10KSB/A 1 t300157.txt AMENDED ANNUAL REPORT U.S. SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-KSB/A Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the Fiscal Year ended MARCH 31, 2002. Commission File number: 811-0969 THE FIRST CONNECTICUT CAPITAL CORPORATION ----------------------------------------- (Exact name of Registrant as Specified in its Charter) CONNECTICUT 06-0759497 ----------- ---------- (State of Incorporation) (IRS Employer Identification No.) 1000 BRIDGEPORT AVENUE, SHELTON, CONNECTICUT 06484 -------------------------------------------- --------- (Address of principal executive offices) Zip Code Registrant's telephone number (203) 944-5400 -------------- Securities registered under Section 12(b) of the Exchange Act: NONE Name of each exchange on which registered: -------------------------- NONE Securities registered pursuant to Section 12(g) of the Exchange Act: Title of Class -------------- COMMON Check whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter 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 pursuant to Item 405 of Regulation S-B is not contained herein, and will not be contained to the best of 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 ] Registrant's revenues for its most recent fiscal year: $1,220,000 The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 5, 2002 based on the closing sales price of such stock on such date was approximately $641,000 Check whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes_____ No_____ The number of shares outstanding of the registrant's common stock as of June 5, 2002 was 1,173,382. DOCUMENTS INCORPORATED BY REFERENCE: The following documents are hereby incorporated by reference into the following Parts of this Form 10-KSB: (1) financial statements as of and for the fiscal years ended March 31, 2002 and 2001, and Independent Auditors' Report is incorporated by reference into Part II Item 7. TABLE OF CONTENTS PART I PAGE Item 1 - Description of Business..................................... 1 - 5 Item 2 - Description of Property..................................... 5 Item 3 - Legal Proceedings........................................... 5 Item 4 - Submissions of Matters to a Vote of Security Holders........ 5 PART II Item 5 - Market for Common Equity and Related Stockholder Matters.... 5 - 6 Item 6 - Management's Discussion and Analysis of Financial Condition and Results of Operations....................6 - 20 Item 7 - Financial Statements........................................ 21 Item 8 - Changes in and Disagreements With Accountants on Accounting and Financial Disclosure................. 21 PART III Item 9 - Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act...... 22 Item 10 - Executive Compensation..................................... 23 Item 11 - Security Ownership of Certain Beneficial Owners and Management............................................ 23-25 Item 12 - Certain Relationships and Related Transactions............. 25-27 Item 13 - Exhibits and Reports on Form 8-K........................... 27 SIGNATURES................................................................ 28 THE FIRST CONNECTICUT CAPITAL CORPORATION (FORM 10KSB AMENDED) PART I EXPLANATORY STATEMENT The Corporation has amended the 10-KSB filing as a result of a review performed by the SEC in connection with the proposed proxy filing. The amended 10-KSB includes additional disclosures in connection with the Corporation's loan portfolio and lending activities. ITEM 1. DESCRIPTION OF BUSINESS FORWARD-LOOKING INFORMATION This annual report and other reports issued by The First Connecticut Capital Corporation ("FCCC or the Corporation"), including reports filed with the Securities and Exchange Commission, may contain "forward-looking" statements that deal with future results, plans or performances. In addition, FCCC's management may make such statements orally, to the media, or to securities analysts, investors or others. Forward-looking statements deal with matters that do not relate strictly to historical facts. FCCC's future results may differ materially from historical performance and forward-looking statements about FCCC's expected financial results or other plans are subject to a number of risk and uncertainties. These include but are not limited to possible legislative changes and adverse economic, business and competitive developments such as shrinking interest margins, investment outflows, reduced demand for loans, changes in accounting policies and guidelines, or monetary and fiscal policies of the federal government, changes in credit and other risks posed by FCCC loans and investment portfolios, technological, computer-related or operational difficulties, adverse changes in security markets, results of litigation or other significant uncertainties. GENERAL The Corporation is engaged in the mortgage banking business, which involves the origination, purchase, sale and servicing of mortgage loans secured by residential or commercial real estate. The Corporation's revenues consist of loan servicing fees, loan origination fees, interest on mortgage loans held prior to sale, gains from the sale of loans and mortgage servicing rights. Mortgage loans, which are originated or purchased by the Corporation, may be resold. The Corporation also engages in mortgage servicing of its own Portfolio Loan Program, which includes the processing and administration of mortgage loan payments and remitting principal and interest to purchasers. The Corporation also monitors delinquencies, collects late fees, manages foreclosures, processes prepayments and loan assumption fees, provides purchasers with required reports, and answers borrowers' inquiries. Although the management plans, from time to time, to sell a portion of its mortgages originated, management intends to build the size of its mortgage servicing portfolio by retaining the servicing rights from a large share of its mortgage loan originations. -1- THE FIRST CONNECTICUT CAPITAL CORPORATION (FORM 10KSB AMENDED) As of April 30, 2002, the Corporation serviced a total portfolio of approximately $15,219,000, as listed below: Portfolio Loan Program $ 9,271,000 First Connecticut Capital Mortgage Fund "A" 4,394,000 First Connecticut Capital Mortgage Fund "B" 1,554,000 ------------ $15,219,000 HISTORY The Corporation (formerly The First Connecticut Small Business Investment Company) was incorporated on May 6, 1960 as a federally licensed small business investment company under the Small Business Investment Act of 1958 and was registered as an investment company under the Investment Company Act of 1940. The Corporation's prior business consisted of providing long-term loans to finance the growth, expansion and development of small business concerns. On August 15, 1990, the Corporation filed a petition for relief under Chapter 11 of the federal bankruptcy laws in the United States Bankruptcy Court. On October 18, 1991, the Corporation filed a plan of reorganization (the "Plan") with the United States Bankruptcy Court. The Plan was confirmed as of January 9, 1992. Under the Plan, the Corporation was required to surrender its license to operate as a small business investment company. On June 29, 1993, the Corporation's application for deregistration under the Investment Company Act of 1940 was approved by the Securities and Exchange Commission. On December 15, 1993, the Corporation sold substantially all of its outstanding investment portfolio to Walsh Securities for an amount sufficient to settle substantially all of the Company's liabilities under the Plan. As part of this transaction, restrictions under the Plan regarding the Corporation's lending activities were waived. The Corporation was granted a license by the State of Connecticut Department of Banking to engage in business as a First Mortgage Loan-Lender/Broker on April 8, 1994. The Corporation is also licensed by the State of Connecticut as a Second Mortgage Lender/Broker. On December 28, 1994, the United States Bankruptcy Court issued a final decree closing the Chapter 11 case of the Corporation. During the past fiscal year the Corporation has elected not to renew its license in the State of Massachusetts, but rather expand its loan program in Connecticut. SEASONALITY The Corporation's business and the mortgage banking industry as a whole is generally subject to seasonal trends which reflect a pattern of home sales and resales. Loan originations typically peak during the spring and summer seasons and decline from mid-November through January. -2- THE FIRST CONNECTICUT CAPITAL CORPORATION (FORM 10KSB AMENDED) Prior to January 