LOANS Ten loans amounting to $1,136,800 were made during the year. After deduct ing repayments of $376,800 and a writeoff of $5,000 a net increase of $755,000 was shown. Since April 30, 1959, an additional $90,000 has been loaned. The purposes for which the $1,136,800 of new loans were made were as follows: Classification of loans by industries for 1959 and 1958 is as follows: The decline in the jewelry classification is primarily the result of the improvement in the credit of one company to the extent that it could borrow from a bank and pay your company. Classification by size of loans is as follows: The range in size is from $4,000 to $400,000. Of the loans made during the year $1,006,800 (88.5 percent) were secured by mortgages on real estate (in good part second mortgages) and chattels on equipThis contrasts with 1958 when 64.2 percent of the loans made were ment. unsecured. In many cases these loans were made in conjunction with loan agreements which provide for covenants and restrictions concerning working capital, additional debt, pledging of assets, dividends, salaries, etc. Maturities of the loans made during the year range from 3 to 15 years with the bulk maturing in the 5- to 10-year period. During the year one loan of $5,000 went into default and has been written off. It is doubtful that any part of this amount can be recovered. An estimated 2,765 persons are employed by companies to which we have advanced funds. Also of interest is the fact that other financial institutions have loaned $2,850,000 over and above the $2,808,700 loaned to Rhode Island concerns by your company since it began. The loans by other financial institutions were largely a result of the loans made by your company. EARNINGS An operating profit of $32,700 was shown for the year ended April 30, 1959. This compares with an operating loss of $3,900 in fiscal 1958. Of this amount $21,000 was set aside as a reserve for losses. The $21,000 is equal to 1 percent of the simple average of loans outstanding during the year plus $5,000 for the loan written off (as referred to above). This left $11,700 net income. This income is not subject to Federal taxes because your company has a tax loss carryover of approximately $43,100. ADDITIONAL FUNDS The potential funds that your company may now call upon to loan to Rhode Island industry exceed $8 million. In February, your company sold $600,000 of 6 percent subordinated debentures due February 1, 1979, and $60,000 in common stock. Of this amount $550,000 was underwritten by a group of investment bankers headed by G. H. Walker & Co. The balance, $110,000, was purchased directly from the company by Textron, Inc. The funds so obtained were used to reduce loans from members. A sinking The sale of debentures and common stock was made in units of $500 principal amount of debentures and five shares of common stock at $10 per share. Interest is payable quarterly, February, May, August, and November 1st. fund amounting to a minimum of $20,000 is provided for beginning in 1963. Since these debentures are junior to other loans made to the company, the members, following legislation passed by the general assembly, have substantially increased their commitments. Presently, the members are committed to loan your company in excess of $3,900,000. Funds thus obThe Small Business Investment Act (sec. 501) passed by the Congress in 1958 permits the Small Business Administration to make loans to State development companies up to the amount borrowed from all other sources. tained must be used to loan to small businesses as defined by SBA. The officers of your company have been negotiating with the Small Business Administration for a loan which qualifies under this section. LOAN COMMITMENTS Of this amount $1,323,000 (including On June 23, 1959, members were committed to loan your company $3,933,000, an increase over a year ago of $1,919,000. short-term loans) have been borrowed. Loan commitments of your company amount to $815,000. In summary: Loan commitments of members.. Commitments of development company Total Total_ At June 23, 1959 $3,933, 000 1, 323, 000 Loans presently being considered by your company exceed $1 million and are at various stages of negotiation. NARRAGANSETT SMALL BUSINESS INVESTMENT CO. The Small Business Investment Act of 1958 provides for the establishment of small-business investment companies which would be licensed by and operate under regulations of the Small Business Administration. These companies are to provide "equity capital" to small businesses (as defined for this purpose) in the form of long-term convertible debentures or long-term loans. Minimum capital for these companies is $300,000 of which one-half may be supplied by SBA in the form of subordinated debentures. Your company has formed Narragansett as a wholly owned subsidiary and is prepared to invest. $150,000 in its capital stock. Application for a license has been made to SBA A request for $150,000 of subordinated debentures has also been made. Negotiations are proceeding satisfactorily. SECURITY HOLDERS Following the sale of debentures and additional common stock in February of this year, ownership in securities of your company has been broadened. On June 18, 1959, there were 67 holders of the debentures and 78 stockholders. Holders include corporations, individuals, profit-sharing trusts, and others. Recently