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, 1998
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, 1998, 670,215 common shares were outstanding, and the
aggregate market value of common shares held by nonaffiliates of Registrant was
approximately $2,000,000 (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 ........................................................ 5
Item 3. Legal Proceedings ................................................. 9
Item 4. Submission of Matters to a Vote of Security Holders ............... 9
PART II
Item 5. Market for the Registrant's Common Stock and Related
Security Holder Matters ........................................... 10
Item 6. Selected Financial Data ........................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations ......................................... 12
Item 7a. Quantitative and Qualitative Disclosures about Market Risks ....... 16
Item 8. Financial Statements and Supplementary Data ....................... 17
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure .......................................... 49
PART III
Item 10. Directors and Executive Officers of the Registrant ................ 50
Item 11. Executive Compensation ............................................ 52
Item 12. Security Ownership of Certain Beneficial Owners and Management .... 54
Item 13. Certain Relationships and Related Transactions .................... 56
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K . 59
Signatures ................................................................. 64
<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, and textile businesses. See Item 1(c) for a description of the
business engaged in by the Company and its subsidiaries.
On April 1, 1998 the Company sold the Video Film Center building in New
York for $17,000,000 and recognized a gain of $12,922,106 on the sale.
Part of the proceeds $6,005,000 was used to pay off the existing mortgage
on this property.
On October 21, 1997 the Company refinanced its principal bank loans. That
indebtedness had an outstanding balance of $6,777,810 at June 30, 1997,
became due on August 1, 1997 and was extended until October 31, 1997. The
new agreement provides for a $9,000,000 term loan with an interest rate
equal to either (a) LIBOR plus 1.75%, (b) the Alternate Base Rate (as
defined) plus 0.25% or (c) the Fixed Rate (as defined) plus 1.75% and a
$3,000,000 revolving line of credit with an interest rate equal to either
(a) LIBOR plus 2% or, (b) the Alternate Base Rate (as defined) plus 0.50%.
The term loan requires amortization payments of $358,800 per annum. The
term loan matures in five years and the revolving line of credit expires
in three years. On April 24, 1998 the Company locked in a fixed rate of
7.5% for the remainder of the term loan.
On December 22, 1997, the Company refinanced a mortgage loan on the
Brookhaven Shopping Center in Brookhaven, Pennsylvania. The new loan bears
interest at 7.8% per annum and provides for monthly payments of $20,601
including principal and interest commencing February 1, 1998 through
December 31, 2007 when the remaining unpaid balance of $1,722,000 will
become due. The prior mortgage had an outstanding balance of approximately
$1,500,000; the property was refinanced for $2,500,000.
On November 25, 1997 the Company and its partners sold the two nursing
homes owned by them in Jersey City and Rochelle Park, New Jersey and the
senior citizen residence/adult day care center adjacent to the Rochelle
Park facility. The proceeds to the Company were $4,525,000. On May 7,
1998, the Company also sold its interest in a nursing home in Whiting, New
Jersey for $1,750,000. The Company has recognized income of $623,000 from
the sale and operations of these facilities this year, and is no longer in
the health care business.
1
<PAGE>
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, 1998 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, and 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 35%, 36% and 37% of consolidated
revenues from operations for the fiscal years ended June 30, 1998, 1997
and 1996, respectively.
Hotel
The Company owns and operates a 288 room hotel and convention center
located in Liverpool, New York. In 1998, the Company terminated its
franchise agreement with ITT Sheraton Corporation. The Company is now
engaged in a $3.2 million renovation scheduled to be completed by January
1999, at which time the hotel will commence operations under a Holiday Inn
franchise. In the interim the hotel is operating without a franchise.
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 11%, 11% and 12% of consolidated revenues
from operations for the fiscal years ended June 30, 1998, 1997 and 1996,
respectively.
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.
2
<PAGE>
Seafood (continued)
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 decreased 32% in the fiscal year ended June 30, 1998 as
compared with the fiscal year ended June 30, 1997. The aggregate number of
bushels of clams harvested during the fiscal year ended June 30, 1997
decreased 20% as compared with the prior fiscal year. For the period July
1, 1998 through August 31, 1998, the aggregate number of clams harvested
decreased 30% compared with the same period in the prior year. The
decrease in production for both years was caused by smaller harvests of
product. Bluepoints discontinued using Company owned boats and laid off
employees at its claming operations in May 1998, to reduce expenses and
conserve clam populations. Bluepoints continues to maintain hatchery
facilities in an effort to increase inventory.
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
claming 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 $5,446,000 and
$2,656,000 for the fiscal years ended June 30, 1998 and 1997,
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 scallop operation in Cape Canaveral, Florida. In
the current fiscal year, sales of scallops were approximately $1,128,000
and there was a loss of $1,163,000. This compares to sales of $1,242,000
and a break even level of operations during the prior year. Sales for July
and August 1998 were insignificant and there can be no assurance that
extensive beds of scallops will be found in the future.
Seafood revenues accounted for 20%, 20%, and 16% of consolidated revenues
from operations for the fiscal years ended June 30, 1998, 1997 and 1996,
respectively.
3
<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, 1998, Hanora purchased approximately
$704,000 of additional equipment. The backlog of yarn orders on August 31,
1998 was approximately $7,600,000 as compared to $6,700,000 a year ago.
Approximately 80% of the current backlog is expected to be shipped in the
fiscal year ending June 30, 1999. One customer accounted for approximately
13% of Hanora's total sales during the 1998 fiscal year. The loss of this
customer 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%, 32%, and 33% of consolidated revenues
from operations for the fiscal years ended June 30, 1998, 1997 and 1996,
respectively.
4
<PAGE>
ITEM 2. PROPERTIES
Location General Character (1)
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Real Estate Segment
Junior Coat Building 18-story office, showroom and
250 W. 39th Street manufacturing facility; 182,000
New York, New York rentable square feet; 94% rented.
Jefferson National Bank Building 6-story office building; 39,300
4100 Pinetree Drive rentable 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; 97% rented.
Waltham Engineering Center 17 multi-story industrial
Waltham, Massachusetts buildings; in excess of 380,000 rentable
square feet; parking facilities; 100%
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; 91% rented.
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; 92% 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; 100% rented.
Shopping Center Approximately 13.5 acres of land and
Richmond, Virginia 130,000 square feet of space in buildings
located thereon; 100% rented.
5
<PAGE>
Location General Character (1)
- - --------------------------------------------------------------------------------
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; 100,000 rentable square
feet of space; 42% rented.
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
Hotel--Syracuse 288-room motor hotel and convention center;
Thruway and Electronics Parkway indoor pool; to be operated under a
Liverpool, New York Holiday Inn franchise starting January 1999.
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.
6
<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.
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 100% of Bluepoints
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;
pre-viously used as bulking and twisting
plant, warehouse and office, presently
being rented.
Lake City, South Carolina Approximately 21.5 acres of land and 95,000
square feet in two buildings located
thereon; used for a yarn spinning plant and
warehouse.
7
<PAGE>
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.
Corporate Office
302 Fifth Avenue 5,400 square feet of executive offices;
New York, New York month-to-month tenant at a rent of $8,500
per month. See Item 13. below.
(1)--Reference is made to Schedule III 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.
8
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
9
<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 low of $33 per share in November 1996 to a high of $40 in
June 1998.
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, 1998, there were 723 holders of record of the
Company's common stock.
c. No dividends have been paid during the two years ended June 30, 1998. The
Company has no intention of paying dividends in the foreseeable future.
d. The Company did not sell any securities during the past year.
10
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Fiscal year ended June 30,
----------------------------------------------------
1998 1997 1996 1995 1994
----------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues $ 50,061 $ 50,220 $ 45,612 $ 48,216 $ 48,119
====================================================
Gain on sale of real estate
held for rental $ 12,922 NONE NONE NONE NONE
====================================================
Income before interest and
income taxes $ 17,130 $ 4,814 $ 912 $ 4,450 $ 3,308
====================================================
Interest costs $ 2,927 $ 3,068 $ 3,115 $ 2,993 $ 2,166
====================================================
Income (loss) from continuing
operations before
extraordinary income and
cumulative effect of
accounting change $ 13,628 $ 1,170 $ (2,767) $ 1,010 $ 88
====================================================
Net income (loss) per share
of common stock - basic and
diluted $ 20.29 $ 1.74 $ (4.11) $ 1.50 $ .13
====================================================
Total assets $ 87,966 $ 81,336 $ 79,239 $ 82,740 $ 80,164
====================================================
Long-term debt $ 21,625 $ 26,297 $ 23,810 $ 25,540 $ 23,870
====================================================
Stockholders' equity $ 55,170 $ 41,609 $ 40,446 $ 43,254 $ 42,264
====================================================
Cash dividends per common
share NONE NONE NONE NONE NONE
====================================================
</TABLE>
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources
Working capital at June 30, 1998 increased by approximately $8,367,000 to
$10,539,000.
Net cash provided by operating activities was approximately $1,641,000 during
the 1998 fiscal year. Net cash used by financing activities was approximately
$5,791,000. Net cash of approximately $10,808,000 was provided by investing
activities. The Company had a $2,000,000 revolving line of credit with its
principal lender with interest at 1% over the lender's prime rate. The Company
also had a term loan with its principal lender which matured August 1, 1997. The
Company's loans were extended until October 31, 1997. On October 21, 1997 the
Company replaced its existing indebtedness and entered into a loan agreement
with a new lender. The new agreement provides for a $9,000,000 term loan with an
interest rate at the Company's option equal to either (a) LIBOR plus 1.75%, (b)
the Alternate Base Rate (as defined) plus 0.25% or (c) the Fixed Rate (as
defined) plus 1.75% and a $3,000,000 revolving line of credit with an interest
rate equal to either (a) LIBOR plus 2% or, (b) the Alternate Base Rate (as
defined) plus 0.50%. These loans are also collateralized by a mortgage on the
East Newark Industrial Center. The term loan requires amortization payments of
$359,000 per annum. The term loan matures in five years and the revolving line
of credit matures in three years. At June 30, 1998 the term loan balance was
$8,790,700 with interest at 7.5%, and nothing was outstanding on the revolving
line of credit. The Company exercised the fixed rate option effective April 24,
1998, and the rate of interest for the remainder of the term loan will be 7.5%.
During the three years ended June 30, 1998, the Company incurred capital
expenditures of approximately $14,241,000. In addition, approximately $5,359,000
was expended for tenant improvements during this three year period.
Results of Operations
Real Estate
The Company's real estate operating profits increased $960,000 in fiscal year
1998 and revenue decreased by $516,000. Profits increased at substantially all
the properties. The revenue decrease is attributable to the sale of the Video
Film Center on April 1, 1998 on which the Company recognized a gain of
$12,922,000. Repairs and maintenance and related costs decreased $493,000 at the
East Newark Industrial Center, and $301,000 at the Waltham Engineering Center.
As a result of the sale of the Video Film Center, mortgage interest was reduced
by $245,000 and utility and fuel expenses decreased by $178,000.
In fiscal 1997 operating profits increased $419,000 on a revenue increase of
$953,000. Revenue increased at substantially all the properties. Repairs and
maintenance and related costs increased approximately $365,000 at the East
Newark Industrial Center as a result
12
<PAGE>
Real Estate (continued)
of increased work done to space at that facility. Interest on a new mortgage
obtained at the Greensboro North Shopping Center increased overall mortgage
interest by approximately $194,000. 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.
Hotel
In fiscal 1998 revenues decreased $220,000 and profits decreased $84,000, due to
renovations being conducted at the hotel. The hotel terminated its franchise
agreement with ITT Sheraton Corporation and will become a Holiday Inn facility
in January 1999.