1996, the Corporation focused its efforts on refinances of mortgages on residential properties, which was generally the case throughout the industry. Since January 1996, the Corporation has expanded its Portfolio Loan Program to include short-term mortgages for construction, remodeling and additions, as well as bridge financing and land acquisitions. These loans are predominately collateralized by first mortgage liens on residential properties and are sold to qualified investors, the limited partnerships as defined below with fees retained for servicing or assigned to Hudson United Bank under its credit line facility as a collateral pledge. COMPETITION The Corporation competes with other mortgage bankers, mortgage brokers, state and national banks, thrift institutions and insurance companies for loan originations and purchases. Many of its competitors have substantially greater financial resources than the Corporation. The Corporation competes for loan originations, in part, based on price, through print and electronic media advertising campaigns, by telemarketing to potential borrowers, and by maintaining close relationships with mortgage brokers, real estate brokers, builder-developers, accountants and attorneys. REGULATION The Corporation is not presently an approved seller/servicer for the Government National Mortgage Association ("GNMA"), the Federal National Mortgage Association ("FNMA"), or the Federal Home Loan Mortgage Corporation ("FHLMC"), nor is the Corporation an approved issuer and servicer under GNMA, FNMA or FHLMC mortgage-backed securities programs. The Corporation is not qualified to originate mortgage loans insured by the Federal Housing Administration (the "FHA") or partially guaranteed by the Veterans Administration (the "VA"). The Corporation does not presently intend to apply for such approvals or qualifications. Accordingly, the Corporation is not currently subject to the rules and regulations of these agencies with respect to originating, processing, selling and servicing mortgage loans, but may become subject to such rules and regulations should the Corporation become an approved issuer, seller or servicer for any of these agencies. Such rules and regulations would, among other things, prohibit discrimination and establish underwriting guidelines that include provisions for inspections and appraisals and require credit reports on prospective borrowers, and with respect to VA loans, fix maximum interest rates. The Corporation's mortgage loan origination activities are subject to the Equal Credit Opportunity Act, the Federal Truth-In-Lending Act, the Real Estate Settlement Procedures Act and the regulations promulgated there under which prohibit discrimination and require the disclosure of certain information to borrowers concerning credit and settlement costs. Additionally, the sale of mortgage loans by the Corporation to purchasers may be subject to applicable federal and state securities laws. -3- THE FIRST CONNECTICUT CAPITAL CORPORATION (FORM 10KSB AMENDED) There are various state laws affecting the Corporation's mortgage banking operations, including licensing requirements and substantive limitations on the interest and fees that may be charged. The Corporation is in possession of all required licenses in those states in which it does business that require such licenses, except where the absence of such licenses are not material to the business and operations as a whole. States have the right to conduct financial and regulatory audits of the loans under their jurisdiction. PERSONNEL As of April 30, 2002, the Corporation had 5 employees (including Lawrence R. Yurdin its President), all of whom were employed at the Corporation's headquarters in Shelton, Connecticut. Management of the Corporation believes that its relations with its employees are good. INVESTMENT POLICIES (i) Investments in real estate - The Corporation does not invest in real estate or interests in real estate but may acquire real estate by foreclosure of mortgage loans owned by the Corporation or by deed in lieu of foreclosure. Primarily such properties would consist of 1-4 family dwellings or unimproved building sites. Management of the Corporation does not intend to cause the Corporation to own or operate properties for an extended period of time but rather its policy is to sell such properties at fair value as soon as possible. (ii) Investments in real estate mortgages - The Corporation intends to originate first or second real estate mortgages and sell certain of these mortgages as promptly as practicable to interested purchasers, retaining the application fees and servicing rights. Maturities of mortgages not sold will typically range from one to two years. (iii) Management of the Corporation currently does not intend to cause the Corporation to invest in the securities of, or interests in, persons or entities that are primarily engaged in real estate activities. SUBSEQUENT EVENTS; RECENT DEVELOPMENTS Subsequent to the fiscal period covered by this report, the Corporation entered into definitive negotiations with respect to the sale by the Corporation of all or substantially all of its assets to, and the assumption of all of the Corporation's liabilities by, members of management and the board of directors. Management (which is included in the group that comprises the prospective purchaser, of which Lawrence R. Yurdin, the Corporation's President, is a Member and Manager) believes that there is substantial likelihood that the parties will arrive at mutually agreeable terms for the transaction, after which the Corporation will submit the proposed transaction to the stockholders for their consideration and approval or disapproval. -4- THE FIRST CONNECTICUT CAPITAL CORPORATION (FORM 10KSB AMENDED) The Corporation is also engaged in definitive negotiations with certain private investors who are not presently affiliates of the Corporation with respect to the possible sale by the Corporation of shares of its common stock and warrants to purchase common stock, together with a contractual undertaking to permit the investors to manage the business and strategic operations of the Corporation subsequent to the sale of the business assets described in the preceding paragraph. Management of the Corporation believes that there is substantial likelihood that the parties will arrive at mutually agreeable terms for such transactions. ITEM 2. DESCRIPTION OF PROPERTY The Corporation is located at 1000 Bridgeport Avenue, Shelton, Connecticut. The office contains 1,772 square feet of space, which the Corporation currently leases from an unaffiliated party pursuant to a renewed 5-year lease expiring December 31, 2007. ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Corporation's Common Stock is traded over the counter, and the low bid and high ask prices of the Corporation's stock are quoted on the OTC Bulletin Board under the symbol FCCC. Following are the low bid and high ask prices for the Corporation's Common Stock during the fiscal years ended March 31, 2002 and 2001 as quoted on the OTC Bulletin Board: LOW HIGH 2002 First Quarter $ .64 $ .66 Second Quarter .65 .75 Third Quarter .65 1.10 Fourth Quarter .65 .86 -5- THE FIRST CONNECTICUT CAPITAL CORPORATION (FORM 10KSB AMENDED) LOW HIGH 2001 First Quarter $ .40 $ .55 Second Quarter .40 .59 Third Quarter .57 .67 Fourth Quarter .60 .64 The approximate number of stockholders of record on June 5, 2002 was 1,130 and the Corporation estimates that it has a total of approximately 1,350 beneficial shareholders. The closing bid quotation of the Corporation's Common Stock on that date was approximately $.60. The Corporation has not paid any dividends on its Common Stock since April 27, 1990. The Corporation currently intends to retain earnings for use in its business and does not anticipate paying cash dividends in the foreseeable future. