<PAGE>
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, 1997
Commission File Number 0-21912
First Chesapeake Financial Corporation
(Exact name of registrant as specified in its charter)
Virginia 54-1624428
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9100 Arboretum Parkway, Suite 160
Richmond, Virginia 23236
(Address of principal executive offices)
(Zip code)
(804)320-0160
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 [X] No [ ]
The number of shares of common stock of registrant outstanding as of May 12,
1997 was 4,621,550 shares.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
FIRST CHESAPEAKE FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, December 31,
1997 1996
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 899,858 $ 1,120,065
Mortgage loans held for sale 17,090 91,532
Note receivable 64,000 25,000
Furniture and equipment 302,917 361,205
Organization costs 5,168 10,338
Loans to related parties 100,000 100,000
Other assets 273,020 234,895
------------ ------------
TOTAL ASSETS $ 1,662,053 $ 1,943,035
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Notes payable $ 33,009 $ 33,009
Accounts payable 24,816 63,028
Accrued expenses 3,103 25,000
------------ ------------
Total liabilities 60,928 121,037
Stockholders' equity
Convertible preferred stock; no par value;
$1 stated value per share; 5,000,000 shares
authorized; no shares issued - -
Common stock; no par value; 10,000,000 shares
authorized; 4,621,550 shares issued and
outstanding 10,542,458 10,542,458
Common stock warrant 50,000 50,000
Deficit ( 8,991,333) ( 8,770,460)
------------ ------------
Total stockholders' equity 1,601,125 1,821,998
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,662,053 $ 1,943,035
============ ============
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
FIRST CHESAPEAKE FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
REVENUES
Mortgage origination $ 19,184 $ 7,539
Servicing fees 1,969 2,104
Gain (loss) on sales of loans ( 6,326) 53,798
Gain on sale of servicing 29,043 -
Interest income 15,893 44,916
Interest expense ( 1,936) ( 24,450)
Other 585 11,776
------------ ------------
Total revenues 58,412 95,683
OPERATING EXPENSES
Compensation and employee benefits 140,819 198,278
Professional fees 46,330 54,302
Commitment fees 1,343 17,558
Occupancy 19,005 38,642
Depreciation and other amortization 35,583 38,083
Other operating expenses 36,203 79,780
------------ ------------
Total operating expenses 279,283 426,643
------------ ------------
NET LOSS $ 220,871 $ 330,960
============ ============
LOSS PER SHARE $ 0.05 $ 0.07
============ ============
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
FIRST CHESAPEAKE FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended March 31,
-----------------------------
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $( 220,871) $( 330,960)
Adjustments
Depreciation and other amortization 35,583 38,083
Net decrease (increase) in loans
held for sale 74,442 (1,067,885)
Decrease in receivable from loan sales - 798,285
Loss on sale of fixed assets 21,008 409
Loss on sale of real estate owned - 4,625
Increase in other assets ( 38,126) ( 3,783)
Decrease in trade accounts payable ( 38,213) ( 8,561)
Accrued expenses, net ( 21,897) ( 51,689)
------------ ------------
Net cash absorbed by operating activities ( 188,074) ( 621,476)
------------ ------------
INVESTING ACTIVITIES
Purchase of furniture and equipment ( 85) 1,597
Proceeds from sale of fixed assets 6,952 276
Extensions of credit to related parties - ( 100,000)
Repayments of notes receivable - 35,000
Purchase of notes receivable ( 39,000) -
Proceeds from sale of real estate - 293,375
Proceeds from sale of servicing, net of
selling expenses - 179,802
------------ ------------
Net cash provided (absorbed) by
investing activities ( 32,133) 410,050
------------ ------------
FINANCING ACTIVITIES
Repayment of bank loans - ( 1,742)
Net decrease in warehouse line of credit - 247,612
------------ ------------
Net cash provided by financing activities - 245,870
------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ( 220,207) 34,444
Cash and cash equivalents at beginning
of period 1,120,065 1,833,216
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 899,858 $ 1,867,660
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash payments of interest expense $ 1,936 $ 24,450
============ ============
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
FIRST CHESAPEAKE FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 310(b) of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, consisting
only of normal recurring adjustments, considered necessary for a fair
presentation have been included. Operating results for the three months ended
March 31, 1997 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1996.
2. Loan Servicing
During the three months ended March 31, 1997, the Company sold all of
its loan servicing. Prior to this sale, the Company serviced both conforming
and nonconforming single family first mortgage loans.
In connection with its loan servicing activities, the Company made
certain payments of property taxes and insurance premiums and advances certain
principal and interest payments to investors prior to collecting them from
specific mortgagors.