In fiscal 1997 operating profits for the hotel increased approximately $172,000
on an approximately $357,000 increase in revenues. Operating profits for fiscal
1996 increased approximately $206,000 on an approximately $124,000 increase in
revenues from the prior year and lower operating costs.
Seafood
Overall revenues for the seafood division increased $121,000 in fiscal 1998 as
compared to the prior year. Losses from operations (including equity share of
losses in affiliated entity and excluding minority interests' share of loss of
subsidiaries) in fiscal 1998 were $3,576,000 as compared to a loss of $1,957,00
in fiscal 1997. Losses from the Ecuadorian shrimp operations of $1,359,000 were
about the same as the prior year; Ecuador is also selling shrimp purchased from
third parties to help increase revenues. The Company's scallop operation
incurred a loss of $1,163,000 in fiscal 1998 as compared to a break even level
in fiscal 1997. There were no scallops harvested during most of fiscal 1998. The
scallop operation incurred a $350,000 charge for a real estate tax claim that
the Company had been disputing for several years. Bluepoint's Long Island
operations had a loss of $1,054,000 as a result of the continuing smaller
harvests of clams as compared to a loss of $527,000 in the prior year.
In fiscal 1997 revenues increased approximately $2,507,000 as compared to the
prior year. Losses from operations (including equity share of losses in
affiliated entities and excluding minority interests' share of loss of
subsidiaries) in fiscal 1997 were $1,957,000 as compared to a loss of $4,169,000
in fiscal 1996. Ecuadorian operations reduced their losses to $1,398,000 as
compared to the prior year's loss of $2,043,000 as a result of higher shrimp
sales due to more product being harvested resulting from steps taken by the
Company to increase yields. During fiscal 1997 the Company purchased the
remaining 50% of the scallop operation in Cape Canaveral, Florida and it
operated at a break even level on revenues of $1,242,000 for the year as
compared to a loss in the prior year of $1,033,000, which represented 50% of the
prior year's loss. Bluepoints Long Island operations had a loss of $527,000 as a
result of continuing smaller harvests of clams
13
<PAGE>
Seafood (continued)
which were offset somewhat by profits from sales of shrimp imported from Costa
Rica. This compares with a loss of $941,000 in fiscal 1996. The assets of the
discontinued soft shell crab operation were sold in fiscal year 1997 and the
Company incurred a loss of $34,000. The fiscal 1996 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 in the prior year. Ecuadorian
operations sustained a loss of $2,043,000 as compared to the prior years 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 its 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 had been put up for sale.
Textile
Fiscal 1998 revenues for the textile division increased $717,000 over the prior
year and earnings increased $59,000. Hanora Spinning's earnings increased
$37,000 to $876,000. Hanora South and J&M incurred a combined loss of $167,000
as compared to the prior year's loss of $238,000 due to continuing higher
revenues at J&M Dyers. Whitlock Combing Company, Inc. ("Whitlock") which owned a
wool combing plant in South Carolina and which discontinued operations in 1992
incurred losses of $387,000 (including an additional writedown of its building
by $250,000) relating to its property in South Carolina which is being offered
for sale compared to a loss of $339,000 last year. During the three years ended
June 30, 1998 the Company purchased approximately $1,311,000 of machinery and
equipment for the textile operations.
In fiscal 1997 revenues for the textile division increased by 4% over the prior
year, and earnings increased $635,000. Hanora Spinning's earnings increased
$156,000 to $839,000 due to higher operating margins. Hanora South and J & M
incurred a combined loss of $238,000 as compared to the prior year's loss of
$530,000 due to higher revenues and gross profits earned at J & M. Whitlock
incurred losses of $339,000 (including a writedown of its building of $250,000)
compared to a loss of $526,000 in the prior year. In fiscal 1996, revenues for
the textile division decreased by 17% over the prior 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 the prior year's
profit of $200,000 due to higher revenues and gross profits earned at J & M in
the prior year. Whitlock incurred expenses of $526,000 (including depreciation
and a writedown of its building of $262,000) relating to its property in South
Carolina.
14
<PAGE>
Health Care
In fiscal 1998, the Company sold its investment in its health care operations
and recognized income of $623,000 from this investment as compared to income of
$574,000 in fiscal 1997, and $47,000 in fiscal 1996.
Corporate/Other
Corporate interest and expenses for the last three years was $4,036,000,
$4,339,000 and $4,173,000, respectively. Corporate and other revenues for the
last three years was $324,000, $587,000 and $407,000, respectively. Corporate
and other revenues includes the operations of the Merrimac division other than
those related to the ownership of currently leased real estate which are
included in the real estate operations. Corporate expenses decreased by $303,000
in the current year primarily as a result of $307,000 of clean-up expenses at
Merrimac's Newburyport property last year. Starting in fiscal 1998 this property
is included in our real estate operations. The reduction in expenses in fiscal
1996 was due to the closing of the Merrimac Ice Bucket division and a reduction
in other related costs of Merrimac of $336,000 and reduced professional fees of
$73,000. 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.
Year 2000 Compliance
The Company has completed an assessment and has been advised by its independent
computer software provider that its accounting systems and programs will be year
2000 compliant and that year 2000 compliant shall mean that neither performance
nor functionality will be affected by dates prior to, during and after the year
2000. The total year 2000 cost is approximately $25,000 which will be expensed
as incurred and is expected to be completed by December 1998. The Company
believes that with modifications to existing software and conversions to new
software, the Year 2000 Issue will not pose significant operational problems for
its computer systems. However, if such modifications and conversions are not
made, or are not completed timely, the Year 2000 Issue could have a material
impact on the operations of the company.
Management continues to assess the impact of the Year 2000 Issue on its
reporting systems and operations. The Year 2000 Issue exists because some of the
Company's older computer programs were written using two digits rather than four
to define the applicable year.
15
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company has assessed its exposure to market risk for its variable rate debt
and believes that a 1% change in interest rates would have a $30,000 effect on
income before taxes.
16
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
<PAGE>
[Letterhead of Ernst & Young LLP]
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,
1998 and 1997, and the related consolidated statements of operations, retained
earnings, and cash flows for each of three years in the period ended June 30,
1998. 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 18% in 1998 and 1997, and total revenues
constituting 23% in 1998, 18% in 1997, and 17% in 1996, 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.
17
<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, 1998 and 1997, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1998, 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.
/s/ Ernst & Young LLP
New York, New York
September 23, 1998
18
<PAGE>
[Letterhead of BDO Stern Cia Ltda.]
Independent Auditor's Report
To the Board of Directors
Marchelot S.A. and Subsidiaries
New York, U.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, 1998 and 1997, and the related consolidated statements of operations
and deficit, and of cash flows, for each of the years ended June 30, 1998, 1997
and 1996. 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, 1998 and 1997, and the results of their operations and their cash
flows for each of the years ended June 30, 1998, 1997 and 1996, in conformity
with generally accepted accounting principles prevailing in the United States of
America.
/s/ BDO Stern Cia Ltda.
August 7, 1997
Guayaquil, Ecuador
<PAGE>
[Letterhead of Dermody, Burke and Brown]
INDEPENDENT AUDITORS' REPORT
================================================================================
BOARD OF DIRECTORS
FIRST REPUBLIC CORPORATION
OF AMERICA, HOTEL AT EXIT 37
We have audited the accompanying balance sheets of FIRST REPUBLIC CORPORATION OF
AMERICA, HOTEL AT EXIT 37 as of June 30, 1998 and 1997, and the related
statements of income and division control and cash flows for the years ended
June 30, 1998, 1997 and 1996. 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 Hotel at Exit 37 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 Hotel at Exit 37.
- - --------------------------------------------------------------------------------
1
<PAGE>
================================================================================
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, Hotel at Exit 37 at June 30, 1998 and 1997 and
the results of its operations and its cash flows for the years ended June 30,
1998, 1997 and 1996 in conformity with generally accepted accounting principles.
/s/ Dermody, Burke and Brown
DERMODY, BURKE AND BROWN
Certified Public Accountants, P. C.
Syracuse, NY
August 11, 1998
================================================================================
2
<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, 1997, and the related statements of
operations and cash flows for the year 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 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
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 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 Bristol Manor Health Care
Center, Inc. as of December 31, 1997, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The information in schedules 1 and 2 is
presented for purposes of additional analysis and is not a required part of the
basic financial statements. Such information has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
<PAGE>
2.
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.
As described in Note D to the financial statements, Bristol Manor
discontinued operations of the facility and sold the lease on November 25, 1997.
/s/ Loeb & Troper
September 4, 1998
<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, 1997 and 1996, 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.
The balance sheet of Bristol Manor Health Care Center, Inc. includes an
amount due from affiliated entities of $3,349,578 as of June 30, 1997. It is
unlikely that these amounts will be recovered in the foreseeable future. No
allowance for doubtful accounts has been recorded. Generally accepted accounting
principles require that assets be stated at net realizable value.
In our opinion, except for the effects of not recording an allowance for
doubtful accounts as discussed in the previous paragraph, 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, 1997
and 1996, and the results of its operations and its cash flows for the six
months then ended in conformity with generally accepted accounting principles.
<PAGE>
2.
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
March 13, 1997
<PAGE>
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, l996 and 1995, 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, 1996 and 1995, 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
March 13, 1997
<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, l997, and the related statements of operations and cash
flows for the year 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 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
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 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 The Whitehall Residence,
Inc. as of December 31, 1997, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The information in schedules 1 and 2 is
presented for purposes of additional analysis and is not a required part of' the
basic financial statements. Such information has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
<PAGE>
2.
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.
As described in Note C to the financial statements, Whitehall discontinued
operations of the facility and sold the lease on November 25, 1997.
/s/ Loeb & Troper
September 4, 1998
<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, 1997 and 1996, 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, 1997 and 1996, 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
F 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 F. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ Loeb & Troper
August 27, 1997
<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, 1996 and 1995, 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 general 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, 1996 and 1995, 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
March 13, 1997
<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, 1997 and the related statements of operations and cash flows for
the year 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 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
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 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 Logan Manor Corp. as of
December 31, 1997 and the results of its operations and its cash flows for the
year 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.
/s/ Loeb & Troper
September 4, 1998
<PAGE>
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, 1997 and 1996, 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, 1997 and 1996, 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.
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 27, 1997
<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, 1996 and 1995, 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, 1996 and 1995, 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
March 13, 1997
<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, 1997, and the related statements of operations
and cash flows for the year 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 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
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 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 Harbor View Health Care
Center, Inc. as of December 31, 1997, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The information in schedules 1 and 2 is
presented for purposes of additional analysis and is not a required part of the
basic financial statements. Such information has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
<PAGE>
2.
Harbor View Health Care Center, Inc. is a member of a group of affiliated
entities and, disclosed in the financial statements, has significant
transactions with members of the group, as 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.
As described in Note D to the financial statements, Harbor View
discontinued operations of the facility and sold the lease on November 25, 1997.
/s/ Loeb & Troper
September 4, 1998
<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, 1997 and 1996, 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.
The balance sheet of Harbor View Health Care Center, Inc. includes an
amount due from affiliated entities of $582,022 as of June 30, 1997. It is
unlikely that these amounts will be recovered in the foreseeable future. No
allowance for doubtful accounts has been recorded. Generally accepted accounting
principles require that assets be stated at net realizable value.
In our opinion, except for the effects of not recording an allowance for
doubtful accounts as discussed in the previous paragraph, 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, 1997
and 1996, and the results of its operations and its cash flows for the six
months then ended in conformity with generally accepted accounting principles.
