<PAGE>

                                 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, 2000

                        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 [X] No [ ]

     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: $4,064,731.

The aggregate market value of the issuer's voting stock held as of April 23,
2001, by nonaffiliates of the issuer was approximately $1,720,000.

As of December 31, 2000, issuer had 9,051,153 shares of its no par common stock
outstanding.

Documents Incorporated by Reference:  None.

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

                                     Page 1
<PAGE>

PART I
------

ITEM 1.   DESCRIPTION OF BUSINESS

Overview
--------

     First Chesapeake Financial Corporation (the "Company" or "First
Chesapeake") is a Virginia corporation which was formed in 1992 and discontinued
operations in 1997 following several years of unprofitable operations, and which
re-established operations in 1998.

     A new Board of Directors and new management have re-established operations
of the Company and are currently building a fully integrated mortgage
origination organization through internal growth and acquisitions.

     In 1998, the Company established a new mortgage banking subsidiary, and
subsequently in 1999 and 2000 the Company has expanded its mortgage banking
operations through acquisitions and internal growth.

     It has been First Chesapeake's goal to develop a vertically integrated
financial services company that can provide mortgage origination, homeowner's
insurance, title insurance, home warranties, among other financial services,
consumer direct, wholesale and through the Internet.  However, no assurance can
be given that the Company will be successful in its efforts to implement its
strategic plan.

Company History
---------------

     The Company was originally incorporated in Virginia in 1992 to engage in
the mortgage banking business.  In 1997, the Company's management resigned and
the Company closed all mortgage banking operations after several years of
substantial losses.  Following removal of management and ceasing of operations
in 1997, the Company elected a new Board of Directors, installed new management
and commenced implementation of a new strategic plan to re-establish the Company
as a provider of financial services, initially within the mortgage banking
segment.

     In the period from 1995 through 1997, the Company also invested in four
companies which were outside its core financial services business.  In 1998, the
newly-elected Board of Directors examined the Company's non-financial services
related businesses and their viability within the Company's overall strategic
plan and subsequently  decided to exit these businesses.  As a result, two of
these businesses ceased operations and two of these businesses were sold.

     In 1998, the Company's Board of Directors decided to refocus on the
financial services business, initially  through the creation of a new wholly-
owned mortgage banking subsidiary and adoption of an acquisition and expansion
strategy to create a national retail and wholesale mortgage banking business.

     In the 3rd quarter of 1998, the Company formed First Chesapeake Funding
Corporation, ("First Chesapeake Funding"), a wholly-owned subsidiary to perform
wholesale and retail mortgage banking operations at its Sunrise, FL location and
to serve as the administrative and core platform for a to-be-developed national
retail and wholesale mortgage banking operation.

     In the 1st quarter of 1999, the Company established First Chesapeake
Acquisition Corporation ("First Chesapeake Acquisition") and commenced its first
retail mortgage banking operation through formation of a wholly-owned
subsidiary, Collateral One Mortgage Corporation ("Collateral One"), to acquire
certain assets of Mortgage Concepts, Inc., an established originator of
primarily subprime and alternate documentation residential mortgage loans
operating in five central and Midwestern states. In the 2nd quarter of 1999,
Collateral One concluded the Mortgage Concepts, Inc. acquisition and the Company
opened a retail mortgage banking operation in Southern Florida, recruiting two
established managers and several experienced loan officers and staff.

                                     Page 2
<PAGE>

     In the 1st quarter of 2000, the company discontinued operations at its
First Chesapeake Funding wholesale mortgage banking subsidiary, closed two
Florida locations and centralized its mortgage banking operations in Louisville,
KY.

     In the 1st quarter of 2001, the company acquired substantially all of the
assets of Family First Mortgage, Inc., a Fort Lauderdale, FL originator of
residential mortgage loans.

     In addition to these business activities, the Company intends to
aggressively seek out and pursue other synergistic business opportunities
(whether early stage or mature) and investments within the mortgage banking and
related financial services industries. 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 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 Annual 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 results 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
-------------------------

     First Chesapeake is a financial services company providing a broad array of
residential mortgage products and related products and services to its customers
through its wholly owned mortgage banking subsidiaries.

     The Company offers a full menu of residential mortgage products to
customers ranging from prime credit borrowers seeking conventional or FHA/VA
loans to less credit-worthy customers who qualify for non-conventional,
alternate documentation and/or subprime loans through both its retail and
wholesale operations. Retail operations originate loans directly from the
consumer, while wholesale operations provide an efficient market for retail
mortgage loans originated by the Company's retail operations, as well as through
purchase of loans from third party loan originators.

     The Company funds its mortgage banking activities in large part through
warehouse lines of credit, and its ability to continue to originate and
wholesale residential mortgages is dependent upon continued access to capital on
acceptable terms.  Borrowings under these lines are repaid with the proceeds
received by the Company from the sale of the loans to institutional investors.
The Company's committed warehouse lines at December 31, 2000 and 1999 allowed
the Company to borrow up to $2 million and $29 million.  The existing warehouse
lines expire within the next twelve months, but are generally renewable,
however, no assurances are given that the Company can renew its warehouse lines
or that such renewals can be made on equal or more favorable terms to the
Company.  The Company sells its originated and purchased loans, including all
servicing rights, for cash to institutional investors, usually on a non-recourse
basis, with proceeds applied to reduce the corresponding warehouse lines
outstanding.

                                     Page 3
<PAGE>

     At December 31, 2000, the Company's mortgage banking operations consisted
of eleven offices in six states, with an office in formation in Florida and
applications pending to expand into eight additional states with the goal to
expand nationwide through both internal growth and acquisition.  The Company
currently originates loans in Indiana, Kentucky, Missouri, North and South
Carolina, Tennessee and Florida, with applications for approval pending in New
Jersey, Pennsylvania, Massachusetts, Connecticut, New York, Maryland, Delaware,
Virginia, New Hampshire, Maine and Rhode Island.

     The Company's strategy is to offer a full range of mortgage products to
borrowers of various credit levels and distribute these loans in a risk averse
manner through either bulk secondary market sales, loan sales to specific
institutional investors, or brokering of individual loans to "niche" investors.
Through this strategy, the Company anticipates profitability and continued
expansion with reduced exposure to interest rate and credit risks.

     The Company derives revenues from fees charged upon the origination of
mortgage loans, premiums received on the sale of mortgage loans, interest earned
during the period the Company holds the mortgage loans for sale, and various
"junk" fees associated with retail and wholesale mortgage banking.

     The Company also anticipates deriving an increased portion of its revenues
from its participation in various joint venture or strategic alliance
partnerships with groups offering title insurance, property/casualty insurance,
life and disability insurance, and home warranty products.

Previous Non-Mortgage Banking Businesses
----------------------------------------

     In the period from 1995 through 1997, the Company invested in four
companies which were outside its core financial services business:

     National Archives, Inc.  National Archives, Inc. ("National Archives") is a
60% owned subsidiary of the Company which was sold as of December 29, 1999.  In
late 1995, the Company acquired a 60% interest in the startup company, a
Pennsylvania corporation, for a purchase price of $150,000 in cash and certain
furniture and equipment valued at approximately $38,000.  National Archives is
located in Philadelphia, Pennsylvania and provides document archive services
from a rented warehouse.  National Archives has been slow in attracting new
customers and never attained profitable operations.  In December 2000, the
Company sold its interest in National Archives to an unrelated third party.

     Premiere Quality Foods, Inc. Premiere Quality Foods, Inc. ("Premiere
Quality Foods") is a wholly owned subsidiary of the Company which was closed in
1998. 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. Sales and marketing efforts
failed to meet projections, and in the 4th quarter of 1998, as part of its
overall refocus on the financial services businesses, the Company closed this
operation due to poor sales and uncertainties regarding the availability of an
ongoing supply of imported product.

     Premiere Chemical Products, Inc. Premiere Chemical Products, Inc.
("Premiere Chemical Products") was a wholly-owned subsidiary of the Company that
was sold as of January 1, 1999. 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 yet failed to meet projections. In the
4/th/ quarter of 1998, as part of its overall refocus on the financial services
businesses, the Company agreed to sell the stock of Premiere Chemical Products
to its management in exchange for assumption of liabilities of the subsidiary.
This sale was completed in 1999.

     Fedeoliva International, Ltd. 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.

                                     Page 4
<PAGE>

     As discussed previously, in 1998 the Board of Directors examined the
Company's non-financial services related businesses and their viability within
the Company's overall strategic plan and subsequently decided to exit certain of
these businesses.  By December 31, 2000, the Company had divested of all four of
these businesses to focus on its core financial services business.

Competition
-----------

     The Company's financial services 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 Company believes, however, that there is the opportunity for the
Company's mortgage banking subsidiaries to grow and gain market share.  However,
many of the Company's competitors are considerably larger and have financial
resources that are substantially greater than those of the Company.

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 and securitizing residential mortgage loans.
In addition, there are other federal and state statutes and regulations
affecting such activities. 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, 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 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.

Seasonality
-----------

     The mortgage banking industry is generally subject to seasonal trends.
These trends reflect the general pattern of resales of homes which typically
peak during the spring and summer. Mortgage refinancings tend to be less
seasonal and more closely tied to overall interest rates.

Environmental Matters
---------------------

     In the course of its business, the Company takes title (for security
purposes) or may foreclose on residential properties securing its mortgage
loans. To date, the Company has not been required to perform any investigation
or remediation activities, nor has it been subject to any environmental claims
relating to these activities. There can be no assurance, however, that this will
remain the case in the future.

Employees
---------

     As of December 31, 2000, the Company had approximately eighty employees,
including three 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, PA, which comprise approximately 2,000 square feet of leased
office and warehouse space. Until its sale in December 2000, the Company's
subsidiary, National Archives, also leased approximately 25,000 square feet of
office and warehouse

                                     Page 5
<PAGE>

space in the same property. 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 to each entity with no current rental payments.