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL REVIEW This financial review presents management's discussion and analysis of the financial condition and results of operations of the Corporation and should be read in conjunction with the financial statements and other financial data. In connection with the following discussion, see "Forward-Looking Information" in Item 1 of this document regarding forward-looking statements and factors that could impact the business financial prospects of the Corporation. SIGNIFICANT ACCOUNTING POLICIES There are a number of accounting policies that the Corporation has established which require management to use judgment. Two of the more significant policies are as follows: o Establishing the amount of the allowance for loan losses requires the use of management judgment. Management evaluates the Corporation's assets at least quarterly, and reviews their risk components as a part of that evaluation. If we misjudge a major component of our loans and experience a loss, it will likely affect our earnings. We consistently challenge ourselves in the review of the risk components to identify any changes in trends and their cause. o Another valuation that requires management judgment relates to mortgage servicing rights. Essentially, mortgage servicing rights are established on mortgage loans that we originate and sell. We allocate a portion of a loan's book basis to mortgage servicing rights when a loan is sold, based upon its relative fair value. The fair value of mortgage servicing rights is the present value of estimated future net cash flows from servicing relationships using current market assumptions for prepayments, servicing costs and other factors. As the loans are repaid and net servicing revenue is earned, mortgage servicing rights are amortized into expense. Net servicing revenue is expected to exceed this amortization expense. However, if our actual prepayment experience exceeds what we originally anticipated, net servicing revenue may be less than expected and mortgage servicing rights may be impaired. This impairment would be recorded as a charge to earnings. -6- THE FIRST CONNECTICUT CAPITAL CORPORATION (FORM 10KSB AMENDED) ANALYSIS OF FINANCIAL CONDITION: CASH AND CASH EQUIVALENTS - Cash and cash equivalents for the years ended March 31, 2002 and 2001 are $437,000 and $232,000 respectively. The increase of $205,000 for the year ended March 31, 2002 was as a result of maturing loans and loans not yet originated. RESTRICTED CASH - The decrease in restricted cash for the years ended March 31, 2002 of $44,000 was the result of a letter of credit agreement no longer requiring a compensating cash balance in 2002. LOANS - Loans as of March 31, 2002 and 2001 was $2,172,000 and $2,366,000, respectively. The decrease of $194,000 was due to an increase of new investors and the increase of loans originations and sold to individuals, corporations and Partnership A and B. LOANS HELD FOR SALE - Loans held for sale as of March 31, 2002 and 2001 was $1,355,000 and $923,000, respectively. The increase of $432,000 was due to an increase in loan originations and loans retained by the Corporation. LOANS DUE FROM RELATED PARTIES - Loans due from related parties at year ended March 31, 2002 as compared to year ended March 31, 2001 increased by $175,000. This increase is due to a loan origination of $225,000 made to a director of the Corporation during the year ended March 31, 2002 and the payoff and maturity of a $50,000 loan made in year 2001 to a director. DUE FROM PARTNERSHIPS - The increase of $92,000 in due from partnerships is the result of an accrual at year ended March 31, 2002 which represents the servicing fees owed from Partnership A. No such accrual was made in year ended March 31, 2001, as it was not material to our financial condition. DEFERRED TAX ASSET - The deferred tax asset results from net operating loss carryforwards (NOLS). Management has evaluated the available information about future taxable income. The valuation allowance reduces the deferred tax asset to management's best estimate of the amount of such deferred tax asset that more likely than not will be realized. It is management's estimation that the Corporation will be able to earn approximately $840,000 over the next eight years (expiration of the NOL utilization periods), and thereby utilizing the net deferred tax asset. This estimate has been based on the Corporations three past fiscal years earnings. It is management's belief that the Corporation has conservatively estimated its future net income over next eight years as the Corporation continues to grow its mortgage business and keep its cost structures constant. The past three years earnings were as follows: -7- THE FIRST CONNECTICUT CAPITAL CORPORATION (FORM 10KSB AMENDED) o FY 2002 - $360,000. o FY 2001 - $(308,000) (after the one time $520,000 loan impairment charge for the three old SBIC loans that were deemed to be impaired in 2001). o FY 2000 - $1,000. This deferred tax asset could be impaired if the Corporation were to change ownership or if management were to purchase the assets and liabilities of the Corporation (see Plan of Operation). The components of the net deferred tax asset at March 31 are as follows: 2002 2001 ---- ---- Deferred tax asset: Net operating loss carryforwards $2,558,000 $2,674,000 Loan loss reserves 178,000 180,000 Valuation allowance (2,486,000) (2,300,000) ----------- ----------- Net deferred tax asset $ 250,000 $ 554,000 =========== =========== LINE OF CREDIT - As of March 31, 2002 and 2001 the balance on the Corporation's line of credit has remained stable, due to other sources of funding. ACCOUNTS PAYABLE TO RELATED PARTIES - The increase of $203,000 in accounts payable to related parties is due to a wire transfer of funds clearing on April 3, 2002 for a loan that closed on March 25, 2002. The funds are due to the attorney who closed the loan. The attorney is also a board member. ACCOUNTS PAYABLE AND OTHER ACCRUED EXPENSES - As of year ended March 31, 2002 and year ended March 31, 2001 the accounts payable and other accrued expenses were $94,000 and $30,000, respectively. The increase of $64,000 is primarily due to professionals fees, which includes legal, accounting and auditing fees. ANALYSIS OF LENDING ACTIVITIES: AVERAGE BALANCE SHEET AND YIELD/RATE ANALYSIS - The following tables presents the Corporation's financial information regarding its financial condition and net interest income for years ended March 31, 2002 and 2001. The table presents the average yield on interest-earning assets and the average costs of interest bearing liabilities for the period indicated. The yields and costs are derived by dividing income or expenses by the average of interest-earning assets or interest-bearing liabilities respectively, for the periods indicated. The average balances are derived from quarterly balances over the period indicated. Interest income includes fees, which we considered adjustments to yield. Net interest spread is the difference between the yield on interest-earning assets and the rate paid on interest bearing liabilities. Net interest margin is derived by dividing net interest income by average interest-earning assets. No tax-equivalent adjustments have been made, as the Corporation has no investments that are tax exempt. -8- THE FIRST CONNECTICUT CAPITAL CORPORATION (FORM 10KSB AMENDED)
AVERAGE BALANCE SHEET, INTEREST EARNED AND RATE PAID FOR YEAR ENDED MARCH 31, 2002 INTEREST AVERAGE EARNED YIELD ------- ------ ----- INTEREST-EARNING ASSETS (1): Cash and cash equivalents $ 312,000 $ 7,000 2.24% Loans, net 2,328,000 436,000 18.73% Loans due from related parties 56,000 6,000 10.71% Loans held for sale 1,247,000 219,000 17.56% Due from partnerships 23,000 2,000 8.70% ---------- ---------- Total average interest-earning assets 3,966,000 670,000 16.89% ---------- ---------- Non-interest earning assets 638,000 ---------- Total average assets $4,604,000 ========== INTEREST-BEARING LIABILITIES: Line of credit $2,362,000 $ 242,000 10.25% ---------- ---------- NON INTEREST-BEARING LIABILITIES: Accounts payable to related parties 50,000 Accounts payable & other accrued expenses 91,000 ---------- Total non interest bearing liabilities 141,000 Total average liabilities 2,503,000 ---------- Total average stockholders equity 2,101,000 ---------- Total average liabilities and stockholders equity $4,604,000 ========== Net interest income and net interest rate spread (2) $ 428,000 6.64% ========== ====== Net interest-earning assets and net interest margin (3) $1,604,000 10.79% ---------- ------ Average interest-earning assets to average interest-bearing liabilities 1.679 ====== -9- THE FIRST CONNECTICUT CAPITAL CORPORATION (FORM 10KSB AMENDED) (1) For the purpose of these computations, non-accruing loans and loans held for sale are included in the average loans outstanding. (2) Included in net interest income is $7,000 of interest earned on a money market account that has been included within other fees in the statement of income. In addition, included in net interest income are loan fees of $173,000. Interest rate spread is the difference between the average yield in interest-earning assets and the average rate on interest-bearing liabilities. (3) Net interest margin is determined by dividing net interest income by total average interest-earning assets.
