UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended June 30, 1996
Commission File No. 0-1437
--------------------------
THE FIRST REPUBLIC CORPORATION OF AMERICA
-----------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 13-1938454
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
302 Fifth Avenue
New York, New York 10001
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 279-6100
Securities registered pursuant to Section 12(b) of the Act:
None
----
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $1 per share
------------------------------------
(Title of Class)
Indicate by check mark whether Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes |X| No|_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K 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-K or any amendment to this
Form 10-K. |X|
As of September 16, 1996, 672,269 common shares were outstanding, and the
aggregate market value of common shares held by nonaffiliates of Registrant was
approximately $1,707,000 (based upon the price paid by Registrant for shares).
Documents Incorporated by Reference
-----------------------------------
See Item 14(c)
<PAGE>
The First Republic Corporation of America
10-K Contents
Page
PART I
Item 1. Business.......................................................... 1
Item 2. Properties........................................................ 4
Item 3. Legal Proceedings................................................. 8
Item 4. Submission of Matters to a Vote of Security Holders............... 8
PART II
Item 5. Market for the Registrant's Common Stock and Related
Security Holder Matters.......................................... 9
Item 6. Selected Financial Data........................................... 10
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 11
Item 8. Financial Statements and Supplementary Data....................... 14
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure......................................... 45
PART III
Item 10. Directors and Executive Officers of the Registrant................ 46
Item 11. Executive Compensation............................................ 48
Item 12. Security Ownership of Certain Beneficial Owners and Management.... 50
Item 13. Certain Relationships and Related Transactions.................... 52
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports
on Form 8-K..................................................... 55
Signatures ................................................................ 60
<PAGE>
PART I
ITEM 1. BUSINESS
a. General Development of Business
The First Republic Corporation of America (the "Company") was incorporated
in the State of Delaware in February 1961, and is presently engaged, either
directly or through its subsidiaries, in the real estate, hotel, seafood,
textile, and health care businesses. See Item 1(c) for a description of the
business engaged in by the Company and its subsidiaries.
b. Financial Information about Industry Segments
The sales and operating profit (loss) from operations and the identifiable
assets attributable to each industry segment for the three years ended June
30, 1996 are set forth in Note 2 (Industry Segments) of the Notes to
Consolidated Financial Statements, which are incorporated herein by
reference to Item 8. hereof.
c. Narrative Description of Business
Real Estate
The Company owns various loft buildings, office buildings, industrial
buildings, shopping centers, residential and other properties, situated
along the East Coast of the United States in Massachusetts, Rhode Island,
New York, New Jersey, Pennsylvania, Virginia, North Carolina and Florida. A
general description of these properties is provided in Item 2. below.
Real estate revenues accounted for 37%, 34% and 32% of consolidated
revenues from operations for the fiscal years ended June 30, 1996, 1995 and
1994, respectively.
Hotel
The Company owns and operates a 288 room hotel and convention center known
as the Four Points Hotel, an ITT Sheraton franchise (formerly known as the
Sheraton Inn--Syracuse), located in Liverpool, New York. There are
approximately 20 facilities in the Liverpool/Syracuse area with which the
hotel competes. Currently, the Company believes it is the third largest
hotel in terms of revenues in the area.
Hotel revenues accounted for 12%, 11% and 11% of consolidated revenues from
operations for the fiscal years ended June 30, 1996, 1995 and 1994,
respectively.
1
<PAGE>
Seafood
The Company's 80.2% owned subsidiary, Bluepoints Company Inc.
("Bluepoints"), holds title to approximately 13,000 acres of land under the
water of the Great South Bay between Fire Island and Long Island's South
Shore in New York State. Bluepoints harvests hard-shell clams on this
property. Bluepoints competes with others on the basis of quality of
product and reliability of delivery.
Although once a substantial factor in the market, a significant decrease in
clam production at Bluepoints over the past several years, combined with
some substantial new production by competitors harvesting clams in other
areas along the Eastern Seaboard, has resulted in a diminished role for
Bluepoints in the hard-shell clam market. The aggregate number of bushels
of clams harvested during the fiscal year ended June 30, 1995 increased 1%
compared with the prior fiscal year. The aggregate number of bushels of
clams decreased 36% in the fiscal year ended June 30, 1996 as compared with
the fiscal year ended June 30, 1995. For the period July 1, 1996 through
August 31, 1996, the aggregate number of clams harvested decreased 36%
compared with the same period in the prior year. The decrease in production
for fiscal year ended June 30, 1996 was caused by a temporary condition
commonly known as "brown tide" which occurred in the summer months of 1995
and decreased production which has continued into the current year.
Bluepoints has expanded its hatchery facilities in an effort to increase
inventory. However, climate and other environmental factors beyond the
control of Bluepoints affect the propagation and growth of clams. New York
State environmental authorities are continually monitoring the harvesting
area for pollution. From time to time, and at present, certain small areas
of Bluepoints' property exceed the maximum coliform count set by Federal
law, and shellfish located in such areas may not be harvested. At the
present time, State authorities have closed other portions of the Great
South Bay to clamming operations because the coliform count exceeds Federal
standards.
Bluepoints, through foreign subsidiaries, operates a shrimp farm and is a
62.5% owner of a shrimp hatchery, which are both located in Ecuador. Sales
of shrimp from the foregoing operations approximated $1,780,000 and
$1,495,000 for the fiscal years ended June 30, 1996 and 1995, respectively.
Bluepoints, through a foreign subsidiary, also owns a 38% interest in
another Ecuadorian shrimp farming operation. See Item 12 and 13 below for
information relating to shares of stock of Bluepoints and these foreign
subsidiaries owned by certain affiliates of the Company.
The Company also owns a 50% interest in Lambert Seafood Company, a scallop
operation in Cape Canaveral, Florida. In the current fiscal year, there
were no scallops harvested and there can be no assurance that extensive
beds of scallops will be found in the future.
Seafood revenues accounted for 16%, 15% and 13% of consolidated revenues
from operations for the fiscal years ended June 30, 1996, 1995 and 1994,
respectively.
2
<PAGE>
Textile
The Hanora Spinning division of the Company ("Hanora"), operates a yarn
spinning plant in Woonsocket, Rhode Island. Hanora, which is not a
significant factor in the market it serves, competes with a number of other
yarn spinning plants on the basis of quality of product and price. During
the fiscal year ended June 30, 1996, Hanora purchased approximately
$142,000 of additional equipment. The backlog of yarn sales on August 31,
1996 was approximately $5,500,000 as compared to $7,400,000 a year ago.
Approximately 80% of the current backlog is expected to be shipped in the
fiscal year ending June 30, 1997. Three customers accounted for
approximately 32% of Hanora's total sales during the 1996 fiscal year. The
loss of any one of these customers would not have a material adverse effect
on the Company and its subsidiaries taken as a whole.
The Hanora South division of the Company ("Hanora South"), operates a yarn
spinning plant in Lake City, South Carolina which produces craft, sweater,
hosiery, upholstery and industrial yarns as a commission spinner for
Hanora. J&M Dyers, ("J & M"), another division of the Company, which
operates a yarn dyeing plant in Sumter, South Carolina, is a commission
dyer for rawstock, package, ombre and skein dyeing. Neither of these
divisions is a significant factor in the markets they serve and each
competes with a number of other firms that are substantially larger; at the
present time, neither has a significant backlog of orders.
Textile revenues accounted for 33%, 38% and 37% of consolidated revenues
from operations for the fiscal years ended June 30, 1996, 1995 and 1994,
respectively.
Health Care
The Company owns a 49.9% partnership interest in two nursing homes located
in Jersey City, New Jersey (the "Jersey City Facility") and Rochelle Park,
New Jersey (the "Rochelle Park Facility"). The Jersey City and Rochelle
Park Facilities (see Item 2--Health Care Segment below) contain 180 beds
and 240 beds, respectively, and each facility provides skilled and
intermediate nursing care to both private and Medicaid residents. The
Rochelle Park Facility also includes a 135-bed senior citizen residence and
an adult day care center. Skilled and intermediate care facilities provide
nursing services through the use of professional and nonprofessional
employees. The nursing homes attempt to obtain residents through referrals
from acute care hospitals, physicians, residential care facilities, church
groups and other service organizations in the communities in which the
facilities are located. There are competing facilities in these
communities. In competing for residents, the reputation of the Company's
facilities in the community and their physical appearance are important
factors, since members of the resident's family generally participate to a
greater extent in selecting skilled and intermediate nursing facilities
than in selecting an acute care hospital. The Company's facilities also
experience competition in employing and retaining high quality
professionals and nonprofessional employees, including nurses, technicians,
aides and others. The Company also owns a 49.9% partnership interest in a
nursing home in Whiting, New Jersey. This facility is net leased to the
operator of the facility under a lease which expires on December 31, 2011.
3
<PAGE>
ITEM 2. PROPERTIES
Location General Character (1)
- --------------------------------------------------------------------------------
Real Estate Segment
Video Film Center 10-story office building; 165,000 rentable
315-329 W. 44th Street square feet; 95% rented.
New York, New York
Junior Coat Building 18-story office, showroom and
250 W. 39th Street manufacturing facility; 182,000 rentable
New York, New York square feet; 91% rented.
Jefferson National Bank Building 6-story office building; 39,300 rentable
4100 Pinetree Drive square feet; 100% rented.
Miami Beach, Florida
First Republic Office Park Two, two-story office buildings with
Thruway and Electronics Parkway 49,000 and 35,000 rentable square feet;
Liverpool, New York 14 acres of land; 66% rented.
Waltham Engineering Center 17 multi-story industrial buildings;
Waltham, Massachusetts in excess of 380,000 rentable square feet;
parking facilities; 99% rented.
East Newark Industrial Center 30 multi-story industrial buildings; in
East Newark, New Jersey excess of 1,000,000 rentable square feet;
parking facilities; 90% rented; second
mortgage held by Bluepoints in the
amount of $212,161 at September 1, 1996.
Nyanza Building Four-story and basement industrial
Woonsocket, Rhode Island building; 300,000 rentable square feet;
used by Company as spinning plant
(100,000 sq. ft.) and balance rented to
others; 81% rented.
Greensboro North Shopping Center Approximately 13.5 acres of land and
Greensboro, North Carolina 140,000 square feet of space in buildings
located thereon; 100% rented.
Greensboro South Shopping Center Approximately 12 acres of land and
Greensboro, North Carolina 134,250 square feet of space in buildings
located thereon; 94% rented.
4
<PAGE>
Location General Character (1)
- --------------------------------------------------------------------------------
Shopping Center Approximately 13.5 acres of land and
Richmond, Virginia 130,000 square feet of space in buildings
located thereon; 100% rented.
London Bridge Shopping Center Approximately 10.2 acres of land and
Virginia Beach, Virginia 100,000 square feet of space in buildings
located thereon; 100% rented.
Vacant land Approximately 21 acres; suitable for
Melbourne, Florida development as a shopping center.
Sunscape Apartments 167-unit residential garden apartments
Orlando, Florida located on approximately 12 acres of land;
98% rented. (Company owns 50% of
Sunscape Associates, a partnership which
owns the apartments).
Shopping Center Approximately 22.7 acres of land and
Brookhaven, Pennsylvania 196,000 square feet of space in buildings
located thereon; 100% rented.
Newburyport, Massachusetts 4-story building; 168,000 rentable square
feet of space; presently vacant.
3-story building, 13,800 rentable square
feet of space; 100% rented.
Two-story building and warehouse; 5,000
square feet, presently vacant.
Hotel Segment
Four Points Hotel--Syracuse 288-room motor hotel and convention
Thruway and Electronics Parkway center; indoor pool; operated under ITT
Liverpool, New York Sheraton franchise.
Seafood Segment (2)
West Sayville, New York Approximately 13,000 acres of underwater
land in the Great South Bay of Long Island;
approximately 5 acres of upland and 22,500
square feet of space in two buildings
located thereon; used for unloading
product, storage, inspection, shipping,
shop maintenance, hatchery and
administration.
5
<PAGE>
Location General Character (1)
- --------------------------------------------------------------------------------
Mattituck, New York Approximately 1 acre of land in Long
Island; used as a grow out pond for
the clam hatchery.
Crisfield, Maryland Approximately .78 acre of land and 33,625
square feet of space in three buildings
located thereon; previously used to receive,
process, store and ship soft-shell crabs,
presently vacant.
Englishman Island Approximately 600 acres of land including
Guayaquil County, Ecuador 288 acres owned and the balance held under
a 10-year concession, expiring April 2004,
containing shrimp ponds and drainage
canals.
Vacant Land Bluepoints has a 62.5% interest in a
Guayaquil, Ecuador company that owns approximately 100,000
square feet of riverfront land.
Ayangue Bluepoints has a 62.5% interest in a
Guayas Province, Ecuador company that owns approximately 56
acres of land used for a shrimp hatchery.
Cape Canaveral, Florida Various leaseholds (approximately 11
acres) used by scallop operation for
offloading, processing, packaging,
warehouse and office. (Company owns
50% of Lambert International Fisheries Inc.
and Cape King Associates which hold
leaseholds.)
Textile Segment
Allendale, South Carolina Approximately 195 acres of land, on which a
plant containing one building with
approximately 156,000 square feet is
located, presently vacant.
Pageland, South Carolina Approximately 10 acres of land and 36,125
square foot building located thereon;
previously used as bulking and twisting
plant, warehouse and office, presently
being rented.
6
<PAGE>
Location General Character (1)
- --------------------------------------------------------------------------------
Lake City, South Carolina Approximately 21.5 acres of land and 95,000
buildings located thereon; used for a yarn
spinning plant and warehouse.
Sumter, South Carolina Approximately 10.5 acres of land and 61,000
square foot building located thereon; used
as yarn dyeing plant, warehouse and office.
Health Care Segment
Rochelle Park, New Jersey 240-bed nursing home; owned by partnership
in which the Company has a 49.9% partnership
interest.
135-bed senior citizen residence; owned by
partnership in which the Company has a 49.9%
partnership interest.
Jersey City, New Jersey 180-bed nursing home; owned by partnership
in which the Company has a 49.9% partnership
interest.
Whiting, New Jersey 180-bed nursing home; leased to tenant by
partnership in which the Company has a 49.9%
partnership interest.
Corporate Office
302 Fifth Avenue 5,400 square feet of executive offices;
New York, New York month-to-month tenant at a rent of $8,200
per month. See Item 13. below.
(1)--Reference is made to Schedule XI for information with respect to mortgages
encumbering certain properties listed in the table.
(2)--Except as otherwise noted, the properties listed in the Seafood Segment are
owned by Bluepoints Company, Inc., an 80.2% owned subsidiary of the Company.
7
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
8
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
a. The Company's common stock is traded in the over-the-counter market.
There have not been any quotations for the Company's common stock in the
National Daily Quotation Service for the past several years. During the two
most recent fiscal years, the Company has purchased shares at prices
ranging from a high of $36.00 in November 1994 to a low of $33.00 in April
1996.
Due to the absence of quotations it may be deemed that there is no
established public trading market for the Company's common stock.
b. As of September 16, 1996, there were 834 holders of record of the Company's
common stock.
c. No dividends have been paid during the two years ended June 30, 1996. The
Company has no intention of paying dividends in the foreseeable future.
9
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Fiscal year ended June 30
1996 1995 1994 1993 1992
------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues $ 45,612 $ 48,216 $ 48,119 $ 47,036 $ 49,152
======================================================
Income before interest
and income taxes $ 912 $ 4,450 $ 3,308 $ 743 $ 3,062
======================================================
Interest costs $ 3,115 $ 2,993 $ 2,166 $ 2,239 $ 2,636
======================================================
Income (loss) from continuing
operations before extraordinary
income and cumulative effect of
accounting change $ (2,767) $ 1,010 $ 88 $ (1,369) $ 84
======================================================
Net income (loss) per share
of common stock from
continuing operations $ (4.11) $ 1.50 $ .13 $ (2.00) $ .12
======================================================
Total assets $ 79,239 $ 82,740 $ 80,164 $ 79,106 $ 79,705
======================================================
Long-term debt $ 23,810 $ 25,540 $ 23,870 $ 22,234 $ 21,598
======================================================
Stockholders' equity $ 40,446 $ 43,254 $ 42,264 $ 40,872 $ 42,732
======================================================
Cash dividends per common share NONE NONE NONE NONE NONE
======================================================
</TABLE>
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources
Working capital at June 30, 1996 decreased by approximately $1,991,000 as
compared to the prior year.
