**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

 

**FORM 10-KSB/A**

 

**ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF**

**THESECURITIES EXCHANGE ACT OF 1934**

 

| For the fiscal year ended December 31, 2001 |   | Commission file number 1-7228 |
|---------------------------------------------|--------|-------------------------------|

** **

**THE WASHINGTON CORPORATION**

(Name of SmallBusiness Issuer in Its Charter)

 

| **Maryland**                             |   | **52-1157845**                       |
|------------------------------------------|--------|--------------------------------------|
| (State of Incorporation)                 |   | (I.R.S. Employer Identification No.) |
|                                     |   |                                 |
| **4550 Montgomery Avenue**               |
| **Bethesda, Maryland 20814**             |
| (Address of principal executive offices) |
| **(301) 657-3640**                       |
| (Issuer’s telephone number)         |

 

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**Securities registered pursuant to Section12(b) of the Act:**

None

 

 **Securities registered pursuant to Section 12(g) of theAct:**

Class B CommonStock, $.01 par value per share

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Check whether the issuer (1) filed allreports required to be filed by Section 13 or 15(d) of the Securities ExchangeAct during the past 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.                                                Yes  ý  No  o

 

Check if there is no disclosure of delinquent filers in response toItem 405 of Regulation S-B in this form, and no disclosure will be contained,to the best of registrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-KSB or anyamendment to this Form 10-KSB.          ý

 

The registrant’s revenues for the fiscal year ended December 31, 2001were:  $3,505,665

 

The Registrant has been unable to ascertain any market for theRegistrant’s securities, and, therefore, the Registrant believes that the bestestimate of the market value of its voting stock held by non-affiliates is $0at the present time.

 

As of December 31, 2001, the number of shares outstanding of each classof the registrant’s classes of common stock were as follows:

1,640,327shares of Class A Common Stock

21,476 sharesof Class B Common Stock

45,119 sharesof Class C Common Stock

 

 

ITEM 7.  FINANCIAL STATEMENTS

 

INDEX TOCONSOLIDATED FINANCIAL STATEMENTS

 
| Independent Auditor’s Report                                                                  |
|----------------------------------------------------------------------------------------------------|
|                                                                                               |
| Consolidated Balance Sheets at December 31,  2001 and 2000                                         |
|                                                                                               |
| Consolidated Statements of Operations for  the years ended December 31, 2001 and December 31, 2000 |
|                                                                                               |
| Consolidated Statements of Deficiency in  Stockholders’ Equity                                |
|                                                                                               |
| Consolidated Statements of Cash Flows                                                              |
|                                                                                               |
| Notes to Consolidated Financial Statements                                                         |

 

1

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700 KING FARM BOULEVARD, SUITE 300

ROCKVILLE, MARYLAND 20850

PHONE 301.231.6200

FAX 301.231.7630

 

[LOGO OF Aronson & Company]

 

www.aronsoncompany.com

 

**Independent Auditor's Report**

 

Board of Directors andShareholders

**TheWashington Corporation**

Bethesda, Maryland

 

We have audited theaccompanying Consolidated Balance Sheets of **TheWashington Corporation and Subsidiaries** (the "Company") asof December 31, 2001 and 2000, and the related Consolidated Statements ofOperations, Deficiency in Stockholders' Equity and Cash Flows for the yearsthen ended.  These consolidated financialstatements are the responsibility of the Company's management.  Our responsibility is to express an opinionon these financial statements based on our audits.

 

We conducted our audits inaccordance with auditing standards generally accepted in the United States ofAmerica.  Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement.  An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audits provide areasonable basis for our opinion.

 

In our opinion, theconsolidated financial statements referred to above present fairly, in allmaterial respects, the financial position of **TheWashington Corporation and Subsidiaries** as of December 31, 2001 and2000, and the results of their operations and their cash flows for the yearsthen ended in conformity with accounting principles generally accepted in theUnited States of America.

