<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000 Commission File Number 0000887203
TOWNE BANCORP, INC.
(Exact name of small business issuer as specified in its charter)
OHIO 34-1704637
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
16967 BG Road W, Bowling Green, Ohio 43402
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (419) 352-5601
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 periods that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
--- ---
370,761 common shares were outstanding as of March 31, 2000.
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This document contains 10 pages.
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TOWNE BANCORP, INC.
INDEX
<TABLE>
<CAPTION>
PAGE(S)
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.............................................................. 3 - 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS.............................................. 8
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................................................. 9
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS......................................... 9
ITEM 3. DEFAULTS UPON SENIOR SECURITIES................................................... 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................... 9
ITEM 5. OTHER INFORMATION................................................................. 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................................. 9
SIGNATURES......................................................................................... 10
</TABLE>
<PAGE> 3
PART I
ITEM 1. FINANCIAL STATEMENTS
TOWNE BANCORP, INC.
BALANCE SHEETS
MARCH 31, 2000 AND DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
---------------- ---------------
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS
Cash and due from banks $ 374,305 $ 373,351
---------------- ---------------
Total assets $ 374,305 $ 373,351
================ ===============
LIABILITIES, RESCINDABLE COMMON STOCK
AND STOCKHOLDERS' DEFICIT
LIABILITIES
Accounts payable and accrued liabilities $ 125,607 $ 73,699
---------------- ---------------
Total liabilities 125,607 73,699
---------------- ---------------
RESCINDABLE COMMON STOCK
Common stock, without par value. Authorized
800,000 shares; issued and outstanding
370,761 shares 4,482,533 4,482,533
---------------- ---------------
STOCKHOLDERS' DEFICIT
Accumulated deficit (4,233,835) (3,862,266)
---------------- -------------
Total stockholders' deficit (4,233,835) (3,862,266)
---------------- ---------------
Total liabilities, rescindable
common stock and stockholders' deficit $ 374,305 $ 729,471
================ ===============
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 4
TOWNE BANCORP, INC.
STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
------------------------------
2000 1999
------------- -------------
<S> <C> <C>
INTEREST INCOME
Investment securities $ 2,406 $ 4,235
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Total interest income 2,406 4,235
NON-INTEREST EXPENSES
Other operating expenses 53,360 102,033
------------- -------------
Total non-interest expenses 53,360 102,033
------------- -------------
Net loss $ (50,954) $ (97,798)
============= =============
Comprehensive loss $ (50,954) $ (97,798)
============= =============
PER SHARE
Net loss $ (.14) $ (.26)
============= ==============
Comprehensive loss $ (.14) $ (.26)
============= ==============
Average common shares outstanding 370,761 370,761
============= ==============
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 5
TOWNE BANCORP, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
------------------------------
2000 1999
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (50,954) $ (97,798)
Adjustment to reconcile net loss to net cash
used in operating activities:
Increase (decrease) in accounts payable and accrued liabilities 51,908 (484)
------------- -------------
Net cash provided by (used in) operating activities 954 (98,282)
------------- -------------
Net increase (decrease) in cash and cash equivalents 954 (98,282)
CASH AND CASH EQUIVALENTS
At beginning of period 373,351 729,471
------------- -------------
At end of period $ 374,305 $ 631,189
============= =============
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 6
TOWNE BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
NOTE 1-FINANCIAL STATEMENTS
The financial statements have been prepared by Towne Bancorp, Inc.
("the Company") without audit. In the opinion of management, all
adjustments necessary to present fairly the Company's financial
position, results of operations and changes in cash flows have been
made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. The results for the period
ended March 31, 2000 are not necessarily indicative of results for the
full year.
Until June, 1998, the Company owned all of the voting shares of Towne
Bank (Bank), an Ohio-Chartered bank organized in 1995. In June, 1998,
the Company sold the Bank, which was its only subsidiary. The proceeds
of the transaction will be used to pay ongoing expenses of the Company,
including its proposed liquidation and dissolution. The Board of
Directors of the Company plans to liquidate the Company as soon as
practical following a resolution of pending litigation. All remaining
assets of the Company, if any, will be distributed to its shareholders
at such time.
The Company does not conduct operations and is not a going concern.
Since the sale of the Bank, the Company's only activities have been
obtaining legal and other professional services for matters related to
litigation and reporting requirements.