AVERAGE BALANCE SHEET, INTEREST EARNED AND RATE PAID FOR YEAR ENDED MARCH 31, 2001 INTEREST AVERAGE EARNED YIELD ------- ------ ----- INTEREST-EARNING ASSETS (1): Cash and cash equivalents $ 276,000 $ 9,000 3.26% Loans, net 2,206,000 431,000 19.53% Loans held for sale 838,000 158,000 18.85% ---------- ---------- Total average interest-earning assets 3,320,000 598,000 18.01% ---------- ---------- Non-interest earning assets 775,000 ---------- Total average assets $4,095,000 ========== INTEREST-BEARING LIABILITIES: Line of credit $1,602,000 $ 195,000 12.17% ---------- ---------- ------ NON INTEREST-BEARING LIABILITIES: Accounts payable & other accrued expenses 31,000 ---------- Total average liabilities 1,633,000 ---------- Total average stockholders equity 2,462,000 ---------- Total average liabilities and stockholders equity $4,095,000 ========== Net interest income and net interest rate spread (2) $ 403,000 5.84% ========== ====== Net interest-earning assets and net interest margin (3) $1,718,000 12.14% ---------- ------ Average interest-earning assets to average interest-bearing liabilities 2.072 ====== -10- THE FIRST CONNECTICUT CAPITAL CORPORATION (FORM 10KSB AMENDED) (1) For the purpose of these computations, non-accruing loans and loans held for sale are included in the average loans outstanding. (2) Included in net interest income is $9,000 of interest earned on a money market account that has been included within other fees in the statement of income. In addition, included in net interest income are loan fees of $199,000. Interest rate spread is the difference between the average yield in interest-earning assets and the average rate on interest-bearing liabilities. (3) Net interest margin is determined by dividing net interest income by total average interest-earning assets.
RATE VOLUME ANALYSIS OF NET INTEREST INCOME - The following table presents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected our interest income and interest expense during the periods indicated. Information is provided in each category with respect to: 1) changes attributable to changes in volume (change in volume multiplied by prior rate); 2) changes attributable to change in rate (change in rate multiplied by prior volume); and 3) the net change. The changes attributable to the combined impact of the volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.
YEAR ENDED YEAR ENDED MARCH 31, 2002 MARCH 31, 2001 VERSUS MARCH 31, 2001 VERSUS MARCH 31, 2000 INCREASE (DECREASE) DUE TO: INCREASE (DECREASE) DUE TO: --------------------------- --------------------------- VOLUME RATE TOTAL VOLUME RATE TOTAL ------ ---- ----- ------ ---- ----- Cash and cash equivalents $ 1,000 $ (3,000) $ (2,000) $ 0 $ 0 $ 0 Loans, net 23,000 (18,000) 5,000 222,000 (40,000) 182,000 Loans due from related parties 6,000 0 6,000 0 0 0 Loans held for sale 72,000 (11,000) 61,000 (53,000) (49,000) (102,000) Due from partnerships 2,000 0 2,000 0 0 0 --------- --------- --------- --------- --------- --------- Total interest Income 104,000 (32,000) 72,000 169,000 (89,000) 80,000 --------- --------- --------- --------- --------- --------- Borrowings: Line of credit 78,000 (31,000) 47,000 69,000 16,000 85,000 --------- --------- --------- --------- --------- --------- Net interest income $ 26,000 $ (1,000) $ 25,000 $ 100,000 $(105,000) ($ 5,000) ========= ========= ========= ========= ========= =========
-11- THE FIRST CONNECTICUT CAPITAL CORPORATION (FORM 10KSB AMENDED) LOAN PORTFOLIO COMPOSITION: The Corporation's loan portfolio primarily consists of construction and remodeling mortgage loans that are secured by residential or commercial real estate and three SBIC loans that were originated in the early 1980's. The following table presents the composition of our loan portfolio in dollar amounts and in percentages of the total portfolio at the dates indicated:
PERCENT PERCENT MARCH 31, 2002 OF TOTAL MARCH 31, 2001 OF TOTAL -------------- -------- -------------- -------- Mortgage loans: Loans $2,138,000 71.48% $2,320,000 76.92% Loans due from related parties 225,000 7.52% 50,000 1.66% Foreclosed loans (SBIC) 628,000 21.00% 646,000 21.42% ---------- ----------- ---------- ----------- Total loans 2,991,000 100.00% 3,016,000 100.00% Less: Allowance for loan losses 594,000 600,000 ---------- ---------- Total loans, net 2,397,000 2,419,000 ---------- ------------- Loans held for sale 1,355,000 923,000 ---------- ------------- Total loans and loans held for sale $3,752,000 $ 3,339,000 ========== =============
The Corporation has not recorded any valuation allowance against loans held for sale or loans due from related parties as no such loans are deemed impaired. LOAN MATURITY: The following table presents the contractual maturity of our loans at March 31, 2002. The table does not include the effects of prepayments or scheduled principal amortization. OTHER LOANS HELD LOANS DUE LOANS LOANS FOR SALE RELATED PARTIES SBIC ----- -------- --------------- ---- Amounts Due: Within one year $2,138,000 $1,138,000 $ 225,000 $ 127,000 After one year One to Two 0 217,000 0 0 Five to Ten 0 0 0 501,000 ---------- ---------- ---------- ---------- Total loans $2,138,000 $1,355,000 $ 225,000 $ 628,000 ========== ========== ========== ========== Amounts due after one year and on: Fixed rate loans $ 0 $ 217,000 $ 0 $ 501,000 Variable rate loans 0 0 0 0 ---------- ---------- ---------- ---------- Total loans $ 0 $ 217,000 $ 0 $ 501,000 ========== ========== ========== ========== -12- THE FIRST CONNECTICUT CAPITAL CORPORATION (FORM 10KSB AMENDED) LOAN ORIGINATIONS - The following table presents our loan originations, purchases, sales and principal payments for the periods indicated: March 31, March 31, 2002 2001 ----- ---- Balance at beginning of period $ 3,339,000 $ 2,904,000 Originations: Loans 3,132,000 2,844,000 Loans held for sale 13,821,000 10,458,000 ------------ ------------ Total Originations 16,953,000 13,302,000 Less: Principal payments and Repayments Loans 32,000 23,000 Loans held for sale 3,125,000 2,245,000 ------------ ------------ Total principal payments 3,157,000 2,268,000 Loans sold: Loans held for sale 13,389,000 10,044,000 ------------ ------------ Decrease (increase) of provision for loans losses 6,000 (555,000) ------------ ------------ Total at end of period $ 3,752,000 $ 3,339,000 ============ ============ As of year ended March 31, 2002 and year ended 2001 the Corporation was servicing loans totaling $15,300,000 and $13,188,000, respectively. ASSET QUALITY - The Corporation's loan portfolio primarily consists of construction mortgage loans and three SBIC loans that were originated in the early 1980. The accrual of interest income is generally discontinued when loans become 90 days or more past due with respect to interest. The Corporation had a balance of impaired and non-accruing loans of $628,000 at March 31, 2002 and $861,000 at March 31, 2001. -13- THE FIRST CONNECTICUT CAPITAL CORPORATION (FORM 10KSB AMENDED) The following table summarizes non-performing loans and assets: MARCH 31, MARCH 31, 2002 2001 ---- ---- Impaired and non-accruing mortgage loans $ 628,000 $ 861,000 Accruing loans delinquent 90 days or more 250,000 0 --------- --------- Total non-performing loans $ 878,000 $ 861,000 ========= ========= Non-performing loans to total loans 29.35% 28.55% ========= ========= Non-performing loans to total assets 18.52% 19.99% ========= ========= Additional interest income that would have been recognized if non-accrual loans had been current $ 2,000 $ 34,000 Allowance for loan losses as a percent of non-performing loans 67.65% 69.69% ========= ========= A summary of the allowance for loan losses is shown below: MARCH 31, MARCH 31, 2002 2001 ---- ---- Balance at beginning of period $ 600,000 $ 45,000 Provision for the period (6,000) 555,000 Charge-offs: Accrued loans delinquent more than 90 days 0 0 Recoveries 0 0 --------- --------- Balance at end of period $ 594,000 $ 600,000 ========= ========= Allowance as a percent of loans 19.86% 19.89% ========= ========= The allocation of the Corporation's provision for loan losses and the allocation as percent of total loans are as