UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

                Annual Report Pursuant to Section 13 or 15(d) of
             the Securities Exchange Act of 1934 for the fiscal year
                             ended December 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.)

                              12 East Oregon Avenue
                        Philadelphia, Pennsylvania 19148
                    (Address of principal executive offices)

                                 (215) 755-5691
              (Registrant's telephone number, including area code)

        Securities registered pursuant to Section 12(b) of the Act: None

    Securities registered pursuant to section 12(g) of the Act: Common stock,
                                  no par value

     Check  whether  the issuer (1) filed all  reports  required  to be filed by
Section 13 or 15(d) of the Securities 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 the  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]

     The issuer's revenues for its most recent fiscal year were: $103,771.00.

     The aggregate market value of the issuer's voting stock held as of November
25, 1998, by nonaffiliates of the issuer was approximately $3,450,000.

     As of November 25, 1998,  issuer had 5,775,000  shares of its no par common
stock outstanding.

     Documents Incorporated by Reference:  None.

         Transitional Small Business Disclosure Format.  Yes [ ] No [X]

<PAGE>



SUPPLEMENTAL INFORMATION

         Since  the end of 1997,  the  Company  substantially  restructured  its
business  operations.  The reader is advised  that the  Company is  concurrently
filing  10-QSBs for the first three  quarters of 1998.  The reader is  cautioned
that prior to making any  investment  decisions,  the  reader  should  carefully
review all publicly available  information,  including the Company's 10-QSBs for
the first three quarters of 1998.

PART I

ITEM 1.  DESCRIPTION OF BUSINESS

BUSINESS DEVELOPMENT

         First Chesapeake Financial Corporation (the "Company") was incorporated
in  Virginia in 1992.  The  Company has not been the subject of any  bankruptcy,
receivership  or  similar  proceeding.  In  the  past  years,  the  Company  has
consolidated by closing of all its mortgage-related subsidiaries.  Recently, the
Company   has   invested  in  three   companies   which  are  outside  its  core
mortgage-related  business.  Two of the business are wholly-owned  subsidiaries,
and one is sixty percent (60%) owned by the Company.

INDUSTRY OVERVIEW

General

         Until the 1st  quarter of 1997,  the  Company  engaged in the  mortgage
banking  business.  In 1997, the Company closed all mortgage banking  operations
after several years of substantial losses.

         Effective  December  15,  1997,  the former  President  of the  Company
resigned and Mr. Richard N.  Chakejian,  Jr. was appointed to serve as President
of the Company.  With the change of  management,  the Company has  broadened its
focus and is currently engaged in the  investigation,  development and operation
of several  early  stage  businesses.  At  December  31,  1997,  the Company was
actively engaged in the following businesses:

         National  Archives,  Inc.  In late  1995,  the  Company  acquired a 60%
interest  in a startup  company,  National  Archives,  Inc.,  formerly  known as
National  Business  Archives,   Inc.  ("National   Archives"),   a  Pennsylvania
corporation,  for a purchase price of $150,000 in cash and certain furniture and
equipment valued at approximately  $38,000. This acquisition was funded from the
Company's  cash-on-hand and with fixed assets from the closure of its subsidiary
Waterford Mortgage  Corporation  ("Waterford").  National Archives is located in
Philadelphia,  Pennsylvania and provides document archive services from a rented
warehouse. While management believes there is a good demand for document archive
services in the Philadelphia area from local government and businesses, National
Archives  has been slow in  attracting  new  customers  and has not yet attained
profitable  operations.  National  Archives is  developing  proprietary  records
management technology. Management of the Company believes that National Archives
has the realistic prospect of profitable operations.

          Premiere Quality Foods,  Inc.  ("Premiere  Quality Foods") is a wholly
owned  subsidiary  of the Company.  Premiere  Quality Foods was organized by the
Company in 1997 to acquire, package,  distribute and sell imported Spanish olive
oil and related  specialty foods products to the growing North American  market.
Premiere  Quality Foods has secured  exclusive rights to import olive oil from a
leading Spanish  cooperative into the North American Free Trade Zone through the
Port of Philadelphia. Sales and marketing


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<PAGE>

efforts commenced early in 1998 and the initial orders of olive oil products are
being  introduced to several  regional and national  distributors and retailers.
While  still in the  early  stage  of its  development  at  December  31,  1997,
management of the Company believes that Premiere Quality Foods has the realistic
prospect of successful operations.

          Premiere Chemical Products,  Inc.  ("Premiere Chemical Products") is a
wholly-owned subsidiary of the Company. Premiere Chemical Products was organized
by the  Company  in 1997 to  develop,  manufacture,  distribute  and  market its
proprietary formulation of laundry detergent and related products. Marketing and
initial  sales  efforts  commenced  early in 1998 and market  response  has been
favorable.  Premiere Chemical  Products is currently  expanding its product line
from soap products to include various pre-treatments,  stain removers, starches,
and  related  products.  While still in the early  stage of its  development  at
December 31, 1997,  management of the Company  believes  that Premiere  Chemical
Products has the realistic prospect of successful operations.

          Fedeoliva International,  Ltd. ("Fedeoliva") is a 50% owned subsidiary
of the Company  which was closed in 1997.  Fedeoliva  was  organized  in 1997 to
acquire  an  ownership  interest  in a  joint  venture  from  Hampton  Financial
Services,  Inc., a company controlled by Mark Mendelson, who was at that time an
outside Director of the Company. All activities of Fedeoliva were transferred to
Premiere Quality Foods upon the formation of that subsidiary in 1997.

         In  addition  to these early  stage  business  activities,  the Company
intends  to  aggressively  seek  out  and  pursue  other  synergistic   business
opportunities  (whether  early stage or mature)  and  investments.  However,  no
assurance  can be given that the Company  will be  successful  in its efforts to
acquire profitable business opportunities and investments.

Forward-Looking Statements

     This  Quarterly  Report on Form  10-KSB  contains  certain  forward-looking
statements  with respect to the financial  condition,  results of operations and
business of the Company. These forward-looking  statements involve certain risks
and  uncertainties.  When used in this Quarterly Report on Form 10-KSB or future
filings by the Company  with the  Securities  and  Exchange  Commission,  in the
Company's  press releases or other public or shareholder  communications,  or in
oral statements made with the approval of an authorized  executive officer,  the
words or phrases "will likely result",  "are expected to", "will continue",  "is
anticipated",  "estimate",  "project",  "believe",  or similar  expressions  are
intended  to  identify  "forward-looking  statements"  within the meaning of the
Private Securities  Litigation Reform Act of 1995. The Company wishes to caution
readers not to place  undue  reliance  on any such  forward-looking  statements,
which speak only as of the date made, and to advise readers that various factors
including regional and national economic conditions, changes in levels of market
interest  rates,  credit  risks  of  lending  activities,  and  competitive  and
regulatory  factors could affect the Company's  financial  performance and could
cause the Company's actual results for future periods to differ  materially from
those anticipated or projected.

     The Company does not undertake and specifically disclaims any obligation to
publicly  release  the  result  of  any  revisions  which  may  be  made  to any
forward-looking   statements  to  reflect  the   occurrence  of  anticipated  or
unanticipated events or circumstances after the date of such statements.

Mortgage Banking Business

         The Company was  incorporated  in the  Commonwealth  of Virginia in May
1992 to engage in the  mortgage  banking  business.  The  Company  acquired  its
initial  mortgage  loan  servicing  portfolio  in  December  1992 and  commenced
servicing  operations in January 1993. As of December 31, 1997,  the Company did
not have any operating  activities in the mortgage business.  Prior to acquiring
its initial  servicing  portfolio,  the Company was in the development stage and
management of the Company  focused on  establishing  the  infrastructure  of the
Company  consisting  primarily of obtaining agency  approvals  (FNMA,  FHLMC and
HUD),  hiring  employees,  establishing  office  facilities,  and  obtaining the
necessary hardware and software to perform mortgage loan servicing operations.

         The Company's  original  business plan was to be a servicer of mortgage
loans  only,  purchasing  mortgage  loan  servicing  either  through  brokers or
directly  from  holders of such  servicing.  During  1992 and 1993,  the Company
purchased the rights to service  approximately 6,750 loans with unpaid principal
balances at the time of purchase of approximately $718,888,000.

         In early 1993, management believed that to fully capitalize on mortgage
banking  opportunities it would be necessary to also originate mortgage loans as
well as service them. Management believed that the ability to originate mortgage
loans would greatly enhance its ability to accumulate mortgage loan servicing at
the  least  possible  cost  and to  replace  mortgage  loan  servicing  that may
dissipate through  unanticipated  prepayments.  Additionally,  profit margins on
mortgage loan  originations were attractive.  Accordingly,  the Company began to
actively  seek an  origination  opportunity  and, in October  1993,  executed an
Agreement and Plan of Merger,  effective as of September  30, 1993,  for a stock
for  stock  merger  with  Waterford  Mortgage   Corporation   ("Waterford"),   a
residential  mortgage loan origination  operation  located in McLean,  Virginia.
Waterford  originated loans in Virginia,  Washington,  D.C.,  Maryland and North
Carolina.

Mortgage Loan Servicing

         The  Company's  loan  servicing   activities  included  collecting  and
remitting  loan payments,  accounting  for principal and interest,  reporting to
investors,  collecting and holding escrow funds for payment of mortgage  related
expenses  such as taxes and  insurance,  making  advances to  investors to cover
delinquent  payments,  making  inspections  of mortgage  properties as required,
contacting  delinquent   mortgagors,   supervising   foreclosures  and  property
dispositions in the event of unremedied  defaults,  and generally  administering
the loans.  The Company received a fee for servicing  mortgage loans,  generally
ranging from 0.25% to 0.50% per annum on the declining unpaid principal balances
of the loans.

         The Company  obtained most of its mortgage loan servicing  through bulk
purchases  from the  originators  of the  loans.  In  purchasing  mortgage  loan
servicing rights, the Company performed many different tasks. First, the Company
analyzed the servicing  portfolio  characteristics  in relation to the Company's
financial expectations and submitted an offer to purchase. The Company performed
this analysis  utilizing a computer  model which values the servicing  portfolio
given certain  assumptions  principally  related to prepayment  expectations and


                                       3
<PAGE>

costs to service. If the offer was accepted,  then a due diligence review of the
portfolio  was  conducted  to  verify  the   portfolio's   characteristics   and
parameters. Once this was successfully completed, a Purchase and Sale Agreement,
and if needed,  an Interim  Servicing  Agreement  was  negotiated.  After  these
agreements  were  completed,  other  documents  were  secured such as the Agency
Approval of Transfer attorney's  opinions,  Certificates of Good Standing,  etc.
The transaction  cost varied with the size of the portfolio,  however,  the cost
for closing and related  expenses  were not  generally  material to the purchase
price.

         The Company experienced numerous problems with its loan portfolio.  The
Company addressed these uncertainties as follows. First, declining mortgage loan
interest rates  generally  result in  prepayments  of mortgage  loans  occurring
faster than expected as mortgagors  take  advantage of lower  interest  rates by
refinancing their mortgage.  The Company entered into option contracts on thirty
year U.S.  Treasury bonds that increase in value if interest rates decline in an
attempt to offset write-offs resulting from unanticipated prepayments.

         The volume of servicing the Company had attained was not profitable and
the Company  determined  that  building the  servicing  portfolio to a size that
would provide reasonable returns was becoming less feasible.  First, with rising
interest rates and the resultant decline in prepayments,  the price of servicing
was  increasing  substantially.  The demand and therefore the price of servicing
was also being driven up due to the decline in available product. Second, due to
the lack of  origination  volume,  the Company could not create an  economically
viable amount of its own servicing.

         Faced with these factors,  management  believed it was in the Company's
best  interest to sell its existing  servicing  portfolio  and payoff its credit
facility.  Accordingly,  on October 18, 1994,  the Company  executed a letter of
intent  with  MCA  Mortgage   Corporation   ("MCA")  whereby  the  Company  sold
substantially  all of its servicing rights to MCA. The date of sale was November
30, 1994 and transfer of the servicing  rights was completed by May 1, 1995. The
sale  resulted in a loss of  approximately  $540,000,  but provided  cash to the
Company of  approximately  $2,500,000  after  payoff of its credit  facility and
expenses associated with the sale.

Mortgage Loan Origination

         The Company, through its wholly owned subsidiary Waterford,  originated
both conventional and nonconforming mortgage loans. The Company's guidelines for
underwriting the conventional  conforming loans it originated  complied with the
criteria  established  by FNMA or  FHLMC.  The  Company  was  also  approved  to
originate  loans  insured by the FHA or  guaranteed  by the VA.  Waterford  also
originated  conventional  nonconforming  mortgage loans (loans for single family
homes  that do not meet  the  criteria  established  by FNMA or  FHLMC)  and the
underwriting guidelines and property standards used for such loans were based on
the underwriting  standards  required by  institutional  investors to which such
loans were sold.