     The Company's subsidiary, Collateral One, leases approximately 20,000
square feet of office space at locations in Louisville, KY, Lexington, KY, St.
Louis, MO, Indianapolis, IN, Charlotte, NC, Raleigh, NC, Nashville, TN,
Greensboro, NC, Columbia, SC and Memphis, TN under leases which are all short
term in nature with aggregate annual lease payments of approximately $275,000.

     The Company's subsidiary, First Chesapeake Funding, leased 2,400 square
feet of office space in Sunrise, Florida under a five year lease with annual
lease payments of $71,000.  This office was closed in early 2000 and the Company
has sublet this office space to a tenant for the remaining term of the lease.

     The Company's subsidiary, First Chesapeake Acquisition, leased
approximately 2,000 square feet of office space in Coral Gables, FL under a
three year lease which commenced in 1999 with annual lease payments of $48,000.
This office was closed in early 2000 and a new tenant has occupied this office
space.

     The Company's newly acquired operation, Family First Mortgage, leases
approximately 7,500 square feet of office space in Fort Lauderdale, FL under a
month to month lease.

     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.

ITEM 3.   LEGAL PROCEEDINGS

     Periodically, the Company and its subsidiaries become parties to legal
proceedings incidental to its business.  In the opinion of management, such
matters are not expected to have a material impact on the financial position of
the Company.

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

     The Company held its annual meeting on December 29, 2000.  At the annual
meeting, the shareholders elected Mark Mendelson, Mark Glatz, Paul Dandridge,
James Greenfield, Vincent Muratore, Pasquale Nestico and John Papandon to serve
on the Board of Directors.  Richard Chakejian, Jr., formerly an officer of the
company, withdrew his name from nomination to the Board of Directors prior to
the annual meeting.  No other matters were voted upon.

                                     Page 6
<PAGE>

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 "FCFK") 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, 2000:

<TABLE>
<CAPTION>
                                               Bid Price
                                               ---------
                                           High         Low
                                           ----         ---
     <S>                                   <C>         <C>
     1999
     First Quarter                          3-3/16     1-3/16
     Second Quarter                         2          1
     Third Quarter                          1-3/8        7/8
     Fourth Quarter                         2-1/4        7/8

     2000
     First Quarter                          4-1/2      1-1/8
     Second Quarter                         3-1/16       5/8
     Third Quarter                          2-5/16       5/8
     Fourth Quarter                            7/8       1/2
</TABLE>

     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 December 31, 2000, there were 379 stockholders of record; however,
the Company believes there were over 1,370 beneficial stockholders of the
Company's common stock.

     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

GENERAL
-------

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

Overview
--------

     First Chesapeake Financial Corporation and subsidiaries (the "Company" or
"First Chesapeake") is a Virginia corporation which ceased operations in 1997
following several years of unprofitable operations.

     A new Board of Directors and new management has re-established operations
of the Company and is currently building a fully integrated mortgage origination
organization through internal growth and acquisitions.

     In 1998, the Company established a new mortgage banking subsidiary, and
subsequently in 1999, 2000 and 2001 the Company has expanded its mortgage
banking operations through acquisitions and internal growth.

                                     Page 7
<PAGE>

     It has been First Chesapeake's goal to develop a vertically integrated
financial services company that can provide mortgage origination, homeowner's
insurance, title insurance, home warranties, among other financial services,
consumer direct, wholesale and through the Internet.  However, no assurance can
be given that the Company will be successful in its efforts to implement its
strategic plan.

Plan of Operation - Mortgage Banking Business
---------------------------------------------

     First Chesapeake is a financial services company providing a broad array of
residential mortgage products and related products and services to its customers
through its wholly owned mortgage banking subsidiaries.

     The Company offers a full menu of residential mortgage products to
customers of ranging from prime credit borrowers seeking conventional or FHA/VA
loans to less credit-worthy customers who qualify for non-conventional,
alternate documentation and/or subprime loans through both its retail and
wholesale operations.  Retail operations originate loans directly from the
consumer, while wholesale operations provide an efficient market for retail
mortgage loans originated by the Company's retail operations as well as through
purchase of loans from third party loan originators.

     The Company funds its mortgage banking activities in large part through
warehouse lines of credit, and its ability to continue to originate and
wholesale residential mortgages is dependent upon continued access to capital on
acceptable terms. Borrowings under these lines are repaid with the proceeds
received by the Company from the sale of the loans to institutional investors.
The Company's committed warehouse lines at December 31, 2000 and 1999 allowed
the Company to borrow up to $2 million and $29 million. The existing warehouse
lines expire within the next twelve months, but are generally renewable,
however, no assurances are given that the Company can renew its warehouse lines
or that such renewals can be made on equal or more favorable terms to the
Company. The Company sells its originated and purchased loans, including all
servicing rights, for cash to institutional investors, usually on a non-recourse
basis, with proceeds applied to reduce corresponding warehouse line
outstandings.

     At December 31, 2000, the Company's mortgage banking operations consisted
of eleven offices in six states, with an office in formation in Florida and
applications pending to expand into eight additional states with the goal to
expand nationwide through both internal growth and acquisition.  The Company
currently originates loans in Indiana, Kentucky, Missouri, North and South
Carolina, Tennessee and Florida, with applications for approval pending in New
Jersey, Pennsylvania, Massachusetts, Connecticut, New York, Maryland, Delaware,
Virginia, New Hampshire, Maine and Rhode Island.

     The Company's strategy is to offer a full range of mortgage products to
borrowers of various credit levels and distribute these loans in a risk averse
manner through either bulk secondary market sales, loan sales to specific
institutional investors, or brokering of individual loans to "niche" investors.
Through this strategy, the Company anticipates profitability and continued
expansion with reduced exposure to interest rate and credit risks.

     The Company derives revenues from fees charged upon the origination of
mortgage loans, premiums received on the sale of mortgage loans, interest earned
during the period the Company holds the mortgage loans for sale, and various
fees associated with retail and wholesale mortgage banking.

     The Company also anticipates deriving an increased portion of its revenues
from its participation in various joint venture or strategic alliance
partnerships with groups offering title insurance, property/casualty insurance,
life and disability insurance, and home warranty products.

Financial Condition
-------------------

     Assets of the Company decreased from $5,061,000 at December 31, 1999 to
$3,039,000 at December 31, 2000, a decrease of $2,022,000. This decrease was
primarily due to a reduction in goodwill of $1,296,000 arising from
implementation of an acquisition purchase price adjustment as described in Note
D of the financial statements.

                                     Page 8
<PAGE>

In addition, a $95,000 increase in accounts receivable of the Company's
Collateral One subsidiary was more than offset by a $594,000 decrease in
mortgage loans held for resale, amortization of $171,000 of goodwill and
$141,000 of capitalized financing costs between fiscal dates.

     At December 31, 2000, assets consisted of acquisition-related goodwill of
$2,241,000, mortgage loans held for resale of $317,000, cash and other current
assets of $251,000, as well as $67,000 of fixed assets and $163,000 of other
assets.  At December 31, 1999, assets consisted of acquisition-related goodwill
of $3,708,000, mortgage loans held for resale of $911,000, cash and other
current assets of $153,000, capitalized financing costs of $141,000, as well as
fixed and other assets.

     Liabilities decreased from $4,986,000 at December 31, 1999 to $3,971,000 at
December 31, 2000 as a result of a $553,000 decrease in warehouse note payable
borrowings, a $584,000 decrease in "Notes payable - other" arising from
cancellation of $462,000 of notes due the sellers of the assets of Mortgage
Concepts, Inc. under the acquisition purchase price adjustment described in Note
D of the financial statements, as well as scheduled amortization of the balance
of the note due the sellers. partially offset by a $163,000 increase in
liabilities of discontinued operations arising from the sale of the assets of
National Archives.

     At the most recent fiscal date, liabilities including bank debt of
$2,107,000 and other debt of $85,000 associated with the Collateral One
acquisition, warehouse notes payable to banks of $349,000, accounts payable and
accruals totaling $681,000, $75,000 of subordinated junior debentures, $400,000
of deferred salaries due officers of the Company and $273,000 of liabilities of
discontinued operations.

     Net worth decreased from $75,000 at December 31, 1999 to negative $932,000
at December 31, 2000. This change is primarily the result of cancellation of
$834,000 of common stock arising from implementation of an acquisition purchase
price adjustment as described in Note D of the financial statements, as well as
from the loss of $831,000 for the twelve month period and cancellation of
$123,000 of common stock previously issued to a manager of a subsidiary, offset
by the sale of $175,000 of common stock and issuance of $600,000 of common stock
to certain officers of the Company in exchange for cancellation of debt of the
same amount. At December 31, 2000, the Company had current assets of $568,000
and current liabilities of $3,222,000, including the subsequently restructured
bank loan of $2,107,000 and remaining payments due the sellers of Mortgage
Concepts, Inc. of $85,000 due in 2001.

     Subsequent to December 31, 2000, the Company has raised $928,000 through
the private placement of the Company's Series B Convertible Preferred Stock, and
has authorized a maximum of $1,500,000 under this offering.  The Company
anticipates placement of the remaining authorized amount during 2001, although
no assurances can be given Company will be successful in its efforts to complete
this private placement.

Results of Operations
---------------------

Current Year Performance and Earnings Outlook

     The Company incurred a loss of $831,000 for the year ended December 31,
2000. This loss is a result of operating losses of $51,000 at the since ceased
First Chesapeake Funding operation and $9,000 at the since divested National
Archives subsidiaries offsetting the $477,000 operating profit of the Collateral
One subsidiary and $119,000 gain on disposition of National Archives, in
addition to interest and related costs ($493,000), depreciation/amortization
($207,000) and other corporate net expenses ($667,000).

     As discussed previously, the Company is implementing its strategic plan of
developing a retail and wholesale mortgage banking operation through acquisition
and internal growth as a step toward developing a vertically integrated
financial services company that can provide mortgage origination, homeowner's
insurance, title insurance and home warranties, among other financial services,
consumer direct, wholesale and through the Internet.  However, there are no
assurances that the Company will be able to successfully implement all aspects
of its strategic plan.