 

The accompanying financialstatements have been prepared assuming that the Company will continue as agoing concern.  As discussed in Note 10to the financial statements, the Company has incurred continuing losses fromoperations and has been unable to dispose of certain of its real estate assets.  As a result, the Company may not be able tocontinue to meet its obligations as they come due.  These conditions raise substantial doubt about the Company'sability to continue as a going concern. Management's plans in regard to thesematters are also discussed in Note 13. The consolidated financial statements do not include any adjustmentsthat might arise from the outcome of this uncertainty.

 

ARONSON & COMPANY

 
| /s/ ARONSON  & COMPANY |   |
|----------------------------|--------|
| Rockville,  Maryland       |   |
| January 31,  2002          |   |

 
|                         | [Logo  of  Moores  Rowland  International] | A  member of  Moores Rowland International  an association of independent  accounting firms throughout  the world |
|------------------------------|--------------------------------------------|-------------------------------------------------------------------------------------------------------------------|
|                         |
| CERTIFIED PUBLIC ACCOUNTANTS |
| AND MANAGEMENT CONSULTANTS   |
|                         |
|                         |
|                         |
|                         |

 

 

 

 

2

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**THEWASHINGTON CORPORATION AND SUBSIDIARIES**

**CONSOLIDATED BALANCE SHEETS**

**AT DECEMBER 31, 2001AND 2000**

 
|                                                                          |   | **2001**   |       | **2000**   |   |
|-------------------------------------------------------------------------------|--------|------------|------------|------------|--------|
| ASSETS                                                                        |   |       |       |       |   |
|                                                                          |   |       |       |       |   |
| Operating property and equipment, net                                         |   | $          | 15,656,154 |       | $      | 16,410,644 |   |
| Real estate and development property                                          |   | 325,002    |       | 325,002    |   |
| Cash and cash equivalents                                                     |   | 248,434    |       | 426,367    |   |
| Accounts receivable – Arlington Square  Project                          |   | 312,279    |       | 284,012    |   |
| Escrow deposits                                                               |   | 574,909    |       | 418,833    |   |
| Land purchase leaseback                                                       |   | 400,000    |       | 400,000    |   |
| Other assets                                                                  |   | 16,210     |       | 78,257     |   |
| Total Assets                                                                  |   | $          | 17,532,988 |       | $      | 18,343,115 |   |
|                                                                          |   |       |       |       |   |
| LIABILITIES                                                                   |   |       |       |       |   |
|                                                                          |   |       |       |       |   |
| Installment obligation – Arlington Square  Project                       |   | $          | 21,894,105 |       | $      | 22,413,659 |   |
| Accrued interest payable                                                      |   | 124,895    |       | 127,870    |   |
| Accounts payable and other liabilities                                        |   | 31,201     |       | 93,884     |   |
| Total Liabilities                                                             |   | 22,050,201 |       | 22,635,413 |   |
|                                                                          |   |       |       |       |   |
| COMMITMENTS AND CONTINGENCIES                                                 |   |       |       |       |   |
|                                                                          |   |       |       |       |   |
| DEFICIENCY IN STOCKHOLDERS’ EQUITY                                       |   |       |       |       |   |
|                                                                          |   |       |       |       |   |
| Common stock, $.01 par value; shares issued                                   |   |       |       |       |   |
| Class A – 1,675,163 authorized, 1,640,327  shares issued and outstanding |   | 16,403     |       | 16,403     |   |
| Class B – 24,429 authorized, 21,476 shares  issued and outstanding       |   | 215        |       | 215        |   |
| Class C – 45,639 authorized, 45,119 shares  issued and outstanding       |   | 451        |       | 451        |   |
| Additional paid-in capital                                                    |   | 2,804,821  |       | 2,804,821  |   |
| Accumulated deficit                                                           |   | (7,339,103 | )          | (7,114,188 | )      |
|                                                                          |   |       |       |       |   |
| Total Deficiency in Stockholders’ Equity                                 |   | (4,517,213 | )          | (4,292,298 | )      |
|                                                                          |   |       |       |       |   |
| Total Liabilities and Deficiency in  Stockholders’ Equity                |   | 17,532,988 |       | 18,343,115 |   |

 

The accompanying Notes to ConsolidatedFinancial Statements are an integral part of these financial statements.