         All of Waterford's  mortgage loan  origination was done from one office
in McLean, Virginia. During 1995, Waterford originated approximately $51,000,000
in mortgage loans  primarily in  Washington,  D.C. and in the states of Virginia
and Maryland.  This  compares  with  $113,000,000  in 1994 and  $125,000,000  in
originations in 1993.

         Management's  plan in the  acquisition  of Waterford  was to expand the
Waterford  operation  to become a  significant  originator  of  mortgage  loans.
Accordingly,  during  1994 and  into  the  first  quarter  of  1995,  management
recruited  personnel who had the necessary industry  experience to significantly
expand mortgage loan production and invested heavily in additional  office space
and fixed assets for Waterford.

         In  making  a  substantial  investment  in its  capacity  to  originate
mortgage loans,  management  believed this investment would generate  sufficient
mortgage loan origination volume to enable the Company to be profitable in 1994.
However,  as  discussed  previously,  the volume of  mortgage  loans  nationally
declined  significantly  during 1994 and into 1995 due to rising  interest rates
and the Company suffered significant  operating losses during these years as did
many other independent mortgage banking companies.  In response to these losses,
the Company took steps to reduce overhead  expenses,  including the reduction of
employees.  However,  the  losses  continued  into 1995  because  the  volume of
origination  business  being  generated  by  Waterford  could not support even a


                                       4
<PAGE>

minimum amount of overhead expenses. Given the continued losses and inability to
substantially  increase origination volume,  management made the decision in the
second  quarter of 1995 to  significantly  reduce its overhead  associated  with
mortgage  loan  production  and closed  Waterford  (the  Company  also closed an
inactive  mortgage  loan  origination  subsidiary,   First  Chesapeake  Mortgage
Corporation).  The Company recorded  restructuring costs of $450,000 during 1995
to recognize expected costs associated with this restructuring. During 1996, the
Company  paid   approximately   $178,000  in   restructuring   related  expenses
(consisting primarily of payouts on employment contracts).

         To the extent that general demand for conforming mortgage loans remains
at or below  its  current  level  and  price  competition  within  the  industry
continues, future operating margins for the conforming mortgage loan origination
business will remain under pressure.

         Given  the  highly   competitive  state  of  the  conforming   mortgage
origination market and management's  belief that it could not compete profitably
in  traditional  mortgage  banking  activities,  the  Company  has  had to  seek
alternative business strategies in an attempt to achieve profitable  operations.
One strategy the Company pursued was the origination of  nonconforming  mortgage
loans where the borrower had some credit issue that did not allow them to obtain
traditional  mortgage  financing  (commonly  referred to as "B paper" loans). In
December 1994, the Company formed a subsidiary,  American Mortgage Express, Inc.
("AME"),  to  originate B paper loans and hired an  individual  with over twenty
years  experience with this type of lending to run the  operations.  During 1995
and  1996,  AME  struggled  to  attain  profitable  operations,  and in fact was
profitable  for six  months in 1995.  However,  AME was never able to attain the
level of loan originations  necessary to maintain  profitability  even though it
hired many qualified individuals and obtained the necessary warehouse financing.
Accordingly,  the directors of the Company  determined to cease AME's operations
effective as of January 30,1997.

         Also, on December 11, 1995, the Company  executed a Letter of Intent to
acquire  all of the  outstanding  stock of a federal  savings  bank  located  in
Florida for a purchase  price of  approximately  $5.5  million.  Management  has
extensive  experience  in  operating  financial  institutions  and  believed the
acquisition of a savings bank would provide the  operations  necessary to attain
profitability. Consummation of this transaction was subject to the completion of
due  diligence  procedures,  execution  of a  definitive  acquisition  agreement
between parties, approval by both boards of directors and regulatory approval. A
Stock Purchase  Agreement  (the  "Agreement")  was executed  between the parties
which expired on September  30, 1996 before the Company could obtain  regulatory
approval of the transaction from the Office of Thrift  Supervision.  The parties
negotiated  an  extension  of the  Agreement to December 31, 1996 to provide the
Company with  additional  time to obtain  regulatory  approval.  The Company was
unable to obtain  regulatory  approval  by  December  31, 1996 and was unable to
negotiate an extension of the  Agreement  with the savings  bank's  stockholders
past December 31, 1996. As a result,  on March 5, 1997, the Company withdrew its
Application  for Change of Control  with the  Office of Thrift  Supervision.  At
December 31, 1996, the Company wrote off  approximately  $219,000 in capitalized
expenses related to this failed transaction.

Competition

         All of the Company's current businesses are faced with a large group of
competitors.  The mortgage banking business is highly competitive,  and consists
of several  well-capitalized  national  firms and  thousands  of  smaller  loan
brokers.  The document archive services in the Philadelphia  market is dominated
by a few large,  well-capitalized  national  competitors  and  several  regional
archival service  companies,  with moderate  barriers of entry for potential new
competition.  The specialty foods import and distribution market is dominated by
a small number of international  companies,  with several small and medium-sized
firms pursuing market share.  The laundry  detergent and related products market
is intensely competitive at the retail consumer level and moderately competitive
at the wholesale/institutional market. The Company believes, however, that there
is the opportunity for the Company's  subsidiaries to grow and gain market share
in their respective industries.  However, most of the Company's competitors have
financial resources that are substantially greater than those of the Company.

Sources and Availability of Raw Materials

         The raw materials used in the Company's  wholly-owned  subsidiaries are
in ready supply.  Premiere Quality Foods is dependent on maintaining a supply of
olive  oil  from a  leading  Spanish  cooperative  under  its  exclusive  import
agreement. Failure to maintain this supply could materially and adversely affect
the  operation of the  subsidiary.  Premiere  Chemical  Products'  detergent and


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<PAGE>

related products are contract manufactured by large,  well-established  contract
manufacturers  using readily available  compounds.  The Company does not foresee
any  difficulty  in the  continuing  availability  of  the  raw  materials  this
subsidiary  needs to operate.  Raw materials are not applicable to the Company's
mortgage banking or document archives businesses.

Regulation

         Mortgage  banking  is a highly  regulated  industry.  The  industry  is
subject to the rules and regulations of, and examinations by, HUD, FNMA,  FHLMC,
FHA,  GNMA  and  the  VA  and  state  regulatory  authorities  with  respect  to
originating,  processing,  underwriting,  selling,  securitizing  and  servicing
residential  mortgage  loans.  In  addition,  there are other  federal and state
statutes and regulations affecting such activities. These rules and regulations,
among other things, govern how mortgage servicers process a mortgagor's payment,
require an annual  analysis of the Company's  escrow  balances and also regulate
the procedure for making  investor  payments.  There are also numerous rules and
regulations  imposed on mortgage loan  originators.  These rules and regulations
require  originators  to  obtain or  maintain  licenses,  establish  eligibility
criteria for mortgage loans,  prohibit  discrimination,  provide for inspections
and appraisals of properties,  require credit reports on prospective  borrowers,
regulate payment  features and, in some cases, fix maximum interest rates,  fees
and loan amounts.  Failure to comply with these  requirements can lead to a loss
of approved status,  termination of servicing contracts without  compensation to
the servicer, demands for indemnification or loan repurchases,  class action law
suits and  administrative  enforcement  actions.  There can be no assurance that
more restrictive  laws, rules and regulations will not be adopted in the future,
which could make compliance more difficult or expensive,  and to the extent that
the Company expands its loan origination activities in the future,  restrict the
Company's ability to originate or sell mortgage loans, further limit or restrict
the  amount of  interest  and other  charges  earned  from loans  originated  or
purchased  by the  Company,  or  otherwise  adversely  affect  the  business  or
prospects of the Company.

         The  Company's  non-mortgage  banking  products  and  services  are not
subject to intense governmental scrutiny.  While the FDA has certain regulations
in place with regard to the food  industry,  and there are certain  restrictions
involved with importing and exporting goods,  they are not viewed as substantial
restrictions to the Company's business. The costs associated with complying with
environmental laws are not currently deemed to be substantial.

Employees

         As of December 31, 1997, the Company had five employees,  substantially
all  of  whom  were  full-time  employees  at  the  Company's   headquarters  in
Philadelphia,  Pennsylvania.  None of the Company's employees are represented by
unions. The Company considers its relations with its employees to be good.

ITEM 2.  DESCRIPTION OF PROPERTY

         The Company's corporate and administrative  headquarters are located in
Philadelphia,  Pennsylvania,  which comprise  approximately 5,000 square feet of
leased office and  warehouse  space.  The leased  property is owned by an entity
controlled by the Company's Chief Executive Officer,  and is extended on a month
to month basis with no current rental payments.

         Management  believes that the Company's current facilities are suitable
and adequate for its business as well as to meet its near term expansion  plans.
The Company has no plans to purchase any properties.

ITEM 3.  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.  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  alleged 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


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<PAGE>

made to Plaintiffs in connection  with the merger or arising out of  Plaintiffs'
employment as officers of Waterford after the merger.  Plaintiffs sought 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 Company  and its  officers  denied  Plaintiffs'
allegations and vigorously contested the Lawsuit.

         On August 1, 1997, Defendants reached a settlement with Plaintiffs with
respect to this  litigation.  The  Company  agreed to a payment of  $270,000  to
Plaintiffs  to settle their  lawsuit.  As part of the  settlement,  on August 5,
1997,  Plaintiffs tendered to the Company 121,550 shares of the Company's common
stock owned by them.

         As of  June  30,  1997,  the  Company  accrued  the  settlement  and an
estimated  $100,000 of additional  professional  fees.  During the quarter ended
September 30, 1997, the Company incurred an additional  $128,000 of professional
fees related to the  settlement  of the  litigation.  Management  believes  that
substantially  all costs  related to the  litigation  have been  recorded  as of
December 31, 1997.

ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         During the Company's  fourth fiscal  quarter of the year ended December
31, 1997, no matter was submitted to a vote of the Company's  security  holders,
either by proxy solicitations or otherwise.

                                     PART II

ITEM 5.           MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The  Company's  common  stock is not listed on any  exchange.  However,
market  quotes for the Company's  common stock (under the symbol  "FCFN") may be
obtained from the National  Association of Securities  Dealers  through the NASD
OTC Bulletin Board, its automated system for reporting  non-NASDAQ  quotes.  The
following table sets forth, for the indicated calendar periods, the high and low
bid prices (as  reported by the OTC  Bulletin  Board) for the  Company's  common
stock through December 31, 1997:

                                                   Bid Price
                                                   ---------
                                               High         Low
                                               ----         ---
         1996
         First Quarter                         11/16        1/8
         Second Quarter                        11/16        1/4
         Third Quarter                         1/2          5/16
         Fourth Quarter                        17/32        1/8

         1997
         First Quarter                         1/2          3/32
         Second Quarter                        3/16         1/16
         Third Quarter                         3/32         1/16
         Fourth Quarter                        15/16        1/8

         1998
         First Quarter                         3/16         1/8
         Second Quarter                        13/16        1/16
         Third Quarter                         13/16        1/4


         The prices set forth in this table represent quotes between dealers and
do not include  commissions,  mark-ups or  mark-downs,  and may not  necessarily
represent actual transactions.

         As of  November  23,  1998,  there  were 281  stockholders  of  record;
however, the Company believes there were over 900 beneficial stockholders of the
Company's common stock.



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<PAGE>

         The Company has never  declared or paid a dividend on its common  stock
and management expects that the substantial  portion of the Company's  earnings,
if any, for the foreseeable future will be retained for expansion or development
of the Company's business. The decision to pay dividends,  if any, in the future
is within the  discretion  of the Board of  Directors  and will  depend upon the
Company's  earnings,  its capital  requirements,  financial  condition and other
relevant factors such as loan covenants or other contractual obligations.


ITEM 6.           MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

         The following discussion should be read in conjunction with the audited
financial statements and the notes thereto included elsewhere in this report.

GENERAL

         Until the first  quarter of 1997,  the Company  engaged in the mortgage
banking  business.  The Company  closed all mortgage  banking  operations  after
several years of substantial losses.

         Effective  December  15,  1997,  the former  President  of the  Company
resigned and Mr. Richard N.  Chakejian,  Jr. was appointed to serve as President
of the Company. With the change of management, the Company has changed its focus
and is currently  engaged in the  investigation,  development  and  operation of
several early stage businesses. The Company is actively engaged in the following
businesses:

         National Archives, Inc. In late 1995, the Company acquired 60% interest
in a startup  company,  National  Archives,  Inc.,  formerly  known as  National
Business Archives, Inc., a Pennsylvania corporation ("National Archives"), for a
purchase price of $150,000 in cash and certain furniture and equipment valued at
approximately   $38,000.   This   acquisition  was  funded  from  the  Company's
cash-on-hand and with fixed assets from the closure of its subsidiary Waterford.
National Archives is located in Philadelphia, Pennsylvania and provides document
archive services from a rented warehouse.  While management  believes there is a
good demand for document archive  services in the  Philadelphia  area from local
government  and  businesses,  National  Archives has been slow in attracting new
customers and has not yet attained profitable  operations.  National Archives is
developing proprietary records management  technology.  As of December 31, 1997,
management  of the Company  believes  that  National  Archives has the realistic
prospect of profitable operations.

