U. S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB (Mark One) [ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended DECEMBER 31, 1999 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT For the transition period from _____________ to ______________ Commission file number 811-0969 THE FIRST CONNECTICUT CAPITAL CORPORATION ----------------------------------------- (EXACT NAME OF SMALL BUSINESS ISSUER AS) (SPECIFIED IN ITS CHARTER) CONNECTICUT 06-0759497 - - - - - - - - - - - - - - -------------------------------------------------------------------------------- (STATE OR OTHER JURISDICTION (IRS EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 1000 BRIDGEPORT AVENUE, SHELTON, CONNECTICUT 06484 -------------------------------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (203) 944-5400 --------------------------- (ISSUER'S TELEPHONE NUMBER) ---------------------------------------------------- (FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT) Check whether the issuer (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 --- --- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the registrant 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 court. Yes _____ No _____ APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 1,173,382 Transitional Small Business Format: Yes No X --- --- THE FIRST CONNECTICUT CAPITAL CORPORATION - - - - - - - - - - - - - - ----------------------------------------- BALANCE SHEETS, DECEMBER 31, 1999 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) - - - - - - - - - - - - - - ----------------------------------------- (UNAUDITED) - - - - - - - - - - - - - - ----------- ASSETS - - - - - - - - - - - - - - ------ Cash and cash equivalents $ 237 Restricted cash 55 Loans - net of allowance for loan losses of $39 639 Loans held for sale 1,808 Accrued interest 11 Servicing rights 79 Fixed assets 14 Deferred income taxes 544 Other assets 76 ------- TOTAL ASSETS $ 3,463 ======= LIABILITIES AND STOCKHOLDERS' EQUITY - - - - - - - - - - - - - - ------------------------------------ LIABILITIES Line of credit $ 1,260 Accounts payable and other accrued expenses 38 ------- TOTAL LIABILITIES 1,298 ------- Commitments and contingencies 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 Additional paid in capital 9,253 Accumulated deficit (7,675) ------- TOTAL STOCKHOLDERS' EQUITY 2,165 ------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,463 ======= See notes to financial statements. 2 THE FIRST CONNECTICUT CAPITAL CORPORATION STATEMENTS OF INCOME FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 1999 AND 1998 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) - - - - - - - - - - - - - - ----------------------------------------- (UNAUDITED) - - - - - - - - - - - - - - ----------- Three Months Nine Months Three Months Nine Months Ended Ended Ended Ended Dec. 31, 1999 Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1998 ------------- ------------- ------------- ------------- INTEREST INCOME: Interest and fees on loans $ 121 $ 421 $ 64 $ 258 INTEREST EXPENSE: Interest expense 3 14 2 4 RECOVERY OF INVESTMENTS LOSSES -- -- 183 243 ----------- ----------- ----------- ----------- NET INTEREST INCOME AFTER RECOVERY OF INVESTMENT LOSSES 118 407 245 497 ----------- ----------- ----------- ----------- OTHER OPERATING INCOME: Servicing fees 59 118 28 81 Other fees 11 24 1 21 ----------- ----------- ----------- ----------- Total Other Operating Income 70 142 29 102 ----------- ----------- ----------- ----------- TOTAL INCOME 188 549 274 599 ----------- ----------- ----------- ----------- OTHER OPERATING EXPENSES: Officers' salaries 44 111 34 99 Other salaries 11 28 10 27 Directors' fees 0 2 1 5 Professional services 10 29 15 32 Miscellaneous taxes 4 11 4 12 Employee and general insurance 10 27 12 29 Rent 7 22 9 22 Corporate insurance expenses 5 15 4 7 Licenses, dues and subscriptions expenses 2 6 2 5 Communications 3 9 3 8 Advertising and promotions 0 3 1 2 Stock record and other financial expenses 4 12 1 4 Depreciation 2 7 2 6 Loss on note receivable 322 322 0 0 Other 11 37 7 39 ----------- ----------- ----------- ----------- Total Other Operating Expenses 435 641 105 297 ----------- ----------- ----------- ----------- INCOME (LOSS) BEFORE INCOME TAXES (247) (92) 169 302 INCOME TAX (BENEFIT) EXPENSE 20 (120) -- -- ----------- ----------- ----------- ----------- NET INCOME ($ 267) $ 28 $ 169 $ 302 =========== =========== =========== =========== INCOME PER COMMON SHARE (BASIC AND DILUTED) ($ 0.23) $ 0.02 $ 0.14 $ 0.26 =========== =========== =========== =========== Weighted average number of common shares outstanding (Basic and Diluted) 1,173,382 1,173,382 1,173,382 1,173,382 =========== =========== =========== =========== See notes to financial statements. 3 THE FIRST CONNECTICUT CAPITAL CORPORATION - - - - - - - - - - - - - - ----------------------------------------- STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE NINE MONTHS ENDED DECEMBER 31, 1999 AND THE TWELVE MONTHS ENDED MARCH 31, 1999 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) - - - - - - - - - - - - - - ----------------------------------------- (UNAUDITED) - - - - - - - - - - - - - - ----------- Common Stock ------------ Total Number Of Paid-In Accumulated Stockholders' Shares Amount Surplus Deficit Equity ------ ------ ------- ------- ------ BALANCE, APRIL 1,1998 1,173,382 $587 $9,253 ($8,511) $1,329 Net Income 808 808 -------------- ---------- ------------ ---------------- --------------- BALANCE, March 31,1999 1,173,382 $587 $9,253 ($7,703) $2,137 ============== ========== ============ ================ =============== Net Income 28 28 -------------- ---------- ------------ ---------------- --------------- BALANCE, DECEMBER 31,1999 1,173,382 $587 $9,253 ($7,675) $2,165 ============== ========== ============ ================ =============== See notes to financial statements. 