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, 1999

                         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: $4,390,000.00.

The  aggregate  market  value of the  issuer's  voting stock held as of April 7,
2000, by nonaffiliates of the issuer was approximately $7,365,000.

As of December 31, 1999,  issuer had 8,002,000 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 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.

         In March  2000,  the  Company  entered  into an  agreement  to  acquire
Whoofnet.com, Inc. and its affiliates ("Whoofnet").  Whoofnet is an Internet and
telecommunications  provider  serving  residential  and small  business  clients
through its free Internet service. The Company intends to develop and expand the
Whoofnet  operation,  however,  no  assurance  can be  given  that  it  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 to
their respective managements.

         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


                                     Page 2
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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.

         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 2000,  the company  announced  an  agreement  to
acquire  Whoofnet.com,  Inc.  and its  affiliates  ("Whoofnet").  Whoofnet is an
Internet and telecommunications  provider serving residential and small business
clients through its free Internet service.

         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, 1999 allowed the Company


                                     Page 3
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to borrow up to $29 million.  The 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.

         At  December  31,  1999,  the  Company's  mortgage  banking  operations
consisted of thirteen  offices in seven  states,  with  applications  pending to
expand into five additional  states with the goal to expand  nationwide  through
both internal growth and acquisition.  The Company  originates loans in Florida,
Indiana,  Kentucky,  Missouri,  North and South  Carolina  and  Tennessee,  with
applications  for approval  pending in Georgia,  Kansas,  New Jersey,  Ohio, and
Pennsylvania. Subsequent to December 31, 1999, the Company closed two offices in
Florida,  and currently  originates  loans in the states listed above other than
Florida.

         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.

         Another  projected loan  origination  and revenue source is expected to
arise from the Company's Internet presence, currently under development. In 1999
the Company began offering mortgage and home equity loan originations through an
arrangement with an established  Internet marketing group with compensation paid
on a closed loan basis to the referring  Internet  marketing  group within state
and federal  guidelines.  In 2000 the Company began development of a proprietary
Internet site to replace the third party site.  Direct  marketing of the pending
Company Web site is  expected to further  increase  the  percentage  of mortgage
loans  originated  via Internet,  which is expected to account for a substantial
portion of the total mortgage  origination  marketplace within the next three to
five years.

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 1999, the Company reached
an agreement to divest of its interest in National  Archives to Mark  Mendelson,
the  Chairman  of the  Board  and  Chief  Executive  Officer,  in  exchange  for
assumption of certain  liabilities of the  subsidiary,  with the  transaction to
close in 2000 effective December 29, 1999.

         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,


                                     Page 4
<PAGE>

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 4th
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.

         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.  At December 31, 1999, 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.

Year 2000 Compliance
--------------------

         As previously reported, the Company assessed its state of readiness for
Year  2000,  became  knowledgeable   concerning  the  risks  of  non-compliance,
implemented and carried out an action plan to achieve Year 2000 compliance,  and
developed  contingency  plans,  all in an effort to successfully  deal with Year
2000  issues.  The  Company  did not  suffer  any  Year  2000  related  business
interruptions  on January 1, 2000 and has not suffered  any problems  since that
date. The Company does not anticipate making any material  expenditures for Year
2000 compliance purposes in 2000 or that Year 2000 issues will have any material
effect on the Company in 2000 or thereafter.

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


                                     Page 5
<PAGE>

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, 1999, the Company had approximately sixty employees,
including four employees at the various  non-mortgage  banking  subsidiaries and
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.  The  Company's  subsidiary,   NAI,  also  leases
approximately  25,000  square  feet of office  and  warehouse  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 $260,000.

         The Company's subsidiary, First Chesapeake Funding, leases 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 agreed to sublease  this office  space to its pending  Whoofnet  acquisition
commencing in March 2000.

         The  Company's  subsidiary,   First  Chesapeake   Acquisition,   leases
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 the Company  expects to sublease  this
office space in 2000.

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


ITEM 3.    LEGAL PROCEEDINGS

         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.



                                     Page 6
<PAGE>

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

         The Company held its annual meeting on December 29, 1999. At the annual
meeting, the shareholders elected Mark Mendelson,  Richard Chakejian,  Jr., Mark
Glatz, Matthew Coppolino, John Papandon, James Greenfield,  Pasquale Nestico and
Jay Vederman to serve on the Board of Directors.  The shareholders also approved
the Company's 1999 Incentive Stock Option Plan as further described in Part III,
Item 10 of this Form 10-KSB. No other matters were voted upon.



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, 1999:

                                                      Bid Price
                                                      ---------
                                                 High          Low
                                                 ----          ---
         1998
         First Quarter                           3/16            1/8
         Second Quarter                          13/16           1/16
         Third Quarter                           13/16           1/4
         Fourth Quarter                          2-3/4           5/8

         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


         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,  1999,  there  were 354  stockholders  of  record;
however,  the Company believes there were over 1,350 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.


                                     Page 7
<PAGE>
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 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.

         In March  2000,  the  Company  entered  into an  agreement  to  acquire
Whoofnet.com, Inc. and its affiliates ("Whoofnet").  Whoofnet is an Internet and
telecommunications  provider  serving  residential  and small  business  clients
through its free Internet service. The Company intends to develop and expand the
Whoofnet  operation,  however,  no  assurance  can be  given  that  it  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, 1999 allowed the Company
to borrow up to $29 million.  The 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.