          Premiere Quality Foods,  Inc.  ("Premiere  Quality Foods") is a wholly
owned  subsidiary  of the Company.  Premiere  Quality Foods was organized by the
Company in 1997 to acquire, package,  distribute and sell imported Spanish olive
oil and related  specialty foods products to the growing North American  market.
Premiere  Quality Foods has secured  exclusive rights to import olive oil from a
leading Spanish  cooperative into the North American Free Trade Zone through the
Port of Philadelphia.  Sales and marketing  efforts  commenced early in 1998 and
the initial  orders of olive oil products have been  successfully  introduced to
several  regional and national  distributors  and retailers.  As of December 31,
1997,  Management of the Company  believes  that Premiere  Quality Foods has the
realistic prospect of profitable operations.

          Premiere Chemical Products,  Inc.  ("Premiere Chemical Products") is a
wholly-owned subsidiary of the Company. Premiere Chemical Products was organized
by the  Company  in 1997 to  develop,  manufacture,  distribute  and  market its
proprietary formulation of laundry detergent and related products. Marketing and
initial  sales  efforts  commenced  early in 1998 and market  response  has been
favorable.  Premiere Chemical  Products is currently  expanding its product line
from soap products to include various pre-treatments,  stain removers, starches,
and related products.  While still in the early stage of its development,  as of
December 31, 1997,  management of the Company  believes  that Premiere  Chemical
Products has the realistic prospect of successful operations.

          Fedeoliva International,  Ltd. ("Fedeoliva") is a 50% owned subsidiary
of the Company  which was closed in 1997.  Fedeoliva  was  organized  in 1997 to
acquire  an  ownership  interest  in a  joint  venture  from  Hampton  Financial
Services,  Inc., a company controlled by Mark Mendelson, who was at that time an
outside Director of the Company. All activities of Fedeoliva were transferred to
Premiere Quality Foods upon the formation of that subsidiary in 1997.



                                       8
<PAGE>

         In  addition  to these early  stage  business  activities,  the Company
intends  to  aggressively  seek  out  and  pursue  other  synergistic   business
opportunities  (whether  early stage or mature)  and  investments.  However,  no
assurance  can be given that the Company  will be  successful  in its efforts to
acquire profitable business opportunities and investments.

Mortgage Banking Business

         The  Company was  incorporated  in the state of Virginia in May 1992 to
engage in the  mortgage  banking  business.  The  Company  acquired  its initial
mortgage  loan  servicing  portfolio in December  1992 and  commenced  servicing
operations in January 1993.  Prior thereto,  the Company was in the  development
stage and management of the Company focused on establishing  the  infrastructure
of the Company  consisting  primarily of obtaining agency approvals (FNMA, FHLMC
and HUD), hiring employees,  establishing  office facilities,  and obtaining the
necessary hardware and software to perform mortgage loan servicing operations.

         The Company's  original  business plan was to be a servicer of mortgage
loans  only,  purchasing  mortgage  loan  servicing  either  through  brokers or
directly  from  holders of such  servicing.  During  1992 and 1993,  the Company
purchased the rights to service  approximately 6,750 loans with unpaid principal
balances at the time of purchase of approximately $718,888,000.

         In early 1993, management believed that to fully capitalize on mortgage
banking  opportunities it would be necessary to also originate mortgage loans as
well as service them. Management believed that the ability to originate mortgage
loans would greatly enhance its ability to accumulate mortgage loan servicing at
the  least  possible  cost  and to  replace  mortgage  loan  servicing  that may
dissipate through  unanticipated  prepayments.  Additionally,  profit margins on
mortgage loan  originations were attractive.  Accordingly,  the Company began to
actively  seek an  origination  opportunity  and, in October  1993,  executed an
Agreement and plan of Merger,  effective as of September  30, 1993,  for a stock
for  stock  merger  with  Waterford.  Waterford  originated  loans in  Virginia,
Washington, D.C., Maryland and North Carolina.

         The Company had  received  revenues  from two  sources,  mortgage  loan
origination  activities  and servicing  activities.  Revenues from mortgage loan
origination  activities are generated from mortgage loan origination and related
fees,  interest  income  earned on  mortgage  loans  until they are sold and net
gains,  if any, on the sale of mortgage  loans.  Revenues  related to  servicing
mortgage loans are derived  principally from servicing fees earned in connection
with  the   collection   and  processing  of  mortgage  loan  payments  and  the
administration of mortgage loans on behalf of investors.

Mortgage Loan Servicing

         The volume of servicing the Company had attained was not profitable and
the Company  determined  that  building the  servicing  portfolio to a size that
would provide reasonable returns was becoming less feasible.  First, with rising
interest rates and the resultant decline in prepayments,  the price of servicing
was  increasing  substantially.  The demand and therefore the price of servicing
was also being driven up due to the decline in available product. Second, due to
the lack of  origination  volume,  the Company could not create an  economically
viable amount of its own servicing.

         Faced with these factors,  management  believed it was in the Company's
best interest to sell its existing  servicing  portfolio and to repay its credit
facility.  Accordingly,  on October 18, 1994,  the Company  executed a letter of
intent  with  MCA  Mortgage   Corporation   ("MCA")  whereby  the  Company  sold
substantially  all of its servicing  rights to MCA The date of sale was November
30, 1994 and transfer of the servicing  rights was completed by May 1, 1995. The
sale  resulted in a loss of  approximately  $540,000, but  provided  cash to the
Company of  approximately  $2,500,000  after  payoff of the  NationsBank  credit
facility and expenses associated with the sale. Given the significant  reduction
in the amount of loan servicing during 1995, the Company  significantly  reduced
its overhead expenses associated with loan servicing, and therefore its capacity
to service loans.  Since the sale to MCA, the Company has only been  responsible
for  loans  it  originated  and sold to FNMA,  FHLMC or other  investors,  which
amounted  to  approximately  $7,500,000  at December  31,  1996.  Subsequent  to
December 31, 1996, this remaining servicing was sold at a small gain.



                                       9
<PAGE>

Mortgage Loan Origination

         The Company, through its wholly owned subsidiary Waterford,  originated
both conventional and nonconforming mortgage loans. The Company's guidelines for
underwriting the conventional  conforming loans it originated  complied with the
criteria  established  by FNMA or  FHLMC.  The  Company  was  also  approved  to
originate  loans  insured by the FHA or  guaranteed  by the VA.  Waterford  also
originated  conventional  nonconforming  mortgage loans (loans for single family
homes  that do not meet  the  criteria  established  by FNMA or  FHLMC)  and the
underwriting guidelines and property standards used for such loans were based on
the underwriting  standards  required by  institutional  investors to which such
loans were sold.

         All of Waterford's  mortgage loan  origination was done from one office
in McLean, Virginia. During 1995, Waterford originated approximately $51,000,000
in mortgage loans  primarily in  Washington,  D.C. and in the states of Virginia
and Maryland.  This  compares  with  $113,000,000  in 1994 and  $125,000,000  in
originations in 1993. All such loans were sold servicing released to investors.

         Management's  plan in the  acquisition  of Waterford  was to expand the
Waterford  operation  to become a  significant  originator  of  mortgage  loans.
Accordingly,  during  1994 and  into  the  first  quarter  of  1995,  management
recruited  personnel who had the necessary industry  experience to significantly
expand mortgage loan production and invested heavily in additional  office space
and fixed assets for Waterford.

         In  making  a  substantial  investment  in its  capacity  to  originate
mortgage loans,  management  believed this investment would generate  sufficient
mortgage loan origination volume to enable the Company to be profitable in 1994.
However,  as  discussed  previously,  the volume of  mortgage  loans  nationally
declined  significantly  during 1994 and into 1995 due to rising  interest rates
and the Company suffered significant  operating losses during these years as did
many other independent mortgage banking companies.  In response to these losses,
the Company took steps to reduce overhead  expenses,  including the reduction of
employees.  However,  the  losses  continued  into 1995  because  the  volume of
origination  business  being  generated  by  Waterford  could not support even a
minimum amount of overhead expenses. Given the continued losses and inability to
substantially  increase origination volume,  management made the decision in the
second  quarter of 1995 to  significantly  reduce its overhead  associated  with
mortgage  loan  production  and closed  Waterford  (the  Company  also closed an
inactive  mortgage  loan  origination  subsidiary,   First  Chesapeake  Mortgage
Corporation).  The Company recorded  restructuring costs of $450,000 during 1995
to recognize expected costs associated with this restructuring. During 1996, the
Company  paid   approximately   $178,000  in   restructuring   related  expenses
(consisting primarily of payout on employment  contracts),  substantially all of
which was accrued at December 31, 1995.

         To the extent that general demand for conforming mortgage loans remains
at or below  its  current  level  and  price  competition  within  the  industry
continues, future operating margins for the conforming mortgage loan origination
business will remain under pressure.

Other Business Strategies

         Given  the  highly   competitive  state  of  the  conforming   mortgage
origination market and management's  belief that it could not compete profitably
in  traditional  mortgage  banking  activities,  the  Company  has  had to  seek
alternative business strategies in an attempt to achieve profitable  operations.
One strategy the Company pursued was the origination of  nonconforming  mortgage
loans where the borrower had some credit issue that did not allow them to obtain
traditional  mortgage  financing  (commonly  referred to as "B paper" loans). In
December 1994, the Company formed a subsidiary,  American Mortgage Express, Inc.
("AME"),  to  originate B paper loans and hired an  individual  with over twenty
years  experience with this type of lending to run the  operations.  During 1995
and  1996,  AME  struggled  to  attain  profitable  operations,  and in fact was
profitable  for six  months in 1995.  However,  AME was never able to attain the
level of loan originations  necessary to maintain  profitability  even though it
hired many qualified individuals and obtained the necessary warehouse financing.
Accordingly,  the directors of the Company  determined to cease AME's operations
effective as of January 30,1997.  As part of AME's cessation of operations,  the
warehouse line of credit was not extended  beyond its expiration on February 28,
1997.



                                       10
<PAGE>

         Also, on December 11, 1995, the Company  executed a Letter of Intent to
acquire  all of the  outstanding  stock of a federal  savings  bank  located  in
Florida for a purchase  price of  approximately  $5.5  million.  Management  has
extensive  experience  in  operating  financial  institutions  and  believed the
acquisition of a savings bank would provide the  operations  necessary to attain
profitability. Consummation of this transaction was subject to the completion of
due  diligence  procedures,  execution  of a  definitive  acquisition  agreement
between parties, approval by both boards of directors and regulatory approval. A
Stock Purchase  Agreement  (the  "Agreement")  was executed  between the parties
which expired on September  30, 1996 before the Company could obtain  regulatory
approval of the transaction from the Office of Thrift  Supervision.  The parties
negotiated  an  extension  of the  Agreement to December 31, 1996 to provide the
Company with  additional  time to obtain  regulatory  approval.  The Company was
unable to obtain  regulatory  approval  by  December  31, 1996 and was unable to
negotiate an extension of the  Agreement  with the savings  bank's  stockholders
past December 31, 1996. As a result,  on March 5, 1997 the Company  withdrew its
Application  for Change of Control  with the  Office of Thrift  Supervision.  At
December 31, 1996, the Company wrote off  approximately  $219,000 in capitalized
expenses related to this failed transaction.

FINANCIAL CONDITION

          Assets of the Company  decreased from  $1,943,035 at December 31, 1996
to $253,553 at December 31, 1997, a decrease of  $1,689,482.  This  decrease was
primarily due to the Company's operating loss of $1,967,530 and cessation of its
mortgage banking operations.  At December 31, 1997, the Company's primary assets
consist of fixed assets of $121,627 and a note  receivable  from a related party
of $94,240.  Liabilities of $158,809 were primarily composed of accounts payable
and accrued expenses.

         The significant  declines in the Company's assets during the last three
years have resulted due to the significant operating losses and the reduction in
mortgage  banking  activities  with the closures of Waterford and AME. Given the
operating  losses from mortgage  banking  activities the Company has experienced
over the last three  years,  the  Company  believed it was prudent to close down
these activities to safeguard the remaining assets.

RESULTS OF OPERATIONS

Current Year Performance and Earnings Outlook

         The Company  incurred a loss of $1,967,530  for the year ended December
31, 1997. This loss is a result of the Company's  continued  inability to attain
profitability  from its  activities,  the cost of  settling  litigation  and the
process and expenses of closing down many of the Company's operations.

