-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GijX2RuODzhbrrEg41CN334Tlxy0iWIi7GknZna2VOua7gIa13rt/oncnhSyG5x4 bsSYpK0Tr+/aqGV1NNKL/Q== 0000909012-03-000405.txt : 20030529 0000909012-03-000405.hdr.sgml : 20030529 20030529143213 ACCESSION NUMBER: 0000909012-03-000405 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030529 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST CONNECTICUT CAPITAL CORP/NEW/ CENTRAL INDEX KEY: 0000730669 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS BUSINESS CREDIT INSTITUTION [6159] IRS NUMBER: 060759497 STATE OF INCORPORATION: CT FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-08589 FILM NUMBER: 03723226 BUSINESS ADDRESS: STREET 1: 1000 LAFAYETTE BLVD STE 805 CITY: BRIDGEPORT STATE: CT ZIP: 06604 BUSINESS PHONE: 2033664726 MAIL ADDRESS: STREET 1: 1000 LAFAYETTE BLVD STREET 2: SUITE 805 CITY: BRIDGEPORT STATE: CT ZIP: 06604 10KSB 1 t300342.txt ANNUAL REPORT 3/31/03 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, DC 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 MARCH 31, 2003. 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: $1,484,000 The aggregate market value of the voting stock held by non-affiliates of the registrant as of April 22, 2003 based on the closing sales price of such stock on such date was approximately $909,000. 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 May 28, 2003 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, 2003 and 2002, and Independent Auditors' Report is incorporated by reference into Part II Item 7. THE FIRST CONNECTICUT CAPITAL CORPORATION FORM 10-KSB FOR YEARS ENDED MARCH 31, 2003 AND 2002 TABLE OF CONTENTS PART I PAGE Item 1 - Description of Business.................................... 1 - 9 Item 2 - Description of Property........................................ 9 Item 3 - Legal Proceedings.............................................. 9 Item 4 - Submissions of Matters to a Vote of Security Holders........... 9 PART II Item 5 - Market for Common Equity and Related Stockholder Matters...... 10 Item 6 - Management's Discussion and Analysis of Financial Condition and Results of Operations................. 10 - 26 Item 7 - Financial Statements......................................... 26 Item 8 - Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.................. 26 PART III Item 9 - Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act.. 27 - 28 Item 10 - Executive Compensation....................................... 28 Item 11 - Security Ownership of Certain Beneficial Owners and Management..........................................28 - 30 Item 12 - Certain Relationships and Related Transactions...........30 - 32 Item 13 - Exhibits and Reports on Form 8-K............................. 32 Item 14 - Controls and Procedures.................................. 32 -33 SIGNATURES.............................................................. 34 - 37 THE FIRST CONNECTICUT CAPITAL CORPORATION FORM 10-KSB FOR YEARS ENDED MARCH 31, 2003 AND 2002 PART I 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 risks 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 loan portfolios, technological, computer-related or operational difficulties, adverse changes in security markets, results of litigation or other significant uncertainties. SUBSEQUENT EVENT; PROPOSED SALE OF CORPORATION'S BUSINESS AND ASSETS The Corporation has entered into a definitive agreement (the "Asset Purchase Transaction") 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, FCCC Holding Company, LLC, a limited liability company consisting of members of management and the board of directors of the Corporation, including Lawrence R. Yurdin, the Corporation's President. The Corporation has also entered into a definitive agreement (the "Stock Purchase Transaction") with certain private investors who are not presently affiliates of the Corporation with respect to the 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. On April 11, 2003, the Corporation filed a definitive Proxy Statement with the Securities and Exchange Commission for its Annual Meeting of Stockholders that set forth, among other things, information with respect to the Asset Purchase and the Stock Purchase Transactions for Stockholder consideration. The scheduled date of the Annual Meeting of Stockholders is June 3, 2003, and the record date is April 10, 2003. The Notice of Annual Meeting of Stockholders and Proxy Statements, including copies of the Corporation's Annual Reports on Form 10-KSB, as amended, for the fiscal years ended March 31, 2002 and March 31, 2001, and the Corporation's Quarterly Report on Form 10-QSB, as amended, for the quarterly period ended December 31, 2002, were mailed to Stockholders of record on the record date on or about April 25, 2003. -1- THE FIRST CONNECTICUT CAPITAL CORPORATION FORM 10-KSB FOR YEARS ENDED MARCH 31, 2003 AND 2002 At the Annual Meeting, Stockholders will be asked to consider, vote upon and approve the Asset Purchase Transaction and the Stock Purchase Transaction, as well as to: (1) elect five Directors of the Corporation; (2) consider, vote upon and approve the Corporation's 2002 Equity Incentive Plan; (3) consider, vote upon and approve an amendment to the Corporation's Certificate of Incorporation, as amended, to change the name of the Corporation to FCCC, Inc.; and (4) consider, vote upon and approve the appointment of the Corporation's auditors for the fiscal year ending March 31, 2003. In the event that the Stockholders approve the Asset Purchase and Stock Purchase Transactions at the Annual Meeting, the simultaneous closing of those transactions are anticipated to take place on or about June 10, 2003. The following pro forma balance sheet and accompanying notes of the Corporation serve to illustrate the results of the proposed Asset Purchase and Stock Purchase Transactions as if they had occurred as of March 31, 2003. The pro forma balance sheet and notes are provided to give investors information about the continuing impact of the transaction by showing how it might have affected historical financial information if the transaction had been consummated at an earlier time. Such pro forma information is designed to assist the investors in analyzing the future prospects of a company because they illustrate the possible scope of the change in the company's financial position and results of operations caused by the transactions. The pro forma balance sheet and notes thereto do not take into account any possible post-closing dividends by the Corporation or the results of operation between March 31, 2003 and the closing date.
THE FIRST CONNECTICUT CAPITAL CORPORATION PRO FORMA BALANCE SHEET AS OF MARCH 31, 2003 (IN THOUSANDS EXPECT PER SHARE DATA) PRO FORMA PRO FORMA MARCH 31, 2003 ADJUSTMENTS BALANCES -------------- ----------- -------- (AUDITED) (UNAUDITED) (UNAUDITED) ASSETS Cash and cash equivalents $ 30 $ 2,159 A $ 2,441 250 B 2 B Loans- net of allowance for loan losses of $539 1,509 (1,509) A -- Loans held for sale 1,571 (1,571) A -- Due from partnerships 83 (83) Assets acquired in lieu of foreclosure 515 (515) A -- Accrued interest receivable 37 (37) A -- Servicing rights 52 (52) A -- Fixed assets 12 (12) A -- Deferred income taxes 72 -- 72 -2- THE FIRST CONNECTICUT CAPITAL CORPORATION FORM 10-KSB FOR YEARS ENDED MARCH 31, 2003 AND 2002 Other assets 121 (121) A -- ------- ------- TOTAL ASSETS $ 4,002 $(1,489) $ 2,513 ======= ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Line of credit $ 1,487 $(1,487) A $ -- Accounts payable and other accrued expenses 254 (254) A -- ------- ------- ------- TOTAL LIABILITIES 1,741 (1,741) -- STOCKHOLDERS' EQUITY Common stock, no par value, stated value $.50 per share authorized 3,000,000 shares, issued and outstanding 1,173,382 shares at March 31, 2003 and 1,423,382 after transaction 587 125 B 712 Additional paid-in capital 9,253 127 B 9,380 Accumulated deficit (7,579) -- (7,579) ------- ------- ------- TOTAL STOCKHOLDERS' EQUITY 2,261 252 2,513 ------- ------- ------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,002 $(1,489) $ 2,513 ======= ======= =======
NOTES TO PRO FORMA BALANCE SHEET NOTE 1 - ORGANIZATION The Corporation is engaged in the construction 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 and gains from the sale of loans and mortgage servicing rights. Mortgage loans that 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. NOTE 2 - OVERVIEW OF THE TRANSACTIONS The Corporation announced the execution of definitive agreements for the sale of its mortgage business (the "Asset Sale") to FCCC Holding Company, LLC, a company organized by members of the Board of Directors and management, including Lawrence Yurdin ( the current President of the Corporation ). The Asset Sale would include all of the assets (excluding cash and deferred income taxes) of the mortgage business and the assumption of all liabilities and other obligations, including contingent liabilities. Upon closing of the Asset Sale and the transactions described in the Stock Purchase Agreement (the "Securities Sale"), the Corporation would have no operating business. -3- THE FIRST CONNECTICUT CAPITAL CORPORATION FORM 10-KSB FOR YEARS ENDED MARCH 31, 2003 AND 2002 The sale price, currently estimated which will be the approximate net book value of the assets to be sold, will be an amount determined, in part, in accordance with an independent appraisal of the loan portfolio by a nationally recognized portfolio valuation company. The form of the Asset Sale will be reviewed and determined to be fair pursuant to an opinion to be delivered by an NASD registered broker-dealer. The Purchaser (of which Lawrence Yurdin, the President of the Corporation, is a member and manager) would pay the approximate net book value for the assets of the Corporation (excluding cash and deferred income taxes) at the time of the closing if approved by the stockholders of the Corporation. Simultaneously with the proposed Asset Sale, the Corporation would issue and sell to Bernard Zimmerman, of Weston, Connecticut, and Martin Cohen, of New York City, New York or their affiliates, for an aggregate purchase price of $252,000 in cash, a total of 250,000 Common Shares of the Corporation, together with five year warrants to purchase an additional 200,000 shares at a purchase price of $.01 per warrant, exercisable at a price of $1 per share. Messrs. Zimmerman and Cohen or their affiliates may also purchase additional Common Shares from other sources. Upon completion of the Securities Sale, Messrs. Zimmerman and Cohen will each own 188,300 shares and warrants to purchase 100,000 shares at $1.00 per share. Assuming consummation of the Asset Sale and the Securities Sale and after payment of expenses, the Corporation would have 1,423,382 shares outstanding, excluding shares reserved for outstanding options and warrants. If the Corporation has total cash on hand of not less than $1,500,000, after payment of all fees, expenses related to the Asset Purchase and Stock Purchase transactions, liabilities of the Corporation to be paid at or prior to closing and any accrued expenses, then pursuant to the terms of the proposed transactions, the Corporation would declare and pay a cash dividend to stockholders within three months of the closing, pro rata, based upon the then outstanding number of shares of the Corporation's Common Stock, of all cash (if any) on hand in excess of $1,500,000 after the closing of the Asset Sale and the Securities Sale and after payment of all fees, expenses and liabilities to be paid at or prior to Closing, provided such dividend equals or exceeds $.15 per share. Pursuant to the terms of the Asset Purchase and Stock Purchase Agreements, Messrs. Zimmerman and Cohen will designate three of the five nominees for election to the Corporation's Board of Directors and will supervise the day-to-day operations of the Corporation subsequent to the closing. -4- THE FIRST CONNECTICUT CAPITAL CORPORATION FORM 10-KSB FOR YEARS ENDED MARCH 31, 2003 AND 2002 In the event that the Corporation is unable to consummate a material merger or business combination transaction or series of transactions (defined as having an aggregate value in excess of $750,000) within 36 months of the closing of the Asset Sale (subject to a three month extension under certain circumstances), then upon the request of the holders of 20% or more outstanding stock of the Corporation held by non-affiliates of management, the Corporation would schedule a meeting of stockholders and issue a proxy solicitation pursuant to which the stockholders would vote on whether to liquidate the Corporation The Agreements provide that all shares held by management shall be voted in the same proportion as the non-management shares with respect to such vote NOTE 3 - PRO FORMA ADJUSTMENTS The following adjustments correspond to the pro forma adjustments included on the unaudited pro forma balance sheet as at March 31, 2003. A. The Corporation sells to FCCC Holding Company, LLC, all of the assets (excluding cash and deferred income taxes) of the mortgage business at their approximate book value (the "Asset Sale"), subject to the assumption of all liabilities and other obligations, including contingent liabilities. B. Simultaneously, with the Asset Sale, the Corporation will issue and sell for a purchase price of $250,000, a total of 250,000 Common Shares of the Corporation, and for a purchase price of $2,000, five year warrants to purchase an additional 200,000 shares, exercisable at a price of $1 per share (collectively the "Securities Sale"). The following summarizes the assets purchased and liabilities assumed which comprises the overall purchase price on a pro forma basis as of March 31, 2003: Amount Description (in thousands) - ------------------------------------------------ --------------------- Loans, net of allowances of $539 $1,509 Loans held for sale 1,571 Due from partnerships 83 Assets acquired in lieu of foreclosure 515 Accrued interest receivable 37 Servicing rights 52 Fixed assets 12 Investment in partnerships -0- Other assets 121 Line of credit (1,487) Accounts payable and accrued expenses (254) ----- Purchase Price $2,159 ====== -5- THE FIRST CONNECTICUT CAPITAL CORPORATION FORM 10-KSB FOR YEARS ENDED MARCH 31, 2003 AND 2002 NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES See the Corporation's March 31, 2003 financial statements included in Exhibit 13. NOTE 5- REPRESENTATIONS The Corporation makes no representations as to the net worth of the Corporation or the book value of its assets or business at the actual closing date currently anticipated to occur on or about June 10, 2003, subject to extension, which will be adjusted to reflect the results of operations for the period between March 31, 2003 and such closing date. The Pro Forma Balance Sheet does not take into account any post-closing dividend or the results of operations between March 31, 2003 and the actual closing date. The Corporation makes no representation as to the value, if any, of the deferred tax assets that the Corporation will retain after the closing. A Pro Forma Statement of Income has not been prepared as the Corporation will not have any significant operating business post transactions. 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 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. As of March 31, 2003, the Corporation serviced a total portfolio of approximately $18,097,000, as listed below: Portfolio Loan Program $10,039,000 First Connecticut Capital Mortgage Fund "A" 4,795,000 First Connecticut Capital Mortgage Fund "B" 3,263,000 ------------- $18,097,000 -6- THE FIRST CONNECTICUT CAPITAL CORPORATION FORM 10-KSB FOR YEARS ENDED MARCH 31, 2003 AND 2002 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. 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. 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. -7- THE FIRST CONNECTICUT CAPITAL CORPORATION FORM 10-KSB FOR YEARS ENDED MARCH 31, 2003 AND 2002 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. 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. -8- THE FIRST CONNECTICUT CAPITAL CORPORATION FORM 10-KSB FOR YEARS ENDED MARCH 31, 2003 AND 2002 PERSONNEL As of March 31, 2003, 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. 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. -9- THE FIRST CONNECTICUT CAPITAL CORPORATION FORM 10-KSB FOR YEARS ENDED MARCH 31, 2003 AND 2002 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 and high bid prices for the Corporation's Common Stock during the fiscal years ended March 31, 2003 and 2002 as quoted on the OTC Bulletin Board: LOW HIGH 2003 First Quarter $ .51 $ .65 Second Quarter .51 .82 Third Quarter .71 .82 Fourth Quarter .75 1.01 LOW HIGH 2002 First Quarter $ .64 $ .66 Second Quarter .65 .75 Third Quarter .65 1.10 Fourth Quarter .65 .86 The approximate number of stockholders of record on May 28, 2003 was 1,330 and the Corporation estimates that it has a total of approximately 1,689 beneficial shareholders. The closing bid quotation of the Corporation's Common Stock on that date was approximately $.85. 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. -10- THE FIRST CONNECTICUT CAPITAL CORPORATION FORM 10-KSB FOR YEARS ENDED MARCH 31, 2003 AND 2002 SIGNIFICANT ACCOUNTING POLICIES There are a number of accounting policies that the Corporation has established which require management to use judgment. 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. ANALYSIS OF FINANCIAL CONDITION: CASH AND CASH EQUIVALENTS - Cash and cash equivalents for the years ended March 31, 2003 and 2002 are $30,000 and $437,000, respectively. The decrease of $407,000 for the year ended March 31, 2003 was as a result of the pay-down of the Corporation's line of credit. LOANS - Loans as of March 31, 2003 and 2002 was $1,509,000 and $2,172,000, respectively. The decrease of $663,000 was due to a reclassification of loans amounting to $515,000 to assets acquired in lieu of foreclosure and the increase of new investors and the increase of loan originations and loans sold to individuals, corporations and Partnerships A and B. LOANS HELD FOR SALE - Loans held for sale as of March 31, 2003 and 2002 was $1,571,000 and $1,355,000, respectively. The increase of $216,000 was due to an increase in loan originations and loans retained by the Corporation. -11- THE FIRST CONNECTICUT CAPITAL CORPORATION FORM 10-KSB FOR YEARS ENDED MARCH 31, 2003 AND 2002 LOANS DUE FROM RELATED PARTIES - Loans due from related parties at year ended March 31, 2003 as compared to year ended March 31, 2002 decreased by $225,000. This decrease is due to a loan payoff of $225,000 in fiscal year 2003 for a loan that was made to a director of the Corporation during the year ended March 31, 2002. ASSET ACQUIRED IN LIEU OF FORECLOSURE - During the year ended March 31, 2003 the Corporation took title in lieu of foreclosure of certain real estate collateral for loans owed to the Corporation in the amount of $515,000. The fair value of this real estate is approximately $515,000 as of March 31, 2003. DUE FROM PARTNERSHIPS - Due from Partnerships represents an accrual for service fees due the Corporation at years ended March 31, 2003 and 2002 in the amount of $83,000 and $92,000, respectively. The decrease of $9,000 is the result of amounts collected from the Partnerships, thus reducing the accrual on servicing fees receivable. DEFERRED TAX ASSET - The deferred tax asset results primarily 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 $211,000 over the next year, and thereby utilize the net deferred tax asset. This estimate has been based on the Corporation's past fiscal years earnings. It is management's belief that the Corporation has conservatively estimated its future net income as the Corporation continues to grow its mortgage business and keep its cost structures constant. The past three years pre-tax earnings, were as follows: o FY 2003 - $483,000. 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). The Corporation has elected not to increase the deferred tax asset given the pending Asset Sale. 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 Subsequent Event, Proposed Sale of Corporation's Business and Assets). The components of the net deferred tax asset at March 31, are as follows: 2003 2002 ---- ---- Deferred tax asset: Net operating loss carryforwards $2,385,000 $2,558,000 Loan loss reserves 162,000 178,000 Valuation allowance (2,475,000) (2,486,000) ---------- ----------- Net deferred tax asset $ 72,000 $ 250,000 ========== =========== -12- THE FIRST CONNECTICUT CAPITAL CORPORATION FORM 10-KSB FOR YEARS ENDED MARCH 31, 2003 AND 2002 LINE OF CREDIT - As of March 31, 2003 and 2002 the balance on the Corporation's line of credit was $1,487,000 and $2,441,000, respectively. The decrease of $954,000 is due the Corporation paying down its line of credit, through reducing its cash position. ACCOUNTS PAYABLE TO RELATED PARTIES - As of March 31, 2003 the Corporation had borrowed $154,000 from Partnership A to fund a loan at an interest rate of 11% for a short period of time. The amount of $203,000 in accounts payable to related parties at March 31, 2002 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, 2003 and year ended March 31, 2002 the accounts payable and other accrued expenses were $100,000 and $94,000, respectively. The increase of $6,000 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, 2003 and 2002. 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 are considered adjustments to yield. The 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.
AVERAGE BALANCE SHEET, INTEREST EARNED AND RATE PAID FOR YEAR ENDED MARCH 31, 2003 INTEREST AVERAGE AVERAGE EARNED YIELD ------- ------ ----- INTEREST-EARNING ASSETS (1): Cash and cash equivalents $ 477,000 $ 3,000 0.63% Loans, net 1,972,000 425,000 21.55% Loans due from related parties 113,000 24,000 21.24% Loans held for sale 1,299,000 280,000 21.56% Due from partnerships 80,000 17,000 21.25% ---------- ---------- ------ Total average interest-earning assets 3,941,000 749,000 19.01% ---------- ---------- ------ -13- Non-interest earning assets 500,000 ---------- Total average assets $4,441,000 ========== INTEREST-BEARING LIABILITIES: Line of credit $1,980,000 $ 149,000 7.53% ---------- ---------- ------ NON INTEREST-BEARING LIABILITIES: Accounts payable to related parties 39,000 Accounts payable & other accrued expenses 213,000 ---------- Total non interest bearing liabilities 252,000 Total average liabilities 2,232,000 ---------- Total average stockholders' equity 2,209,000 ---------- Total average liabilities and stockholders' equity $4,441,000 ========== Net interest income and net interest rate spread (2) $ 600,000 11.48% ========== ====== Net interest-earning assets and net interest margin (3) $1,961,000 15.22% ---------- ------ Average interest-earning assets to average interest-bearing liabilities 1.99 ====== (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 $2,000 of interest earned on a money market account that has been included within other fees in the statements of income. In addition, included in net interest income are loan fees of $262,000. 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.