                                     Page 8
<PAGE>

         At  December  31,  1999,  the  Company's  mortgage  banking  operations
consisted of thirteen  offices in seven  states,  with  applications  pending to
expand  into five  additional  states and the stated  goal to expand  nationwide
through both internal growth and  acquisition.  The Company  originates loans in
Florida,  Indiana,  Kentucky,  Missouri, North and South Carolina and Tennessee,
with applications for approval pending in Georgia, Kansas, New Jersey, Ohio, and
Pennsylvania. Subsequent to December 31, 1999, the Company closed two offices in
Florida,  and currently  originates  loans in the states listed above other than
Florida.

         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.

         Another  projected loan  origination  and revenue source is expected to
arise from the Company's Internet presence, currently under development. In 1999
the Company began offering mortgage and home equity loan originations through an
arrangement with an established  Internet marketing group with compensation paid
on a closed loan basis to the  referring  Internet  marketing  group  within all
state  and  federal  guidelines.  In 2000 the  Company  began  development  of a
proprietary  Internet site to replace the third party site.  Direct marketing of
the pending  Company Web site is expected to further  increase the percentage of
mortgage  loans  originated  via  Internet,  which is  expected to account for a
substantial  portion of the total mortgage  origination  marketplace  within the
next three to five years.

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

         Assets of the Company  increased  from  $64,000 at December 31, 1998 to
$5,061,000 at December 31, 1999. This increase was primarily due to expansion of
existing  mortgage  banking  operations  and  acquisition  of the Collateral One
operations.

         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.  At December 31, 1998,  the  Company's  primary  assets
consisted  of  receivables  of  $19,000  and fixed  assets,  net of  accumulated
depreciation, of $38,000.

         Liabilities  were $4,986,000 at December 31, 1999 versus  $1,308,000 at
December 31, 1998,  including bank debt of $2,107,000 and other debt of $669,000
associated with the Collateral One acquisition, warehouse notes payable to banks
of  $902,000,  accounts  payable  and  accruals  totaling  $709,000,  $75,000 of
subordinated  junior  debentures,  $414,000 of deferred salaries due officers of
the Company and $110,000 liabilities of discontinued operations.

         Stockholders' equity improved from ($1,245,000) at December 31, 1998 to
$75,000 at  December  31,  1999,  an  increase  of  $1,320,000.  The net loss of
$1,372,000  was  offset  by  issuances  of  common  stock  totaling  $2,692,000,
including a $485,000 private  placement of common stock,  issuance of $1,237,500
of stock to the sellers of the Collateral One operation,  conversion of $560,000
of subordinated  junior  debentures  into common stock,  issuance of $220,000 of
common stock as  consideration  for  guarantees  of bank debt,  and repayment of
$90,000  of  payables  with  common  stock  (see  the  Notes  of  the  financial
statements), as well as the exercise of common stock options totaling $99,000.


                                     Page 9
<PAGE>

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

Current Year Performance and Earnings Outlook

         The Company  incurred a loss of $1,372,000  for the year ended December
31,  1999.  This loss is a result of  operating  losses of $577,000 at the since
ceased First  Chesapeake  Funding  operation  and $41,000 at the since  divested
National Archives  subsidiaries  offsetting the $567,000 operating profit of the
Collateral One subsidiary, in addition to interest and related costs ($423,000),
depreciation/amortization ($397,000) and other corporate expenses ($497,000).

         As discussed  previously,  the Company  ceased  operations of its First
Chesapeake Funding subsidiary in January 2000 and agreed to sell its interest in
National  Archives  (effective  in December  1999).  In March 2000,  the Company
announced an agreement to acquire Whoofnet,  an Internet and  telecommunications
provider  serving  residential  and  small  business  clients  through  its free
Internet service.  The Company is actively seeking operational  opportunities in
the Internet and  financial  services  industries or other  suitable  investment
opportunities.  However,  no assurance can be given that management will be able
to find a suitable business opportunity or attain profitable operations.

Comparison of Year Ended December 31, 1999 to Year Ended December 31, 1998

         The Company  incurred a loss from  continuing  operations of $1,331,000
for the year ended  December 31, 1999  (including  a $577,000  loss at the since
ceased First Chesapeake  Funding  operation)  compared to a loss from continuing
operations of $1,164,000  for the year ended  December 31, 1998. An  incremental
loss from the  discontinued  operations  of $41,000  resulted in the net loss of
$1,372,000  for  1999,  compared  with an  incremental  loss  from  discontinued
operations of $299,000 and a net loss of $1,463,000 for 1998.

         Total revenues from  continuing  operations for the year ended December
31, 1999 amounted to  $4,244,000  representing  an increase of  $4,140,000  when
compared to 1998's  revenues of  $104,000.  The increase in revenue is primarily
attributable to the acquisition of the Collateral One operation and expansion of
the Company's other mortgage banking operations.

         Total  expenses  from  continuing   operations  for  1999  amounted  to
$5,575,000 as compared to $1,268,000 in 1998, an increase of $4,307,000, and was
centered in increased  compensation  and employee  benefits and other  operating
expenses.

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, 1999 allowed the Company
to borrow up to $29 million.  The 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.



                                    Page 10
<PAGE>

         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.
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, 1999 amounted to $71,000 as
compared  to a  negligible  balance at  December  31,  1998,  or an  increase of
$71,000.

         During 1999, the Company's operating  activities utilized $1,324,000 as
compared to utilizing  $624,000 in 1998. The  utilization of cash resources from
operating  activities  resulted  from the  Company's  net  losses for each year,
offset in 1999 by non-cash  expenses  (depreciation and amortization of $397,000
primarily  associated with the goodwill from the Collateral One acquisition) and
an increase in accounts payable and accruals of $403,000.