         As  discussed  previously,  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
business opportunity or attain profitable operations.  The Company is continuing
to look at all possible  acquisitions,  including those outside of the financial
arena.

         The Company's  subsidiaries,  Premiere Quality Foods, Premiere Chemical
Products,  and National Archives are the only source of ongoing cash flow to the
Company at December  31, 1997.  The Company is seeking to grow these  businesses
and to acquire other businesses to assist the Company in becoming profitable.

Comparison of Year Ended December 31, 1997 to Year Ended December 31, 1996

         The Company  incurred a loss of $1,967,530  for the year ended December
31, 1997 compared to a loss of $1,346,331 for the year ended December 31, 1996.

         Total  revenues  for the year  ended  December  31,  1997  amounted  to
$103,771  representing  a decrease of $264,676,  or 72%, when compared to 1996's
revenues of $368,447.  The Company's  principal sources of revenue had been fees
from mortgage origination,  loan sales and servicing activities.  The decline in
revenue  is  directly   related  to  the  closure  of  the   Company's   various
subsidiaries.



                                       11
<PAGE>

     Total expenses for 1997 amounted to $2,071,301 as compared to $1,714,778 in
1996, an increase of $356,523 or 21%. This increase is directly  attributable to
the  closure  of the  Company's  activities,  namely a loss on joint  venture of
$112,983,  payment of a legal  settlement of $260,276,  write off of investments
and advances to joint venture of $212,169  and an  increase in professional fees
of $383,401.

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.  If the Company requires  additional capital
or liquidity,  the Company may seek to raise funds in the capital markets. 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.  Due to the  operating  losses
sustained  and  the  limited  working  capital  of the  Company,  the  Company's
independent certified public accountants modified their opinion on the financial
statements for the year ended December 31, 1997 regarding the Company's  ability
to continue as a going concern.

         Cash and cash  equivalents  at December 31, 1997 amounted to $12,845 as
compared to $1,120,065 at December 31, 1996, a decrease of $1,107,220.

         During 1997, the Company's operating  activities utilized $1,090,920 as
compared to utilizing  $75,767 in 1996.  The  utilization of cash resources from
operating activities in both years resulted from the Company's net loss for each
year.

         The Company's  investing  activities  used $1,086 in cash  resources in
1997 as compared to providing $486,955 in 1996. In 1996 the principal sources of
cash from investing  activities  were provided from the final proceeds from sale
of the servicing portfolio of $196,934 and proceeds from the sale of real estate
of $293,375.

     Financing  activities  used $15,214 in cash resources  during 1997 compared
with $1,124,339 during 1996. In the past, the Company has relied on net proceeds
from  capital  raising  activities,  a servicing  secured bank  facility,  and a
warehouse  credit  facility to meet its  liquidity  requirements.  The servicing
secured bank  facility has been  terminated  and the warehouse  credit  facility
expired on February 28, 1997 and was not extended. Accordingly, neither of these
two sources of liquidity will be available to the Company in the future.



REGULATION

         Mortgage  banking  is a highly  regulated  industry.  The  industry  is
subject to the rules and regulations of, and examinations by, HUD, FNMA,  FHLMC,
FHA,  GNMA  and  the  VA  and  state  regulatory  authorities  with  respect  to
originating,  processing,  underwriting,  selling,  securitizing  and  servicing
residential  mortgage  loans.  In  addition,  there are other  federal and state
statutes and regulations affecting such activities. These rules and regulations,


                                       12
<PAGE>

among other things, govern how mortgage servicers process a mortgagor's payment,
require an annual  analysis of the Company's  escrow  balances and also regulate
the procedure for making investor payments.

         There are also numerous rules and regulations  imposed on mortgage loan
originators.  These  rules  and  regulations  require  originators  to obtain or
maintain licenses,  establish  eligibility criteria for mortgage loans, prohibit
discrimination,  provide for inspections  and appraisals of properties,  require
credit reports on prospective borrowers,  regulate payment features and, in some
cases, fix maximum interest rates, fees and loan amounts. Failure to comply with
these  requirements  can  lead  to a loss of  approved  status,  termination  of
servicing   contracts  without   compensation  to  the  servicer,   demands  for
indemnification  or loan repurchases,  class action law suits and administrative
enforcement actions. There can be no assurance that more restrictive laws, rules
and regulations  will not be adopted in the future,  which could make compliance
more difficult or expensive,  and to the extent that the Company expands it loan
origination  activities  in  the  future,  restrict  the  Company's  ability  to
originate  or sell  mortgage  loans,  further  limit or  restrict  the amount of
interest  and other  charges  earned from loans  originated  or purchased by the
Company, or otherwise adversely affect the business or prospects of the Company.

INFLATION

         Prior to closure of its mortgage  banking  operations,  the Company was
affected by inflation  primarily  through its impact on interest  rates.  During
periods of rising inflation, interest rates generally increase, causing mortgage
loan  origination  volumes,   particularly  refinancing  activity,  to  decline.
However,  during such periods,  mortgage  prepayment  rates slow,  extending the
average  life  of the  servicing  portfolio  and  enhancing  its  market  value.
Conversely,  during periods of declining  inflation,  interest  rates  generally
decline,  resulting not only in increased  mortgage loan origination  volume and
mortgage loan  refinancing  activity,  but also in accelerated  loan  prepayment
rates which  decrease the average  life of the  Company's  servicing  portfolio,
adversely impacting its value.

YEAR 2000

          The Company is currently  assessing the impact of the year 2000 on the
processing  of   date-sensitive   information  by  the  Company's   computerized
information  systems and products  purchased by the  Company.  In addition,  the
Company plans to contact each significant vendor to request time tables for year
2000  compliance and expected  costs, if any, to be passed along to the Company.
The Company also plans to identify alternative vendors if the current vendors do
not  become  year  2000  compliant.  The  Company  believes  that  its  internal
information  systems are either year 2000  compliant  or will be so prior to the
year 2000 without incurring material costs. There can be no assurance,  however,
that the Company will not  experience  unexpected  costs and delays in achieving
year 2000 compliance for its internal  information systems and current products,
which could result in a material  adverse effect on the Company's future results
of operations.



                                       13
<PAGE>

ITEM 7.  FINANCIAL STATEMENTS

                                First Chesapeake
                              Financial Corporation





                                  Consolidated
                              Financial Statements




                 For the Years Ended December 31, 1997 and 1996


<PAGE>


--------------------------------------------------------------------------------


                                          First Chesapeake Financial Corporation
                                                                and Subsidiaries

                                                                        Contents






      Report of Independent Certified Public Accountants                   3

      Consolidated Financial Statements

        Balance Sheets                                                     4

        Statements of Operations                                           5

        Statements of Stockholders' Equity                                 6

        Statements of Cash Flows                                       7 - 8

      Summary of Significant Accounting Policies                      9 - 11

      Notes to Financial Statements                                  12 - 17



                                                                               2

<PAGE>

Report of Independent Certified Public Accountants


To the Board of Directors of
First Chesapeake Financial Corporation
Philadelphia, Pennsylvania

We have audited the consolidated  balance sheets of First  Chesapeake  Financial
Corporation and  subsidiaries  (the "Company") as of December 31, 1997 and 1996,
and the related consolidated statements of operations, stockholders' equity, and
cash  flows  for the  years  then  ended.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We  conducted  our  audits  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 audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of First Chesapeake
Financial  Corporation  and  subsidiaries at December 31, 1997 and 1996, and the
results of their  operations  and their cash flows for the years then ended,  in
conformity with generally accepted accounting principles.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated  financial  statements,  the Company has suffered  recurring losses
from  operations  that  raises  doubt  about its  ability to continue as a going
concern.  Management's  plans in regard to this matter is also described in Note
1. The  consolidated  financial  statements do not include any adjustments  that
might result from the outcome of this uncertainty.




Richmond, Virginia
October 26, 1998


                                                                               3

<PAGE>
<TABLE>
-------------------------------------------------------------------------------------------------------------------


                                                                              First Chesapeake Financial Corporation
                                                                                                    and Subsidiaries

                                                                                         Consolidated Balance Sheets


<CAPTION>
December 31,                                                                           1997                  1996
-------------------------------------------------------------------------------------------------------------------

<S>                                                                            <C>                    <C>
   Assets
Cash and cash equivalents                                                      $     12,845           $ 1,120,065
Mortgage loans held for sale (Note 3)                                                   -                  91,532
Note receivable                                                                      16,746                25,000
Furniture and equipment, net (Note 4)                                               121,627               361,205
Organization costs                                                                      -                  10,338
Loans to related parties                                                             94,240               100,000
Other assets                                                                          8,095               234,895
-------------------------------------------------------------------------------------------------------------------


Total Assets                                                                   $    253,553           $ 1,943,035
-------------------------------------------------------------------------------------------------------------------


   Liabilities and Stockholders' Equity
Liabilities
 Note payable (Note 5)                                                         $     17,795           $    33,009
 Accounts payable                                                                    26,355                63,028
 Accrued expenses                                                                   114,659                25,000
-------------------------------------------------------------------------------------------------------------------


Total Liabilities                                                                   158,809               121,037
-------------------------------------------------------------------------------------------------------------------


Commitments and Contingencies (Note 8)
-------------------------------------------------------------------------------------------------------------------


Stockholders' Equity (Note 8)
  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; 5,500,000 and
    4,621,550 shares issued and outstanding                                      10,832,734            10,542,458
  Common stock warrant                                                                  -                  50,000
  Deficit                                                                       (10,737,990)           (8,770,460)
-------------------------------------------------------------------------------------------------------------------


Total Stockholders' Equity                                                           94,744             1,821,998
-------------------------------------------------------------------------------------------------------------------


Total Liabilities and Stockholders' Equity                                    $     253,553           $ 1,943,035
-------------------------------------------------------------------------------------------------------------------

           See accompanying summary of accounting policies and notes to consolidated financial statements.


                                                                                                                   4
</TABLE>
<PAGE>
<TABLE>
-------------------------------------------------------------------------------------------------------------------


                                                                              First Chesapeake Financial Corporation
                                                                                                    and Subsidiaries

                                                                               Consolidated Statements of Operations


<CAPTION>

Year Ended December 31,                                                                      1997            1996
-------------------------------------------------------------------------------------------------------------------

<S>                                                                                  <C>               <C>
Revenues
  Mortgage origination                                                               $        -        $   38,229
  Servicing fees (Note 2)                                                                  29,036          10,025
  Gain on sales of loans                                                                      -           201,121
  Interest income                                                                          74,632         159,700
  Interest expense                                                                         (1,936)        (57,900)
  Other                                                                                     2,039          17,272
-------------------------------------------------------------------------------------------------------------------


Total Revenues                                                                            103,771         368,447
-------------------------------------------------------------------------------------------------------------------


Operating Expenses
  Compensation and employee benefits                                                      552,318         691,087
  Professional fees                                                                       495,854         112,453
  Commitment fees                                                                             -            26,613
  Occupancy                                                                                60,455          93,385
  Loss on joint venture (Note 11)                                                         112,983             -
  Legal settlement (Note 10)                                                              260,276             -
  Write off of investment and advances to
   joint venture (Note 11)                                                                212,169             -
  Depreciation and amortization                                                           129,888         149,763
  Other operating expenses                                                                247,358         641,477
-------------------------------------------------------------------------------------------------------------------


Total operating expenses                                                                2,071,301       1,714,778
-------------------------------------------------------------------------------------------------------------------


Net Loss                                                                              $(1,967,530)    $(1,346,331)
-------------------------------------------------------------------------------------------------------------------


Basic and Diluted Loss Per Share                                                      $      (.41)    $      (.29)
-------------------------------------------------------------------------------------------------------------------


Weighted Average Shares Outstanding                                                     4,822,654       4,621,550
-------------------------------------------------------------------------------------------------------------------



           See accompanying summary of accounting policies and notes to consolidated financial statements.


                                                                                                                   5
</TABLE>

<PAGE>
<TABLE>
---------------------------------------------------------------------------------------------------------------------------


                                                                                      First Chesapeake Financial Corporation
                                                                                                            and Subsidiaries

                                                                             Consolidated Statements of Stockholders' Equity




<CAPTION>

                                                                        Common                             Total
                                                   Common               Stock                           Stockholders'
                                                   Stock               Warrant          Deficit           Equity
---------------------------------------------------------------------------------------------------------------------------

<S>                                                <C>                  <C>           <C>                 <C>
Balance at December 31, 1995                      $10,542,458         $ 50,000      $ (7,424,129)       $ 3,168,329
  Net loss                                                -                -          (1,346,331)        (1,346,331)
---------------------------------------------------------------------------------------------------------------------------

Balance at December 31, 1996                       10,542,458           50,000        (8,770,460)         1,821,998

  Issuance of common stock (Note 8)                   250,000              -                 -              250,000
  Repurchase of common stock (Note 10)                 (9,724)             -                 -               (9,724)
  Warrant expiration                                   50,000          (50,000)              -                  -
  Net loss                                                -                -          (1,967,530)        (1,967,530)
---------------------------------------------------------------------------------------------------------------------------

Balance at December 31, 1997                      $10,832,734        $     -        $(10,737,990)    $       94,744
---------------------------------------------------------------------------------------------------------------------------


               See accompanying summary of accounting policies and notes to consolidated financial statements.