Net cash provided by operating activities was approximately $3,466,000 during
the 1996 fiscal year. Net cash used by financing activities was approximately
$1,280,000. Net cash of approximately $2,472,000 was used for investing
activities. The Company has a $3,000,000 revolving line of credit, renewable
annually, with its principal lender with interest at 1% over the lender's prime
rate. At June 30, 1996, $2,800,000 was outstanding under the line. The Company
has a term loan with its principal lender which matures August 1, 1997 which the
Company presently intends to renew. As of June 30, 1996, $7,444,470 was
outstanding under the term loan.
During the three years ended June 30, 1996, the Company incurred capital
expenditures of approximately $10,043,000. In addition, approximately $3,790,000
was expended for tenants' improvements during this three year period.
Results of Operations
Real Estate
In fiscal 1996, real estate operating profits decreased $100,000 on a revenue
increase of $667,000 as compared to the prior year. The increase in revenues was
primarily attributable to increased occupancy at substantially all of the
Company's real estate properties. A full year's expense on the mortgage obtained
last year on the Jefferson Bank Building in Miami Beach, Florida, increased
interest expense by $102,000. Due to the unusually cold winter, utility and snow
removal costs increased $461,000. The Company's real estate operating profits
increased $844,000 in fiscal 1995 as compared with the prior year, while
revenues increased $1,099,000 over the same period. The increase in operating
profits was primarily attributable to the increase in revenues resulting from
increased occupancy at substantially all the properties less $346,000 of
interest expense for a portion of the year on the new mortgage obtained on the
Jefferson Bank Building and a full year's expense on a mortgage obtained in the
prior year on the Greensboro South Shopping Center.
Hotel
Operating profits for the Four Points Hotel for fiscal 1996 increased
approximately $206,000 on an approximately $124,000 increase in revenues and
lower operating costs. Operating profits for fiscal 1995 increased approximately
$52,000 on an approximately $123,000 decrease in revenues from the prior year,
due to lower operating costs.
11
<PAGE>
Seafood
Overall, revenues for the seafood division increased by 2% as compared to the
prior year. Losses from operations (including equity share of losses in
affiliated entities) in fiscal 1996 were $4,169,000 as compared to a loss of
$1,756,000 last year. Ecuadorian operations sustained a loss of $2,043,000 as
compared to last year's loss of $1,684,000 due to lower than anticipated shrimp
production in Ecuador and a substantial reduction in the sales price of shrimp
resulting from an oversupply of shrimp worldwide. The Company incurred a
$1,033,000 loss from its scallop operations (including a $341,000 writedown of
other assets) due to lack of availability of product as compared to a $54,000
loss in the prior year. Bluepoints' Long Island operations had a loss of
$941,000 due to the presence of "brown tide" at our clam operations during the
summer months, and curtailed production during the remainder of the year. This
compares with income of $170,000 in the prior year. There was a loss of $152,000
from the discontinued soft shell crab operation, whose assets have been put up
for sale. The fiscal 1995 revenues for the seafood division increased by 18% as
compared to the prior year. Losses from operations in fiscal 1995 (including
equity share of losses in affiliated entities) were $1,756,000 as compared to a
loss of $2,170,000 in fiscal 1994. The increase in revenues was attributable to
importation of shrimp from Costa Rica. Losses from Ecuadorian operations
decreased by $164,000 to $1,684,000. Such losses were due to limits on shrimp
production caused by poor water quality in the Company's shrimp ponds. Although
the Company received a $450,000 distribution from its scallop operations, it
incurred a $54,000 loss from operations as compared to a $492,000 loss in the
prior year. Bluepoints' Long Island operations had income of $170,000 which was
$112,000 below the income from the prior year. There was a loss of $188,000 from
the discontinued soft shell crab operation.
Textile
Revenues for the textile division decreased by 17% over last year, and earnings
decreased $1,442,000. Hanora Spinning's earnings decreased $575,000 to $683,000
due to substantially higher operating costs and lower revenues. Hanora South and
J & M incurred a combined loss of $530,000 as compared to last year's profit of
$200,000 due to higher revenues and gross profits earned at J & M last year as a
result of a substantial contract received from a new customer that expired in
December 1994. Whitlock Combing Company Inc. ("Whitlock"), which owned a wool
combing plant in South Carolina and which discontinued operations in 1992,
incurred expenses of $526,000 (including depreciation and a writedown of its
building of $262,000) relating to its property in South Carolina which is being
offered for sale, compared to a loss of $389,000 in the prior year. During the
three years ended June 30, 1996, the Company purchased approximately $1,075,000
of machinery and equipment for the textile operations. In fiscal 1995, revenues
for the textile division increased by 2% and earnings increased $984,000. Hanora
Spinning's earnings increased $120,000 to $1,258,000 due substantially to higher
operating margins. Hanora South and J & M incurred combined profits of $200,000
as compared to losses of $490,000 in fiscal 1994 as a result of the substantial
contract at J & M mentioned above. Whitlock incurred a loss of $389,000.
12
<PAGE>
Health Care
In fiscal 1996, the Company recognized income of $47,000 from its investment in
health care operations. The decrease in income was primarily caused by a
decrease in occupancy at one facility and increased operating cost. In fiscal
1995, the Company recognized income of $639,000 from this investment. In fiscal
1994, the Company recognized income of $293,000.
Corporate/Other
Corporate interest and expenses for the last three years was $4,173,000,
$4,852,000 and $4,826,000, respectively. Corporate and other revenues for the
last three years was $407,000, $813,000 and $3,213,000, respectively. Corporate
and other revenues includes the operations of Merrimac Corporation other than
those related to the ownership of real estate which are included in the real
estate operations. The reduction in expenses in fiscal 1996 was due to the
closing of the Merrimac Ice Bucket division last year and a reduction in other
related costs of Merrimac of $336,000 and reduced professional fees of $73,000.
Corporate and other revenues in fiscal 1994 include $1,322,000 of income
resulting from the termination of a royalty agreement with the purchaser of the
Merrimac Silversmith assets, a $446,000 reduction in the Merrimac pension
obligation pursuant to curtailment of a pension plan, and $500,000 received from
the settlement of a lawsuit. Except as referred to above, all corporate
expenses, including interest on the Company's term loan and revolving line of
credit, have remained relatively constant for the last three years.
13
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
<PAGE>
Report of Independent Auditors
Board of Directors and Stockholders
The First Republic Corporation of America
We have audited the accompanying consolidated balance sheets of The First
Republic Corporation of America (the "Company") and subsidiaries as of June 30,
1996 and 1995, and the related consolidated statements of operations, retained
earnings, and cash flows for each of three years in the period ended June 30,
1996. Our audits also included the financial statement schedules listed in the
accompanying index to financial statements (Item 14.a). These financial
statements and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits. We did not audit the financial statements of (a)
Marchelot S.A. and its subsidiaries and the hotel division, which statements
reflect total assets constituting 17% in 1996 and 15% in 1995, and total
revenues constituting 17% in 1996, 15% in 1995 and 13% in 1994, of the related
consolidated totals, (b) the Mondragon Companies, accounted for on the equity
method, and (c) certain health care entities (Bristol Manor Health Care Center,
Inc., The Whitehall Residence, Inc., Logan Manor Corp., Harbor View Health Care
Center, Inc.), accounted for on the equity method. Those statements were audited
by other auditors whose reports have been furnished to us, and our opinion,
insofar as it relates to the amounts included for such entities, is based solely
on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. 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 and the reports of the other auditors provide a
reasonable basis for our opinion.
14
<PAGE>
In our opinion, based on our audits and the reports of the other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of The First Republic Corporation of America
and subsidiaries at June 30, 1996 and 1995, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, in 1994, the
Company changed its method of accounting for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes."
/s/ Ernst & Young LLP
New York, New York
September 25, 1996
15
<PAGE>
[LOGO]
[Letterhead of BDO Stern Cia. Ltda.]
Independent Auditor's Report
To the Board of Directors
Marchelot S.A. and Subsidiaries
New York, S.A.
We have audited the consolidated balance sheet of Marchelot S.A. (a wholly-owned
subsidiary of Bluepoints of Bermuda), and its subsidiaries Emporsa, Empacadora y
Exportadora S.A., Larfico, Larvas del Pacifico S.A. and Comercorp S.A. as of
June 30, 1996 and 1995, and the related consolidated statements of operations
and deficit, and of cash flows, for each of the years ended June 30, 1996, 1995
and 1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. 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 statements 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 Marchelot S.A. and Subsidiaries
to June 30, 1996 and 1995, and the results of their operations and their cash
flows for each of the years ended June 30, 1996, 1995 and 1994, in conformity
with generally accepted accounting principles prevailing in the United States of
America.
/s/ BDO Stern
August 1, 1996
Guayaquil, Ecuador
<PAGE>
[LETTERHEAD OF DERMODY, BURKE & BROWN]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
FIRST REPUBLIC CORPORATION OF
AMERICA SHERATON INN - SYRACUSE
We have audited the accompanying balance sheets of FIRST REPUBLIC CORPORATION OF
AMERICA, SHERATON INN - SYRACUSE as of June 30, 1996 and 1995, and the related
statements of income and division control and cash flows for the years ended
June 30, 1996, 1995 and 1994. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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.
The Sheraton Inn - Syracuse is owned and operated by First Republic Corporation
of America and its affiliated company, First Republic Building Corporation. The
accounting records maintained in Syracuse relate only to the transactions
incurred in the daily operation of the Hotel. Transactions involving debt
financing, tax escrow payments, corporate income taxes and property accounts are
not reflected on the Hotel's books but are the accounting responsibility of
First Republic and its affiliate. These financial statements are issued for
inclusion in the financial statements of First Republic Corporation of America
and should not be considered separately in determining the financial position
and results of operations of the Sheraton Inn - Syracuse.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the operations of FIRST
REPUBLIC CORPORATION OF AMERICA, SHERATON INN - SYRACUSE at June 30, 1996 and
1995 and the results of its operations and its cash flows for the years ended
June 30, 1996, 1995 and 1994 in conformity with generally accepted accounting
principles.
/s/ Dermody, Burke and Brown
DERMODY, BURKE AND BROWN
Certified Public Accountants, P. C.
Syracuse, New York
July 26, 1996
<PAGE>
[LETTERHEAD OF LOEB & TROPER]
Independent Auditor's Report
Board of Directors
Bristol Manor Health Care Center, Inc.
We have audited the accompanying balance sheet of Bristol Manor Health Care
Center, Inc. as of June 30, 1996 and 1995, and the related statements of
operations and cash flows for the six months then ended. These financial
statements are the responsibility of the Center's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 Bristol Manor Health Care
Center, Inc. as of June 30, 1996 and 1995, and the results of its operations and
its cash flows for the six months then ended in conformity with generally
accepted accounting principles.
Bristol Manor Health Care Center, Inc. is a member of a group of affiliated
entities and, as disclosed in the financial statements, has significant
transactions with members of the group, including borrowings and the rental of
the facility. Because of these relationships, it is possible that the terms of
these transactions are not the same as those which would result from
transactions among wholly unrelated parties.
/s/ LOEB & TROPER
August 22, 1996
<PAGE>
[LETTERHEAD OF LOEB & TROPER]
Independent Auditor's Report
Board of Directors
Bristol Manor Health Care Center, Inc.
We have audited the accompanying balance sheet of Bristol Manor Health Care
Center, Inc. as of December 31, 1995 and 1994, and the related statements of
operations and cash flows for the years then ended. These financial statements
are the responsibility of the Center's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 Bristol Manor Health Care
Center, Inc. as of December 31, 1995 and 1994, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
Bristol Manor Health Care Center, Inc. is a member of a group of affiliated
entities and, as disclosed in the financial statements, has significant
transactions with members of the group, including borrowings and the rental of
the facility. Because of these relationships, it is possible that the terms of
these transactions are not the same as those which would result from
transactions among wholly unrelated parties.
/s/ LOEB & TROPER
February 29, 1996
<PAGE>
[LETTERHEAD OF LOEB & TROPER]
Independent Auditor's Report
Board of Directors
The Whitehall Residence, Inc.
We have audited the accompanying balance sheet of The Whitehall Residence,
Inc. as of June 30, 1996 and 1995, and the related statements of operations and
cash flows for the six months 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 generally accepted auditing
standards. 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 Whitehall Residence,
Inc. as of June 30, 1996 and 1995, and the results of its operations and its
cash flows for the six months then ended in conformity with generally accepted
accounting principles.
The Whitehall Residence, Inc. is a member of a group of affiliated entities
and, as disclosed in the financial statements, has significant transactions with
members of the group, including borrowings and the rental of the facility.
Because of these relationships, it is possible that the terms of these
transactions are not the same as those which would result from transactions
among wholly unrelated parties.
<PAGE>
2.
The accompanying financial statements have been prepared assuming that The
Whitehall Residence, Inc. will continue as a going concern. As discussed in Note
H to the financial statements, the corporation has suffered recurring losses
from operations and has a retained earnings deficit that raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note H. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ LOEB & TROPER
August 22, 1996
<PAGE>
[LETTERHEAD OF LOEB & TROPER]
Independent Auditor's Report
Board of Directors
The Whitehall Residence, Inc.
We have audited the accompanying balance sheet of The Whitehall Residence,
Inc. as of December 31, 1995 and 1994, and the related statements of operations
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 generally accepted auditing
standards. 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 Whitehall Residence,
Inc. as of December 31, 1995 and 1994, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
The Whitehall Residence, Inc. is a member of a group of affiliated entities
and, as disclosed in the financial statements, has significant transactions with
members of the group, including borrowings and the rental of the facility.
Because of these relationships, it is possible that the terms of these
transactions are not the same as those which would result from transactions
among wholly unrelated parties.
<PAGE>
2.
The accompanying financial statements have been prepared assuming that The
Whitehall Residence, Inc. will continue as a going concern. As discussed in Note
H to the financial statements, the corporation has suffered recurring losses
from operations and has a retained earnings deficit that raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note H. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ LOEB & TROPER
February 29, 1996
<PAGE>
[LETTERHEAD OF LOEB & TROPER]
Independent Auditor's Report
Board of Directors
Logan Manor Corp.
We have audited the accompanying balance sheet of Logan Manor Corp. as of
June 30, 1996 and 1995, and the related statements of operations and cash flows
for the six months 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 generally accepted auditing
standards. 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 Logan Manor Corp. as of June
30, 1996 and 1995, and the results of its operations and its cash flows for the
six months then ended in conformity with generally accepted accounting
principles.
Logan Manor Corp. is a member of a group of affiliated entities and, as
disclosed in the financial statements, has significant transactions with members
of the group, including significant borrowings. Because of these relationships,
it is possible that the terms of these transactions are not the same as those
which would result from transactions among wholly unrelated parties.
<PAGE>
2.
The accompanying financial statements have been prepared assuming that
Logan Manor Corp. will continue as a going concern. As discussed in Note E to
the financial statements, the Corporation has suffered recurring losses from
operations and has a retained earnings deficit that raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note E. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ LOEB & TROPER
August 22, 1996
<PAGE>
[LETTERHEAD OF LOEB & TROPER]
Independent Auditor's Report
Board of Directors
Logan Manor Corp.
We have audited the accompanying balance sheet of Logan Manor Corp. as of
December 31, 1995 and 1994, and the related statements of operations 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 generally accepted auditing
standards. 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 Logan Manor Corp. as of
December 31, 1995 and 1994, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Logan Manor Corp. is a member of a group of affiliated entities and, as
disclosed in the financial statements, has significant transactions with members
of the group, including significant borrowings. Because of these relationships,
it is possible that the terms of these transactions are not the same as those
which would result from transactions among wholly unrelated parties.