NOTE 2-REGULATORY MATTERS
Because the Bank was sold on June 19, 1998, the Company no longer has
adequate sources of funds to pay dividends.
NOTE 3-CONTINGENT LIABILITIES - RESCINDABLE COMMON STOCK AND RELATED CLASS
ACTION LAWSUITS
The Company, as a result of federal and state securities law compliance
matters, has a contingent liability related to the sale of common stock
in its initial public offering. Notification of these securities law
compliance matters was first received from the Securities and Exchange
Commission in a letter dated February 4, 1997. The maximum contingent
liability would be the full purchase price of all 370,761 shares sold
by the Company, or approximately $4,500,000, plus interest. The common
stock issued and outstanding has been reported in the consolidated
balance sheets as "rescindable common stock." Such amount is reported
after liabilities but before stockholders' deficit. The Company does
not have adequate financial resources to fund the rescission offer if
it is allowed.
-6-
<PAGE> 7
The Company is a party to certain lawsuits. In 1998, two class action
lawsuits were filed in the U.S. District Court for the Northern
District of Ohio, Western Division, against the Company, its directors,
its corporate stock transfer agent, and (in one suit) its Directors and
Officers insurer. The two lawsuits were consolidated in early 1999. The
plaintiffs have sought class action status, however the judge has not
made a determination to certify it as a class action lawsuit. The suits
allege violation of various Federal and State laws in connection with
the Company's offering of common stock. The suits request unspecified
damages and costs.
In one of the class action lawsuits, the presiding judge ordered the
freezing of the Company's bank account with $125,000 allocated to
Huntington Trust Co., N.A. (a defendant in the suit), on an indicated
claim. After obtaining court approval, monies from the frozen account
can be withdrawn to pay current operating expenses.
Also in connection with one of the class action lawsuits, the Company
filed a cross claim against its casualty insurance carrier for breach
of contract for denying the voiding directors' and officers' liability
insurance and tail coverage. The Company seeks reinstatement of
coverage, and compensatory and punitive damages of $100,000 and
$10,000,000, respectively. The insurance carrier refunded the Company
approximately $100,000 of premiums paid to it by the Company, however,
the Company returned the money to the insurance carrier and intends to
vigorously pursue the cross claim.
The Company has agreed to indemnify its directors and officers for
costs assumed by them in connection with such lawsuits. The Company
intends to vigorously defend itself in connection with these lawsuits
The Company does not plan to liquidate until the lawsuits are settled.
NOTE 4-CONTINGENT LIABILITY - OTHER
The Company received an informal inquiry from the Securities and
Exchange Commission, Midwest Regional Office, Division of Enforcement
regarding the initial public offering of the Company's common shares.
In connection with the informal inquiry, the Division of Enforcement
has requested that the Company furnish certain documents relating to
the offering. The Company intends to fully cooperate with the informal
inquiry. In the event the Division of Enforcement determines that there
is a basis for an enforcement action and elects to pursue such an
action against the Company, its officers or directors, the defense
costs associated with, and any resulting judgments from any enforcement
action will have a material adverse affect on the Company.
NOTE 5-SALE OF BANK
On June 11, 1998, the Company signed a definitive Agreement that
provided for a capital infusion of $2,000,000 into Towne Bank, the
wholly-owned subsidiary of the Company, by Exchange Bancshares, Inc.
(EBI), Luckey, Ohio. The Company and EBI also joined the execution of a
separate Merger Agreement by and between Towne Bank and The Exchange
Bank, a wholly-owned subsidiary of EBI, dated as of June 19, 1998. The
transactions contemplated under the Agreement and the Merger Agreement
were consummated effective as of June 19, 1998, after receipt of
approval from the Ohio Division of Financial Institutions and the
Federal Reserve Bank of Cleveland. Pursuant to the terms of the
Agreement and the Merger Agreement, the Company, as a shareholder of
Towne Bank, received cash in the amount of $825,420 on June 19, 1998. A
gain of $184,866 resulted from the sale.
Under the terms of the Agreement and the Merger Agreement, an
additional $275,140 was deposited with Exchange Bank, as escrow agent,
to be held for a period of six (6) months. At the end of such six (6)
month period, assuming there has been no demonstrated breach of the
representations and warranties of the Agreement or Merger Agreement by
the Company or Towne Bank, the $275,140 held in escrow will be released
to the Company. It is not probable that the $275,140 will be
voluntarily received by the Company.