                                                                                                                          6
</TABLE>

<PAGE>
<TABLE>

-------------------------------------------------------------------------------------------------------------------


                                                                              First Chesapeake Financial Corporation
                                                                                                    and Subsidiaries

                                                                               Consolidated Statements of Cash Flows


<CAPTION>

Year Ended December 31,                                                                      1997            1996
-------------------------------------------------------------------------------------------------------------------

<S>                                                                                   <C>             <C>
Operating Activities
  Net loss                                                                            $(1,967,530)    $(1,346,331)
  Adjustments
    Common stock issued as compensation                                                   125,000             -
    Write-off of investment and advances to
      joint venture                                                                       212,169             -
    Depreciation and amortization                                                         129,888         149,763
    Net decrease in loans held for sale                                                    91,532         498,997
    Decrease (increase) in receivable from
      loan sales                                                                              -           798,285
    Loss on disposal of assets                                                             38,235          14,263
    Decrease (increase) in other assets                                                   226,800         (49,978)
    Decrease in trade accounts payable and
      other liabilities                                                                   (36,673)           (617)
    Net increase (decrease) in accrued expenses                                            89,659        (140,149)
-------------------------------------------------------------------------------------------------------------------


Net cash absorbed by operating activities                                              (1,090,920)        (75,767)
-------------------------------------------------------------------------------------------------------------------


Investing Activities
  Purchase of furniture and equipment                                                      (1,086)           (130)
  Proceeds from sale of furniture and
    equipment                                                                                 -            12,776
  Proceeds from sale of servicing rights,
    net of selling expenses                                                                   -           196,934
  Extensions of credit to related parties                                                     -          (100,000)
  Repayments of notes receivable                                                              -            84,000
  Proceeds from sale of real estate owned                                                     -           293,375
-------------------------------------------------------------------------------------------------------------------


Net cash provided (absorbed) by investing activities                                  $    (1,086)    $   486,955
-------------------------------------------------------------------------------------------------------------------



                                                                                                        continued...


                                                                                                                   7
</TABLE>

<PAGE>
<TABLE>
-------------------------------------------------------------------------------------------------------------------


                                                                              First Chesapeake Financial Corporation
                                                                                                    and Subsidiaries

                                                                               Consolidated Statements of Cash Flows
                                                                                                         (continued)


<CAPTION>

Year Ended December 31,                                                                   1997               1996
-------------------------------------------------------------------------------------------------------------------

<S>                                                                                <C>                <C>
Financing Activities
  Repayment of bank loans                                                          $   (15,214)       $    (1,742)
  Net decrease in warehouse line of credit                                                 -           (1,122,597)
-------------------------------------------------------------------------------------------------------------------


Net cash absorbed by financing activities                                              (15,214)        (1,124,339)
-------------------------------------------------------------------------------------------------------------------


Net decrease in cash and cash equivalents                                           (1,107,220)          (713,151)

Cash and cash equivalents at beginning
  of period                                                                          1,120,065          1,833,216
-------------------------------------------------------------------------------------------------------------------


Cash and cash equivalents at end of period                                        $     12,845        $ 1,120,065
-------------------------------------------------------------------------------------------------------------------


Supplemental Cash Flow Disclosures:
  Cash payments of interest expense                                               $      1,936       $     57,900
  Supplemental Schedule of Non-Cash
  Financing activities:
    Common stock issued in exchange for
      equity interest in joint venture                                            $    125,000       $        -
    Transfer of related party loan to
      investment in joint venture                                                 $    135,000       $        -
-------------------------------------------------------------------------------------------------------------------

           See accompanying summary of accounting policies and notes to consolidated financial statements.



                                                                                                                   8
</TABLE>

<PAGE>
--------------------------------------------------------------------------------

                                          First Chesapeake Financial Corporation
                                                                and Subsidiaries

                                      Summary of Significant Accounting Policies



Organization        On May 18, 1992, First Chesapeake Financial Corporation (the
and Basis of        "Company") was  incorporated in the Commonwealth of Virginia
Presentation        as a mortgage  banking company to engage in the servicing of
                    mortgage loans.

                    The consolidated  financial  statements include the accounts
                    of the Company, its six wholly owned subsidiaries,  Premiere
                    Quality Foods, Inc.  ("Premiere  Foods"),  Premiere Chemical
                    Products,  Inc.,  Waterford  Mortgage  Corporation  ("WMC"),
                    American  Mortgage Express,  Inc. ("AME"),  First Chesapeake
                    Mortgage Corporation ("FCMC"),  and First Chesapeake Funding
                    Corporation ("FCFC"),  and National Archives,  Inc. ("NAI"),
                    of which the Company owns 60% of the outstanding  stock. All
                    material  intercompany  transactions  and accounts have been
                    eliminated in consolidation.

                    WMC and FCMC were  engaged in the  business  of  originating
                    first mortgage loans, however, due to a lack of loan volume,
                    were closed and ceased operations in 1995 (see Note 1 of the
                    Notes to Consolidated Financial Statements).

                    AME was  incorporated  on  October  8,  1994  and  commenced
                    operations in December of 1994. AME originated nonconforming
                    first mortgage loans where  borrowers have some credit issue
                    that does not  allow  them to  obtain  traditional  mortgage
                    financing  (commonly referred to as "B paper" loans). Due to
                    an inability to attain profitable operations, AME was closed
                    during 1997.

                    FCFC   acquires    troubled   loans   through   brokers   at
                    significantly  discounted  prices and  formulates  a workout
                    with the borrower. Once a workout plan has been established,
                    FCFC will  either  retain the loan to  maturity  or sell the
                    loan to others. FCFC was closed during 1997.

                    NAI provides  document  archive  services to government  and
                    business  primarily  located in the  Philadelphia  area. The
                    operations of NAI were not  significant to the  consolidated
                    operations  of the Company for the years ended  December 31,
                    1997 and 1996.

                    Premiere Foods  acquires,  packages,  distributes  and sells
                    imported  Spanish  olive  oil and  related  specialty  foods
                    products within North America.  Premiere Foods has exclusive
                    rights   to  import   olive  oil  from  a  leading   Spanish
                    Cooperative  into the North American Free Trade Zone through
                    the Port of Philadelphia. The company was formed during 1997
                    and did not have significant operations during 1997.

                    Premiere Chemical  Products,  Inc.  develops,  manufactures,
                    distributes,  and markets  its  proprietary  formulation  of
                    laundry  detergent and related  products.  Premiere Chemical
                    Products  was  formed  during  1997  and  did not  have  any
                    operations during 1997.



                                                                               9

<PAGE>
--------------------------------------------------------------------------------

                                          First Chesapeake Financial Corporation
                                                                and Subsidiaries

                                      Summary of Significant Accounting Policies
                                                                     (continued)


Cash and Cash       For  the  purposes  of the  statements  of cash  flows,  the
Equivalents         Company  considers  all highly  liquid  investments  with an
                    initial  maturity  of  three  months  or  less  to  be  cash
                    equivalents.

Loans Held          Loans  held  for sale are  carried  at the  lower of cost or
for Sale            market on an aggregate basis.  Discounts from origination of
                    loans  held for  sale  are  deferred  and  recognized  as an
                    adjustment to carrying value.

Furniture and       Furniture and equipment are stated at cost less  accumulated
Equipment           depreciation  and  amortization.  Provision for depreciation
                    and  amortization  are  computed by using the  straight-line
                    method over the  estimated  useful  lives of the  individual
                    assets.  Ordinary  maintenance  and  repairs  are charged to
                    operations as incurred.

Income              Revenue from mortgage  origination  is  recognized  when the
Recognition         loans are sold to an investor and the Company has no further
                    obligation  to  fulfill.  To  date,  the  majority  of loans
                    originated  have  been  sold (or will be sold in the case of
                    loans held for sale) and servicing released.

                    Servicing fees  represent fees received for servicing  loans
                    owned  by  investors  and are  recorded  when  the  mortgage
                    payments  are received by the  Company.  Revenues  from loan
                    administration represent late fees and other service charges
                    and are recorded when received.

                    Gains or losses on loan sales are  recognized at the time of
                    sale and are determined by the difference  between net sales
                    proceeds and the carrying value of the loans sold.

Income Taxes        From  inception  through  December 31, 1997, the Company has
                    incurred net operating losses and, accordingly,  has made no
                    provision for income taxes.


Basic and Diluted   The Company  adopted  Financial  Accounting  Standards Board
Loss Per Share      issued Statement of Financial  Accounting Standards No. 128,
                    "Earnings per Share" ("SFAS 128") in 1997. SFAS 128 provides
                    for the calculation of Basic and Diluted earnings per share.
                    Basic  earnings  per  share  includes  no  dilution  and  is
                    computed by dividing income available to common shareholders
                    by the weighted average number of common shares  outstanding
                    for the period.  Diluted  earnings  per share  reflects  the
                    potential   dilution  of  securities  that  could  share  in
                    earnings of an entity, similar to fully diluted earnings per
                    share.

                    Shares  issuable for stock  options and  warrants  have been
                    excluded  from the  computation  of loss per  share  for the
                    years ended  December 31, 1997 and 1996, as their  inclusion
                    would be anti-dilutive.


                                                                              10

<PAGE>
--------------------------------------------------------------------------------

                                          First Chesapeake Financial Corporation
                                                                and Subsidiaries

                                      Summary of Significant Accounting Policies
                                                                     (continued)


Estimates           The  preparation of financial  statements in conformity with
                    generally accepted accounting principles requires management
                    to make estimates and  assumptions  that affect the reported
                    amounts  of  assets  and  liabilities  at  the  date  of the
                    financial  statements  and the reported  amounts of revenues
                    and expenses  during the reporting  period.  Actual  results
                    could differ from those estimates.





                                                                              11

<PAGE>
--------------------------------------------------------------------------------

                                          First Chesapeake Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements


1. Going Concern    The  Company's  financial  statements  are  presented on the
   Matters          going concern basis,  which  contemplates the realization of
                    assets and the  satisfaction  of  liabilities  in the normal
                    course of business. During the year ended December 31, 1997,
                    the  Company  closed  American  Mortgage  Express  and First
                    Chesapeake Funding Corporation. As shown in the accompanying
                    financial statements,  the Company has sustained significant
                    losses  and  has  little  working  capital  to  fund  future
                    operations  which  may  indicate  that the  Company  will be
                    unable  to  continue  as a going  concern  for a  reasonable
                    period of time.

                    The Company's  continuation  as a going concern is dependent
                    on its ability to identify new business opportunities and to
                    expand  the  operations  of its  wholly-owned  subsidiaries,
                    Premiere Quality Foods, Inc. and Premiere Chemical Products,
                    Inc. both of which were formed, but were inactive,  in 1997.
                    The Company also has issued  letters of intent to acquire up
                    to six mortgage  banking  operations  in the Eastern  United
                    States.   It  is  the   Company's   intent  to  fund   these
                    acquisitions  through  issuance of  additional  shares and a
                    debt offering. There are no assurances that the Company will
                    be able to finalize any of these acquisitions.

                    The financial  statements do not include any  adjustments to
                    reflect the possible  future  effects on the  recoverability
                    and   classification   of   assets   or  the   amounts   and
                    classification  of  liabilities  that  may  result  from the
                    possible  inability  of the  Company to  continue as a going
                    concern.

2. Loan Servicing   The Company was  involved in servicing  single  family first
                    mortgage  loans.  Total loans being serviced at December 31,
                    1996 was  approximately  $7,505,000.  During 1997,  all loan
                    servicing was sold.

3. Mortgage Loans   Loans held for sale at December 31, 1996 were  committed for
   Held for Sale    delivery  to  various   investors  at  prices  that  in  the
                    aggregate exceeded carrying value.

                                                                              12

<PAGE>


--------------------------------------------------------------------------------

                                          First Chesapeake Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)



4. Furniture and    Furniture and equipment consists of the following:
   Equipment
                    December 31,                       1997                1996
                    ------------------------------------------------------------


                    Leasehold improvements       $   22,138           $  23,744
                    Furniture and fixtures          102,672             163,786
                    Machinery and equipment         186,571             452,935
                    Vehicles                         36,521              55,100
                                             -----------------------------------


                                                    347,902             695,565
                    Less accumulated depreciation
                      and amortization             (226,275)           (334,360)
                                             -----------------------------------


                                                 $  121,627           $ 361,205
                                             -----------------------------------


                    Depreciation  expense for the two years ended  December  31,
                    1997 and 1996 were $119,550 and $129,243, respectively.