                                     Page 9
<PAGE>

Comparison of Year Ended December 31, 2000 to Year Ended December 31, 1999

     The Company incurred a loss from continuing operations of $889,000 for the
year ended December 31, 2000 compared to a loss from continuing operations of
$1,331,000 for the year ended December 31, 1999. An incremental loss from the
discontinued operations of $60,000 and a gain on disposition of discontinued
operations of $119,000 resulted in the net loss of $831,000 for 2000, compared
with an incremental loss from discontinued operations of $41,000 and a net loss
of $1,372,000 for 1999.

     Total revenues from continuing operations for the year ended December 31,
2000 amounted to $3,982,000 representing a decrease of $154,000 when compared to
1999's revenues of $4,244,000. The decrease in revenue is primarily attributable
to closure of First Chesapeake Funding operation in early 2000. Total expenses
from continuing operations for 2000 amounted to $4,954,000 as compared to
$5,575,000 in 1999, a decrease of $621,000, and was also attributable to the
January 2000 closure of the First Chesapeake Funding operation.

Liquidity and Capital Resources
-------------------------------

     The Company's primary liquidity requirements have been the establishment,
funding and expansion of its mortgage banking operations.

     The Company funds its mortgage banking activities in large part through
warehouse lines of credit, and its ability to continue to originate and
wholesale residential mortgages is dependent upon continued access to capital on
acceptable terms. Borrowings under these lines are repaid with the proceeds
received by the Company from the sale of the loans to institutional investors.
The Company's committed warehouse lines at December 31, 2000 allowed the Company
to borrow up to $2 million. The existing warehouse lines expire within the next
twelve months, but are generally renewable, however, no assurances are given
that the Company can renew its warehouse lines or that such renewals can be made
on equal or more favorable terms to the Company. The Company sells its
originated and purchased loans, including all servicing rights, for cash to
institutional investors, usually on a non-recourse basis, with proceeds applied
to reduce corresponding warehouse line outstandings.

     In 1998, the Company raised $635,000 under a subordinated debenture
offering. In February 1999, the Company borrowed $1,500,000 from a bank secured
by the personal guarantees of several officers and directors of the Company and
one outside investor to partially finance the Collateral One acquisition and for
working capital needs. In November 1999, the Company borrowed an additional
$607,000 from its bank and raised $485,000 under a private placement of common
stock to partially finance a payment due under the Collateral One acquisition.
In March 2000 the Company raised another $175,000 under a private placement of
common stock, and through March 31, 2001 raised an additional $928,000 under a
private placement of convertible preferred stock. The Company is seeking
additional capital infusion to fund its mortgage banking acquisitions and
expansion. While the Company believes it can attract the necessary capital to
provide the liquidity necessary to pursue new business opportunities, no
assurance can be given that it will in fact be able to do so.

     Cash and cash equivalents at December 31, 2000 amounted to $74,000 as
compared to $71,000 at December 31, 1999, or an increase of $3,000.

     During 2000, the Company's operating activities provided $496,000 as
compared to utilizing $1,324,000 in 1999. The reduction in utilization of cash
resources from operating activities resulted from the Company's lower net losses
in 2000, offset by non-cash items (issuance of $600,000 of common stock in lieu
of cash payments to officers and depreciation and amortization of $349,000
primarily associated with the goodwill from the Collateral One acquisition) and
a $594,000 decrease in mortgage loans held for resale.

     The Company had no investing activities in 2000. By comparison, investing
activities in 1999 utilized $1,204,000, reflecting net cash of $1,186,000
applied toward the Collateral One acquisition.

                                    Page 10
<PAGE>

     In 2000, financing activities utilized $493,000 of capital through
reduction in warehouse line borrowings of $553,000 and $121,000 of amortization
of notes payable to the sellers of Collateral One, offset by the aforementioned
$175,000 private placement of common stock, as compared with in 1999 providing
$2,599,000 of capital through the $2,107,000 of acquisition-related bank debt,
$902,000 of warehouse line borrowings and $485,000 private placement of common
stock.

ITEM 7.   FINANCIAL STATEMENTS

     See the Audited Financial Statements set forth at the end of this report.

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

     In a report on Form 8-K dated April 26, 2001 the Company announced a change
in Registrant's certifying accountant from Grant Thornton LLP to Gross Kreger &
Passio, L.L.C. as of April 23, 2001. The Company's Form 8-K dated April 26, 2001
is incorporated by reference.

     In a report on Form 8-K dated June 8, 1999 the Company announced a change
in Registrant's certifying accountant from BDO Seidman, LLP to Grant Thornton
LLP as of June 8, 1999. The Company's Form 8-K dated June 8, 1999 is
incorporated by reference.


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, 2000 are set forth below.

Name                      Age    Position and Background
----                      ---    -----------------------

Mark Mendelson             44    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 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 (currently known as Integra)
                                 and sits on the boards of a variety of civic
                                 and philanthropic institutions.

Paul A. Dandridge          73    Director. Mr. Dandridge is an attorney and
                                 former City of Philadelphia Judge who currently
                                 services as Chairman of Philadelphia Health
                                 Management Corporation, a non-profit, public
                                 health organization committed to improving the
                                 health of the community. Mr. Dandridge was
                                 elected to fill a vacancy on the Board of
                                 Directors in September 2000.

Mark Glatz                 38    Director and Chief Financial Officer. Mr. Glatz
                                 is experienced in finance, banking, and a wide
                                 array of industries, and holds a degree in
                                 accounting and an MBA in financial management.
                                 Mr. Glatz has served as Chief Financial Officer
                                 of the Company since July 1998.

James Greenfield           48    Director and Secretary. Mr. Greenfield is an
                                 attorney with experience in private practice,
                                 emphasizing municipal law, real estate matters,
                                 and

                                    Page 11
<PAGE>

                                 complex commercial litigation and arbitration.

Vincent Muratore           54    Director. Mr. Muratore has over 30 years
                                 mortgage banking experience, having
                                 successfully grown organizations of over $3.0
                                 billion and $1.5 billion of annual loan volume
                                 prior to joining the Company as a senior
                                 officer of the mortgage banking operations.

Pasquale Nestico, M.D.     54    Director. Dr. Nestico is a practicing physician
                                 certified in cardiology and internal medicine
                                 as well as an extensively published clinical
                                 professor of medicine at both Allegheny
                                 Hospital (formerly Hahnemann University) and
                                 Jefferson Medical College.

John Papandon              38    Director. Mr. Papandon is an attorney and
                                 Certified Public Accountant with a Masters
                                 degree in taxation with 15 years experience in
                                 the accounting industry.

     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
seven Directors. 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.

Resignation of Board Members
----------------------------

     On May 10, 2000, Jay Vederman resigned as a Director of the Company. Mr.
Vederman had served as a Director since November 1999.

     Matthew Coppolino served as a Director from July 1998 until his death in
June 2000.

     In September 2000, the Board of Directors terminated Richard N. Chakejian,
Jr. as an officer and employee of the Company and certain subsidiaries. In
December 2000, Mr. Chakejian withdrew his name from nomination to the Board of
Directors prior to the annual meeting of shareholders.

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 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. Based solely
on the Company's review of the copies of such forms it has received, the Company
believes that all its officers, directors and greater than ten percent (10%)
beneficial owners are in compliance with all filing requirements applicable to
them with respect to transactions during the fiscal year ended December 31,
2000.

ITEM 10.  EXECUTIVE COMPENSATION

Compensation of Directors
-------------------------

     Directors who are not executive officers of the Company ("Outside
Directors") are entitled to receive compensation of $2,000 per calendar quarter
served.

     In December 1999, the Executive Compensation Committee and Board of
Directors authorized the optional conversion of accrued Outside Director fees to
stock options under the 1999 ISO Plan. The options are immediately vested,
exercisable at $1.20 per share (since repriced to $0.80 per share), and expire
on December 29, 2004. The

                                    Page 12
<PAGE>

then Outside Directors elected to convert their accrued directors fees into a
total of 39,000 shares under the 1999 ISO Plan.

     During 2000 the Company awarded 80,000 option shares to the Outside
Directors of the Company at exercise prices ranging from $0.55 to $0.80 per
share and expiration dates from June 30, 2005 to December 29, 2005 under the
1999 ISO Plan. Specifically, 20,000 option shares were awarded each to Paul
Dandridge, James Greenfield, Pasquale Nestico and John Papandon.

Compensation of Executive Officers
----------------------------------

     The following table sets forth, for the three years ended December 31,
2000, 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>
<CAPTION>
                                                   Annual Compensation     Other        All Other
                                                   -------------------
     Name                                          Salary        Other      Reimb.     Compensation
     Principal Position /F1/                Year    /F2/          /F3/       /F4/          /F5/
     -----------------------                ----    ----          ----       ----          ----
     <S>                                    <C>    <C>          <C>         <C>        <C>
     Mark Mendelson                         2000   $120,000     $      0    $12,000       $12,000
     Chairman and CEO                       1999   $120,000     $      0    $12,000       $12,000
                                            1998   $ 75,000     $100,000    $ 9,000       $12,000

     Richard N. Chakejian, Jr. /F6/         2000   $      0     $      0    $     0       $     0
     President                              1999   $      0     $  9,515    $     0       $     0
                                            1998   $ 50,000     $100,000    $ 9,000       $12,000

     Mark E. Glatz                          2000   $120,000     $      0    $12,000       $12,000
     Chief Financial Officer                1999   $120,000     $      0    $12,000       $12,000
                                            1998   $ 50,000     $ 50,000    $ 9,000       $12,000
</TABLE>

/F1/   No other executive officer had compensation whose salary and bonus
       exceeded $100,000.
/F2/   All 2000, 1999 and 1998 salaries to the three executive officers, Messrs.
       Mendelson, Chakejian, Jr. and Glatz, have been deferred.
/F3/   Includes amounts converted to subordinated debentures in 1998.
/F4/   Includes perquisites, including automobile and incidental expense
       allowance.
/F5/   Includes premiums paid or reimbursed for health, disability and life
       (where the spouse is the beneficiary) insurance.
/F6/   In September 2000, the Board of Directors terminated Richard N.
       Chakejian, Jr. as an officer and employee of the Company and certain
       subsidiaries

Employment Agreements
---------------------

     There are no employment agreements with the above-named executive officers.

