<PAGE> 1
As filed with the Securities and Exchange Commission on December 14, 1999
UNITED STATES
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 September 30, 1999
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 333-83851
Coastal Banking Company, Inc.
-----------------------------
(Exact name of registrant as specified in its charter)
South Carolina 58-2455445 59-3532208
- ------------------------- ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
1001 Bay Street Suite 202
Beaufort, S.C. 29902
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
843-522-1228
------------------
(Telephone Number)
Not Applicable
-----------------------------
(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 registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES XX 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:
948,281 shares of common stock, $.01 par value per share, issued and
outstanding as of December 6, 1999.
Transitional Small Business Disclosure Format (check one): YES NO XX
---- ----
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COASTAL BANKING COMPANY, INC.
(A DEVELOPMENT STAGE CORPORATION)
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The financial statements of Coastal Banking Company, Inc. (the
"Company") are set forth in the following pages.
2
<PAGE> 3
COASTAL BANKING COMPANY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Cash and cash equivalents $ 49,044
Property and equipment 76,019
Total assets $ 125,063
=========
LIABILITIES AND ORGANIZERS' DEFICIT
LIABILITIES
Line of credit $ 351,000
COMMITMENTS AND CONTINGENCIES - Notes 2 and 3
ORGANIZERS' DEFICIT
Preferred stock, par value $.01 per share, 10,000,000 shares
authorized, no shares issued
Common stock, par value $.01 per share, 10,000,000 shares
authorized
Additional paid-in capital 100
Retained deficit accumulated during the development stage (226,037)
Total liabilities and organizers' deficit $ 125,063
=========
</TABLE>
The accompanying notes are an integral part of this financial statement.
3
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COASTAL BANKING COMPANY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED INCEPTION THROUGH
SEPTEMBER 30, 1999 SEPTEMBER 30, 1999
<S> <C> <C>
EXPENSES
Salaries and payroll taxes $ 19,953 $ 51,573
Professional fees 42,545 123,566
Phone 925 2,358
Postage 486 839
Rent 1,000 3,500
Interest 4,886 7,952
Other 11,479 18,849
Application fees 0 17,400
-------- ---------
Loss before provision for income taxes (81,274) (226,037)
PROVISION FOR INCOME TAXES -- --
-------- ---------
Net loss $(81,274) $(226,037)
======== =========
</TABLE>
The accompanying notes are an integral part of this financial statement.
4
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COASTAL BANKING COMPANY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CHANGES IN ORGANIZERS' DEFICIT
FOR THE PERIOD FROM FEBRUARY 22, 1999 (DATE OF INCEPTION)
THROUGH SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
RETAINED
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE
------------------ PAID-IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE TOTAL
------ ------ ---------- ----------- -----
<S> <C> <C> <C> <C> <C>
PROCEEDS FROM THE SALE OF
STOCK TO ORGANIZERS 100 $ -- $100 $ -- $ 100
NET LOSS -- -- -- (226,037) (226,037)
BALANCE, SEPTEMBER 30, 1999 100 $ -- $100 $(226,037) $(225,937)
=== ============ ==== ========= =========
</TABLE>
The accompanying notes are an integral part of this financial statement.
5
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COASTAL BANKING COMPANY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM FEBRUARY 22, 1999 (DATE OF INCEPTION)
THROUGH SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
NET CASH USED FOR PRE-OPERATING ACTIVITIES
Net cash used for pre-operating activities $(226,037)
INVESTING ACTIVITIES
Purchase of Property and equipment (76,019)
FINANCING ACTIVITIES
Proceeds from borrowings on line of credit 351,000
Proceeds from issuance of stock to organizer 100
Net cash provided by financing activities 351,100
Net increase in cash
CASH AND CASH EQUIVALENTS, FEBRUARY 22, 1999
(DATE OF INCEPTION) --
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 49,044
=========
</TABLE>
The accompanying notes are an integral part of this financial statement.
6
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COASTAL BANKING COMPANY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES
COASTAL BANKING COMPANY, INC. (the "Company") is a South Carolina
corporation organized for the purpose of owning and controlling all of the
capital stock of LOWCOUNTRY NATIONAL BANK (in organization) (the "Bank"). The
Company was incorporated on June 8, 1999. The Bank is being organized as a
national bank under the laws of the United States with the purpose of becoming a
new bank to be located in Beaufort County, South Carolina. The Company has filed
a charter application with the OCC and an application for deposit insurance with
the FDIC. The company has received preliminary approval from the OCC and the
FDIC. Provided that the applications are timely approved and the necessary
capital is raised, it is expected that banking operations will commence in the
first quarter of 2000.