-14- THE FIRST CONNECTICUT CAPITAL CORPORATION FORM 10-KSB FOR YEARS ENDED MARCH 31, 2003 AND 2002
AVERAGE BALANCE SHEET, INTEREST EARNED AND RATE PAID FOR YEAR ENDED MARCH 31, 2002 INTEREST AVERAGE 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% Loan 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 1.68 ===== -15- THE FIRST CONNECTICUT CAPITAL CORPORATION FORM 10-KSB FOR YEARS ENDED MARCH 31, 2003 AND 2002 (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 statements 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.
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, 2003 MARCH 31, 2002 VERSUS MARCH 31, 2002 VERSUS MARCH 31, 2001 INCREASE (DECREASE) DUE TO: INCREASE (DECREASE) DUE TO: --------------------------- --------------------------- VOLUME RATE TOTAL VOLUME RATE TOTAL ------ ---- ----- ------ ---- ----- Cash and cash equivalents $ 1,000 $ (5,000) $ (4,000) $ 1,000 $ (3,000) $ (2,000) Loans, net (77,000) 66,000 (11,000) 23,000 (18,000) 5,000 Loans due from related parties 12,000 6,000 18,000 6,000 -0- 6,000 Loans held for sale 11,000 50,000 61,000 72,000 (11,000) 61,000 Due from partnerships 12,000 3,000 15,000 2,000 -0- 2,000 --------- --------- --------- --------- --------- --------- Total interest income (41,000) 120,000 79,000 104,000 (32,000) 72,000 Borrowings: Line of credit (29,000) (64,000) (93,000) 78,000 (31,000) 47,000 --------- --------- --------- --------- --------- --------- Net interest income $ (12,000) $ 184,000 $ 172,000 $ 26,000 $ (1,000) $ 25,000 ========= ========= ========= ========= ========= =========
-16- THE FIRST CONNECTICUT CAPITAL CORPORATION FORM 10-KSB FOR YEARS ENDED MARCH 31, 2003 AND 2002 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 the Corporation's loan portfolio in dollar amounts and in percentages of the total portfolio at the dates indicated:
PERCENT PERCENT MARCH 31, 2003 OF TOTAL MARCH 31, 2002 OF TOTAL -------------- -------- -------------- -------- Mortgage loans: Loans $1,465,000 71.53% $2,138,000 71.48% Loans due from related parties -0- 0.00% 225,000 7.52% Foreclosed loans (SBIC) 583,000 28.47% 628,000 21.00% ---------- ------------ ---------- ---------- Total loans 2,048,000 100.00% 2,991,000 100.00% Less: Allowance for loan losses 539,000 594,000 ---------- ------------- Total loans, net 1,509,000 2,397,000 ---------- ------------- Loans held for sale 1,571,000 1,355,000 ---------- ------------- Total loans and loans held for sale $3,080,000 $ 3,752,000 ========== =============
LOAN MATURITY: The following table presents the contractual maturity of our loans at March 31, 2003. The table does not include the effects of prepayments or scheduled principal amortization. LOANS HELD OTHER LOANS LOANS FOR SALE SBIC ----- -------- ---- Amounts due: Within one year $1,465,000 $1,096,000 $ 120,000 After one year: One to Two -0- 475,000 -0- Five to Ten -0- -0- 463,000 ---------- ---------- ---------- Total loans $1,465,000 $1,571,000 $ 583,000 ========== ========== ========== Amounts due after one year and on: Fixed rate loans $ -0- $ 475,000 $ 463,000 Variable rate loans -0- -0- -0- ---------- ---------- ---------- Total loans $ -0- $ 475,000 $ 463,000 ========== ========== ========== -17- THE FIRST CONNECTICUT CAPITAL CORPORATION FORM 10-KSB FOR YEARS ENDED MARCH 31, 2003 AND 2002 LOAN ORIGINATIONS - The following table presents our loan originations, purchases, sales and principal payments for the periods indicated: March 31, March 31, 2003 2002 ----- ---- Balance at beginning of period $3,752,000 $ 3,339,000 Originations: Loans 2,999,000 3,132,000 Loans held for sale 17,036,000 13,821,000 ----------- ----------- Total originations 20,035,000 16,953,000 Less: Principal payments and repayments on loans 3,942,000 3,157,000 ----------- ----------- Loans sold: Loans held for sale 16,820,000 13,389,000 ----------- ----------- Decrease of provision for loans losses 55,000 6,000 ----------- ----------- Total at end of period $ 3,080,000 $ 3,752,000 =========== =========== As of the year ended March 31, 2003 and 2002, the Corporation was servicing loans totaling $18,097,000 and $15,300,000, 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's. The accrual of interest income is generally discontinued when loans become 180 days or more past due with respect to interest. The Corporation had a balance of impaired and non-accruing loans of $594,000 at March 31, 2003 and $628,000 at March 31, 2002. The following table summarizes non-performing loans and assets: MARCH 31, MARCH 31, 2003 2002 ---- ---- Impaired and non-accruing mortgage loans $594,000 $628,000 Accruing loans delinquent 90 days or more 90,000 250,000 -------- -------- Total non-performing loans $684,000 $878,000 ======== ======== -18- THE FIRST CONNECTICUT CAPITAL CORPORATION FORM 10-KSB FOR YEARS ENDED MARCH 31, 2003 AND 2002 Non-performing loans to total loans 32.80% 29.35% ======== ======== Non-performing loans to total assets 17.09% 18.52% ======== ======== Additional interest income that would have been recognized if non-accrual loans had been current $ 2,000 $ 2,000 Allowance for loan losses as a percent of non-performing loans 78.80% 67.65% ======== ======== A summary of the allowance for loan losses is shown below: MARCH 31, 2003 MARCH 31, 2002 -------------- -------------- Balance at beginning of period $ 594,000 $ 600,000 Provision for the period 87,000 (6,000) Charge-offs: (142,000) -0- --------- --------- Balance at end of period $ 539,000 $ 594,000 ========= ========= Allowance as a percent of loans 26.318% 19.861% ========= ========= The allocation of the Corporation's provision for loan losses and the allocation as a percent of total loans are as follows: MARCH 31, % MARCH 31, % 2003 2002 ---------- ------ ---------- ------ Loans -0- 0.00% $ 25,000 1.05% Foreclosed loans (SBIC) 539,000 90.74% 569,000 90.60% -------- --------- Total $539,000 26.32% $ 594,000 19.86% ======== ========= 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 or assets 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. -19- THE FIRST CONNECTICUT CAPITAL CORPORATION FORM 10-KSB FOR YEARS ENDED MARCH 31, 2003 AND 2002 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 Corporation's delinquent loan portfolio and the percent of the total loan portfolio, excluding impaired and non-accruing loans: MARCH 31, % MARCH 31, % 2003 2002 ----------- ----- ---------- ------- Loans delinquent for: 30 - 59 days $ 26,000 1.79% $126,000 5.33% 60 - 89 days 18,000 1.24% 76,000 3.22% 90 days or more 90,000 6.19% 250,000 10.58% -------- ---- -------- ----- Total $134,000 9.22% $452,000 19.13% ======== ==== ======== ===== The Corporation's delinquent loans have decreased by $318,000 over the prior period, due to an increase in loan payoffs and other loans becoming current. 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 theses 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 $55,000 in the loan loss provision relates to the increase in the loan loss provision, and the reduction related to charge offs during 2003. The majority of the loan reserve charge off related to the assets acquired in lieu of foreclosure in the amount of $100,000. The three SBIC loans, are loans that were un-saleable 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, 2003: LOAN LOAN MATURITY AMOUNT LOAN CARRYING NAME DATE OUTSTANDING RESERVE VALUE - ---- -------- ----------- ------- ---------- King Food 12/01/08 $ 11,000 $ 11,000 $ -0- Fire Island 01/01/08 463,000 442,000 21,000 Bar Auto 01/01/04 120,000 86,000 34,000 -------- -------- -------- Total $594,000 $539,000 $ 55,000 ======== ======== ======== -20- THE FIRST CONNECTICUT CAPITAL CORPORATION FORM 10-KSB FOR YEARS ENDED MARCH 31, 2003 AND 2002 RESULTS OF OPERATIONS: GENERAL - The Corporation had net income of $258,000 for the year ended March 31, 2003 compared to a net income of $45,000 for the year ended March 31, 2002. This increase of $213,000 is due primarily to the increase of $84,000 in interest and fees on loans and the increase of $179,000 on net gains on sales of loans held for sale, offset by an increase in other operating expenses of $141,000 and a decrease in the amount of interest expense paid on the line of credit by $93,000. INTEREST AND FEE INCOME - Total interest and fee income for the year ended March 31, 2003 was $747,000 as compared to $663,000 for the year ended March 31, 2002, an increase of $84,000 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, 2003, the Corporation recognized $514,000 in net gains on loans held for sale compared to $335,000 for the year ended March 31, 2002. This $179,000 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, 2003 and 2002, the Corporation had a decrease in its provision for loan losses by $55,000 and $6,000, respectively, due to the increase in the provision for loan losses and the reduction related to the loan charge offs related to assets acquired in lieu of foreclosure in 2003 and to cash collected on reserved loans in 2002. Within the Corporation's portfolio are three 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. Future cash flows from these three loans may exceed the $55,000 net book value at March 31, 2003, 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, 2003 were $765,000, compared to $624,000 for the year ended March 31, 2002, an increase of $141,000 or 23%. The increase of $141,000 is due primarily to the increase of $65,000 in professional fees due to legal costs incurred by the Corporation to assist the Corporation in maximizing shareholders value and an increase in accounting fees due to the Asset Sale transactions. The Corporation's insurance cost increased by $29,000, due to the large increase in the directors and officers insurance and the increase of $41,000 in officers' and other salaries. -21- THE FIRST CONNECTICUT CAPITAL CORPORATION FORM 10-KSB FOR YEARS ENDED MARCH 31, 2003 AND 2002 INCOME TAX PROVISION - An income tax provision of $225,000 was recorded for the year ended March 31, 2003, compared to a $315,000 tax provision for the year ended March 31, 2002. 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 for the years ended March 31, is as follows: 2003 2002 ---- ---- Federal income tax provision at statutory rate $164,000 $109,000 State income tax, net of federal benefit 47,000 11,000 Valuation allowance adjustment 14,000 195,000 -------- ---------- Total $225,000 $ 315,000 ======== ========== In 2003 and 2002, the Corporation increased it valuation allowance against net operation loss carry forwards (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. 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. 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 entered into a definitive agreement 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. The Corporation has also entered into a definitive agreement with certain private investors who are not presently affiliates of the Corporation with respect to the 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 Corporation's business. (see Subsequent Event, Proposed Sale of Corporation's Business and Assets ). 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 reluctance on 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. -22- THE FIRST CONNECTICUT CAPITAL CORPORATION FORM 10-KSB FOR YEARS ENDED MARCH 31, 2003 AND 2002 LIQUIDITY AND CAPITAL RESOURCES At March 31, 2003 and 2002, the Corporation had cash and cash equivalents of $30,000 and $437,000, respectively. The Corporation has a Commercial Line of Credit with the Hudson United Bank. This $3,500,000 line of credit bears an interest at a rate of 2.5% over the Wall Street Prime Rate and will expire on June 30, 2003. This line is collateralized by an assignment of notes and mortgages equal to the amount of the loan. At March 31, 2003 and March 31, 2002, there was $1,487,000 and $2,441,000, respectively, advanced on this line of credit. At March 31, 2003 there were no violations of the bank line of credit financial covenants. The Corporation was in violation with a debt to net worth financial covenant on the bank line of credit as of March 31, 2002. The bank covenants, which are tested annually, are: a) current ratio to exceed 1.5 to 1 at March 31, 2003 and 1.25 to 1 at March 31, 2002, b) debt to worth ratio not to exceed 2 to 1 at March 31, 2003, and 1 to 1 at March 31, 2002 and c) net worth requirement of $2,000. Hudson United Bank has waived the violation of the debt to worth ratio covenant for the year ended March 31, 2002. 