Stock Option Plans
------------------

     In May 1992, the Board of Directors adopted an Incentive Stock Option Plan
(the "1992 Plan"). Pursuant to the 1992 Plan, 500,000 shares of the Company's
common stock were made available for awards. The 1992 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

                                    Page 13
<PAGE>

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.

     In 1999, 1992 Plan options to purchase 150,000 shares were exercised by
holders; no 1992 Plan options were exercised in 1998. In 1999, the remaining
50,000 shares expired unexercised, and there are no outstanding shares under the
1992 plan. In November 2000, the Board of Directors approved the termination of
the 1992 Plan.

     In July 1998, the Board of Directors adopted a Non-Qualified Stock Option
Plan (the "1998 Plan"). Pursuant to the 1998 Plan, 1,000,000 shares of the
Company's common stock were made available for awards. The 1998 Plan allows for
Nonqualified Stock Options not intended to qualify as Incentive Stock Options
within the meaning of Section 422 of the Internal Revenue Code of 1986. 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.

     In July 1998, the Executive Compensation Committee awarded 500,000 option
shares under 1998 Plan to three executive officers of the Company.

     In July 1998, the Board of Directors awarded 30,000 option shares under the
1998 Plan to three outside directors of the Company.

     In February 1999, the Company issued 100,000 option shares under the 1998
Plan at an exercise price of $2.00 per share and 100,000 1998 Plan option shares
at an exercise price of $5.00 per share as partial compensation to seven
individuals, including three executive officers, one subsidiary officer, two
Outside Directors of the Company and one unaffiliated individual, for personally
guaranteeing a $1,500,000 bank loan to the Company.

     In November 1999, the Company issued 200,000 option shares under the 1998
Plan at an exercise price of $0.875 per share as compensation to the Chairman of
the Company, for personally guaranteeing and providing additional collateral to
secure an incremental $600,000 bank loan to the Company.

     In August 2000, options to purchase 10,000 shares of common stock were
exercised under the 1998 Plan. In June 2000, the Board of Directors approved the
termination of the 1998 Plan.

     In December 1999 the shareholders of the Company approved an Incentive
Stock Option Plan (the "1999 ISO Plan"), which was adopted by the Board of
Directors on November 17, 1999. Pursuant to the 1999 ISO Plan, 1,500,000 shares
of the Company's common stock were made available for awards. The 1999 Plan
allows for Incentive Stock Options intended to qualify as Incentive Stock
Options ("ISOs") pursuant to Section 422A of the Internal Revenue Code of 1986,
as amended (the "Code"), or they may be Non-Qualified Stock Options ("NSOs").
Exercise prices under the Plan must be at no less than fair market value per
share at date of grant, and shall expire no more than five years from date of
issuance.

     In December 1999 the Company awarded 550,000 option shares under the 1999
ISO Plan to certain officers of the Company at exercise prices of $1.20 per
share (since repriced to $0.80 per share) and expiration dates of December 29,
2004.

     In December 1999 the Company awarded a total of 29,500 option shares under
the 1999 ISO Plan to 18 employees of the Company in grants ranging from 500
option shares to 10,000 option shares at exercise prices ranging from $1.13 to
$1.50 (with some since repriced to $0.80 per share) and expiration dates between
July 9, 2004 and December 31, 2004.

     In December 1999 the Company awarded 39,000 option shares under the 1999
ISO Plan to certain Outside Directors of the Company at an exercise price of
$1.20 per share (since repriced to $0.80 per share) and an expiration date of
December 29, 2004.

     In May 2000, the Company awarded 2,000 option shares under the 1999 ISO
Plan to an employee of the Company at an exercise price of $1.50 per share
(since repriced to $0.80 per share) and an expiration date of May

                                    Page 14
<PAGE>

19, 2005.

     In June 2000 the Company awarded 50,000 option shares under the 1999 ISO
Plan to certain Outside Directors of the Company at an exercise price of $1.00
per share (since repriced to $0.80 per share), and an expiration date of June
30, 2005.

     In September 2000, the Company awarded 20,000 option shares under the 1999
ISO Plan to a consultant of the Company at an exercise price of $1.05 per share
(since repriced to $0.80 per share) and an expiration date of September 18,
2005.

     In December 2000 the Company awarded 550,000 option shares under the 1999
ISO Plan to certain officers of the Company at exercise prices of $0.55 per
share and expiration dates of December 29, 2004.

     In December 2000 the Company awarded 30,000 option shares under the 1999
ISO Plan to certain Outside Directors of the Company at an exercise price of
$1.20 per share (since repriced to $0.80 per share) and an expiration date of
December 29, 2004.

     In December 2000, the Company repriced all stock options issued in the
preceding twelve months to an exercise price of $0.80 per share. A total of
559,000 1999 ISO Plan option shares were repriced, of which 450,000 were held by
certain executive officers, and 86,000 were held by certain outside directors.
All other terms of the options remained unchanged.

     No 1999 ISO Plan options have been exercised as of this date.

     In 1998, the Company issued $635,000 of convertible subordinated
debentures. Up to 20% of the subordinated debenture notes are convertible, at
any time at option of the holder, into the Company's common stock at a price of
$2.00 per share. The $635,000 includes $350,000 of subordinated debentures
issued to certain officers of the Company in exchange for a similar reduction in
amounts due officers.

     In November 1999, the Company offered to convert up to 100% of the
convertible subordinated debentures into Company common stock at a conversion
price of $1.50 per share. Holders of $560,000 of debentures elected to convert
their holdings into 373,333 shares of common stock, including conversion of all
debentures held by officers of the Company. At December 31, 1999, the remaining
$75,000 of convertible subordinated debentures remain outstanding under the
original terms and conditions of the issuance.

     Other than the November 1999 conversions, none of the remaining $75,000 of
subordinated debenture options have been exercised as of this date.

  Option activity under the above plans is summarized following:

<TABLE>
<CAPTION>
                                                         December 31,
                                                   --------------------------
                                                      2000             1999
                                                      ----             ----
     <S>                                           <C>            <C>
     Outstanding options at beginning of year       1,548,500        730,000

     1999 ISO Plan options granted                    652,000        618,500
     1999 ISO Plan options exercised                      -0-            -0-
     1999 ISO Plan options cancelled                 (103,000)           -0-

     1998 Plan options granted                            -0-        400,000
     1998 Plan options exercised                      (10,000)           -0-
     1998 Plan options cancelled                     (110,000)           -0-

     1992 Plan options exercised                          -0-       (150,000)
     1992 Plan options cancelled                          -0-        (50,000)
                                                   ----------     ----------

     Outstanding options at end of year             1,977,500      1,548,500
                                                   ==========     ==========

</TABLE>

                                    Page 15
<PAGE>

<TABLE>
     <S>                                         <C>            <C>
     Exercise prices
       Low                                         $      .55     $      .60
       High                                              5.00           5.00

     Latest expiration date                      December 29,   December 31,
                                                         2005           2004
</TABLE>

Option/SAR Grants in Last Fiscal Year
-------------------------------------

     The following table sets forth, for the period ended December 31, 2000,
certain information as to the Option/SAR grants to the above-named executive
officers in the last fiscal year:

<TABLE>
<CAPTION>
                                           Number of
                                           Securities         % of Total
                                           Underlying       Options/SARs to      Exercise or          Latest
                                          Options/SARs       Employees in         Base Price        Expiration
     Name                                   Granted           Fiscal Year         ($/share)            Date
     ----                                   -------           -----------         ---------            ----
     <S>                                  <C>               <C>                  <C>             <C>
     Mark Mendelson                         300,000                52%             $0.55         December 29, 2005
     Richard Chakejian, Jr.                    None               N/A                N/A                       N/A
     Mark Glatz                             250,000                44%             $0.55         December 29, 2005
</TABLE>

     The following table presents information concerning each exercise of stock
options during the fiscal year ended December 31, 2000 by each of the named
executive officers and the value of unexercised options at December 31, 2000:

<TABLE>
<CAPTION>
                                                     Number of Shares      Value of
                                                     Underlying            Unexercised
                             Shares                  Unexercised           In-the-Money
                             Acquired                Options at FY-End     Options at FY-End
                             on          Value       Exercisable/          Exercisable/
Name                         Exercise    Realized    Unexercisable         Unexercisable
----                         --------    --------    -------------         -------------
<S>                          <C>       <C>           <C>                   <C>
Mark Mendelson                  0          $-0-      1,100,000/-0-            $-0-/-0-
Richard N. Chakejian, Jr.       0          $-0-         20,000/-0-            $-0-/-0-
Mark E. Glatz                   0          $-0-        570,000/-0-            $-0-/-0-
</TABLE>

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, 2000 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. Other than as listed
in the below notes, the address for each of the listed individuals is: 12 E.
Oregon Avenue, Philadelphia, Pennsylvania 19148.