3. Loss Per Share
Loss per share for the three months ended March 31, 1997 and 1996 was
computed by dividing the net loss by 4,621,550 common shares representing the
aggregate of the weighted average number of common shares outstanding during the
periods. Outstanding stock options and warrants have been excluded from loss
per share calculations as their exercise prices exceed the average market price
for the three months ended March 31, 1997 and 1996 or their inclusion would be
anti-dilutive.
<PAGE>
FIRST CHESAPEAKE FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
4. Litigation
On June 6, 1996, Robert L. Nichols and John J. Morrissey ("Plaintiffs") filed a
lawsuit in the Circuit Court of Fairfax County, Virginia against the Company and
two of its principal officers, Max E. Gray and C. Harril Whitehurst, Jr.
("Defendants"), in the matter captioned "Robert L. Nichols, et al. v. Max E.
Gray, et al", Law No. 152839 ("the Lawsuit"). Plaintiffs are former owners and
employees of Waterford Mortgage Corporation ("Waterford"), a former wholly owned
subsidiary of the Company which ceased operations during June of 1995. During
March of 1994, Waterford was merged into a subsidiary of First Chesapeake
Financial Corporation and became a wholly owned subsidiary of the Company.
Plaintiffs allege in their Lawsuit, among other things, that: (1) Defendants
made fraudulent representations to Plaintiffs and fraudulently failed to
disclose certain matters to Plaintiffs which induced Plaintiffs to merge
Waterford into the Company in exchange for stock in the Company; and
(2) Defendants breached various contractual agreements allegedly made to
Plaintiffs in connection with the merger or arising out of Plaintiffs'
employment as officers of Waterford after the merger. Plaintiffs seek alleged
compensatory damages in the range of approximately $1.3 million to $1.9 million,
unspecified punitive damages, and reimbursement of their costs, expenses and
legal fees in filing suit. The Lawsuit is still in the discovery stage and the
probable outcome of the case cannot be determined. Trial is scheduled for
September 29 through October 2, 1997. The Company and its officers have denied
Plaintiffs' allegations and are vigorously contesting the Lawsuit. No provision
for any liability that may result from the action has been made in the financial
statements.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial Condition
Assets of the Company decreased from $1,943,035 at December 31, 1996
to $1,662,053 at March 31, 1997, a decrease of $280,982 or 14%. This decrease
was primarily due to the Company's loss of $220,871 for the three month period,
and the paydown of $60,109 in accounts payable and accrued expenses. With this
paydown of liabilities, liabilities at March 31, 1997 amount to $60,928. Net
worth after the loss of $220,871 is $1,601,125. At March 31, 1997, the Company
had liquid assets of $899,858 and current liabilities of $60,928.
Results of Operations
Current Period Performance and Earnings Outlook
The Company incurred a loss of $220,871 for the three months ended
March 31, 1997 as compared to a loss of $330,960 for the same period in 1996.
The improvement in operations is a result of the closure of the Company's
mortgage banking activities. As discussed more fully in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1996, the Company has
closed all its mortgage banking activities and is actively seeking operational
opportunities in the financial services industry or other suitable investment
opportunities. However, no assurance can be given that management will be able
to find a suitable investment opportunity or attain profitable operations.
Comparison of Three Months Ended March 31, 1997 to Three Months Ended
March 31, 1996
Revenues. Total revenues for the three months ended March 31, 1997
amounted to $58,412 representing a decrease of $37,271, or 39%, when compared
to the same period in 1996. The Company's principal sources of revenue have
been fees from mortgage origination, gains on loan sales, and servicing
activities. The Company experienced the decrease in revenues as a result of the
closure of its mortgage banking activities. Until the Company is able to find
a suitable business opportunity following its cessation of all mortgage banking
activities, its only source of revenue going forward will be interest income
arising from investment of its cash balances.
Expenses. Total expenses for the three months ended March 31, 1997
amounted to $279,283 as compared to $426,643 for the same period in 1996. This
decrease is attributable to the reduction in overhead associated with the
closure of the Company's mortgage banking activities.
<PAGE>
Liquidity and Capital Resources
The Company's primary liquidity requirements have been the funding of
its mortgage banking operations, the net cost of mortgage loan originations and
the purchase of mortgage loan servicing rights. With the closure of its
mortgage banking operations, the Company's liquidity requirements will be the
funding of its remaining overhead expenses and any new business opportunities
that may be approved by the Board of Directors. The Company may have to seek
additional capital infusion to take advantage of new business opportunities.
While the Company believes it can attract the necessary capital to provide the
liquidity necessary to pursue new business opportunities, no assurance can be
given that it will in fact be able to do so.
Cash and cash equivalents at March 31, 1997 amounted to $899,858 as
compared to $1,120,065 at December 31, 1996.
