SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
SPECIAL REPORT
(Pursuant to Rule 15d-2 under the Securities Exchange Act of 1934)
(Contains only financial statements for the 1998 fiscal year)
(Mark One)
[X] Annual report pursuant to section 13 or 15 (d) of the Securities
Exchange Act of 1934 For the fiscal year ended December 31, 1998
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 No. 333-63987
Village Financial Corporation
--------------------------------------------------
(Name of Small Business Issuer in Its Charter)
New Jersey 23-2925762
- -------------------------------------- ---------------------
(State or Other Jurisdiction of I.R.S. Employer
Incorporation or Organization) Identification No.
590 Lawrence Square Boulevard, Lawrenceville, New Jersey 08648
- -------------------------------------------------------- ---------------------
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code: (609) 689-1010
---------------------
Securities registered under to Section 12(b) of the Exchange Act: None
---------------
Securities registered under to Section 12(g) of the Exchange Act:
None
----
(Title of Class)
Check whether the issuer: (1) has 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 X .
--- ---
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $18,196
The aggregate market value of the voting and non-voting common equity
held by non-affiliates of the Registrant, based on the initial offering price of
the Registrant's Common Stock ($10.00 per share) was $940,850.
As of March 31, 1999, there were issued and outstanding 94,850 shares
of the Registrant's Common Stock.
Transitional Small Business Disclosure Format (check one):
YES NO X
--- ---
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
EXPLANATION OF FILING
General
The Registrant's Registration Statement on Form SB-2, as filed with the
Securities and Exchange Commission in connection with the Registrant's initial
public offering, became effective on February 3, 1999. Because the Registration
Statement on Form SB-2 did not contain audited financial statements for the last
completed fiscal year (December 31, 1998), the Registrant is required by Rule
15d-2 under the Securities Exchange Act of 1934, as amended, to file this
Special Report on Form 10-KSB within 90 days of the Effective Date of the
Registration Statement on Form SB-2. The Registrant's Special Report on Form
10-KSB is required to contain only audited financial statements for the just
completed fiscal year, unless otherwise required by the rules of any exchange.
The Registrant's Common Stock is not traded on any exchange or on the NASDAQ
Stock Market. Accordingly, the Registrant's Special Report on Form 10-KSB does
not include any other narrative items or tabular information which are normally
required to be filed in an Annual Report on Form 10-KSB.
The Registrant is in the process of forming Village Bank, a
wholly-owned subsidiary federal stock savings bank, in organization. The
Registrant was incorporated to become the holding company of Village Bank. As of
the date of filing of this Special Report, Village Bank is not an organized and
operating entity. Accordingly, the financial statements filed with this Special
Report on Form 10-KSB are those of the Registrant only.
Item 7. Financial Statements
- -----------------------------
The Registrant's financial statements are filed herewith. See also
"Item 13. Exhibits, List and Reports on Form 8-K."
1
<PAGE>
Item 13. Exhibits, List and Reports on Form 8-K
(a) The following documents are filed as a part of this report:
1. The following financial statements of the Registrant and
the report of independent accountants of the Registrant included under Item 7
are incorporated herein by reference.
Independent Auditors' Report
Balance Sheet at December 31, 1998.
Statements of Operations for the Year Ended December 31, 1998.
Statements of Changes in Stockholders' Equity for the Year Ended
December 31, 1998.
Statements of Cash Flows for the Year Ended December 31, 1998.
Notes to Financial Statements.
2. Financial Statement Schedules for which provision is made
in the applicable accounting regulations of the SEC are not required under the
related instructions or are inapplicable and therefore have been omitted.
3. The following exhibits are included in this Report:
(a) List of Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K.
None.
2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
------------------------------
Organizers and Stockholders
Village Financial Corporation
We have audited the accompanying balance sheet of Village Financial Corporation
as of December 31, 1998, and the related statements of operations and cash flows
for the period from January 16, 1998 (inception) to December 31, 1998. These
financial statements are the responsibility of management. Our responsibility is
to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
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 financial statements referred to above present fairly, in
all material respects, the financial position of Village Financial Corporation
as of December 31, 1998, and the results of its operations and its cash flows
for the period from January 16, 1998 (inception) to December 31, 1998, in
conformity with generally accepted accounting principles.
/s/ S.R. Snodgrass, A.C.
- ----------------------------
S.R. Snodgrass, A.C.
Wexford, PA
March 12, 1999
3
<PAGE>
VILLAGE FINANCIAL CORPORATION
BALANCE SHEET
December 31,
1998
------------
ASSETS
Cash $ 16,475
Short-term investments 418,312
Premises and equipment 140,123
Deferred offering costs 114,894
Other assets 103,428
--------
Total assets $ 793,232
========
LIABILITIES
Accounts payable and accrued expenses $ 38,358
--------
STOCKHOLDERS' EQUITY
Preferred stock, no par value; 1,000,000 shares authorized;
none outstanding -
Common stock, par value $.10; 5,000,000 shares authorized;
94,850 issued and outstanding 9,485
Additional paid-in capital 939,015
Retained deficit (193,626)
--------
Total stockholders' equity 754,874
Total liabilities and stockholders' equity $ 793,232
========
See accompanying notes to the financial statements.