<TABLE>
<CAPTION>
                                                    Number of Shares           Percent
Name of Beneficial Owner /F1/                     Beneficially Owned           of Total
-----------------------------                     ------------------           --------
<S>                                               <C>                          <C>
Mark Mendelson /F2/, /F3/......................            5,101,877             43.3%
John E. Dell /F2/..............................              450,000              3.8%
Richard N. Chakejian, Jr. /F4/.................              804,834              6.8%
Mark E. Glatz /F5/.............................            1,521,403             12.9%
Paul Dandridge /F7/............................               20,000              0.2%
James Greenfield /F6/..........................              138,000              1.2%
</TABLE>

                                    Page 16
<PAGE>

<TABLE>
<S>                                                       <C>                   <C>
Vincent Muratore ..............................              783,500              6.6%
Pasquale Nestico /F7/..........................               93,334              0.8%
John Papandon /F6/.............................              138,000              1.2%
------------------                                        ----------            -----
All Directors and officers as a group..........            7,796,113             66.1%

Total number of (fully diluted) shares.........           11,786,152            100.0%
</TABLE>

NOTES:
/F1/   Unless otherwise indicated, each person has sole voting and investment
       powers with respect to the shares
/F2/   Consists of 450,000 shares of common stock owned by Mr. Dell subject to
       an irrevocable voting trust which is voted by Mr. Mendelson; c/o
       Gallagher Broidy & Butler, Attn: Thomas P. Gallagher, 212 Carnegie
       Center, Suite 402, Princeton, NJ 08540
/F3/   Includes options to purchase 550,000 shares under the Company's 1998 Plan
       and 550,000 shares under the Company's 1999 ISO Plan
/F4/   Includes options to purchase 20,000 shares under 1998 Plan
/F5/   Includes options to purchase 120,000 shares under 1998 Plan and 450,000
       shares under the 1999 ISO Plan
/F6/   Includes options to purchase 30,000 shares under 1998 Plan and 38,000
       shares under 1999 ISO Plan
/F7/   Includes options to purchase 20,000 shares under 1999 ISO Plan

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     In January 1999, the Company issued 200,000 shares of common stock, options
to purchase 100,000 shares at $2.00 per share, and options to purchase 100,000
shares at $5.00 per share as compensation to certain individuals for personally
guaranteeing a $1,500,000 bank loan to the Company. The guarantors included the
three executive officers of the Company and two Outside Directors of the
Company, as well as Lester W. Salzman, at that time President of First
Chesapeake Funding, a wholly-owned subsidiary of the Company, as follows:

<TABLE>
<CAPTION>
                                                        Number of        Number of
                                      Number of            Option           Option
                                         Shares         Shares at        Shares at
                                                               --               --
                                         Issued      $2.00 Issued     $5.00 Issued
                                         ------      ------------     ------------
<S>                                   <C>            <C>              <C>
Mark Mendelson                           50,000            25,000           25,000
Richard N. Chakejian, Jr.                20,000            10,000           10,000
Mark E. Glatz                            20,000            10,000           10,000
John Papandon                            20,000            10,000           10,000
James Greenfield                         20,000            10,000           10,000
Lester W. Salzman                        20,000            10,000           10,000
(Unrelated party)                        50,000            25,000           25,000
-----------------                       -------           -------          -------
Totals                                  200,000           100,000          100,000
</TABLE>

     In January 1999, the Company issued 50,000 shares of common stock to James
Greenfield and 50,000 shares of common stock to John Papandon, both Directors of
the Company, for prior services rendered in lieu of cash payments.

     Richard Chakejian, Sr., the father of the former President, was manager and
sole employee of Premiere Chemical Products, and was the purchaser of the stock
of this subsidiary upon its divestiture as of January 1, 1999.

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

     The Company currently utilizes approximately 2,000 square feet of office
and warehouse space in a property owned by an entity controlled by Mark
Mendelson, Chairman of the Board and Chief Executive Officer.

                                    Page 17
<PAGE>

NAI also utilized approximately 25,000 square feet of office and warehouse space
in the same property until sale of that subsidiary in December 2000. No current
rental payments are made by the Company, although it makes contributions pro
rata toward the utilities and operating costs of the property.

     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.

                                    Page 18
<PAGE>

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)
       9.1          Irrevocable Voting Proxy dated March 9, 1994 between John E.
                    Dell and Max E. Gray (2)
       9.2          Appointment of Mark Mendelson as of January 1, 1998 as
                    holder of Irrevocable Voting Proxy dated March 9, 1994
                    between John E. Dell and Max E. Gray.
      10.1          1992 Stock Option Plan. (1)
      10.2          Agreement between the Company and Lester W. Salzman dated
                    June 5, 1998 (3).
      10.3          Share Purchase Agreement dated as of January 1, 1999 between
                    the Company and Richard N. Chakejian, Sr. (3).
      10.4          Warehouse Loan Agreement dated March 1999 between the
                    Company and Priority Bancorp, Inc. (3).
      10.5          Participation Agreement dated May 25, 1999 between the
                    Company and Sterling Bank and Trust. (3).
      2.1           Asset Purchase Agreement dated February 9, 1999 with
                    Mortgage Concepts, Inc.,
                    William Everslage and Jeffrey Houk, as amended (4).
      2.2           Loan Agreement dated February 5, 1999 with Crusader Bank
                    (4).
      2.3           Third Amendment to the Asset Purchase Agreement dated
                    February 9, 1999 between the Company and Mortgage Concepts,
                    Inc. (5)
      2.4           Amendment to Loan Agreement dated November 10, 1999 with
                    Crusader Bank. (5)
      10.6          Forbearance Agreement dated February 2, 2001 between Company
                    and Crusader Bank.
      10.7          Fourth Amendment to the Asset Purchase Agreement dated
                    August 31, 2000 between the Company and Mortgage Concepts,
                    Inc.
      10.8          Asset Purchase and Sale Agreement dated December 1, 2000
                    between Iron Mountain Records Management, Inc. and National
                    Archives, Inc.

      21

               (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%)
               (d)  First Chesapeake Funding Corporation, incorporated in the
                    state of Virginia (100%)
               (e)  First Chesapeake Acquisition Corporation, incorporated in
                    the state of Virginia (100%)
               (f)  Collateral One Mortgage Corporation, incorporated in the
                    state of Virginia (100%)

     _____________________

     (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 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.

                                    Page 19
<PAGE>

     (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, 1998 filed with the Commission on August 24, 1999.
     (4)  Incorporated by reference to the correspondingly numbered exhibit to
          the Company's Current Report on Form 8-K filed with the Commission on
          September 17, 1999.
     (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, 1999 filed with the Commission on May 12, 2000.

(b)  Reports on Form 8-K.

     In a report on Form 8-K dated March 31, 2001 the Company announced that on
January 31, 2001, National Archives, Inc., a 60% subsidiary of the Company,
completed the sale of essentially all of its assets to Iron Mountain Records
Management, Inc. under an Asset Purchase and Sale Agreement dated as of December
1, 2000. Assets consist primarily of accounts receivable, long term contracts
with customers, certain computer hardware and software, customer deposits and
non-competition agreements. Cash on hand and certain fixed assets consisting of
shelving and racking for inventory were excluded from the transaction. In
addition, National Archives, Inc. and Mark Mendelson, an officer and director of
the Company, each entered in Noncompetition and Confidentiality Agreements with
the Purchaser. The sale price was $195,000, subject to adjustment if certain
financial benchmarks as outlined in the Agreement are not attained. The price
was paid in cash in two payments which were delivered to the Company on December
4, 2000 and January 31, 2001. Effective December 1, 2000, the Purchaser entered
into a seven month lease agreement for National Archives' Philadelphia, PA
warehouse premises with Oregon Avenue Associates, Inc., a company wholly-owned
by Mark Mendelson, an officer and Director of the Company.

     In a report on Form 8-K dated April 26, 2001 the Company announced a change
in accountant from Grant Thornton LLP to Gross Kreger Passio LLP as of that
date. The reports of Grant Thornton LLP on the financial statements for the
fiscal years ended December 31, 1998 and 1999 contained no adverse opinion or
disclaimer of opinion and were not qualified or modifies as to uncertainty,
audit scope or accounting principal, except that their report for each fiscal
year contained an explanatory paragraph regarding the substantial doubt about
the Company's ability to continue as a going concern. The Company's Audit
Committee recommended and approved the decision to change independent
accountants. In connection with its audits for the two most recent fiscal years
and through April 23, 2001, there have been no disagreements with Grant Thornton
LLP on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of Grant Thornton LLP, would have caused them to make
reference thereto in their report on the financial statements for such years.
Grant Thornton LLP has furnished a letter addressed to the Securities and
Exchange Commission stating that it agrees with the above statements.

                                    Page 20
<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:  April 27, 2001             First Chesapeake Financial Corporation,
                                   a Virginia corporation

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

                                   By: /s/ Mark E. Glatz
                                       -----------------
                                   Mark E. Glatz, Director and 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>
<CAPTION>

Date                     Name and Title                                  Signature
----                     --------------                                  ---------
<S>                      <C>                                             <C>
April 27, 2001           Mark Mendelson, Chairman of                     /s/ Mark Mendelson
                                                                         ------------------
                         the Board and Chief Executive Officer           Mark Mendelson

April 27, 2001           Mark E. Glatz                                  /s/ Mark E. Glatz
                                                                        --------------------
                         Director and Chief Financial Officer           Mark E. Glatz

April 27, 2001           Paul Dandridge                                 /s/ Paul Dandridge
                                                                        --------------------
                         Director                                       Paul Dandridge

April 27, 2001           James Greenfield                               /s/ James Greenfield
                                                                        --------------------
                         Director and Secretary                         James Greenfield

April 27, 2001           Vincent Muratore                               /s/ Vincent Muratore
                                                                        --------------------
                         Director                                       Vincent Muratore

April 27, 2001           Pasquale Nestico                               /s/ Pasquale Nestico
                                                                        --------------------
                         Director                                       Pasquale Nestico

April 27, 2001           John Papandon                                  /s/ John Papandon
                                                                        --------------------
                         Director                                       John Papandon
</TABLE>
<PAGE>

                       FINANCIAL STATEMENTS AND REPORT OF
                    INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

            FIRST CHESAPEAKE FINANCIAL CORPORATION AND SUBSIDIARIES

                           December 31, 2000 and 1999
<PAGE>

                       FINANCIAL STATEMENTS AND REPORT OF
                    INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

            FIRST CHESAPEAKE FINANCIAL CORPORATION AND SUBSIDIARIES

                           December 31, 2000 and 1999



                                    CONTENTS

<TABLE>
<S>                                                         <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS           3


CONSOLIDATED FINANCIAL STATEMENTS

   CONSOLIDATED BALANCE SHEETS                               5

   CONSOLIDATED STATEMENTS OF OPERATIONS                     6

   CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
       (DEFICIENCY)                                          7

   CONSOLIDATED STATEMENTS OF CASH FLOWS                     8

   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                9
</TABLE>

                                       2
<PAGE>

               Report of Independent Certified Public Accountants
               --------------------------------------------------

Board of Directors
First Chesapeake Financial Corporation


     We have audited the consolidated balance sheet of First Chesapeake
Financial Corporation, a Virginia corporation (the Company) and Subsidiaries as
of December 31, 2000 and the related consolidated statements of operations,
stockholders' (deficiency) equity and cash flows for the years then ended.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on those consolidated
financial statements based on our audit.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provide a reasonable basis for our
opinion.