The Company is a development stage enterprise as defined by Statement of
Financial Accounting Standard No. 7, "Accounting and Reporting by Development
Stage Enterprises", as it devotes substantially all its efforts to establishing
a new business. The Company's planned principal operations have not commenced
and revenue has not been recognized from the planned principal operations.
On November 1, 1999, the Company sold 870,000 shares of its common stock at
$10 per share. and on December 2, 1999, the Company issued 78,821 additional
shares pursuant to the over-allotment option set forth in an Underwriting
Agreement with Edgar M. Norris & Co., Inc. (the "Underwriter") dated November 1,
1999 ( the "Underwriting Agreement"), for a total of 948,281 shares of common
stock. The offering raised $8,909,624.48 net of estimated underwriting discounts
and commissions. The directors and executive offices of the Company purchased
207,000 shares of common stock at $10 per share, for a total of $2,070,000. The
Company intends to issue stock warrants to the organizers to purchase up to an
additional 202,000 shares of common stock. The Company intends to use
approximately $6.5 million of the proceeds to capitalize the proposed Bank.
YEAR-END
The Company has adopted a fiscal year ending on December 31, effective for
the period ending December 31, 1999. A minimal amount of transactions occurring
prior to the Company's incorporation have been combined in these financial
statements for ease of presentation.
ESTIMATES
The financial statements include estimates and assumptions that affect the
Company's financial position, results of operations, and disclosure of
contingent assets and liabilities. Actual results could differ from these
estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. The Company places
its temporary cash investments with high credit quality financial institutions.
At times such investments may be in excess of the FDIC insurance limits.
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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES,
CONTINUED
ORGANIZATION COSTS
Organization costs include incorporation, legal, and consulting fees
incurred in connection with establishing the Company and the Bank. In accordance
with Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up
Activities," organization costs are expensed when incurred.
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the financial reporting and income tax
bases of assets and liabilities. At September 30, 1999, no taxable income has
been generated and therefore, no tax provision has been included in these
financial statements.
NOTE 2 - LINE OF CREDIT
The Company has established a $500,000 line of credit with The Bankers'
Bank to fund operating expenses of the Company during the development stage. The
line is uncollateralized and is guaranteed by the Company's organizers. The line
bears interest at the prime rate minus .500 percentage points and expires April
1, 2000. As of September 30, 1999, $351,000 was outstanding on this line of
credit. On November 5, 1999, the Company's line of credit was repaid less $100
with some of the proceeds from our original offering. ( See Note 5 and Item 2
"Financial Condition")
NOTE 3 - COMMITMENTS AND CONTINGENCIES
The Company has engaged a law firm to assist in preparing and filing all
organizational, incorporation, and bank applications and to assist in preparing
stock offering documents and consummating the Company's initial offering. The
aggregate cost of the services is expected to approximate $106,000.
The Company leases temporary office space under a month-to-month
operating lease requiring monthly payments of $500.
The Company has entered into an agreement with a consultant to assist
with the formation of the Bank. As part of the consultant's fee, he was granted
options to purchase 10,000 shares of the Company's common stock for $10 per
share. The options are for a ten year period beginning with the date of the
public offering.
The Company has entered into an employment agreement with its president
and chief executive officer that includes a five year compensation term, annual
bonus, incentive program, stock option plan and a one-year non-compete agreement
upon early termination.
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The Company has entered into an agreement with a data processor to
provide ATM services, item processing and general ledger processing. Components
of this contract include minimum charges based on volume and include initial
setup costs of approximately $56,075. ( See Item 2 - "Capability of Data
Processing Software to Accommodate the Year 2000")
The Company has entered into a contract to purchase its proposed main
office facility for $855,000. (See Note 4)
NOTE 4 - RELATED PARTY TRANSACTIONS
Two of the Company's directors are licensed real estate brokers and were
the buyer's agents in securing the contract for the purchase of the office
facility. They are to receive a $45,000 commission from the seller which will be
credited to the Bank on the closing date. This will reduce the Bank's investment
in the proposed office facility from $900,000 to $855,000.
NOTE 5 - SUBSEQUENT EVENT
On November 1, 1999, the Company sold 870,000 shares of its common
stock at $10 per share, and on December 2, 1999, the Company issued 78,821
additional shares pursuant to an over-allotment option as set forth in the
Underwriting Agreement, for a total 948,281 shares of common stock. The offering
raised $8,909,624.48 net of estimated underwriting discounts and commissions.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
The following is a discussion of the Company's financial condition as of
and for the period ended September 30, 1999. These comments should be read in
conjunction with the Company's condensed consolidated financial statements and
accompanying footnotes appearing in this report.