<PAGE>
2.
Harbor View Health Care Center, Inc. is a member of a group 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 27, 1997
<PAGE>
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, 1996 and 1995, 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, 1996 and 1995, 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
March 13, 1997
<PAGE>
The First Republic Corporation of America and Subsidiaries
Consolidated Balance Sheets
June 30,
1998 1997
--------------------------
Assets
Current assets:
Cash and cash equivalents $ 8,590,167 $ 1,442,536
Restricted cash - 489,539
Accounts and rents receivable, net of allowances
of $303,813 and $240,410 3,395,191 4,901,188
Mortgages receivable--current portion (Note 3 and
6) 106,669 3,001
Other receivables including $20,000 in 1997 due
from related party 572,236 486,233
Inventories (Note 1) 5,415,534 3,501,650
Prepaid expenses and other assets 1,125,634 1,299,460
--------------------------
Total current assets 19,205,431 12,123,607
Real estate held for rental and hotel, at cost
(Notes 5 and 9):
Land 7,774,740 8,399,740
Building and improvements 42,973,647 42,735,453
--------------------------
50,748,387 51,135,193
Less accumulated depreciation 22,315,975 24,553,722
--------------------------
28,432,412 26,581,471
Other property, plant and equipment, at cost
(Note 1):
Land 1,591,775 1,530,849
Buildings and improvements 8,105,775 6,882,827
Leaseholds and improvements 1,785,939 1,785,939
Machinery, equipment, parts and vehicles 14,453,536 14,953,145
Furniture and furnishings 503,806 421,662
Construction-in-progress 1,349,402 1,535,923
--------------------------
27,790,233 27,110,345
Less accumulated depreciation and amortization 12,442,148 12,424,042
--------------------------
15,348,085 14,686,303
Deferred income tax (Note 7) 500,000 -
Mortgages receivable--net of current portion (Note
3 and 6) - 106,669
Investments in and advances to affiliated entities
(Notes 1 and 4) 8,735,346 13,059,763
Tenant improvements, net of accumulated
amortization of $3,322,169 and $3,158,338 7,483,766 6,580,337
Unamortized leasing, financing and other deferred
costs 1,803,248 1,983,828
Other assets:
Cash and securities in trust for tenants'
security deposits 1,198,173 1,642,868
Mortgage escrow funds and security deposits 107,595 89,649
Assets held for sale (Note 12) 800,000 1,050,000
Due from related parties (Note 11) 4,075,557 3,130,196
Other 276,141 301,202
--------------------------
6,457,466 6,213,915
--------------------------
Total assets $ 87,965,754 $ 81,335,893
==========================
See notes to consolidated financial statements.
19
<PAGE>
The First Republic Corporation of America and Subsidiaries
Consolidated Balance Sheets (continued)
June 30,
1998 1997
--------------------------
Liabilities and stockholders' equity
Current liabilities:
Notes payable (Notes 4, 5 and 6) $ 524,900 $ 1,527,000
Note payable, related party (Note 11) 640,000 640,000
Current portion of long-term debt (Notes 5
and 6) 1,395,593 1,668,654
Accounts payable 1,797,987 2,331,518
Accrued expenses and taxes payable 2,925,597 2,317,498
Due to related parties (Note 11) 1,288,907 1,374,035
Other liabilities 93,257 93,257
--------------------------
Total current liabilities 8,666,241 9,951,962
Long-term debt (Notes 5 and 6) 21,625,350 26,297,499
Deferred income tax (Note 7) - 492,926
Other liabilities:
Tenants' security deposits payable 1,198,173 1,642,868
Accrued pension (Note 8) 843,824 931,448
--------------------------
2,041,997 2,574,316
Minority interests 461,874 410,095
--------------------------
Total liabilities 32,795,462 39,726,798
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 43,471,684 29,843,361
--------------------------
59,647,698 46,019,375
Less treasury stock, at cost--505,036 and
503,197 shares (Note 12) 4,477,406 4,410,280
--------------------------
Total stockholders' equity 55,170,292 41,609,095
Leases, commitments and contingencies (Notes 9
and 10)
--------------------------
Total liabilities and stockholders' equity $ 87,965,754 $ 81,335,893
==========================
See notes to consolidated financial statements.
20
<PAGE>
The First Republic Corporation of America and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended June 30,
1998 1997 1996
-------------------------------------
<S> <C> <C> <C>
Revenues:
Sales--textiles and seafood $25,873,482 $24,949,212 $22,329,954
Rents and other revenues--real estate and
hotel operations 23,207,992 23,285,138 22,390,066
Other (including interest income of
approximately $492,000, $261,000 and
$83,000, respectively) 979,901 1,986,069 891,536
Equity in income (loss) of affiliated
entities (Note 4) 319,932 9,216 (2,065,609)
-------------------------------------
50,381,307 50,229,635 43,545,947
-------------------------------------
Costs and expenses:
Cost of sales 23,900,935 22,205,567 20,460,983
Operating costs--real estate and hotel
operations 12,329,325 14,153,958 13,495,292
Depreciation and amortization 3,977,670 4,052,848 3,817,390
Interest 2,926,778 3,068,457 3,115,460
Selling, general and administrative 6,832,226 5,750,101 5,575,769
Writedown of property and equipment
(Note 1 and 12) 250,000 249,875 418,110
Minority interests' share of loss of
subsidiaries (1,116,844) (996,382) (1,133,113)
-------------------------------------
49,100,090 48,484,424 45,749,891
-------------------------------------
Income (loss) before income taxes and gain
on sale 1,281,217 1,745,211 (2,203,944)
Gain on sale of real estate held for rental 12,922,106 - -
-------------------------------------
Income (loss) before income taxes 14,203,323 1,745,211 (2,203,944)
Income tax expense (Note 7) 575,000 575,000 563,000
-------------------------------------
Net income (loss) $13,628,323 $ 1,170,211 $(2,766,944)
=====================================
Per share of common stock (Note 1):
Net income (loss) - basic and diluted $ 20.29 $ 1.74 $ (4.11)
=====================================
</TABLE>
See notes to consolidated financial statements.
21
<PAGE>
The First Republic Corporation of America and Subsidiaries
Consolidated Statements of Retained Earnings
Year ended June 30,
1998 1997 1996
--------------------------------------
Balance, beginning of year $29,843,361 $28,673,150 $31,440,094
Net income (loss) for the year 13,628,323 1,170,211 (2,766,944)
--------------------------------------
Balance, end of year $43,471,684 $29,843,361 $28,673,150
======================================
See notes to consolidated financial statements.
22
<PAGE>
The First Republic Corporation of America and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended June 30,
1998 1997 1996
----------------------------------------
<S> <C> <C> <C>
Operating activities
Net income (loss) $ 13,628,323 $ 1,170,211 $ (2,766,944)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Gain on sale of real estate held
for rental (12,922,106) - -
Depreciation and amortization 3,977,670 4,052,848 3,817,390
Writedown of property and
equipment 250,000 249,875 418,110
Deferred income taxes (992,926) (75,000) (70,000)
Equity in (income) loss of
affiliated entities (319,932) (9,216) 2,065,609
Minority interests' share of loss
in subsidiaries (1,116,844) (996,382) (1,133,113)
Changes in operating assets and
liabilities:
Accounts, rents and other
receivables 1,419,994 605,636 (454,526)
Inventories (1,913,884) 1,419,633 550,717
Prepaid and other assets 173,826 (183,736) 43,104
Due from related parties - - 217,250
Accounts payable (533,531) 439,144 519,513
Accrued and other current
liabilities 608,099 229,178 346,274
Due to related parties (85,128) 630,243 (149,581)
Other liabilities (532,319) (573,107) 62,428
----------------------------------------
Cash provided by operating activities 1,641,242 6,959,327 3,466,231
----------------------------------------
Investing activities
Purchases of real estate held for
rental (5,239,516) (1,484,689) (546,167)
Purchases of other property plant
and equipment (2,434,634) (3,034,177) (1,502,017)
Additions to tenant improvements (2,894,918) (1,602,630) (861,659)
Sale of real estate held for rental 16,097,352 - -
Investment in affiliated entities (2,077,323) (1,239,862) (993,338)
Distribution in excess of equity in
earnings from affiliated entities 6,721,672 437,225 350,741
Payments received on mortgages
receivable 3,001 620,556 1,002,273
Other investing activities 632,390 (207,282) 78,205
----------------------------------------
Net cash provided by (used in)
investing activities 10,808,024 (6,510,859) (2,471,962)
----------------------------------------
</TABLE>
23
<PAGE>
The First Republic Corporation of America and Subsidiaries
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
Year ended June 30,
1998 1997 1996
----------------------------------------
<S> <C> <C> <C>
Financing activities
Proceeds from mortgage and notes payable
to banks $13,100,000 $13,800,000 $2,200,000
Payments on mortgages and notes payable to
banks (19,047,310) (13,318,667) (3,520,859)
Minority interests' additional paid-in
capital 223,262 - 82,671
Purchases of treasury stock (67,126) (6,805) (41,477)
----------------------------------------
Net cash provided by (used in) financing
activities (5,791,174) 474,528 (1,279,665)
----------------------------------------
Net increase (decrease) in cash and cash
equivalents 6,658,092 922,996 (285,396)
Cash and cash equivalents at the beginning
of year 1,932,075 1,009,079 1,294,475
----------------------------------------
Cash and cash equivalents at the end of
year $ 8,590,167 $ 1,932,075 $1,009,079
========================================
Supplemental disclosure
Income taxes paid $ 1,000,307 $ 742,626 $ 503,095
Interest paid $ 2,955,080 $ 3,059,458 $3,127,523
</TABLE>
See notes to consolidated financial statements.
24
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 1998
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 or owned 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,
1998 1997
------------------------
Work-in-process and raw materials $2,231,594 $1,600,565
Finished goods 3,183,940 1,901,085
------------------------
$5,415,534 $3,501,650
========================
25
<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
required to be recognized on a straight-line basis over the life of the lease.
Hotel revenues are recognized when the related services are rendered.
Gain from sales of properties is recognized when the buyer has demonstrated a
commitment to pay through adequate payments and no significant contingencies
remain.
Accounting for Income Taxes
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.
26
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
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 adopted SFAS 121 in fiscal 1997
which did not result in any change in the Company's method of recording for
impairment. A writedown of approximately $250,000 was recorded for Whitlock
Combing Company Inc. ("Whitlock") for the years ended June 30, 1998 and 1997
(see Note 12).
Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement No.
128 ("SFAS 128"), Earnings per Share, which supersedes APB Opinion No. 15 and
replaces the presentation of primary EPS with a presentation of basic EPS. SFAS
128 also requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. The Company
adopted SFAS 128 in fiscal 1998. SFAS 128 does not have an effect on the
Company's financial statements due to the fact that the Company does not have
any dilutive securities.
Basic and diluted per share amounts are based on 671,518 (1998), 672,165 (1997)
and 672,677 (1996) weighted average shares of common stock outstanding.
Segments and Related Information
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information ("Statement 131"). Statement 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports.
27
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Segments and Related Information (continued)
It also establishes standards for related disclosures about products and
services, geographic areas, and major customers. Statement 131 is effective for
financial statements for fiscal years beginning after December 15, 1997, and
therefore the Company will adopt the new requirements retroactively in June
1999. Management has not completed its review of Statement 131, but does not
anticipate that the adoption of this statement will have a significant effect on
the Company's reported segments.
Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities, which is required to be adopted in years beginning after
June 15, 1999. Because of the Company's minimal use of derivatives, management
does not anticipate that the adoption of the new statement will have a
significant effect on earnings or the financial position of the Company.
Foreign Operations
A subsidiary, together with certain entities in which the subsidiary owns a 38%
interest, is engaged in shrimp farming operations in Ecuador. Prior to the end
of December 1996, all of such entities sold their products solely to a domestic
subsidiary of the Company engaged in seafood operations. Beginning in January
1997 all sales were to third parties. Financial statements of such foreign
entities are translated using the U.S. dollar as the functional currency since
Ecuador has a hyperinflationary currency. Operations include exchange gains of
$501,499 (1998), $395,202 (1997) and $182,145 (1996) resulting from foreign
currency transactions and from translation of the foreign entities' financial
statements.
Cash Equivalents
The Company considers all highly liquid investments with maturities of three
months or less when purchased to be cash equivalents.
28
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Industry Segments and Foreign Operations
Following is information about the Company's industry segments for each of the
three years ended June 30:
1998 1997 1996
----------------------------------------
Revenues:
Real estate $17,541,502 $18,057,022 $17,104,302
Hotel 5,550,305 5,770,014 5,413,092
Seafood 10,086,562 9,965,316 7,458,512
Textile 16,558,529 15,841,319 15,229,106
Corporate 324,477 586,748 406,544
-----------------------------------------
$50,061,375 $50,220,419 $45,611,556
=========================================
Operating profit (loss):
Real estate (a) $5,892,293 $ 4,931,831 $ 4,512,789
Hotel 589,592 673,149 501,442
Seafood (3,248,239) (1,375,272) (2,146,319)
Textile (b) 321,931 262,494 (372,844)
-----------------------------------------
Total operating profit 3,555,577 4,492,202 2,495,068
Corporate expenses (3,238,897) (3,486,351) (3,151,081)
Corporate interest
expense (796,716) (852,986) (1,021,979)
Corporate revenue 324,477 586,748 406,544
Gain on sale of real
estate 12,922,106 - -
Equity in income (loss)
of affiliated entities
(c) 319,932 9,216 (2,065,609)
Minority interests'
share of loss of
subsidiaries 1,116,844 996,382 1,133,113
-----------------------------------------
Income (loss) before
income taxes $14,203,323 $ 1,745,211 $(2,203,944)
=========================================
29
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Industry Segments and Foreign Operations (continued)
1998 1997 1996
-----------------------------------------
Identifiable assets:
Real estate $36,104,553 $34,898,169 $33,719,375
Hotel 3,203,609 2,805,387 2,938,507
Seafood 17,251,584 14,724,084 12,590,789
Textile 11,195,286 11,797,287 12,685,459
Corporate and other (d) 20,210,722 17,110,966 17,304,860
-----------------------------------------
$87,965,754 $81,335,893 $79,238,990
=========================================
Depreciation and
amortization:
Real estate $ 1,977,797 $ 1,891,940 $ 1,795,298
Hotel 275,800 387,903 471,486
Seafood 736,009 665,192 286,959
Textile 948,297 1,045,591 1,179,043
Corporate and other 39,767 62,222 84,604
-----------------------------------------
$ 3,977,670 $ 4,052,848 $ 3,817,390
=========================================
Capital expenditures--net:
Real estate $ 7,426,669 $ 2,941,453 $ 1,228,017
Hotel 707,765 145,865 179,809
Seafood (e) 1,561,186 2,792,954 1,167,317
Textile 838,335 230,015 242,266
Corporate and other 35,113 10,939 92,434
-----------------------------------------
$10,569,068 $ 6,121,226 $ 2,909,843
=========================================
(a) Includes mortgage interest expense of $1,572,280 (1998), $1,817,120 (1997)
and $1,622,687 (1996).
(b) Includes losses from Whitlock (see Note 12a).
(c) See Note 4.
(d) Consists principally of investments in and advances to affiliated
entities.
(e) Includes assets of Bluepoints International Fisheries, Inc.
30
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Industry Segments and Foreign Operations (continued)
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 the
states of New York, New Jersey, Florida, North Carolina, Massachusetts,
Virginia 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, harvesting and sale of scallops on property leased by the Company
in Cape Canaveral, Florida and sales of shrimp from Ecuador (grown in
Company owned ponds or purchased from a 38% owned entity 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, 1998, 1997 and 1996,
respectively, such entities had sales of approximately $5,446,000, $2,656,000
and $1,780,000, all of which prior to the end of December 1996 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 $1,181,000, $1,194,000 and $1,875,000. Beginning in January 1997, all
sales were to third parties and therefore are not eliminated during
consolidation. As of June 30, 1998 and 1997, respectively, such subsidiaries had
total assets of approximately $12,935,000 and $11,980,000, liabilities
(excluding intercompany loans and advances) of $3,446,000 and $3,472,000 and
minority interests of $462,000 and $410,000. In addition, Bluepoints Company
Inc., a domestic subsidiary, had outstanding advances to the Mondragon Companies
of $5,911,065 and $4,126,928 at June 30, 1998 and 1997, respectively.
31
<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:
Interest June 30,
Description Rate Maturity Date 1998 1997
- - -------------------------------------------------------------------------------
First lien on condominiums 8%-8.4% (1) $ 106,669 $ 109,670
-----------------------
106,669 109,670
Less payment due within one
year included in current
assets 106,669 3,001
-----------------------
$ - $ 106,669
=======================
(1)--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.
32
<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:
Company's Company's
Investments and Equity in Income
Advances (Loss)
----------------- --------------------------
Company's
Ownership June 30, Year ended June 30,
Percentage 1998 1997 1998 1997 1996
---------------------------------------------------------
(In Thousands)
Sunscape Associates 50% $ 469 $ 490 $ 25 $ 17 $ (90)
Lambert(3) 100% - - - - (1,033)(1)
Mondragon Companies 38% 8,249 6,501 (328) (582) (990)
Health Care
Entities(2) 49.9% - 6,029 623 574 47
Other Various 17 40 - - -
------------------------------------------
$8,735 $13,060 $320 $ 9 $(2,066)
==========================================
(1)--Includes approximately $682,000 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)--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
$3,400,000 and $3,500,000 at June 30, 1997 and 1996, respectively, was
being amortized over 40 years. The Company sold these interests in the
current fiscal year.
(3)--Prior to December 1996 the Company owned 50% of Lambert International
Fisheries Inc.
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.
33
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Affiliated Entities (continued)
Seafood
Bluepoints International Fisheries, Inc. F/K/A Lambert International Fisheries,
Inc. ("Lambert"): The Company owned a 50% interest in Lambert which is located
in Florida, and is engaged in the business of collecting, processing, and
selling scallops. In December 1996, the Company purchased the remaining 50% of
Lambert for $265,000 of which $50,000 was paid in cash and the remainder by a
promissory note bearing interest at 8% which was paid in December 1997.
Year ended June 30,
1997(1) 1996
---------------------------
Revenues $ 23,000 $ 47,000
Costs and expenses (301,000) (1,308,000)
Loss on disposal and write-off of assets -- (805,000)
---------------------------
Net loss $(278,000) $(2,066,000)
===========================
(1)-- For the period prior to the acquisition of the remaining 50% interest.
Operations for the remainder of fiscal 1997 and all of fiscal 1998 are
included in the operations of the Company.
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, 1997 and 1996, Bluepoints purchased approximately
$1,010,000 and $1,594,000, respectively, of shrimp from the Mondragon Companies.
34
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Affiliated Entities (continued)
Condensed combined financial information of the Mondragon Companies is as
follows:
June 30,
1998 1997
----------------------------
Assets
Current assets $ 4,894,000 $ 4,294,000
Property and equipment--net of accumulated
depreciation 9,952,000 8,869,000
Other assets 326,000 542,000
----------------------------
Total assets $15,172,000 $13,705,000
============================
Liabilities
Notes payable--banks $ 2,838,000 $ 2,676,000
Due to Bluepoints and other affiliates 2,895,000 5,329,000
Other current liabilities 748,000 630,000
----------------------------
Total current liabilities 6,481,000 8,635,000
Long-term debt--Bluepoints 4,677,000 307,000
----------------------------
Total liabilities 11,158,000 8,942,000
Stockholders' equity 4,014,000 4,763,000
----------------------------
Total liabilities and equity $15,172,000 $13,705,000
============================
Year ended June 30,
1998 1997 1996
---------------------------------------------
Revenues $4,038,000 $2,790,000 $ 1,721,000
Costs and expenses 4,836,000 4,254,000 3,791,000
---------------------------------------------
Net loss $(798,000) $(1,464,000) $(2,070,000)
=============================================
35
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Affiliated Entities (continued)
Health Care
The Company owned 49.9% interests in partnerships which owned three nursing
homes and a senior citizen residence and adult day care center located in
Rochelle Park, Jersey City and Whiting, New Jersey. The Company sold these
interests during the current fiscal year.
Condensed combined financial information of the 49.9% owned partnerships was as
follows:
June 30,
1997
------------
Cash $ 1,167,000
Accounts receivable, net 2,863,000
Other current assets 332,000
Other assets 518,000
Property and equipment, net of accumulated
depreciation 23,053,000
------------
Total assets $ 27,933,000
============
Accounts payable $ 2,401,000
Other current liabilities 1,450,000
Mortgages payable, current 1,400,000
Mortgages payable, noncurrent 23,989,000
------------
Total liabilities 29,240,000
Partners' capital deficiency (1,307,000)
------------
Total liabilities and capital deficiency $ 27,933,000
============
Year ended June 30,
1997 1996
--------------------------
Revenues $22,339,000 $21,582,000
Expenses 20,991,000 21,276,000
--------------------------
Net income $ 1,348,000 $ 306,000
==========================
36
<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,
1998 1997
-------------------------
Mortgages payable due 1999-2009 bearing interest
at fixed rates of 7.5% to 9.5% and variable rates
(8.5% at June 30, 1998) based on prime (1), (3)
and (4). $22,378,769 $26,996,617
Onondaga County Industrial Development
Agency Bonds (1) and (2) 600,000 900,000
7.0% note to development authority due 2000 (1) 42,174 69,536
-------------------------
23,020,943 27,966,153
Less payments due within one year 1,395,593 1,668,654
-------------------------
$21,625,350 $26,297,499
=========================
(1)-- The net book value of real estate assets pledged as collateral is
approximately $17,100,000 and $21,000,000 at June 30, 1998 and 1997,
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 $600,000 at
June 30, 1998 as collateral for the foregoing financing.
37
<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 1998, the Company refinanced its mortgage loan collateralized by
the Brookhaven Shopping Center in Brookhaven Pennsylvania. The new loan
bears interest at 7.8% per annum and provides for monthly payments of
$20,601 including principal and interest commencing February 1, 1998
through December 31, 2007 when the remaining unpaid balance of $1,722,000
will become due. The mortgage which had an outstanding balance of
approximately $1,500,000 was refinanced for $2,500,000.