         The  Company's  investing   activities  in  1999  utilized  $1,204,000,
reflecting net cash of $1,186,000 applied toward the Collateral One acquisition.
The Company's investing activities were negligible in 1998.

         Financing activities provided $2,599,000 of capital in 1999 through the
$2,107,000  of  acquisition-related   bank  debt,  $902,000  of  warehouse  line
borrowings  and $485,000  private  placement of common  stock,  as compared with
providing  $617,000 of capital in 1998 comprised  primarily of $635,000 proceeds
from the subordinated debenture offering.


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  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.


                                    Page 11
<PAGE>

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, 1999 are set forth below.
<TABLE>
<CAPTION>
Name                             Age   Position and Background
----                             ---   -----------------------
<S>                              <C>   <C>
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.

Richard N. Chajekian, Jr.        38    Director and President.  Mr. Chakejian is experienced in the food, laundry
                                       products and chemical industries, and has served as President of the
                                       Company since 1997.  Mr. Chakejian has an extensive background in field
                                       management, sales, marketing and research.

Matthew Coppolino                71    Director.  Mr. Coppolino is the senior Judge in the Municipal Court of the
                                       City of Philadelphia.

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 complex commercial  litigation and arbitration.

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.

Jay Vederman                     33    Director.  Mr. Vederman has experience in real estate development and
                                       management, retail and manufacturing. Mr. Vederman also brings valuable
                                       experience and background in the management of growth-oriented
                                       publicly-traded entities.

                                       On May 10, 2000, Mr. Vederman resigned from the Board of Directors of the
                                       Company.
</TABLE>


                                    Page 12
<PAGE>

         Richard  Chakejian,  Sr., the father of the 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.

         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. NAI also utilizes
approximately  25,000  square  feet of office  and  warehouse  space in the same
property.  No current rental  payments are made by either the Company or by NAI,
although  both entities  contribute  pro rata toward the utilities and operating
costs of the property.

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

         Directors are elected at each annual meeting of stockholders  and serve
until the next annual  meeting.  The bylaws of the Company  require a minimum of
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.

Compliance with Section 16(a) of the Securities Exchange Act
------------------------------------------------------------

         Section 16 (a) of the  Securities  Exchange Act requires the  Company's
officers  and  directors,  and persons who own more than ten percent  (10%) of a
registered  class  of the  Company's  equity  securities,  to  file  reports  of
ownership  on Forms  3, 4 and 5 with  the  Securities  and  Exchange  Commission
("SEC") and the National  Association of Security Dealers.  Officers,  directors
and  greater  than ten  percent  (10%)  beneficial  owners are  required  by SEC
regulation to furnish the Company with copies of all Forms 3, 4 and 5 they file.
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, 1999.


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,  and expire on  December  29,  2004.  The then
Outside  Directors  elected to convert their accrued directors fees into a total
of 39,000 shares under the 1999 ISO Plan.

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

         The following table sets forth,  for the three years ended December 31,
1999,  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:


                                    Page 13
<PAGE>
<TABLE>
<CAPTION>
                                                               Annual Compensation
                                                               -------------------         Other        All Other
         Name                                                Salary          Other         Reimb.     Compensation
         Principal Position (1)                  Year         (2)             (3)           (4)           (5)
         -----------------------                 ----       --------        --------      --------      --------
         <S>                                     <C>        <C>             <C>           <C>           <C>
         Mark Mendelson (6)                      1999       $ 60,000        $      0      $  6,000      $  6,000
         Chairman and CEO                        1998       $ 75,000        $100,000      $  9,000      $ 12,000
                                                 1997       $      0        $      0      $      0      $      0

         Richard N. Chakejian, Jr. (6)           1999       $ 60,000        $  9,515      $  6,000      $  6,000
         President                               1998       $ 50,000        $100,000      $  9,000      $ 12,000
                                                 1997       $      0        $      0      $      0      $125,000

         Mark E. Glatz                           1999       $120,000        $      0      $ 12,000      $ 12,000
         Chief Financial Officer                 1998       $ 50,000        $ 50,000      $  9,000      $ 12,000
                                                 1997       $      0        $      0      $      0      $      0
</TABLE>
(1)       No other  executive  officer had  compensation  whose salary and bonus
          exceeded $100,000.
(2)       All 1999 and 1998 salaries to the three  executive  officers,  Messrs.
          Mendelson, Chakejian, Jr. and Glatz, have been deferred.
(3)       Includes amounts converted to subordinated debentures in 1998.
(4)       Includes  perquisites,  including  automobile and  incidental  expense
          allowance.
(5)       Includes  premiums paid or reimbursed for health,  disability and life
          (where the spouse is the beneficiary) insurance.
(6)       For 1999, Mr. Mendelson has allocated 50% of his compensation award to
          Mr. Chakejian, Jr.


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  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 at December 31, 1999.

         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.


                                    Page 14
<PAGE>

         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.

         No 1998 Plan options have been exercised as of December 31, 1999.

         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 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 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 and an expiration date of December 29, 2004.

         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 December 31, 1999.