<PAGE>
2.
The accompanying financial statements have been prepared assuming that
Logan Manor Corp. will continue as a going concern. As discussed in Note E to
the financial statements, the Corporation has suffered recurring losses from
operations and has a retained earnings deficit that raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note E. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ LOEB & TROPER
February 22, 1996
<PAGE>
[LETTERHEAD OF LOEB & TROPER]
Independent Auditor's Report
Board of Directors
Harbor View Health Care Center, Inc.
We have audited the accompanying balance sheet of Harbor View Health Care
Center, Inc. as of June 30, 1996 and 1995, and the related statements of
operations and cash flows for the six months then ended. These financial
statements are the responsibility of the Center's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 Harbor View Health Care
Center, Inc. as of June 30, 1996 and 1995, and the results of its operations and
its cash flows for the six months then ended in conformity with generally
accepted accounting principles.
Harbor View Health Care Center, Inc. is a member of a group of affiliated
entities and, as disclosed in the financial statements, has significant
transactions with members of the group, including borrowings and the rental of
the facility. Because of these relationships, it is possible that the terms of
these transactions are not the same as those which would result from
transactions among wholly unrelated parties.
/s/ LOEB & TROPER
August 22, 1996
<PAGE>
[LETTERHEAD OF LOEB & TROPER]
Independent Auditor's Report
Board of Directors
Harbor View Health Care Center, Inc.
We have audited the accompanying balance sheet of Harbor View Health Care
Center, Inc. as of December 31, 1995 and 1994, and the related statements of
operations and cash flows for the years then ended. These financial statements
are the responsibility of the Center's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 Harbor View Health Care
Center, Inc. as of December 31, 1995 and 1994, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
Harbor View Health Care Center, Inc. is a member of a group of affiliated
entities and, as disclosed in the financial statements, has significant
transactions with members of the group, including borrowings and the rental of
the facility. Because of these relationships, it is possible that the terms of
these transactions are not the same as those which would result from
transactions among wholly unrelated parties.
/s/ LOEB & TROPER
February 29, 1996
<PAGE>
The First Republic Corporation of America and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30
1996 1995
---------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,009,079 $ 1,294,475
Accounts and rents receivable, net of allowances of
$210,345 and $253,679 4,900,233 5,285,331
Mortgages receivable--current portion (Note 3) 620,546 1,061,079
Other receivables (including $725,000 in 1996 due from related party) 1,092,824 253,200
Inventories (Note 1) 4,921,283 5,472,000
Prepaid expenses and other assets 1,115,724 1,158,828
---------------------------
Total current assets 13,659,689 14,524,913
Real estate held for rental and hotel, at cost (Notes 5 and 8):
Land 8,399,740 8,399,740
Building and improvements 41,558,112 41,850,660
---------------------------
49,957,852 50,250,400
Less accumulated depreciation 23,455,743 22,675,090
---------------------------
26,502,109 27,575,310
Other property, plant and equipment, at cost (Note 1):
Land 1,530,849 1,530,849
Buildings and improvements 5,886,323 5,337,730
Leaseholds and improvements 1,167,759 1,182,233
Machinery, equipment, parts and vehicles 12,719,198 12,079,826
Furniture and furnishings 376,284 382,762
Construction-in-progress 438,212 924,371
---------------------------
22,118,625 21,437,771
Less accumulated depreciation and amortization 8,693,495 7,964,051
---------------------------
13,425,130 13,473,720
Mortgages receivable--net of current portion (Note 3) 109,680 671,420
Investments in and advances to affiliated entities (Notes 1 and 4) 12,247,909 13,670,921
Tenant improvements, net of accumulated amortization of
$2,323,024 and $1,858,234 5,852,223 5,637,979
Unamortized leasing, financing and other deferred costs 1,764,806 1,864,174
Other assets:
Cash and securities in trust for tenants' security deposits 1,569,383 1,485,400
Mortgage escrow funds and security deposits 149,813 187,572
Assets held for sale (Note 11) 1,300,001 1,718,111
Due from related parties (Note 10) 2,331,984 1,578,886
Other 326,263 351,324
---------------------------
5,677,444 5,321,293
---------------------------
Total assets $79,238,990 $82,739,730
===========================
</TABLE>
See notes to consolidated financial statements.
16
<PAGE>
The First Republic Corporation of America and Subsidiaries
Consolidated Balance Sheets (continued)
<TABLE>
<CAPTION>
June 30
1996 1995
-------------------------
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Notes payable, banks (Note 5) $ 3,472,000 $ 3,134,759
Note payable, related party (Note 10) 640,000 640,000
Current portion of long-term debt (Note 5) 1,729,997 1,658,075
Accounts payable 1,892,374 1,372,861
Accrued expenses and taxes payable 2,088,320 1,744,319
Due to related parties (Note 10) 743,792 893,373
Other liabilities 93,257 90,984
-------------------------
Total current liabilities 10,659,740 9,534,371
Long-term debt (Note 5) 23,809,823 25,539,845
Deferred income tax (Note 6) 567,926 637,926
Other liabilities:
Tenants' security deposits payable 1,569,383 1,485,400
Accrued pension (Note 7) 1,215,840 1,215,840
-------------------------
2,785,223 2,701,240
Minority interests 608,266 688,360
Deferred income (Note 3) 362,323 383,878
-------------------------
Total liabilities 38,793,301 39,485,620
Stockholders' equity:
Common stock, $1 par value:
Authorized, 2,400,000 shares;
Issued, 1,175,261 shares 1,175,261 1,175,261
Additional paid-in capital 15,000,753 15,000,753
Retained earnings 28,673,150 31,440,094
-------------------------
44,849,164 47,616,108
Less treasury stock, at cost--502,992 and
501,744 shares (Note 11) 4,403,475 4,361,998
-------------------------
Total stockholders' equity 40,445,689 43,254,110
Leases, commitments and contingencies
(Notes 8 and 9)
-------------------------
Total liabilities and stockholders' equity $79,238,990 $82,739,730
=========================
</TABLE>
See notes to consolidated financial statements.
17
<PAGE>
The First Republic Corporation of America and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended June 30
1996 1995 1994
------------------------------------------------
<S> <C> <C> <C>
Revenues:
Sales--textiles and seafood $ 22,329,954 $ 25,391,537 $ 23,717,207
Rents and other revenues--real estate and hotel
operations
22,390,066 21,608,443 20,544,116
Other (including interest income of approximately
$83,000, $106,000 and $94,000, respectively)
(Notes 7 and 11) 891,536 1,215,623 3,857,729
Equity in loss of affiliated entities (Note 4) (2,065,609) (118,264) (1,416,679)
------------------------------------------------
43,545,947 48,097,339 46,702,373
Costs and expenses:
Cost of sales 20,460,983 21,674,192 20,704,424
Operating costs--real estate and hotel operations 13,495,292 12,631,176 12,070,807
Depreciation and amortization 3,817,390 4,182,079 4,168,509
Interest 3,115,460 2,993,065 2,165,773
Selling, general and administrative 5,575,769 5,642,437 6,911,674
Writedown of property and equipment (Note 11) 418,110 265,189 160,929
Minority interests' share of loss of subsidiaries (1,133,113) (748,233) (622,413)
------------------------------------------------
45,749,891 46,639,905 45,559,703
------------------------------------------------
(Loss) income before income taxes, extraordinary item
and cumulative effect of change in accounting for
income taxes
(2,203,944) 1,457,434 1,142,670
Income tax expense (Note 6) 563,000 447,000 1,055,000
------------------------------------------------
(Loss) income before extraordinary item and cumulative
effect of accounting change (2,766,944) 1,010,434 87,670
Extraordinary income--share of gain on extinguishment
of debt by affiliated entities, net of income taxes of
$120,000 (Note 4) -- -- 300,000
Cumulative effect as of July 1, 1993 of change in
method of accounting for income taxes (Note 1) -- -- 1,173,000
------------------------------------------------
Net (loss) income $ (2,766,944) $ 1,010,434 $ 1,560,670
================================================
Per share of common stock (Note 1):
(Loss) income before extraordinary item
and cumulative effect of accounting change $ (4.11) $ 1.50 $ .13
Extraordinary income -- -- .44
Cumulative effect of accounting change -- -- 1.74
------------------------------------------------
Net (loss) income $ (4.11) $ 1.50 $ 2.31
================================================
</TABLE>
See notes to consolidated financial statements.
18
<PAGE>
The First Republic Corporation of America and Subsidiaries
Consolidated Statements of Retained Earnings
Year ended June 30
1996 1995 1994
-------------------------------------------
Balance, beginning of year $ 31,440,094 $ 30,429,660 $ 28,868,990
Net (loss) income for the year (2,766,944) 1,010,434 1,560,670
-------------------------------------------
Balance, end of year $ 28,673,150 $ 31,440,094 $ 30,429,660
===========================================
See notes to consolidated financial statements.
19
<PAGE>
The First Republic Corporation of America and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended June 30
1996 1995 1994
-----------------------------------------
<S> <C> <C> <C>
Operating activities
Net (loss) income $(2,766,944) $ 1,010,434 $ 1,560,670
Adjustments to reconcile net (loss) income
to net cash provided by operating
activities:
Depreciation and amortization 3,817,390 4,182,079 4,168,509
Writedown of property and equipment 418,110 265,189 160,929
Deferred income taxes (70,000) (36,000) 150,000
Cumulative effect of change in method of
accounting for income taxes -- -- (1,173,000)
Equity in net loss of affiliated entities 2,065,609 118,264 996,679
Minority interests' share of loss in
subsidiaries (1,133,113) (748,233) (622,413)
Changes in operating assets and
liabilities:
Accounts, rents and other
receivables (454,526) 381,909 966,548
Inventories 550,717 (740,455) (950,302)
Prepaid and other assets 43,104 110,427 1,217,218
Due from related parties 217,250 (217,250) --
Accounts payable 519,513 (739,032) 412,968
Accrued and other current liabilities 346,274 383,052 (740,483)
Due to related parties (149,581) (434,627) 573,000
Other liabilities 62,428 (82,924) (530,532)
-----------------------------------------
Cash provided by operating activities 3,466,231 3,452,833 6,189,791
-----------------------------------------
Investing activities
Purchases of real estate held for rental (546,167) (2,815,491) (2,216,655)
Purchases of other property plant and
equipment (1,502,017) (1,340,667) (1,622,258)
Additions to tenant improvements (861,659) (2,229,991) (698,933)
Investment in affiliated entities (993,338) (2,440,294) (3,257,822)
Distribution in excess of equity in earnings
from affiliated entities 350,741 816,610 915,000
Payments received on mortgages receivable 1,002,273 1,907,516 616,776
Other investing activities 78,205 21,020 (1,080,394)
-----------------------------------------
Net cash used in investing activities (2,471,962) (6,081,297) (7,344,286)
-----------------------------------------
</TABLE>
20
<PAGE>
The First Republic Corporation of America and Subsidiaries
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
Year ended June 30
1996 1995 1994
--------------------------------------------
<S> <C> <C> <C>
Financing activities
Proceeds from mortgage and notes payable
to banks $ 2,200,000 $ 11,209,241 $ 11,705,000
Payments on mortgages and notes payable
to banks (3,520,859) (8,626,991) (10,372,203)
Repayment of subordinated debenture -- -- (469,336)
Minority interests' additional paid-in capital 82,671 44,585 271,567
Purchases of treasury stock (41,477) (20,040) (169,188)
--------------------------------------------
Net cash (used in) provided by financing
activities
(1,279,665) 2,606,795 965,840
--------------------------------------------
Net decrease in cash and cash equivalents (285,396) (21,669) (188,655)
Cash and cash equivalents at the beginning
of year 1,294,475 1,316,144 1,504,799
--------------------------------------------
Cash and cash equivalents at the end of year $ 1,009,079 $ 1,294,475 $ 1,316,144
============================================
Supplemental disclosure
Income taxes paid $ 503,095 $ 582,005 $ 466,525
Interest paid $ 3,127,523 $ 2,943,574 $ 2,222,170
</TABLE>
See notes to consolidated financial statements.
21
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 1996
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of The First Republic
Corporation of America ("FRCA") and all majority owned or controlled
subsidiaries (the "Company"). All significant intercompany accounts and
transactions have been eliminated in consolidation. The Company records its
investment in partnerships and corporations in which it owns interests ranging
from 38% to 50% in accordance with the equity method.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles 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 revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Inventories
Inventories are valued at the lower of cost or market with cost being determined
by specific identification.
Inventories are summarized as follows:
June 30
1996 1995
------------------------------
Work-in-process and raw materials $ 1,655,147 $ 1,945,308
Finished goods 3,266,136 3,526,692
------------------------------
$ 4,921,283 $ 5,472,000
==============================
22
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Depreciation and Amortization
Depreciation and amortization are provided by the straight-line method over the
following estimated useful lives:
Estimated
Classification Useful Life
- ---------------------------------------- ----------------
Buildings and improvements 15 to 40 years
Leaseholds and improvements 3 to 31.5 years
Machinery, equipment, parts and vehicles 5 to 10 years
Furniture and furnishings 5 years
Tenants' improvements and leasing commissions are amortized over the term of the
respective tenants' leases.
Financing costs are amortized over the term of the related debt.
Revenues
Sales of textiles and seafood are recognized when shipments are made to
customers. Rental revenue is recognized on an accrual basis in accordance with
the terms of the lease except that leases with scheduled rent increases are
recognized on a straight-line basis over the life of the lease. Hotel revenues
are recognized when the related services are rendered.
Per Share Data
Per share amounts are based on 672,677 (1996), 673,867 (1995) and 675,635 (1994)
weighted average shares of common stock outstanding.
23
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Change in Method of Accounting for Income Taxes
Effective July 1, 1993, the Company adopted Financial Accounting Standards Board
Statement No. 109, "Accounting for Income Taxes." Under Statement No. 109, the
liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. Prior to the adoption of Statement No. 109, income tax
expense was determined using the deferred method. Deferred tax expense was based
on items of income and expense that were reported in different years in the
financial statements and tax returns and were measured at the tax rate in effect
in the year the difference originated. The cumulative effect of the change at
July 1, 1993 increased net income by $1,173,000 or $1.74 per share for the year
ended June 30, 1994.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
In March 1995, the Financial Accounting Standards Board issued Statement No. 121
("SFAS 121"), Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed Of, which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. SFAS 121 also addresses the accounting
for long-lived assets to be disposed of. The Company will adopt SFAS 121 in the
first quarter of fiscal 1997. Due to the extensive number of estimates that must
be made to assess the impact of Statement 121, the financial statement impact of
adoption has not yet been determined.
Foreign Operations
A subsidiary, together with certain entities in which the subsidiary owns a 38%
interest, is engaged in shrimp farming operations in Ecuador and all of such
entities sell their products solely to a domestic subsidiary of the Company
engaged in seafood operations. Financial statements of such foreign entities are
translated using the U.S. dollar as the functional currency as Ecuador has a
hyperinflationary currency. Operations include exchange gains of $182,145
(1996), $254,954 (1995) and $108,155 (1994) resulting from foreign currency
transactions and from translation of the foreign entities' financial statements.
24
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Cash Equivalents
The Company considers all highly liquid investments with maturities of three
months or less when purchased to be cash equivalents.