follows: MARCH 31, % MARCH 31, % 2002 2001 --------- ------ --------- ------ Loans $ 25,000 1.05% $ 35,000 1.48% Foreclosed loans (SBIC) 569,000 90.60% 565,000 87.46% -------- -------- Total $594,000 19.86% $600,000 19.89% ======== ======== -14- THE FIRST CONNECTICUT CAPITAL CORPORATION (FORM 10KSB AMENDED) The allowance for loan losses is determined by management on a loan-by-loan basis. The allowance is an amount that management believes will be adequate to absorb losses on existing loans that may become un-collectible based on evaluations of the collectibility of the loans. The evaluations take into consideration such factors as geographic location, assessment of collateral quality, appraisals of significant collateral and other conditions that may affect the borrower's ability to repay. Certain impaired loans are measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the estimated fair value of the collateral if the loan is collateral dependent. Actual changes and expected trends in non-performing loans and impaired loans are evaluated quarterly by management of the Corporation and any changes in the reserve for collectibility on these loans is charged to earnings in the current quarter. The allowance is increased by the provision and charged to earnings and reduced by charge-offs net of recoveries. The following table sets forth information regarding the Corporations delinquent loan portfolio and the percent of the total loan portfolio, excluding impaired and non-accruing loans: MARCH 31, 2002 % MARCH 31, 2001 % -------------- ---------- -------------- ------- Loans delinquent For: 30 - 59 days $126,000 5.33% $ 7,000 0.32% 60 - 89 days 76,000 3.22% 0 0% 90 days or more 250,000 10.58% 215,000 9.98% -------- ----- -------- ----- Total $452,000 19.13% $222,000 10.33% ======== ======== The Corporation's delinquent loans have increased by $230,000 over the prior period. Management has reviewed all loans which are delinquent and believes that the loan loss reserves related to the total loan portfolio are sufficient given the loan status and the collateral that supports these loans. Managements, underwriting procedures are very conservative, 95% of all loans made are 1st mortgages, and in addition, the average loan to value (LTV) ranges are 60% to 70%. Management expects that all loans will be paid down in full and that the overall loan reserve levels are conservatively stated. The decrease of $6,000 in the loan loss reserve relates to the monthly cash payments received on the SBIC loans. The three SBIC loans are loans that were unstable during the Corporation's bankruptcy proceedings and have remained within the Corporation's portfolio. Management has determined the loans to be impaired, as the loans are collateral dependent, and they have been written down to appraisal values. The following is a summary of the SBIC loans as of March 31, 2002: -15- THE FIRST CONNECTICUT CAPITAL CORPORATION (FORM 10KSB AMENDED) LOAN LOAN MATURITY AMOUNT LOAN CARRYING NAME DATE OUTSTANDING RESERVE VALUE ---- --------- ----------- ------- ---------- King Food 12/01/08 $ 24,000 $ 24,000 $ 0 Fire Island 01/01/08 477,000 452,000 25,000 Bar Auto 01/01/04 127,000 93,000 34,000 -------- -------- -------- Total $628,000 $569,000 $ 59,000 ======== ======== ======== RESULTS OF OPERATIONS GENERAL - The Corporation had net income of $45,000 for the year ended March 31, 2002 compared to a net loss of $313,000 for the year ended March 31, 2001. This increase of $358,000 is due primarily to the increase of $153,000 in interest and fees on loans and servicing fees and a decrease in the provision for loan losses of $561,000. The Corporation's interest expense on the line of credit increased by $49,000, due to the increase in the amount of borrowings throughout the year under the line of credit. Other fees have increased by $40,000 during the year due to a receivable booked for servicing fees due from the partnerships. INTEREST AND FEE INCOME - Total interest and fee income for the year ended March 31, 2002 was $663,000 as compared to $589,000 for the year ended March 31, 2001, an increase of $74,000 or 13%. This increase was primarily due to an increase in origination fees collected by the Corporation, due to an increase in the number and dollar amount of mortgage loans originated and funded by the Corporation. Management attributes the increase to an increase of construction and real estate lending, its ability to service loan demand from homebuilders, remodelers and developers and the generally favorable climate for the construction industry. NET GAIN ON SALES OF LOANS HELD FOR SALE - For the year ended March 31, 2002, the Corporation recognized $335,000 in net gains on loans held for sale compared to $303,000 for the year ended March 31, 2001. This $32,000 increase is due to the increase in the number and dollar amounts of mortgage loans originated and sold by the Corporation (see Analysis of Lending Activities). PROVISION FOR LOAN LOSSES - For the year ending March 31, 2002, the Corporation has reduced its provision for loan losses by $6,000, as a result of cash collected on reserved loans. At March 31, 2001 the Corporation increased the provision for loan losses by $555,000 to adjust the allowance for loan losses to adequately absorb decreases in loan values based on an independent appraisal of the Corporation's loan portfolio. Within the Corporation's portfolio are three (3) loans that were originated in the early 1980's. Due to the nature of the collateral (which has extensive environmental issues associated with it) as well as other negative factors, the Clayton Group, a nationally recognized loan portfolio appraisal company, devalued these three loans as of April 2001. -16- THE FIRST CONNECTICUT CAPITAL CORPORATION (FORM 10KSB AMENDED) Consequently, the Corporation restated its Form 10-KSB for the year ended March 31, 2001, in February 2002 with a 10KSB-A amended filing reflecting such changes. Future cash flows from these three loans may exceed the $59,000 net book value at March 31, 2002, however, the loans have been written down to the fair value, as they are deemed to be impaired. TOTAL OPERATING EXPENSES - Total operating expenses for the year ended March 31, 2002 were $624,000, compared to $553,000 for the year ended March 31, 2001, an increase of $71,000 or 13%. The increase of $71,000 is due primarily to the increase of $77,000 in professional fees due to legal costs incurred by the Corporation to assist the Corporation in maximizing shareholders value and an increase in auditing fees due to the restatements of the prior year financial statements. INCOME TAX PROVISION - An income tax provision of $315,000 was recorded for the year ended March 31, 2002, compared to a $5,000 tax provision for the year ended March 31, 2001, which primarily reflects the current provision and the reduction of the valuation allowance against net operating loss carryforwards (NOLS), based on management's assessment of the amount of NOLS that will be more likely realized than not, based on current and projected profitability. A reconciliation of the income tax provision computed by applying the federal and state statutory rates to income before taxes to the actual income tax provision (benefit) for the years ended March 31 is as follows: 2002 2001 ---- ---- Federal income tax provision at statutory rate $109,000 $ (94,000) State income tax, net of federal benefit 11,000 5,000 Valuation allowance adjustment 195,000 94,000 -------- ---------- Total $315,000 $ 5,000 ======== ========== PLAN OF OPERATION The Corporation is engaged in the mortgage banking business, which involves the origination, purchase, sale and servicing of mortgage loans secured by residential or commercial real estate. -17- THE FIRST CONNECTICUT CAPITAL CORPORATION (FORM 10KSB AMENDED) The Corporation continues to seek ways to reduce expenses while at the same time increase market activity of its products and services. The Corporation has engaged the services of an investment advisor to assist in maximizing stockholder value. In this connection, the Corporation has entered into definitive negotiations