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, 2004, 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, 2004. 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 the 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. As of March 31, 2003 and 2002, the Corporation had outstanding loan commitments of $2,367,000 and $3,0368,00. These amounts represent the balances of construction loans previously closed by the Corporation but not fully advanced. -23- THE FIRST CONNECTICUT CAPITAL CORPORATION FORM 10-KSB FOR YEARS ENDED MARCH 31, 2003 AND 2002 LETTERS OF CREDIT On May 6, 2002, the Corporation entered into a $250,000 letter of credit issued to the Town of North Branford, Connecticut for building compliance of road construction on a project to which the Corporation has a loan. Effective January 23, 2003, the letter of credit was reduced to $100,000. No amounts have been drawn or are expected to be drawn on this letter of credit which is expected to be released within the next twelve months. On November 1, 2001 the Corporation entered into two letters of credit with the town of Glastonbury, Connecticut. The first letter of credit was issued in the original amount of $194,000 for the construction of a roadway and the second letter is in the amount of $75,000 for soil and erosion control. As of October 22, 2002, the roadway letter of credit has been reduced to $14,000. The $75,000 letter of credit for soil and erosion control remains in place and is expected to be reduced and/or released within the next twelve months. The same is expected for the roadway letter of credit. No amounts have been drawn or are expected to be drawn on these letters of credit. The Corporation has entered into two letters of credit with the town of Fairfield, Connecticut. The first letter of credit, dated November 22, 2002, is for planning and zoning in the amount of $146,000. The second letter of credit, dated October 8, 2002 is for sewer construction in the amount of $28,000. No amounts have been drawn or are expected to be drawn on these letters of credit. 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 In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets," which requires that goodwill and intangible assets with indefinite lives no longer be amortized, but instead tested for impairment at least annually. The Corporation adopted SFAS No. 142 effective April 1, 2002 and the adoption of the statement had no 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 April 1, 2003, with early adoption permitted. The Corporation plans on adopting SFAS No. 143 effective April 1, 2003 and believes the adoption of the statement will have no effect on the financial statements. -24- THE FIRST CONNECTICUT CAPITAL CORPORATION FORM 10-KSB FOR YEARS ENDED MARCH 31, 2003 AND 2002 In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which addresses the accounting and reporting for the impairment or disposal of long-lived assets. The Corporation adopted SFAS No. 144 effective April 1, 2002 and the adoption of the statement had no effect on the financial statements. In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements 4, 44, 64," which addresses reporting related to the extinguishment of debt, accounting for intangible assets and the accounting for leases. The Corporation adopted SFAS No. 145 effective May 15, 2002 and the adoption of the statement had no effect on the financial statements. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which addresses financial accounting and reporting for costs associated with exit or disposal activities. Under SFAS No. 146, such costs will be recognized when the liability is incurred, rather than at the date of commitment to an exit plan. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002, with early application permitted. The Corporation adopted SFAS No. 146 effective January 1, 2003 and the adoption of the statement had no effect on the financial statements. In October 2002, the FASB issued SFAS No. 147, "Acquisitions of Certain Financial Institutions, an amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9," which addresses accounting for purchases of certain financial institutions. SFAS No. 147 is effective October 1, 2002, with early application permitted. The Corporation adopted SFAS No. 147 effective October 1, 2002 and did not have any goodwill that was subject to Statement No. 72 and therefore the provisions of Statement No. 147 have no effect on the financial statements. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of FASB Statement No. 123," which provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company has adopted the requirements of SFAS No. 148 effective March 31, 2003 with no material effect on its financial statements. PARTNERSHIPS On March 21, 1996, 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. -25- THE FIRST CONNECTICUT CAPITAL CORPORATION FORM 10-KSB FOR YEARS ENDED MARCH 31, 2003 AND 2002 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 April 22, 2003, all 100 units in the Partnership have been sold. 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 April 22, 2003 the Corporation has sold 86 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, as this Corporation can be removed as a General Partner by a simple majority vote of the Limited Partners. ITEM 7. FINANCIAL STATEMENTS The Corporation's financial statements as of and for the years ended March 31, 2003 and 2002 are incorporated herein by reference and are attached hereto as Exhibit 13. Independent Auditors' Report - Page 1 Balance Sheets, March 31, 2003 and 2002 - Page 2 Statements of Income, years ended March 31, 2003 and 2002 - Page 3 Statements of Changes in Stockholders' Equity, years ended March 31, 2003 and 2002 - Page 4 Statements of Cash Flows, years ended March 31, 2003 and 2002 - Page 5 Notes to Financial Statements - Pages 6 - 22 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. -26- THE FIRST CONNECTICUT CAPITAL CORPORATION FORM 10-KSB FOR YEARS ENDED MARCH 31, 2003 AND 2002 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 March 31, 2003 are as follows: NAMES AGE PRESENT POSITION David Engelson 82 Chairman of the Board of Directors Lawrence R. Yurdin 63 President, CEO and Director Jan E. Cohen 46 Director Thomas D'Addario 51 Director Michael L. Goldman 42 Assistant Secretary and Director Priscilla E. Ottowell 56 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. -27- THE FIRST CONNECTICUT CAPITAL CORPORATION FORM 10-KSB FOR YEARS ENDED MARCH 31, 2003 AND 2002 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 $300 per Board meeting. Mr. Lawrence R. Yurdin is the son-in-law of Mr. David Engelson, Chairman of the Board and a Director of the Corporation. ITEM 10. EXECUTIVE COMPENSATION The following summary compensation table sets forth certain information regarding the annual and long-term compensation of David Engelson, Chairman and Lawrence R. Yurdin, President and CEO, for each of the last three fiscal years.
SUMMARY COMPENSATION TABLE ANNUAL COMPENSATION LONG TERM COMPENSATION ------------------- --------- ------------ AWARDS PAYOUTS ---------------------- ---------------------- Other Annual Restricted All Other Name and Compen- Stock Options/ LTIP Compen- Principal Year Salary Bonus sation Awards SARs Payouts sation POSITION ENDED ($) ($) ($) ($) (#) ($) ($) ----------- ----- ------- ------- ----------- ---------- --------- ----------- --------- David Engelson 03/31/03 $ 12,000 0 0 None 0 None 0 Chairman of the 03/31/02 $ 12,000 0 0 None 0 None 0 Board & Treasurer 03/31/01 $ 12,000 0 0 None 0 None 0 Lawrence R Yurdin 03/31/03 $131,000 0 0 None 0 None 0 President and CEO 03/31/02 $109,000 0 0 None 28,500 None 0 03/31/01 $ 88,000 0 0 None 0 None 0
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following 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, 2003. 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 -28- THE FIRST CONNECTICUT CAPITAL CORPORATION FORM 10-KSB FOR YEARS ENDED MARCH 31, 2003 AND 2002 Carucci Family Partners 121,300 10.34 C/O Carr Securities Corp 14 Vanderventer Avenue Port Washington, NY 11050 John C. Boland 67,255 5.73 714 St. Johns Road Baltimore, MD 21210
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 3.36% Lawrence R. Yurdin 21,707 1.85 28,500 22.98 50,207 3.87 Jan E. Cohen 2,113 .18 28,000 22.58 30,113 2.32 Thomas D'Addario 15,700 1.34 28,000 22.58 43,700 3.37 Michael L. Goldman 16,921 1.44 16,000 12.90 32,921 2.54 Priscilla E. 4,389 .37 5,000 4.03 9,389 .72 Ottowell All directors and executive officers 104,435 8.90% 105,500 85.07% 209,935 16.18% as a group (six persons) *All options set forth above are currently exercisable
STOCK OPTIONS The Corporation has a compensatory stock option plan adopted in 1999 (the "Plan") which enables the granting of options to officers and directors to purchase shares of the Corporation's common stock at prices equal to fair value at the date of grant. Options expire within ten years of grant and vest immediately. On May 3, 2001, 100,000 options were granted under the Plan at an exercise price of $.64. No options were exercised during the year ended March 31, 2003 and no compensation cost has been recognized for stock options awarded under the Plan. During 2003, 55,500 options were cancelled under this Plan. -29- THE FIRST CONNECTICUT CAPITAL CORPORATION FORM 10-KSB FOR YEARS ENDED MARCH 31, 2003 AND 2002 On October 1, 2002, the Corporation issued a total of 79,500 non-plan options (other options), at an exercise price of $.82 per share to officers, directors and employees of the Corporation. The options expire five years from the grant date and vest immediately. No other options were exercised during the year ended March 31, 2003 and no compensation cost has been recognized. The Corporation has adopted the disclosure only provision of SFAS 123. If the Corporation 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 SFAS 123, the Corporation's net income would have been adjusted to reflect additional compensation expense net of tax, of $2,000 and $20,000 for the years ended March 31, 2003 and 2002, respectively. Pro forma net income would have been $256,000 and earnings per share would have been $.22 (basic and diluted) for the year end March 31, 2003. Pro forma net income would have been $25,000 and earnings per share would have been $.02 (basic and diluted) for the year ended March 31, 2002. The estimated weighted average fair value of stock options at the time of the grant using the Black-Scholes option pricing model was $.06 for the option shares issued in fiscal year 2003 and $.35 for the option shares issued in fiscal year 2002. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 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 securities 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, 2003 and 2002. 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 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 the fiscal year ended 2003. 