         Option activity under the above plans is summarized following:

                                    Page 15
<PAGE>

                                                               December 31,
                                                       -------------------------
                                                          1999             1998
                                                          ----             ----

         Outstanding options at beginning of year       730,000          200,000
         1998 Plan options granted                      400,000          530,000
         1999 ISO Plan options granted                  618,500              -0-
         1992 Plan options exercised                   (150,000)             -0-
         1992 Plan options cancelled                    (50,000)             -0-
                                                      ---------         --------
         Outstanding options at end of year           1,556,000          730,000
                                                      =========         ========

         Exercise prices
              Low                                     $     .60         $    .25
              High                                         5.00              .60

         Latest expiration date               December 31, 2004     July 9, 2003


Option/SAR Grants in Last Fiscal Year

         The following table sets forth, for the period ended December 31, 1999,
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
                                         Granted         Fiscal Year       ($/share)             Date
                                         -------         -----------       ---------             ----
         <S>                             <C>                <C>              <C>           <C>
         Mark Mendelson                  250,000            24.5%            $1.20         December 29, 2004
                                         200,000            19.6%            $0.875        November 10, 2004
                                         25,000             2.5%             $2.00         February 5, 2004
                                         25,000             2.5%             $5.00         February 5, 2004
         Richard Chakejian, Jr.          100,000            9.8%             $1.20         December 29, 2004
                                         10,000             1.0%             $2.00         February 5, 2004
                                         10,000             1.0%             $5.00         February 5, 2004
         Mark E. Glatz                   200,000            19.6%            $1.20         December 29, 2004
                                         10,000             1.0%             $2.00         February 5, 2004
                                         10,000             1.0%             $5.00         February 5, 2004

         The following  table presents  information  concerning each exercise of
stock  options  during the fiscal  year ended  December  31, 1999 by each of the
named  executive  officers and the value of unexercised  options at December 31,
1999:
<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
----                                --------           --------        -------------           -------------
Mark Mendelson                      100,000               $88,120**      800,000/-0-            $223,120/-0-
Richard N. Chakejian, Jr.                 0                     0        220,000/-0-            $55,620/-0-
Mark E. Glatz                             0                     0        320,000/-0-            $55,620/-0-
</TABLE>

                                    Page 16
<PAGE>

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, 1999 by (i) each
person  known by the Company to own  beneficially  5% of such  stock,  (ii) each
Director of the Company,  (iii) each executive officer of the Company,  and (iv)
all Directors and executive officers of the Company as a group. Except as listed
below,  the address for each of the listed  individuals is: 12 E. Oregon Avenue,
Philadelphia, Pennsylvania 19148.
<TABLE>
<CAPTION>
                                                                     Number of Shares              Percent
         Name of Beneficial Owner (1)                               Beneficially Owned             of Total
         ----------------------------                               ------------------             --------
         <S>                                                             <C>                         <C>
         Mark Mendelson (2),(3)...............................           3,604,333                   37.7%
         John E. Dell (2) ....................................             450,000                    4.7%
         c/o Gallagher Broidy & Butler, Attn: Thomas P. Gallagher
              212 Carnegie Center, Suite 402, Princeton, NJ  08540
         Richard N. Chakejian, Jr. (4)........................             998,167                   10.4%
         Mark E. Glatz (5)....................................             873,333                    9.1%
         Matthew Coppolino (6)................................              10,000                    0.1%
         James Greenfield (7).................................             118,000                    1.2%
         John Papandon (7)....................................             118,000                    1.2%
         Jay Vederman (8).....................................              69,667                    0.7%
         Pasquale Nestico.....................................              66,667                    0.7%
                                                                            ------                 ------

         All Directors and officers as a group................           5,858,167                   61.3%

         Total number of (fully diluted) shares...............           9,558,000                  100.0%
</TABLE>
NOTES:
(1)       Unless otherwise indicated, each person has sole voting and investment
          powers with respect to the shares
(2)       Consists of 450,000  shares of common  stock owned by Mr. Dell subject
          to an irrevocable voting trust which is voted by Mr. Mendelson.
(3)       Includes  options to purchase  550,000 shares under the Company's 1998
          Plan and 250,000 shares under the Company's 1999 ISO Plan
(4)       Includes  options  to  purchase  120,000  shares  under  1998 Plan and
          100,000 shares under 1999 ISO Plan
(5)       Includes  options  to  purchase  120,000  shares  under  1998 Plan and
          200,000 shares under the 1999 ISO Plan
(6)       Includes options to purchase 10,000 shares under 1998 Plan
(7)       Includes  options to purchase 30,000 shares under 1998 Plan and 18,000
          shares under 1999 ISO Plan
(8)       Includes  options to  purchase  3,000  shares  under 1999 ISO Plan and
          66,667 shares held by a trust for benefit of Mr.  Vederman of which he
          is  not  the  trustee,  and  Mr.  Vederman  disclaims  any  beneficial
          ownership of these shares. On May 10, 2000, Mr. Vederman resigned from
          the Board of Directors of the Company.


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:

                                    Page 17
<PAGE>
<TABLE>
<CAPTION>
                                               Number of            Number of             Number of
                                                  Shares        Option Shares         Option Shares
                                                  Issued      at $2.00 Issued       at $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.

         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. NAI also utilizes
approximately  25,000  square  feet of office  and  warehouse  space in the same
property.  No current rental  payments are made by either the Company or by NAI,
although  both entities  contribute  pro rata toward the utilities and operating
costs of the property.

         In  December  1999,  the  Company  sold its 60%  interest  in  National
Archives,  Inc. to Mr.  Mendelson in exchange for  assumption  of  approximately
$362,000 in net liabilities and contingencies.

         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 with Mortgage Concepts, Inc.
          2.4       Amendment  to Loan  Agreement  dated  November 10, 1999 with
                    Crusader Bank.
          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%)

          27        Financial Data Schedule (electronic filing only).

---------------------------
(1)       Incorporated by reference to the  correspondingly  numbered exhibit to
          the  Registration  Statement on Form S-1,  Registration  No. 33-59726,
          filed by the Company with the Securities and Exchange  Commission (the
          "Commission")  on March 18, 1993,  and  Amendments  Nos. 1, 2, 3 and 4
          thereto filed with the  Commission on May 19, June 25, July 8 and July
          15, 1993, respectively.
(2)       Incorporated by reference to the  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.
(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.