2. Industry Segments and Foreign Operations
Following is information about the Company's industry segments for each of the
three years ended June 30:
1996 1995 1994
--------------------------------------------
Revenues:
Real estate $ 17,104,302 $ 16,436,969 $ 15,337,857
Hotel 5,413,092 5,289,114 5,411,804
Seafood 7,458,512 7,296,381 6,186,843
Textile 15,229,106 18,379,894 17,969,256
Other -- -- 2,147,968(c)
Corporate 406,544 813,245 1,065,324
--------------------------------------------
$ 45,611,556 $ 48,215,603 $ 48,119,052
============================================
Operating profit (loss):
Real estate (a) $ 4,512,789 $ 4,612,379 $ 3,768,768
Hotel 501,442 295,461 243,369
Seafood (2,146,319) (1,111,286) (547,904)
Textile (b) (372,844) 1,069,602 85,467
Other -- -- 2,147,968(c)
--------------------------------------------
Total operating profit 2,495,068 4,866,156 5,697,668
Corporate expenses (3,151,081) (3,802,300) (4,000,349)
Corporate interest expense (1,021,979) (1,049,636) (825,707)
Corporate revenue 406,544 813,245 1,065,324
Equity in loss of affiliated
entities (d) (2,065,609) (118,264) (1,416,679)
Minority interests' share of
loss of subsidiaries 1,133,113 748,233 622,413
--------------------------------------------
(Loss) income before income
taxes, extraordinary item
and cumulative effect of
change in accounting for
income taxes
$ (2,203,944) $ 1,457,434 $ 1,142,670
============================================
25
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Industry Segments and Foreign Operations (continued)
1996 1995(f) 1994(f)
-------------------------------------------
Identifiable assets:
Real estate $33,719,375 $34,863,392 $34,914,215
Hotel 2,938,507 3,026,711 3,301,524
Seafood 11,372,330 12,749,755 11,903,902
Textile 12,685,459 14,803,131 14,839,579
Corporate and other (e) 18,523,319 17,296,741 15,204,408
-------------------------------------------
$79,238,990 $82,739,730 $80,163,628
===========================================
Depreciation and
amortization:
Real estate $ 1,795,298 $ 2,035,785 $ 1,893,119
Hotel 471,486 631,786 617,744
Seafood 286,959 218,794 263,399
Textile 1,179,043 1,181,073 1,184,057
Corporate and other 84,604 114,641 210,190
-------------------------------------------
$ 3,817,390 $ 4,182,079 $ 4,168,509
===========================================
Capital expenditures--net:
Real estate $ 1,228,017 $ 4,531,561 $ 2,648,694
Hotel 179,809 545,673 262,763
Seafood 1,167,317 483,927 1,323,087
Textile 242,266 592,475 240,715
Corporate and other 92,434 232,513 62,587
-------------------------------------------
$ 2,909,843 $ 6,386,149 $ 4,537,846
===========================================
(a) Reflects mortgage interest expense of $1,622,687 (1996), $1,564,524
(1995) and $1,230,545 (1994).
(b) Includes losses from Whitlock (see Note 12b).
26
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Industry Segments and Foreign Operations (continued)
(c) Includes $1,321,775 for termination of royalty agreements and $446,000
for curtailment of pension benefits (see Note 8).
(d) See Note 4.
(e) Consists principally of investments in and advances to affiliated
entities.
(f) Certain amounts have been reclassified to conform with 1996
presentation.
The Company's operations in the industry segments detailed above consist of:
Real Estate: Ownership of loft, office and industrial buildings, shopping
centers, residential property and vacant land located principally in New
York State, New Jersey, Florida, North Carolina, Massachusetts and
Pennsylvania.
Hotel: Ownership and operation of a hotel in Liverpool, New York.
Seafood: Harvesting and sale of hard-shell clams on property owned by the
Company located underwater off Long Island's south shore in New York State,
and sales of shrimp imported from Ecuador (both grown in Company owned
ponds and purchased from a 38% owned investee and other third-parties) and
from Costa Rica.
Textile: Operations of two yarn spinning plants and a dye house located in
South Carolina and Rhode Island.
Foreign operations, consisting of the operation of a shrimp farm and shrimp
hatchery, were conducted in Ecuador through Marchelot S.A. and its wholly-owned
and 62.5% owned subsidiaries. For the years ended June 30, 1996, 1995 and 1994,
respectively, such entities had sales of approximately $1,780,000, $1,495,000
and $671,000, all of which were to the Company and eliminated in consolidation,
and net losses (including a share of net losses from the Mondragon Companies
accounted for by the equity method--see Note 4) of $1,875,000, $1,549,000, and
$1,687,000. As of June 30, 1996 and 1995, respectively, such subsidiaries had
total assets of approximately $10,302,473 and $9,211,000, liabilities (excluding
intercompany loans and advances) of $3,102,000 and $3,121,000 and minority
interests of $608,000 and $688,000. In addition, Bluepoints Company Inc., a
domestic subsidiary, had outstanding advances to the Mondragon Companies of
$2,988,246 and $4,390,020 at June 30, 1996 and 1995, respectively.
27
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. Mortgages Receivable
A summary of mortgages receivable is as follows:
<TABLE>
<CAPTION>
Interest June 30
Description Rate Maturity Date 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First lien on motel 8.0% December 1, 1996 (1) $ 617,783 $ 654,789
First lien on condominiums 7.9%-10.5% (2) 112,443 1,077,710
---------------------------
730,226 1,732,499
Less payment due within one
year included in current
assets 620,546 1,061,079
---------------------------
$ 109,680 $ 671,420
===========================
</TABLE>
(1)--A gain of $786,230, which was realized on the sale of a motel during
the fiscal year ended June 30, 1977, has been treated in accordance with
the installment method which requires the recognition of gain as cash is
collected. The unrecognized portion of the gain of $362,323 and $383,878 is
classified in the accompanying balance sheets as deferred income at June
30, 1996 and 1995, respectively.
(2)--Payment terms of mortgages require monthly payments for seven years
with the remaining principal balance due at that time. The maturity dates
range from December 1, 1998 to June 1, 1999.
Maturities are as follows:
Amount
--------
Year ending June 30:
1997 $620,546
1998 3,001
1999 106,679
--------
$730,226
========
28
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Affiliated Entities
The following table summarizes information with respect to the Company's
affiliated entities:
<TABLE>
<CAPTION>
Company's Company's
Investments and Equity in Income
Advances (Loss)
-------------------- ---------------------------------
Company's
Ownership June 30 Year ended June 30
Percentage 1996 1995 1996 1995 1994
----------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Sunscape Associates 50% $ 581 $ 354 $ (90) $ (112) $ (88)
Lambert Seafood Company 50% 536 1,395 (1,033) (54) (492)
Mondragon Companies 38% 5,306 5,794 (990) (591) (1,130)(1)
Health Care Entities (3) 49.9% 5,822 6,122 47 639 293 (2)
Other Various 3 6 - - -
--------------------------------------------------------
$ 12,248 $ 13,671 $ (2,066) $ (118) $ (1,417)
========================================================
</TABLE>
(1)--Includes approximately $600,000 of loss related to write-off of the excess
of the Company's cost of investment over net assets acquired, as a result
of continuing net losses incurred by the affiliate.
(2)--Excludes the Company's $420,000 proportionate share of extraordinary gain
on extinguishment of debt in June 1994.
(3)--Equity in income is net of amortization of the Company's cost of investment
which exceeded its underlying share of Partnerships' deficiency at date of
acquisition. Such excess, which amounted to approximately $3,500,000 and
$3,600,000 at June 30, 1996 and 1995, respectively, is being amortized over
40 years.
Real Estate
Sunscape Associates ("Sunscape") owns a 167 unit garden apartment complex
located in Orlando, Florida. The other 50% interest in Sunscape is owned by
corporate entities which in turn are owned by officers and directors of the
Company.
29
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Affiliated Entities (continued)
Seafood
Lambert Seafood Company ("Lambert"): The Company owns a 50% interest in Lambert
which is located in Florida, and is engaged in the business of collecting,
processing, and selling scallops.
Condensed financial information of Lambert is as follows:
June 30
1996 1995
---------------------------
Assets
Cash $ 29,000 $ 147,000
Other current assets 95,000 105,000
Property and equipment, net of accumulated
depreciation 1,715,000 2,295,000
Other assets 9,000 732,000
---------------------------
Total assets $ 1,848,000 $ 3,279,000
===========================
Liabilities
Notes payable and other current liabilities $ 854,000 $ 593,000
Loans payable--stockholders 3,001,000 2,626,000
---------------------------
Total liabilities 3,855,000 3,219,000
Stockholders' (deficit) equity (2,007,000) 60,000
---------------------------
Total liabilities and equity $ 1,848,000 $ 3,279,000
===========================
Year ended June 30
1996 1995 1994
-----------------------------------------
Revenues $ 47,000 $ 4,217,000 $ 3,702,000
Costs and expenses (1,308,000) (4,326,000) (4,232,000)
Loss on disposal and write-off
of assets (805,000) -- (481,000)
-----------------------------------------
Net loss $(2,066,000) $ (109,000) $(1,011,000)
=========================================
30
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Affiliated Entities (continued)
During the fiscal year ended June 30, 1996, no scallops were harvested and a
write-off of intangible assets aggregating $682,000 was recorded as a result of
recurring losses and the uncertainty as to the recoverability of the carrying
value of such assets.
Bluepoints Company Inc. ("Bluepoints"): Bluepoints, an 80.2% owned subsidiary of
the Company, owns Marchelot S.A. which in turn owns a 38% interest in two
Ecuadorian corporations, Isca C.A. and Langomorro CIA. Ltda. (collectively, the
"Mondragon Companies"), engaged in shrimp farming operations in Ecuador. The
remaining 19.8% of Bluepoints is owned by certain stockholders of the Company.
For the years ended June 30, 1996, 1995 and 1994, Bluepoints purchased
approximately $1,594,000, $775,000, and $600,000, respectively, of shrimp from
the Mondragon Companies.
Condensed combined financial information of the Mondragon Companies is as
follows:
June 30
1996 1995
---------------------------
Assets
Current assets $ 2,559,000 $ 1,746,000
Property and equipment--net of accumulated
depreciation
8,056,000 7,257,000
Other assets 758,000 973,000
---------------------------
Total assets $11,373,000 $ 9,976,000
===========================
Liabilities
Notes payable--banks $ 1,801,000 $ 1,455,000
Due to Bluepoints and other affiliates 4,152,000 4,516,000
Other current liabilities 893,000 525,000
---------------------------
Total current liabilities 6,846,000 6,496,000
Long-term debt 307,000 307,000
---------------------------
Total liabilities 7,153,000 6,803,000
Stockholders' equity 4,220,000 3,173,000
---------------------------
Total liabilities and equity $11,373,000 $ 9,976,000
===========================
31
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Affiliated Entities (continued)
Year ended June 30
1996 1995 1994
-----------------------------------------
Revenues (principally sales to
Bluepoints) $ 1,721,000 $ 794,000 $ 677,000
Costs and expenses (3,791,000) (2,281,000) (2,008,000)
-----------------------------------------
Net loss $(2,070,000) $(1,487,000) $(1,331,000)
=========================================
Health Care
The Company owns 49.9% interests in partnerships which own three nursing homes
and a senior citizen residence and adult day care center located in Rochelle
Park, Jersey City and Whiting, New Jersey.
Condensed combined financial information of the 49.9% owned partnerships is as
follows:
June 30
1996 1995
---------------------------
Cash $ 1,213,000 $ 1,333,000
Accounts receivable, net 2,045,000 2,192,000
Other current assets 282,000 528,000
Other assets 822,000 758,000
Property and equipment, net of accumulated
depreciation 23,867,000 24,785,000
---------------------------
Total assets $28,229,000 $29,596,000
===========================
32
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Affiliated Entities (continued)
June 30
1996 1995
-----------------------------
Accounts payable $ 1,615,000 $ 1,379,000
Other current liabilities 1,269,000 1,204,000
Mortgages payable, current 1,330,000 1,280,000
Mortgages payable, noncurrent 25,950,000 27,280,000
-----------------------------
Total liabilities 30,164,000 31,143,000
Partners' capital deficiency (1,935,000) (1,547,000)
-----------------------------
Total liabilities and capital deficiency $ 28,229,000 $ 29,596,000
=============================
Year ended June 30
1996 1995 1994
---------------------------------------
Revenues $21,582,000 $21,927,000 $21,273,000
Expenses 21,276,000 20,437,000 20,287,000
---------------------------------------
Income before extraordinary item 306,000 1,490,000 986,000
Extraordinary income--gain in
connection with refinancing
mortgage debt -- -- 840,000
---------------------------------------
Net income $ 306,000 $ 1,490,000 $ 1,826,000
=======================================
33
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Long-Term Debt and Credit Facilities
Long-term debt consists of the following:
June 30
1996 1995
-------------------------
Mortgages payable due 1996-2009 bearing interest
at fixed rates of 8.5% to 11% and variable rates
(9.25% at June 30, 1996) based on prime (1), (3)
and (4) $24,248,991 $25,571,540
Onondaga County Industrial Development
Agency Bonds (1) and (2) 1,200,000 1,500,000
5.5%-7.0% notes to development authorities
due 1995-2000 (1) 90,829 126,380
Related party -- 50,000
-------------------------
25,539,820 27,247,920
Less payments due within one year:
Third parties 1,729,997 1,658,075
Related party -- 50,000
-------------------------
$23,809,823 $25,539,845
=========================
(1)--The net book value of real estate assets pledged as collateral is
approximately $20,500,000 and $21,400,000 at June 30, 1996 and 1995,
respectively.
(2)--The Company entered into an agreement with the Onondaga County Industrial
Development Agency (the "Agency") to finance the construction of two office
buildings in Liverpool, New York. Under the terms of the agreement, the Agency
issued $4,000,000 of industrial development revenue bonds. The financing was
structured in the form of a lease whereby the Company committed to pay $74,050
per quarter plus interest (payable monthly) through December 1999. Interest is
at a variable rate with a maximum of 9.5% per annum. At the completion of the
lease term, the property will be transferred to the Company for a nominal sum.
This transaction has been recorded as a purchase of the property.
The Company has provided a letter of credit in the amount of $1,200,000 at June
30, 1996 as collateral for the foregoing financing.
34
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Long-Term Debt and Credit Facilities (continued)
(3)--In fiscal 1995, the Company obtained a $3,500,000 mortgage loan
collateralized by the Jefferson National Bank Building in Miami Beach, Florida.
This loan bears interest at 1% in excess of the lender's prime rate and provides
for monthly principal payments of $29,167 plus interest commencing January 1,
1995 through June 1, 2001 when the remaining unpaid balance of $1,225,000 will
become due.
(4)--On July 15, 1992, the Company replaced its existing indebtedness with its
principal lender with a $10,000,000 term loan and a $3,000,000 revolving line of
credit (the "Loan Agreement"), collateralized by a mortgage on the East Newark
Industrial Center. At June 30, 1996 and 1995, $2,800,000 and $2,400,000,
respectively, is outstanding under the line of credit and is included in "Notes
payable, banks." The term loan, which has an outstanding balance of $7,444,470
at June 30, 1996 and $8,111,130 at June 30, 1995, requires monthly principal
payments of $55,555 and matures on August 1, 1997 when the remaining unpaid
principal balance of $6,666,640 will become due. The revolving line, which is
renewable annually, is due in January 1997. The interest rate on both facilities
is 1% in excess of the lender's prime rate.
(5)--The fair value of mortgages and bonds payable at June 30, 1996 is estimated
to be approximately $25,516,834. The carrying amount of debt with variable
interest rates approximates fair value. For fixed rate debt, fair value is
estimated using discounted cash flow analysis based on the Company's current
incremental borrowing rate for similar types of borrowing arrangements.
The Loan Agreement, as amended, requires the Company to maintain stockholders'
equity of at least $40,000,000 and working capital of at least $2,500,000 and
not to exceed a specified debt to equity ratio. In addition, it places
restrictions on the Company's ability to incur additional indebtedness and on
its capital expenditures.
35
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Long-Term Debt and Credit Facilities (continued)
Aggregate principal payments on long-term debt are as follows:
Amount
------------
Year ending June 30:
1997 $ 1,729,997
1998 9,276,810
1999 984,107
2000 711,696
2001 147,252
Thereafter 12,689,958
------------
$ 25,539,820
============
6. Income Taxes
At June 30, 1996, the Company has net operating loss carryforwards of
approximately $68,300,000 for income tax purposes that expire in years 2000
through 2002. Those carryforwards, which resulted from the merger of Merrimac
Corporation ("Merrimac") into the Company on June 30, 1993, are available to
reduce future taxable income, if any, of the Company but not the taxable income
of any other member of the Company's group. Deferred tax assets and liabilities
reflect the net tax effects of net operating loss carryforwards and temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
36
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Income Taxes (continued)
For financial reporting purposes, a valuation allowance has been recognized to
offset a portion of the deferred tax assets related to the carryforwards.