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, 2003 and 2002 were $5,000. -30- THE FIRST CONNECTICUT CAPITAL CORPORATION FORM 10-KSB FOR YEARS ENDED MARCH 31, 2003 AND 2002 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. During 2003 and 2002 the Corporation has sold loans to Limited Partnership A and Limited Partnership B. In addition, the Corporation services all loans sold to these partnerships. As of March 31, 2003 and 2002 the Corporation is servicing $4,795,000 and $4,768,000 of loans for Limited Partnership A and $3,263,000 and $1,254,000 of loans for Limited Partnership B, respectively. For the year ended March 31, 2003, and 2002, service fee income earned for servicing these loans amounted to approximately $58,000 and $63,000 from Limited Partnership A and approximately $34,000 and $3,000 from 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, 2003 and 2002 these individuals accounted for 15% and 19%, respectively, of the ownership in Limited Partnership A. As of March 31, 2003 and 2002 these individuals accounted for 7% of the ownership in Limited Partnership B. During 2003 and 2002 the Corporation has sold portions of loans to certain members of management, board of directors, employees and their immediate families ("affiliates"). In addition, the Corporation services all of these loans. As of March 31, 2003 and 2002 the Corporation is servicing $3,071,000 and $2,721,000 of loans owned by certain members of management, board of directors, employees and their immediate families, respectively. Service fee income earned for servicing these loans amounted to approximately $57,000 and $41,000 for the years ended March 31, 2003 and 2002, respectively. Within the above loan amounts the Corporation is servicing $2,098,000 and $1,390,000 of loans, as of March 31, 2003 and 2002, respectively, which were sold to a board member, his limited liability company or trust of which fees were earned of $23,000 and $17,000 respectively. If for any reason the above loans were to default and become an asset acquired, upon liquidation, the board member, 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 this 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. -31- THE FIRST CONNECTICUT CAPITAL CORPORATION FORM 10-KSB FOR YEARS ENDED MARCH 31, 2003 AND 2002 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 such loans. The following table summarizes the amount of the loans serviced and the fee income generated from loan sales to affiliates: 2003 2002 ---- ---- Loan sales: Management $ 305,000 $ 367,000 Board of Directors 2,239,000 1,532,000 Employees and families 527,000 822,000 ----------- ----------- Totals $ 3,071,000 $ 2,721,000 =========== =========== Fee income: Management $ 6,000 $ 6,000 Board of Directors 42,000 23,000 Employees and families 9,000 12,000 ----------- ----------- Totals $ 57,000 $ 41,000 =========== =========== ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (13) Financial Statements. (99.1) Certifications (b) Reports on Form 8-K NONE ITEM 14. Controls And Procedures The Corporation maintains controls and procedures designed to ensure that information required to be disclosed in the reports that the Corporation files or submits under the Security Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon their evaluation of those controls and procedures performed within 90 days of the filing date of this report, the Chief Executive Officer and Principal Financial Officer of the Corporation concluded that the Corporation's disclosure controls and procedures were adequate. -32- THE FIRST CONNECTICUT CAPITAL CORPORATION FORM 10-KSB FOR YEARS ENDED MARCH 31, 2003 AND 2002 The Corporation made no significant changes in its internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation of those controls by the Chief Executive Officer and the Principal Financial Officer. -33- THE FIRST CONNECTICUT CAPITAL CORPORATION FORM 10-KSB FOR YEARS ENDED MARCH 31, 2003 AND 2002 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: MAY 28, 2003 By: / S / LAWRENCE R. YURDIN ------------ - - - -------- -- ------ Lawrence R. Yurdin President and Chief Executive Officer Date: MAY 28, 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: MAY 28, 2003 / S / DAVID ENGELSON ------------ - - - ----- -------- David Engelson Chairman of the Board Date: MAY 28, 2003 / S / JAN E. COHEN ------------ - - - --- -- ----- Jan E. Cohen Director Date: MAY 28, 2003 / S / THOMAS D'ADDARIO ------------ - - - ------ --------- Thomas D'Addario Director Date: MAY 28, 2003 / S / MICHAEL L. GOLDMAN ------------ - - - ------- -- ------- Michael L. Goldman Assistant Secretary and Director Date: MAY 28, 2003 / S / LAWRENCE R. YURDIN ------------ - - - -------- -- ------ Lawrence R. Yurdin President and Director Date: MAY 28, 2003 / S / PRISCILLA E. OTTOWELL ------------ - - - --------- -- -------- Priscilla E. Ottowell Secretary and Controller -34- THE FIRST CONNECTICUT CAPITAL CORPORATION FORM 10-KSB FOR YEARS ENDED MARCH 31, 2003 AND 2002 CERTIFICATION I, Lawrence R. Yurdin, certify that: 1. I have reviewed this annual report on Form 10-KSB of the First Connecticut Capital Corporation 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report(the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 28, 2003 By: /s/ Lawrence R. Yudin --------------------------------- Lawrence R. Yurdin (President, Chief Executive Officer and Principal Financial Officer) -35- EX-13 3 exh13.txt FINANCIAL STATEMENTS THE FIRST CONNECTICUT CAPITAL CORPORATION FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT AS OF AND FOR THE YEARS ENDED MARCH 31, 2003 AND 2002 THE FIRST CONNECTICUT CAPITAL CORPORATION FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT FOR THE YEARS ENDED MARCH 31, 2003 AND 2002 TABLE OF CONTENTS PAGE INDEPENDENT AUDITORS' REPORT 1 FINANCIAL STATEMENTS: Balance Sheets 2 Statements of Income 3 Statements of Changes in Stockholders' Equity 4 Statements of Cash Flows 5 Notes to Financial Statements 6 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of The First Connecticut Capital Corporation: We have audited the balance sheets of The First Connecticut Capital Corporation (the "Corporation"), a Connecticut corporation, as of March 31, 2003 and 2002, and the related statements of income, changes in stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The First Connecticut Capital Corporation as of March 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/ SASLOW LUFKIN & BUGGY, LLP - ------------------------------ Saslow Lufkin & Buggy, LLP May 6, 2003
The First Connecticut Capital Corporation Balance Sheets March 31, 2003 and 2002 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) ASSETS 2003 2002 ---- ---- Cash and cash equivalents $ 30 $ 437 Loans, net of allowance of $539 in 2003 and $594 in 2002 1,509 2,172 Loans due from related parties -- 225 Loans held for sale 1,571 1,355 Asset acquired in lieu of foreclosure 515 -- Due from partnerships 83 92 Accrued interest receivable 37 50 Fixed assets 12 16 Mortgage servicing rights 52 69 Deferred income taxes 72 250 Other assets 121 75 ------- ------- Total assets $ 4,002 $ 4,741 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Line of credit $ 1,487 $ 2,441 Accounts payable related parties 154 203 Accounts payable and accrued expenses 100 94 ------- ------- Total liabilities 1,741 2,738 STOCKHOLDERS' EQUITY Common stock, no par value, stated value $.50 per share, authorized 3,000,000 shares, issued and outstanding 1,173,382 shares 587 587 Paid-in capital 9,253 9,253 Accumulated deficit (7,579) (7,837) ------- ------- Total stockholders' equity 2,261 2,003 ------- ------- Total liabilities and stockholders' equity $ 4,002 $ 4,741 ======= ======= THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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The First Connecticut Capital Corporation Statements of Income For the Years Ended March 31, 2003 and 2002 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 2003 2002 ---- ---- INTEREST INCOME Interest and fees on loans $ 747 $ 663 ----------- ----------- Interest expense on line of credit 136 229 Other interest expense 13 13 ----------- ----------- Total interest expense 149 242 ----------- ----------- Net interest income 598 421 Provision (reduction) for loan losses 87 (6) ----------- ----------- Net interest income after provision for loan losses 511 427 ----------- ----------- OTHER OPERATING INCOME Servicing fees 172 156 Net gains on sales of loans held for sale 514 335 Other fees 51 66 ----------- ----------- Total other operating income 737 557 ----------- ----------- Total income 1,248 984 OTHER OPERATING EXPENSES Officers' salaries 207 178 Other salaries 67 55 Directors' fees -- 3 Professional services 168 103 Miscellaneous taxes 22 19 Employee and general insurance 50 48 Rent 33 31 Amortization of servicing rights 69 72 Corporate insurance expenses 51 22 Licenses, dues and subscriptions 17 9 Communications 7 8 Advertising and promotions 7 7 Stock record and other financial expenses 12 12 Depreciation 5 5 Equipment and auto rental 18 14 Postage, office and other expenses 32 38 ----------- ----------- Total other operating expenses 765 624 Income before income taxes 483 360 Income tax provision 225 315 ----------- ----------- Net income $ 258 $ 45 =========== =========== Income per common share (basic and diluted) $ .22 $ .04 =========== =========== Weighted average number of common shares outstanding: (basic) 1,173,382 1,173,382 =========== =========== (diluted) 1,192,167 1,186,630 =========== =========== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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The First Connecticut Capital Corporation Statements of Changes in Stockholders' Equity For the Years Ended March 31, 2003 and 2002 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) Total Common Stock Paid-in Accumulated Stockholders' SHARES AMOUNT CAPITAL DEFICIT EQUITY Balance, April 1, 2001 1,173,382 $ 587 $ 9,253 $ (7,882) $ 1,958 Net income -- -- -- 45 45 --------- --------- --------- --------- --------- Balance, March 31, 2002 1,173,382 587 9,253 (7,837) 2,003 Net income -- -- -- 258 258 --------- --------- --------- --------- --------- Balance, March 31, 2003 1,173,382 $ 587 $ 9,253 $ (7,579) $ 2,261 ========= ========= ========= ========= ========= THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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The First Connecticut Capital Corporation Statements of Cash Flows For the Years Ended March 31, 2003 and 2002 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 2003 2002 ---- ---- OPERATING ACTIVITIES Net income $ 258 $ 45 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation 5 5 Reduction in provision for loan losses (55) (6) Amortization of servicing rights 69 72 Increase in mortgage servicing rights (52) (69) Decrease in deferred taxes 178 304 Increase in asset acquired in lieu of foreclosure (515) -- Origination of loans held for sale (17,036) (13,821) Proceeds from sales of loans held for sale 16,820 13,389 Changes in assets and liabilities: Decrease in restricted cash -- 44 Decrease (increase) in accrued interest receivable 13 (46) Increase in other assets (46) (27) Decrease in accounts payable to related parties (49) -- Increase in accounts payable and accrued expenses 6 267 -------- -------- Net cash (used in) provided by operating activities (404) 157 -------- -------- INVESTING ACTIVITIES Originations of loans (2,999) (3,132) Principal collected on loans 3,942 3,157 Purchases of fixed assets (1) (6) -------- -------- Net cash provided by investing activities 942 19 -------- -------- FINANCING ACTIVITIES (Decrease) increase in line of credit borrowings (954) 121 Decrease (increase) in amounts due from partnerships 9 (92) -------- -------- Net cash (used in) provided by financing activities (945) 29 -------- -------- (Decrease) increase in cash (407) 205 Cash and cash equivalents, beginning of year 437 232 -------- -------- Cash and cash equivalents, end of year $ 30 $ 437 ======== ======== Supplemental disclosure of cash flow information: Cash paid for interest $ 138 $ 234 ======== ======== Cash paid for taxes $ 24 $ 11 ======== ======== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
