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, 1999
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, 1999, 669,991 common shares were outstanding, and the
aggregate market value of common shares held by nonaffiliates of Registrant was
approximately $1,950,000 (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......... 19
Item 8. Financial Statements and Supplementary Data......................... 20
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure............................................ 52
PART III
Item 10. Directors and Executive Officers of the Registrant.................. 53
Item 11. Executive Compensation.............................................. 55
Item 12. Security Ownership of Certain Beneficial Owners and Management...... 57
Item 13. Certain Relationships and Related Transactions...................... 59
PART IV
Item 14.Exhibits, Financial Statements, Schedules and Reports on Form 8-K.... 62
Signatures................................................................... 67
<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
businesses in which the Company and its subsidiaries are engaged.
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. The loan was obtained for the purpose of converting the
vacant property, formerly occupied by Towle Manufacturing Company, into
commercial space suitable for rental. To date, $3,355,000 has been
borrowed, with $645,000 available to be borrowed when additional space is
rented. At August 31, 1999, 74% of the building was rented. The
construction loan matures on August 31, 2000. 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 is at the bank's prime rate from time to time, or at LIBOR plus 1.6%
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.
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
self-liquidating mortgage calls for monthly payments of approximately
$24,000 including principal and interest, bears interest at 7.25% and
matures in September 2018. The old mortgage had monthly payments of
approximately $24,000, bore interest at 9.5% and matured on May 1, 2002.
On November 17, 1998, the Company acquired the Shipps Corner Shopping
Center in Virginia Beach, Virginia, for $3,425,000 in cash, and on May 20,
1999, the Company obtained a loan for $2,500,000 from a bank, secured by a
mortgage on the shopping center. The loan is self liquidating and calls
for monthly payments of approximately $19,000 including principal and
interest, bears interest at 7% per annum, and matures in June 2019.
In order to obtain funds for its Ecuadorian shrimp operations, on December
18, 1998, the Company and its Ecuadorian subsidiary closed a loan with the
Overseas Private Investment Corporation ("OPIC") for $5,600,000.
Initially, $5,050,000 was borrowed, with $550,000 remaining to be taken
down. The loan is secured by a mortgage on the Company's property in
Waltham, Massachusetts, bears interest at 7.3% per annum and provides for
15 semi-annual payments of principal and interest.
1
<PAGE>
After the repayment of $2,800,000 of loans in Ecuador with interest rates
ranging from 13% to 51%, the repayment of approximately $1,400,000 to the
Company and $540,000 held in escrow reserve accounts, approximately
$860,000 remained for working capital needs for the Ecuadorian shrimp
operations.
On March 30, 1999, the Company refinanced the $2,000,000 balance of a
mortgage loan on the Colonial Bank (formerly known as Jefferson National
Bank) Building in Miami Beach, Florida. The new loan bears interest at
7.65% per annum, is payable monthly, and provides for monthly principal
payments of $29,167 commencing May 1, 1999 through December 1, 2004.
b. Financial Information about Industry Segments
The sales and operating profit from operations and the identifiable assets
attributable to each industry segment for the three years ended June 30,
1999 are set forth in Note 2 (Industry Segments and Foreign Operations) 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 32%, 35% and 36% of consolidated
revenues from operations for the fiscal years ended June 30, 1999, 1998
and 1997, 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. In January 1999 the
Company completed a $4,000,000 renovation and began operating under a
Holiday Inn franchise agreement. 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 10%, 11% and 11% of consolidated revenues
from operations for the fiscal years ended June 30, 1999, 1998 and 1997,
respectively.
2
<PAGE>
Seafood
The Company's 80.2% owned subsidiary, Bluepoints Company Inc.
("Bluepoints"), holds title to approximately 13,000 acres of land under
the water of the Great South Bay between Fire Island and Long Island's
South Shore in New York State. Bluepoints harvests hard-shell clams on
this property. Bluepoints competes with others on the basis of quality of
product and reliability of delivery.
Although once a substantial factor in the market, a significant decrease
in clam production at Bluepoints over the past several years, combined
with some substantial new production by competitors harvesting clams in
other areas along the Eastern Seaboard, has resulted in a diminished role
for Bluepoints in the hard-shell clam market. The aggregate number of
bushels of clams increased 1% in the fiscal year ended June 30, 1999 as
compared with the fiscal year ended June 30, 1998. The aggregate number of
bushels of clams harvested during the fiscal year ended June 30, 1998
decreased 32% as compared with the prior fiscal year. For the period July
1, 1999 through August 31, 1999, the aggregate number of clams harvested
decreased 30% compared with the same period in the prior year. The
decrease in production was caused by smaller harvests of product.
Bluepoints discontinued using Company owned boats and laid off employees
at its claming operations in May 1998 in order 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.
In September 1998, Bluepoints began selling lobster tails principally
imported from Honduras and Oman. Sales for the current fiscal year were
approximately $6,229,000 and profits were $281,000.
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 $2,620,000 and
$5,446,000 for the fiscal years ended June 30, 1999 and 1998,
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 $4,736,000
and there was a
3
<PAGE>
Seafood (continued)
loss of $547,000. This compares to sales of $1,128,000 and a loss of
$1,163,000 from operations during the prior year. Sales for July and
August 1999 were insignificant and there can be no assurance that
extensive beds of scallops will be found in the future.
Seafood revenues accounted for 33%, 20%, and 20% of consolidated revenues
from operations for the fiscal years ended June 30, 1999, 1998 and 1997,
respectively.
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, 1999, Hanora purchased approximately
$1,099,000 of additional equipment. The backlog of yarn orders on August
31, 1999 was approximately $6,900,000 as compared to $7,600,000 a year
ago. Approximately 80% of the current backlog is expected to be shipped in
the fiscal year ending June 30, 2000. Three customers accounted for
approximately 37% of Hanora's total sales during the 1999 fiscal year. The
loss of any one of these three customers would not have a material adverse
effect on the Company and its subsidiaries taken as a whole.
The Hanora South division of the Company ("Hanora South"), operates a yarn
spinning plant in Lake City, South Carolina, which produces craft,
sweater, hosiery, upholstery and industrial yarns as a commission spinner
for Hanora. J&M Dyers, ("J&M"), another division of the Company, which
operates a yarn dyeing plant in Sumter, South Carolina, is a commission
dyer for rawstock, package, ombre and skein dyeing. Neither of these
divisions is a significant factor in the markets they serve and each
competes with a number of other firms that are substantially larger; at
the present time, neither has a significant backlog of orders.
Textile revenues accounted for 24%, 33%, and 32% of consolidated revenues
from operations for the fiscal years ended June 30, 1999, 1998 and 1997,
respectively.
4
<PAGE>
ITEM 2. PROPERTIES
Location General Character (1)
- --------------------------------------------------------------------------------
Real Estate Segment
Junior Coat Building 18-story office, showroom and
250 W. 39th Street manufacturing facility; 182,000 rentable
New York, New York square feet; 95% rented.
Colonial Bank Building 6-story office building; 39,300 rentable
4100 Pinetree Drive square feet; 100% rented.
Miami Beach, Florida
First Republic Office Park Two, two-story office buildings with
Thruway and Electronics Parkway 49,000 and 35,000 rentable square feet;
Liverpool, New York approximately 14 acres of land; 100%
rented.
Waltham Engineering Center 17 multi-story industrial buildings;
Waltham, Massachusetts in excess of 380,000 rentable square feet;
parking facilities; 96% 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.