 

3

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**THE WASHINGTONCORPORATION AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**FOR THE YEARS ENDEDDECEMBER 31, 2001 AND 2000**

 
|                                                       |   | **2001**  |      | **2000**  |   |
|------------------------------------------------------------|--------|-----------|-----------|-----------|--------|
| REVENUES                                                   |   |      |      |      |   |
|                                                       |   |      |      |      |   |
| Operating property rental income                           |   | $         | 3,316,103 |      | $      | 3,287,703 |   |
| Rent from land purchase leaseback                          |   | 108,484   |      | 113,578   |   |
| Other income                                               |   | 35,618    |      | 24,470    |   |
| Interest income                                            |   | 45,460    |      | 37,765    |   |
|                                                       |   |      |      |      |   |
| Total revenues                                             |   | 3,505,665 |      | 3,463,516 |   |
|                                                       |   |      |      |      |   |
| EXPENSES                                                   |   |      |      |      |   |
|                                                       |   |      |      |      |   |
| Operating property expenses                                |   | 979,981   |      | 1,045,479 |   |
| Interest expense                                           |   | 1,535,898 |      | 1,549,459 |   |
| General and administrative expenses                        |   | 425,701   |      | 468,702   |   |
| Provision for estimated losses on asset  value adjustments |   | —    |      | 82,998    |   |
|                                                       |   |      |      |      |   |
| Total expenses                                             |   | 2,941,580 |      | 3,146,638 |   |
|                                                       |   |      |      |      |   |
| NET INCOME BEFORE DEPRECIATION AND  AMORTIZATION           |   | 564,085   |      | 316,878   |   |
|                                                       |   |      |      |      |   |
| DEPRECIATION AND AMORTIZATION                              |   | 789,000   |      | 815,765   |   |
|                                                       |   |      |      |      |   |
| NET LOSS                                                   |   | $         | (224,915  | )         | $      | (498,887 | ) |
|                                                       |   |      |      |      |   |
| LOSS PER COMMON SHARE  (BASIC):                       |   |      |      |      |   |
|                                                       |   | $         | (0.13     | )         | $      | (0.29 | ) |

 

The accompanying Notes to ConsolidatedFinancial Statements are an integral part of these financial statements.

 

4

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**THE WASHINGTONCORPORATION AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF DEFICIENCY IN STOCKHOLDERS’ EQUITY**

**FOR THE YEARS ENDEDDECEMBER 31, 2001 AND 2000**

 
|                        |   | **COMMONSTOCK** |   | **ADDITIONAL  PAID-INCAPITAL** |      | **ACCUMULATEDDEFICIT** |   | **TOTAL**  |       |
|-----------------------------|--------|-----------------|--------|--------------------------------|-----------|------------------------|--------|------------|------------|
| BALANCE, JANUARY 1, 2000    |   | 17,069          |   | $                              | 2,804,821 |                   | $      | (6,615,301 | )          | $ | (3,793,411 | ) |
|                        |   |            |   |                           |      |                   |   |       |       |
| NET LOSS                    |   | —          |   | —                         |      | (498,887               | )      | $          | (498,887   | ) |
|                        |   |            |   |                           |      |                   |   |       |       |
| BALANCE, DECEMBER 31,  2000 |   | 17,069          |   | 2,804,821                      |      | (7,114,188             | )      | $          | (4,292,298 | ) |
|                        |   |            |   |                           |      |                   |   |       |       |
| NET LOSS                    |   | —          |   | —                         |      | (224,915               | )      | $          | (224,915   | ) |
|                        |   |            |   |                           |      |                   |   |       |       |
| BALANCE, DECEMBER 31,  2001 |   | $               | 17,069 |                           | $         | 2,804,821              |   | $          | (7,339,103 | ) | $ | (4,517,213 | ) |
|                             |        |                 |        |                                |           |                        |        |            |            |  |  |  |  |

 

The accompanying Notes to ConsolidatedFinancial Statements are an integral part of these financial statements.