Significant components of the Company's deferred tax liabilities and assets are
as follows:
June 30
1996 1995
--------------------------
Deferred tax liabilities:
Book basis of fixed assets over tax basis $ 533,000 $ 783,000
Book basis of carrying value of investee
over tax basis 344,000 509,000
--------------------------
Total deferred tax liabilities 877,000 1,292,000
--------------------------
Deferred tax assets:
Net operating loss carryforwards 23,222,000 23,328,000
Miscellaneous 180,000 87,000
--------------------------
Total deferred tax assets 23,402,000 23,415,000
Valuation allowance 23,093,000 22,761,000
--------------------------
Net deferred tax assets 309,000 654,000
--------------------------
Net deferred tax liability $ 568,000 $ 638,000
==========================
The components of (loss) income before income taxes, extraordinary item and
cumulative effect of accounting change follow:
For the year ended June 30
1996 1995 1994
-------------------------------------------------
Domestic $ (695,770) $ 2,702,378 $ 2,495,713
Foreign (1,508,174) (1,244,944) (1,353,043)
-------------------------------------------------
$(2,203,944) $ 1,457,434 $ 1,142,670
=================================================
37
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Income Taxes (continued)
Significant components of the income tax expense (benefit) are as follows:
1996 1995 1994
-----------------------------------------------
Current:
Federal $ 100,000 $ 182,000 $ 330,000
State 533,000 301,000 575,000
-----------------------------------------------
Total current 633,000 483,000 905,000
-----------------------------------------------
Deferred:
Federal (62,000) (32,000) 133,000
State (8,000) (4,000) 17,000
-----------------------------------------------
Total deferred (70,000) (36,000) 150,000
-----------------------------------------------
$ 563,000 $ 447,000 $ 1,055,000
===============================================
The reconciliation of income tax expense (benefit) computed at the U.S. federal
statutory tax rates to income tax expense follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------- --------------------- ----------------------
Amount Percent Amount Percent Amount Percent
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tax at U.S. statutory rates $ (749,000) (34.0%) $ 496,000 34.0% $ 389,000 34.0%
Increases (reductions) resulting from:
Alternative minimum tax 100,000 4.5 -- -- 130,000 11.4
State taxes, net of federal
tax benefit 525,000 23.8 196,000 13.5 391,000 34.2
Adjustment of prior years
underaccrual (overaccrual) of
income tax 159,000 7.2 (76,000) (5.2) 200,000 17.5
Loss from foreign operations (not
subject to U.S. federal income
taxes) reduced by portion charged
to minority interest for which no
tax benefit is recognized 511,000 23.2 423,000 29.0 460,000 40.2
Minority interest in loss from
domestic operations (203,000) (9.2) (105,000) (7.2) (43,000) (3.8)
Equity in net loss of investees
for which no tax benefit is
recognized 351,000 15.9 18,000 1.2 167,000 14.6
Net operating loss carryforwards (253,000) (11.5) (441,000) (30.2) (712,000) (62.2)
Other items 122,000 5.6 (64,000) (4.4) 73,000 6.4
---------------------------------------------------------------------
$ 563,000 25.5 $ 447,000 30.7% $ 1,055,000 92.3%
=====================================================================
</TABLE>
38
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Benefit Plans
The Company and certain subsidiaries have profit-sharing plans covering
substantially all nonunion employees. Contributions to one of the plans is
discretionary. Total plan costs were approximately $215,000 $215,000 and
$205,000 for the years ended June 30, 1996, 1995 and 1994, respectively.
Merrimac, which has been merged into the Company had noncontributory pension
plans covering certain employees. All covered employees participated in the
basic pension plan with benefits based upon years of service. In addition,
Merrimac maintained a supplementary plan for salaried employees covered by the
basic pension plan. This supplementary plan provided benefits based upon salary
and years of credited service, with deductions for employees' primary social
security benefits and benefits received under the basic plan. The funding policy
is to contribute at least the minimum amounts required by the Employee
Retirement Income Security Act of 1974 or additional amounts to assure that plan
assets will be adequate to provide retirement benefits.
The following table sets forth the funded status of the Merrimac pension plans
at June 30:
1996 1995
--------------------------------
Accumulated Accumulated
Benefits Benefits
Exceed Assets Exceed Assets
--------------------------------
Actuarial present value of benefit obligations
Vested $ 5,053,000 $ 5,226,000
--------------------------------
Projected benefit obligation 5,053,000 5,226,000
Plan assets (primarily short-term money funds)
at fair market value 4,042,000 4,447,000
--------------------------------
Plan assets less than projected benefit
obligation 1,011,000 779,000
Unrecognized net gain 205,000 437,000
--------------------------------
Net pension liability recognized in the
Consolidated Balance Sheet $ 1,216,000 $ 1,216,000
================================
Since a significant part of Merrimac's operations have been discontinued,
substantially all employees included in the plan have been terminated and no
additional service benefits will accrue to such employees.
39
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Benefit Plans (continued)
Net periodic pension cost included the following components:
1996 1995 1994
-----------------------------------
Interest cost on projected benefit
obligation $ 349,000 $ 358,000 $ 372,000
Actual return on assets (65,000) (390,000) (24,000)
Net amortization and deferral (300,000) 58,000 (342,000)
-----------------------------------
Total pension expense (benefit) $ (16,000) $ 26,000 $ 6,000
===================================
The discount rate used in determining the actuarial present value of the
projected benefit obligation was 7-1/4% at June 30, 1996 and 7.0% at June 30,
1995. The expected long-term rate of return on plan assets was 8% in 1996 and 7%
in each of 1994 and 1995.
8. Leases
The Company is the lessee under a noncancellable operating ground lease which
expires in 2065, provides for rentals of $8,952 per year and requires future
minimum rental payments aggregating $608,682 at June 30, 1996. Rent expense
includes real estate taxes, and in certain instances utilities and maintenance
costs, and rent for the corporate home office under a month-to-month lease from
a related party (see Note 10). Total rent expense for all operating leases
amounted to approximately $126,000, $124,000, and $120,000 for the years ended
June 30, 1996, 1995 and 1994, respectively.
The Company owns various office buildings, industrial buildings and shopping
centers from which it earns rental income under leases with various tenants.
Generally leases provide for tenants to pay additional amounts based on real
estate taxes and operating expenses incurred to maintain and operate these
properties in excess of base year amounts. Lease terms for these properties
range from 1 to 20 years.
40
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Leases (continued)
Future minimum rentals (excluding operating expenses and other items billable to
tenants which aggregated approximately $3,100,000, $2,900,000, and $2,700,000 in
the years ended June 30, 1996, 1995 and 1994, respectively) to be received under
the above-mentioned leases, all of which are classified and accounted for as
operating leases, are as follows:
Amount
-------------
Year ending June 30:
1997 $ 13,500,000
1998 11,200,000
1999 8,500,000
2000 6,600,000
2001 5,700,000
Thereafter 20,500,000
-------------
$ 66,000,000
=============
9. Commitments and Contingencies
a. The Company, together with the other partners of the health care
partnerships (see Note 4), have issued joint and several guarantees on
approximately $4,400,000 of the health care partnerships' mortgage loans
which are payable in monthly installments through June 1999.
b. A foreign subsidiary has issued a mortgage on its real estate to
collateralize bank debt of the Mondragon Companies (see Note 4) of which
$1,801,000 is outstanding at June 30, 1996.
41
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Related Party Transactions
Certain stockholders, directors, officers or their relatives ("related parties")
own interests in certain investments of the Company as follows:
Percent Ownership by
----------------------------
Investment The Company Related Party
- ---------------------------------------------------------------------------
Bluepoints Company Inc. ("Bluepoints") 80.2% 19.8% (1)
Sunscape Associates 50.0 50.0
The Mondragon Companies 38.0 50.0 (2)
Larfico Larvas Del Pacifico S.A 62.5 25.0
Comercorp S.A 62.5 25.0
(1)--At June 30, 1996 and 1995, the minority share of stockholders' deficiency
of Bluepoints amounted to $2,331,984 and $1,361,636, respectively. Such
deficiency results from losses which were funded by loans from the Company on
behalf of the minority shareholders. Repayment of the minority interest
deficiency has been jointly guaranteed by a major stockholder and the Estate of
A.A. Rosen. Accordingly, the minority interest share in the deficiency of the
subsidiary is shown as a receivable due from related parties in the consolidated
balance sheets.
(2)--Bluepoints has made advances to the Mondragon Companies amounting to
$2,988,246 and $4,390,020 at June 30, 1996 and 1995, respectively (see Note 4).
Repayment of 56.8% of any advances to the Mondragon Companies has been
guaranteed by the Estate of A.A. Rosen which owns 50% of the Mondragon
Companies.
42
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Related Party Transactions (continued)
Certain transactions were entered into with the above-mentioned related parties
and companies in which they have an ownership interest as follows:
<TABLE>
<CAPTION>
Amount
------------------------------ Related Party
Transactions 1996 1995 1994 Ownership
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Insurance purchased in participation with the
Rosen Group Properties:
Premiums incurred $264,000 $312,000 $310,000 --%
Administrative fee received 75,000 75,000 75,000 --
Payable at June 30 to Rosen Group
Properties for premiums above 264,000 312,000 310,000 --
Home office rent 98,000 95,000 95,000 100
Interest on $640,000 note to the Estate of
A.A. Rosen 61,000 59,000 56,000 --
Interest from the Estate of A.A. Rosen loans 45,000 -- -- --
Loans receivable from the Estate of A.A. Rosen 725,000 -- -- --
Note payable to the Estate of A.A. Rosen 640,000 640,000 640,000 --
</TABLE>
See Note 4 for other related party information.
11. Other Matters
a. Other revenue for the year ended June 30, 1994 includes $1,321,775 received
in full satisfaction of all remaining royalty obligations pursuant to a
royalty agreement which was terminated.
b. In June 1992, Whitlock, which was in the wool-combining business, sold
substantially all of its assets and substantially terminated all its
remaining operations. The remaining assets of Whitlock, consisting of land
and building which are being held for sale, are recorded at their estimated
net realizable value of $1,150,000 at June 30, 1996 ($1,400,000 at June 30,
1995). Expenses of $563,000, $389,000 and $526,000 incurred in connection
with the land and building held for sale were charged to operations during
the years ended June 30, 1994, 1995, and 1996, respectively.
43
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. Other Matters (continued)
c. Financial instruments which potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash
equivalents, mortgages receivable and accounts and rents receivable. The
Company maintains operating cash accounts at financial institutions in many
states along the Eastern seaboard and, for its foreign subsidiaries, in
Ecuador. Such accounts are subject to risk to the extent that the balances
exceed the institutions' insurable limits. The Company's policy is designed
to limit exposure to any one institution. Mortgages receivable are
collateralized by real estate in Florida. The Company's management has
attempted to mitigate the risk of such mortgages by evaluating the
creditworthiness of the prospective borrowers prior to acceptance.
Concentrations of credit risk with regard to accounts and rents receivable
are limited due to the large number of entities comprising the Company's
customer base and such base being dispersed over the industries in which
the Company operates.
Based on an analysis of the financial instruments which potentially subject
the Company to significant concentrations of credit risk, the Company's
management believes that there are no significant concentrations of credit
risk at June 30, 1996.
d. During the years ended June 30, 1996, 1995 and 1994, there were 1,248,590,
and 3,656 shares of stock purchased for treasury at a cost of $41,477,
$20,040 and $169,188, respectively.
44
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
45
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
a. and b. Identification of directors and executive officers:
All Positions and Offices
Name Age with Registrant Served Since
- --------------------------------------------------------------------------------
Irving S. Bobrow 82 Director April 1983
Harry Bergman 54 Director October 1991
Treasurer June 1988
Secretary June 1988
Norman A. Halper 77 Director October 1969
President April 1983
Miriam N. Rosen 76 Director December 1994
Jonathan P. Rosen 52 Director February 1972
Vice President September 1978
Chairman of the Board December 1994
William M. Silverman 54 Director December 1981
Louis H. Nimkoff 34 Vice President June 1988
Robert Nimkoff 35 Director April 1991
Vice President June 1988
Jane G. Weiman 52 Director December 1991
The term of office for all directors and executive officers will expire at the
next annual meeting of stockholders, which is anticipated to be held in December
1996, upon the election and qualification of their successors.
c. Not applicable.
46
<PAGE>
d. Family Relationships
Jonathan P. Rosen is the son of Miriam N. Rosen.
Louis H. Nimkoff and Robert Nimkoff are brothers and are cousins of
Jonathan P. Rosen.
Jane G. Weiman is the sister-in-law of William M. Silverman and a cousin of
Jonathan P. Rosen.
e. Business Experience
Irving S. Bobrow is a member of the New York Bar. For more than the past
five years, Mr. Bobrow has been a member of the law firm of Bobrow & Rosen
in New York City and has engaged in real estate investments for his own
account.
Miriam N. Rosen is a member of the New York Bar. For more than the past
five years, Mrs. Rosen has been counsel to the law firm of Bobrow & Rosen
in New York City and has engaged in real estate investments for her own
account. Mrs. Rosen became a director of the Company in December 1994.
William M. Silverman is a member of the New York Bar. For more than the
past five years, Mr. Silverman has been a member of the law firm of
Otterbourg, Steindler, Houston and Rosen P.C. in New York City.
Jane G. Weiman has been a private investor for more than the past five
years. For the past several years, Mrs. Weiman has also been an officer of
the Board of the Washington, D.C. Urban League and an advisor to
Washington, D.C. Counsel-Member-at-Large, John Ray. Mrs. Weiman became a
Director of the Company in December 1991.
All other directors and executive officers have served as such for more
than the past five years.
f. Not applicable.
g. Not applicable.
Section 16(a) Beneficial Ownership Reporting Compliance
The Company believes, based on written representations received by it, that for
the year ended June 30, 1996, all filing requirements under Section 16(a) of the
Securities Exchange Act of 1934 applicable to beneficial owners of the Company's
securities and the Company's officers and directors were complied with.
47
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The Chairman of the Company's Board of Directors has annually reviewed and set
the compensation of the Chief Executive Officer of the Company who, in turn, has
reviewed and set the compensation of the other officers of the Company. All such
compensation is reviewed on or about April 1 of each year taking into
consideration (i) the Company's financial performance during the preceding year,
(ii) the performance of the employee during that year, and (iii) the need to
retain competent executive officers dedicated to the enhancement of the
Company's performance in future years by paying salaries comparable to those
being paid to such executive officers by other companies involved in similar
lines of business.
The following table sets forth all compensation paid or accrued by the Company
during the last three fiscal years for services in all capacities to the Chief
Executive Officer and each executive officer of the Company whose cash
compensation exceeds $100,000.
(a) (b) (c) (d)
Name and Annual Other Annual
Principal Position Year Compensation Compensation (1)
- --------------------------------------------------------------------------------
Jonathan P. Rosen 6-30-96 $ 238,425 $ 8,315
Chairman 6-30-95 123,108 --
A.A. Rosen 6-30-95 115,763 --
Chairman (deceased 11-9-94) 6-30-94 223,300 15,810
Norman A. Halper 6-30-96 238,425 12,704
President and Chief Executive Officer 6-30-95 238,871 13,690
6-30-94 223,300 15,810
Harry Bergman 6-30-96 133,996 9,062
Secretary--Treasurer 6-30-95 143,955 10,661
6-30-94 137,717 10,359
Stephen L. Bernstein 6-30-96 179,177 10,897
Corporate Counsel 6-30-95 177,662 --
(1) The Company maintains two profit-sharing plans which cover a significant
number of their employees. Vesting begins at 20% after two years of service
with 100% vesting being reached after six years of service. Company
contributions to one such plan are at the discretion of the Board of
Directors. The Company is required to make minimum contributions to the
second plan and, at the discretion of the Board of Directors, may make
additional contributions. The executive officers listed above are covered
under the second plan and the amount contributed by the Company to such
plan on behalf of each executive officer is set forth under the heading
"Other Compensation" in the Executive Compensation Summary.