4
<PAGE>
VILLAGE FINANCIAL CORPORATION
STATEMENT OF OPERATIONS
Period From
January 16, 1998
(Inception) to
December 31, 1998
-----------------
INTEREST INCOME $ 18,196
EXPENSES
Salaries and employee benefits 76,466
Occupancy and equipment 33,195
Professional services 70,074
Other 32,087
--------
Total expenses 211,822
--------
Loss before income taxes (193,626)
Income taxes -
--------
NET LOSS $(193,626)
========
LOSS PER SHARE ($2.04)
AVERAGE SHARES OUTSTANDING (From May 20, 1998) 94,850
See accompanying notes to the financial statements.
5
<PAGE>
VILLAGE FINANCIAL CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained Comprehensive
Stock Capital Deficit Total Loss
-------- ---------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 16, 1998 (Inception) $ - $ - $ - $ -
Sale of common stock for
cash ($10.00 per share) 9,485 939,015 948,500
Net loss for the period (193,626) (193,626) $(193,626)
------ ------- ------- ------- =======
Balance, December 31, 1998 $ 9,485 $939,015 $(193,626) $ 754,874
====== ======= ======= ========
</TABLE>
See accompanying notes to the financial statements.
6
<PAGE>
VILLAGE FINANCIAL CORPORATION
STATEMENT OF CASH FLOWS
Period From
January 16, 1998
(Inception) to
December 31, 1998
-----------------
OPERATING ACTIVITIES
Net loss $(193,626)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 5,103
Net increase in prepaid organization expenses (87,570)
--------
Net cash used for operating activities (276,093)
--------
INVESTING ACTIVITIES
Purchase of premises and equipment (145,226)
--------
FINANCING ACTIVITIES
Deferred offering costs paid (92,394)
Proceeds from sale of common stock 948,500
--------
Net cash provided by financing activities 856,106
--------
Increase in cash and cash equivalents 434,787
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD -
--------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 434,787
========
See accompanying notes to the financial statements.
7
<PAGE>
VILLAGE FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
- --------------------------------------
Village Financial Corporation (the "Corporation") was incorporated under the
laws of the State of New Jersey on January 16, 1998, for the purpose of becoming
a holding company, which will own all of the outstanding shares of capital stock
of a proposed federal stock savings bank with the name Village Bank (the
"Bank"). As of December 31, 1998, the Corporation is capitalized to the extent
currently considered necessary to provide adequate funding of the ongoing
organization efforts of management in the formation of the Bank. Additional
funds necessary to adequately capitalize the Bank will be raised through an
initial public offering ("IPO"), which is discussed in greater detail in these
notes. Upon satisfaction of the conditions of the IPO, the Bank will operate two
offices as a community-oriented bank concentrating on consumer, residential, and
installment loan products and deposit services and will be headquartered in
Lawrenceville, New Jersey.
Effective March 11, 1999, the Corporation received approval, subject to certain
conditions, from the Office of Thrift Supervision of its applications to
organize and acquire the Bank. Qualifying bank customer deposit accounts will be
insured by the Federal Deposit Insurance Corporation ("FDIC"). Effective
December 8, 1998, the Corporation received approval of its application for
Federal deposit insurance of prospective depositor accounts from the FDIC
subject to certain conditions. Two of the more significant conditions that the
Bank must meet are a) a minimum initial capitalization of at least five million
dollars and b) maintenance of a Tier I Capital to total assets ratio of at least
eight percent during its first three years of existence.
To date, the Corporation's operations have been limited to in-formation
procedures which include raising capital, recruiting officers and staff,
obtaining a banking facility, and working towards obtainment of regulatory
approval. Since the Corporation's planned principal operations have not yet
commenced, no significant revenue has been derived therefrom. There is no
assurance that the Corporation will be able to raise sufficient capital to
satisfy minimum regulatory capital requirements. Further, if such capital
requirements are not met, the formation of the Bank will be delayed or not
materialize.
The accounting and reporting policies of the Corporation will conform with
generally accepted accounting principles ("GAAP"). The preparation of financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
balance sheet date and income and expenses during the reported period. Actual
results could differ from those estimates.
Short-term Investments
- ----------------------
The Corporation's short-term investments are comprised of a money market deposit
account maintained with a correspondent bank and shares purchased in a national
dealer/broker interest-bearing money fund account.
8
<PAGE>
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Premises and Equipment
- ----------------------
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed on the straight-line
method over the estimated useful lives of the assets. Expenditures for
maintenance and repairs are charged against income as incurred. Costs of major
additions and improvements are capitalized.
Deferred Offering Costs and Start-up Activities Expenses
- --------------------------------------------------------
Such costs and expenses are for organization work being completed as well as the
registration process for the IPO. Offering expenses will be charged to
stockholders' equity upon completion of the IPO and are presently recorded as
deferred offering costs on the balance sheet. Organizational services relating
to the preparation of regulatory applications, feasibility studies, and
financial projections are considered costs of start-up activities and have been
charged to expense when incurred.