(4)-- The Company had a $10,000,000 term loan and a $2,000,000 revolving line of
credit with its principal leader, collateralized by a mortgage on the East
Newark Industrial Center. At June 30, 1997, $700,000 was outstanding under
the line of credit and is included in "Notes payable." The term loan,
which had an outstanding balance of $6,777,810 at June 30, 1997 required
monthly principal payments of $55,555 and matured on August 1, 1997 when
the remaining unpaid principal balance of $6,666,640 became due. The
interest rate at June 30, 1997 on both facilities was 1% in excess of the
lender's prime rate. Both loans were extended until October 31, 1997. On
October 21, 1997 the Company replaced its existing indebtedness with a new
lender. The new agreement provides for a $9,000,000 term loan with an
interest rate equal to either (a) LIBOR plus 1.75%, (b) the Alternate Base
Rate (as defined) plus 0.25% or (c) the Fixed Rate (as defined) plus 1.75%
and a $3,000,000 revolving line of credit with an interest rate equal to
either (a) LIBOR plus 2% or, (b) the Alternate Base Rate (as defined) plus
0.50%. The term loan requires amortization payments of $358,800 per annum.
The term loan matures in five years and the revolving line of credit
expires in three years. At June 30, 1998, the term loan balance was
$8,790,700 with a fixed rate of interest of 7.5% and there was no balance
outstanding under the revolving line of credit.
(5)-- On August 31, 1998, the Company obtained a $4,000,000 construction loan
from a bank for its property at 260 Merrimac Street in Newburyport,
Massachusetts. Initially, $2,685,000 was borrowed, with $1,315,000
available to be borrowed when additional space is rented. The construction
loan is for one year plus a one year extension option. The loan can be
converted to a five year term loan upon completion of construction and the
leasing of 75% of the rentable space in the building. Interest on the
construction loan will be at the bank's prime rate from time to time, or
at LIBOR plus 1.75% (at LIBOR plus 1.6% when the building is
38
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Long-Term Debt and Credit Facilities (continued)
70% rented) for one to twelve month periods, as elected by the Company.
The Company will have the option to elect a fixed rate of interest during
the term loan period.
(6)-- On September 3, 1998, the Company refinanced a mortgage on its London
Bridge Shopping Center in Virginia Beach, Virginia with a new lender and
paid off the old mortgage of approximately $2,520,000.The new $3,000,000
mortgage calls for monthly payments of $23,711 including principal and
interest, bears interest at 7.25% and matures September 1, 2018. The old
mortgage had monthly payments of $24,030, bore interest at 9.5% and
matured May 1, 2002. The Company incurred a pre-payment penalty of
$100,794.
Aggregate principal payments on debt outstanding as of June 30, 1998 are as
follows:
Amount
-----------
Year ending June 30:
1999 $ 1,395,593
2000 1,430,949
2001 2,381,249
2002 3,135,228
2003 7,802,370
Thereafter 6,875,554
-----------
$23,020,943
===========
6. Disclosures About Fair Value of Financial Instruments
FASB Statement No. 107 ("FAS 107"), "Disclosures about Fair Value of Financial
Instruments," requires disclosures about fair value for all financial
instruments, whether recognized or not recognized in the balance sheets, for
which it is practicable to estimate that value.
39
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Disclosures About Fair Value of Financial Instruments (continued)
The following methods and assumptions were used by the Company in estimating
fair values for financial instruments:
Notes Payable and Long-Term Debt: The carrying amount of notes payable and
long-term debt with variable interest rates approximates fair value. For
fixed rate notes payable, fair value ($21,408,000) is estimated using
discounted cash flow analysis based on the Company's current incremental
borrowing rate for similar types of borrowing arrangements.
Mortgage Receivable: For the Company's fixed rate mortgage receivables,
fair value is estimated using discounted cash flow analysis based on
current interest rates for similar financial instruments. The carrying
amount of the Company's mortgage receivables approximate their fair value.
7. Income Taxes
At June 30, 1998, the Company has net operating loss carryforwards of
approximately $51,000,000 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
reflected 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.
40
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. 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,
1998 1997
---------------------------
Deferred tax liabilities:
Book basis of fixed assets over tax basis $ (3,000) $ (250,000)
Book basis of carrying value of investee
over tax basis -- (491,000)
---------------------------
Total deferred tax liabilities (3,000) (741,000)
---------------------------
Deferred tax assets:
Net operating loss carryforwards 17,260,000 22,440,000
Book basis provisions 503,000 231,000
---------------------------
Total deferred tax assets 17,763,000 22,671,000
Valuation allowance 17,260,000 22,423,000
---------------------------
Net deferred tax assets 503,000 248,000
---------------------------
Net deferred tax asset (liability) $ 500,000 $ (493,000)
===========================
The components of income (loss) before income taxes are as follow:
For the year ended June 30,
1998 1997 1996
---------------------------------------------------
Domestic $15,155,460 $2,707,621 $ (695,770)
Foreign (952,137) (962,410) (1,508,174)
---------------------------------------------------
$14,203,323 $1,745,211 $(2,203,944)
===================================================
41
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Income Taxes (continued)
Significant components of the income tax expense (benefit) are as follows:
1998 1997 1996
----------------------------------------------
Current:
Federal $ 350,000 $100,000 $100,000
State 1,218,000 550,000 533,000
----------------------------------------------
Total current 1,568,000 650,000 633,000
----------------------------------------------
Deferred:
Federal (884,000) (66,000) (62,000)
State (109,000) (9,000) (8,000)
----------------------------------------------
Total deferred (993,000) (75,000) (70,000)
----------------------------------------------
$ 575,000 $575,000 $563,000
==============================================
The reconciliation of income tax expense (benefit) computed at the U.S. federal
statutory tax rates to income tax expense follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tax at U.S. statutory rates $ 4,829,000 34.0% $ 593,000 34.0% $(749,000) (34.0%)
Increases (reductions) resulting from:
Alternative minimum tax 350,000 2.5 100,000 5.7 100,000 4.5
State taxes, net of federal tax benefit 732,000 5.2 530,000 30.4 525,000 23.8
Adjustment of prior years underaccrual
(overaccrual) of income tax -- -- (167,000) (9.6) 159,000 7.2
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 324,000 2.3 327,000 18.7 511,000 23.2
Minority interest in loss from
domestic operations (242,000) (1.7) (191,000) (10.9) (203,000) (9.2)
Equity in net loss of investees for
which no tax benefit is recognized -- -- -- -- 351,000 15.9
Net operating loss carryforwards (5,180,000) (36.5) (763,000) (43.7) (253,000) (11.5)
Other items (238,000) (1.7) 146,000 8.4 122,000 5.6
------------------------------------------------------------------------------
$ 575,000 4.1% $ 575,000 33.0% $ 563,000 25.5%
==============================================================================
</TABLE>
42
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. 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 for each of the
years ended June 30, 1998, 1997 and 1996.
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:
<TABLE>
<CAPTION>
1998 1997
------------------------------------------
Accumulated Benefits Accumulated Benefits
In In
Excess of Assets Excess of Assets
------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations
Vested $5,143,000 $4,802,000
------------------------------------------
Projected benefit obligation 5,143,000 4,802,000
Plan assets (primarily short-term money funds) at
fair market value 4,187,000 4,105,000
------------------------------------------
Plan assets less than projected benefit obligation 956,000 697,000
Unrecognized net gain (112,000) 234,000
------------------------------------------
Net pension liability recognized in the
Consolidated Balance Sheet $ 844,000 $ 931,000
==========================================
</TABLE>
43
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Benefit Plans (continued)
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.
Net periodic pension cost included the following components:
1998 1997 1996
---------------------------------
Interest cost on projected benefit obligation $ 353,000 $349,000 $ 349,000
Actual return on assets (404,000) (323,000) (65,000)
Net amortization and deferral 79,000 10,000 (300,000)
---------------------------------
Total pension expense (benefit) $ 28,000 $ 36,000 $ (16,000)
=================================
The discount rate used in determining the actuarial present value of the
projected benefit obligation was 6 3/4% at June 30, 1998 and 7 3/4% at June 30,
1997. The expected long-term rate of return on plan assets was 8% in all three
years.
9. Leases
The Company is the lessee under a noncancellable operating ground lease which
expires in 2065. The lease provides for rentals of $11,404 per year and requires
future minimum rental payments aggregating $753,000 at June 30, 1998. 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 11). Total rent expense for all operating
leases amounted to approximately $126,000, $127,000 and $126,000 for the years
ended June 30, 1998, 1997 and 1996, 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.
44
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. Leases (continued)
Future minimum rentals (excluding operating expenses and other items billable to
tenants which aggregated approximately $3,100,000, $3,200,000 and $3,100,000 in
the years ended June 30, 1998, 1997 and 1996, 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:
1999 $12,400,000
2000 9,600,000
2001 8,600,000
2002 5,800,000
2003 3,900,000
Thereafter 19,300,000
-----------
$59,600,000
===========
10. Commitments and Contingencies
a. The Company is conducting a major renovation at its hotel. The total
project is expected to cost $3,200,000. As of June 30, 1998, the Company
has entered into contractual commitments totaling approximately $2,900,000
and expended approximately $631,000 against these commitments.
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
$2,281,000 is outstanding at June 30, 1998.
45
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. 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, 1998 and 1997, the minority share of stockholders' deficiency
of Bluepoints amounted to $4,075,557 and $3,130,196, 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
$5,911,065 and $4,126,928 at June 30, 1998 and 1997, 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.
46
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. 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 1998 1997 1996 Ownership
- - -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Insurance purchased in participation with the
Rosen Group Properties:
Premiums incurred $254,000 $242,000 $264,000 --%
Administrative fee received 75,000 75,000 75,000 --
Payable at June 30, to Rosen Group
Properties for premiums above 84,000 144,000 264,000 --
Home office rent 101,000 99,000 98,000 100
Interest on $640,000 note to the Estate of
A.A. Rosen 61,000 60,000 61,000 --
Interest from the Estate of A.A. Rosen loans 3,000 50,000 45,000 --
Loans receivable from the Estate of A.A. Rosen -- 20,000 725,000 --
Note payable to the Estate of A.A. Rosen 640,000 640,000 640,000 --
</TABLE>
See Note 4 for other related party information.
12. Other Matters
a. 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 $800,000 at June 30, 1998 ($1,050,000 at
June 30, 1997). Losses of $526,000, $339,000 and $387,000 incurred in
connection with the land and building held for sale were charged to
operations during the years ended June 30, 1996, 1997, and 1998,
respectively.
47
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. Other Matters (continued)
b. 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, 1998.
c. During the years ended June 30, 1998, 1997 and 1996, there were 1,839,205
and 1,248 shares of stock purchased for treasury at a cost of $67,126,
$6,805 and $41,477, respectively.
48
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
49
<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 with
Name Age Registrant Served Since
- - -------------------------------------------------------------------------------
Irving S. Bobrow 84 Director April 1983
Harry Bergman 56 Director October 1991
Treasurer June 1988
Secretary June 1988
Norman A. Halper 79 Director October 1969
President April 1983
Miriam N. Rosen 78 Director December 1994
Jonathan P. Rosen 54 Director February 1972
Vice President September 1978
Chairman of the Board December 1994
William M. Silverman 56 Director December 1981
Robert Nimkoff 37 Director April 1991
Vice President June 1988
Jane G. Weiman 54 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
1998, upon the election and qualification of their successors.
c. Not applicable.
50
<PAGE>
d. Family Relationships
Jonathan P. Rosen is the son of Miriam N. Rosen.
Robert Nimkoff is a cousin 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.
All 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, 1998, 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.
51
<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 6-30-98 $271,104 $10,239
Chairman 6-30-97 260,955 9,645
6-30-96 238,425 8,315
Norman A. Halper 6-30-98 271,104 10,239
President and Chief Executive Officer 6-30-97 260,955 9,645
6-30-96 238,425 12,704
Robert Nimkoff 6-30-98 104,461 6,639
Vice President 6-30-97 101,497 6,572
6-30-96 92,979 6,120
Harry Bergman 6-30-98 169,710 10,239
Secretary--Treasurer 6-30-97 152,052 9,645
6-30-96 133,996 9,062
Stephen L. Bernstein 6-30-98 202,826 10,239
VP & Corporate Counsel 6-30-97 195,784 9,645
6-30-96 179,177 10,897
(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.