Shipps Corner Shopping Center Approximately 5.5 acres of land and 63,000
Virginia Beach, Virginia 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; 74% 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
Thruway and Electronics Parkway center; indoor pool; operated under a
Liverpool, New York Holiday Inn franchise agreement.
6
<PAGE>
Location General Character (1)
- -------------------------------------------------------------------------------
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.
Mattituck, New York Approximately 1 acre of land on Long
Island; used as a grow out pond for the
clam hatchery.
Englishman Island Approximately 600 acres of land including
Guayaquil County, Ecuador approximately 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.
7
<PAGE>
Location General Character (1)
- -------------------------------------------------------------------------------
Pageland, South Carolina Approximately 10 acres of land and 36,125
square foot building located thereon;
previously used as bulking and twisting
plant, warehouse and office, presently
being rented.
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.
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 $8,800
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 September 1997 to a high of $40 in
March 1999.
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, 1999, there were 719 holders of record of the
Company's common stock.
c. No dividends have been paid during the two years ended June 30, 1999. 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,
------------------------------------------------------
1999 1998 1997 1996 1995
------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues $ 51,489 $ 50,061 $ 50,220 $ 45,612 $ 48,216
======================================================
Gain on sale of real estate held for rental NONE $ 12,922 NONE NONE NONE
======================================================
Income before interest and income taxes $ 2,792 $ 17,130 $ 4,814 $ 912 $ 4,450
======================================================
Interest costs $ 2,867 $ 2,927 $ 3,068 $ 3,115 $ 2,993
======================================================
Net (loss) income $ (124) $ 13,628 $ 1,170 $ (2,767) $ 1,010
======================================================
Net (loss) income per share of common stock
- basic and diluted $ (.19) $ 20.29 $ 1.74 $ (4.11) $ 1.50
======================================================
Total assets $ 96,556 $ 87,966 $ 81,336 $ 79,239 $ 82,740
======================================================
Long-term debt $ 29,818 $ 21,625 $ 26,297 $ 23,810 $ 25,540
======================================================
Stockholders' equity $ 54,880 $ 55,170 $ 41,609 $ 40,446 $ 43,254
======================================================
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, 1999 decreased by approximately $5,650,000 to
$4,889,000.
Net cash provided by operating activities was approximately $1,469,000 during
the 1999 fiscal year. Net cash provided by financing activities was
approximately $9,443,000. Net cash of approximately $17,996,000 was used by
investing activities. The Company has a $9,000,000 term loan with its principal
lender bearing interest at 7.5% 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 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 on October 21, 2002 and the
revolving line of credit matures in October 2000. At June 30, 1999 the term loan
balance was $8,431,900 with interest at 7.5%, and $1,000,000 was outstanding on
the revolving line of credit with interest at 7%.
During the three years ended June 30, 1999, the Company incurred capital
expenditures of approximately $24,159,000. In addition, approximately $5,292,000
was expended for tenant improvements during this three year period. At June 30,
1999 the Company had no significant commitments for capital expenditures and
believes that its current borrowings are adequate to meet cash needs for the
next twelve months.
The Company's equity share of losses from Ecuadorian shrimp operations was
$1,119,000 in fiscal 1999 as compared to a loss of $328,000 in fiscal 1998.
Efforts are being made to increase shrimp production through the use of the
Company's newly patented Mariculture System, rehabilitation of the farms and
improved farming techniques. In order to obtain funds for its Ecuadorian shrimp
operations the Company and its Ecuadorian subsidiary closed a loan with the
Overseas Private Investment Corporation in December 1998 for $5,600,000. The
loan bears interest at 7.3% per annum and provides for 15 semi-annual payments
of principal and interest. After the repayment of $2,800,000 of loans in Ecuador
with interest rates ranging from 13% to 51%, the repayment of approximately
$1,400,000 to the Company and $540,000 held in escrow reserve accounts,
approximately $860,000 remained for working capital needs for the Ecuadorian
shrimp operations. Although there can be no assurance that the shrimp operations
will improve, the Company believes that operations will substantially improve in
the second half of fiscal 2000 as a result of the reduction in interest costs,
other cost reductions, the efforts to increase production as discussed above,
and the marketing (i.e. to receive royalties) of its Mariculture System to other
shrimp farmers.
12
<PAGE>
Results of Operations
Real Estate
The Company's real estate operating profits decreased $157,000 in fiscal 1999
and revenues decreased $1,272,000. This was due primarily to the sale of the
Video Film Center in the last fiscal year, which had revenues of $2,864,000 and
operating profit of $549,000 in the last fiscal year. Revenues at the Shipps
Corner Shopping Center purchased November 17, 1998 were $294,000 and operating
profit were $177,000. Revenues at the property in Newburyport which the Company
has renovated increased $364,000 and operating profit decreased $310,000. At
August 31, 1999 the Newburyport property's occupancy was 74% and the company
expects the property to be profitable in the coming year. Revenues and operating
income increased at substantially all the other properties. Mortgage interest
was reduced by $177,000 and proceeds of $169,000 was received at the Richmond
Virginia Shopping Center in the settlement of a lawsuit.
In fiscal 1998 operating profits increased $960,000 and revenue decreased by
$516,000 compared to the prior fiscal year. Profits increased at substantially
all the properties. The revenue decrease is attributable to the sale of the
Video Film Center 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 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.
Hotel
In fiscal 1999 revenues decreased $287,000 and profits decreased $547,000 as a
result of a $4,000,000 renovation at the hotel which was completed in January
1999. The hotel is now operating under a Holiday Inn franchise agreement.
Depreciation expense increased $282,000 as a result of the renovation.
In fiscal 1998 revenues decreased $220,000 and profits decreased $84,000, due to
renovations started at the hotel. In fiscal 1998 the hotel terminated its
franchise agreement with ITT Sheraton Corporation to become a Holiday Inn
facility. In fiscal 1997 operating profits for the hotel increased approximately
$172,000 on an approximately $357,000 increase in revenues.
13
<PAGE>
Seafood
Overall revenues for the seafood division increased $7,078,000 in fiscal 1999 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 1999 were $2,428,000 as compared to a loss of $3,576,000
in fiscal 1998. Losses from the Ecuadorian shrimp operations were $1,947,000 and
revenues decreased $2,826,000 due to problems at the shrimp hatchery earlier in
the year caused by colder water temperatures and the transition from the weather
phenomenon known as "El Nino" and the discontinuation of sales of shrimp
purchased from third parties. Shrimp yields in the latter part of the year were
adversely affected by an outbreak of White Spot Virus that reduced pounds
harvested. The Company is attempting to mitigate the effects of the virus by
utilizing its ozone system and recent tests suggest that a stabilizing trend has
been reached. However, there can be no assurance that this favorable trend will
continue. The Company's scallop operation incurred a loss of $547,000 in fiscal
1999 as compared to a loss of $1,163,000 in fiscal 1998 on a $3,608,000 increase
in revenues. Bluepoints' Long Island operations had a profit of $66,000 as
compared to a loss of $1,054,000 in the prior year. Revenues increased
$6,296,000 principally due to the sale of imported lobster tails, a new product
for the Company.
In fiscal 1998 revenues for the seafood division increased $121,000 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, During fiscal 1998 Ecuadorian shrimp
operations include the sale of shrimp purchased from third parties. 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 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
14
<PAGE>
Seafood (continued)
shell crab operation were sold in fiscal year 1997 and the Company incurred a
loss of $34,000.