 

5

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**THEWASHINGTON CORPORATION AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**FORTHE YEARS ENDED DECEMBER 31, 2001 AND 2000**

 
|                                                                             |   | **2001** |      | **2000** |   |
|----------------------------------------------------------------------------------|--------|----------|-----------|----------|--------|
| CASH  FLOWS FROM OPERATING ACTIVITIES:                                           |   |     |      |     |   |
| Net loss                                                                         |   | $        | (224,915  | )        | $      | (498,887 | ) |
| Adjustments to reconcile  net loss to net cash provided by operating activities: |   |     |      |     |   |
| Provision for estimated  losses on asset valuations                              |   | —   |      | 82,998   |   |
| Depreciation and  amortization                                                   |   | 723,400  |      | 750,165  |   |
| Amortization of deferred  rent concessions                                       |   | 65,600   |      | 65,600   |   |
| Interest earned on restricted escrows                                            |   | (16,393  | )         | (20,868  | )      |
| Decrease (increase) in  accounts receivable - Arlington Square Project           |   | (28,267  | )         | 1,889    |   |
| Decrease in other assets                                                         |   | 62,047   |      | 99,769   |   |
| Decrease in accrued  interest payable                                            |   | (2,975   | )         | (2,888   | )      |
| Decrease in accounts  payable and other liabilities                              |   | (62,683  | )         | (123,823 | )      |
| Net cash provided by  operating activities                                       |   | 515,814  |      | 353,955  |   |
|                                                                             |   |     |      |     |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                           |   |     |      |     |   |
| Purchase of fixed assets                                                         |   | (34,510  | )         | (32,778  | )      |
| Withdrawals from  restricted escrows                                             |   | 252,177  |      | 241,860  |   |
| Deposits to restricted  escrows                                                  |   | (391,860 | )         | (391,860 | )      |
| Net cash used in  investing activities                                           |   | (174,193 | )         | (182,778 | )      |
|                                                                             |   |     |      |     |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                           |   |     |      |     |   |
| Curtailments of  installment obligation - Arlington Square Project               |   | (519,554 | )         | (485,211 | )      |
| Net cash used in  financing activities                                           |   | (519,554 | )         | (485,211 | )      |
|                                                                             |   |     |      |     |   |
| NET CHANGE IN CASH AND  CASH EQUIVALENTS                                         |   | (177,933 | )         | (314,034 | )      |
|                                                                             |   |     |      |     |   |
| CASH AND CASH  EQUIVALENTS, BEGINNING OF PERIOD                                  |   | 426,367  |      | 740,401  |   |
|                                                                             |   |     |      |     |   |
|                                                                             |   |     |      |     |   |
| CASH AND CASH EQUIVALENTS,  END OF PERIOD                                        |   | $        | 248,434   |     | $      | 426,367 |   |
|                                                                             |   |     |      |     |   |
| SUPPLEMENTAL CASH FLOW  INFORMATION                                              |   |     |      |     |   |
| Interest paid during the  year                                                   |   | $        | 1,518,005 |     | $      | 1,552,347 |   |

 

The accompanying Notes to Consolidated Financial Statements are  an integral part of these financialstatements.

 

6

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NOTES TOCONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1

ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

 

The accompanying consolidated statements include the accounts of TheWashington Corporation (“TWC”) and all entities over 50% owned by TWC(collectively, the “Company”).  Allsignificant intercompany transactions have been eliminated inconsolidation.  The Company considersits operating activities to be all within one operating segment.

 

REVENUE RECOGNITION AND DEFERRED RENTAL CONCESSIONS

 

Profit on the sale of real estate is recognized at the time the sale issettled.  Rental income from leases,with scheduled rental increases during their lease terms, is recognized forfinancial reporting purposes on a straight–line basis net of amortizationof deferred rental concessions.

 

REAL ESTATE AND DEVELOPMENT PROPERTY EXPENSES

 

The Company records its real estate and development property at thelower of accumulated cost or estimated net realizable value.  The Company follows the policy of charging,as current expenses, the holding costs of real estate such as taxes, insuranceand interest, to the extent the properties are not currently being developed.  Direct development and engineering costs arecapitalized as part of property cost. No interest was capitalized during either of the years ended December31, 2001 and 2000.