                                    Page 19
<PAGE>

(b)      Reports on Form 8-K.

         In a report on Form 8-K dated April 14,  1999 the  Company  announced a
definitive option agreement to purchase a substantial block of common stock held
by a former Director of the Company. Hampton Financial Services, Inc., an entity
controlled  by Mark  Mendelson,  Chairman  of the Board of  Directors  and Chief
Executive  Officer,  or  its  designee  has  entered  into a  definitive  option
agreement to purchase  450,000  shares of common stock from John E. Dell.  These
shares  represent over 6% of the Company's fully diluted common stock.  Mr. Dell
was a Director of First Chesapeake in 1992 at which time he purchased  1,000,000
shares of the Company's common stock with attached warrants (since expired).  In
1994,  Mr. Dell  entered  into a  liquidating  trust  agreement  whereby he sold
550,000  shares of common  stock and  granted an  irrevocable  proxy to vote his
remaining  450,000 shares to Max E. Gray,  the former  President of the Company.
This  liquidating  trust was  established  to, among other things,  expedite the
approval of the  Company's  licensing  application  under the Virginia  Mortgage
Lender  and  Broker  Act.  Effective  January  1,  1998,  following  Mr.  Gray's
resignation from the Company, the Board of Directors appointed Mark Mendelson to
replace Mr. Gray as holder of the proxy. This block of stock represents the last
remaining shares held by former management and/or Directors of the Company.

         In a report on Form 8-K dated May 11,  1999 the Company  announced  the
completion of the  acquisition of Mortgage  Concepts,  Inc. of  Louisville,  KY.
Mortgage  Concepts,  Inc., which now conducts business under the name Collateral
One Mortgage.

         In a report on Form 8-K  dated  June 8, 1999 the  Company  announced  a
change in  accountant  from BDO  Seidman,  LLP to Grant  Thornton LLP as of that
date. The reports of BDO Seidman, LLP on the financial statements for the fiscal
years  ended  December  31,  1996 and  1997  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 the fiscal
year ended December 31, 1997 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 June 8, 1999, there have been no disagreements with BDO
Seidman,  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 BDO Seidman,  LLP, would have caused them to
make  reference  thereto in their report on the  financial  statements  for such
years.  BDO Seidman,  LLP has furnished a letter addressed to the Securities and
Exchange Commission stating that it agrees with the above statements.

         In a report on Form 8-K dated  September  17,  1999 the  Company  filed
additional  information  pertaining to the  previously-announced  acquisition of
Mortgage  Concepts,  Inc. of Louisville,  KY, including  required  statements of
Acquisition or Disposition of Assets,  Financial  Statements Pro Forma Financial
Information and Exhibits, Pro Forma Financial Information, and Exhibits


                                    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:  May 12, 2000               First Chesapeake Financial Corporation,
                                      a Virginia corporation

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

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

                                   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>
May 12, 2000               Mark Mendelson, Chairman of                 /s/ Mark Mendelson
                           the Board and Chief Executive Officer       ------------------
                                                                       Mark Mendelson

May 12, 2000               Richard N. Chakejian, Jr.,                  /s/ Richard N. Chakejian. Jr.
                           Director and President                      -----------------------------
                                                                       Richard N. Chakejian, Jr.

May 12, 2000               Mark E. Glatz                               /s/ Mark E. Glatz
                           Director and Chief Financial Officer        -----------------
                                                                       Mark E. Glatz

May 12, 2000               Matthew Coppolino                           /s/ Matthew Coppolino
                           Director                                   ---------------------
                                                                       Matthew Coppolino

May 12, 2000               James Greenfield                            /s/ James Greenfield
                           Director and Secretary                      --------------------
                                                                       James Greenfield

May 12, 2000               Pasquale Nestico                            /s/ Pasquale Nestico
                           Director                                    --------------------
                                                                       Pasquale Nestico

May 12, 2000               John Papandon                               /s/ John Papandon
                           Director                                    -----------------
                                                                       John Papandon
</TABLE>


                                    Page 21
<PAGE>






                       FINANCIAL STATEMENTS AND REPORT OF
                    INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

             FIRST CHESAPEAKE FINANCIAL CORPORATION AND SUBSIDIARIES

                           December 31, 1999 and 1998



<PAGE>

                       FINANCIAL STATEMENTS AND REPORT OF
                    INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

             FIRST CHESAPEAKE FINANCIAL CORPORATION AND SUBSIDIARIES

                           December 31, 1999 and 1998




                                    CONTENTS



REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS                         3


CONSOLIDATED FINANCIAL STATEMENTS

       CONSOLIDATED BALANCE SHEETS                                         4

       CONSOLIDATED STATEMENTS OF OPERATIONS                               5

       CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
             (DEFICIENCY)                                                  6

       CONSOLIDATED STATEMENTS OF CASH FLOWS                               7

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                          8





<PAGE>


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

Board of Directors
First Chesapeake Financial Corporation


         We have audited the accompanying  consolidated  balance sheets of First
Chesapeake  Financial  Corporation (the Company) and Subsidiaries as of December
31, 1999 and December  31,  1998,  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 audits.

         We conducted our audits in accordance with generally  accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable  assurance about whether the  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  audits
provide a reasonable basis for our opinion.

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
First Chesapeake Financial  Corporation and Subsidiaries as of December 31, 1999
and December 31, 1998,  and their  consolidated  results of operations  and cash
flows for the years then ended, in conformity with generally accepted accounting
principles.