     In our opinion, the 2000 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of First Chesapeake Financial Corporation and Subsidiaries as of
December 31, 2000, and their consolidated results of operations and cash flows
for the year then ended, in conformity with accounting principles generally
accepted in the United States of America.

     The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As shown in the
financial statements, the Company incurred a net loss of $830,505 for the year
ended December 31, 2000 and, as of that date, its total liabilities exceeded its
total assets by $931,617. These factors raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are described in Note A to the consolidated financial
statements. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.


/s/ Gross Kreger & Passio, L.L.C.
---------------------------------

April 23, 2001
Philadelphia, Pennsylvania

                                       3
<PAGE>

              Report of Independent Certified Public Accountants
              --------------------------------------------------

Board of directors
First Chesapeake Financial Corporation

     We have audited the accompanying consolidated balance sheet of First
Chesapeake Financial Corporation (the Company) and Subsidiaries as of December
31, 1999, and the related consolidated statements of operations, stockholders'
(deficiency) equity and cash flows for the year then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on those consolidated financial
statements based on our audit.

     We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
First Chesapeake Financial Corporation and Subsidiaries as of December 31, 1999,
and their consolidated results of operations and cash flows for the year then
ended, in conformity with accounting principles generally accepted in the United
States of America.

     The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As shown in the
financial statements, the Company incurred a net loss of $1,371,612 for the year
ended December 31, 1999. This factor raises substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to this matter are described in note A to the consolidated financial statements.
The consolidated financial statements do not include any adjustments that might
result form the outcome of this uncertainty.


Grant Thornton LLP
Philadelphia, Pennsylvania
May 12, 2000
<PAGE>

            First Chesapeake Financial Corporation and Subsidiaries

                          CONSOLIDATED BALANCE SHEETS

                                  December 31,
<TABLE>
<CAPTION>
                                                                        2000           1999
                                                                    ------------   ------------
<S>                                                                 <C>            <C>
ASSETS
Cash and cash equivalents                                           $     74,031   $     70,617
Accounts receivable                                                      177,270         82,874
Mortgage loans held for resale                                           316,862        911,050
Furniture and equipment, net                                              67,079        103,689
Capitalized financing costs                                                  -0-        141,400
Goodwill                                                               2,240,751      3,707,877
Other assets                                                             163,132         43,897
                                                                    ------------   ------------

   Total assets                                                     $  3,039,125   $  5,061,404
                                                                    ============   ============

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

LIABILITIES
Note payable - bank                                                 $  2,107,321   $  2,107,321
Warehouse note payable - bank                                            348,586        901,727
Note payable - other                                                      85,400        668,680
Accounts payable                                                         448,277        557,116
Accrued expenses                                                         233,022        152,020
Due to officers                                                          400,006        414,411
Subordinated junior debentures                                            75,000         75,000
Liabilities of discontinued operations                                   273,130        110,200
                                                                    ------------   ------------

   Total liabilities                                                   3,970,742      4,986,475
                                                                    ------------   ------------

STOCKHOLDERS' EQUITY (DEFICIENCY)
Convertible preferred stock; no par value; $1 stated value per
 share; 5,000,000 shares authorized; no shares issued                          -              -
Common stock; no par value; 20,000,000 shares authorized;
 9,051,153 and 8,002,000 issued and outstanding in 2000 and 1999      13,471,584     13,647,625
Accumulated deficit                                                  (14,403,201)   (13,572,696)
                                                                    ------------   ------------

   Total stockholders' equity (deficiency)                              (931,617)        74,929
                                                                    ------------   ------------

   Total liabilities and stockholders' equity                       $  3,039,125   $  5,061,404
                                                                    ============   ============
</TABLE>

The accompanying notes are an integral part of these statements.

                                       5
<PAGE>

            First Chesapeake Financial Corporation and Subsidiaries

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                            Year ended December 31,
<TABLE>
<CAPTION>
                                               2000          1999
                                            ----------   -----------
<S>                                        <C>           <C>
REVENUES
 Operating revenues                         $3,981,893   $ 4,136,087
 Interest income                                   100        84,491
 Other                                          82,738        23,129
                                            ----------   -----------

          Total revenues                    $4,064,731   $ 4,243,707

EXPENSES
 Compensation and employee benefits          2,670,958     3,170,216
 Professional fees                             179,892       143,139
 Occupancy                                     276,842       280,020
 Depreciation and amortization                 202,281       397,223
 Other operating expenses                    1,149,950     1,160,925
 Interest and related expense                  474,291       423,019
                                            ----------   -----------

          Total expenses                     4,954,214     5,574,542
                                            ----------   -----------

Loss from continuing operations               (889,483)   (1,330,835)
Loss from discontinued operations              (60,039)      (40,777)
Gain on sale of discontinued operations        119,017             -
                                            ----------   -----------

          NET LOSS                          $ (830,505)  $(1,371,612)
                                            ==========   ===========

Basic and diluted earnings per share
 Continuing operations                      $     (.12)  $      (.21)
 Discontinued operations                           .01          (.01)

                                            $     (.11)  $      (.22)
                                            ==========   ===========

Weighted average shares outstanding          7,729,422     6,339,417
                                            ==========   ===========
</TABLE>


The accompanying notes are an integral part of these statements.

                                       6
<PAGE>

            First Chesapeake Financial Corporation and Subsidiaries

          CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIENCY) EQUITY

                     Years ended December 31, 2000 and 1999


<TABLE>
<CAPTION>
                                                                    Total
                                                                 stockholders'
                                       Common       Accumulated   (deficiency)
                                        stock         deficit        equity
                                     -----------   -------------  ------------
<S>                                  <C>           <C>            <C>
Balance at December 31, 1998         $10,956,125   $(12,201,084)  $(1,244,959)

 Issuance of common stock              2,592,500              -     2,592,500
 Exercise of common stock options         99,000              -        99,000
 Net loss                                      -   $ (1,371,612)  $(1,371,612)
                                     -----------   ------------   -----------

Balance at December 31, 1999         $13,647,625   $(13,572,696)  $    74,929

 Issuance of common stock                775,000              -       775,000
 Exercise of common stock options          6,000              -         6,000
 Cancellation of common stock           (957,041)             -      (957,041)
 Net loss                                      -   $   (830,505)  $  (830,505)
                                     -----------   ------------   -----------

Balance at December 31, 2000         $13,471,584   $(14,403,201)  $  (931,617)
                                     ===========   ============   ===========
</TABLE>

The accompanying notes are an integral part of this statement.

                                       7
<PAGE>

            First Chesapeake Financial Corporation and Subsidiaries

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                            Year ended December 31,

<TABLE>
<CAPTION>
                                                                                     2000          1999
                                                                                 -----------    -----------
<S>                                                                              <C>            <C>
Operating activities:
 Net loss                                                                         $(830,505)    (1,371,612)
 Adjustments to reconcile net loss to net cash
     used in operating activities:
   Increase (decrease) in deferred officers' compensation                          (585,595)       154,551
   Common stock issued (cancelled) as compensation                                 (123,291)        32,250
   Depreciation                                                                      36,610         27,849
   Amortization of goodwill and capitalized financing costs                         312,276        369,374
 Net decrease (increase) in mortgage loans held for sale                            594,188       (911,050)
 (Gain) loss on disposal of assets                                                       -0-       (38,441)
 Increase in note and accounts receivable                                           (94,396)       (17,070)
 Increase in other assets                                                          (119,236)       (14,416)
 Increase (decrease) in trade accounts payable                                     (108,839)       301,369
 Increase (decrease) in accrued expenses                                             81,003        102,020
 Increase in liabilities from discontinued operations                               162,930         40,777
                                                                                  ---------    -----------

          Net cash provided/(used) in operating activities                          496,335     (1,324,399)
                                                                                  ---------    -----------

Investing activities:
 Purchase of furniture and equipment                                                     -0-       (18,355)
 Cash used in acquisition, net                                                           -0-    (1,185,889)
                                                                                  ---------    -----------

          Net cash used in investing activities                                          -0-    (1,204,244)
                                                                                  ---------    -----------

Financing activities:
 Proceeds (repayment) of bank and warehouse loans                                  (553,141)     3,009,048
 Increase in common stock                                                           181,000        584,000
 Repayment of note payable - other                                                 (120,780)      (993,820)
                                                                                  ---------    -----------

          Net cash provided (utilized) by financing activities                     (492,921)     2,599,228
                                                                                  ---------    -----------
          Net increase (decrease) in cash and cash equivalents                        3,414         70,585

Cash and cash equivalents at beginning of year                                       70,617             32
                                                                                  ---------    -----------

Cash and cash equivalents at end of year                                          $  74,031    $    70,617
                                                                                  =========    ===========

Supplemental cash flow disclosures:

 Cash payments of interest expense                                                $ 189,808    $   394,486
Non-cash transactions conversion of amounts due officers to
 common stock                                                                     $ 600,000    $        -0-
</TABLE>

The accompanying notes are an integral part of these statements.