 

OPERATING PROPERTY AND EQUIPMENT

 

Depreciation is calculated using the straight-line method over theestimated useful lives of the assets. Buildings and related improvements are depreciated over 31.5 and 39years, respectively.  Tenantimprovements are amortized using the straight–line method over the lesserof the term of the life of the respective lease or the useful life of theimprovements.  Deferred rentalconcessions are amortized over the term of the lease.

 

CASH AND CASH EQUIVALENTS

 

For purposes of the statements of cash flows, the Company considers allhighly liquid instruments purchased with a maturity of three months or less tobe cash equivalents.  The Companyperiodically has cash balances which may exceed federally insured limits. TheCompany does not believe that this results in any significant credit risk.

 

FINANCIAL INSTRUMENTS

 

Management believes the fair market value of all financial instrumentsapproximates the amounts reported on the accompanying balance sheets.

 

MANAGEMENT ESTIMATES

 

The preparation of financial statements in conformity with generallyaccepted accounting principles requires management to make estimates andassumptions that affect the reported amounts of

 

7

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assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period.  Actual results could differ from those estimates.

 

ASSET IMPAIRMENT

 

It is the Company’s policy to review long-lived assets and certainidentifiable intangibles for impairment whenever events or changes incircumstances indicate that the carrying amount of an asset may not berecoverable.

 

NOTE 2

REAL ESTATE AND DEVELOPMENT PROPERTY

 

Residential development efforts in the past included the acquisition ofraw land for the development of planned sites or finished building lots forsale to homebuilders.  The Company,through a wholly-owned subsidiary, owned 363 acres known as Timberlake inCharles County, Maryland.  In February,1999, 313 acres of this project was foreclosed upon by the lender.  Upon foreclosure, the recorded value of theproperty was reduced by $1,057,449 which represented the outstanding principalbalance of $880,000 plus accrued interest of $177,449.  Management estimated the net realizablevalue of the property’s remaining 48 acres to be  $200,000, resulting in an estimated loss on asset valuation of$97,771 for the year ended December 31, 1999. Management made an additional adjustment to the net realizable value ofthe property during 2000 due to poor results from land development zoning testson several of the remaining lots.  Thisresulted in a provision for estimated loss on asset valuation of $75,000 forthe year ended December 31, 2000.  Noadditional provision was considered necessary in 2001.

 

The Company also owns 16.6 acres, known as River Oaks, that wasintended to be a retail development site in Prince William County,Virginia.  Pursuant to its Chapter 11reorganization plan, the lender has released its debt and security interest onthe property in exchange for the Company’s release of the lender’s developmentobligations.  The property had beenrevalued in “fresh start” accounting to $200,000.

 

In addition, the Company owns 23.21 acres in Memphis, Tennessee zonedfor multi-family garden apartments and seven townhome lots in Dumfries,Virginia.  Management has estimated thenet realizable value of these properties as being almost worthless, resultingin a provision for estimated loss on asset valuation of $7,998 for the yearended December 31, 2000.  No additionalprovision was considered necessary in 2001.

 

NOTE 3

LAND LEASE

 

The Company owns a fee simple interest in land underlying a hotellocated in Ft. Washington, Pennsylvania. The property had an original cost and current value of $400,000.  The minimum annual rent under the lease,which expires in 2024, is $66,000 plus one percent of gross room sales of theproperty, but not less than $1,000 a month. As of December 31, 2001, the minimum lease payments due pursuant to thislease through expiration are as follows:

 

| 2002       |   | 78,000    |      |
|------------|--------|-----------|-----------|
| 2003       |   | 78,000    |      |
| 2004       |   | 78,000    |      |
| 2005       |   | 78,000    |      |
| 2006       |   | 78,000    |      |
| Thereafter |   | 1,423,500 |      |
|       |   | $         | 1,813,500 |   |
|            |        |           |           |  |

 

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NOTE 4

OTHER ASSETS

 

Other assets includes prepaid expenses, security deposits and prepaid managementfees.