Textile
Fiscal 1999 revenues for the textile division decreased $4,458,000 over the
prior year and operating profit decreased $998,000. Hanora Spinning's operating
profit decreased $493,000 to $383,000 and revenues decreased $3,372,000. Hanora
South and J&M Dyers ("J&M") incurred a combined loss of $593,000 as compared to
the prior year's loss of $167,000 and revenues decreased $1,086,000. The
decrease in earnings in the textile division was due to lower revenues caused by
a downturn in the textile industry, lower wool prices and increased competition
from foreign companies. Whitlock Combing Company, Inc. ("Whitlock") which owned
a wool combing plant in South Carolina and which discontinued operations in 1992
incurred losses of $466,000 (including an additional writedown of its building
by $300,000) relating to its property in South Carolina which is being offered
for sale compared to a loss of $387,000 (including an additional write down of
its building by $250,000) last year. During the three years ended June 30, 1999
the Company purchased approximately $2,300,000 of machinery and equipment for
the textile operations.
In fiscal 1998 revenues for the textile division increased $717,000 over the
prior year and operating profit increased $59,000. Hanora Spinning's operating
profit 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. Whitlock incurred losses of $387,000
(including a writedown of its building by $250,000) compared to a loss of
$339,000 (including an additional write down of its building by $250,000) last
year. 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 (including a write down of its building by
$262,000) in the prior year.
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.
Corporate/Other
Corporate interest and expenses for the last three years was $4,367,000,
$4,036,000, and $4,339,000, respectively. Corporate and other revenues for the
last three years was
15
<PAGE>
Corporate/Other (continued)
$691,000, $324,000, and $587,000, respectively. Corporate expenses 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 increased in the current fiscal year principally due to
increased professional fees of $150,000 and increased salaries of $136,000. The
professional fees relate to the patent obtained on the Company's Mariculture
System in Ecuador. Corporate expenses decreased by $303,000 in fiscal 1998,
primarily as a result of $307,000 of clean-up expenses at Merrimac's Newburyport
property in the prior year. Starting in fiscal 1998, this property was included
in real estate operations. 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 year 2000 ("Y2K") issue refers generally to computer applications using only
the last two digits to refer to a year rather than all four digits. As a result,
these applications could fail or create erroneous results if they recognize "00"
as the year 1900 rather than the year 2000. The Company has taken Y2K
initiatives in three general areas which represent the areas that could have an
impact on the Company: information technology systems, non-information
technology systems and third party issues. The following is a summary of these
initiatives:
Information Technology: The Company has focused its efforts on the high-risk
areas of the corporate office computer hardware, operating systems and software
applications. The Company has completed its assessment and has been advised by
its independent software provider that with modifications to existing software
and conversions to new software and hardware, the Company's network operating
systems and software applications will be Y2K compliant.
Non-information Technology: Non-information technology consists mainly of
facilities management systems such as telephone, utility and security systems
for the corporate office and its real estate properties. The Company has
reviewed the corporate facility management systems and concluded that the
systems of its corporate office and real estate properties', including
telephone, utilities, fire and security systems are Y2K compliant.
Third Parties: The Company has third-party relationships with tenants,
suppliers, contractors and service providers. The Company has queried its key
suppliers, subcontractors and service providers. The majority of the Company's
vendors are small suppliers that the Company believes can manually execute their
business and are readily replaceable. Management also believes there is no
material risk of being unable to procure the necessary supplies and services. To
date, the Company is not aware of any external agent with a Year 2000 issue that
would materially impact the Company's results of operations, liquidity, or
capital resources. However, the Company has no means of
16
<PAGE>
Year 2000 Compliance (continued)
ensuring that external agents will be Year 2000 ready. The inability of external
agents to complete their Year 2000 resolution process in a timely fashion could
materially impact the Company. The effect of non-compliance by external agents
is not determinable.
Costs: The accounting software upgrade and conversion is being executed under
maintenance and support agreements with software vendors. The total cost of the
accounting conversion which the Company had previously commenced during fiscal
1998 is estimated at approximately $60,000 including the Y2K portion of the
conversion that cannot be readily identified and is not material to the
operating results or financial position of the Company. The identification and
remediation of systems is being accomplished by in-house personnel. The
assessment of third-party readiness is also being conducted by in-house
personnel whose costs are recorded as normal operating expenses.
Risks: The principal risks to the Company relating to the completion of its
accounting software conversion is failure to correctly bill tenants after
December 31, 1999 and to pay invoices when due. Management believes it has
adequate resources, or could obtain the needed resources, to manually bill
tenants and pay bills until the systems became operational.
The principal risks to the Company relating to non-information systems at the
corporate office are failure to identify time-sensitive systems and inability to
find a suitable replacement system. The Company believes that adequate
replacement components or new systems are available at reasonable prices and are
in good supply. The Company also believes that adequate time and resources are
available to remediate these areas as needed.
The principal risks to the Company in its relationships with third parties are
the failure of third-party systems used to conduct business such as tenants
being unable to pay invoices; banks being unable to process receipts and
disbursements; vendors being unable to supply needed materials and services; and
processing of outsourced employee payroll. Based on Y2K compliance work done to
date, the Company has no reason to believe that key tenants, banks and suppliers
will not be Y2K compliant in all material respects or cannot be replaced within
an acceptable timeframe.
Contingency Plans: The conversion to the new software is scheduled to be
completed by October 1999. 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.
17
<PAGE>
Year 2000 Compliance (continued)
The Company's description of its Y2K compliance issue is based upon information
obtained by management through evaluations of internal business systems and from
tenant and vendor compliance efforts. No assurance can be given that the Company
will be able to address the Y2K issues for all its systems in a timely manner or
that it will not encounter unexpected difficulties or significant expenses
relating to adequately addressing the Y2K issue. If the Company or the major
tenants or vendors with whom the Company does business fail to address their
major Y2K issues, the Company's operating results or financial position could be
materially adversely affected.
Forward-looking Statements
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended and Section 21B of the Securities Act of 1934, as amended. Such
forward-looking statements include statements regarding the intent, belief or
current expectations of the Company and its management and involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things, the
following: the ability of the Company to increase production at its Ecuadorian
shrimp farms, the clam inventory in the Great South Bay, the availability of
scallops in the area covered by the Company's Cape Canaveral, Florida
operations, demand for the Company's textile services, and general economic and
business conditions, which will, among other things, affect the demand for space
and rooms at the Company's real estate and hotel properties, the availability
and creditworthiness of prospective tenants, lease rents and the terms and
availability of financing; and adverse changes in the real estate markets,
including, among other things, competition with other companies, risks of real
estate development and acquisition, governmental actions and initiatives and
environmental safety requirements.
18
<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.
19
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
<PAGE>
Report of Independent Auditors
Board of Directors and Stockholders
The First Republic Corporation of America
We have audited the accompanying consolidated balance sheets of The First
Republic Corporation of America (the "Company") and subsidiaries as of June 30,
1999 and 1998, and the related consolidated statements of operations and
comprehensive (loss) income, retained earnings, and cash flows for each of three
years in the period ended June 30, 1999. 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, Bluepoints
International Fisheries, Inc. and subsidiaries and the hotel division, which
statements reflect total assets constituting 25% in 1999 and 18% in 1998, and
total revenues constituting 27% in 1999, 23% in 1998, and 18% in 1997, of the
related consolidated totals, (b) Langomorro, Langostinera El Morro Cia. Ltda.
and Affiliated Companies (the "Mondragon Companies", a corporation in which the
Company has a 38% interest), 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.