52
<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, 1998. 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 Global-US and Dow Jones
Independent-Conglomerates Index
Fiscal Year Ending June 30
[Performance Graph]
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
The First Republic Corporation of America $100 $ 74 $ 59 $ 70 $ 65 $ 87
Dow Jones Global - US 100 101 127 160 214 280
Dow Jones Independent - Conglomerates 100 100 127 193 296 411
53
<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, 1998:
Amount and Nature
Title of Name and Address of Beneficial Percent
Class of Beneficial Owner Ownership (1) of Class
- - -------------------------------------------------------------------------------
Common Mary Nimkoff 92,991 (2) 13.87%
26 Buttonball Lane
Weston, Connecticut
Common Jonathan P. Rosen 227,726 (3) 33.98
40 East 69th St.
New York, New York
Common Lynn M. Silverman 113,350 16.91
911 Park Avenue
New York, New York
Common Jane G. Weiman 113,290 16.90
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.
54
<PAGE>
b. Security Ownership of Management
The following table sets forth as of September 16, 1998 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:
Common Stock
Common Stock of Bluepoints
--------------------------------------------------
Amount Percent Amount Percent
Name of Officer Beneficially of Beneficially of
or Director Owned (1) Class Owned Class
- - --------------------------------------------------------------------------------
Irving S. Bobrow 200 .03%
Robert Nimkoff 5,547 (2) .83
Norman A. Halper 400 .06
Jonathan P. Rosen 227,726 33.98 500 (3) 4.95%
Miriam N. Rosen 7,677 1.15 500 (3) 4.95
William M. Silverman 200 (4) .03 (4)
Jane G. Weiman 113,290 16.90 500 4.95
All officers and directors
as a group (7 persons) 355,040 52.98 1,500 14.85
(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.
55
<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, chairman of the board 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 held a second mortgage loan on the industrial center owned by
the Company in East Newark, New Jersey. From July 1997 through October
1997, the Company made payments of $39,960 with respect to such loan,
$3,178 of which was applied to the payment of interest and $36,782 to
amortization of principal. On October 21, 1997, the outstanding principal
balance, $96,108 was repaid.
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 $8,500 per month as of June 30, 1998, 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. 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 the Bank of New York. From July 1, 1997 through
August 21, 1998, the Estate of A.A. Rosen received $61,000 in interest on
the $640,000 note. The Company has advanced money on behalf of the Estate
of A.A. Rosen to Mondragon; there is no balance owed at June 30, 1998.
Amounts advanced are payable upon demand by the Estate of A.A. Rosen and
bears interest at 1% above the prime rate in effect at the Bank of New
York. The Estate of A.A. Rosen repaid all advances and has paid $3,000 in
interest during the year.
56
<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, 1998, 1997 and 1996, total premiums
incurred by the Company and its subsidiaries under this arrangement
amounted to approximately $254,000, $242,000 and $264,000, respectively.
The Company received fees of $75,000 in fiscal 1998, 1997 and 1996,
representing charges to the group for administrative services performed by
Company personnel in connection with the foregoing. At June 30, 1998,
approximately $84,000 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, 1998, 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, 1989 (the "Larfico Indebtedness.") Such
loans bear interest at 1% over the prime rate in effect at The Bank of New
York and are due August 1999. Since July 1, 1997, the largest aggregate
amount of outstanding indebtedness from Larfico to Bluepoints was
$196,667.
In addition, as of August 31, 1998, Mondragon was indebted to Bluepoints
for $5,911,065 of loans made by Bluepoints to Mondragon on various dates
between August 28, 1991 and June 11, 1998 (the "Mondragon Indebtedness").
Such loans bear interest at 1% over the prime rate in effect at the Bank
of New York and have no fixed maturity. Since July 1, 1997, the largest
aggregate amount of outstanding indebtedness from Mondragon to Bluepoints
was $5,911,065. The Estate of A.A. Rosen has guaranteed the repayment of
25% of the Larfico Indebtedness and 56.8% of the Mondragon Indebtedness.
57
<PAGE>
Since July 1, 1997, the largest amount of outstanding indebtedness from
Emporsa and Larfico to Mondragon was $1,185,000, which was the balance at
June 30, 1998. Such loans bear no interest and have no fixed maturity.
Since July 1, 1997, the largest amount of outstanding indebtedness from
Mondragon to Larfico and Emporsa was $25,000. Said indebtedness has no
fixed maturity and is noninterest bearing.
As of August 31, 1998, Bluepoints was indebted to the Company for
$32,856,000 of loans made by the Company to Bluepoints at various dates
between November 8, 1985 and August 31, 1998. Such loans bear interest at
the rate of 1% over the prime rate in effect at the Bank of New York and
are due on demand. Since July 1, 1997, the largest aggregate amount of
outstanding indebtedness from Bluepoints to the Company was $32,856,000. 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, 1998,
the amount of the guarantee was $4,075,557.
d. Not applicable.
58
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
Page
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...................................17
Consolidated Balance Sheets--June 30, 1998 and 1997
Consolidated Statements of Operations--Years Ended
June 30, 1998, 1997 and 1996
Consolidated Statements of Retained Earnings--Years Ended
June 30, 1998, 1997 and 1996
Consolidated Statements of Cash Flows--Years Ended
June 30, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
a. 2. Financial Statement Schedules:
Schedule II--Valuation and Qualifying Accounts....................60
Schedule III--Real Estate and Accumulated Depreciation............61
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
One Form 8-K was filed during the fourth quarter ended June 30,
1998.
On April 1, 1998 under Item 2 - Acquisition or Disposition of
Assets, the Company sold a building owned by it to an
unaffiliated entity.
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.........................................65
27. Financial Data Schedule.............................................66
59
<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> <C>
Year ended June 30, 1998:
Allowance for doubtful accounts $240,410 $63,403 $ -- $303,813
============================ ============================
Year ended June 30, 1997:
Allowance for doubtful accounts $210,345 $30,065 $ -- $240,410
============================ ============================
Year ended June 30, 1996:
Allowance for doubtful accounts $253,679 $35,534 $ 78,868 (a) $210,345
============================ ============================
</TABLE>
(a) Amounts charged off and credits issued, net of recoveries on accounts
previously written off.
60
<PAGE>
The First Republic Corporation of America and Subsidiaries
Schedule III--Real Estate and Accumulated Depreciation
Year ended June 30, 1998
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
- - -----------------------------------------------------------------------------------------------------------------------------------
Initial Cost to Cost Capitalized Gross Amount at Which
Company Subsequent to Carried at Close of Period(a)
---------------------- Acquisition ------------------------------
Buildings -------------------- Buildings
and Related Carrying and Related Accumulated
Description Encumbrances Land Assets Additions Costs Land Assets Total Depreciation
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
250 W. 39th Street
Building,
New York, New York--
Eighteen story
office building $ 437,559 $1,155,129 $ (609,785) $437,559 $ 545,344 $ 982,903 $ 111,265
Waltham Engineering
Center, Waltham,
Massachusetts--
Seventeen multi-story
industrial
buildings 188,573 2,163,945 182,664 188,573 2,346,609 2,535,182 639,885
Four Points Hotel--
Syracuse, Liverpool,
New York--Hotel
operations 1,651,923 5,296,153 6,948,076 6,948,076 5,090,605
East Newark, New Jersey--
Thirty multi-story
industrial
buildings $8,790,700 (b) 605,089 4,068,693 (2,324,136) 605,089 1,744,557 2,349,646 309,499
Greensboro Plaza,
Greensboro, North
Carolina--
Shopping center 3,810,123 379,947 1,696,953 694,852 379,947 2,391,805 2,771,752 1,886,628
Greensboro South,
Greensboro, North
Carolina--
Shopping center 2,492,707 419,739 1,350,376 1,306,722 706,906 2,369,931 3,076,837 1,589,081
Nyanza Building,
Woonsocket, Rhode
Island--
Four story
industrial building 60,000 1,288,139 (1,110,650) 60,000 177,489 237,489 62,096
<CAPTION>
Column A Column G Column H Column I
- - -------------------------------------------------------------------
Life on Which
Depreciation in
Latest Income
Date of Date Statements
Description Construction Acquired is Computed
- - -------------------------------------------------------------------
<S> <C> <C> <C>
250 W. 39th Street
Building,
New York, New York--
Eighteen story
office building 5/19/67 5-15 years
Waltham Engineering
Center, Waltham,
Massachusetts--
Seventeen multi-story
industrial
buildings 7/01/62 10-20 years
Four Points Hotel--
Syracuse, Liverpool,
New York--Hotel
operations 3/17/69 5-15 years
East Newark, New Jersey--
Thirty multi-story
industrial
buildings 3/11/63 21-1/3 years
Greensboro Plaza,
Greensboro, North
Carolina--
Shopping center 12/01/74 21-1/3 years
Greensboro South,
Greensboro, North
Carolina--
Shopping center 12/01/74 21-1/3 years
Nyanza Building,
Woonsocket, Rhode
Island--
Four story
industrial building 11/01/68 10-20 years
</TABLE>
61
<PAGE>
The First Republic Corporation of America and Subsidiaries
Schedule III--Real Estate and Accumulated Depreciation (continued)
Year ended June 30, 1998
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- - -------------------------------------------------------------------------------------------------------------------------------
Initial Cost to Cost Capitalized Gross Amount at Which
Company Subsequent to Carried at Close of Period(a)
---------------------- Acquisition -------------------------------------
Buildings -------------------- Buildings
and Related Carrying and Related
Description Encumbrances Land Assets Additions Costs Land Assets Total
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richmond Shopping
Center,
Richmond, Virginia--
Shopping center $ 293,814 $ 758,886 $ 217,955 $ 360,507 $ 910,148 $ 1,270,655
First Republic Office
Park,
Liverpool, New York--
Two, two-story
office buildings $600,000 (c) 351,600 4,124,526 1,190,599 351,600 5,315,125 5,666,725
Virginia Beach Shopping
Center,
Virginia Beach,
Virginia--
Shopping center 2,531,723 250,241 772,113 452,979 397,338 1,077,995 1,475,333
The First Republic
Building Corp.,
Liverpool, New York--
Motor hotel (c) 413,779 5,681,562 413,779 5,681,562 6,095,341
Jefferson National Bank
Building--Miami,
Florida--
Six story office
building 2,275,000 2,044,409 5,643,015 2,044,409 5,643,015 7,687,424
Brookhaven Shopping
Center,
Brookhaven,
Pennsylvania--
Shopping Center 2,478,516 521,798 3,632,019 (538,967) 149,456 3,465,394 3,614,850
Merrimac Street,
Newburyport,
Massachusetts--
Three story office
building & new
construction at
222 Merrimac St 195,213 377,317 4,020,780 236,713 4,356,597 4,593,310
Melbourne, Florida,
Vacant land 1,439,714 3,150 1,442,864 1,442,864
---------------------------------------------------- ------------------------------------
Totals $22,978,769 (d) $7,601,475 $34,364,596 $8,782,316 $7,774,740 $42,973,647 $50,748,387
==================================================== ====================================
<CAPTION>
Column A Column F Column G Column H Column I
- - ---------------------------------------------------------------------------------
Life on Which
Depreciation in
Latest Income
Accumulated Date of Date Statements
Description Depreciation Construction Acquired is Computed
- - ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richmond Shopping
Center,
Richmond, Virginia--
Shopping center $ 631,464 3/15/76 25 years
First Republic Office
Park,
Liverpool, New York--
Two, two-story
office buildings 1,407,944 10/01/85 5-40 years
Virginia Beach Shopping
Center,
Virginia Beach,
Virginia--
Shopping center 672,848 3/30/76 25-31.5 years
The First Republic
Building Corp.,
Liverpool, New York--
Motor hotel (c) 5,681,562 9/21/62 10-25 years
Jefferson National Bank
Building--Miami,
Florida--
Six story office
building 1,821,285 4/27/88 31-1/2 years
Brookhaven Shopping
Center,
Brookhaven,
Pennsylvania--
Shopping Center 2,324,342 12/16/76 5-33 years
Merrimac Street,
Newburyport,
Massachusetts--
Three story office
building & new
construction at
222 Merrimac St 87,471 10/25/87 10-25 years
Melbourne, Florida,
Vacant land
-----------
Totals $22,315,975
===========
</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 $42,000 of mortgages on real estate used in the textile
operations.