48
<PAGE>
Compensation of Directors
Each director who is not an officer of the Company is paid $3,000 per quarter.
The following performance graph is a line graph comparing the yearly change in
the cumulative stockholder return on the Company's Common Stock against the
cumulative return of the Dow Jones Equity Market Index and the Dow Jones
Conglomerates Index for the five fiscal years ended June 30, 1996. The
stockholder return on the Company's Common Stock has been determined solely
based on the price of the Common Stock since there have been no dividends
declared on the Common Stock. Since there has been only limited or sporadic
quotations for the Common Stock during the five year period, the price of the
Common Stock at the relevant dates has been determined by utilizing the price at
which the Company purchased shares of Common Stock on the dates closest to each
measuring date.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
Among The First Republic Corporation of America, Dow Jones Equity
Market Index and Dow Jones Independent - Conglomerates Index
Fiscal Year Ending June 30
[The following table appeared as a line graph in the printed material]
- --------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996
- --------------------------------------------------------------------------------
The First Republic Corporation of America 100 96 80 65 56 55
- --------------------------------------------------------------------------------
Dow Jones Equity Market Index 100 114 131 132 167 212
- --------------------------------------------------------------------------------
Dow Jones Independent - Conglomerates 100 109 141 141 179 271
- --------------------------------------------------------------------------------
49
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
a. Security Ownership of Certain Beneficial Owners
The following table sets forth certain information with respect to all
persons who are known to the Company to be the beneficial owner of more
than 5% of its common stock as of September 16, 1996:
Amount and Nature
Title of Name and Address of Beneficial Percent
Class of Beneficial Owner Ownership (1) of Class
- --------------------------------------------------------------------------------
Common Mary Nimkoff 103,013(2) 15.32%
26 Buttonball Lane
Weston, Connecticut
Common Jonathan P. Rosen 227,726(3) 33.87
40 East 69th St.
New York, New York
Common Lynn M. Silverman 113,350 16.86
911 Park Avenue
New York, New York
Common Jane G. Weiman 113,290 16.85
5610 Wisconsin Avenue
Chevy Chase, Maryland
(1)--Except as noted below in Notes (2) and (3), all shares are owned directly
by the parties listed in the table.
(2)--Includes 5,756 shares representing her proportionate interest in 19,188
shares owned by Tranel, Inc. Tranel, Inc. is a corporation of which 30%, 15.2%,
34.8%, 10% and 10% of the shares of which are owned by Mary Nimkoff, Jonathan P.
Rosen, Miriam N. Rosen, Louis H. Nimkoff and Robert Nimkoff, respectively.
(3)--Includes 2,917 shares representing his proportionate interest in 19,188
shares owned by Tranel, Inc.
50
<PAGE>
b. Security Ownership of Management
The following table sets forth as of September 16, 1996 certain information
with respect to security holdings in the Company and Bluepoints, an 80.2%
owned subsidiary of the Company, by directors of the Company and all
officers and directors as a group:
<TABLE>
<CAPTION>
Common Stock
Common Stock of Bluepoints
---------------------------------------------------------
Amount Percent Amount Percent
Name of Officer Beneficially of Beneficially of
or Director Owned (1) Class Owned Class
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Irving S. Bobrow 200 .03%
Robert Nimkoff 3,414 (2) .51
Lou Nimkoff 5,189 (2) .77
Norman A. Halper 400 .06
Jonathan P. Rosen 227,726 33.87 500 (3) 4.95%
Miriam N. Rosen 31,759 4.72 500 (3) 4.95
William M. Silverman 200 (4) .03 (4)
Jane G. Weiman 113,290 16.85 500 4.95
All officers and directors
as a group (8 persons) 382,178 56.85 1,500 14.85
</TABLE>
(1)--Messrs. Bobrow, Halper, Silverman and Mrs. Weiman own their shares
directly. Jonathan P. Rosen owns 224,809 shares directly. See Notes (2) and
(3) of the preceding table.
(2)--Includes 1,919 shares representing his proportionate interest in
19,188 shares owned by Tranel, Inc.
(3)--Owned directly.
(4)--Does not include 113,350 shares of common stock and 500 shares of
Bluepoints owned by his wife (Lynn M. Silverman) directly. Mr. Silverman
disclaims beneficial ownership of such shares.
c. Changes in Control
The Company knows of no contractual arrangements which may at a subsequent
date result in a change in control of the Company.
51
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
a. Transactions with Management and Others
Lynn M. Silverman, a principal stockholder of the Company, Jane G. Weiman,
a director and principal stockholder of the Company, Jonathan P. Rosen, a
director, vice president and principal stockholder of the Company, and
Miriam N. Rosen, a director of the Company, own in the aggregate 19.8% of
the outstanding shares of Bluepoints. The remainder of the shares of
Bluepoints is owned by the Company. Lynn M. Silverman is the wife of
William M. Silverman, a director of the Company.
Bluepoints holds a second mortgage loan on the industrial center owned by
the Company in East Newark, New Jersey. From July 1995 through September
1996, the Company made payments of $149,850 with respect to such loan,
$35,587 of which was applied to the payment of interest and $114,263 to
amortization of principal. As of September 1, 1996, the outstanding
principal balance of the loan was $212,161. The loan bears interest at the
rate of 8% per annum, provides for monthly payments of $9,990 and is
self-liquidating over a period which expires in July 1998.
The Company's corporate office is located in a building owned by 302 Fifth
Ave. Associates, a partnership owned 100% by The Estate of A.A. Rosen,
Miriam Rosen and Jonathan Rosen. The Company is a month-to-month tenant,
paying rent of $8,200 per month as of June 30, 1996, which the Company
believes is comparable to other rentals in the areas. Jonathan P. Rosen is
the executor of the Estate of A.A. Rosen and Miriam Rosen is the primary
beneficiary of the Estate of A.A. Rosen.
The Estate of A.A. Rosen owns 50% of Isca C.A. and Langomorro CIA, Ltda.
(collectively referred to as "Mondragon"), two Ecuadorian corporations
engaged in shrimp farming operations. In the current fiscal year,
substantially all of Mondragon shrimp production, approximately $1,594,000,
was sold to Bluepoints. The Estate of A.A. Rosen also holds a $640,000 note
payable by Bluepoints which note was originally issued in May 1991 in
connection with the acquisition by Bluepoints of a 38% interest in
Mondragon and an additional 12-1/2% interest in Larfico Larvas Del Pacifico
S.A., an Ecuadorian corporation which owns and operates a shrimp hatchery
and Comercorp S.A. which owns certain real property in Ecuador. The note is
a demand note and bears interest at 1% above the prime rate in effect at
European American Bank. From July 1, 1995 through August 21, 1996, the
Estate of A.A. Rosen received $61,000 in interest on the $640,000 note. The
Company has advance money on behalf of the Estate of A.A. Rosen to
Mondragon which totaled $725,000 at June 30, 1996. The amount advanced is
payable upon demand by the Estate of A.A. Rosen and bears interest at 1%
above the prime rate in effect at European American Bank. The Estate of
A.A. Rosen has paid $45,000 in interest during the year.
52
<PAGE>
b. Certain Business Relationships
The Company and its subsidiaries purchase substantially all of their
property, casualty and liability insurance through participation with a
group of other entities controlled by The Estate of A.A. Rosen and Jonathan
P. Rosen (the "Rosen Group Properties"). This procedure enables the group
to obtain negotiated insurance rates. During the fiscal years ended June
30, 1996, 1995 and 1994, total premiums incurred by the Company and its
subsidiaries under this arrangement amounted to approximately $264,000,
$312,000, and $310,000, respectively. The Company received fees of $75,000
in fiscal 1996, 1995 and 1994, representing charges to the group for
administrative services performed by Company personnel in connection with
the foregoing. At June 30, 1996, approximately $264,000 was payable to
Rosen Group Properties.
Tranel Inc. and Statecourt Enterprises, Inc. each owns a 25% interest in a
167-unit garden complex located in Orlando, Florida in which the Company
owns the remaining 50%. Tranel Inc. is owned by Mary Nimkoff, Jonathan P.
Rosen, Miriam N. Rosen, Robert Nimkoff and Louis H. Nimkoff (see Item 12)
and Statecourt Enterprises, Inc. is owned 48% by The Estate of A.A. Rosen,
20% by Jonathan P. Rosen and 32% by a trust for Miriam N. Rosen.
c. Indebtedness of Management
The Estate of A.A. Rosen owns 25% of the outstanding stock of Larfico, an
Ecuadorian corporation that owns a hatchery that produces post-larval
shrimp and 50% of the outstanding stock of Mondragon, an Ecuadorian company
engaged in shrimp farming operations. Bluepoints beneficially owns 62.5% of
the outstanding stock of Larfico and all of the outstanding stock of
Emporsa, an Ecuadorian corporation engaged in shrimp farming operations. As
of August 31, 1996, Larfico was indebted to Bluepoints for $196,667 of
loans made by Bluepoints to Larfico at various dates between November 8,
1985 and August 5, 1988 (the "Larfico Indebtedness.") Such loans bear
interest at 1% over the prime rate in effect at European American Bank and
are due August 1997. Since July 1, 1995, the largest aggregate amount of
outstanding indebtedness from Larfico to Bluepoints was $196,667.
In addition, as of August 31, 1996, Mondragon was indebted to Bluepoints
for $2,988,246 of loans made by Bluepoints to Mondragon on various dates
between August 28, 1991 and June 28, 1996 (the "Mondragon Indebtedness").
Such loans bear interest at 1% over the prime rate in effect at European
American Bank and have no fixed maturity. Since July 1, 1995, the largest
aggregate amount of outstanding indebtedness from Mondragon to Bluepoints
was $4,390,000. The Estate of A.A. Rosen has guaranteed the repayment of
25% of the Larfico Indebtedness and 56.8% of the Mondragon Indebtedness.
53
<PAGE>
Since July 1, 1995, the largest amount of outstanding indebtedness from
Emporsa and Larfico to Mondragon was $725,000, which was the balance at
June 30, 1996. Such loans bear no interest and have no fixed maturity.
Since July 1, 1995, the largest amount of outstanding indebtedness from
Mondragon to Larfico and Emporsa was $349,000, which was the balance at
June 30, 1996. Said indebtedness has no fixed maturity and is noninterest
bearing.
As of August 31, 1996, Bluepoints was indebted to the Company for
$21,561,000 of loans made by the Company to Bluepoints at various dates
between November 8, 1985 and August 31, 1996. Such loans bear interest at
the rate of 1% over the prime rate in effect at European American Bank and
are due on demand. Since July 1, 1995, the largest aggregate amount of
outstanding indebtedness from Bluepoints to the Company was $21,561,000. A
substantial portion of the foregoing loans was used by Bluepoints to
acquire and fund the Ecuadorian shrimp operations.
The Estate of A.A. Rosen and Jonathan P. Rosen have jointly provided a
limited guarantee with respect to the repayment of loans made by the
Company to Bluepoints. Such guarantee is limited to 19.8% of the deficiency
in the shareholders equity of Bluepoints. As of June 30, 1996, the amount
of the guarantee was $2,331,984.
d. Not applicable.
54
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
a. 1. Financial Statements
The following financial statements of The First Republic Corporation of
America and Subsidiaries are included in Part II, Item 8:
Reports of Independent Auditors
Consolidated Balance Sheets--June 30, 1996 and 1995
Consolidated Statements of Operations--Years Ended
June 30, 1996, 1995 and 1994
Consolidated Statements of Retained Earnings--Years Ended
June 30, 1996, 1995 and 1994
Consolidated Statements of Cash Flows--Years Ended
June 30, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
a. 2. Financial Statement Schedules:
Schedule II--Valuation and Qualifying Accounts
Schedule III--Real Estate and Accumulated Depreciation
Schedule IV--Mortgage Loans on Real Estate
All other schedules have been omitted because they are not applicable
or the required information is shown in the financial statements or the
notes thereto.
b. Reports on Form 8-K
None
c. Exhibits
3. Articles of Incorporation and bylaws
(i) Articles of Incorporation are incorporated by reference to Form 10-K
for the fiscal year ended June 30, 1981.
(ii) Bylaws are incorporated by reference to Form 10-K for the fiscal year
ended June 30, 1992.
21. Subsidiaries of the Company
27. Financial Data Schedule
99. Supplemental Financial Information for Unconsolidated Subsidiaries.
55
<PAGE>
The First Republic Corporation of America and Subsidiaries
Schedule II--Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Col. A Col. B Col. C Col. D Col. E
- ---------------------------------------------------------------------------------------------------------------------
Additions
--------------------------------
Balance at Charged to Charged to Balance at
Beginning of Costs and Other Accounts-- Deductions-- End of
Description Period Expenses Describe Describe Period
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended June 30, 1996:
Allowance for doubtful accounts $ 253,679 $ 35,534 $ 78,868 (a) $ 210,345
========================= =============================
Year ended June 30, 1995:
Allowance for doubtful accounts $ 153,180 $ 100,499 $ - $ 253,679
========================= =============================
Year ended June 30, 1994:
Allowance for doubtful accounts $ 158,213 $ 150,000 $ 155,033 (a) $ 153,180
========================= =============================
</TABLE>
(a) Amounts charged off and credits issued, net of recoveries on accounts
previously written off.