20
<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, 1999 and 1998, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1999, 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 21, 1999
21
<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, 1999 and 1998, and the related consolidated statements of operations
and deficit, and of cash flows, for each of the years ended June 30, 1999, 1998
and 1997. 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
prevailing in the United States of America. 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, 1999 and 1998, and the results of their operations and their cash
flows for each of the years ended June 30, 1999, 1998 and 1997, in conformity
with generally accepted accounting principles prevailing in the United States of
America.
/s/ BDO Stern
August 9, 1999
Guayaquil, Ecuador
<PAGE>
[LETTERHEAD OF HOYMAN, DOBSON & COMPANY, P.A.]
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Bluepoints International Fisheries, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Bluepoints
International Fisheries, Inc. (a Florida corporation) and Subsidiaries as of
June 30, 1999, and the related consolidated statements of operations and
accumulated deficit and cash flows for the year then ended. These consolidated
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
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.
We did not observe the physical inventory (stated at $153,482) taken as of June
30, 1998, since that date was prior to our engagement as auditors for the
Company, and the Company's records do not permit adequate retroactive tests of
inventory quantities.
The Company's financial statements do not disclose deferred taxes. In our
opinion, disclosure of that information is required to conform with generally
accepted accounting principles.
In our opinion, except for the effects of such adjustments, if any, as might
have been determined to be necessary in the statements of operations and
accumulated deficit, and cash flows had we been able to observe the physical
inventory taken as of June 30, 1998, and except for the omission of the
information discussed in the preceding paragraph, the consolidated financial
statements referred to above present fairly, in all material respects, the
financial position of Bluepoints International Fisheries, Inc. and Subsidiaries
as of June 30, 1999 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ Hoyman Dobson & Company, P.A.
Hoyman Dobson & Company, P.A.
August 9, 1999
1
<PAGE>
[LETTERHEAD OF DERMODY, BURKE & BROWN]
INDEPENDENT AUDITORS' REPORT
================================================================================
BOARD OF DIRECTORS
FIRST REPUBLIC CORPORATION
OF AMERICA, HOLIDAY INN
We have audited the accompanying balance sheets of FIRST REPUBLIC CORPORATION OF
AMERICA, HOLIDAY INN as of June 30, 1999 and 1998, and the related statements of
income and division control and cash flows for the years ended June 30, 1999,
1998 and 1997. 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 Holiday Inn 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 Holiday Inn.
- --------------------------------------------------------------------------------
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, Holiday Inn at June 30, 1999 and 1998 and the
results of its operations and its cash flows for the years ended June 30, 1999,
1998 and 1997 in conformity with generally accepted accounting principles.
/s/ Dermody, Burke and Brown
DERMODY, BURKE AND BROWN
Certified Public Accountants, P.C.
Syracuse, NY
September 1, 1999
- --------------------------------------------------------------------------------
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.
<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 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 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.
The balance sheet of Bristol Manor Health Care Center, Inc. includes an
amount due from affiliated entities of $3,349,578. 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 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
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, 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 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.
<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 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 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 June 30, 1997, 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
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>
[LETTERHEAD OF LOEB & TROPER]
Independent Auditor's Report
Board of Directors
Logan Manor Corp.
We have audited the accompanying balance sheet of Logan Manor Corp. as of
June 30, 1997, 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 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 June
30, 1997, 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
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.
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.
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 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 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.
The balance sheet of Harbor View Health Care Center, Inc. includes an
amount due from affiliated entities of $582,022. 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 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 of affiliated
entities and, as disclosed in the financial statements, has significant
transactions with members of the group, including borrowings and the rental of
the facility. Because of these relationships, it is possible that the terms of
these transactions are not the same as those which would result from
transactions among wholly unrelated parties.
/s/ Loeb & Troper
August 27, 1997
<PAGE>
The First Republic Corporation of America and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30,
1999 1998
-------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,506,113 $ 8,590,167
Accounts and rents receivable, net of allowances of
$85,007 and $303,813 4,415,546 3,395,191
Mortgages receivable (Notes 3 and 6) 52,105 106,669
Other receivables including $745,000 and $20,000 due from related
party 1,710,741 572,236
Inventories (Note 1) 5,293,998 5,415,534
Prepaid expenses and other assets 1,266,862 1,125,634
-------------------------
Total current assets 14,245,365 19,205,431
Real estate held for rental and hotel, at cost (Notes 5 and 9):
Land 8,630,990 7,774,740
Building and improvements 47,597,820 42,973,647
-------------------------
56,228,810 50,748,387
Less accumulated depreciation 19,709,189 22,315,975
-------------------------
36,519,621 28,432,412
Other property, plant and equipment, at cost (Note 1):
Land 1,594,240 1,591,775
Buildings and improvements 9,524,587 8,105,775
Leaseholds and improvements 1,795,127 1,785,939
Machinery, equipment, parts and vehicles 15,623,196 14,453,536
Furniture and furnishings 532,865 503,806
Construction-in-progress 287,714 1,349,402
-------------------------
29,357,729 27,790,233
Less accumulated depreciation and amortization 13,544,469 12,442,148
-------------------------
15,813,260 15,348,085
Deferred income tax (Note 7) 905,000 500,000
Restricted cash (Note 5) 440,287 --
Investments in and advances to affiliated entities (Notes 1 and 4) 12,508,251 8,735,346
Tenant improvements, net of accumulated amortization of $4,001,543
and $3,322,169 7,247,418 7,483,766
Unamortized leasing, financing and other deferred costs 1,764,078 1,803,248
Other assets:
Cash and securities in trust for tenants' security deposits 1,280,599 1,198,173
Mortgage escrow funds and security deposits 91,442 107,595
Assets held for sale (Note 11) 500,000 800,000
Due from related parties (Note 10) 4,989,680 4,075,557
Other 251,080 276,141
-------------------------
7,112,801 6,457,466
-------------------------
Total assets $96,556,081 $87,965,754
=========================
</TABLE>
See notes to consolidated financial statements.
22
<PAGE>
The First Republic Corporation of America and Subsidiaries
Consolidated Balance Sheets (continued)
<TABLE>
<CAPTION>
June 30,
1999 1998
----------------------------
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Notes payable (Notes 5 and 6) $ 1,000,000 $ 524,900
Note payable, related party (Note 10) 640,000 640,000
Current portion of long-term debt (Notes 5 and 6) 2,179,641 1,395,593
Accounts payable 2,979,642 1,797,987
Accrued expenses and taxes payable 2,171,409 2,925,597
Due to related parties (Note 10) 292,000 1,288,907
Other liabilities 93,257 93,257
----------------------------
Total current liabilities 9,355,949 8,666,241
Long-term debt (Notes 5 and 6) 29,818,421 21,625,350
Other liabilities:
Tenants' security deposits payable 1,280,599 1,198,173
Accrued pension (Note 8) 726,038 843,824
----------------------------
2,006,637 2,041,997
Minority interests 495,532 461,874
----------------------------
Total liabilities 41,676,539 32,795,462
Leases, commitments and contingencies
(Notes 5, 9 and 11) -- --
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 43,347,294 43,471,684
Other comprehensive (loss) (157,000) --
----------------------------
59,366,308 59,647,698
Less treasury stock, at cost--505,270 and
505,036 shares (Note 11) 4,486,766 4,477,406
----------------------------
Total stockholders' equity 54,879,542 55,170,292
----------------------------
Total liabilities and stockholders' equity $ 96,556,081 $ 87,965,754
============================
</TABLE>
See notes to consolidated financial statements.