This report contains "forward-looking statements" relating to, without
limitation, future economic performance, plans and objectives of management for
future operations, and projections of revenues and other financial items that
are based on the beliefs of the Company's management, as well as assumptions
made by and information currently available to the Company's management. The
words "expect," "anticipate," and "believe," as well as similar expressions, are
intended to identify forward-looking statements. The Company's actual results
may differ materially from the results discussed in the forward-looking
statements, and the Company's operating performance each quarter is subject to
various risks and uncertainties that are discussed in detail in the Company's
filings with the Securities and Exchange Commission, including the "Risk
Factors" section in the Company's Registration Statement (Registration Number
333-83851) as filed with and declared effective on November 1, 1999, by the
Securities and Exchange Commission.
9
<PAGE> 10
FINANCIAL CONDITION
The organizational activities for the Company began on February 22, 1999,
and the Company was incorporated on June 8, 1999. The Company's initial
principal activities have been related to its organization and initial public
offering, 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 the Bank and to obtain deposit insurance, and the
pursuit of approvals from the Federal Reserve Board for the Company to acquire
control of the Bank.
At September 30, 1999, the Company had total assets of $125,063. These
assets consisted principally of cash of $49,044 and property and equipment of
$76,019. Property and equipment consists primarily of an earnest money deposit
on the Bank's current main office site. The Company has entered into an
operating lease for its corporate office for $500 a month. We have entered into
an agreement to purchase 2.13 acres of land with a 5,400 square foot existing
building. Our net cost on the property will be $855,000. We intend to renovate
the existing building at a cost of approximately $750,000 and to improve the
property cost at a cost of approximately $250,000. This building will be our
main office. Furniture, fixtures, and equipment will be capitalized and
amortized over the estimated useful life of the asset.
The Company's liabilities at September 30, 1999 were $351,000, which
consisted entirely of advances under a line of credit. The Company's line of
credit was repaid on November 5, 1999 with proceeds from the offering leaving a
balance of $100. The Company had an organizers' deficit of $226,037 at September
30, 1999.
The Company had a net loss of $81,274 for the three months ended September
30, 1999, or a pro forma net loss of $.09 per share for the three months ended
September 30, 1999 based on the actual shares of 948,281 which were outstanding
as a result of the offering that was completed on December 2, 1999. The Company
also incurred a net loss of $226,037 from inception through September 30, 1999,
or a pro forma net loss of $.24 per share since inception based on the actual
shares of 948,281 which were outstanding as a result of the offering that was
completed on December 2, 1999. These losses resulted from expenses incurred in
connection with activities related to the organization of the Company and the
Bank. These activities included preparing and filing an application with the OCC
and the FDIC to charter the Bank and to obtain deposit insurance, preparing an
application with the Federal Reserve Board for approval of the Company to
acquire the stock of the Bank, responding to questions and providing additional
information to the OCC, the FDIC, and the Federal Reserve Board in connection
with the application process, preparing a prospectus and filing a registration
statement with the Securities and Exchange Commission (the "SEC"), selling the
Company's common stock, meetings and discussions among various organizers
regarding various preopening issues, hiring qualified personnel to work for the
Bank, conducting public relations activities on behalf of the Bank, developing
prospective business contacts for the Bank and the Company, and taking other
actions necessary for a successful bank opening. Because the Company was in the
organizational stage, it had no operations from which to generate revenues.
On November 4, 1999, a total of $8,181,611 was used to capitalize the
Company in connection with the completion of its initial public offering. On
December 2, 1999, an additional $728,013.30 was used to capitalize the Company
in connection with the Underwriter's exercise of its over-allotment option. Of
these amounts, approximately $6,500,000 is expected to be used to capitalize the
Bank and the remainder will be used to pay organizational expenses of the
Company and provide working capital, including additional future capital for
investment in the Bank, if needed. The
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<PAGE> 11
Company 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 estimated
the Company's deficit when the Bank opens to be approximately $600,000, although
the actual deficit may be significantly higher or lower. The Company believes
that income from the operations of the Bank will be sufficient to fund the
activities of the Company on an ongoing basis; however, there can be no
assurance that either the Bank or the Company will achieve any particular level
of profitability.
CAPABILITY OF DATA PROCESSING SOFTWARE TO ACCOMMODATE THE YEAR 2000
Like many financial institutions, we rely upon computers for the daily
conduct of our business and for information systems processing. There is concern
among industry experts that on January 1, 2000, computers will be unable to
"read" the new year and there may be widespread computer malfunctions. In June
1996, the Federal Financial Institutions Examination Council alerted the banking
industry that serious challenges could be encountered with Year 2000 issues. In
addition, the OCC and the FDIC have issued guidelines to require compliance with
Year 2000 issues. We generally rely on software and hardware developed by
independent third parties for our information systems. We are a new company and
therefore, despite our reliance upon third parties for many of our information
systems, we believe that by following the procedures that are outlined below, we
have the ability to minimize our Year 2000 risk.