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<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company had total assets of $374,305 at March 31, 2000, an
increase of $954 compared to $373,351 at December 31, 1999. The
Company sold its bank subsidiary on June 19, 1998 as described in
Note 5 of the Notes to Financial Statements included in Item 1.
The Company reported a net loss for the three months ended March 31,
2000.
The Company is a party to certain lawsuits. In 1998, two class action
lawsuits were filed in the U.S. District Court for the Northern
District of Ohio, Western Division, against the Company, its
directors, its corporate stock transfer agent, and (in one suit) its
Directors and Officers insurer. The suits allege violation of various
Federal and State laws in connection with the Company's offering of
common stock. The suits request unspecified damages and costs.
The Company has agreed to indemnify its directors and officers for
costs assumed by them in connection with such lawsuits. The Company
intends to vigorously defend itself in connection with these
lawsuits. The Company does not plan to liquidate until the lawsuits
are settled.
Safe Harbor Statement Under the Private Securities Litigation Reform
Act of 1995
The Company cautions that any forward-looking statements (as such
term is defined in the Private Securities Litigation Reform Act of
1995) including, but not limited to, statements regarding the
Company's operations during the pendancy of litigation and the amount
of working capital needed to fund operations contained in this
report, or made by management of the Company, involves risks and
uncertainties, and are subject to change based on various important
factors. The following factors, among others, in some cases have
affected, and in the future could affect, the Company's financial
performance and actual results, and could cause actual results for
fiscal 2000 and beyond to differ materially from those expressed or
implied in any such forward-looking statements: greater than
anticipated costs associated with pending litigation, additional
claims, which could result in increased defense costs and future
capital needs. Actual results may differ materially from management
expectations.
-8-
<PAGE> 9
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to certain lawsuits. In 1998, two class action
lawsuits were filed in the U.S. District Court for the Northern
District of Ohio, Western Division, against the Company, its
directors, its corporate stock transfer agent, and (in one suit) its
Directors and Officers insurer. The two lawsuits were consolidated in
early 1999. The plaintiffs have sought class action status, however
the judge has not made a determination to certify it as a class
action lawsuit. The suits allege violation of various Federal and
State laws in connection with the Company's offering of common stock.
The suits request unspecified damages and costs.
In one of the class action lawsuits, the presiding judge ordered the
freezing of the Company's bank account with $125,000 allocated to
Huntington Trust Co., N.A. (a defendant in the suit), on an indicated
claim. After obtaining court approval, monies from the frozen account
can be withdrawn to pay current operating expenses.
Also in connection with one of the class action lawsuits, the Company
filed a cross claim against its casualty insurance carrier for breach
of contract for denying the voiding directors' and officers'
liability insurance and tail coverage. The Company seeks
reinstatement of coverage, and compensatory and punitive damages of
$100,000 and $10,000,000, respectively. The insurance carrier
refunded the Company approximately $100,000 of premiums paid to it by
the Company, however, the Company returned the money to the insurance
carrier and intends to vigorously pursue the cross claim.
The Company has agreed to indemnify its directors and officers for
costs assumed by them in connection with such lawsuits. The Company
intends to vigorously defend itself in connection with these lawsuits
The Company does not plan to liquidate until the lawsuits are
settled.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
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) Exhibit 27 - Financial data schedule.
(B) None.
-9-
<PAGE> 10
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.
Towne Bancorp, Inc.
---------------------------------------
Registrant
Dated May 15, 2000 /s/ John P. Weinert
-------------------- ---------------------------------------
John P. Weinert, Chairman
Dated May 15, 2000 /s/ Jerome C. Bechstein
-------------------- ---------------------------------------
Jerome C. Bechstein, President and CEO
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<PAGE> 11
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-01-2000
<CASH> 374,305
<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> 374,305
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 125,607
<LONG-TERM> 0
0
0
<COMMON> 4,482,533
<OTHER-SE> (4,233,835)
<TOTAL-LIABILITIES-AND-EQUITY> 374,305
<INTEREST-LOAN> 0
<INTEREST-INVEST> 2,406
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 2,406
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 0
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 53,360
<INCOME-PRETAX> (50,954)
<INCOME-PRE-EXTRAORDINARY> (50,954)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (50,954)
<EPS-BASIC> (.14)
<EPS-DILUTED> (.14)
<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>