23
<PAGE>
The First Republic Corporation of America and Subsidiaries
Consolidated Statements of Operations
and Comprehensive (Loss) Income
<TABLE>
<CAPTION>
Year ended June 30,
1999 1998 1997
--------------------------------------------
<S> <C> <C> <C>
Revenues:
Sales--textiles and seafood $ 28,454,738 $ 25,873,482 $ 24,949,212
Rents and other revenues--real estate and
hotel operations 21,282,828 23,207,992 23,285,138
Other (including interest income of
approximately $824,000, $492,000 and
$261,000) 1,750,982 979,901 1,986,069
--------------------------------------------
51,488,548 50,061,375 50,220,419
--------------------------------------------
Costs and expenses:
Cost of sales--textiles and seafood 26,709,207 23,900,935 22,205,567
Operating costs--real estate and hotel
operations 11,433,946 12,329,325 14,153,958
Depreciation and amortization 4,447,629 3,977,670 4,052,848
Interest 2,866,777 2,926,778 3,068,457
Selling, general and administrative 5,613,963 6,832,226 5,750,101
Writedown of property and equipment
(Notes 1 and 11) 300,000 250,000 249,875
Minority interests' share of loss of
subsidiaries (880,466) (1,116,844) (996,382)
--------------------------------------------
50,491,056 49,100,090 48,484,424
--------------------------------------------
Income before income taxes, gain on sale and
equity in (loss) income of affiliated entities 997,492 961,285 1,735,995
Equity in (loss) income of affiliated entities
(Note 4) (1,071,882) 319,932 9,216
Gain on sale of real estate held for rental -- 12,922,106 --
--------------------------------------------
(Loss) income before income taxes (74,390) 14,203,323 1,745,211
Income tax expense (Note 7) 50,000 575,000 575,000
--------------------------------------------
Net (loss) income (124,390) 13,628,323 1,170,211
--------------------------------------------
Other comprehensive (loss) income:
Additional minimum pension obligation (net
of deferred taxes of $105,000) (157,000) -- --
--------------------------------------------
Comprehensive (loss) income $ (281,390) $ 13,628,323 $ 1,170,211
============================================
Per share of common stock (Note 1):
Net (loss) income- basic and diluted ($.19) $20.29 $1.74
============================================
</TABLE>
See notes to consolidated financial statements.
24
<PAGE>
The First Republic Corporation of America and Subsidiaries
Consolidated Statements of Retained Earnings
Year ended June 30,
1999 1998 1997
-------------------------------------------
Balance, beginning of year $ 43,471,684 $ 29,843,361 $ 28,673,150
Net (loss) income for the year (124,390) 13,628,323 1,170,211
-------------------------------------------
Balance, end of year $ 43,347,294 $ 43,471,684 $ 29,843,361
===========================================
See notes to consolidated financial statements.
25
<PAGE>
The First Republic Corporation of America and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended June 30,
1999 1998 1997
--------------------------------------------
<S> <C> <C> <C>
Operating activities
Net (loss) income $ (124,390) $ 13,628,323 $ 1,170,211
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Gain on sale of real estate held for rental -- (12,922,106) --
Depreciation and amortization 4,447,629 3,977,670 4,052,848
Writedown of property and equipment 300,000 250,000 249,875
Deferred income taxes (300,000) (992,926) (75,000)
Equity in loss (income) of affiliated entities 1,071,882 (319,932) (9,216)
Minority interests' share of loss in
subsidiaries (880,466) (1,116,844) (996,382)
Changes in operating assets and liabilities:
Accounts, rents and other receivables (2,158,860) 1,419,994 605,636
Inventories 121,536 (1,913,884) 1,419,633
Prepaid expenses and other assets (141,228) 173,826 (183,736)
Accounts payable 1,181,655 (533,531) 439,144
Accrued expenses and other current
liabilities (754,188) 608,099 229,178
Due to related parties (996,907) (85,128) 630,243
Other liabilities (297,360) (532,319) (573,107)
--------------------------------------------
Cash provided by operating activities 1,469,303 1,641,242 6,959,327
--------------------------------------------
Investing activities
Purchases of real estate held for rental (9,633,409) (5,239,516) (1,484,689)
Purchases of other property plant and equipment (2,332,811) (2,434,634) (3,034,177)
Additions to tenant improvements (794,672) (2,894,918) (1,602,630)
Sale of real estate held for rental -- 16,097,352 --
Investment in affiliated entities (4,844,787) (2,077,323) (1,239,862)
Distribution in excess of equity in earnings
from affiliated entities -- 6,721,672 437,225
Payments received on mortgages receivable 54,564 3,001 620,556
Restricted cash (440,287) -- --
Other investing activities (4,815) 632,390 (207,282)
--------------------------------------------
Net cash (used in) provided by investing activities (17,996,217) 10,808,024 (6,510,859)
--------------------------------------------
</TABLE>
26
<PAGE>
The First Republic Corporation of America and Subsidiaries
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
Year ended June 30,
1999 1998 1997
--------------------------------------------
<S> <C> <C> <C>
Financing activities
Proceeds from mortgages and notes payable to banks $ 21,235,000 $ 13,100,000 $ 13,800,000
Payments on mortgages and notes payable to banks (11,782,780) (19,047,310) (13,318,667)
Minority interests' additional paid-in capital -- 223,262 --
Purchases of treasury stock (9,360) (67,126) (6,805)
--------------------------------------------
Net cash provided by (used in) financing activities 9,442,860 (5,791,174) 474,528
--------------------------------------------
Net (decrease) increase in cash and cash equivalents (7,084,054) 6,658,092 922,996
Cash and cash equivalents at the beginning of year 8,590,167 1,932,075 1,009,079
--------------------------------------------
Cash and cash equivalents at the end of year $ 1,506,113 $ 8,590,167 $ 1,932,075
============================================
Supplemental disclosure
Income taxes paid $ 968,923 $ 1,000,307 $ 742,626
Interest paid $ 2,908,884 $ 2,955,080 $ 3,059,458
</TABLE>
See notes to consolidated financial statements.
27
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 1999
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of The First Republic
Corporation of America and all majority owned or controlled subsidiaries ("FRCA"
or 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,
1999 1998
-------------------------
Work-in-process and raw materials $1,913,784 $2,231,594
Finished goods 3,380,214 3,183,940
-------------------------
$5,293,998 $5,415,534
=========================
28
<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
Tenant 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. Returns of textiles and seafood are not significant, therefore no
provision has been recorded. 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.
29
<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 Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
("Statement 121"), 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. Statement 121 also addresses the accounting for
long-lived assets to be disposed of. A writedown of $300,000 and $250,000 was
recorded for Whitlock Combing Company Inc. ("Whitlock") for the years ended June
30, 1999 and 1998 (see Note 11).
Earnings Per Share
Financial Accounting Standards Board Statement No. 128, Earnings per Share
("Statement 128"), which supersedes APB Opinion No. 15, replaces the
presentation of primary earnings per share with a presentation of basic earnings
per share. Statement 128 also requires dual presentation of basic and diluted
earnings per share 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 earnings per share computation to the numerator and
denominator of the diluted earnings per share computation. The Company adopted
Statement 128 in fiscal 1998. Statement 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 670,126 (1999), 671,518 (1998)
and 672,165 (1997) weighted average shares of common stock outstanding.