We have entered into an agreement with Intercept Group to provide our
mission critical hardware and software and to perform all overnight processing
and reconciliation of our daily transaction data. Intercept Group is a
well-established company that provides similar systems and services to hundreds
of financial institutions in the United States. Intercept Group has completed
testing the system we will be using with generic data which has been
artificially "aged" to simulate all critical Year 2000 related dates. Banking
regulators have approved this type of testing as a valid means of testing. We
have reviewed these tests and are satisfied that the system tested is similar to
ours and that the Intercept Group system did not encounter any Year 2000
problems. We therefore do not expect to encounter any Year 2000 issues in the
Intercept Group system. Our agreements with Intercept Group include warranties
that their system is Year 2000 compliant in all respects, although the remedies
available under such agreements are limited and specifically exclude special,
incidental, indirect, and consequential damages.
We will require all other significant vendors to provide similar test
results and warranties regarding Year 2000 compliance. Because we have chosen
our information systems and software with the Year 2000 in mind, we do not
believe we will have any significant expenses associated with Year 2000 issues.
Since the Company does not anticipate making loans until after January 1,
2000, we do not anticipate that we incur losses related to future loan customers
that may encounter Year 2000 problems.
Most Likely Consequences of Year 2000 Problems. We expect to identify and
resolve all Year 2000 problems that could materially adversely affect our
business. However, we believe that it is not possible to determine with complete
certainty that we have identified and corrected all Year 2000 problems. The
number of devices that could be affected and the interactions among these
devices are simply too numerous. In addition, we cannot accurately predict how
many failures related to the Year 2000 problem will occur with our suppliers,
customers, or other third parties or the severity,
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duration, or financial consequences of such failures. As a result any such
failures could result in delaying the expected opening date of the bank.
Additionally, there may be a higher than usual demand for liquidity immediately
prior to the century change due to deposit withdrawals by customers concerned
about Year 2000 issues. Because we have not accepted any deposits nor plan to
accept any deposits prior to December 31, 1999, we do not expect liquidity to be
a problem.
Contingency Plans. The bank will not open until after January 1, 2000, at
which time we believe that most of the uncertainty surrounding the Year 2000
issue should be clarified. In this event, our risks associated with computer
malfunctions should be greatly reduced, but we will still seek to ensure that
our computer systems and our major vendors' and clients' computer systems are in
compliance and functioning properly, and we would postpone the bank's opening
until these issues were resolved.
12
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company 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
On August 9, 1999 the company filed Amended and Restated Articles of
Incorporation to the Articles of Incorporation filed on June 8, 1999. These
Amended and Restated Articles were filed as and Exhibit to our registration
statement on Form SB-2.
ITEM 5. OTHER INFORMATION
On November 4, 1999, the U.S. Senate and House of Representatives each
passed the Gramm-Leach-Bliley Act, previously known as the Financial Services
Modernization Act of 1999. The Act is was signed into law by President Clinton
on November 12, 1999. Among other things, the Act repeals the restrictions on
banks affiliating with securities firms contained in sections 20 and 32 of the
Glass-Steagall Act. The Act also permits bank holding companies to engage in a
statutorily provided list of financial activities, including insurance and
securities underwriting and agency activities, merchant banking, and insurance
company portfolio investment activities. The Act also authorizes activities that
are "complementary" to financial activities.
The Act is intended to grant to community banks certain powers as a
matter of right that larger institutions have accumulated on an ad hoc basis.
Nevertheless, the Act may have the result of increasing the amount of
competition that the Company faces from larger institutions and other types of
companies. In fact, it is not possible to predict the full effect that the Act
will have on the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule (for SEC use only)
(b) Not applicable
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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.
COASTAL BANKING COMPANY, INC.
Date: December 13, 1999 By: /s/ Randolph C. Kohn
---------------------------------
Randolph C. Kohn
Chief Executive Officer
Date: December 13, 1999 By: /s/ Charlie T. Lovering, Jr.
---------------------------------
Charlie T. Lovering, Jr.
Chief Financial Officer
14
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF COASTAL BANKING CORPORATION, INC. FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 49,044
<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> 125,063
<DEPOSITS> 0
<SHORT-TERM> 351,000
<LIABILITIES-OTHER> 0
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 100
<TOTAL-LIABILITIES-AND-EQUITY> 125,063
<INTEREST-LOAN> 0
<INTEREST-INVEST> 0
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 0
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 7,952
<INTEREST-INCOME-NET> 0
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 0
<INCOME-PRETAX> (226,037)
<INCOME-PRE-EXTRAORDINARY> (226,037)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (226,037)
<EPS-BASIC> 0
<EPS-DILUTED> 0
<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>