5. Notes Payable    Note  payable at December  31, 1997 and 1996  consisted of a
                    vehicle  loan,  which  was  paid in full  during  1998.  The
                    Company  had  a  $3,000,000  warehouse  line  of  credit  at
                    December  31,  1996  to  fund  the   origination   of  first
                    lien-mortgage  loans.  The  warehouse  line  of  credit  was
                    terminated  during  February  1997 in  conjunction  with the
                    closing of AME and no amounts were  outstanding  during 1997
                    under the facility.

                    The following  information  relates to the warehouse line of
                    credit for the year ended December 31, 1996:

                    Outstanding at end of period                   $        -
                    Weighted average interest rate
                      at end of period                                      -
                    Maximum amount outstanding
                      during the period                               2,700,540
                    Average amount outstanding                          701,019
                    Weighted average interest rate
                      during the period                                    8.15%


6. Income Taxes     The Company  files a  consolidated  income tax  return.  The
                    Company incurred net operating losses for federal income tax
                    purposes of approximately $1,680,000, and $1,272,000 for the
                    years  ended  December  31,  1997  and  1996,  respectively,
                    resulting  in total  net  operating  loss  carryforwards  of
                    approximately  $8,740,400  which  expire  beginning  in 2007
                    through 2012, if not  previously  utilized.  The  difference
                    between the Company's net operating  loss  carryforward  for
                    tax and financial  reporting purposes results primarily from
                    temporary    differences   related   to   depreciation   and
                    amortization.

                    At  December  31,  1997  and  1996 the  Company  recorded  a
                    valuation allowance for the total amount of the net deferred
                    tax asset which was composed  primarily of the net operating
                    loss carryforwards.


                                                                              13

<PAGE>
<TABLE>
--------------------------------------------------------------------------------

                                          First Chesapeake Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


7. Stock Options    In May 1992,  the Board of  Directors  adopted an  Incentive
                    Stock  Option  Plan  (the  "Plan").  Pursuant  to the  Plan,
                    500,000  shares  of the  Company's  common  stock  were made
                    available for awards.  The Plan allows for  Incentive  Stock
                    Options  intended  to qualify  as  Incentive  Stock  Options
                    within the  meaning of Section 322 of the  Internal  Revenue
                    Code  of  1986,  and for  Non-qualified  Stock  Options  not
                    intended to qualify as Incentive  Stock  Options.  Incentive
                    Stock  Options  may be  granted  to  employees  as  well  as
                    non-employee  directors  and  consultants  to  the  Company.
                    Exercise  prices under the Plan must be at fair market value
                    per  share at date of  grant  or,  in the case of  Incentive
                    Stock Options  granted to employees who own more than 10% of
                    the voting power of all classes of stock of the Company,  at
                    110% of the fair market value per share at date of grant.

                    Option activity is summarized as follows:
<CAPTION>

                    Year Ended December 31,            1997                    1996
                    ------------------------------------------------------------------------


                                                            Weighted-              Weighted-
                                                             average                average
                                                            exercise               exercise
                                                 Shares       price      Shares      price
                                             -----------------------------------------------

                    <S>                         <C>          <C>          <C>         <C>
                    Outstanding options
                      at beginning of
                      year                      460,000      $1.17        460,000     $1.35

                    Options granted                  -                     50,000       .50
                    Options cancelled          (260,000)      1.28        (50,000)     2.20
                                             -----------------------------------------------


                    Outstanding options
                      at end of year            200,000      $ .27        460,000     $1.17
                                             -----------------------------------------------

</TABLE>

                                                                              14

<PAGE>

--------------------------------------------------------------------------------

                                          First Chesapeake Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


7. Stock Options    The Company applies  Accounting  Principals Board Opinion 25
   (continued)      in accounting  for stock options  granted to employees.  Had
                    compensation  expense  been  determined  based upon the fair
                    value of the  awards at the grant date and  consistent  with
                    the  methods   under   Statement  of  Financial   Accounting
                    Standards  123, the Company's 1996 net loss and net loss per
                    share would have been  increased to the pro forma amounts as
                    indicated in the following table:

                    Net loss                                        1996
                                                           -------------

                    As reported                               $1,346,331
                    Pro forma                                  1,371,331

                                                               Basic and
                    Net loss per share                          Diluted
                                                           -------------

                    As reported                                     $.29
                    Pro forma                                        .30

                    There were no options  granted  during  1997 and,  therefore
                    there are no pro forma  effects on net loss and net loss per
                    share. The fair value of each option granted during 1996 was
                    estimated on the date of grant using the Black-Sholes option
                    pricing  model with the following  assumptions:  a risk free
                    interest  rate  of  6.397%,  no  dividend  yield,   expected
                    weighted  average  term of five  years and a  volatility  of
                    140%.

                    At December 31, 1997 there were 200,000 options  outstanding
                    and  exercisable  with  an  exercise  price ranging from
                    $.25 to $.28 and a remaining maturity of 2.5 years.

8. Stockholders'    On August 4, 1993,  the Company  completed an initial public
   Equity           offering of its  securities  through  the sale of  1,250,000
                    Units at a  purchase  price of $8.00  per  Unit.  Each  Unit
                    consisted of one share of the Company's common stock, no par
                    value,  one  Redeemable  Class A Warrant and one  Redeemable
                    Class B Warrant. Each Class A Warrant entitles its holder to
                    purchase  one  share  of the  Company's  common  stock  at a
                    purchase  price of $9.00 per share and each  Class B Warrant
                    entitles its holder to purchase one share of common stock at
                    a price  of  $10.00  per  share.  The  Class  A and  Class B
                    Warrants are exercisable by the holders until July 15, 1998.

                    In May  1992,  the  Company  issued a  warrant  to  purchase
                    500,000 shares of common stock at an exercise price of $2.00
                    per share.  This warrant,  together with 1,000,000 shares of
                    common stock,  were issued to a founding  stockholder of the
                    Company for proceeds of $425,000. The Company had assigned a
                    value  to  the  warrant  of  $50,000.  The  warrant  expired
                    unexercised  during 1997 and the $50,000 was  transferred to
                    common stock.


                                                                              15

<PAGE>

--------------------------------------------------------------------------------

                                          First Chesapeake Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


8. Stockholders'    During,  1997,  the Company  issued 500,000 shares of common
   Equity           stock to acquire an  interest in a joint  venture  (see Note
   (continued)      11) and 500,000 shares as  compensation to an officer of the
                    Company that joined the Company during 1997. The shares were
                    recorded at the fair value of the Company's  common stock at
                    the respective issues dates.

9. Fair Value of    FAS 107 requires  disclosure  of the fair value of financial
   Financial        instruments,  both assets and liabilities recognized and not
   Instruments      recognized in the balance sheet, for which it is practicable
                    to estimate fair value.  Fair value estimates are made as of
                    a specific point in time based on the characteristics of the
                    financial  instruments and the relevant market  information.
                    Fair  value  estimates  are  based  on  existing   financial
                    instruments  without  attempting  to  estimate  the value of
                    anticipated  future  business  and the value of  assets  and
                    liabilities that are not considered  financial  instruments.
                    Accordingly,  the aggregate fair value amounts  presented do
                    not necessarily represent the underlying market value of the
                    Company.

                    The following  describes the methods and assumptions used by
                    the Company in estimating fair values.

                    Cash and Cash Equivalents - The carrying amount approximates
                    fair value as maturities are less than 90 days.

                    Mortgage   Loans  Held  for  Sale  -  The  carrying   amount
                    approximates  fair  value  as  these  loans  are  backed  by
                    commitments to purchase by an investor.

                    Notes Payable - The carrying amount  approximates fair value
                    due to the short term repricing terms of the notes payable.

                    Commitment  to Extend Credit - The fair  value of  mortgage
                    commitments  to extend  credit is estimated by comparing the
                    Company's cost to acquire mortgages to the current price for
                    similar mortgage loans, taking into account the terms of the
                    commitments and the  creditworthiness of the counterparties.
                    For fixed rate loan  commitments,  fair value also considers
                    the  difference  between the current level of interest rates
                    and the committed rates. There were no mortgage  commitments
                    to extend credit at December 31, 1997.

10. 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
                    then  principal  officers  ("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.




                                                                              16

<PAGE>

--------------------------------------------------------------------------------

                                          First Chesapeake Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


10. Litigation      On August 1,  1997,  Defendants  reached a  settlement  with
    (continued)     Plaintiffs  with  respect to this  litigation.  The  Company
                    agreed to a payment  of  $270,000  to  Plaintiffs  to settle
                    their law suit. As part of the settlement, on August 5, 1997
                    the Plaintiffs tendered to the Company 121,550 shares of the
                    Company's  common stock owned by them.  The shares of common
                    stock  were  recorded  at their  fair  value  and the  legal
                    settlement expense was adjusted by that amount $(9,724).

11. Investment in   During 1997, the Company  obtained a 50% interest in a joint
    Joint Venture   venture,   Fedeoliva  International  LTD.,  from  a  company
                    wholly-owned  by one of its board  members in  exchange  for
                    extinguishment  of a $135,000  (including  accrued interest)
                    note  receivable  due from that board member and issuance of
                    500,000  (estimated fair value of $125,000 at issuance date)
                    shares  of  common  stock.  The  remaining  50% is  owned by
                    Fedeoliva,   S.C.A.,   a  Spanish   olive   oil   production
                    cooperative.  Fedeoliva International LTD is a company which
                    was  created  to  acquire,  package,   distribute  and  sell
                    imported  Spanish  olive  oil and  related  products  in the
                    United States.  During 1997,  the Company  loaned  Fedeoliva
                    International,  LTD  $250,000  so that it could  obtain  the
                    rights to sell certain olive oil of Fedeoliva,  S.C.A., held
                    in  the  United  States.   The  joint  venture   experienced
                    significant  losses  during the year,  and as a result,  the
                    Company   wrote-off  its  investment  and a  portion  of the
                    unpaid  note  receivable  balance  ($55,760   plus  accrued
                    interest) as of December 31, 1997. As of  the end of January
                    1998,  the joint venture  ceased  operations  and remaining
                    obligations  were transferred to Fedeoliva, S.C.A.





                                                                              17





                                       14
<PAGE>

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

                  None.

                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

         The  names,  positions,  ages  and  backgrounds  of the  directors  and
executive officers of the Company at December 31, 1997 are set forth below.

Name                          Age     Position
----                          ---     --------

Mark Mendelson                41      Chairman  of the  Board of  Directors  and
                                      Chief Executive Officer. Mr. Mendelson has
                                      been  a  Director  of  the  Company  since
                                      August 1996. Since 1984, Mr. Mendelson has
                                      served as  Chairman  and  Chief  Executive
                                      Officer  of  Hampton  Real  Estate  Group,
                                      Inc.,  a  diversified   professional  real
                                      estate   brokerage,    development,    and
                                      management firm specializing in commercial
                                      and residential  properties throughout the
                                      United States.  Mr.  Mendelson is a former
                                      director  and past  chairman  of the Audit
                                      Committee  of  Equimark  Bank  Corporation
                                      and sits on the  boards  of a  variety  of
                                      civic  and   philanthropic   institutions,
                                      including  the Board of Trustees of Lehigh
                                      Valley Community College.

Richard N. Chajekian, Jr.     35      Director,   President  and  Secretary  and
                                      Chief Operating Officer.  Mr. Chakejian is
                                      experienced in the food,  laundry products
                                      and chemical industries. Mr. Chakejian has
                                      an   extensive    background    in   field
                                      management, sales, marketing and research.

Matthew Coppolino             60      Director.  Mr.  Coppolino  is  the  senior
                                      Judge in the Municipal Court Of The City
                                      Of Philadelphia.


          Richard  Chakejian,  Sr., the father of the President,  is manager and
sole employee of Premiere Chemical Products.  Mr. Chakejian,  Sr. formerly owned
and operated businesses engaged in several aspects of laundering,  dry cleaning,
and institutional linen services,  and is responsible for product  introduction,
sales, marketing and general management of the wholly-owned subsidiary.

         There are no other family relationships among any of the Directors or
executive officers of the Company or its subsidiaries.

         Directors are elected at each annual meeting of stockholders  and serve
until the next annual  meeting.  The bylaws of the Company  require a minimum of
four Directors. With the resignations of Mr. Gray and Mr. Whitehurst,  Jr. as of
December 15, 1997 and the election of Matthew Coppolino to the Board,  there are
only three Directors on the Board. At December 31, 1997, the Company was seeking
candidates for the Board of Directors to reach or exceed the minimum required by
its bylaws. Executive officers are elected annually at a meeting of the Board of
Directors  and,  subject to individual  contractual  arrangements,  serve at the
pleasure of the Board of Directors.