Segments and Related Information
Effective July 1, 1998, the Company adopted Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 131, Disclosures about Segments
of an Enterprise and Related Information ("Statement 131"). Statement 131
superseded Financial Accounting Standards Board Statement No. 14, Financial
Reporting for Segments of a Business Enterprise. Statement 131 establishes
standards for the way that
30
<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)
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.
Statement 131 also establishes standards for related disclosures about products
and services, geographic areas, and major customers. The adoption of Statement
131 did not affect the results of operations or the financial position of the
Company, but did affect the disclosure of segment information (see Note 2).
Derivative Instruments and Hedging Activities
The FASB recently issued Statement No. 137, Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133. The Statement defers for one year the effective date of FASB
Statement No. 133, Accounting for Derivatives Instruments and Hedging
Activities. The rule now will apply to fiscal years beginning after June 15,
2000. 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. 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 (included in selling, general and administrative
expenses) of $985,032 (1999), $501,499 (1998) and $395,202 (1997) resulting from
foreign currency transactions and from translation of the foreign entities'
financial statements.
Comprehensive Income
In fiscal 1999, the Company adopted Statement of Financial Accounting Standard
No. 130, Reporting Comprehensive Income ("Statement 130"). Statement 130
establishes new rules for reporting and display of comprehensive income and its
components.
31
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Comprehensive Income (continued)
Statement 130 requires unrealized gains or losses on the Company's defined
benefit plan, which prior to adoption were reported in shareholders' equity, to
be included in other comprehensive income.
Pensions
In February 1998, the Financial Accounting Standards Board issued Statement 132,
Employers' Disclosures about Pensions and Other Postretirement Benefits
("Statement 132") which amends Statements No. 87, 88, and 106. Statement 132 is
effective for fiscal years beginning after December 15, 1997. The Company
adopted Statement 132 in fiscal 1999. The Statement revises employers'
disclosures about pension and other post retirement benefit plans. It does not
change the measurement or recognition of those plans.
Cash Equivalents
The Company considers all highly liquid investments with maturities of three
months or less when purchased to be cash equivalents.
2. Industry Segments and Foreign Operations
The Company's operations in the industry segments detailed below 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,
Rhode Island, Virginia and Pennsylvania.
Hotel: Ownership and operation of a hotel and convention center 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,
32
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Industry Segments and Foreign Operations (continued)
harvesting and sale of scallops on property leased by the Company in Cape
Canaveral, Florida, sales of shrimp from Ecuador (grown in Company owned
ponds or purchased from a 38% owned entity and other third-parties) and
sales of lobster tails imported from various other countries.
Textile: Operations of two yarn spinning plants and a dye house located in
South Carolina and Rhode Island.
The Company and its subsidiaries operate in four segments, as noted above. The
segments are managed and reported separately because of the differences in
products they produce and markets they serve. The accounting policies of the
segments are the same as those described in the summary of significant
accounting policies. The Company evaluates performance based on operating
income, i.e., results of operations before certain Corporate items and income
taxes. There are no intersegment sales.
33
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Industry Segments and Foreign Operations (continued)
Following is information about the Company's industry segments for each of the
three years ended June 30:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------------------------
<S> <C> <C> <C>
Revenues:
Real estate $ 16,269,235 $ 17,541,502 $ 18,057,022
Hotel 5,262,824 5,550,305 5,770,014
Seafood 17,164,814 10,086,562 9,965,316
Textile 12,100,073 16,558,529 15,841,319
Corporate 691,602 324,477 586,748
--------------------------------------------
$ 51,488,548 $ 50,061,375 $ 50,220,419
============================================
Operating profit (loss):
Real estate (a) $ 5,735,400 $ 5,892,293 $ 4,931,831
Hotel 42,238 589,592 673,149
Seafood (f) (1,309,011) (3,248,239) (1,375,272)
Textile (b) (676,117) 321,931 262,494
--------------------------------------------
Total operating profit 3,792,510 3,555,577 4,492,202
Corporate expenses (3,590,326) (3,238,897) (3,486,351)
Corporate interest expense (776,760) (796,716) (852,986)
Corporate revenue (e) 691,602 324,477 586,748
Gain on sale of real estate -- 12,922,106 --
Equity in income (loss) of affiliated
entities (c) (1,071,882) 319,932 9,216
Minority interests' share of loss of
subsidiaries 880,466 1,116,844 996,382
--------------------------------------------
(Loss) income before income taxes $ (74,390) $ 14,203,323 $ 1,745,211
============================================
</TABLE>
34
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Industry Segments and Foreign Operations (continued)
1999 1998 1997
---------------------------------------
Identifiable assets:
Real estate $41,004,974 $36,104,553 $34,898,169
Hotel 6,405,362 3,203,609 2,805,387
Seafood 21,050,906 17,251,584 14,724,084
Textile 10,025,734 11,195,286 11,797,287
Corporate and other (d) 18,069,105 20,210,722 17,110,966
---------------------------------------
$96,556,081 $87,965,754 $81,335,893
=======================================
Depreciation and amortization:
Real estate $ 2,055,065 $ 1,977,797 $ 1,891,940
Hotel 524,928 275,800 387,903
Seafood 900,858 736,009 665,192
Textile 926,431 948,297 1,045,591
Corporate and other 40,347 39,767 62,222
---------------------------------------
$ 4,447,629 $ 3,977,670 $ 4,052,848
=======================================
Capital expenditures--net:
Real estate $ 6,803,555 $ 7,426,669 $ 2,941,453
Hotel 3,624,526 707,765 145,865
Seafood 982,469 1,561,186 2,792,954
Textile 1,231,342 838,335 230,015
Corporate and other 119,000 35,113 10,939
---------------------------------------
$12,760,892 $10,569,068 $ 6,121,226
=======================================
Geographic information:
Revenues
United States $48,725,498 $44,479,893 $47,564,116
Ecuador 2,763,050 5,581,482 2,656,303
---------------------------------------
$51,488,548 $50,061,375 $50,220,419
=======================================
Identifiable assets:
United States $71,922,081 $66,781,754 $62,854,893
Ecuador 24,634,000 21,184,000 18,481,000
---------------------------------------
$96,556,081 $87,965,754 $81,335,893
=======================================
35
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Industry Segments and Foreign Operations (continued)
(a) Includes mortgage interest expense of $1,395,541 (1999), $1,572,280
(1998), and $1,817,120 (1997).
(b) Includes losses from Whitlock (see Note 11).
(c) See Note 4.
(d) Consists principally of investments in and advances to affiliated
entities.
(e) Includes interest income of $275,000 (1999), $196,000 (1998) and
$120,000 (1997)
(f) Includes interest income of $549,000 (1999), $296,000 (1998) and
$141,000 (1997)
3. Mortgages Receivable
The mortgages receivable which were due through June 1, 1999 have all been
repaid by August 1999.
4. Affiliated Entities
The following table summarizes information with respect to the Company's
affiliated entities:
<TABLE>
<CAPTION>
Company's
Company's Investments Equity in Income
and Advances (Loss)
----------------------------------------------------------
Company's
Ownership June 30, Year ended June 30,
Percentage 1999 1998 1999 1998 1997
------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Sunscape Associates 50% $ 452 $ 469 $ 47 $ 25 $ 17
Mondragon Companies(2) 38% 11,947 8,249 (1,119) (328) (582)
Health Care Entities(1) 49.9% -- -- -- 623 574
Other Various 109 17 -- -- --
----------------------------------------------------------
$ 12,508 $ 8,735 $ (1,072) $ 320 $ 9
==========================================================
</TABLE>
(1)-- 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 at June 30, 1997, was being amortized over 40 years. The
Company sold these interests during the year ended June 30, 1998.