 

NOTE 5

ESCROW DEPOSITS

 

At December 31, 2001 and 2000, deposited funds of $574,909 and$418,833, primarily for the Arlington Square Project, were restricted forreplacement reserve, and tax and insurance escrows.

 

NOTE 6

INSTALLMENT OBLIGATIONS - ARLINGTON SQUARE PROJECT

 

From November 1997 to November 25, 1998, Arlington Square LimitedPartnership (ASLP)’s property was encumbered by two mortgage notes to AlliedCapital Commercial Corporation (Allied) in the amount of $24,300,000.  The outstanding principal balance on themortgage loans accrued interest at a blended rate of 10%, based on theLIBOR.  The notes were cash-flowmortgages with all excess cash flow, as defined, being applied to reduce the principalbalance and to fund the required escrows. One of the mortgage agreements provided for the lender to receive aparticipation interest of 30% in the net cash flow and a 30% equity value inthe property if and when it is sold, with such provision to survive any payoffof the mortgage.

 

On November 25, 1998, ASLP refinanced the above described mortgageswith a new mortgage with MetLife in the amount of $21,500,000, secured by afirst deed of trust on the land and building. This note bears interest at 6.8% and both principal and interest arepayable in monthly installments of $147,058 beginning in January 1999, with theoutstanding principal of approximately $15.9 million balance due on December 1,2010.

 

On December 1, 1998, ASLP entered into a forbearance agreement withAllied whereby Allied gave notice of demand for full payment of itsparticipation interest in the equity value of the property and established thevalue of that interest at $1,850,000, including Allied’s cash flow interest forthe period October 1 through December 31, 1998.  Under the agreement, the partnership is to pay Allied itsparticipation interest in equal monthly installments of $22,739, includinginterest at 7.5% over a term of 9 1⁄2 years. Allied’s participation interest is collaterized by a deed of trust inthe real estate and is guaranteed by all of the partners.  Each partner’s guarantee is secured by apledge of its interest in the partnership. Allied agreed to forebear on certain of its surviving rights from themortgage note, including an abatement of its right to the property’s net cashflow, provided all payments under the agreement are paid when due.  In addition, Allied subordinated its deed oftrust to the deed of trust of MetLife. On December 31, 1999, the parties to the forbearance agreement enteredinto a termination of the forbearance agreement, since all further paymentobligations of the parties are contained in the Amended and Restated PromissoryNote dated as of December 1, 1998.

 

At December 31, 2001, the scheduled future maturities of the obligationsare as follows:

 

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| **Year Ending December 31** |   | **Amount** |       |
|-----------------------------|--------|------------|------------|
| 2002                        |   | $          | 556,491    |   |
| 2003                        |   | 596,833    |       |
| 2004                        |   | 640,106    |       |
| 2005                        |   | 686,523    |       |
| 2006                        |   | 736,313    |       |
| Thereafter                  |   | 18,677,839 |       |
|                        |   | $          | 21,894,105 |   |

 

 

NOTE 7

OPERATING PROPERTY AND EQUIPMENT - ARLINGTON SQUARE PROJECT

 

At December 31, 2001 and 2000, operating property and equipment isstated at the net “fresh start” value of $23,000,000, less related accumulateddepreciation and amortization of related intangibles.  For “fresh start” reporting purposes, the Arlington SquareProject was revalued to an amount equal to the original amount of thenon-recourse debt secured by the property.