During the three months ended March 31, 1997, the Company's operating
activities utilized $188,074 as compared to utilizing $621,476 in the first
three months of 1996. For the three months ended March 31, 1996, the
utilization of cash reflects the increase in loans held for sale without regard
to the associated increase in the warehouse line of credit reflected in
financing activities. Netting the increase in the warehouse line of credit
against the increase in loans held for sale provides a better picture of
utilization of funds from operating activities. If the increase in the
warehouse line of credit is netted against the increase in loans held for sale
for 1996, the Company's operating activities utilized $373,864 in 1996 as
compared to the utilization of $188,074 in 1997. The utilization of cash
resources from operating activities in 1997 and 1996 resulted primarily from the
Company's losses in those periods.
The Company's investing activities utilized $32,133 in cash resources
during the three months ended March 31, 1997 as compared to providing
$410,050 for the same period in 1996. In 1996, the sale of the Company's
servicing portfolio provided $293,375 in cash resources and the sale of real
estate provided $179,802 in cash resources. In 1997, the Company's utilization
of cash from investing activites arose primarily from the purchase of a note
receivable.
Financing activities had little impact on cash flows for the three
months ended March 31, 1997 and 1996.
As of March 31, 1997, the Company had cash and cash equivalents of
$899,858. Management believes that the Company's current liquidity and capital
resources are adequate to meet its near-term goals, however, the Company may
have to seek additional capital infusion to take advantage of new business
opportunities. While the Company believes it can attract the necessary capital
to provide the liquidity necessary to pursue new business opportunities, no
assurance can be given that it will in fact be able to do so.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On June 6, 1996, Robert L. Nichols and John J. Morrissey ("Plaintiffs")
filed a lawsuit in the Circuit Court of Fairfax County, Virginia against
the Company and two of its principal officers, Max E. Gray and C. Harril
Whitehurst, Jr. ("Defendants"), in the matter captioned "Robert L.
Nichols, et al. v. Max E. Gray, et al", Law No. 152839 ("the Lawsuit").
Plaintiffs are former owners and employees of Waterford Mortgage
Corporation ("Waterford"), a former wholly owned subsidiary of the
Company which ceased operations during June of 1995. During March of
1994, Waterford was merged into a subsidiary of First Chesapeake
Financial Corporation and became a wholly owned subsidiary of the
Company. Plaintiffs allege in their Lawsuit, among other things, that:
(1) Defendants made fraudulent representations to Plaintiffs and
fraudulently failed to disclose certain matters to Plaintiffs which
induced Plaintiffs to merge Waterford into the Company in exchange for
stock in the Company; and (2) Defendants breached various contractual
agreements allegedly made to Plaintiffs in connection with the merger
or arising out of Plaintiffs' employment as officers of Waterford after
the merger. Plaintiffs seek alleged compensatory damages in the range
of approximately $1.3 million to $1.9 million, unspecified punitive
damages, and reimbursement of their costs, expenses and legal fees in
filing suit. The Lawsuit is still in the discovery stage and the
probable outcome of the case cannot be determined. Trial is scheduled
for September 29 through October 2, 1997. The Company and its officers
have denied Plaintiffs' allegations and are vigorously contesting the
Lawsuit. No provision for any liability that may result from the action
has been made in the financial statements.
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
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a. None
b. Reports on Form 8-K. On February 13, 1997, the Company filed an 8-K
reporting the cessation of operations of the Company's wholly owned
subsidiary, American Mortgage Express, Inc., and the resignations of
John D. Mazzuto and Robert L. Suthard as directors of the Company.
On March 11, 1997, the Company filed an 8-K reporting the Company's
withdrawal of its Application for Change of Control with the Office
of Thrift Supervision with respect to the Company's proposed
acquisition of a federal savings bank. No other reports on Form 8-K
were filed during the period.
<PAGE>
FIRST CHESAPEAKE FINANCIAL CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
FIRST CHESAPEAKE FINANCIAL CORPORATION
Registrant
Date: May 15, 1997 By Max E. Gray
Max E. Gray
Chairman, President and
Chief Executive Officer
Date: May 15, 1997 By C. Harril Whitehurst, Jr.
C. Harril Whitehurst, Jr.
Executive Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF FIRST CHESAPEAKE FINANCIAL CORPORATION FOR
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 899858
<SECURITIES> 0
<RECEIVABLES> 181090
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 649750
<DEPRECIATION> 346833
<TOTAL-ASSETS> 1662053
<CURRENT-LIABILITIES> 60928
<BONDS> 0
0
0
<COMMON> 10592458
<OTHER-SE> (8991333)
<TOTAL-LIABILITY-AND-EQUITY> 1601125
<SALES> 60348
<TOTAL-REVENUES> 60348
<CGS> 279283
<TOTAL-COSTS> 279283
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1936
<INCOME-PRETAX> (220871)
<INCOME-TAX> 0
<INCOME-CONTINUING> (220871)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (220871)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