(2)-- Advances to Mondragon from the Company were $11,314,000 and $5,911,000 at
June 30, 1999 and 1998, respectively (see Note 10).
36
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Affiliated Entities (continued)
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.
Seafood
Bluepoints International Fisheries, Inc., formerly known as 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)
------------
Revenues $ 23,000
Costs and expenses (301,000)
------------
Net loss $ (278,000)
============
(1)--For the period prior to the acquisition of the remaining 50% interest.
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 year ended June 30, 1997, Bluepoints purchased approximately $1,010,000
of shrimp from the Mondragon Companies. During the years ended June 30, 1999 and
1998, there were no purchases of shrimp from the Mondragon Companies.
37
<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,
1999 1998
-------------------------
Assets
Current assets $ 3,230,000 $ 4,894,000
Property and equipment--net of accumulated
depreciation 10,566,000 9,952,000
Other assets 111,000 326,000
-------------------------
Total assets $13,907,000 $15,172,000
=========================
Liabilities
Notes payable--banks $ -- $ 2,838,000
Due to Bluepoints and other affiliates 3,756,000 2,895,000
Other current liabilities 230,000 748,000
-------------------------
Total current liabilities 3,986,000 6,481,000
Long-term debt--Bluepoints 8,808,000 4,677,000
-------------------------
Total liabilities 12,794,000 11,158,000
Stockholders' equity 1,113,000 4,014,000
-------------------------
Total liabilities and equity $13,907,000 $15,172,000
=========================
Year ended June 30,
1999 1998 1997
------------------------------------------
Revenues $ 3,027,000 $ 4,038,000 $ 2,790,000
Costs and expenses 5,973,000 4,836,000 4,254,000
------------------------------------------
Net loss $(2,946,000) $ (798,000) $(1,464,000)
==========================================
38
<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 fiscal year ended June 30, 1998.
Condensed combined financial information of the 49.9% owned partnerships was as
follows:
Year ended
June 30, 1997
-------------
Revenues $22,339,000
Expenses 20,991,000
-----------
Net income $ 1,348,000
===========
5. Long-Term Debt and Credit Facilities
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30,
1999 1998
-------------------------
<S> <C> <C>
Variable rate mortgage payable due 2000 (1) and (5) $ 2,685,000 $ --
Mortgages payable due 2002-2019 bearing interest
at fixed rates of 7.0% to 8.5% (1), (3), (4), (6), (7),
(8) and (9) 28,988,125 22,378,769
Onondaga County Industrial Development
Agency Bonds (1) and (2) 300,000 600,000
7.0% note to development authority due 2000 (1) 24,937 42,174
-------------------------
31,998,062 23,020,943
Less payments due within one year 2,179,641 1,395,593
-------------------------
$29,818,421 $21,625,350
=========================
</TABLE>
39
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Long-Term Debt and Credit Facilities (continued)
(1)-- The net book value of real estate assets pledged as collateral is
approximately $28,400,000 and $17,100,000 at June 30, 1999 and 1998,
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
$300,000 at June 30, 1999 as collateral for the foregoing financing.
(3)-- In fiscal 1998, the Company refinanced a mortgage, collateralized by
the Brookhaven Shopping Center in Brookhaven Pennsylvania, which had
an outstanding balance of approximately $1,500,000 for $2,500,000.
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 balance
was $2,425,481 at June 30, 1999.
(4)-- The Company had a $10,000,000 term loan and a $2,000,000 revolving
line of credit with its principal lender, collateralized by a
mortgage on the East Newark Industrial Center. The term loan
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. 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 interest at 7.5% 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%.
40
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Long-Term Debt and Credit Facilities (continued)
The term loan requires amortization payments of $358,800 per annum.
The term loan matures on October 21, 2002 and the revolving line of
credit expires in October 2000. At June 30, 1999, the term loan
balance was $8,431,900 with a fixed rate of interest of 7.5% and
there was $1,000,000 outstanding under the revolving line of credit
with interest at 7%.
(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. The loan was obtained for the purpose of
converting the vacant property, formerly occupied by Towle
Manufacturing Company, into commercial space suitable for rental.
Initially $2,685,000 was borrowed, with $1,315,000 available to be
borrowed when additional space is rented. An additional $670,000 was
borrowed on August 25, 1999. The construction loan matures on August
31, 2000. 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 1.6% 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 on September 1, 2018. The old mortgage had monthly payments
of $24,030, bore interest at 9.5% and was scheduled to mature on May
1, 2002. The Company incurred a pre-payment penalty of $100,794
which has been included in selling general and administrative
expenses in the accompanying consolidated statements of operations.
The balance was $2,954,353 at June 30, 1999.
(7)-- On December 18, 1998, the Company closed a loan with the Overseas
Private Investment Corporation for $5,600,000. Initially, $5,050,000
was borrowed, with $550,000 remaining to be taken down. The loan is
collateralized by a mortgage
41
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Long-Term Debt and Credit Facilities (continued)
on the Waltham Engineering Center, bears interest at 7.3% per annum
and provides for 15 semi-annual payments of principal and interest.
After the repayment of $2,800,000 of loans in Ecuador with interest
ranging from 13% to 51%, the repayment of approximately $1,400,000
to the Company and $540,000 held in escrow reserve accounts,
approximately $860,000 remained for working capital needs for the
Ecuadorian shrimp operations. The balance was $4,713,334 at June 30,
1999.
(8)-- On March 30, 1999, the Company refinanced the $2,000,000 balance of
a mortgage loan on the Colonial Bank (formerly known as Jefferson
National Bank) Building in Miami Beach, Florida. The new loan bears
interest at 7.65% per annum, payable monthly, and provides for
monthly principal payments of $29,167 commencing May 1, 1999 through
December 1, 2004. The balance was $1,925,000 at June 30, 1999.
(9)-- On May 20, 1999, the Company obtained a $2,500,000 loan, from a
bank, secured by a mortgage on the Shipps Corner Shopping Center, in
Virginia Beach, Virginia, which the Company acquired in November
1998. The self liquidating loan calls for monthly payments of
$19,000, including principal and interest, bears interest at 7% per
annum, and matures in June 2019. The balance was $2,500,000 at June
30, 1999.
Aggregate principal payments on debt outstanding as of June 30, 1999 are as
follows:
Amount
-----------
Year ending June 30:
2000 $ 2,179,641
2001 4,595,679
2002 1,945,848
2003 8,989,372
2004 1,684,604
Thereafter 12,602,918
-----------
$31,998,062
===========
42
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Disclosures About Fair Value of Financial Instruments
Financial Accounting Standards Board Statement No. 107 ("Statement 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.
The following methods and assumptions were used by the Company in estimating
fair values for financial instruments at June 30, 1999:
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 is estimated using discounted cash
flow analysis based on the Company's current incremental borrowing rate
for similar types of borrowing arrangements. The fair value of the
Company's notes payable and long-term debt is $33,682,000.
Mortgages Receivable: For the Company's fixed rate mortgages receivable,
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 mortgages receivable approximate their fair value.