 

At December 31, 2001 and 2000, operating property and equipmentconsisted of:

 
|                               |   | **2001**    |       | **2000**   |   |
|------------------------------------|--------|-------------|------------|------------|--------|
| Land,  building and equipment      |   | $           | 23,629,941 |       | $      | 23,595,431 |   |
| Tenant improvements                |   | 1,603,452   |       | 1,603,452  |   |
| Deferred rental concessions, net   |   | 442,800     |       | 508,400    |   |
| Deferred loan closing costs, net   |   | 214,972     |       | 246,820    |   |
|                               |   | 25,891,165  |       | 25,954,103 |   |
| Less depreciation and amortization |   | (10,235,011 | )          | (9,543,459 | )      |
|                               |   | $           | 15,656,154 |       | $      | 16,410,644 |   |

 

NOTE 8

INCOME TAXES

 

As of December 31, 2001, the Company had tax net operating losscarryforwards of approximately $19,885,000. The deferred tax asset associated with these net operating losscarryforwards of approximately $7,300,000 is offset by a valuation allowanceapplied to the deferred tax asset.  Thenet operating losses for income tax reporting purposes will expire as follows:

 
| 2004 — |   | $         | 1,309,000 |        | 2008 — |      | $      | 1,429,000 |   | 2021 — |   | $ | 29,000 |   |
|-------------|--------|-----------|-----------|-------------|-------------|-----------|--------|-----------|--------|-------------|--------|---|--------|--------|
| 2005 — |   | 5,652,000 |      | 2018 — |        | 91,000    |   |      |   |        |   |
| 2006 — |   | 155,000   |      | 2019 — |        | 1,565,000 |   |      |   |        |   |
| 2007 — |   | 9,405,000 |      | 2020 — |        | 250,000   |   |      |   |        |   |

 

10

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NOTE 9

RELATED PARTY TRANSACTIONS

 

During 2001 and 2000, the Company engaged a law firm in which onecurrent director of the Company serves as partner in the firm.  During 2001 and 2000, the Company paid$1,830 and $9,366, respectively, in fees to this law firm.  During the year ended December 31, 2001 and2000, the Company paid $2,131 and $16,867, respectively, of consulting fees forconstruction services to an entity affiliated with another current director.

 

NOTE 10

COMMON STOCK AND DISTRIBUTIONS

 

In connection with a reorganization in 1992, the equity interests ofthe Company have been restructured as follows:

 

Unsecured creditors with pre-confirmation claims totaling approximately$11,000,000 exchanged their interests for 1,675,163 shares of the Class ACommon Stock, representing 100% of such class.

 

Pre-confirmation shareholders of the Company (other than controllingshareholders as defined in the Plan) exchanged 610,736 shares of Old CommonStock for 24,429 shares of the Class B Common Stock, representing 100% of suchclass.

 

Controlling shareholders of the Company exchanged their 1,134,225,shares of Old Common Stock for 45,369 shares of the Class C Common Stock,representing 100% of such class.

 

Under the terms of the Plan, holders of the Class A Common Stock willreceive 100% of all dividends paid by the Company in respect of its capitalstock until such time as the cumulative dividends and other distributions paidto holders of Class A Common Stock equal 50% of the allowed Class 7 bankruptcyclaims of approximately $11,000,000 (the “First Trigger”).

 

Following the First Trigger, the holders of the Class A Common Stockwill receive approximately 98.6% (with Class B stockholders receiving 1.4%) ofall dividends paid in respect of the Company’s capital stock until such time asthe cumulative dividends and other distributions paid to holders of Class ACommon Stock equal 100% of the allowed Class 7 bankruptcy claims (the “SecondTrigger”).

 

Following the Second Trigger, all outstanding shares of Class A CommonStock, Class B Common Stock and Class C Common Stock will automatically convertinto a single class of common stock.

 

The holders of Class A Common Stock also have an aggregate liquidationpreference of an amount equal to the amount of Class 7 bankruptcy claimsallowed in the Company’s Chapter 11 case. All dividends or distributions made with respect to the Class A CommonStock shall reduce the liquidation preference dollar for dollar.

 

As of December 31, 2001, the number of common shares outstanding is asfollows:

 

| Class A |   | 1,640,327 |   |
|---------|--------|-----------|--------|
| Class B |   | 21,476    |   |
| Class C |   | 45,119    |   |

 

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NOTE 11

LESSOR ARRANGEMENTS

 

The Company, through its 74% interest in ASLP, owns a building andparking garage which is 100% leased to an agency of the U.S. Government under aten year lease expiring in September, 2008. During the years ended December 31, 2001 and 2000, the Company realizedincome from this lease of approximately $3,316,000 and $3,288,000, net ofrental concessions, respectively, or 97% and 95% of total revenues,respectively. The terms of the lease require the tenant to pay base rent plusits proportionate share of increases in certain operating expenses.  Also, the lease requires the tenant to paybase rent on the parking garage subject to 5% annual increases.