56
<PAGE>
The First Republic Corporation of America and Subsidiaries
Schedule III--Real Estate and Accumulated Depreciation
Year ended June 30, 1996
<TABLE>
<CAPTION>
Column A Column B Column C Column D
- ------------------------------------------------------------------------------------------------------------
Initial Cost to Cost Capitalized
Company Subsequent to
------------------------ Acquisition
Buildings -------------------------
and Related Carrying
Description Encumbrances Land Assets Additions Costs
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
250 W. 39th Street Building,
New York, New York-- $ 437,559 $ 1,155,129 $ (603,978)
Eighteen story office building
Waltham Engineering Center,
Waltham, Massachusetts--
Seventeen multi-story
industrial buildings 188,573 2,163,945 127,006
Four Points Hotel--
Syracuse, Liverpool, New York--Hotel
operations 1,651,923 4,442,523
Video Film Center,
New York, New York--
Ten story office building $ 6,000,000 625,000 3,439,061 969,432
East Newark, New Jersey--
Thirty multi-story
industrial buildings 10,244,470(b) 605,089 4,068,693 (3,025,366)
Greensboro Plaza,
Greensboro, North Carolina--
Shopping center 379,947 1,696,953 657,421
Greensboro South,
Greensboro, North Carolina--
Shopping center 2,754,200 419,739 1,350,376 1,412,736
Nyanza Building,
Woonsocket, Rhode Island--
Four story industrial building 60,000 1,288,139 (1,110,650)
<CAPTION>
Column A Column E Column F Column G Column H Column I
- -----------------------------------------------------------------------------------------------------------------------------------
Gross Amount at Which
Carried at Close of Period (a) Life on Which
--------------------------------------- Depreciation in
Buildings Latest Income
and Related Accumulated Date of Date Statements
Description Land Assets Total Depreciation Construction Acquired is Computed
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
250 W. 39th Street Building,
New York, New York-- $ 437,559 $ 551,151 $ 988,710 $ 141,269 5/19/67 5-15 years
Eighteen story office building
Waltham Engineering Center,
Waltham, Massachusetts--
Seventeen multi-story
industrial buildings 188,573 2,290,951 2,479,524 428,996 7/01/62 10-20 years
Four Points Hotel--
Syracuse, Liverpool,
New York--Hotel operations 6,094,446 6,094,446 4,559,837 3/17/69 5-15 years
Video Film Center,
New York, New York--
Ten story office building 625,000 4,408,493 5,033,493 2,997,166 10/04/68 33-1/3 years
East Newark, New Jersey--
Thirty multi-story
industrial buildings 605,089 1,043,327 1,648,416 274,115 3/11/63 21-1/3 years
Greensboro Plaza,
Greensboro, North Carolina--
Shopping center 379,947 2,354,374 2,734,321 1,775,646 12/01/74 21-1/3 years
Greensboro South,
Greensboro, North Carolina--
Shopping center 706,906 2,475,945 3,182,851 1,672,529 12/01/74 21-1/3 years
Nyanza Building,
Woonsocket, Rhode Island--
Four story industrial building 60,000 177,489 237,489 46,916 11/01/68 10-20 years
</TABLE>
57
<PAGE>
The First Republic Corporation of America and Subsidiaries
Schedule III--Real Estate and Accumulated Depreciation (continued)
Year ended June 30, 1996
<TABLE>
<CAPTION>
Column A Column B Column C Column D
- ------------------------------------------------------------------------------------------------------------
Initial Cost to Cost Capitalized
Company Subsequent to
------------------------ Acquisition
Buildings -------------------------
and Related Carrying
Description Encumbrances Land Assets Additions Costs
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richmond Shopping Center,
Richmond, Virginia--
Shopping center $ 293,814 $ 758,886 $ 217,955
First Republic Office Park,
Liverpool, New York--
Two, two-story office buildings $ 1,200,000(c) 351,600 4,124,526 1,171,199
Virginia Beach Shopping Center,
Virginia Beach, Virginia--
Shopping center 2,619,220 250,241 772,113 248,199
The First Republic Building Corp.,
Liverpool, New York--
Motor hotel (c) 413,779 5,681,562
Jefferson National Bank
Building--Miami, Florida--
Six story office building 2,975,000 2,044,409 5,643,015
Brookhaven Shopping Center,
Brookhaven, Pennsylvania--
Shopping Center 1,680,725 521,798 3,632,019 (656,336)
260 Merrimac Street,
Newburyport, Massachusetts--
Three story office building 195,213 377,317 74,429
Melbourne, Florida,
Vacant land 1,439,714 3,150
-----------------------------------------------------
Totals $27,473,615(d) $ 8,226,475 $37,803,657 $ 3,927,720
=====================================================
<CAPTION>
Column A Column E Column F Column G Column H Column I
- -----------------------------------------------------------------------------------------------------------------------------------
Gross Amount at Which
Carried at Close of Period (a) Life on Which
--------------------------------------- Depreciation in
Buildings Latest Income
and Related Accumulated Date of Date Statements
Description Land Assets Total Depreciation Construction Acquired is Computed
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Richmond Shopping Center,
Richmond, Virginia--
Shopping center $ 360,507 $ 910,148 $ 1,270,655 $ 518,428 3/15/76 25 years
First Republic Office Park,
Liverpool, New York--
Two, two-story office 351,600 5,295,725 5,647,325 1,159,177 10/01/85 5-40 years
buildings
Virginia Beach Shopping Center,
Virginia Beach, Virginia--
Shopping center 397,338 873,215 1,270,553 598,679 3/30/76 25-31.5 years
The First Republic Building Corp.,
Liverpool, New York--
Motor hotel (c) 413,779 5,681,562 6,095,341 5,548,627 9/21/62 10-25 years
Jefferson National Bank
Building--Miami, Florida--
Six story office building 2,044,409 5,643,015 7,687,424 1,462,999 4/27/88 31-1/2 years
Brookhaven Shopping Center,
Brookhaven, Pennsylvania--
Shopping Center 149,456 3,348,025 3,497,481 2,096,374 12/16/76 5-33 years
260 Merrimac Street,
Newburyport, Massachusetts--
Three story office building 236,713 410,246 646,959 174,985 10/25/87 10-25 years
Melbourne, Florida,
Vacant land 1,442,864 1,442,864
-----------------------------------------------------
Totals $8,399,740 $41,558,112 $49,957,852 $ 23,455,743
=====================================================
</TABLE>
(a) Cost for Federal income tax purposes approximates amounts reflected in
Column E.
(b) A mortgage is held by the bank who provides a line of credit to the
Company. (See Note 5 to the consolidated financial statements.)
(c) Assets of the First Republic Building Corp. are also pledged as collateral
for the Onondaga County Industrial Development Agency Bonds. (See Note 5 to
the consolidated financial statements.)
(d) Excludes $866,000 of mortgages on real estate used in the textile
operations.
58
<PAGE>
The First Republic Corporation of America and Subsidiaries
Schedule IV--Mortgage Loans on Real Estate
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Col. A Col. B Col. C Col. D Col. E Col. F Col. G Col. H
- ------------------------------------------------------------------------------------------------------------------------------------
Principal Amount
of Loans Subject
to Delinquent
Periodic Prior Face Amount Carrying Amount of Principal or
Description Interest Rate Final Maturity Date Payment Terms Liens of Mortgages Mortgages(b) Interest
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
First lien on motel--
Miami Beach, Florida 8.00% December 1, 1996 $ 7,338(a) None $ 617,783 $ 617,783 None
Two first liens on
condominiums--Orlando,
Florida 8.0%-8.4% December 1, 1998 to
June 1, 1999 1,000(a) None 112,443 112,443 None
-----------------------
Totals $ 730,226 $ 730,226
=======================
</TABLE>
(a) Represents monthly payment amounts with balance due at maturity.
(b) Cost for Federal income tax purposes approximates amounts reflected in
Column F.
59
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
THE FIRST REPUBLIC CORPORATION OF AMERICA
By /s/ Norman A. Halper
---------------------------------------
Norman A. Halper, Chief Executive
and Chief Operating Officer
By /s/ Harry Bergman
---------------------------------------
Harry Bergman, Chief Financial and
Chief Accounting Officer
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 Ocotober 15, 1996
/s/ Harry Bergman
- ----------------------------------
Harry Bergman, Director
/s/ Irving S. Bobrow
- ----------------------------------
Irving S. Bobrow, Director
/s/ Norman A. Halper
- ----------------------------------
Norman A. Halper, Director
/s/ Robert Nimkoff
- ----------------------------------
Robert Nimkoff, Director
/s/ Miriam N. Rosen
- ----------------------------------
Miriam N. Rosen, Director
/s/ Jonathan P. Rosen
- ----------------------------------
Jonathan P. Rosen, Director
60
Exhibit 21
The First Republic Corporation of America
List of Subsidiaries
The First Republic Building Corp.
Bluepoints Company Inc.
Bluepoints Company Inc. of Maryland
Quality Yarns Inc.
Whitlock Combing Company, Inc.
FRC of Delaware Inc.
FRCA Sunscape Corp.
Marchelot S.A.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 1,009,079
<SECURITIES> 0
<RECEIVABLES> 5,110,578
<ALLOWANCES> 210,345
<INVENTORY> 4,921,283
<CURRENT-ASSETS> 13,659,689
<PP&E> 72,076,477
<DEPRECIATION> 32,149,238
<TOTAL-ASSETS> 79,238,990
<CURRENT-LIABILITIES> 10,659,740
<BONDS> 23,809,823
0
0
<COMMON> 1,175,261
<OTHER-SE> 39,270,428
<TOTAL-LIABILITY-AND-EQUITY> 79,238,990
<SALES> 22,329,954
<TOTAL-REVENUES> 43,886,947
<CGS> 20,460,983
<TOTAL-COSTS> 22,137,914
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 35,534
<INTEREST-EXPENSE> 3,115,460
<INCOME-PRETAX> (2,203,944)
<INCOME-TAX> 563,000
<INCOME-CONTINUING> (2,766,944)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,766,944)
<EPS-PRIMARY> (4.11)
<EPS-DILUTED> (4.11)
</TABLE>
LANGOMORRO, LANGOSTINERA
EL MORRO CIA. LTDA.
AND AFFILIATED COMPANIES
========================================
Audit Report of the Consolidated and
Combined Financial Statements
On June 30, 1996 and 1995
<PAGE>
[LOGO] [Letterhead of BDO Stern Cia. Ltda.]
Independent Auditor's Report
To the Board of Directors
Langomorro, Langostinera El Morro Cia. Ltda. and Affiliated Companies
New York, U.S.A.
We have audited the consolidated and combined balance sheet of Langomorro,
Langostinera El Morro Cia. Ltda. and Affiliated Companies as of June 30, 1996
and 1995 and the related consolidated and combined statements of operations and
deficit, and of cash flows, for each of the years ended June 30, 1996, 1995 and
1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. 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 statements'
presentation. We believe that our audit provides 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 Langomorro, Langostinera El
Morro, Cia. Ltda. and affiliated companies as of June 30, 1996, and 1995, and
the results of their operations and their cash flows for the each of years ended
June 30, 1996, 1995 and 1994, in conformity with generally accepted accounting
principles prevailing in the United States of America.
/s/ BDO Stern
August 1, 1996
Guayaquil, Ecuador
<PAGE>
Langomorro, Langostinera El Morro Cia. Ltda.
and Affiliated Companies
Consolidated and Combined Balance Sheets
================================================================================
As June 30, 1996 1995
================================================================================
Assets
Current assets:
Cash in banks US$ 984 US$ 2,157
Accounts receivable (Note B) 43,769 44,609
Due from related parties (Note C) 1,553,757 1,189,919
Inventories (Note D) 936,115 492,427
Prepaid expenses 23,489 15,243
Temporary investments 1,730 2,125
- --------------------------------------------------------------------------------
Total current assets 2,559,844 1,746,480
Property, machinery and equipment (Note E) 8,055,866 7,256,636
Permanent investments (Note F) 3,066 3,066
Other assets (Note G) 754,538 970,119
- --------------------------------------------------------------------------------
US$ 11,373,314 US$ 9,976,301
- --------------------------------------------------------------------------------
Liabilities and stockholders' equity
Current liabilities:
Bank overdraft US$ 440,594 US$ 365,409
Bank loans payable (Note H) 1,800,810 1,452,830
Notes and accounts payable (Note I) 125,748 89,276
Due to related parties (Note J) 2,169,649 2,533,828
Interest payable 316,258 60,773
Accrued expenses 10,932 11,853
Current maturities of long-term debt (Note K) 1,982,000 1,982,000
- --------------------------------------------------------------------------------
Total current liabilities 6,845,991 6,495,969
Long term debt (Note K) 307,355 307,355
Stockholders' equity:
Common stock, S/. 10,000 and S/. 5,000
par value per share; 1,000 and S/. 73,118
shares authorized, issued, and outstanding
(Note L) 1,041,546 1,041,546
Additional paid-in capital (Note M) 9,543,967 6,427,096
Accumulated deficit (Note N) (6,365,545) (4,295,665)
- --------------------------------------------------------------------------------
Total stockholders' equity 4,219,968 3,172,977
- --------------------------------------------------------------------------------
US$ 11,373,314 US$ 9,976,301
================================================================================
See notes to consolidated and combined financial statements
2
<PAGE>
Langomorro, Langostinera El Morro Cia. Ltda.
and Affiliated Companies
Consolidated and Combined Statements of Operations and Deficit
================================================================================
For the years ended June 30, 1996 1995 1994
- --------------------------------------------------------------------------------
Income:
Net sales (Note P) US$ 1,594,053 US$ 775,404 US$ 617,044
Other income 49,408 18,150 28,713
Gain in translation 77,114 30,772
- --------------------------------------------------------------------------------
1,720,575 793,554 676,529
Cost and operating expenses:
Cost of products sold 2,001,964 800,488 990,877
Administrative expenses 355,599 311,667 195,168
Loss on translation 51,547 93,410
Amortization of facilities costs 215,581 107,791
Interest expenses 1,211,873 950,308 815,437
Other expenses 5,438 16,786 6,268
- --------------------------------------------------------------------------------
3,790,455 2,280,450 2,007,750
- --------------------------------------------------------------------------------
Net loss (2,069,880) (1,486,896) (1,331,221)
Deficit as of June 30 (4,295,665) (2,808,769) (1,477,548)
- --------------------------------------------------------------------------------
Accumulated deficit, June 30,
(Note N) US$(6,365,545) US$(4,295,665) US$(2,808,769)
================================================================================
See notes to consolidated and combined financial statements.
3
<PAGE>
Langomorro, Langostinera El Morro Cia. Ltda.
and Affiliated Companies
Statements of Cash Flows - Direct Method
================================================================================
<TABLE>
<CAPTION>
For the years ended June 30, 1996 1995 1994
========================================================================================
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers US$ US$ US$ 867,766
Cash paid to suppliers and employees (1,865,211) (201,642) (1,119,356)
Financial expenses (926,899) (293,508) (812,114)
Other income 45,115 2,639 23,673
- ----------------------------------------------------------------------------------------
Net cash used in operating activities (2,746,995) (492,511) (1,040,031)
- ----------------------------------------------------------------------------------------
Cash flows from investing activities:
Temporary investments (2,690)
Additions and purchase of property (939,607) (4,018,932) (926,225)
Additions to facilities cost (918,796)
Decrease to facilities cost 13,113
- ----------------------------------------------------------------------------------------
Net cash used in investing activities (939,607) (4,005,819) (1,847,711)
- ----------------------------------------------------------------------------------------
Cash flows from financing activities:
Net borrowing under line-of-credit
agreements-net payments 587,434 943,169 (658,520)
Additional paid-in capital 3,116,871 3,547,738 2,643,411
Third party loans 929,123
- ----------------------------------------------------------------------------------------
Net cash provided by financing
activities 3,704,305 4,490,907 2,914,014
- ----------------------------------------------------------------------------------------
Effect due to variation in cash
exchange rate (18,876) (18,888) 1,210
- ----------------------------------------------------------------------------------------
Net (decrease) increase in cash (1,173) (26,311) 27,482
Cash at beginning of the period 2,157 28,468 987
- ----------------------------------------------------------------------------------------
Cash at end of the period US$ 984 US$ 2,157 US$ 28,469
========================================================================================
</TABLE>
See notes to consolidated and combined financial statements
4
<PAGE>
Langomorro, Langostinera El Morro Cia. Ltda.
and Affiliated Companies
Reconciliation of Net Loss to Net Cash Used in Operating Activities
================================================================================
For the years ended June 30, 1996 1995 1994
================================================================================
Net loss US$(2,069,880) US$(1,486,896) US$(1,331,221)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation 140,377 82,368 91,372
Loss on translation 93,410
Amortization of facilities costs 215,581 107,791
Gain in translation (77,114) (30,772)
Changes in operating assets and
liabilities:
Increase in accounts receivable and
related parties (595,993) (20,487) (1,094,480)
(Increase) decrease in inventories (449,554) (157,059) 361,056
Increase in prepaid expenses (12,004) (7,958) (7,896)
Decrease in accrued expenses 300,323 176,932 12,993
Increase in interest payable 257,007
Increase in accounts payable
and due to related parties 701,910
(Decrease) increase in accounts
payable and due to related parties (198,731) 719,388
- --------------------------------------------------------------------------------
Net cash used in operating
activities US$(2,746,995) US$ (492,511) US$(1,040,031)
================================================================================
See notes to consolidated and combined financial statements
5
<PAGE>
Langomorro, Langostinera El Morro Cia. Ltda.
and Affiliated Companies
Notes to Consolidated and Combined Financial Statements
For the years ended June 30, 1996, and 1995
================================================================================
A. Summary of significant
accounting practices:
Business description Langomorro, Langostinera El Morro Cia. Ltda.
was founded on November 11, 1981 in
Guayaquil, Ecuador, for the purpose of
carrying out fishing activities. The Company
purchased 99.98% of the capital stock of
Camazul Cia. Ltda. and both maintain
production relationships with Isca, Isla
Camaronera C.A. The affiliated companies'
activities, taken as a whole (the Company),
are the nursery and grow-out, harvest and
export of shrimp.
On May 23, 1991, 38% of the total shares
issued by Langomorro and Camazul was acquired
by Marchelot S.A., a wholly-owned Subsidiary
of Bluepoints of Bermuda.