62
<PAGE>
The First Republic Corporation of America and Subsidiaries
Schedule III--Real Estate and Accumulated Depreciation (continued)
<TABLE>
<CAPTION>
Year ended June 30,
---------------------------------------------------------------------------------------
1996 1997 1998
---------------------------------------------------------------------------------------
Real Estate Accumulated Real Estate Accumulated Real Estate Accumulated
Owned Depreciation Owned Depreciation Owned Depreciation
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
The following is a reconciliation of the
real estate owned and accumulated
depreciation, beginning and end of
the year:
Balance, beginning of year $ 50,250,400 $ 22,675,090 $ 49,957,852 $ 23,455,743 $ 51,135,193 $ 24,553,722
Additions 546,167 1,619,368 1,484,689 1,405,327 5,239,516 1,230,651
Deductions:
Write-offs of fully depreciated
assets (838,715) (838,715) (307,348) (307,348) (229,445) (229,445)
Sale of assets (5,396,877) (3,238,953)
---------------------------------------------------------------------------------------
Balance, end of year $ 49,957,852 $ 23,455,743 $ 51,135,193 $ 24,553,722 $ 50,748,387 $ 22,315,975
=======================================================================================
</TABLE>
Note: Includes assets used in the real estate and hotel operations.
63
<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: October 13, 1998
/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/ Jonathan P. Rosen
- - --------------------------------------------------
Jonathan P. Rosen, Director
64
<PAGE>
LANGOMORRO, LANGOSTINERA
EL MORRO CIA. LTDA.
AND AFFILIATED COMPANIES
====================================
Audit Report of the Consolidated and
Combined Financial Statements
On June 30, 1998 and 1997
<PAGE>
[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, 1998
and 1997 and the related consolidated and combined statements of operations and
deficit, and of cash flows, for each of the years ended June 30, 1998, 1997 and
1996. 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 to June 30, 1998, and 1997, and the
results of their operations and their cash flows for the each of the years ended
June 30, 1998, 1997 and 1996, in conformity with generally accepted accounting
principles prevailing in the United States of America.
/s/ BDO Stern Cia Ltda.
August 7, 1998
Guayaquil, Ecuador
<PAGE>
Langomorro, Langostinera El Morro Cia. Ltda.
and Affiliated Companies
Consolidated and Combined Balance Sheets
<TABLE>
<CAPTION>
=====================================================================================================
As of June 30, 1998 1997
- - -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash in bank US$ 5,218 US$ 3,998
Accounts receivable (Note A) 365,679 353,832
Due from related parties (Note B) 2,638,176 2,690,604
Inventories (Note C) 1,875,118 1,230,474
Prepaid expense 8,528 13,359
Temporary investments 1,042 1,381
- - -----------------------------------------------------------------------------------------------------
Total current assets 4,893,761 4,293,648
Property, machinery and equipment (Note D) 9,951,861 8,868,506
Permanent investments (Note E) 3,066 3,066
Others assets (Note F) 323,375 538,955
- - -----------------------------------------------------------------------------------------------------
US$ 15,172,063 US$ 13,704,175
=====================================================================================================
Liabilities and stockholder's equity
Current liabilities:
Bank loans payable (Note G) US$ 2,837,817 US$ 2,679,920
Notes and accounts payable (Note H) 640,486 554,465
Due to related parties (Note I) 2,163,223 4,893,458
Interest payable 832,074 500,974
Accrued expenses 7,284 5,144
- - -----------------------------------------------------------------------------------------------------
Total current liabilities 6,480,884 8,633,961
Long-term debt (Note J) 4,677,355 307,355
Stockholder's equity:
Common stock, S/. 10.000 and S/. 5.000 par
value per share, 12,010,000 and 311,918 shares
authorized, issued, and outstanding (Note K) 6,200,550 1,041,546
Additional paid-in capital (Note L) 6,440,789 11,550,709
Accumulated deficit (Note M) (8,627,515) (7,829,396)
- - -----------------------------------------------------------------------------------------------------
Total stockholder's equity 4,013,824 4,762,859
- - -----------------------------------------------------------------------------------------------------
US$ 15,172,063 US$ 13,704,175
=====================================================================================================
</TABLE>
See summary of significant accounting practices and
notes to consolidated financial statements.
2
<PAGE>
Langomorro, Langostinera El Morro Cia. Ltda.
and Affiliated Companies
Consolidated and Combined Statements of Operations and Deficit
<TABLE>
<CAPTION>
==============================================================================================
For the year ended June 30, 1998 1997 1996
- - ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Net sales (Note O) US$ 3,989,836 US$ 2,734,905 US$ 1,594,053
Other income 47,836 46,247 49,408
Gain in translation 8,789 77,114
- - ----------------------------------------------------------------------------------------------
4,037,672 2,789,941 1,720,575
Cost and operating expenses:
Cost of products sold 3,657,148 2,674,544 2,001,964
Administrative expenses 103,552 279,085 355,599
Loss on translation 50,367
Amortization of facilities costs 215,583 215,581
Interest expenses 1,024,724 1,066,251 1,211,873
Others expenses 18,329 5,438
- - ----------------------------------------------------------------------------------------------
4,835,791 4,253,792 3,790,455
- - ----------------------------------------------------------------------------------------------
Net loss (798,119) (1,463,851) (2,069,880)
Deficit as of June 30, 1997 (7,829,396) (6,365,545) (4,295,665)
- - ----------------------------------------------------------------------------------------------
Accumulated deficit, June 30
(Note M) US$ (8,627,515) US$ (7,829,396) US$ (6,365,545)
==============================================================================================
</TABLE>
See summary of significant accounting practices and
notes to consolidated financial statements.
3
<PAGE>
Langomorro, Langostinera El Morro Cia. Ltda.
and Affiliated Companies
Statement of Cash Flows - Direct Method
<TABLE>
<CAPTION>
========================================================================================================
For the year ended June 30, 1998 1997 1996
- - --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Cash paid to suppliers and employees US$ (1,382,081) US$ (928,248) US$ (1,865,211)
Financial expenses (572,295) (783,365) (926,899)
Other income 47,836 29,793 45,115
- - --------------------------------------------------------------------------------------------------------
Net cash used in operating activities (1,906,540) (1,681,820) (2,746,995)
- - --------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Addition in property, machinery and equipment (1,329,603) (946,494) (939,607)
- - --------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,329,603) (946,494) (939,607)
- - --------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net borrowing under line-of-credit
agreement-net payments 3,208,816 673,256 587,434
Additional paid-in capital 2,006,742 3,116,871
- - --------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 3,208,816 2,679,998 3,704,305
- - --------------------------------------------------------------------------------------------------------
Effect due to variation in cash exchange rate 28,547 (48,670) (18,876)
- - --------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 1,220 3,014 (1,173)
Cash at beginning of the period 3,998 984 2,157
- - --------------------------------------------------------------------------------------------------------
Cash at end of the period US$ 5,218 US$ 3,998 US$ 984
========================================================================================================
</TABLE>
See summary of significant accounting practices and
notes to consolidated financial statements.
4
<PAGE>
Langomorro, Langostinera El Morro Cia. Ltda.
and Affiliated Companies
Reconciliation of Net Loss to Net Cash Used by Operating Activities
<TABLE>
<CAPTION>
=========================================================================================================
For the year ended June 30, 1998 1997 1996
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net loss US$ (798,119) US$ (1,463,851) US$ (2,069,880)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 246,248 133,854 140,377
Amortization of facilities costs 215,580 215,583 215,581
Loss on translation 50,367 (8,789) (77,114)
Changes in operating assets and liabilities:
Increase in accounts receivable and related
parties (673,495) (1,751,704) (595,993)
Increase in inventories (637,352) (292,205) (449,554)
(Decrease) increase in prepaid expenses 2,243 5,643 (12,004)
Increase in accrued expenses 407,385 247,005 300,323
(Decrease) increase in accounts payable and
due to related parties (719,397) 1,232,644 (198,731)
- - ---------------------------------------------------------------------------------------------------------
Net cash used in operating activities US (1,906,540) US$ (1,681,820) US$ (2,746,995)
=========================================================================================================
</TABLE>
See summary of significant accounting practices and
notes to consolidated financial statements.
5
<PAGE>
Langomorro, Langostinera El Morro Cia. Ltda.
and Affiliated Companies
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.
Operations Since the beginning of operations in
1981 and until June 30, 1998, the
Company has had recurring losses
totaling US$8,627,515. The origins of
these recurrent losses are principally
the deficiencies in the effective
exploitation and productivity in prior
years of the 542 hectares of land
available in the ponds and grow-out
pools.
Principles of consolidation and The consolidated and combined financial
combination 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.
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.
Permanent investments Are stated at cost, adjusted for the
equity method.
6
<PAGE>
Langomorro, Langostinera El Morro Cia. Ltda.
and Affiliated Companies
Summary of Significant Accounting Practices
================================================================================
Property, machinery Are recorded at cost. Expenditures for
and equipment 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 The Sucre financial statements have been
purchasing power prepared using the traditional
of the local currency 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 December 31 Annual inflation
----------------------------------------
1994 25%
1995 23%
1996 26%
1997 31%
1998 June 30, 36%
Translation of foreign The financial position, the results of
currency and exchange operations and the cash flows of the
rates Company are expressed in Ecuadorian
Sucres and translated into U.S. Dollars
as follows:
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.
7
<PAGE>
Langomorro, Langostinera El Morro Cia. Ltda.
and Affiliated Companies
Summary of Significant Accounting Practices
================================================================================
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.
8
<PAGE>
Langomorro, Langostinera El Morro Cia. Ltda.
and Affiliated Companies
Notes to Consolidated and Combined Financial Statements
================================================================================
A. Accounts receivable
Following a summary of this account:
June 30,
-------------------------------------------------------------------------
1998 1997
-------------------------------------------------------------------------
Clients (1) US$ 271,123 US$ 275,723
Suppliers from abroad 14,000 26,638
Employees 4,190 3,362
Others 76,366 48,109
-------------------------------------------------------------------------
US$ 365,679 US$ 353,832
=========================================================================
(1) Corresponds to shrimp delivery not liquidated by
Emporsa, Isca, Camazul with Promariscos.