         The accompanying  consolidated  financial statements have been prepared
assuming  that the Company  will  continue as a going  concern.  As shown in the
financial statements, the Company incurred a net loss of $1,371,612 for the year
ended  December  31, 1999 and, as of that date,  its total  assets  exceeded its
total  liabilities by $74,929.  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.


Grant Thornton LLP


May 12, 2000
Philadelphia, Pennsylvania



                                     Page 3
<PAGE>
<TABLE>
                                   First Chesapeake Financial Corporation and Subsidiaries

                                                 CONSOLIDATED BALANCE SHEETS

                                                        December 31,
<CAPTION>


                                                                                                1999              1998
                                                                                          ----------------  -----------------
ASSETS
<S>                                                                                             <C>              <C>
    Cash and cash equivalents                                                                   $ 70,617         $     32
    Note and accounts receivable                                                                  82,874           19,087
    Mortgage loans held for resale                                                               911,050              -
    Furniture and equipment, net                                                                 103,689           38,183
    Capitalized financing costs                                                                  141,400              -
    Goodwill                                                                                   3,707,877              -
    Other assets                                                                                  43,897            6,210
                                                                                             -----------   --------------

                  Total assets                                                                $5,061,404     $     63,512
                                                                                               ==========     ===========



LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

LIABILITIES
    Note payable - bank                                                                   $    2,107,321     $         -
    Warehouse note payable - bank                                                                901,727               -
    Note payable - other                                                                         668,680               -
    Accounts payable                                                                             557,116          255,747
    Accrued expenses                                                                             152,020           50,000
    Due to officers                                                                              414,411          259,860
    Subordinated junior debentures                                                                75,000          635,000
    Liabilities of discontinued operations                                                       110,200          107,864
                                                                                           -------------      -----------

                  Total liabilities                                                            4,986,475        1,308,471
                                                                                           -------------      -----------

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;
       8,002,000 and 5,775,000 shares issued and outstanding in
       1999 and 1998, respectively                                                            13,647,625       10,956,125
    Accumulated deficit                                                                      (13,572,696)     (12,201,084)
                                                                                             ------------     -----------
                  Total stockholders' equity (deficiency)                                         74,929       (1,244,959)
                                                                                             ------------     -----------

                  Total liabilities and stockholders' equity                                  $5,061,404    $      63,512
                                                                                               =========     ============
</TABLE>





The accompanying notes are an integral part of these statements.


                                     Page 4
<PAGE>

<TABLE>
                                   First Chesapeake Financial Corporation and Subsidiaries

                                            CONSOLIDATED STATEMENTS OF OPERATIONS

                                                   Year ended December 31,

<CAPTION>

                                                                                                 1999             1998
                                                                                            --------------   --------------

REVENUES
<S>                                                                                          <C>               <C>
    Sales                                                                                    $ 4,136,087       $   83,599
    Interest income                                                                               84,491            1,269
    Other                                                                                         23,129           19,437
                                                                                            ------------       ----------

                  Total revenues                                                             $ 4,243,707       $  104,305
EXPENSES
    Compensation and employee benefits                                                         3,170,216          755,426
    Professional fees                                                                            143,139          258,670
    Occupancy     280,020                                                                         43,767
    Depreciation and amortization                                                                397,223           30,620
    Other operating expenses                                                                   1,160,925          145,456
    Interest and related expense                                                                 423,019           34,240
                                                                                            ------------       ----------

                  Total expenses                                                               5,574,542        1,268,179
                                                                                            ------------       ----------

Loss from continuing operations                                                               (1,330,835)      (1,163,874)

Loss from discontinued operation                                                                 (40,777)        (299,220)
                                                                                            ------------       ----------

                  NET LOSS                                                                   $(1,371,612)     $(1,463,094)
                                                                                            ============      ===========

Basic and diluted loss per share
    Continuing operations                                                                    $      (.21)     $      (.21)
    Discontinued operations                                                                         (.01)            (.05)

                                                                                             $      (.22)     $      (.26)
                                                                                            ============      ===========


Weighted average shares outstanding                                                            6,339,417        5,627,329
                                                                                            ============      ===========
</TABLE>

The accompanying notes are an integral part of these statements.


                                     Page 5
<PAGE>

<TABLE>

                            First Chesapeake Financial Corporation and Subsidiaries

                          CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIENCY) EQUITY

                                    Years ended December 31, 1999 and 1998
<CAPTION>

                                                                                                    Total
                                                                                                 stockholders'
                                                  Common                Accumulated              (deficiency)
                                                   stock                  deficit                   equity
                                                -----------            ------------              -----------
<S>                                             <C>                    <C>                      <C>
Balance at December 31, 1997                    $10,832,734            $(10,737,990)            $     94,744

    Issuance of common stock                        123,391                  -                       123,391
    Net loss                                            -                (1,463,094)              (1,463,094)
                                                -----------            ------------              -----------

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
                                                ===========            ============             ============
</TABLE>

The accompanying notes are an integral part of this statement.