                                       8
<PAGE>

            First Chesapeake Financial Corporation and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2000 and 1999

NOTE A - ORGANIZATION AND BASIS OF PRESENTATION

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

 The consolidated financial statements include the accounts of the Company, its
 wholly owned subsidiaries, First Chesapeake Funding Corporation (FC Funding),
 First Chesapeake Acquisition Corporation (FC Acquisition), Collateral One
 Mortgage Corporation (Collateral One), Premiere Quality Foods, Inc. (Premiere
 Foods), and Premiere Chemical Products, Inc. (Premiere Chemical), and a 60%
 owned subsidiary, National Archives, Inc. (NAI). All material intercompany
 transactions and accounts have been eliminated in consolidation.

 FC Funding was incorporated in July 1998 to operate as a wholesale mortgage
 banking operation and to serve as the administrative and core platform for
 developing national wholesale and retail mortgage banking operation.

 FC Acquisition was incorporated in February 1999 to operate as a retail
 mortgage banking operation.

 Collateral One was incorporated in February 1999 to acquire the assets of
 Mortgage Concepts, Inc. (Note L2) and operate as a retail mortgage banking
 operation.

 Premiere Foods acquires, packages, distributes and sells imported Spanish olive
 oil and related specialty food products within North America.  The company was
 formed during 1997 and operations ceased during 1998.

 Premiere Chemical develops, manufactures, distributes and markets its
 proprietary formulation of laundry detergent and related products.  Premiere
 Chemical was formed during 1997.  In January 1999, the Company sold its
 holdings in Premiere Chemical to its management.

 NAI provides document archive services to the government and businesses
 primarily located in the Philadelphia area.  In 2000, the Company sold its
 interest in NAI.

 The accompanying consolidated financial statements have been prepared in
 conformity with generally accepted accounting principles, which contemplate
 continuation of the Company as a going concern. During the year ended December
 31, 2000, the Company incurred a net loss of $830,504.

 The Company's continuation as a going concern is dependent upon its ability to
 implement its strategic plan of developing a retail and wholesale mortgage
 banking operation through acquisition and internal growth as a step toward
 developing a vertically integrated financial services company that can provide
 mortgage origination, homeowner's insurance, title insurance and home
 warranties, among other financial services, consumer direct, wholesale and
 through the Internet.  The Company continues to expand its mortgage banking
 operations, and is pursuing other potential business opportunities consistent
 with its strategic plan.  However, there are no assurances that the Company
 will be able to successfully implement all aspects of its strategic plan.

 The consolidated 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.

                                       9
<PAGE>

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 1. Cash and Cash Equivalents
    -------------------------

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

 2. Furniture and Equipment
    -----------------------

 Furniture and equipment are stated at cost less accumulated depreciation and
 amortization.  Depreciation and amortization are computed by using accelerated
 methods over the estimated useful lives of the individual assets.  Ordinary
 maintenance and repairs are charged to operations as incurred.

 3. Income Recognition
    ------------------

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

 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.

 4. Income Taxes
    ------------

 From inception through December 31, 2000, the Company has incurred net
 operating losses and, accordingly, has made no provision for income taxes.

 5. Basic and Diluted Loss Per Share
    --------------------------------

 The Company follows the provisions of Statement of Financial Accounting
 Standards (SFAS) No. 128, "Earnings per Share" which 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 occur if securities or other contracts to issue common
 stock were exercised and converted into common stock.

 Shares issuable for stock options and warrants have been excluded from the
 computation of loss per share for the years ended December 31, 2000 and 1999,
 as their inclusion would the anti-dilutive.

 6. 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.

 7. Stock-Based Compensation
    ------------------------

 The Company accounts for stock options under SFAS No. 123, "Accounting for
 Stock-Based Compensation," which contains a fair value-based method for valuing
 stock-based compensation that entities may use, which measures compensation
 cost at the date of grant based on the fair value of the award. Compensation is
 then recognized over the service period, which is usually the vesting period.
 Alternatively, the standard permits entities to continue accounting for
 employee stock options and similar instruments under Accounting Principles
 Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees."
 Entities that continue

                                      10
<PAGE>

 to account for stock options using APB Opinion No. 25 are required to make pro-
 forma disclosures of net income and earnings per share as if the fair value-
 based method of accounting defined in SFAS No. 123 had been applied. The
 Company's stock options plans are accounted for under APB Opinion No. 25.

NOTE C - FIXED ASSETS

<TABLE>
<CAPTION>
 Fixed assets consist of the following:                               December 31,
                                                                  2000         1999
                                                               ---------     ---------
<S>                                                            <C>           <C>
  Leasehold improvements                                       $  22,138     $  22,138
  Furniture and fixtures                                         183,129       183,129
  Machinery and equipment                                        205,001       205,001
                                                               ---------     ---------
                                                                 410,268       410,268
        Less accumulated depreciation and amortization          (343,189)     (306,579)
                                                               ---------     ---------
                                                               $  67,079     $ 103,689
                                                               =========     =========
</TABLE>

 Depreciation and amortization expense associated with the fixed assets for the
 years ended December 31, 2000 and 1999 was $36,610 and $27,849, respectively.

NOTE D - ACQUISITION AND RELATED DEBT

 On February 9, 1999, the Company acquired substantially all of the assets of
 Mortgage Concepts, Inc., an originator of primarily subprime and alternate
 documentation residential mortgage loans which now operates as the Company's
 Collateral One subsidiary. The purchase price was $4,100,000, subject to
 reduction if certain financial benchmarks, as outlined in the Asset Purchase
 Agreement, are not attained by the subsidiary. The $4,100,000 purchase price
 consisted of a combination of $3,612,500 cash and $487,500 Company common
 stock, payable over a multi-year period of time specified in the Agreement. The
 acquisition has been accounted for under the purchase method of accounting.

 As of October 9, 1999, the Company restructured the remaining amounts due the
 sellers of the assets of Mortgage Concepts, Inc. which now operates as the
 Company's Collateral One subsidiary.  The purchase price of $4,100,000 was
 unchanged, and was amended to consist of $2,862,500 of cash and $1,237,500 of
 Company common stock, payable over the same multi-year period of time.

 As of August 31, 2000, the Company implemented a purchase price adjustment and
 restructured the remaining amounts due the sellers of the assets of Mortgage
 Concepts, Inc.  The purchase price of $4,100,000 was reduced to $2,804,000 in
 accordance with the Asset Purchase Agreement, and was amended to consist of
 $2,400,000 of cash and $404,000 of Company common stock.  At December 31, 2000,
 the Company had paid the sellers $2,314,600 of cash, with the remaining $85,400
 of cash payments due in seven remaining equal installments through August 2001.
 All stock due the sellers had been issued as of August 31, 2000.

NOTE E - OTHER DEBT

 In 1998, the Company issued $635,000 of convertible subordinated debentures. Up
 to 20% of the subordinated debenture notes are convertible, at any time at
 option of the holder, into the Company's common stock at a price of $2.00 per
 share. The $635,000 includes $350,000 of subordinated debentures issued to
 certain officers of the Company in exchange for a similar reduction in amounts
 due to officers. In November 1999, the Company offered to convert the
 convertible subordinated debentures into Company common stock at a conversion
 price of $1.50 per share. Holders of $560,000 of debentures elected to convert
 their holdings into 373,333 shares of common stock, including all debentures
 held by officers of the Company. At December 31, 2000, the remaining $75,000 of
 convertible subordinated debentures remain outstanding under the original terms
 and conditions of the issuance. Principal repayments on this long term debt are
 due in 2003.

 In February 1999, the Company borrowed $1,500,000 from a bank; $1,200,000 of
 such borrowings was used in conjunction with the Mortgage Concepts, Inc.
 acquisition. The loan, guaranteed by certain officers of the

                                       11
<PAGE>

 Company and other individuals, bears interest at prime plus 2% and matured in
 November 2000. In November 1999, the Company borrowed an additional $600,000
 from the bank, secured by the personal guaranty of the Chairman of the Board of
 Directors of the Company to partially finance a payment due the sellers of
 Mortgage Concepts, Inc. and for working capital needs. This loan also bears
 interest at prime plus 2% and matured in November 2000. In connection with both
 these financings, the Company entered into loan guaranty agreements with the
 individuals guaranteeing the loans, whereby such individuals received shares
 and/or options of the Company's common stock as compensation for their
 guarantees.

 In February 2001, the Bank loan was restructured to reduce the principal
 balance by approximately $800,000 by June 15, 2001and approximately $25,000 per
 month thereafter.  At March 31, 2001, the balance of the demand loan was
 reduced to $1,603,000 and is scheduled to further amortize to approximately
 $1,375,000 by June 30, 2001.

 The Company has warehouse lines of credit with maximum borrowings of $2,000,000
 and $29,000,000 at December 31, 2000 and 1999, respectively.  At December 31,
 2000, $349,000 was outstanding under the lines.  At December 31, 1999, $922,000
 was outstanding under the lines.

NOTE F - INCOME TAXES

 The Company and its wholly owned subsidiaries file a consolidated income tax
 return.  The Company incurred net operating losses for federal income tax
 purposes of approximately $800,000 and $1,400,000 for the years ended December
 31, 2000 and 1999, respectively, resulting in total net operating loss
 carryforwards of approximately $10,400,000 which expire beginning in 2007
 through 2020, if not utilized.  The difference between the Company's net
 operating loss carryforwards for tax and financial reporting purposes results
 primarily from temporary differences related to depreciation and amortization.

 At December 31, 2000 and 1999, 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.

NOTE G - STOCK OPTIONS

 In May 1992, the Board of Directors adopted an Incentive Stock Option Plan (the
 1992 Plan). Pursuant to the 1992 Plan, 500,000 shares of the Company's common
 stock were made available for awards. The 1992 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 Non-qualified 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 1992 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.