All other ongoing organizational and start-up costs incurred primarily before
the commencement of operations as a bank are also expensed in accordance with
the Accounting Standard Executive Committee's Statement of Position 98-5,
"Reporting on the Costs of Start-up Activities." The Statement requires entities
to expense costs of start-up activities as they are incurred.
Cash Flow Information
- ---------------------
Cash equivalents include short-term investments.
Income Taxes
- ------------
The Corporation has not provided for a federal or state income tax provision for
the period ended December 31, 1998, as the Corporation represents an entity
in-formation and has incurred a cumulative operating loss since the date of
inception. As such, a 100 percent valuation allowance for the net deferred tax
asset, comprised primarily of the tax benefit generated from the accumulated
start-up period operating loss, has been recorded.
Comprehensive Loss
- ------------------
Comprehensive loss is the change in the Corporation's equity during a period
from transactions and other events excluding those resulting from investments
from or distributions to investors. Comprehensive loss includes the net loss and
any other changes in assets or liabilities that are not reported in the net
loss, but instead are reported as a separate component of stockholders' equity.
The Corporation has elected to report its comprehensive loss as a part of the
Statement of Changes in Stockholders' Equity.
9
<PAGE>
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Stockholders' Equity and Initial Public Offering
- ------------------------------------------------
Initial capitalization of the Corporation has occurred through the subscription
and issuance of common stock in a private placement during the second quarter of
1998. As of December 31, 1998, a total of 94,850 shares, at an offering price of
$10.00 per share, have been subscribed to and issued.
The Corporation intends to issue between 425,000 and 1,200,000 shares of common
stock at $10.00 per share in the IPO. The registration of the IPO with the
Securities and Exchange Commission became effective February 3, 1999. The period
of offering will initially expire on March 26, 1999; however, the Corporation
has the ability to extend it through December 7, 1999. Current shares of common
stock owned by investors from the private placement will remain issued and
outstanding. The Corporation anticipates purchasing all of the common stock to
be issued by the Bank with the net proceeds remaining from the private placement
and the IPO.
Organization Period Stock Option Plan
- -------------------------------------
Effective August 1, 1998, the Corporation entered into an Employment Agreement
with the President of the Corporation which includes the initiation of a stock
option plan for him. The stock option plan becomes effective once the
Corporation's actions are ratified by stockholders at the first annual
stockholders' meeting, to be held sometime after the opening of the Bank. In
September 1998, the Corporation granted options to purchase 10,000 shares of
common stock at an exercise price equal to the IPO price per share and subject
to stockholder's ratification. The options will have an expiration term of ten
years and will become exercisable over a three-year vesting period.
Because the exercise price of the Corporation's stock options equals the
approximate market price of the underlying stock at the time of grant, no
compensation expense would be recognized by the Corporation. If the Corporation
were to account for the compensation cost impact of these options based on the
fair value of underlying shares at year end, there would have been no adjustment
to such costs or the net loss disclosed in these financial statements.
Earnings Per Share
- ------------------
For the period ended December 31, 1998, loss per share is calculated using the
weighted-average number of shares outstanding from May 20, 1998 (initial issue
date) through December 31, 1998. For 1998, the Corporation has maintained a
simple capital structure; therefore, there are no dilutive effects on loss per
share computations.
10
<PAGE>
LEASE COMMITMENTS
On July 17, 1998, the Corporation entered into an operating lease arrangement
for office space located in Pennington, New Jersey. This site served as the
Corporation's temporary headquarters until a full-service banking and
administration site became available. Effective October 22, 1998, the
Corporation entered into an operating lease arrangement for a banking and
administrative office facility at a former Summit Bank branch site in
Lawrenceville, New Jersey. A preliminary lease term runs through May 31, 2000,
at which time an initial five-year lease term begins. This agreement also
contains a five-year renewal option if elected by the Corporation. At December
31, 1998, the minimum rental commitment for this noncancellable operating lease
is as follows:
1999 $ 59,885
2000 64,071
2001 69,228
2002 72,432
2003 75,329
2004 and thereafter 111,516
-----------
Total $ 452,461
===========
Occupancy and equipment expense includes rental expenditures of $21,183 for
1998.
11
<PAGE>
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 as of April 19, 1999.
VILLAGE FINANCIAL CORPORATION
By:/s/Kenneth J. Stephon
--------------------------------------
Kenneth J. Stephon
President and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirement 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 indicated as of April 19, 1999.
/s/Kenneth J. Stephon /s/William C. Hart
- ------------------------------------------- ------------------------------
Kenneth J. Stephon William C. Hart
President and Chief Executive Officer Chairman of the Board
(Principal Executive and Financial Officer)
/s/William V.R. Fogler /s/Paul J. Russo
- ------------------------------------------- ------------------------------
William V.R. Fogler Paul J. Russo
Director Director
/s/Jonathan R. Sachs /s/George M. Taber
- ------------------------------------------- ------------------------------
Jonathan R. Sachs George M. Taber
Vice President and Director Director
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SPECIAL
REPORT ON FORM 10-KSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL INFORMATION.
</LEGEND>
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