with respect to the sale of all or substantially all of its assets to, and the assumption of all the Corporation's liabilities by members of management and the board of directors. Management (which is included in the group that comprises the prospective purchaser) believes that there is substantial likelihood that the parties will arrive at mutually agreeable terms for the transaction, after which the Corporation will submit the proposed transaction to the stockholders for their consideration and approval or disapproval. The Corporation is also engaged in definitive negotiations with certain private investors who are not presently affiliates of the Corporation with respect to the possible sale by the Corporation of shares of its common stock and warrants to purchase common stock, together with a contractual undertaking to permit the investors to manage the business and strategic operations of the Corporation subsequent to the sale of the business assets described in the preceding paragraph. Management of the corporation believes that there is substantial likelihood that the parties will arrive at mutually agreeable terms for such transactions. In the event either or both transactions are unsuccessful, management will continue to operate its mortgage business as it has in the past. We will continue to seek additional sources of funding from lending institutions as well as private investors in order to expand our loan portfolio. Growth will be limited and will greatly depend upon our ability to obtain new leverage for our loan products. Management, in the past, has experienced a reluctance of the part of conventional lenders to expand lines of credit and therefore will continue to explore the private sector for funding and possible equity participation. The future success of the Corporation as well as its growth potential will depend greatly upon the success in this regard. LIQUIDITY AND CAPITAL RESOURCES At March 31, 2002 and 2001, the Corporation had cash and cash equivalents of $437,000 and $232,000, respectively. The Corporation has a Commercial Line of Credit with the Hudson United Bank. This $3,000,000 line of credit is for a term of one year at an interest rate of 2.5% over the Wall Street Prime Rate. This line is collateralized by an assignment of notes and mortgages equal to the amount of the loan. At March 31, 2002, and March 31, 2001 there was $2,441,000 and $2,320,000, respectively, advanced on this line of credit. The Corporation was in violation of certain financial covenants as of March 31, 2002 and 2001. The covenants that the Corporation had violated under the line of credit agreement were: a.) Debt to worth ratio of 1 to 1. FY 2002 and FY 2001 b.) Net worth requirement of $2,000,000. FY 2001 -18- THE FIRST CONNECTICUT CAPITAL CORPORATION (FORM 10KSB AMENDED) The bank has waived these financial covenant violations for the year ended March 31, 2002 and 2001. The line of credit has been renewed as of May 20, 2002. The line of credit was increased to $3,500,000 and expires on June 30, 2003. The Corporation is hopeful that this established long-term conventional banking relationship will continue to grow and enable the Corporation to increase its volume of business. The Corporation currently anticipates that during the year ending March 31, 2003, its principal financing needs will consist of funding its mortgage loans held for sale and the ongoing net cost of mortgage loan originations. The Corporation believes that cash on hand, internally generated funds and availability on its line of credit should be sufficient to meet its corporate, general and administrative working capital and other cash requirements during the year ending March 31, 2003. Future cash flow requirements will depend primarily on the level of the Corporation's activities in originating and selling mortgage loans as well as cash flow required by its operations. If construction loan demand continues to increase, the Corporation will require additional funds to service those requirements. Due to the aforementioned, the Corporation will seek to increase its line of credit facility, as well as seek out new investor sources, from which the Corporation believes it should be able to meet these cash requirements. The Corporation continues to decrease its cash flow requirements by monitoring all expenses. As of March 31, 2002 and 2001, the Corporation had outstanding loan commitments of $3,068,000 and $2,969,000, respectively. LETTERS OF CREDIT As of March 31, 2002 the Corporation has a $75,000 letter of credit outstanding issued to the Town of Glastonbury, Connecticut for soil and erosion compliance on one of the construction projects over which the Corporation has a mortgage. No amounts have been drawn or are expected to be drawn on this letter of credit. The Corporation had a $40,000 letter of credit outstanding at March 31, 2001 at a stated interest rate of 2% per annum related to obtaining its Connecticut license as a First Mortgage Loan-Lender/Broker. The letter of credit expired February 9, 2002. At March 31, 2001 restricted cash includes a $44,000 certificate of deposit, which is being maintained as collateral for the letter of credit. At March 31, 2002 the letter of credit was no longer required and the certificate of deposit was closed. On May 6, 2002 the Corporation has entered into a $250,000 letter of credit issued to the Town of North Branford, Connecticut for building compliance on one of the construction projects over which the Corporation has a mortgage. No amounts have been drawn or are expected to be drawn on this letter of credit. -19- THE FIRST CONNECTICUT CAPITAL CORPORATION (FORM 10KSB AMENDED) INFLATION Inflation will affect the Corporation most significantly in the area of loan originations. Interest rates normally increase during periods of high inflation and decrease during periods of low inflation. RECENT ACCOUNTING CHANGES AND NEW ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standard Boards ("FASB") SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" was issued in September 2000. The adoption of this standard in FY 2002 did not have a significant impact on the Corporation's financial statements. In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible Assets," effective for fiscal years beginning after December 15, 2001. Under the rules goodwill and certain intangible assets are no longer amortized but are reviewed at least annually for impairment. The Corporation does not expect the adoption of these statements to have any effect on the financial statements. In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which addresses the recognition and measurement of obligations associated with the retirement of tangible long-lived assets. SFAS No. 143 is effective January 1, 2003, with early adoption permitted. The Corporation does not expect the adoption of the statement to have a material effect on the financial statements. In December 2001, the AICPA's Accounting Standards Executive Committee issued Statement of Position 01-6, "Accounting by Certain Entities That Lend to or Finance the Activities of Others." This SOP reconciles and conforms, as appropriate, the accounting and financial reporting provisions established by the AICPA's Audit and Accounting Guide for Banks and Savings Institutions and the Audit and Accounting Guide for Financial Companies. This statement is effective for the fiscal years beginning after December 2001. Management does not believe that adoption of this Statement will significantly impact the Corporation's business or financial results. PARTNERSHIPS On March 21, 1997, the Corporation formed a Limited Partnership known as First Connecticut Capital Mortgage Fund A, Limited Partnership ("Limited Partnership A") of which the Corporation is the General Partner. The purpose of this entity is to sell units in Limited Partnership A to investors in a private placement, up to a maximum of $5 million in units of $50,000 each, for the purpose of funding a short-term Portfolio Loan Program for the Limited Partnership. The limited partners are restricted to investors who qualify as "Accredited Investors," as