 In 1999, 1992 Plan options to purchase 150,000 shares were exercised by
 holders, and the remaining 50,000 option shares were canceled by the Board of
 Directors of the Company.  There are no 1992 Plan options outstanding at
 December 31, 1999.  In November 2000, the Board of Directors approved the
 termination of the 1992 Plan.

 In July 1998, the Board of Directors adopted a Non-Qualified Stock Option Plan
 (the 1998 Plan). Pursuant to the 1998 Plan, 1,000,000 shares of the Company's
 common stock were made available for awards. The 1998 Plan allows for Non-
 Qualified Stock Options not intended to qualify as Incentive Stock Options
 within the meaning of Section 422 of the Internal Revenue Code of 1986. Non-
 Qualified Stock Options may be granted to employees, as well as non-employee
 directors and consultants to the Company. Exercise prices under the 1998 Plan
 must be at fair market value per share at date of grant. In 1999, 400,000 1998
 Plan option shares at exercise prices of $0.875 to $5.00 were granted, of which
 290,000 were granted to certain executive officers, and 40,000 were granted to
 certain outside directors. In 1998, 530,000 1998 Plan option shares at an
 exercise

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<PAGE>

 price of $.60 were granted, of which 500,000 were granted to certain executive
 officers, and 30,000 were granted to certain outside directors. In June 2000,
 the Board of Directors approved the termination of the 1998 Plan.

 In December 1999 the shareholders of the Company approved an Incentive Stock
 Option Plan (the "1999 ISO Plan"), which was adopted by the Board of Directors
 on November 17, 1999. Pursuant to the 1999 ISO Plan, 1,500,000 shares of the
 Company's common stock were made available for awards. The 1999 Plan allows for
 Incentive Stock Options intended to qualify as Incentive Stock Options pursuant
 to Section 422A of the Internal Revenue Code of 1986, as amended, or they may
 be Non-Qualified Stock Options. Exercise prices under the Plan must be at no
 less than fair market value per share at date of grant, and shall expire no
 more than five years from date of issuance. In 2000, 652,000 1999 ISO Plan
 option shares at exercise prices of $0.55 to $0.80 were granted, of which
 550,000 were granted to certain executive officers, and 80,000 were granted to
 certain outside directors. In 1999, 618,500 1999 ISO Plan option shares at
 exercise prices of $0.80 to $1.50 were granted, of which 550,000 were granted
 to certain executive officers, and 39,000 were granted to certain outside
 directors.

 In December 2000, the Company repriced all stock options issued in the
 preceding twelve months to an exercise price of $0.80 per share.  A total of
 559,000 1999 ISO Plan option shares were repriced, of which 450,000 were held
 by certain executive officers, and 86,000 were held by certain outside
 directors.  All other terms of the options remained unchanged.

 Option activity under the above plans is summarized following:


                                                         December 31,
                                                   -------------------------
                                                      2000           1999
                                                   ----------     ----------

     Outstanding options at beginning of year       1,548,500        730,000

     1999 ISO Plan options granted                    652,000        618,500
     1999 ISO Plan options exercised                       -0-            -0-
     1999 ISO Plan options cancelled                 (103,000)            -0-

     1998 Plan options granted                             -0-       400,000
     1998 Plan options exercised                      (10,000)            -0-
     1998 Plan options cancelled                     (110,000)            -0-

     1992 Plan options exercised                           -0-      (150,000)
     1992 Plan options cancelled                           -0-       (50,000)
                                                   ----------     ----------

     Outstanding options at end of year             1,977,500      1,548,500
                                                   ==========     ==========

     Exercise prices
       Low                                         $      .55     $      .60
       High                                              5.00           5.00

     Latest expiration date                      December 29,   December 31,
                                                         2005           2004

 Had compensation cost been determined based on the fair value of the options at
 the grant date consistent with the provisions of SFAS No. 123, the Company's
 2000 and 1999 net loss and net loss per share would have been reported as
 follows:
                                          2000          1999
                                         ------        ------
     Net loss:          As reported   $  (830,505)  $(1,371,612)
                        Pro forma     $(1,113,288)  $(2,113,230)

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<PAGE>

     Loss per share:    As reported         $(.11)  $      (.22)
                        Pro forma           $(.14)  $      (.33)


 The fair value of options granted during 2000 and 1999 was estimated on the
 date of grant using the Black-Sholes options pricing model with the following
 assumptions; weighted average risk-free interest rate of 6.22% in 2000 and
 6.14% in 1999; no dividend yield; expected weighted average term of 5 years;
 and volatility of 140% for 2000 and 1999.

 At December 31, 2000, there were 1,977,500 options outstanding with a weighted
 average exercise price of $0.97 and a remaining maturity of approximately 3.9
 years.   At December 31, 1999, there were 1,548,500 options outstanding with a
 weighted average exercise price of $1.26 and a remaining maturity of
 approximately 4.3 years.

NOTE H - STOCKHOLDERS' EQUITY

 On August 4, 1993, the Company completed an initial public 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 expired unexercised in 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 of $50,000
 to the warrant.  The warrant expired unexercised during 1997, and the $50,000
 was transferred to common stock.

 During 1997, the Company issued 500,000 shares of common stock to acquire an
 interest in a joint venture 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 issue dates.

 During 1998, the Company issued 275,000 shares as compensation to an officer of
 the Company that joined the Company during 1998.  The shares were recorded at
 the fair value of the Company's common stock at the issue date, less a discount
 due to the restricted nature of the stock.

 During 1999, the Company issued 646,667 shares under a private placement of
 common stock which raised a total of $485,000 of equity capital.

 During 1999, holders of $560,000 of convertible subordinated debentures elected
 to convert their debentures into 373,333 shares of Company common stock at a
 conversion price of $1.50 per share.

 During 1999, the Company issued 656,000 shares into escrow under an Escrow
 Agreement with the sellers of the assets of Mortgage Concepts, Inc. which now
 operates as the Company's Collateral One subsidiary.  The shares shall be
 released in 2000 and 2001 in accordance with the Escrow Agreement.

 In March 2000, the Company issued 66,667 shares under a private placement of
 common stock which raised a total of $175,000 of equity capital.

 In June 2000, the Company cancelled 275,000 shares of common stock previously
 issued to the former President of its FC Funding subsidiary pursuant to the
 terms of an employment agreement.  The cancellation of these shares resulted in
 a reduction of compensation expense of $123,291 during the period ended
 September 30, 2000.

                                       14
<PAGE>

 During 2000, the Company cancelled 440,133 shares under an Escrow Agreement
 with the sellers of the assets of Mortgage Concepts, Inc. which now operates as
 the Company's Collateral One subsidiary.

 During 2000, the Company issued 108,669 shares to participants in the Company's
 1999 and 2000 private placements of common stock equating to a 10% additional
 stock issuance to each participant.

 During 2000, the Company issued 1,578,947 shares to certain officers of the
 company in exchange for conversion of $600,000 of debt into common stock.

 Effective March 31, 2001, the Company issued 250,000 shares of common stock to
 the seller of the assets of Family First Mortgage, Inc., and also issued an
 additional 500,000 shares of common stock into escrow to be released after one
 year to the seller, subject to attaining certain financial benchmarks (see NOTE
 L to the Financial Statements).

NOTE I - COMMITMENTS AND CONTINGENCIES

 Litigation - Periodically, the Company and its subsidiaries become parties to
 ------------
 legal proceedings incidental to its business.  In the opinion of management,
 such matters are not expected to have a material impact on the financial
 position of the Company.

 Leases - The Company and its subsidiaries lease office facilities under
 --------
 noncancellable leases.  In addition to minimum rentals, several leases provide
 for the Company to pay its pro-rata share of operating expenses.  Future
 minimum lease payments under noncancellable leases are as follows:

     2001                          $189,363
     2002                            85,686
     2003                            21,169
   Thereafter                            -0-


NOTE J - DISCONTINUED OPERATIONS

 In January 2000, management decided to cease operations of its FC Funding
 wholesale mortgage banking subsidiary and closed its two Florida locations,
 effective January 31, 2000. Accordingly, the financial statements have been
 restated to reflect FC Funding as a discontinued operation.

 In December 2000, the Company sold substantially all of the assets of NAI to an
 unrelated third party. Accordingly, the financial statements have been restated
 to reflect NAI as a discontinued operation.

 During 1998, management decided to cease operations at Premiere Foods and sell
 Premiere Chemical to its management, effective January 1, 1999.  Accordingly,
 the results of operations of these discontinued entities are presented
 separately in the accompanying consolidated statements of operations.

NOTE K - DISPOSITION OF SUBSIDIARIES

 On January 1, 1999, the Company sold its investment in Premiere Chemical to a
 family member of one of its officers in exchange for substantially all of
 Premiere Chemical's net liabilities; the transaction resulted in a gain of
 approximately $38,000.

 On December 4, 2000, the Company sold substantially all of the assets of NAI;
 the transaction resulted in a gain of $119,017.

                                       15
<PAGE>

NOTE L - SUBSEQUENT EVENTS

 Effective March 31, 2001, the Company acquired substantially all of the assets
 of Family First Mortgage, Inc., a Fort Lauderdale, FL originator of residential
 mortgage loans.  The purchase price was $250,000 payable in common stock of the
 Company, plus the issuance into escrow of an additional 500,000 shares of
 Company common stock to be released after one year, subject to attaining
 certain financial benchmarks as outlined in the agreement.  The acquisition
 will has been accounted for under the purchase method of accounting.

 In December 2000, the Company authorized a private placement of a minimum of
 $250,000 and a maximum of $1,500,000 of the Company's Series B Convertible
 Preferred Stock, no par value (the "Preferred Stock") at $1.00 per share.  The
 Convertible Preferred Stock bears interest at 12-1/2% payable quarterly, and is
 convertible into common stock of the Company at a conversion price equal to the
 average bid price of the common stock for the trailing thirty days prior to
 date of written notice to convert.  At March 31, 2001, the Company had received
 subscriptions totaling $928,000, and anticipates placement of the remaining
 authorized amount during 2001.

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