Principles of
consolidation and
combination The consolidated and combined financial
statements include the accounts of Camazul
Cia. Ltda., and Isca, Isla Camaronera C.A. in
conformity with accounting principles
generally accepted in the United States of
America (USA-GAAP). Investments and all
transactions and balances between
consolidated parties have been eliminated.
Operations Since the beginning of operations in 1981 and
until June 30, 1996, the Company has had
recurring losses of approximately
US$6,365,545. The origins of these recurrent
losses are principally the deficiencies in
the effective exploitation and productivity
in prior years of the 488 hectares of land
available in the ponds and grow-out pools.
Accounting
principles The Company maintains its accounting records
in Sucres (S/.). Financial statements are
translated using the U.S. Dollar as the
functional currency, in accordance with
generally accepted accounting principles
prevailing in the United States of America.
Inventories Finished goods and products in process
(shrimp) are stated at the lower of cost or
market, and include the value of larvae
purchases plus transport, feed, fertilizer,
fringe benefits, and depreciation.
6
<PAGE>
Langomorro, Langostinera El Morro Cia. Ltda.
and Affiliated Companies
Notes to Consolidated and Combined Financial Statements
For the years ended June 30, 1996 and 1995
================================================================================
Permanent investments Are stated at cost, adjusted for the equity
method.
Property, machinery and
equipment Are recorded at cost. Expenditures for
maintenance and repairs are charged to
expense as incurred, whereas major
improvements are capitalized. The
depreciation was calculated using the
straight-line method, based on the following
estimated useful lives of the related assets:
40 years for pools and structures, machinery
and equipment, 20 years for boats, 10 years
for furniture, laboratory equipment, various;
and 5 years for vehicles.
Changes in the purchasing
power of the local
currency The Sucre financial statements have been
prepared using the traditional historical
cost basis, in accordance with generally
accepted accounting principles and,
accordingly, do not attempt to reflect
changes in the purchasing power of the Sucre.
The loss in the purchasing power of the Sucre
may have a significant effect on the
comparability of the financial statements of
different periods and the results of any
period.
The purchasing power of the local currency
measured by the Consumer Price Index,
calculated by the National Institute of
Statistics and Census, is as follows:
Year ended Annual
December 31 inflation
---------------------------------------------
1992 61%
1993 31%
1994 25%
1995 23%
1996 (June 30) 12%
Translation of foreign
currency and exchange
rates The financial position, the results of
operations and the cash flows of the Company
are expressed in Ecuadorian Sucres and
translated into U.S. Dollars as follows:
7
<PAGE>
Langomorro, Langostinera El Morro Cia Ltda.
and Affiliated Companies
Notes to Consolidated and Combined Financial Statements
For the years ended June 30, 1996, and 1995
================================================================================
o Current assets and current liabilities are
translated at the free market exchange rate
in effect at the close of the period, except
for: inventories and prepaid expenses, which
are translated at the exchange rates in
effect when acquired or originally recorded.
o Property, machinery and equipment (and
their related accumulated depreciation),
investments, other assets (genetic project
and red fish), and stockholders' equity
accounts, are translated at the exchange
rates in effect when acquired or originally
recorded.
o Revenue and expense accounts are translated
at the average monthly free exchange rate in
effect during the period, except for
depreciation of fixed assets referred to
above.
The translation into U.S. Dollars should not be
assumed as representation that Sucres have
been, could have been, or could in the future
be converted into U.S. Dollars at these or any
other exchange rates.
B. Accounts receivable
June 30,
----------------------------------------------
1996 1995
----------------------------------------------
Foreign suppliers US$ 26,638 US$ 29,064
Employees 2,278 2,803
Others 14,853 12,742
----------------------------------------------
US$ 43,769 US$ 44,609
==============================================
C. Due from related parties
June 30,
-----------------------------------------------------------------
1996 1995
-----------------------------------------------------------------
Larfico, Larvas del Pacifico S.A. US$ 1,371,603 US$ 1,036,707
Comercial Inmobiliaria
Golconsa S.A. 44,926 21,487
Comercorp 60,660
-----------------------------------------------------------------
Subtotal US$ 1,477,189 US$ 1,058,194
8
<PAGE>
Langomorro, Langostinera El Morro Cia. Ltda.
and Affiliated Companies
Notes to Consolidated and Combined Financial Statements
For the years ended June 30, 1996 and 1995
================================================================================
June 30,
-----------------------------------------------------------------
1996 1995
-----------------------------------------------------------------
Subtotal 1,477,189 1,058,194
Marchelot 22,382
Neneta S.A. 38,749 18,834
Bunsen 15,261 64,598
Inmobiliaria Ma. Luciana 9,334 9,524
Ing. Carlos Perez 13,172 16,322
Others companies, individually
immaterial 52 65
-----------------------------------------------------------------
US$ 1,553,757 US$ 1,189,919
=================================================================
The accounts with related parties correspond to monies given
as loans by current accounts maintained with the Company,
non-interest bearing and without fixed maturity.
D. Inventories
June 30,
-----------------------------------------------------------------
1996 1995
-----------------------------------------------------------------
Products in process US$ 694,364 US$ 339,895
Finished goods 196,449 106,072
Materials and supplies 45,302 46,460
-----------------------------------------------------------------
US$ 936,115 US$ 492,427
=================================================================
E. Property, machinery
and equipment
June 30,
-----------------------------------------------------------------
1996 1995
-----------------------------------------------------------------
At acquisition cost:
Vehicles US$ 191,418 US$ 189,254
Fishing boats 251,964 227,000
Machinery and equipment 743,818 758,093
-----------------------------------------------------------------
Subtotal US$1,187,200 US$1,174,347
9
<PAGE>
Langomorro, Langostinera El Morro Cia. Ltda.
and Affiliated Companies
Notes to Consolidated and Combined Financial Statements
For the years ended June 30, 1996, and 1995
================================================================================
June 30,
-----------------------------------------------------------------
1996 1995
-----------------------------------------------------------------
Subtotal US$ 1,187,200 US$ 1,174,347
Construction in progress 40,183 5,258,314
Furniture and office equipment 67,482 67,254
Various 44,526 39,857
Installations 6,511 8,377
Land 4,184 4,184
Pools and reservoirs 1,485,807 1,345,579
Recirculation of water (1) 5,975,657
Sluices for channels 187,329 155,404
Tools and fishing tackle 2,586 2,585
Pumping station 495,099 485,698
Laboratory equipment 10,076 14,465
Housing for personnel 59,901 58,939
Other properties 51,175 12,981
Wall repairs 22,262 51,175
Wharf 76,840 21,212
Offices in Guayaquil 76,840
-----------------------------------------------------------------
9,716,818 8,777,211
Less accumulated depreciation (1,660,952) (1,520,575)
-----------------------------------------------------------------
US$ 8,055,866 US$ 7,256,636
=================================================================
(1) This accounts was incorporated in June 1996 and will
starts its depreciation on January 1997.
F. Permanent investments
June 30,
-----------------------------------------------------------------------
Percentage of
stock owned 1996 1995
-----------------------------------------------------------------------
Larvas del Pacifico S.A. 0.06 US$ 307 US$ 307
Isca, Isla Camaronera C.A. 0.06 2,759 2,759
-----------------------------------------------------------------------
US$ 3,066 US$ 3,066
=======================================================================
10
<PAGE>
Langomorro, Langostinera El Morro Cia. Ltda.
and Affiliated Companies
Notes to Consolidated and Combined Financial Statements
For the years ended June 30, 1996 and 1995
================================================================================
G. Others assets
June 30,
-----------------------------------------------------------------------
1996 1995
-----------------------------------------------------------------------
Langomorro and Camazul:
Facilities costs US$ 721,471 US$ 721,471
Isca:
Facilities costs 356,439 356,439
-----------------------------------------------------------------------
Total 1,077,910 1,077,910
Amortization 323,372 107,791
-----------------------------------------------------------------------
US$ 754,538 US$ 970,119
=======================================================================
This account will be amortized in five years, starting on
January 1995.
H. Bank loans payable
June 30,
-----------------------------------------------------------------------
1996 1995
-----------------------------------------------------------------------
Pacific Bank
Obligation in dollars due in
July, August and December
1996 with interest, 16% US$ 778,500 US$ 544,700
Advances on future export-loans at the
free market exchange rate 204,700 480,000
Lloyds Bank
Obligation in Sucres, due in July,
l996 with interest at 40% - 56% 817,610 428,130
-----------------------------------------------------------------------
US$ 1,800,810 US$ 1,452,830
=======================================================================
11
<PAGE>
Langomorro, Langostinera El Morro Cia. Ltda.
and Affiliated Companies
Notes to Consolidated and Combined Financial Statements
For the years ended June 30, 1996, and 1995
================================================================================
The obligations are guaranteed with the
personal signature of the Company President.
On July 17, 1992 an open mortgage was
subscribed, covering Larfico's land,
buildings and construction, laboratory
equipment and machinery, for the amount of
US$ 1.8 million with Banco del Pacifico of
Ecuador and/or Panama. This open mortgage
will cover the current and future obligations
of Emporsa S.A., Larfico S.A., Langomorro
Cia. Ltda., Isca C.A. and Camazul Cia. Ltda.
I. Notes and accounts
payable
June 30,
-----------------------------------------------------------------------
1996 1995
-----------------------------------------------------------------------
Suppliers:
Expalsa, Exportadora de Alimentos S.A. US$ 18,965 US$ 1,516
Tax returns 70,025 5,931
Others 36,758 81,829
-----------------------------------------------------------------------
US$ 125,748 US$ 89,276
=======================================================================
The principal debts to suppliers correspond
to Expalsa, for co-packing services (packing
and packaging in the export of shrimp for US$
0.34 per pound exported).
J. Due to related parties
June 30,
-----------------------------------------------------------------------
1996 1995
-----------------------------------------------------------------------
Emporsa US$ 605,315 US$ 94,993
Comercorp 28,956
Camarecsa 81,010 102,129
Marchelot 106,038 159,212
Bluepoints 1,373,308 2,141,052
Others 3,978 7,486
-----------------------------------------------------------------------
US$ 2,169,649 US$ 2,533,828
=======================================================================
12
<PAGE>
Langomorro, Langostinera El Morro Cia. Ltda.
and Affiliated Companies
Notes to Consolidated and Combined Financial Statements
For the years ended June 30, 1996 and 1995
================================================================================
The accounts with related companies
correspond to monies received as loans by
current accounts maintained with these
companies, non-interest bearing and without
fixed maturity.
To June 30, 1996 and 1995, Bluepoints
includes US$ 265,385 and US$1,052,229 for
advances on future export-loans respectively.
K. Long-term debt:
June 30,
------------------------------------------------------------------------
1996 1995
------------------------------------------------------------------------
Bluepoints Co. Inc. US$ 1,577,000 US$ 1,577,000
Statecourt Enterprises 405,000 405,000
Marchelot 307,355 307,355
------------------------------------------------------------------------
2,289,355 2,289,355
Less current maturities 1,982,000 1,982,200
------------------------------------------------------------------------
US$ 307,355 US$ 307,355
========================================================================
These obligations with Bluepoints Co. Inc.
and Statecourt Enterprises due in December
1990 through December 1991, generate a prime
interest rate of 9% per year with 3 years
maturity, recorded at the free market rate of
exchange.
L. Common stock
June 30,
------------------------------------------------------------------------
1996 1995
------------------------------------------------------------------------
Langomorro, Langostinera
El Morro Cia. Ltda. US$ 171,573 US$ 171,573
Isca, Isla Camaronera C.A. 869,973 869,973
------------------------------------------------------------------------
US$ 1,041,546 US$ 1,041,546
========================================================================
13
<PAGE>
Langomorro, Langostinera El Morro Cia. Ltda.
and Affiliated Companies
Notes to Consolidated and Combined Financial Statements
For the years ended June 30, 1996, and 1995
================================================================================
M. Additional paid in capital
June 30,
------------------------------------------------------------------------
1996 1995
------------------------------------------------------------------------
Balance June 30 US$ 6,427,096 US$ 3,002,708
July 1, l995 to June 30,
1996, Contributions 3,116,871 3,424,388
------------------------------------------------------------------------
US$ 9,543,967 US$ 6,427,096
========================================================================
N. Accumulated Deficit As of June 30, 1996 and 1995 the Company
maintains an accumulated deficit of US$
6,365,545 and US$ 4,295,665 respectively, the
current liabilities exceeded total current
assets by US$ 4,286,147 in 1996 and US$
4,749,489 in 1995. The origins of these
recurrent losses are principally the
deficiencies in the effective exploitation
and productivity in prior years of the 716
hectares of land available, of which 488
correspond to ponds and grow-out pools,
another 71 are used as service areas and 157
hectares are unused.
These elements show that the Company may be
unable to continue as a going concern.
However, the continuity of the Company as a
going concern will depend, as much on
additional financing funds that could be
obtained as well as on having profitable
operations. The financial statements do not
include any adjustments that might result
from the outcome of this uncertainty.
According to article 211 of the Ecuadorian
Companies' Law, when losses reach 50% or more
of the capital stock and reserves of each
individual Company (Langomorro, Isca,
Camazul), they must be placed into
liquidation if the stockholders do not
increase capital by means of fresh capital
additions, capitalizing or compensating
credits, and/or capitalizing fixed assets'
reevaluations surplus. The Management of the
Company estimates the causes for liquidation
will be solved and overcome, and both the
Company and the companies will continue to
operate normally.
The current Internal Tax Law permits
compensating the operational losses against
the results of operations of each individual
company during the following five years, not
exceeding 25% of the earnings generated in
each of these years.
14
<PAGE>
Langomorro, Langostinera El Morro Cia. Ltda.
and Affiliated Companies
Notes to Consolidated and Combined Financial Statements
For the years ended June 30, 1996 and 1995
================================================================================
0. Exchange rates The free market exchange rate in effect on
June 30, 1996 and 1995 was S/.3.180 to US$
1.00 (S/.3.118 US$ to 1.00 of August 1,
1996) and S/.2.588 to US$1.00 (S/2.580 to
US$1.00 of August 11, 1995 respectively).
P. Sales The volumes of shrimp sold by the individual
companies were as follows:
Volume Year ended June 30
------------------------------------------------------------------------------
Company 1996 1995 1996 1995
------------------------------------------------------------------------------
Langomorro, Langostinera
El Morro Cia. Ltda. &
Camazul Cia. Ltda. 199,557 152,235 US$ 1,056,255 US$ 496,787
Isca, Isla Camaronera CA. 110,428 81,122 537,798 278,617
------------------------------------------------------------------------------
Total 309,985 233,357 US$ 1,594,053 US$ 775,404
==============================================================================
In 1996 and 1995 the 199,557 and 152,235
pound of shrimp sold by Langomorro Cia. Ltda.
were produced utilizing 393 hectares,
resulting in a productivity of 508 and 387
pounds per hectare respectively in these
years. The 110,428 and 81,122 pounds of
shrimp sold by Isca C.A. were produced
utilizing 149 hectares, resulting in a
productivity of 741 and 544 pounds per
hectare respectively in these years.
Q. Related companies'
transactions The Company has bought US$ 569,910 of shrimp
larvae from Larfico, Larvas del Pacifico S.A.
during the year ended June 30, 1996.
The company has paid Empacadora y Exportadora
S.A. "Emporsa", for technical services,
generating expenses of US$ 38,423 in the year
ended June 30, 1996.
The Company has paid Romozzi for technical
services, generating expenses of US$ 158,183,
to June 30, 1996.
R. Income tax return The income tax returns of the Companies have
been reviewed up to different periods,
without important observations from the tax
authorities, as shown:
15
<PAGE>
Langomorro, Langostinera El Morro Cia. Ltda.
and Affiliated Companies
Notes to Consolidated and Combined Financial Statements
For the years ended June 30, 1996, and 1995
================================================================================
Companies Period Reviewed
------------------------------------------------------
Langostinera del Morro (Langomorro) 1991
Isla Camaronera (Isca) 1993
Camazul 1993
- --------------------------------------------------------------------------------
16