B. Due from related parties
Following a summary of this account:
June 30,
-------------------------------------------------------------------------
1998 1997
-------------------------------------------------------------------------
Larfico, Larvas del Pacifico S.A. US$ 2,369,999 US$ 2,263,104
Comercial Inmobiliaria
Golconsa S.A. 10,849 10,613
Comercorp 239,575 341,299
Neneta S.A. 36,629
Bunsen 5,640 24,388
Inmobiliaria Ma. Luciana 11,449
Ing. Carlos Perez 14,571
Other companies, individually
immaterial 664
-------------------------------------------------------------------------
US$ 2,638,176 US$ 2,690,604
=========================================================================
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.
9
<PAGE>
Langomorro, Langostinera El Morro Cia. Ltda.
and Affiliated Companies
Notes to Consolidated and Combined Financial Statements
================================================================================
C. Inventories
Following a summary of this account:
June 30,
-------------------------------------------------------------------------
1998 1997
-------------------------------------------------------------------------
Products in process US$ 1,820,299 US$ 1,174,760
Materials and supplies 54,819 55,714
-------------------------------------------------------------------------
US$ 1,875,118 US$ 1,230,474
=========================================================================
D. Property, machinery and equipment
Following a summary of this account:
June 30,
-------------------------------------------------------------------------
1998 1997
-------------------------------------------------------------------------
At acquisition cost:
Vehicles US$ 280,221 US$ 223,151
Fishing boats 366,145 256,431
Machinery and equipment 806,751 701,020
Construction in progress 450,151 81,059
Furniture and office equipment 54,314 66,475
Various 102,344 77,921
Installations 8,074 6,511
Land 4,184 4,184
Pools and reservoirs 1,490,422 1,485,807
Recirculation of water (1) 7,401,471 6,821,030
Sluices for channels 188,863 188,863
Tools and fishing tackle 3,169 3,232
Pumping station 548,614 503,381
Laboratory equipment 9,732 6,775
Housing for personnel 78,896 78,896
Other properties 22,252 20,643
Wall repairs 89,699 59,333
Wharf 1,760 1,760
Offices in Guayaquil 76,840 76,840
Computation equipment 9,013
-------------------------------------------------------------------------
11,992,915 10,663,312
Less accumulated depreciation 2,041,054 1,794,806
-------------------------------------------------------------------------
US$ 9,951,861 US$ 8,868,506
=========================================================================
10
<PAGE>
Langomorro, Langostinera El Morro Cia. Ltda.
and Affiliated Companies
Notes to Consolidated and Combined Financial Statements
================================================================================
(1) This accounts was incorporated in June 1996 and
started its depreciation on July 1996
E. Permanent investments
Following a summary of this account:
June 30,
-------------------------------------------------------------------------
Percentage of
stock owned 1998 1997
-------------------------------------------------------------------------
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
=========================================================================
F. Other assets
Following a summary of this account:
June 30,
-------------------------------------------------------------------------
1998 1997
-------------------------------------------------------------------------
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 (754,535) (538,955)
US$ 323,375 US$ 538,955
=========================================================================
This account is amortized in five years, starting on
January 1995.
11
<PAGE>
Langomorro, Langostinera El Morro Cia. Ltda.
and Affiliated Companies
Notes to Consolidated and Combined Financial Statements
================================================================================
G. Bank loans payable
Following a summary of this account:
June 30,
--------------------------------------------------------------------------
1998 1997
--------------------------------------------------------------------------
Pacific Bank:
Obligation in dollars due in August,
1997 and October, 1998 with interest,
13% and 17,28% US$ 407,000 US$ 660,000
Advances on future export-loans at the
free market exchange rate 270,000 334,000
Obligation in Sucres, due in July, 1998
with interest at 51,19% 34,117
LLoyds Bank:
Obligations in dollars due in July, 1997
with interest, 14% 150,000
Obligations in Sucres, due in July and
September, 1998 with interest at 46%
and 50% 720,243 527,373
Banco Agricola y de Comercio:
Obligations in dollars due in July and
September, 1998, interest 13% annual 850,000
--------------------------------------------------------------------------
2,281,360 1,671,373
Bank overdraft 556,457 1,008,547
--------------------------------------------------------------------------
US$ 2,837,817 US$ 2,679,920
==========================================================================
The obligations are guaranteed with the personal
signature of the Company President.
12
<PAGE>
Langomorro, Langostinera El Morro Cia. Ltda.
and Affiliated Companies
Notes to Consolidated and Combined Financial Statements
================================================================================
H. Notes and accounts payable
Following a summary of this account:
June 30,
--------------------------------------------------------------------------
1998 1997
--------------------------------------------------------------------------
Suppliers:
Promariscos, Proveedores de Mariscos S.A.(1) US$ US$ 87,109
Expalsa, Exportadora de Alimentos S.A. 34
Statecourt Enterprises (2) 405,000 405,000
--------------------------------------------------------------------------
405,000 492,143
Tax returns 24,843 16,276
Others 210,643 46,046
--------------------------------------------------------------------------
US$ 640,486 US$ 554,465
==========================================================================
(1) Starting January 1997 the Company changed the
shrimp commercialization. It no longer exports but
sells locally to Empacadora Promariscos and the
reflected balance corresponds to an advance
received, that will be settled against shrimp
delivery.
(2) The accounts with related parties correspond to
loans by current accounts maintained with the
Company, non-interest bearing and without fixed
maturity.
I. Due to related parties
Following a summary of this account:
June 30,
---------------------------------------------------------------
1998 1997
---------------------------------------------------------------
Emporsa US$ 1,065,750 US$ 1,052,193
Camarecsa 35,127 56,255
Marchelot 51,467 76,390
Bluepoints 1,005,339 3,700,388
Ing. Carlos Perez 4,119
Others 1,421 8,232
---------------------------------------------------------------
US$ 2,163,223 US$ 4,893,458
===============================================================
13
<PAGE>
Langomorro, Langostinera El Morro Cia. Ltda.
and Affiliated Companies
Notes to Consolidated and Combined Financial Statements
================================================================================
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.
As of June 30, 1997 and 1996, Bluepoints includes US$
989,496 for advances on future export-loans, recorded at
the free market rate of exchange.
J. Long-term debt payable
Following a summary of this account:
June 30,
--------------------------------------------------------------------------
1998 1997
--------------------------------------------------------------------------
Bluepoints Co. Inc.:
Langomorro, Langostinera
El Morro Cia. Ltda. US$ 2,270,000 US$ 307,355
Isca, Isla Camaronera C.A. 1,550,000
Camazul Cia. Ltda. 550,000
--------------------------------------------------------------------------
4,370,000
Marchelot S.A. 307,335
--------------------------------------------------------------------------
US$ 4,677,355 US$ 307,355
==========================================================================
The obligation with Bluepoints Co. Inc. was generated in
June, 1998 with a 9,25% prime interest rate and a three
years term, with semestral payments starting from
December, 1998.
K. Common stock
Following a summary of this account:
June 30,
--------------------------------------------------------------------------
1998 1997
--------------------------------------------------------------------------
Langomorro, Langostinera
El Morro Cia. Ltda. US$ 4,887,880 US$ 171,573
Isca, Isla Camaronera C.A. 1,312,670 869,973
--------------------------------------------------------------------------
US$ 6,200,550 US$ 1,041,546
==========================================================================
14
<PAGE>
Langomorro, Langostinera El Morro Cia. Ltda.
and Affiliated Companies
Notes to Consolidated and Combined Financial Statements
================================================================================
L. Additional paid-in capital
Following a summary of this account:
June 30,
--------------------------------------------------------------------------
1998 1997
--------------------------------------------------------------------------
Balance June 30 US$ 11,550,709 US$ 9,543,967
Additions from July 1, 1997 to 49,085 2,006,742
June 30, 1998,
Capitalization (5,159,005)
--------------------------------------------------------------------------
US$ 6,440,789 US$ 11,550,709
==========================================================================
M. Accumulated deficit As of June 30, 1998 and 1997 the Company
maintains an accumulated deficit of US$
8,627,515 and US$ 7,829,396
respectively, the current liabilities
exceeded total current assets by US$
1,587,123 in 1998 and US$ 4,340,313 in
1997. 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 542
correspond to ponds and grow-out pools,
another 71 are used as service areas and
103 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.
15
<PAGE>
Langomorro, Langostinera El Morro Cia. Ltda.
and Affiliated Companies
Notes to Consolidated and Combined Financial Statements
================================================================================
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.
N. Exchange rates The free market exchange rate in effect
on June 30, 1998 and 1997 was S/.5.276
to US$ 1.00 (S/. 5.427 to US$ 1.00 on
August 7, 1998) and S/.3.982 to US$1.00
(S/.4.057 to US$1.00 on August 4, 1997
respectively).
O. Sales The volumes of shrimp sold by the
individual companies were as follows:
Volume Year ended June 30,
- - -------------------------------------------------------------------------------
Company 1998 1997 1998 1997
- - -------------------------------------------------------------------------------
Langomorro, Langostinera
El Morro Cia. Ltda. &
Camazul Cia. Ltda 869,816 568,957 US$ 2,421,541 US$ 1,775,719
Isca, Isla Camaronera C.A 579,559 322,602 1,568,295 959,186
- - -------------------------------------------------------------------------------
Total 1,449,375 891,559 US$ 3,989,836 US$ 2,734,905
===============================================================================
In 1998 and 1997 the 869,816 and 568,957
pounds of shrimp sold by Langomorro Cia.
Ltda. were produced utilizing 393
hectares, resulting in a productivity of
2.213 and 1.448 pounds per hectare
respectively in these years. The 579,559
and 322,602 pounds of shrimp sold by
Isca C.A. were produced utilizing 149
hectares, resulting in a productivity of
3,890 and 2,165 pounds per hectare
respectively in these years.
P. Related companies' transactions The Company has bought US$ 723,084 of
shrimp larvae from Larfico, Larvas del
Pacifico S.A. during the year ended June
30, 1998.
Q. 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
below:
16
<PAGE>
Langomorro, Langostinera El Morro Cia. Ltda.
and Affiliated Companies
Notes to Consolidated and Combined Financial Statements
================================================================================
Companies Period Reviewed
--------------------------------------------------------------------------
Langostinera del Morro (Langomorro) 1994
Isla, Camaronera (Isca) 1994
Camazul 1994
--------------------------------------------------------------------------
R. Subsequent events o Between June 30, 1997 and August 7,
1998, date of issue of this report, no
subsequent events have accrued that, in
the opinion of the Company's management,
could have an important effect on these
financial statements.
- - --------------------------------------------------------------------------------
17
The First Republic Corporation of America
List of Subsidiaries
The First Republic Building Corp.
Bluepoints Company Inc.
Bluepoints Company Inc. of Maryland
Bluepoints International Fisheries, Inc.
Bluepoints Bermuda Ltd.
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-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 8,590,167
<SECURITIES> 0
<RECEIVABLES> 3,699,004
<ALLOWANCES> 303,813
<INVENTORY> 5,415,534
<CURRENT-ASSETS> 19,205,431
<PP&E> 78,538,620
<DEPRECIATION> 34,758,123
<TOTAL-ASSETS> 87,965,754
<CURRENT-LIABILITIES> 8,666,241
<BONDS> 21,625,350
0
0
<COMMON> 1,175,261
<OTHER-SE> 53,995,031
<TOTAL-LIABILITY-AND-EQUITY> 87,965,754
<SALES> 25,873,482
<TOTAL-REVENUES> 50,381,307
<CGS> 23,900,935
<TOTAL-COSTS> 22,208,974
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 63,403
<INTEREST-EXPENSE> 2,926,778
<INCOME-PRETAX> 1,281,217
<INCOME-TAX> 575,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,628,323
<EPS-PRIMARY> 20.29
<EPS-DILUTED> 20.29
</TABLE>