                                     Page 6
<PAGE>

<TABLE>
             First Chesapeake Financial Corporation and Subsidiaries

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                             Year ended December 31,
<CAPTION>
                                                                                                  1999             1998
                                                                                            -------------    --------------
Operating activities:
<S>                                                                                          <C>              <C>
    Net loss                                                                                 $(1,371,612)     $(1,463,094)
       Adjustments to reconcile net loss to net cash
          used in operating activities:
       Unpaid officers' compensation                                                             154,551          259,860
       Common stock issued as compensation                                                        32,250          123,391
       Depreciation                                                                               27,849           55,420
       Amortization of goodwill and capitalized financing costs                                  369,374              -
       Net increase in loans held for sale                                                      (911,050)             -
       (Gain) loss on disposal of assets                                                         (38,441)          17,796
       Increase in note and accounts receivable                                                  (17,070)          (2,286)
       Decrease in loans to related parties                                                                        94,240
       Decrease in other assets                                                                  (14,416)           1,885
       Increase in trade accounts payable                                                        301,369          245,097
       Increase (decrease) in accrued expenses                                                   102,020          (64,659)
       Increase in liabilities from discontinued operations                                       40,777          107,864
                                                                                             -----------        ---------

                  Net cash used in operating activities                                       (1,324,399)        (624,486)
                                                                                             -----------        ---------

Investing activities:
    Purchase of furniture and equipment                                                          (18,355)          (5,532)
    Cash used in acquisition, net                                                             (1,185,889)             -
                                                                                             -----------        ---------

                  Net cash used in investing activities                                       (1,204,244)          (5,532)
                                                                                             -----------        ---------

Financing activities:
    Proceeds (repayment) of bank and warehouse loans                                           3,009,048          (17,795)
    Proceeds from subordinated junior debentures                                                     -            635,000
    Increase in common stock                                                                     584,000              -
    Repayment of note payable - other                                                           (993,820)             -
                                                                                             -----------        ---------

                  Net cash provided by financing activities                                    2,599,228          617,205
                                                                                             -----------        ---------

                  Net increase (decrease) in cash and cash equivalents                            70,585          (12,813)

Cash and cash equivalents at beginning of year                                                        32           12,845
                                                                                             -----------        ---------

Cash and cash equivalents at end of year                                                     $    70,617     $         32
                                                                                              ==========      ===========

Supplemental cash flow disclosures:

    Cash payments of interest expense                                                       $    394,486      $    14,407

</TABLE>


The accompanying notes are an integral part of these statements.


                                     Page 7
<PAGE>

             First Chesapeake Financial Corporation and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 1999 and 1998

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 1999, the Company agreed to
    sell its interest in NAI effective December 29, 1999.

    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, 1999, the Company incurred a net loss of $1,371,612.

    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 has acquired substantially all of the
    assets of a retail real estate  financing entity and 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.



                                     Page 8
<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,  1999,  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,  1999 and
    1998, 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


                                     Page 9
<PAGE>

    Accounting  Principles  Board (APB)  Opinion No. 25,  "Accounting  for Stock
    Issued to  Employees."  Entities  that continue 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>
    Fixed assets consist of the following:
                                                                 1999             1998
                                                            --------------   --------------
<S>                                                            <C>             <C>
      Leasehold improvements                                   $  22,138       $   22,138
      Furniture and fixtures                                     183,129           62,112
      Machinery and equipment                                    205,001          192,103
                                                                --------          -------
                                                                 410,268          276,353
          Less accumulated depreciation and amortization        (306,579)        (238,170)
                                                                --------          -------
                                                               $ 103,689       $   38,183
                                                                ========         ========
</TABLE>
    Depreciation and amortization  expense  associated with the fixed assets for
the  years  ended   December   31,  1999  and  1998  was  $27,849  and  $55,420,
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.

    Had this  transaction  occurred  on  January 1,  1998,  unaudited  pro forma
    operating results would have been as follows:

                                           1999                  1998
                                      --------------        ---------------
      Net loss                        $(1,258,303)          $  (1,121,037)
                                       ==========            ============
      Loss per share                  $     (0.20)          $       (0.19)
                                       ==========            ============

    The pro forma information is presented for  informational  purposes only and
    is not  necessarily  indicative of the results of  operations  that actually
    would have been achieved had the acquisition been consummated at that time.

    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. At December 31, 1999,  the Company had paid the sellers  $2,194,000
    of cash,  with the remaining  cash payments due in 2000.  The stock has been
    issued into escrow for release in 2000 and 2001.  As  described  above,  the
    remaining  payments  of cash and stock are subject to  reduction  if certain
    financial benchmarks are not attained.

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


                                    Page 10
<PAGE>

    elected to convert  their  holdings  into  373,333  shares of common  stock,
    including 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.

    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 Company and
    other  individuals,  bears interest at prime plus 2% and matures 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 matures 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.

    The  Company  has  warehouse  lines of credit  with  maximum  borrowings  of
    $29,000,000 and $10,000,000 at December 31, 1999 and 1998, respectively.  At
    December 31, 1999, $921,727 was outstanding under the lines. At December 31,
    1998, no amounts were outstanding under this line.

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  $1,400,000  and  $1,400,000  for the years ended
    December 31, 1999 and 1998,  respectively,  resulting in total net operating
    loss  carryforwards  of  approximately  $4,500,000 which expire beginning in
    2007 through 2013, 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, 1999 and 1998,  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.

    No 1992 Plan options had been  exercised  as of December 31, 1998.  In 1999,
    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 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,


                                    Page 11
<PAGE>

    and 40,000 were granted to certain outside directors.  In 1998, 530,000 1998
    Plan  option  shares at an  exercise  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 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 1999, 618,500 1999 ISO Plan option shares at exercise prices
    of $1.13 to $1.50 were  granted,  of which  550,000  were granted to certain
    executive officers, and 39,000 were granted to certain outside directors.