-5- The First Connecticut Capital Corporation Notes to Financial Statements For the Years Ended March 31, 2003 and 2002 (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES COMPANY OPERATIONS - The First Connecticut Capital Corporation (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 and gains from the sale of loans and mortgage servicing rights. Mortgage loans that 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. LOANS - Loans are generally recorded at the principal amount outstanding less the allowance for loan losses and any net deferred loan fees. Loan origination and commitment fees, as well as certain direct origination costs, are recognized as interest income over the term of the loans using a method that approximates the interest method. Interest rates on loans are fixed at the time of issuance and are based upon current market rates. Outstanding loans are payable in a variety of methods over a term generally not exceeding one year, all loans are collateralized by liens on real properties; a few of such properties are subject to prior liens. Interest income on loans is recognized based on rates applied to principal amounts outstanding. In connection with most loans, the borrower also pays a nonrefundable fee to the Corporation. Loans are generally placed on non-accrual status when they become 180 days past due or earlier, if the loan is considered impaired. Any unpaid amounts previously accrued on these loans are reversed from income. Subsequent cash receipts are applied to the outstanding principal balance or to interest income if, in the judgment of management, collection of the outstanding principal is not in question. Loans are removed from non-accrual status when they become current as to both principal and interest and when subsequent performance reduces the concern as to the collectibility of principal and interest. LOANS HELD FOR SALE - Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or fair value in the aggregate. Net unrealized losses are recognized through a valuation allowance charged to income. Net fees and costs associated with originating and acquiring loans held for sale are deferred and are included in the basis for determining the gain or loss on sales of loans held for sale. Gains on sales are recorded at the settlement date and cost is determined on a specific identification basis. ASSET ACQUIRED IN LIEU OF FORECLOSURE - Asset acquired in lieu of foreclosure is recorded at fair value less costs to sell at the date of transfer. If the fair value, less the estimated costs to sell, decline below the carrying amount of the asset, the deficiency is recognized in the period in which it becomes known and is included as a charge against other operating income. -6- The First Connecticut Capital Corporation Notes to Financial Statements For the Years Ended March 31, 2003 and 2002 (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ALLOWANCE FOR LOAN LOSSES - 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. Loans are charged off to the extent they are deemed uncollectible. The amount of the allowance for loan losses is highly dependent upon management's estimates of variables affecting valuation, appraisals of collateral, evaluations of performance and status, and the amount and timing of future cash flows expected to be received on impaired loans. Such estimates, appraisals, evaluations and cash flows may be subject to frequent adjustments due to changing economic prospects of borrowers or properties. These estimates are reviewed periodically and adjustments, if necessary, are recorded in the provision for loan losses in the periods in which they become known. 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. CONCENTRATION OF CREDIT RISKS - The nature of the Corporation's business is to fund and service mortgages to qualified borrowers within the northeastern United States, primarily in the State of Connecticut where management has the most experience. The mortgage loans are predominately collateralized by residential properties; however, there are a few smaller commercial properties as well as some vacant land. The Corporation maintains a strict real estate appraisal policy as well as underwriting guidelines. CASH AND CASH EQUIVALENTS - The Corporation has defined cash as including cash on hand and cash in interest bearing and non-interest bearing operating bank accounts. Highly liquid investments such as time deposits with an original maturity of three months or less are considered to be cash equivalents. At times during the year the Corporation's cash balances exceed federal depository insurance limits of $100,000. INCOME TAXES - The Corporation follows the asset and liability method, whereby deferred tax assets and liabilities are recognized for the future consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. -7- The First Connecticut Capital Corporation Notes to Financial Statements For the Years Ended March 31, 2003 and 2002 (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) FIXED ASSETS - Fixed assets are carried at original cost. Depreciation is provided for primarily by using accelerated depreciation methods over the estimated service lives as follows: Improvements 31 years Furniture and Fixtures 3-5 years Equipment 3-5 years Maintenance and repairs costs are expensed as incurred. MORTGAGE SERVICING RIGHTS - The Corporation recorded an asset related to servicing of loans. This asset is affected by the predominant risk characteristics of the underlying financial assets and, accordingly, the Corporation periodically assesses the asset for impairment. Since the underlying financial assets primarily represent loans collateralized by first mortgages, the servicing rights asset encompasses risks commonly associated with mortgage loans. Mortgage servicing rights are amortized over the period of the estimated net servicing income which is generally less than one year as the Corporation's loan portfolio is short term in nature. The Corporation's loans are generally under one year in nature. Estimation of a valuation allowance to reduce the servicing rights asset to fair value involves evaluating the characteristics of the underlying assets including interest rates, estimated remaining lives, dates of origination, terms, and geographic location. INCOME PER COMMON SHARE - Basic earnings per share ("EPS") is based on the weighted average number of common shares outstanding for the period, excluding the effects of any potentially dilutive securities. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted. Net income per share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Basic and diluted income per share was calculated using the following number of shares: 2003 2002 ---- ---- Average shares outstanding 1,173,382 1,173,382 --------- --------- Basic shares 1,173,382 1,173,382 Net dilutive effect of options 18,785 13,248 ---------- --------- Diluted shares 1,192,167 1,186,630 ========= ========= RECLASSIFICATIONS - Certain reclassifications were made to the 2001 financial statements to conform with the 2002 presentation. Such reclassifications did not have a material effect on the financial statements. -8- The First Connecticut Capital Corporation Notes to Financial Statements For the Years Ended March 31, 2003 and 2002 (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) STOCK OPTIONS - As allowed by Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 123 "Accounting for Stock-Based Compensation", the Corporation accounts for stock-based compensation using the intrinsic value method under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." The Corporation generally awards options for a fixed number of shares at an option price equal to the fair value at the date of grant. The Corporation has adopted the disclosure-only provisions of FASB's SFAS No. 123, see Note 10. USE OF ESTIMATES - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ significantly from those estimates. NEW ACCOUNTING PRONOUNCEMENTS - In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets," which requires that goodwill and intangible assets with indefinite lives no longer be amortized, but instead tested for impairment at least annually. The Corporation adopted SFAS No. 142 effective April 1, 2002 and the adoption of the statement had no 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 April 1, 2003, with early adoption permitted. The Corporation plans on adopting SFAS No. 143 effective April 1, 2003 and believes the adoption of the statement will have no effect on the financial statements. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which addresses the accounting and reporting for the impairment or disposal of long-lived assets. The Corporation adopted SFAS No. 144 effective April 1, 2002 and the adoption of the statement had no effect on the financial statements. In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements 4, 44, 64," which addresses reporting related to the extinguishment of debt, accounting for intangible assets and the accounting for leases. The Corporation adopted SFAS No. 145 effective May 15, 2002 and the adoption of the statement had no effect on the financial statements. -9- The First Connecticut Capital Corporation Notes to Financial Statements For the Years Ended March 31, 2003 and 2002 (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which addresses financial accounting and reporting for costs associated with exit or disposal activities. Under SFAS No. 146, such costs will be recognized when the liability is incurred, rather than at the date of commitment to an exit plan. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002, with early application permitted. The Corporation adopted SFAS No. 146 effective January 1, 2003 and the adoption of the statement had no effect on the financial statements. In October 2002, the FASB issued SFAS No. 147, "Acquisitions of Certain Financial Institutions, an amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9," which addresses accounting for purchases of certain financial institutions. SFAS No. 147 is effective October 1, 2002, with early application permitted. The Corporation adopted SFAS No. 147 effective October 1, 2002 and did not have any goodwill that was subject to Statement No. 72 and therefore the provisions of Statement No. 147 have no effect on the financial statements. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of FASB Statement No. 123," which provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Corporation has adopted the requirements of SFAS No. 148 effective March 31, 2003 with no material effect on its financial statements. NOTE 2 - PARTNERSHIPS On March 21, 1996, the Corporation formed a Limited Partnership (the "Limited Partnership A") known as First Connecticut Capital Mortgage Fund A, Limited Partnership of which the Corporation is the general partner. The purpose of this entity is to sell units in the Limited Partnership A to investors in a private placement, up to a maximum of $5,000 in $50 units, for the purpose of funding a short-term Portfolio Loan Program for the Limited Partnership A. The limited partners will be restricted to investors who qualify as "Accredited Investors", as defined in Regulation D, promulgated under the Securities Act of 1933. -10- The First Connecticut Capital Corporation Notes to Financial Statements For the Years Ended March 31, 2003 and 2002 (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) NOTE 2 - PARTNERSHIPS (CONTINUED) 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 that are purchased by the Limited Partnership A from the funds invested by the limited partners. The Corporation does not guarantee a return of capital or interest to the limited partners. On June 26, 2001 the Corporation established a second private placement offering to be known as First Connecticut Capital Mortgage Fund B, Limited Partnership (the "Limited Partnership B") of which the Corporation is the general partner. The purpose of the Limited Partnership B is to sell units to investors in a private placement, up to a maximum of $5,000 in $50 units, 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". The Corporation does not guarantee a return of capital or interest to the limited partners. As of March 31, 2003 and 2002, the Corporation had a one-percent interest in the Limited Partnership A with a recorded investment balance of $46 and $43, respectively, which is accounted for on the equity method of accounting and included within other assets. The following represents un-audited summarized financial information for the Limited Partnership A as of and for the years ended December 31, 2002 and 2001, the Limited Partnership's fiscal year end: 2002 2001 ---- ------- Total assets (principally consisting of mortgages receivable) $ 5,096 $ 4,837 Total liabilities $ 46 $ 71 Total partnership capital $ 5,050 $ 4,765 Total revenues $ 569 $ 597 Net (loss) income $ (15) $ 12 As of March 31, 2003 and 2002, the Corporation had a one-percent interest in the Limited Partnership B with a recorded investment balance of $34 and $12, respectively, which is accounted for on the equity method of accounting and included within other assets. The following represents un-audited summarized financial information for the Limited Partnership B as of and for the years ended December 31, 2002 and 2001, the Limited Partnership's fiscal year end: 2002 2001 ---- ---- Total assets (principally consisting of mortgages receivable) $ 2,692 $ 813 Total liabilities $ 32 $ 6 Total partnership capital $ 2,660 $ 807 Total revenues $ 208 $ 31 Net income (loss) $ 3 $ (1) -11- The First Connecticut Capital