the welfare fund of two unions purchased debentures. Other unions are considering purchase. MISCELLANEOUS The report of our auditors, Harris & Gifford, and a 3-year summary of our financial statements follow. Whatever success your company attains is largely the result of the efforts of the members of the executive committee and directors. They freely give of their time and wide experience. RAYMOND H. TROTT, Chairman. JUNE 23, 1959. AUDITOR'S REPORT BUSINESS DEVELOPMENT Co. OF RHODE ISLAND, We have examined the balance sheet of Business Development Co. of Rhode Island as of April 30, 1959, and the related statements of income and expense and capital for the year then ended. Our examination was made in accordance with generally accepted auditing standards and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. The purposes for which the company was formed include the making of business loans of a character not usually extended by financial institutions. We have been advised by officials of the company that in their opinion there are at present no anticipated losses on loans outstanding which would exceed the provision for losses and, on the basis of information available to us at this time, we have no reason to believe otherwise. In our opinion, the above-mentioned financial statements, with note references, present fairly the financial position of Business Development Co. of Rhode Island as of April 30, 1959, and the results of its operations for the year then ended in conformity with generally accepted accounting principles applied on a consistent basis. PROVIDENCE, R. I., June 15, 1959. HARRIS & GIFFORD, Certified Public Accountants. Balance sheet, Apr. 30, 1959 Loans receivable (note 1). Less provision for possible losses. Prepaid insurance_ Accrued interest on loans receivable.. Investment in capital stock of other companies (note 2). Office equipment and furnishings less allowance for depreciation_ Deferred financing expense (note 3). Total.. Liabilities: Notes payable, temporary bank loans. Notes payable to members (note 4).. Total.. 6 percent subordinated debentures, due Feb. 1, 1979 (note 5) - 1,944, 092 11, 099 27, 000 2, 295 1, 242 33, 124 1, 259, 848 600, 000 1,859, 848 Total... Capital: Common stock, par value $1 per share; authorized 200,000 shares: Issued and outstanding 21,200 shares... $21, 200 Paid-in surplus.. 190, 800 Total... 212, 000 Deficit from operations.. (43, 144) 168, 856 2, 028, 704 BALANCE SHEET NOTES (1) Loans receivable are stated atthe net balances due the company. They are generally long term with maturities up to 10 years. Approximately two-thirds of the loans are secured by first or second real estate mortgages or chattel mortgages on equipment. Unsecured loans and those on second and chattel mortgages were made under agreements imposing standards for working capital and restrictions on payment of dividends and salaries, additional long-term debt, pledging of assets, etc. The agreements frequently require assignment of life insurance on key personnel and their personal loan guarantees. An unsecured loan for $5,000 was considered uncollectible and charged off against the provision for losses. All installment payments due on loan balances at April 30, 1959, were up to date including two small loans previously in default on which payment schedules had been modified. (2) Investment in other companies includes (1) $1,000 (10 percent) of the capital stock of a borrower acquired in connection with a loan made, (2) $1,000 of the capital stock of Narragansett Small Business Investment Co., a wholly owned subsidiary in process of capitalization but not yet engaged in business and (3) $25,000 (50 percent) of the capital stock of Development Realty Co. The latter stock together with an unsecured loan of $169,000 represents one-half of the equity in the realty corporation which was formed in 1955 to construct a new plant in the town of Cumberland (Ashton), R.I., leased to Ansonia Wire & Cable Co. on a long-term basis. This project was financed in part by an insurance company first mortgage loan of $650,000 which had been reduced to $592,230 at April 30, 1959. (3) Commission to underwriters, legal, and other expenses in connection with authorization and issue of the 6-percent subordinated debentures are being amortized over the term of the indebtedness. (4) Financial institutions such as banks and insurance companies may become members by agreeing to lend money to the corporation on call on such terms and conditions as may be approved by a majority of the members. The total amount outstanding on loan from any member may not exceed a maximum limit of commitment which is fixed by corporate charter provision for each type of institution. The limit of aggregate loan commitments of members on April 30, 1959, was $2,064,000. The corporate charter provides that "upon written notice given 5 years in advance, a member may withdraw from said membership at the expiration date of such notice ***." Notes evidencing money advanced by members are written ordinarily for a 6-month term, bearing interest at the prime loan rate currently charged by the principal banking institutions in Rhode Island. (5) The authorized debenture indebtedness is $1 million. The sinking fund provision of the indenture becomes operative on August 1, 1963, with a minimum fixed payment of $20,000 annually. |