    Option activity under the above plans is summarized following:

                                                               December 31,
                                                       -------------------------
                                                         1999             1998
                                                         ----             ----
         Outstanding options at beginning of year       730,000          200,000
         1998 Plan options granted                      400,000          530,000
         1999 ISO Plan options granted                  618,500              -0-
         1992 Plan options exercised                   (150,000)             -0-
         1992 Plan options cancelled                    (50,000)             -0-
                                                       --------        ---------
         Outstanding options at end of year           1,548,500          730,000
                                                      =========        =========

         Exercise prices
              Low                                   $       .60      $       .25
              High                                         5.00              .60

         Latest expiration date               December 31, 2004     July 9, 2003

    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  1999 and 1998 net loss and net loss per  share  would  have  been
    reported as follows:
                                                     1999              1998
                                                     ----              ----
         Net loss:            As reported       $(1,371,612)       $(1,463,094)
                              Pro forma         $(2,113,230)       $(1,696,294)

         Loss per share:      As reported            $(0.22)             $(.26)
                              Pro forma              $(0.33)             $(.30)

    The fair value of options  granted during 1999 and 1998 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 6.14% in
    1999 and 5.33% in 1998; no dividend yield; expected weighted average term of
    5 years; and volatility of 140% for 1999 and 1998.

    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.At  December 31, 1998,  there were 730,000  options
    outstanding  with a weighted  average exercise price of $.51 and a remaining
    maturity of approximately 3.7 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


                                    Page 12
<PAGE>

    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.

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:

      2000                                        $   367,286
      2001                                            300,263
      2002                                            157,286
      Thereafter                                       62,935

NOTE J - DISCONTINUED OPERATIONS

    In December  1999,  the Company agreed to sell its interest in NAI effective
    December 29, 1999. 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.

                                    Page 13
<PAGE>

NOTE K - LINES OF BUSINESS (Unaudited)

    The  Company's  business  consisted  of  three  principal  activities:   (a)
    continuing mortgage banking operations  (namely,  the ongoing Collateral One
    operation and the FC Funding  operation  which was closed in January  2000);
    (b) discontinued  operations  (consisting of the disposed  National Archives
    operations);  and (c) corporate  operations.  The following tables set forth
    certain 1999 and 1998 information concerning these activities:
<TABLE>
<CAPTION>
                                      *Continuing        Continuing
    12 Months ended                  Operations -      Operations -      Discontinued         Corporate         Combined
    December 31, 1999                Collateral One      FC Funding        Operations        Operations       Operations
    -----------------                --------------      ----------        ----------        ----------       ----------

<S>                                    <C>                 <C>               <C>                 <C>          <C>
    Revenues                           $3,653,000          $587,000          $179,000            $4,000       $4,423,000
    Compensation and benefits           2,134,000           760,000            99,000           276,000        3,268,000
    Professional fees                      14,000             9,000               -0-           120,000          143,000
    Occupancy                             189,000            69,000            11,000            23,000          291,000
    Other operating expenses              740,000           273,000            69,000           209,000        1,317,000
    ------------------------              -------           -------            ------           -------        ---------

    Operating profit/(loss)               576,000          (524,000)          (25,000)         (624,000)        (596,000)

    Interest and related expenses             -0-            78,000               -0-           345,000          423,000
    Depreciation/amortization               6,000             2,000            16,000           389,000          413,000
    Other expense/(income)                  4,000           (27,000)              -0-           (38,000)         (60,000)
    ----------------------                  -----          --------          --------          --------         --------

    Net income/(loss)                    $566,000         $(577,000)         $(41,000)      $(1,320,000)     $(1,372,000)

      *Note:  Collateral  One  operations  commenced  on the  February 10, 1999
       acquisition  date, and 1999 results reflect 10-1/2 months  operations for
       the period

<CAPTION>

                                      *Continuing       *Continuing
    12 Months ended                  Operations -      Operations -      Discontinued         Corporate         Combined
    December 31, 1998                Collateral One      FC Funding        Operations        Operations       Operations
    -----------------                --------------      ----------        ----------        ----------       ----------

    Revenues                                 $-0-           $84,000          $180,000           $20,000         $284,000

    Compensation and benefits                 -0-           140,000           139,000           614,000          893,000
    Professional fees                         -0-             2,000             2,000           257,000          261,000
    Occupancy                                 -0-            21,000             7,000            23,000           51,000
    Other operating expenses                  -0-            69,000           185,000            82,000          336,000
    ------------------------                  ---            ------           -------            ------          -------

    Operating profit/(loss)                   -0-          (148,000)         (153,000)         (956,000)      (1,257,000)

    Interest and related expenses             -0-               -0-               -0-            34,000           34,000
    Depreciation/amortization                 -0-             1,000            25,000            30,000           56,000
    Other expense/(income)                    -0-            11,000           121,000           (16,000)         116,000
    ----------------------                    ---            ------           -------          --------          -------

    Net income/(loss)                        $-0-         $(160,000)        $(229,000)      $(1,004,000)     $(1,463,000)
</TABLE>

      *Note:  FC Funding  operations  commenced in August 1998  start-up of that
       subsidiary;  Collateral One commenced operations in February 1999 and was
       not included in the 1998 Company results.


In managing its business,  the Company does not allocate  corporate  expenses to
its various activities.

                                    Page 14
<PAGE>

NOTE L - 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.

NOTE M - SUBSEQUENT EVENTS

    In January 2000, the Company ceased  operations of its FC Funding  wholesale
    mortgage banking subsidiary and closed its two Florida locations,  effective
    January 31, 2000.

    In  March  2000,   the  Company   entered   into  an  agreement  to  acquire
    Whoofnet.com, Inc. and its affiliates ("Whoofnet").  Whoofnet is an Internet
    and  telecommunications  provider  serving  residential  and small  business
    clients  through its free Internet  service.  The Company intends to develop
    and expand the Whoofnet  operation,  however, no assurance can be given that
    it will be successful in its efforts to implement its strategic plan.

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

                                    Page 15