                                       15
<PAGE>

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT

         Section 16 (a) of the  Securities  Exchange Act requires the  Company's
officers  and  directors,  and persons who own more than ten percent  (10%) of a
registered  class  of the  Company's  equity  securities,  to  file  reports  of
ownership  on Forms  3, 4 and 5 with  the  Securities  and  Exchange  Commission
("SEC") and the National  Association of Security Dealers.  Officers,  directors
and  greater  than ten  percent  (10%)  beneficial  owners are  required  by SEC
regulation to furnish the Company with copies of all forms 3, 4 and 5 they file.

To the Company's knowledge, the following transactions have not been filed with
the SEC:

     1.   In October 1997, Mark Mendelson received 500,000 shares of common
stock as partial payment for the transfer of a 50% interest in a Fedioliva
International, Ltd. to the Company.

     2.   In October 1997, Richard Chakejian, Jr. received 500,000 shares of
common stock in consideration of the transfer of his rights, title, and interest
in all propriertary formulas, processes, materials, know-how, and methods of
manufacture of a soap detergent and related product.


ITEM 10.          EXECUTIVE COMPENSATION OF DIRECTORS

         Directors who are not executive officers of the Company are entitled to
receive  $300 per  meeting  of the Board of  Directors  or a  Committee  thereof
attended by the Director.

COMPENSATION OF EXECUTIVE OFFICERS

         The following table sets forth,  for the three years ended December 31,
1997,  certain  information  as to the  total  remuneration  paid to each of the
Company's  executive  officers  whose  total  annual  salary and bonus  exceeded
$100,000 for services in all capacities:
<TABLE>
                          Summary Compensation Schedule
<CAPTION>
                                                                                                             All
                                                     Annual Compensation                                   Other
         Name and                                                                          Other    Compensation
         Principal Position (1)                  Year       Salary          Bonus           (2)          (3)
         ----------------------                  ----       ------          -----          -----    ------------

         <S>                                     <C>        <C>             <C>           <C>           <C>
         Mark Mendelson                          1997       $      0    $        0    $        0      $        0
         Chairman and CEO                        1996       $      0    $        0    $        0      $        0
                                                 1995       $      0    $        0    $        0      $        0

         Richard N. Chakejian, Jr.               1997       $      0    $        0    $        0      $  125,000
         President                               1996       $      0    $        0    $        0      $        0
                                                 1995       $      0    $        0    $        0      $        0

         Max E. Gray                             1997       $ 99,827    $        0    $    7,200      $  110,167
         President and CEO                       1996       $100,000    $        0    $    7,200      $    9,799
                                                 1995       $100,000    $   25,000    $    7,200      $    9,144

         C. Harril Whitehurst, Jr.               1997       $ 66,200    $        0    $    4,766      $        0
         Executive Vice                          1996       $100,000    $        0    $    7,200      $    9,500
         President and CFO                       1995       $100,000    $   25,000    $    7,200      $    8,898
</TABLE>

(1)       No other  executive  officer had  compensation  whose salary and bonus
          exceeded $100,000.
(2)       Includes perquisites, including automobile allowance.
(3)       Includes  premiums  paid  for  health, disability  and life (where the
          spouse is the beneficiary) insurance.
(4)       Mark Mendelson  received  500,000 shares  of common stock and $135,000
          in  exchange  for  a 50%  interest  in  Fedeoliva  International, Ltd.
          Richard  Chakejian, Jr.  received  500,000  shares  of common stock in
          exchange for  his  transfer  of all rights, title  and interest in all
          proprietary formulas, processes,  materials,  know-how, and methods of
          manufacture of  a soap detergent and related product. See item 12.

EMPLOYMENT AGREEMENTS

         As of  December  31,  1997,  the  Company  had  not  entered  into  any
employment agreements with its employees.



                                       16
<PAGE>

STOCK OPTION PLAN

         In May 1992, the Board of Directors  adopted an Incentive  Stock Option
Plan (the "Plan").  Pursuant to the Plan, 500,000 shares of the Company's common
stock were made  available  for  awards.  The Plan  allows for  Incentive  Stock
Options  intended to qualify as Incentive  Stock  Options  within the meaning of
Section 422 of the Internal  Revenue Code of 1986,  and for  Nonqualified  Stock
Options not  intended to qualify as Incentive  Stock  Options.  Incentive  Stock
Options may be granted only to employees  of the  Company.  Non-qualified  Stock
Options  may be granted  to  employees  as well as  non-employee  directors  and
consultants  to the  Company.  Exercise  prices  under  the Plan must be at fair
market  value  per share at date of grant  or,  in the case of  Incentive  Stock
Options  granted to  employees  who own more than 10% of the voting power of all
classes of stock of the  Company,  at 110% of the fair market value per share at
date of grant. Option activity is summarized following:
<TABLE>
<CAPTION>
                                                                       December 31,
                                                     -----------------------------------------------------
                                                        1997                  1996                  1995
                                                        ----                  ----                  ----
         <S>                                          <C>                   <C>                   <C>
         Outstanding options at
              beginning of year                        460,000               460,000               500,000
         Options granted                                   -0-                50,000               210,000
         Options canceled                             (260,000)            (  50,000)             (250,000)
                                                      ---------             --------               -------
         Outstanding options at
              end of year                              200,000               460,000               460,000
                                                       =======               =======               =======

         Exercise prices
              Low                                  $       .25           $       .25           $       .25
              High                                         .28                  2.50                  2.50

         Latest expiration date                    May 1, 2001           May 1, 2001         July 24, 2000
</TABLE>

         No options  have been  exercised  as of December 31, 1997, nor were any
individual  grants of stock  options made to any executive  officers  during the
fiscal year ended December 31, 1997.

         The following  table presents  information  concerning each exercise of
stock  options  during the fiscal  year ended  December  31, 1997 by each of the
named  executive  officers and the value of unexercised  options at December 31,
1997:

<TABLE>
                 Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values
<CAPTION>
                                                                       Number of
                                                                       Shares                  Value of
                                                                       Underlying              Unexercised
                                                                       Unexercised             In-the-Money
                                    Shares                             Options                 Options
                                    Acquired                           at FY-End               at FY-End
                                    on                 Value           Exercisable/            Exercisable/
Name                                Exercise           Realized        Unexercisable           Unexercisable
----                                --------           --------        -------------           -------------
<S>                                        <C>                   <C>        <C>                     <C>
Mark Mendelson                             0                     0          100,000                 (1)
Richard N. Chakejian, Jr.                  0                     0                0                 (1)


</TABLE>
(1)       None of the  options  are in the  money at  December  31,  1997 as the
          exercise  price is equal to or higher  than the  closing  price of the
          Company's common stock at December 31, 1997 of $0.125 per share.




                                       17
<PAGE>

STOCK APPRECIATION RIGHTS AND LONG-TERM INCENTIVE PLANS

         The  Company  did  not  grant  (nor  has it  ever  granted)  any  stock
appreciation  rights or long-term  incentives to any of the  executive  officers
named in the preceding table during the fiscal year ended December 31, 1997.

ITEM 11.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The  following  table  sets forth  certain  information  regarding  the
beneficial ownership of the Company's common stock as of December 31, 1997 by i)
each person known by the Company to own  beneficially 5% of such stock, ii) each
Director of the Company, iii) each executive officer of the Company, and iv) all
Directors  and  executive  officers of the Company as a group.  Except as listed
below, the address for each of the listed individuals is:
12 E. Oregon St., Philadelphia, Pennsylvania 19148.
<TABLE>
<CAPTION>
                                                              Number of Shares                 Percent
Name of Beneficial Owner (1)                                  Beneficially Owned             of Total (2)
----------------------------                                  ------------------             ------------

<S>                                                                     <C>                         <C>
Mark Mendelson (3),(4)........................................          2,651,000                   47.3%
John E. Dell (4)..............................................            450,000                    8.2%
c/o Gallagher, Briody, & Butler
Thomas P. Gallagher
212 Carnegie Center, Suite 402
Princeton, NJ 08540
Richard N. Chakejian, Jr......................................            691,500                   12.6%
Matthew Coppolino.............................................                  0                      0%
All Directors and officers
     as a group (three persons)...............................          3,342,500                   60.8%
</TABLE>
(1)       Unless otherwise indicated, each person has sole voting and investment
          powers with respect to the shares specified opposite his or her name.
(2)       Does not include  2,500,000 shares of common stock which were issuable
          upon  exercise  of the Class A and Class B  Warrants  included  in the
          Units sold in the initial public  offering;  these Class A and Class B
          Warrants expired in mid-1997.
(3)       Includes  option to purchase  100,000 shares of common stock at $0.275
          per share.
(4)       Consists of 450,000  shares of common stock owned by Mr. Dell which is
          subject to a voting trust which is voted by Mr. Mendelson.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         In October  1997,  500,000  shares of common  stock were  issued to Mr.
Chakejian,  Jr. in  consideration  of the  transfer  of his rights,  title,  and
interests in all  proprietary  formulas,  processes,  materials,  know-how,  and
methods of manufacture of a soap detergent and related product.

         In October  1997,  500,000  shares of common  stock were  issued to Mr.
Mendelson  and a  cash  payment  of  $135,000  was  made  to  Mr.  Mendelson  in
consideration  for a 50% interest in  Fedeoliva  International,  Ltd.  which Mr.
Mendelson, through Hampton Financial Services, Inc., transferred to the Company.

         Max E. Gray, C. Harril Whitehurst, Jr. and L. Anthony Bottoms, III each
purchased  500,000  shares of the Company's  common stock at a purchase price of
$0.05 per share in May 1992. Messrs. Gray,  Whitehurst and Bottoms were founding
stockholders  of the Company and Messrs.  Gray and Whitehurst  were officers and
Directors of the Company until their  resignations  effective December 31, 1997.
Mr. Bottoms was an officer and Director of the Company until his  resignation in
July 1995.

         Pursuant to the terms of a May 1992 Stock  Purchase  Agreement  between
the Company  and John E. Dell a Director  of the Company at that time,  Mr. Dell
purchased 1,000,000 shares of the Company's common stock and was issued a Common
Stock Purchase Warrant (the "Private  Warrant")  entitling him to purchase up to
500,000 shares of the Company's common stock at $2.00 per share on or before May


                                       18
<PAGE>

1997. The Private  Warrant  carries  certain  demand and piggyback  registration
rights. Mr. Dell paid the Company $425,000 in consideration for the common stock
and Private  Warrant and also agreed to subscribe  for  1,000,000  shares of the
Company's  Series A preferred  stock if the Company was unable to sell a minimum
of 1,000,000  shares of its Series A preferred stock to third parties.  On March
5, 1993,  Mr.  Dell sold the right to acquire  200,000  shares of the  Company's
common stock pursuant to the Private Warrant to certain unrelated third parties.


         All future  transactions with officers,  Directors or five percent (5%)
stockholders  of the Company will be approved by the  independent  disinterested
members of the Company's Board of Directors and be on terms no less favorable to
the Company than could otherwise be obtained from unaffiliated third parties.

         All of the transactions  described above give retroactive effect to the
1-for-2 reverse stock split that occurred in July 1993.