Corporation Notes to Financial Statements For the Years Ended March 31, 2003 and 2002 (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) NOTE 2 - PARTNERSHIPS (CONTINUED) The Corporation has not consolidated their investments in the partnerships as the limited partners can remove the Corporation as the general partner through a simple majority vote without cause and therefore the Corporation does not believe that it has an overall controlling interest within the partnerships. NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES Loans and allowance for loan losses at March 31, 2003 and 2002 are as follows: 2003 2002 ---- ---- Mortgage loans $ 2,048 $ 2,766 Allowance for loan losses (539) (594) ---------- ---------- Total $ 1,509 $ 2,172 ========== ========= Mortgage loans due from related parties $ - $ 225 ========== ========= Mortgage loans held for sale $ 1,571 $ 1,355 ========== ========= Net unamortized fees associated with loans and loans held for sale are $33 and $49 as of March 31, 2003 and $78 and $28 as of March 31, 2002, respectively. Changes in the allowance for loan losses for the years ended March 31, 2003 and 2002 are as follows: 2003 2002 ---- ---- Beginning balance $ 594 $ 600 Provisions 87 (6) Charge-offs (142) -- Recoveries - -- ---------- ---------- Ending balance $ 539 $ 594 ========== ========= No valuation allowance has been established for the loans held for sale or loans due from related parties as of March 31, 2003 and 2002. Loans and loans held for sale have interest rates ranging between 12% and 15%. None of the Corporation's loans have a recourse provision. At March 31, 2003, the Corporation has impaired loans of $594 and a related allowance of $539, as compared to $628 of impaired loans and a related allowance for investment losses of $569 at March 31, 2002. -12- The First Connecticut Capital Corporation Notes to Financial Statements For the Years Ended March 31, 2003 and 2002 (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED) The average impaired loans for the years ended March 31, 2003 and 2002 were $611 and $637, respectively, and the income recorded (under the cash basis method) on these loans identified as impaired totaled $65 and $66, respectively. Loans on which the accrual of interest has been discontinued for the years ended March 31, 2003 and 2002 amounted to $11 and $25, respectively. If those loans had been current throughout their term, interest income would have increased $2 for both the years ended March 31, 2003 and 2002. Loans that are overdue by 90 days and accruing interest are $90 and $250 for the years ended March 31, 2003 and 2002, respectively. Loans serviced for the benefit of others totaled $15,476 and $11,442 for the years ended March 31, 2003 and 2002, respectively. NOTE 4 - FIXED ASSETS The costs and related accumulated depreciation of the Corporation's fixed assets at March 31, 2003 and 2002 were as follows: 2003 2002 ---- ---- Improvements $ 7 $ 7 Equipment 50 49 ---------- ---------- Fixed assets at cost 57 56 Accumulated depreciation (45) (40) ---------- ---------- Fixed assets - net $ 12 $ 16 ========== ========== NOTE 5 - MORTGAGE SERVICING RIGHTS Mortgage servicing rights at March 31, 2003 and 2002 are summarized as follows: 2003 2002 ---- ---- Balance at beginning of year, net $ 69 $ 72 Originations 52 69 Amortization (69) (72) ---------- ------- Balance at end of year, net $ 52 $ 69 ========== ======= The estimated fair value of capitalized mortgage servicing rights is based on estimated cash flows discounted using rates commensurate with risks involved. Assumptions regarding prepayments, defaults and interest rates are determined using available market information. No valuation allowance was recorded at March 31, 2003 and 2002, based on the characteristics of the underlying financial assets. -13- The First Connecticut Capital Corporation Notes to Financial Statements For the Years Ended March 31, 2003 and 2002 (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) NOTE 6 - INCOME TAXES The income tax provision consists of the following for the years ended March 31, 2003 and 2002: 2003 2002 ---- ---- Current: Federal $ - $ - State 47 11 ---------- ---------- Total current 47 11 ---------- ---------- Deferred: Federal 178 304 State - - ---------- ---------- Total deferred 178 304 ---------- ---------- Total income tax provision $ 225 $ 315 ========== ========== 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 for the years ended March 31, 2003 and 2002 is as follows: 2003 2002 ---- ---- Federal income tax provision at statutory rate $ 164 $ 109 State income tax, net of federal benefit 47 11 Valuation allowance adjustment and other 14 195 ---------- -------- Total $ 225 $ 315 ========== ======== The components of the net deferred tax asset at March 31, 2003 and 2002 are as follows: 2003 2002 ---- ---- Deferred tax asset: Net operating loss carryforwards $ 2,385 $ 2,558 Loan loss reserves 162 178 Valuation allowance (2,475) (2,486) ---------- ---------- Net deferred tax asset $ 72 $ 250 ========== ========== -14- The First Connecticut Capital Corporation Notes to Financial Statements For the Years Ended March 31, 2003 and 2002 (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) NOTE 6 - INCOME TAXES (CONTINUED) The deferred tax asset results primarily from federal net operating loss carryforwards (NOL'S). Management has evaluated the available evidence about future taxable income. The valuation allowance reduces the deferred tax asset related to the NOL'S to management's best estimate of the amount of such deferred tax asset that more likely than not will be realized. The valuation allowance was decreased by $11 and increased by $186 for years ended March 31, 2003 and 2002, respectively. These changes are due primarily to a change in the expected utilization of NOL'S based on future Corporation's earnings and the realizability of the deferred tax asset given the proposed asset purchase transaction of the Corporation, see Note 14. At March 31, 2003, the Corporation had available federal NOL'S of $7,950 for income tax purposes, which expire from 2004 to 2016. NOTE 7 - LINE OF CREDIT The Corporation has a commercial line of credit with Hudson United Bank dated June 11, 2002. This $3,500 line of credit is for a term of one year and interest is computed at 2.5% over the Wall Street Prime Rate and will expire on June 30, 2003. The effective interest rate (Wall Street Prime Rate plus 2.5%) at March 31, 2003 and 2002 was 6.75% and 7.25%, respectively. The line of credit is collateralized by an assignment of notes and mortgages equal to the amount of the loan. At March 31, 2003 and 2002, there was $1,487 and $2,441 advanced on this line of credit, respectively. In addition, the bank has a security interest in all assets of the Corporation as a result of the line of credit. The Corporation was in violation with a debt to net worth financial covenant on the bank line of credit as of March 31, 2002. The bank covenants, which are tested annually, are: a) current ratio to exceed 1.5 to 1 at March 31, 2003 and 1.25 to 1 at March 31, 2002, b) debt to worth ratio not to exceed 2 to 1 at March 31, 2003, and 1 to 1 at March 31, 2002 and c) net worth requirement of $2,000. Hudson United Bank has waived the violation of the debt to worth ratio covenant for the year ended March 31, 2002. At March 31, 2003 there were no violations with the bank line of credit financial covenants. The Corporation's liquidity is highly dependent upon the banks credit line. If the credit facility was not in place the Corporation would seek other similar or alternative financing sources. The Corporation expects Hudson United Bank to renew the current credit line for an additional one-year term. -15- The First Connecticut Capital Corporation Notes to Financial Statements For the Years Ended March 31, 2003 and 2002 (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) NOTE 8 - TRANSACTIONS WITH AFFILIATES 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. As of March 31, 2003, the Corporation does not have any loans due from an affiliate. As of March 31, 2002, the Corporation has $225 in loans due from an affiliate, 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 at terms equivalent to other arm's length transactions entered into by the Corporation. The loan was repaid in fiscal year 2003. 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 and his spouse. The Corporation does not pay for these appraisals as the fees are paid by the borrower. Larson Associates, LLC performs appraisal services for a number of other clients in addition to the Corporation, and management of the Corporation believes that all appraisals performed by Larson Associates, LLC were performed in an unbiased manner and represent proper market valuations. The Corporation subleases office space to Larson Associates, LLC on a monthly basis. Amounts received from Larson Associates, LLC for the years ended March 31, 2003 and 2002 were $5, respectively. During 2003 and 2002, the Corporation has sold loans to Limited Partnership A and Limited Partnership B. In addition, the Corporation services all loans sold to these partnerships. As of March 31, 2003 and 2002, the Corporation is servicing $4,795 and $4,768 of loans for Limited Partnership A and $3,263 and $1,254 of loans for Limited Partnership B, respectively. For the years ended March 31, 2003 and 2002, service fee income earned for servicing these loans amounted to approximately $58 and $63 from Limited Partnership A and approximately $34 and $3 from 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, 2003 and 2002, these individuals accounted for 15% and 19%, respectively, of the ownership in Limited Partnership A. As of March 31, 2003 and 2002, these individuals accounted for 7% of the ownership in Limited Partnership B. -16- The First Connecticut Capital Corporation Notes to Financial Statements For the Years Ended March 31, 2003 and 2002 (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) NOTE 8 - TRANSACTIONS WITH AFFILIATES (CONTINUED) During 2003 and 2002, the Corporation has sold portions of loans to certain members of management, board of directors, employees and their immediate families ("affiliates"). In addition, the Corporation services all of these loans. As of March 31, 2003 and 2002 the Corporation is servicing $3,071 and $2,721 of loans owned by certain members of management, board of directors, employees and their immediate families, respectively. Service fee income earned for servicing these loans amounted to approximately $57 and $41 for the years ended March 31, 2003 and 2002, respectively. Within the above loan amounts the Corporation is servicing $2,098 and $1,390 of loans, as of March 31, 2003 and 2002, respectively, which were sold to a board member, his limited liability company or trust of which fees were earned of $23 and $17, respectively. If for any reason the above loans, that are partially sold, were to default and become an asset acquired, upon liquidation, the board member, 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, that are partially sold, 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 this 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 such loans. The following table summarizes the amount of the loans serviced and the fee income generated from loan sales to affiliates: 2003 2002 ---- ---- Loan sales: Management $ 305 $ 367 Board of Directors 2,239 1,532 Employees and families 527 822 ------------- ------------ Total $ 3,071 $ 2,721 ============= ============ Fee income: Management $ 6 $ 6 Board of Directors 42 23 Employees and families 9 12 ------------- ------------ Total $ 57 $ 41 =============== ============ None of the above transactions with affiliates have a recourse provision. -17- The First Connecticut Capital Corporation Notes to Financial Statements For the Years Ended March 31, 2003 and 2002 (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) NOTE 8 - TRANSACTIONS WITH AFFILIATES (CONTINUED) As of March 31, 2003, the Corporation had borrowed $154 from Partnership A to fund a loan at an interest rate of 11%. The $203 of accounts payable due to related parties at March 31, 2002 is due to a wire transfer of funds clearing 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 a board member. NOTE 9 - COMMITMENTS