 

The minimum lease payments due pursuant to this lease at December 31,2001 are as follows:

 

| 2002       |   | $         | 3,271,308  |   |
|------------|--------|-----------|------------|--------|
| 2003       |   | 3,299,277 |       |
| 2004       |   | 3,363,184 |       |
| 2005       |   | 3,374,491 |       |
| 2006       |   | 3,386,364 |       |
| Thereafter |   | 5,955,224 |       |
| Total      |   | $         | 22,649,848 |   |

 

NOTE 12

OFFICE LEASE

 

The Company is obligated under an operating lease for its office spacewhich expires January 31, 2004.  Therent increases annually by 3%.  Thefuture annual rents under this lease are:

 

| 2002  |   | 25,006 |   |
|-------|--------|--------|--------|
| 2003  |   | 25,750 |   |
| 2004  |   | 2,151  |   |
| Total |   | $      | 52,907 |   |
|       |        |        |        |  |

 

Rental expense under the Company’s office lease agreements was $24,938and $25,963 for 2001  and 2000,respectively.

 

NOTE 13

GOING CONCERN

 

The Company has continued to incur losses and has been unable toliquidate certain of its real estate assets in a timely manner and is facingcertain liquidity problems in the near future if these assets cannot bedisposed.  These factors raisesubstantial doubt about the Company’s ability to continue as a going concern.  Management does not have a formal plan toaddress these possible liquidity problems although they will continue tomonitor and reduce administrative costs and/or attempt to delay payment forcertain services until properties are sold. If these attempts are not successful, the Company may be forced to sellits remaining properties for significantly less than the recorded values.  The eventual

 

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outcome of these matters cannot be determined.  The accompanying financial statements do notinclude any adjustments to assets or recorded liabilities of the Company if itis forced to liquidate prematurely and sales of assets and settlement ofliabilities are not conducted in the normal course of business.

 

NOTE 14

NET LOSS PER SHARE

 

The following is a reconciliation of the numerators and denominators ofthe basic net loss per share computations for 2001 and 2000:

 
|                     |   | **2001**              |     |
|--------------------------|--------|-----------------------|----------|
|                     |   | **Loss  (Numerator)** |     | **Shares  (Denominator)** |   | **Per Share  Amount** | ** ** |
| Basic net loss per share |   |                  |     |   |   |   |   |
| Net loss                 |   | $                     | (224,915 | ) | 1,706,922 |   | $ | (.13 | ) |
|                     |   |                  |     |   |   |   |   |
|                     |   | **2000**              |     |
|                     |   | **Loss  (Numerator)** |     | **Shares  (Denominator)** |   | **Per Share  Amount** | ** **

  |
| Basic net loss per share |   |                  |     |   |   |   |   |
| Net Loss                 |   | $                     | (498,887 | ) | 1,706,922 |   | $ | (.29 | ) |

 

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SIGNATURES

 

In accordance with Section 13 or 15(d) of the Exchange Act, theregistrant caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.

 
|   | THE WASHINGTON CORPORATION          |
|--------|-------------------------------------|
|   |                                |
| Date:  | 4/26/02                             |   | By: | /s/ William N. Demas |   |
|   | William N. Demas                    |
|   | Chairman of the Board of Directors/ |
|   | President                           |
|        |                                     |  |  |  |  |  |

 

In accordance with the Exchange Act, this report has been signed belowby the following persons on behalf of the registrant and in the capacities andon the dates indicated.

 
| Date:  | 4/26/02                             |   | By: | /s/ William N. Demas |   |
|--------|-------------------------------------|--------|-----|----------------------|--------|
|   | William N. Demas                    |
|   | Chairman of the Board of Directors/ |
|   | President                           |

 

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