bank. These activities included (without limitation) the
preparation and filing of an application with the OCC and the FDIC to charter
the Bank, responding to questions and providing additional information to the
OCC and the FDIC in connection with the application process, preparing a
Prospectus and filing a Registration Statement with the SEC, selling the
common stock, meetings and discussions among various organizers regarding
application and SEC filing information, target markets and capitalization
issues, hiring qualified personnel to work for the Bank, conducting public
relations activities on behalf of Cherokee, developing prospective business
contacts for Cherokee, and taking other actions necessary for a successful Bank
opening. Because Cherokee was in the organization stage, it had no operations
from which to generate revenues.
A minimum of $6,500,000 will be raised in the Offering and used to
capitalize Cherokee and to provide working capital. Cherokee believes this
amount will be sufficient to fund the activities of the Bank in its initial
stages of operations, and that the Bank will generate sufficient income from
operations to fund its activities on an ongoing basis. For purposes of its
charter application with the OCC, the organizers estimate that Cherokee's
deficit when it opens to be approximately $213,000, although the actual deficit
may be significantly higher or lower. Cherokee believes that income from the
operations of the Bank will be sufficient to fund its activities on an ongoing
basis; however, there can be no assurance that Cherokee will achieve any
particular level of profitability. Cherokee has obtained a $250,000 line of
credit guaranteed by the organizers to provide the necessary funding to cover
costs and expenses the Bank is expected to incur prior to the completion of the
Offering. In the event the proceeds of the Offering are insufficient to provide
the minimum initial funding needed for regulatory approval, the proceeds from
the Offering will be returned to the investors, the Offering withdrawn, and the
organizers will assume the obligations of Cherokee.
-8-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings to which Cherokee is a
party or of which any of their property is the subject.
Item 2. Changes in Securities
(a) Not applicable
(b) Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to security holders for a vote during the
three months ended March 31, 1999.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(b) Reports on Form 8-K
None
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CHEROKEE BANKING COMPANY
By: /s/ Dennis W. Burnette
--------------------------------------
Dennis W. Burnette
President, Chief Executive Officer and
Director
By: /s/ A.R. Roberts, III
--------------------------------------
A.R. Roberts, III
Chief Financial Officer, Chief
Operations Officer and Director
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,461
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 0
<ALLOWANCE> 0
<TOTAL-ASSETS> 29,617
<DEPOSITS> 0
<SHORT-TERM> 140,000
<LIABILITIES-OTHER> 0
<LONG-TERM> 0
0
0
<COMMON> 10
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> (110,393)
<INTEREST-LOAN> 29,617
<INTEREST-INVEST> 0
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 0
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 1,285
<LOAN-LOSSES> (1,285)
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 0
<INCOME-PRETAX> 68,694
<INCOME-PRE-EXTRAORDINARY> (69,979)
<EXTRAORDINARY> (69,979)
<CHANGES> 0
<NET-INCOME> (69,979)
<EPS-BASIC> (.11)
<EPS-DILUTED> (.11)
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