defined in Regulation D, promulgated under the Securities Act of 1933. This program generates income to the Corporation in the form of loan origination fees and servicing fees in excess of stipulated income returns to the limited partners in connection with mortgage loans purchased by the Limited Partnership from the funds invested by the limited partners. As of June 5, 2002, the Corporation sold 98 units in the Partnership. A copy of the Offering Memorandum for the Partnership is available upon request. -20- THE FIRST CONNECTICUT CAPITAL CORPORATION (FORM 10KSB AMENDED) On June 26, 2001 the Corporation established a second private placement offering known as First Connecticut Capital Mortgage Fund B, Limited Partnership ("Limited Partnership Fund B") of which the Corporation is the General Partner. The purpose of the new Limited Partnership Fund B is to sell units to investors in a private placement, up to a maximum of $5 million in units of $50,000 each, for the purpose of supplying additional funding to a short-term Portfolio Loan Program. The partners will also be limited to investors who qualify as "Accredited Investors." As of June 5, 2002 the Corporation sold 33 units in the Partnership. A copy of the Offering Memorandum for the Partnership is available upon request. The Corporation does not guarantee the principal or interest returns to the limited partners under these partnerships agreements. The Corporation holds one percent (1%) of the equity of these partnerships and accounts for its interest under the equity method of accounting. ITEM 7. FINANCIAL STATEMENTS The Corporation's financial statements as of and for the years ended March 31, 2002 and 2001 are incorporated herein by reference and are attached hereto as Exhibit 13. Independent Auditors' Report - Page 1 Balance Sheets, March 31, 2002 and 2001 - Page 2 Statements of Income, years ended March 31, 2002 and 2001 - Page 3 Statements of Changes in Stockholders' Equity, years ended March 31, 2002 and 2001 - Page 4 Statements of Cash Flows, years ended March 31, 2002 and 2001 - Page 5 Notes to Financial Statements - Pages 6 - 22 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. -21- THE FIRST CONNECTICUT CAPITAL CORPORATION (FORM 10KSB AMENDED) PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The directors and executive officers of the Corporation as of April 30, 2002 are as follows: NAMES AGE PRESENT POSITION ----- --- ---------------- David Engelson 81 Chairman of the Board of Directors Lawrence R. Yurdin 62 President, CEO and Director Jan E. Cohen 45 Director Thomas D'Addario 50 Director Michael L. Goldman 41 Assistant Secretary and Director Priscilla E. Ottowell 55 Secretary and Controller David Engelson, Director of the Corporation since 1960. Chairman of the Board of the Corporation. Lawrence R. Yurdin, Director of the Corporation since 1986. President and Chief Executive Officer of the Corporation; employed by the Corporation in various capacities since 1970. Jan E. Cohen, Director of the Corporation since 1998. CEO, President and Director of CF Industries, Inc.; CEO, LLC Manager and Director of Northeast Builders Supply and Home Centers, LLC; CEO and LLC Manager of The Brilco Business Center and a Member of the American Institute of Certified Public Accountants and the Connecticut Society of CPA's. Thomas D'Addario, Director of the Corporation since 1998. President of Mario D'Addario Buick, Inc., and President of Mario D'Addario Limousine Services. Michael L. Goldman, Assistant Secretary and Director of the Corporation since 1998. Managing Principal in the law firm of Goldman, Gruder & Woods, LLC. Priscilla E. Ottowell elected Secretary of the Corporation on April 12, 1995. Employed by the Corporation as Controller since 1985. -22- THE FIRST CONNECTICUT CAPITAL CORPORATION (FORM 10KSB AMENDED) Each of the Directors holds office for a term of one year, and until a successor has been chosen and qualified. Directors, except Messrs. D. Engelson and L. Yurdin, receive a fee of $300 per Board meeting. Mr. Lawrence R. Yurdin is the son-in-law of Mr. David Engelson, Chairman of the Board and a Director of the Corporation. ITEM 10. EXECUTIVE COMPENSATION The following summary compensation table sets forth certain information regarding the annual and long-term compensation of David Engelson, Chairman and Lawrence R. Yurdin, President and CEO, for each of the last three fiscal years.
SUMMARY COMPENSATION TABLE ANNUAL COMPENSATION LONG TERM COMPENSATION ------------------- ---------------------- Other Annual Restricted All Other Name and Compen- Stock Options/ LTIP Compensa- Principal Year Salary Bonus sation Awards SARs Payouts sation POSITION ENDED ($) ($) ($) ($) (#) ($) ($) ----------- ----- ------- ------- ------- ---------- ---------- ----------- ---------- ($) David Engelson 03/31/02 $ 12,000 0 0 None 0 None 0 Chairman of the 03/31/01 $ 12,000 0 0 None 0 None 0 Board & Treasurer 03/31/00 $ 11,000 0 0 None 0 None 0 Lawrence R Yurdin 03/31/02 $109,000 0 0 None 9,975 None 0 President and CEO 03/31/01 $ 88,000 0 0 None 0 None 0 03/31/00 $ 83,000 0 0 None 0 None 0
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT NAME AND ADDRESS OF AMOUNT AND NATURE OF BENEFICIAL OWNER BENEFICIAL OWNER PERCENT ---------------- ---------------- ------- Robert E. Humphreys 114,900 9.792 64 Alcott Street Acton, MA 01720 Carucci Family Partners 121,300 10.34 C/O Carr Securities Corp 14 Vanderventer Avenue Port Washington, NY 11050 -23- THE FIRST CONNECTICUT CAPITAL CORPORATION (FORM 10KSB AMENDED) SECURITY OWNERSHIP OF MANAGEMENT
BENEFICIAL OWNER SHARES OF PERCENTAGE OF OPTIONS * PERCENTAGE OF TOTAL PERCENTAGE OF COMMON STOCK OUTSTANDING SHARES OUTSTANDING SHARES AND OUTSTANDING SHARES OPTIONS OPTIONS (ASSUMING EXERCISE OF ALL OUTSTANDING OPTIONS) David Engelson 43,605 3.72% 0 0% 43,605 3.42% Lawrence R. Yurdin 21,707 1.85 28,500 35.0 50,207 3.94 Jan E. Cohen 2,113 .18 16,000 19.6 18,113 1.42 Thomas D'Addario 15,700 1.34 16,000 19.6 31,700 2.48 Michael L. Goldman 16,921 1.44 16,000 19.6 32,921 2.58 Priscilla E. 4,389 .37 5,000 6.2 9389 .73 Ottowell All directors and executive officers 104,435 8.88% 81,500 81.5% 185,935 14.60% as a group (six persons)
*All options set forth above are currently exercisable The above tables list the beneficial owners of more than five-percent of the Corporation's Common Stock and the shares beneficially owned by all Directors and executive officers of the Corporation as of March 31, 2002. STOCK OPTIONS The Company has one stock option plan, adopted in 1999 (the "1999 Plan") which enables the granting of options to officers and directors to purchase shares of the Company's Common Stock at prices equal to fair market value at the date of the grant. Options issued pursuant to the 1999 Plan expire within 10 years of the grant and vest immediately. The Company previously had a stock option plan that was adopted in 1988. That plan and all options issued thereunder have expired. Options issued pursuant to the 1999 Plan: On May 3, 2001, 100,000 options were granted under the 1999 Plan at an exercise price of $.64 per share. The options expire ten years from grant date. As of March 31, 2002, 100,000 options were outstanding under the 1999 Plan. No options were exercised or canceled during the year ended March 31, 2002 and no compensation cost has been recognized for stock options awarded under the 1999 Plan. -24- THE FIRST CONNECTICUT CAPITAL CORPORATION (FORM 10KSB AMENDED) The Company has adopted the "disclosure only" provision of FAS 123. If the Company had elected to recognize compensation costs based on the fair value at the date of the grant for awards granted, consistent with the provisions of FAS 123, the Company's net income would have been adjusted to reflect additional compensation expense of $35,000 for the year ended March 31, 2002. Pro forma net income and earnings per share (basic and diluted) would have been $10,000 and $0, respectively. The estimated weighted average fair value of stock options at the time of the grant using the Black-Scholes option pricing model was $.35 a share. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS TRANSACTIONS WITH MANAGEMENT Affiliates include directors and officers of the Corporation and members of their immediate families and companies, which have a 5% or more ownership in the Corporation. Legal services, including representation of the Corporation on the closing of all new loans, foreclosure proceedings on delinquent loans and general corporate and security matters are provided by a firm in which a director of the Corporation is a principal. Fees for these services were $1,000 for each of the years ended March 31, 2002 and 2001. As of March 31, 2002, the Corporation is servicing two loans equal to $500,000 ($225,000 which has been retained by the Corporation) to Sonny Field, LLC. The President of Sonny Field, LLC is a Director of the Corporation. The loan is collateralized by a first mortgage on property owned by Sonny Field, LLC, and is personally guaranteed by the Director. The Loan Committee and the Board of Directors approved the loan, which was granted on terms equivalent to other arm's length transactions entered into by the Corporation. The loan is well secured and is current as of June 2002. As of March 31, 2001, the Corporation is servicing a $120,000 ($50,000 which has been retained by the Corporation) loan outstanding to CF Industries, Inc. The President of CF Industries, Inc. is a Director of the Corporation. The loan is collateralized by a first mortgage on property owned by CF Industries, Inc. and is personally guaranteed by the Director. The Loan Committee and the Board of Directors approved the loan which was granted at terms equivalent to other arm's length transactions entered into by the Corporation. The loan was paid off in full during 2002. The Corporation sub-leases office space to Larson Associates, LLC on a monthly basis. Amounts received from Larson Associates, LLC for the years ended March 31, 2002 and 2001 were $5,000. The Corporation utilizes the appraisal services of Larson Associates, LLC for the majority of the Corporation's appraisal needs. Larson Associates, LLC is owned by the Corporation's President, who is also a Director. The Corporation does not pay for these appraisal services since the fees are paid by the borrower. Larson Associates, LLC performs appraisals for a number of other clients in addition to the Corporation. Management of the Corporation believes that all appraisals performed by Larson Associates, LLC were performed in an unbiased manner and represent proper market valuations. -25- THE FIRST CONNECTICUT CAPITAL CORPORATION (FORM 10KSB AMENDED) During 2002 and 2001 the Corporation has sold loans to Limited Partnership A and Limited Partnership B. In addition, the Corporation services all loans to these partnerships. As of March 31, 2002 and 2001 the Corporation is servicing $4,768,000 and $4,379,000 of loans for Limited Partnership A and $1,254,000 and $0 of loans for Limited Partnership B, respectively. Certain members of the Corporation's management, board of directors, employees and their immediate families are limited partners of Limited Partnership A and Limited Partnership B. As of March 31, 2002 and 2001 these individuals accounted for 19% and 24%, respectively of the ownership in Limited Partnership A. As of March 31, 2002 these individuals accounted for 7% of the ownership in Limited Partnership B. During 2002 and 2001 the Corporation has sold loans to certain members of management, board of directors, employees and their immediate families. In addition, the Corporation services all of these loans. As of March 31, 2002 and 2001 the Corporation is servicing $2,721,000 and $2,726,000 of loans to certain members of management, members of the board of directors, employees and their immediate families, respectively. The servicing fees earned by the Corporation were $41,000 and $33,000 for the years ended March 31, 2002 and 2001. Within the above loan amounts the Corporation is servicing $1,390,000 and $1,647,000 of loans, as of March 31, 2002 and 2001, respectively, which were sold to a board member, his limited liability company or trust. If for any reason the above loans were to go into default and become an asset acquired, upon liquidation, the board member or his limited liability company or trust is entitled to recovery of its investment and accrued interest before the Corporation can recover its investment in any of the above loans. The Corporation does not guarantee any investment or interest return in the above transactions. The Corporation grants a priority position on one or more loans with the board member, his limited liability company or trust, when the loan bears a higher nature of risk or has a higher loan to value ratio than loans sold to Limited Partnership A, Limited Partnership B or others. Loans are sold to the board member or his limited liability company or trust only if such loans cannot be sold to Limited Partnership A or B, assigned to Hudson United Bank or sold to a different person who does not require a loan priority. It is the opinion of management that the Corporation benefits by selling such loans under this arrangement to such board member, his limited liability company or his trust rather than declining to make the loans at all. -26- THE FIRST CONNECTICUT CAPITAL CORPORATION (FORM 10KSB AMENDED) The following table summarizes the amount of the loans serviced and the fee income generated from loan sales to affiliates: 2002 2001 ---- ---- Loan sales: Management $ 367,000 $ 310,000 Board of Directors 1,532,000 1,788,000 Employees and families 822,000 628,000 ---------- ----------- Totals $2,721,000 $ 2,726,000 ========== =========== Fee income: Management $ 6,000 $ 4,000 Board of Directors 23,000 22,000 Employees and families 12,000 7,000 ---------- ----------- Totals $ 41,000 $ 33,000 ========== =========== ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (13) Financial Statements. (b) Reports on Form 8-K. Form 8-K filed on December 21, 2000 Form 8-K filed on December 5, 2001 Form 8-K filed on February 11, 2002 -27- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE FIRST CONNECTICUT CAPITAL CORPORATION MARCH 7, 2003 By:________________________________ ------------- Date Lawrence R. Yurdin President and CEO MARCH 7, 2003 By:________________________________ ------------- Date Priscilla E. Ottowell Secretary and Controller Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. MARCH 7, 2003 _________________________________ ------------- Date David Engelson Chairman and Director MARCH 7, 2003 _________________________________ ------------- Date Jan E. Cohen Director MARCH 7, 2003 _________________________________ ------------- Date Thomas D'Addario Director MARCH 7 ,2003 _________________________________ ------------- Date Michael L. Goldman Assistant Secretary and Director MARCH 7,2003 _________________________________ ------------ Date Lawrence R. Yurdin President, CEO and Director MARCH 7, 2003 _________________________________ ------------- Date Priscilla E. Ottowell Secretary and Controller -28- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE FIRST CONNECTICUT CAPITAL CORPORATION Date: MARCH 7, 2003 By: / S / LAWRENCE R. YURDIN ------------- ------------------------ Lawrence R. Yurdin President and Chief Executive Officer Date: MARCH 7, 2003 By: / S / PRISCILLA E. OTTOWELL ------------- --------------------------- Priscilla E. Ottowell Secretary and Controller Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: MARCH 7, 2003 / S / DAVID ENGELSON ------------- --------------------- David Engelson Chairman of the Board Date: MARCH 7, 2003 / S / JAN E. COHEN ------------- ------------------- Jan E. Cohen Director Date: MARCH 7, 2003 / S / THOMAS D'ADDARIO ------------- ----------------------- Thomas D'Addario Director Date: MARCH 7, 2003 / S / MICHAEL L. GOLDMAN ------------- ------------------------ Michael L. Goldman Assistant Secretary and Director Date: MARCH 7, 2003 / S / LAWRENCE R. YURDIN ------------- ------------------------ Lawrence R. Yurdin President and Director Date: MARCH 7, 2003 / S / PRISCILLA E. OTTOWELL ------------- --------------------------- Priscilla E. Ottowell Secretary and Controller -29-