4 THE FIRST CONNECTICUT CAPITAL CORPORATION - - - - - - - - - - - - - - ----------------------------------------- STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED DECEMBER 31, 1999 AND 1998 (DOLLARS IN THOUSANDS) - - - - - - - - - - - - - - ---------------------- (UNAUDITED) - - - - - - - - - - - - - - ----------- Nine Months Nine Months Ended Ended Dec.31,1999 Dec.31,1998 ----------- ----------- OPERATING ACTIVITIES Net income $ 28 $ 302 Adjustments to reconcile net income to net cash used in operating activities: Recovery of investment losses 0 (243) Deferred taxes (123) 0 Loss on note receivable 322 0 Amortization of discount on note receivable 0 (19) Principal collected on note receivable 50 90 Depreciation 7 6 Accretion of discount on note receivable (15) 0 Origination of loans held for sale (11,675) (6,508) Proceeds from sales of loans held for sale 10,161 6,117 Decrease in Partnership loans 30 76 Increase in accrued interest receivable (1) (10) Increase in other assets (21) (12) (Decrease) increase in accounts payable and other accrued expenses (194) 189 Increase in restricted cash (2) (1) -------- -------- Net cash used in operating activities (1,432) (13) -------- -------- INVESTING ACTIVITIES Principal collected on loans 24 71 Loss on disposal of fixed assets 0 4 -------- -------- Net cash provided by investing activities 24 75 -------- -------- FINANCING ACTIVITIES Increase in line of credit 1,260 0 -------- -------- Net cash provided by financing activities 1,260 0 -------- -------- (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (148) 62 CASH AND CASH EQUIVALENTS, BEGINNING 385 214 -------- -------- CASH AND CASH EQUIVALENTS, ENDING $ 237 $ 276 ======== ======== See notes to financial statements. 5 THE FIRST CONNECTICUT CAPITAL CORPORATION NOTES TO CONDENSED FINANCIAL STATEMENTS NOTE A - BASIS OF PRESENTATION The accompanying unaudited condensed financial statements of The First Connecticut Capital Corporation (the "Corporation"), formerly known as The First Connecticut Small Business Investment Company, have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Article 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair representation have been included. Operating results are not necessarily indicative of the results that may be expected for the year ending March 31, 2000. For further information, refer to the financial statements and footnotes thereto included in the Corporation's annual report filed on Form 10-KSB for the year ended March 31, 1999. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Corporation is currently licensed in the States of Connecticut and Massachusetts to operate as Mortgage Lender/Broker. The Corporation had net income of $28,000 for the nine months ended December 31, 1999 compared to a net income of $302,000 for the nine months ended December 31, 1998. INTEREST INCOME AND OTHER OPERATING INCOME - - - - - - - - - - - - - - ------------------------------------------ Interest and fees on loans increased $163,000 for the nine months ended December 31, 1999, as compared to the nine months ended December 31, 1998. 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 its successful marketing of its knowledge of construction and real estate lending, its ability to service loan demand from homebuilders, remodelers and developers and the favorable general climate for the construction industry. Servicing fees increased by $37,000 for the nine months ended December 31, 1999, as compared to the same period in the prior year. This increase is due to an increase in servicing fees earned on its short-term construction and remodeling mortgage loans and the Limited Partnership portfolios. This increase is partially offset by the continued reduction and liquidation of the portfolio sold under the Loan and Real Property Purchase Agreement dated June 29, 1993 (and amended on October 29, 1993). Servicing fees generated by this portfolio will continue to decline as the portfolio continues to be liquidated in accordance with such Loan and Real Property Purchase Agreement. Other fee income has increased by $3,000 from the prior year due to an increase in other loan closing fees and interest earned on idle funds. 