AND CONTINGENCIES AND FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK On May 6, 2002, the Corporation entered into a $250 letter of credit issued to the Town of North Branford, Connecticut for compliance of road construction on a project to which the Corporation has a loan. Effective January 23, 2003, the letter of credit was reduced to $100. No amounts have been drawn or are expected to be drawn on this letter of credit which is expected to be released within the next twelve months. On November 11, 2001, the Corporation had entered into two letters of credit with the town of Glastonbury, Connecticut. The first letter of credit was issued in the original amount of $194 for the construction of a roadway and the second letter is in the amount of $75 for soil and erosion control. Effective October 22, 2002, the roadway letter of credit has been reduced to $14. The $75 letter of credit for soil and erosion control remains in place and is expected to be reduced and/or released within the next twelve months. The same is expected for the balance of the roadway letter of credit. No amounts have been drawn or expected to be drawn on these letters of credit. The Corporation entered into two letters of credit with the town of Fairfield, Connecticut. The first letter of credit, dated November 22, 2002, is for planning and zoning in the amount of $146. The second letter of credit, dated October 8, 2002, is for sewer construction in the amount of $28. No amounts have been drawn or are expected to be drawn on these letters of credit. As of March 31, 2003 and 2002, the Corporation had outstanding loan commitments of $2,367 and $3,068, respectively. These amounts represent the balances of construction loans previously closed by the Corporation but not fully advanced. The Corporation has not been required to perform on any financial guarantees during the years ended March 31, 2003 and 2002. The Corporation has not incurred any losses on its commitments for the years ended March 31, 2003 and 2002. The Corporation's President has an employment agreement, whereby, upon termination without cause, the President would receive one year in salary or approximately $125,000. -18- The First Connecticut Capital Corporation Notes to Financial Statements For the Years Ended March 31, 2003 and 2002 (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) NOTE 10 - STOCK OPTIONS The Corporation has a compensatory stock option plan adopted in 1999 (the "Plan") which enables the granting of options to officers and directors to purchase shares of the Corporation's common stock at prices equal to fair value at the date of grant. Options expire within ten years of grant and vest immediately. On May 3, 2001, 100,000 options were granted under the Plan at an exercise price of $.64. No options were exercised during the year ended March 31, 2003 and 55,500 options were cancelled during 2003. No options were exercised or cancelled during the year ended March 31, 2002. No compensation cost has been recognized for stock options awarded under the Plan. On October 1, 2002, the Corporation issued a total of 79,500 non Plan options (other options), at an exercise price of $.82 per share to officers, directors and employees of the Corporation. The options expire five years from the grant date and vest immediately. No other options were exercised or cancelled during the year ended March 31, 2003 and no compensation cost has been recognized. The Corporation has adopted the disclosure only provision of SFAS No. 123. If the Corporation 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 SFAS No. 123, the Corporation's net income, after tax, would have been adjusted to reflect additional compensation expense of $2 and $20 for the years ended March 31, 2003 and 2002, respectively. Pro forma net income would have been $256 and earnings per share would have been $.22 (basic and diluted) for the year end March 31, 2003. Pro forma net income would have been $25 and earnings per share would have been $.02 (basic and diluted) for the year ended March 31, 2002. The estimated weighted average fair value of stock options at the time of the grant using the Black-Scholes option pricing model was $.06 for the fiscal year 2003 non Plan option shares issued and $.35 for the fiscal year 2002 Plan option shares issued. The assumptions which were used in computing the weighted fair value of the options were as follows: 2003 2002 ---- ---- Annualized dividend yield 0% 0% Expected Volatility 115.0% 108.0% Risk free interest rate 3.1% 5.2% Expected option term 5 10 -19- The First Connecticut Capital Corporation Notes to Financial Statements For the Years Ended March 31, 2003 and 2002 (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) NOTE 11 - LEASES The Corporation leases office space and equipment for use in operations. The leases generally provide that the Corporation pays taxes, insurance and maintenance expenses. Some leases contain renewal options, and rent payments change in accordance with changes in the Consumer Price Index. Rental expense relating to cancelable and non-cancelable operating leases amounted to $31 for both the years ended March 31, 2003 and 2002. As of March 31, 2003, future minimum rental payments required under non-cancelable operating leases were as follows: 2004 $ 36 2005 36 2006 36 2007 36 2008 27 ---------- Total $ 171 ========== NOTE 12 - FAIR VALUE OF FINANCIAL INSTRUMENTS The information provided below is required by SFAS No. 107, "Disclosures about Fair Value of Financial Instruments". Methods and assumptions for estimating the fair value of the Corporation's financial instruments are set forth below. Fair values are calculated based on the value without regard to any premium or discount that may result from concentrations of ownership of a financial instrument, possible tax ramifications or estimated transaction costs. LOANS - Substantially all of the Corporation's loans have a maturity of one year or less. For loans considered to be impaired under SFAS No. 114, the estimated fair value for loans is based on the present value of expected future cash flows discounted at the loan's effective interest rate or on recent external appraisals or other available market information if the loan is collateral dependent. Assumptions regarding credit risk, cash flow, and discount rates are judgmentally determined using available market information and specific borrower information. LOANS HELD FOR SALE - For loans held for sale the fair value is estimated by discounting contractual cash flows adjusted for prepayment estimates using discount rates based on secondary market sources adjusted to reflect differences in servicing and credit costs. MORTGAGE SERVICING RIGHTS - The Corporation estimates fair value for its servicing rights by discounting expected net cash flows through maturity from servicing activities at market discount rates that reflect the credit and interest rate risk inherent in the servicing rights. -20- The First Connecticut Capital Corporation Notes to Financial Statements For the Years Ended March 31, 2003 and 2002 (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) NOTE 12 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) OTHER ON-BALANCE SHEET FINANCIAL INSTRUMENTS - Other on-balance sheet financial instruments include cash and cash equivalents, accrued interest receivable and a line of credit. The carrying value of each of these financial instruments is a reasonable estimation of fair value. The following summarizes the Corporation's carrying value and fair value of the financial instruments as of March 31, 2003 and 2002:
MARCH 31, 2003 MARCH 31, 2002 -------------- -------------- Carrying Estimated Carrying Estimated VALUE FAIR VALUE VALUE FAIR VALUE ASSETS Cash and cash equivalents $ 30 $ 30 $ 437 $ 437 Loans, net $ 1,509 $ 1,509 $ 2,172 $ 2,172 Loans due from related parties $ - $ - $ 225 $ 225 Loans held for sale $ 1,571 $ 1,571 $ 1,355 $ 1,355 Asset acquired $ 515 $ 515 $ - $ - Mortgage servicing rights $ 52 $ 52 $ 69 $ 69 LIABILITIES Line of credit $ 1,487 $ 1,487 $ 2,441 $ 2,441 Accounts payable $ 254 $ 254 $ 297 $ 297
The above table does not include any amounts for the value of any off-balance sheet items as discussed in Note 9, as the carrying and fair values are not significant. LIMITATIONS - Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Corporation's entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Corporation's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimate. -21- The First Connecticut Capital Corporation Notes to Financial Statements For the Years Ended March 31, 2003 and 2002 (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) NOTE 13 - CONCENTRATIONS OF CREDIT RISK The majority of the mortgage loans are made to residential home builders within the State of Connecticut. The Corporation believes that all loans are well secured, however, the Corporation is subject to the housing market risks within Connecticut. The Corporation is also subject to individual credit risks as the Corporation has six loans outstanding at March 31, 2003, that account for over 80% of the total loans and loans held for sale. The Corporation has eleven loans outstanding at March 31, 2002, that account for over 70% of the total loans and loans held for sale. NOTE 14 - ASSET SALE The Corporation has entered into a definitive agreement with respect to the sale by the Corporation of substantially all of its assets to, and the assumption of all of the Corporation's liabilities by, FCCC Holding Company, LLC, a limited liability company consisting of members of management and the board of directors of the Corporation, including Lawrence R. Yurdin, the Corporation's President (the "Asset Purchase Transaction"). The Corporation has also entered into a definitive agreement with certain private investors who are not presently affiliates of the Corporation with respect to the 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 (the "Stock Purchase Transaction"). On April 11, 2003, the Corporation filed a definitive Proxy Statement with the Securities and Exchange Commission for its Annual Meeting of Stockholders that set forth, among other things, information with respect to the Asset Purchase and the Stock Purchase Transactions for stockholder consideration. The date of the Annual Meeting of Stockholders is June 3, 2003, and the record date is April 10, 2003. The Notice of Annual Meeting of Stockholders and Proxy Statements, including copies of the Corporation's Annual Reports on Form 10-KSB, as amended, for the fiscal years ended March 31, 2002 and March 31, 2001, and the Corporation's Quarterly Report on Form 10-QSB, as amended, for the quarterly period ended December 31, 2002, were mailed to stockholders of record on the record date on or about April 25, 2003. At the Annual Meeting, stockholders will be asked to consider, vote upon and approve the Asset Purchase and the Stock Purchase Transactions. In the event that the stockholders approve the Asset Purchase and Stock Purchase Transactions at the Annual Meeting, the simultaneous closing of those transactions will take place on or about June 10, 2003. If the transactions were to be approved, the Corporation would have sold its operating business. See the Corporation's March 31, 2003 10-KSB for a pro forma balance sheet illustrating the impact of the proposed transaction and for a more detailed discussion of the transactions. -22- EX-99.1 4 exh99-1.txt CERTIFICATION FOR CEO & CFO Exhibit 99.1 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the filing of the Annual Report on Form 10-KSB for the fiscal year ended March 31, 2003 (the "Report") by The First Connecticut Capital Corporation (the "Registrant"), each of the undersigned hereby certifies that: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and 2. The information contained in the Report fairly presents, in all material respects, the financial conditions and results of operations of Registrant. - ---------------------------------------------- --------------------------------- - ------------------------------ ------------------------------- Lawrence R. Yurdin Lawrence R. Yurdin President and Chief Executive Officer Chief Financial Officer - ---------------------------------------------- --------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----