                                     PART IV

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)      (3) List of Exhibits Required by Item 601 Of Regulation S-B

        Exhibit #
        ---------
          1.1       Revised Form of Underwriting  Agreement  between the Company
                    and Hibbard Brown & Company, Inc. (1)
          3.1       Restated Articles of Incorporation of the Company. (1)
          3.2       By-laws of the Company. (1)
          3.3       Form of Stock Certificate. (1)
          4.1       Revised Form of  Underwriter's  Unit  Purchase  Option to be
                    issued to Hibbard Brown & Company, Inc. (1)
          4.2       Revised Form of Warrant Agreement among the Company, Hibbard
                    Brown & Company,  Inc. and American Stock Transfer and Trust
                    Company,  including  specimen  forms of Class A and  Class B
                    Warrants. (1)


                                       19
<PAGE>

          4.3       Revised  Form of "M/A"  Agreement  between  the  Company and
                    Hibbard Brown & Company, Inc. (2)
          9.1       Irrevocable  Voting Proxy,  dated March 9, 1994 between John
                    E. Dell and Max E. Gray. (3)
          10.1      Common Stock Purchase Agreement,  dated May 16, 1992, by and
                    among the  Company,  John E. Dell,  Max E. Gray,  C.  Harril
                    Whitehurst, Jr. and L. Anthony Bottoms, III. (1)
          10.2      Escrow  Agreement,  dated  May 16, 1992,  by and  among  the
                    Company, Max E, Gray, C. Harril Whitehurst,  Jr., L. Anthony
                    Bottoms,  III, John E. Dell and Mason,  Briody,  Gallagher &
                    Taylor, Esqs. (1)
          10.3      Escrow  Agreement,  dated  May 16,  1992,  by and  among the
                    Company, John E. Dell and Mason, Briody, Gallagher & Taylor,
                    Esqs. (1)
          10.4      Shareholders' Agreement, dated May 16, 1992 by and among the
                    Company,  John E. Dell,  Max E. Gray, C. Harril  Whitehurst,
                    Jr. and L. Anthony Bottoms, III. (1)
          10.5      Employment  Agreement,  dated  May  18,  1992,  between  the
                    Company and Max E. Gray and  Amendment  No. 1 thereto  dated
                    March 8, 1993. (1)
          10.6      Employment  Agreement,  dated  May  18,  1992,  between  the
                    Company and L.  Anthony  Bottoms,  III and  Amendment  No. 1
                    thereto dated March 8, 1993. (1)
          10.7      Employment  Agreement,  dated  May  18,  1992,  between  the
                    Company and C. Harril  Whitehurst,  Jr. and  Amendment No. 1
                    thereto dated March 8, 1993. (1)
          10.8      1992 Stock Option Plan. (1)
          10.9      Incentive Stock Option Agreement, dated June 1, 1992 between
                    the Company and Max E. Gray. (1)
          10.10     Incentive Stock Option Agreement, dated June 1, 1992 between
                    the Company and L. Anthony Bottoms, III. (1)
          10.11     Incentive Stock Option Agreement, dated June 1, 1992 between
                    the Company and C. Harril Whitehurst, Jr. (1)
          10.12     Common  Stock  Purchase  Warrant  Agreement,  dated March 8,
                    1993,  by and among  the  Company,  John E. Dell and  Ronnie
                    Wohl. (1)
          10.13     Common  Stock  Purchase  Warrant  Agreement,  dated March 8,
                    1993,  by and among  the  Company,  John E. Dell and  Donald
                    Wohl. (1)
          10.14     Common  Stock  Purchase  Warrant  Agreement,  dated March 8,
                    1993, by and among the Company,  John E. Dell and Ladenberg,
                    Thalmann & Co. Inc. (1)
          10.15     Common Stock Purchase  Warrant,  dated March 8, 1993, issued
                    by the Company to John E. Dell. (1)
          10.16     Common Stock Purchase  Warrant,  dated March 8, 1993, issued
                    by the Company to Ronnie Wohl. (1)
          10.17     Common Stock Purchase Warrant, dated March 8,1993, issued by
                    the Company to Donald Wohl. (1)
          10.18     Common Stock Purchase  Warrant,  dated March 8, 1993, issued
                    by the Company to Ladenberg, Thalmann & Co. Inc. (1)
          10.19     Non-Qualified Option Agreement, dated June 17, 1992, between
                    the Company and Thomas P. Gallagher. (1)
          10.20     Non-Qualified Option Agreement, dated June 17, 1992, between
                    the Company and Michael F. Marino. (1)
          10.21     Lease  Agreement,  dated July 27, 1992,  between the Company
                    and Southgate Associates. (1)
          10.22     Loan  Agreement,  dated July 20,  1992,  by and  between the
                    Company and NationsBank of Virginia, N.A. (1)
          10.23     Commitment   Letter,   dated   September   18,  1992,   from
                    NationsBank of Virginia,  N.A.  approving credit facility in
                    the amount of $250,000. (1)
          10.24     Commitment  Letter,  dated May 7, 1992, from  NationsBank of
                    Virginia,  N.A.  approving  credit facility in the amount of
                    $10,000,000. (1)
          10.25     Mortgage  Selling  and  Servicing  Contract,  dated July 31,
                    1992, between the Company and Fannie Mae. (1)
          10.26     Mortgage  Servicing  Purchase  and  Sale  Agreement,   dated
                    December   30,   1992,   by  and  between  the  Company  and
                    Continental Savings of America. (1)


                                       20
<PAGE>

          10.27     Interim Servicing Agreement,  dated December 9, 1992, by and
                    between the Company and Continental Savings of America. (1)
          10.28     Mortgage  Servicing  Purchase  and  Sale  Agreement,   dated
                    December  30,  1992,  by and between the Company and Beverly
                    Hills Securities Company. (1)
          10.29     Interim Servicing Agreement,  dated December 9, 1992, by and
                    between the Company and Beverly  Hills  Securities  Company.
                    (1)
          10.30     Mortgage Servicing Purchase and Sale Agreement,  dated March
                    31, 1993, by and between the Company and Continental Savings
                    of America. (1)
          10.31     Interim  Servicing  Agreement,  dated March 31, 1993, by and
                    between the Company and Continental Savings of America. (1)
          10.32     Mortgage Servicing Purchase and Sale Agreement, dated August
                    30, 1993, by and between the Company and Interfirst  Federal
                    Savings Bank. (3)
          10.33     Interim Servicing  Agreement,  dated August 30, 1993, by and
                    between the Company and Interfirst Federal Savings Bank. (3)
          10.34     Mortgage  Servicing  Purchase  and  Sale  Agreement,   dated
                    September   30,  1993,   by  and  between  the  Company  and
                    Continental Savings of America. (3)
          10.35     Interim  Servicing  Agreement,  dated September 30, 1993, by
                    and between the Company and Continental  Savings of America.
                    (3)
          10.36     Agreement and Plan of Merger,  dated  September 29, 1993, by
                    and  among  the  Company,   First   Chesapeake   Acquisition
                    Corporation, Waterford Mortgage Corporation and Stockholders
                    of Waterford Mortgage Corporation. (3)
          10.37     Lease  Agreement,  dated  July 7,  1993,  between  Waterford
                    Mortgage   Corporation   and  1320  Old  Chain  Bridge  Road
                    Associates. (3)
          10.38     Lease Agreement,  dated November 22, 1993, between Waterford
                    Mortgage   Corporation   and  1320  Old  Chain  Bridge  Road
                    Associates. (3)
          10.39     Mortgage Loan Warehouse Purchase  Agreement,  dated November
                    24, 1993, by and between Waterford Mortgage  Corporation and
                    Mt. Vernon Federal Savings Bank. (3)
          10.40     Commitment Letter,  dated November 8, 1993, from NationsBank
                    of Virginia,  N.A.  approving increase in credit facility in
                    the amount of $10,000,000 to $15,000,000. (3)
          10.41     Amendment, dated December 29, 1993, to Loan Agreement, dated
                    July 20, 1992, by and between the Company and NationsBank of
                    Virginia, N.A. (3)
          10.42     Employment  Agreement,  dated  March 16,  1994,  between the
                    Company and John J. Morrissey. (3)
          10.43     Employment  Agreement,  dated  March 16,  1994,  between the
                    Company and Robert L. Nichols. (3)
          10.44     Stock Option  Agreement,  dated September 29, 1993,  between
                    the Company and John J. Morrissey. (3)
          10.45     Stock Option  Agreement,  dated September 29, 1993,  between
                    the Company and Robert L. Nichols. (3)
          10.46     Commitment  Letter,  dated October 8, 1993, from NationsBank
                    of Virginia, N.A. approving Credit Facility in the amount of
                    $250,000. (3)
          10.47     Shareholders' Termination Agreement,  dated January 7, 1994,
                    among the  Company,  John E. Dell,  Max E. Gray,  C.  Harril
                    Whitehurst, Jr. and L. Anthony Bottoms, III. (3)
          10.48     Liquidating  Trust  Agreement,  dated March 9, 1994,  by and
                    among John E. Dell, Wallace E. Timmeny, as Trustee,  and the
                    Company. (3)
          10.49     Commitment  Letter and  related  loan  documentation,  dated
                    April  15,   1994,   by  and  between   Waterford   Mortgage
                    Corporation and DLJ Mortgage Capital, Inc. (4)
          10.50     Second Amendment,  dated August 16, 1994, to Loan Agreement,
                    dated  July  20,  1992,  by  and  between  the  Company  and
                    NationsBank of Virginia, N.A. (4)
          10.51     Third  Amendment,  dated August 31, 1994, to Loan Agreement,
                    dated  July  20,  1992,  by  and  between  the  Company  and
                    NationsBank of Virginia, N.A. (4)
          10.52     Fourth Amendment, dated December 1, 1994, to Loan Agreement,
                    dated  July  20,  1992,  by  and  between  the  Company  and
                    NationsBank of Virginia, N.A. (4)
          10.53     Loan Servicing  Purchase and Sale Agreement,  dated November
                    30,  1994,  by and  between  the  Company  and MCA  Mortgage
                    Corporation. (4)


                                       21
<PAGE>

          10.54     Lease Agreement,  dated January 12, 1995, by and between the
                    Company and Woodmere Investments Group, L.L.C. (4)
          10.55     Lease  Agreement,  dated August 31, 1995, by and between the
                    Company and RF&P II, Inc. (5)
          10.56     Letter of Intent,  dated  December  11,  1995,  to acquire a
                    Federal  Savings  Bank in Florida by and between the Company
                    and Mr. Gene Moore, Chairman. (5)
          10.57     Mortgage   Loan   Warehouse   Agreement   and  related  loan
                    documentation,  dated  February  29,  1996,  by and  between
                    American  Mortgage  Express,  Inc. and First Union  National
                    Bank of North Carolina. (5)
          21        Subsidiaries of the Company

                    (a)       National Archives, Inc., incorporated in the state
                              of Pennsylvania (60%)
                    (b)       Premiere Quality Foods, Inc.,  incorporated in the
                              state of Virginia (100%)
                    (c)       Premiere  Chemicals,  Inc.,  incorporated  in  the
                              state of Virginia (100%)

          27        Financial   Data   Schedule    (electronic   filing   only).

                    ---------------------------

         (1)      Incorporated  by  reference  to the  correspondingly  numbered
                  exhibit   to  the   Registration   Statement   on  Form   S-1,
                  Registration  No.  33-59726,  filed  by the  Company  with the
                  Securities and Exchange Commission (the "Commission") on March
                  18, 1993, and Amendments Nos. 1, 2, 3 and 4 thereto filed with
                  the  Commission  on May 19, June 25, July 8 and July 15, 1993,
                  respectively.
         (2)      Incorporated  by  reference  to the  exhibit  numbered  4.4 to
                  Amendment  No. 4 to the  Registration  Statement  on Form S-1,
                  Registration  No.  33-59726,  filed  by the  Company  with the
                  Commission on July 15, 1993.
         (3)      Incorporated  by  reference  to the  correspondingly  numbered
                  exhibit to the Company's  Annual Report on Form 10-KSB for the
                  year ended  December  31,  1993 filed with the  Commission  on
                  March 31, 1994.
         (4)      Incorporated  by  reference  to the  correspondingly  numbered
                  exhibit to the Company's  Annual Report on Form 10-KSB for the
                  year ended  December  31,  1994 filed with the  Commission  on
                  March 31, 1995.
         (5)      Incorporated  by  reference  to the  correspondingly  numbered
                  exhibit to the Company's  Annual Report on Form 10-KSB for the
                  year ended  December  31,  1995 filed with the  Commission  on
                  April 1, 1996.


(b)      Reports on Form 8-K.

         No Reports on Form 8-K were filed during the last quarter of the period
covered by this report.


                                       22
<PAGE>

                                   SIGNATURES

         In  accordance  with  Section  13 or 15(d)  of the  Exchange  Act,  the
Registrant  caused  this  report to be signed on its behalf by the  undersigned,
thereunto duly authorized.

Dated:  December 7, 1998                First Chesapeake Financial Corporation,
                                        a Virginia corporation

                                        By:  /s/ Mark Mendelson
                                           ---------------------------------
                                        Mark Mendelson, Chairman,
                                        Chief Executive Officer

                                        By: /s/ Richard N. Chakejian, Jr.
                                           ---------------------------------
                                        Richard N. Chakejian, Jr. Director,
                                        President

                                        By: /s/ Mark E. Glatz
                                           ---------------------------------
                                        Mark E. Glatz, Director,
                                        Chief Financial Officer

         In accordance  with the Exchange Act, this report has been signed below
by the following  persons on behalf of the  Registrant and in the capacities and
on the dates indicated.
<TABLE>
Date                       Name and Title                              Signature
----                       --------------                              ---------
<S>                        <C>                                         <C>
December 7, 1998          Mark Mendelson, Chairman of the             /s/ Mark Mendelson
                                                                       ------------------
                           Board, Chief Executive Officer              Mark Mendelson

December 7, 1998          Richard N. Chakejian, Jr.,                  /s/ Richard N. Chakejian. Jr.
                                                                       -----------------------------
                           Director and President                      Richard N. Chakejian, Jr.

December 7, 1998          Mark E. Glatz                               /s/ Mark E. Glatz
                                                                       -----------------
                           Director and Chief Financial Officer           Mark E. Glatz
</TABLE>


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