6 THE FIRST CONNECTICUT CAPITAL CORPORATION OTHER OPERATING EXPENSE - - - - - - - - - - - - - - ----------------------- Total other operating expenses increased by $344,000 during the nine months ended December 31, 1999, as compared to the comparable period of the prior year. This change is primarily due to the write-off of $322,000 of an unsecured note receivable, based upon information obtained in this quarter. This note predates the company's short-term mortgage program and relates to the liquidation of the portfolio sold under the Loan and Real Property Purchase Agreement dated Jun 29, 1993 (and amended on October 29, 1993). This increase is also due to the increase in audit fees, tax preparation fees and the issuance of a Directors and Officers liability insurance policy. Management believes that significant further reduction of other operating expenses will be difficult to achieve, based on the already extensive reductions that have already been effected. INCOME TAX BENEFIT - - - - - - - - - - - - - - ------------------ As of December 31, 1999 the deferred tax asset of $544,000 increased by $123,000 as compared to March 31, 1999 of $421,000, as the result of re-evaluating the allowance against net operating loss carryforward (NOLS) based on management's assessment of the amount of NOLS that will be more likely than not recoverable 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 properties and other real estate. These loans are predominately secured by first mortgage liens on residential properties and are sold to qualified investors, with origination and servicing fees retained by the Corporation. The Corporation's revenues consist of loan servicing fees, loan origination fees, interest on mortgage loans held prior to sale and mortgage servicing rights. Since January 1996, the Corporation has expanded its Portfolio Loan Program to include short-term mortgages for construction, remodeling and additions, and such short-term mortgages presently constitute and are expected to continue to constitute a significant portion of the Corporation's loan portfolio. The favorable climate in the construction industry in Connecticut continues. The quarter ending December 31, 1999 is traditionally a slower period than the first and second quarters due in part to weather and the holiday season. It is anticipated that the level of activity will increase during the fourth quarter, which encompasses the spring market. Management is cognizant of the fact that construction lending is limited in nature and therefore is continually seeking other types of short term lending products. These loans include "bridge" financing, land loans, credit restoration loans, and smaller mixed use or commercial properties. All of these products are underwritten pursant to strict guidelines which include conservative loan to value ratios, minimum credit standards and feasible exit strategies. 7 THE FIRST CONNECTICUT CAPITAL CORPORATION FINANCIAL RESOURCES - - - - - - - - - - - - - - ------------------- As of December 31, 1999, the Corporation had approximately $237,000 of unrestricted cash and cash equivalents and approximately $2.165 million of Stockholders' Equity. The Corporation currently anticipates that during the fiscal year ending March 31, 2000, its principal financing needs will consist of funding its mortgage loans held for sale and the ongoing net cost of mortgage loan originations and cash flow used in operations. 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 operation. If construction loan demand continues to increase, the Corporation will require additional cash to service those requirements. The Corporation continues to investigate and pursue alternative and supplementary methods to finance its operations and to support this anticipated growth. The Corporation believes that cash on hand, internally generated funds and the new credit facility will be sufficient to meet its corporate, general and administrative working capital and other cash requirements during the fiscal year ending March 31, 2000. LINE OF CREDIT - - - - - - - - - - - - - - -------------- On December 7, 1999 the Corporation closed its second Commercial Line of Credit with The Hudson United Bank (formerly Lafayette American Bank & Trust Company). This $2,000,000 line of credit is for a term of one year and interest is computed at 2.5% over the Wall Street Prime Rate. This line is secured by an assignment of notes and mortgages equal to the amount of the loan. At December 31, 1999 there was $1,260,000.00 advanced on this line of credit. LIMITED PARTNERSHIP - - - - - - - - - - - - - - ------------------- On March 21, 1997, the Corporation formed a Limited Partnership known as First Connecticut Capital Mortgage Fund A, Limited Partnership (the "Partnership"), of which the Corporation is the general partner. The Partnership sells units to investors, for the purpose of funding a short-term Portfolio Loan Program. The limited partners must be investors who qualify as "Accredited Investors" as defined in Regulation D, promulgated under the Securities Act of 1933. This program generates income to the Corporation in the form of loan origination fees and servicing fees in excess of a guaranteed income return to the limited partners in connection with mortgage loans that would be purchased by the Limited Partnership from the funds invested by the limited partner. As of December 31, 1999 the Corporation sold 88 units, of which 1 unit was sold during the quarter ended December 31, 1999, generating $50,000 of funds for lending activities during the quarter ending December 31, 1999. 8 THE FIRST CONNECTICUT CAPITAL CORPORATION PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K NONE SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned duly authorized. THE FIRST CONNECTICUT CAPITAL CORPORATION (Registrant) Date: February 9, 2000 By:_________________________________ Lawrence R. Yurdin President 9