7. Income Taxes
At June 30, 1999, the Company has net operating loss carryforwards of
approximately $50,000,000 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 First Republic Corporation of
America 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.
43
<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,
1999 1998
--------------------------
Deferred tax liabilities:
Book basis of fixed assets over tax basis $ -- $ (3,000)
--------------------------
Total deferred tax liabilities -- (3,000)
--------------------------
Deferred tax assets:
Net operating loss carryforwards $17,000,000 $17,260,000
Book basis provisions 905,000 503,000
--------------------------
Total deferred tax assets 17,905,000 17,763,000
Valuation allowance 17,000,000 17,260,000
--------------------------
Net deferred tax assets 905,000 503,000
--------------------------
Net deferred tax asset $ 905,000 $ 500,000
==========================
The components of (loss) income before income taxes are as follow:
For the year ended June 30,
1999 1998 1997
------------------------------------------------
Domestic $ 1,514,201 $ 15,155,460 $ 2,707,621
Foreign (1,588,591) (952,137) (962,410)
------------------------------------------------
$ (74,390) $ 14,203,323 $ 1,745,211
================================================
44
<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:
1999 1998 1997
-------------------------------------------
Current:
Federal $ 20,000 $ 350,000 $ 100,000
State 330,000 1,218,000 550,000
-------------------------------------------
Total current 350,000 1,568,000 650,000
-------------------------------------------
Deferred:
Federal (267,000) (884,000) (66,000)
State (33,000) (109,000) (9,000)
-------------------------------------------
Total deferred (300,000) (993,000) (75,000)
-------------------------------------------
$ 50,000 $ 575,000 $ 575,000
===========================================
The reconciliation of income tax expense computed at the U.S. federal statutory
tax rates to income tax expense follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tax at U.S. statutory rates $ (25,000) (34.0)% $ 4,829,000 34.0% $ 593,000 34.0%
Increases (reductions) resulting from:
Alternative minimum tax 20,000 26.9 350,000 2.5 100,000 5.7
State taxes, net of federal tax benefit 196,000 263.5 732,000 5.2 530,000 30.4
Adjustment of prior years overaccrual
of income tax -- -- -- -- (167,000) (9.6)
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 540,000 725.9 324,000 2.3 327,000 18.7
Minority interest in loss from
domestic operations (177,000) (237.9) (242,000) (1.7) (191,000) (10.9)
Net operating loss carryforwards (411,000) (552.2) (5,180,000) (36.5) (763,000) (43.7)
Other items (93,000) (125.0) (238,000) (1.7) 146,000 8.4
------------------------------------------------------------------------
$ 50,000 67.2 $ 575,000 4.1% $ 575,000 33.0%
========================================================================
</TABLE>
45
<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, 1999, 1998 and 1997.
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.
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.
<TABLE>
<CAPTION>
1999 1998
--------------------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ 5,143,000 $ 4,803,000
Service cost -- --
Interest cost 332,000 353,000
Plan amendments -- --
Actuarial (gain)/loss (290,000) 444,000
Benefit payments (446,000) (457,000)
--------------------------
Benefits obligation at end of year $ 4,739,000 $ 5,143,000
==========================
Change in plan assets:
Fair value of plan assets at beginning of year $ 4,187,000 $ 4,105,000
Actual return on plan assets (108,000) 404,000
Employer contributions 380,000 135,000
Benefit payments (446,000) (457,000)
--------------------------
Fair value of plan assets at end of year $ 4,013,000 $ 4,187,000
==========================
</TABLE>
46
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Benefit Plans (continued)
1999 1998
-----------------------
Funded status:
Funded status of the plan (underfunded) $(726,000) $(844,000)
Unrecognized net transition (asset)/obligation -- --
Unrecognized prior service cost -- --
Unrecognized net actuarial (gain)/loss 262,000 --
-----------------------
Accrued benefit cost $(464,000) $(844,000)
=======================
Amounts recognized in the statement of financial
position consist of:
Prepaid benefit cost $ -- $ --
Accrued benefit liability (726,000) (844,000)
Intangible asset -- --
Accumulated other comprehensive loss 262,000 --
-----------------------
Net amount recognized $(464,000) $(844,000)
=======================
Net periodic pension cost included the following components:
1999 1998 1997
-----------------------------------
Interest cost on projected benefit
obligation $ 332,000 $ 353,000 $ 349,000
Expected return on plan assets (331,000) (314,000) (305,000)
Recognized net actuarial gain (loss) 5,000 (11,000) (8,000)
-----------------------------------
Total pension expense $ 6,000 $ 28,000 $ 36,000
===================================
The discount rate used in determining the actuarial present value of the
projected benefit obligation was 7 1/2% at June 30, 1999 and 6 3/4% at June 30,
1998. The expected long-term rate of return on plan assets was 8% in all three
years.
47
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
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 $741,000 at June 30, 1999. 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, $126,000 and $127,000 for the years
ended June 30, 1999, 1998 and 1997, 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.
Future minimum rentals (excluding operating expenses and other items billable to
tenants which aggregated approximately $2,100,000, $3,100,000 and $3,200,000 in
the years ended June 30, 1999, 1998 and 1997, 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:
2000 $ 13,700,000
2001 12,600,000
2002 8,100,000
2003 5,800,000
2004 4,200,000
Thereafter 22,500,000
------------
$ 66,900,000
============
48
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Related Party Transactions
Certain stockholders, directors, officers or their relatives ("related parties")
own interests in certain investments of the Company as follows:
Percent Ownership by
Investment The Company Related Party
------------------------------------------------------------------------
Bluepoints Company Inc. ("Bluepoints") 80.2% 19.8% (1)
Sunscape Associates 50.0 50.0
The Mondragon Companies 38.0 50.0 (2)
Larfico Larvas Del Pacifico S.A. 62.5 25.0
Comercorp S.A. 62.5 25.0
(1)-- At June 30, 1999 and 1998, the minority share of stockholders' deficiency
of Bluepoints amounted to $4,989,680 and $4,075,557, 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)-- Included in the investment balance of $11,947,000 are advances the Company
has made to the Mondragon Companies amounting to $11,314,414 and
$5,911,065 at June 30, 1999 and 1998, 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.
49
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Related Party Transactions (continued)
Certain transactions were entered into with the above-mentioned related parties
and companies in which they have an ownership interest as follows:
<TABLE>
<CAPTION>
Amount
------------------------------ Related Party
Transactions 1999 1998 1997 Ownership
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Insurance purchased in participation with
the Rosen Group Properties:
Premiums incurred $292,000 $254,000 $242,000 --%
Administrative fee received 75,000 75,000 75,000 --
Payable at June 30, to Rosen Group
Properties for premiums above 292,000 84,000 144,000 --
Due from Rosen Group Properties 150,000 -- -- --
Home office rent 104,000 101,000 99,000 100
Interest on $640,000 note to the Estate of
A.A. Rosen 57,000 61,000 60,000 --
Interest from the Estate of A.A. Rosen loans -- 3,000 50,000 --
Loans receivable from the Estate of A.A
Rosen -- -- 20,000 --
Note payable to the Estate of A.A. Rosen 640,000 640,000 640,000 --
Due from the Estate of A.A. Rosen 468,000 -- -- --
Due from others 127,000 20,000 -- --
</TABLE>
See Note 4 for other related party information.
11. Other Matters
The Company is not presently involved in any material litigation nor, to its
knowledge, is any material litigation threatened against the Company or its
properties, other than routine arising in the ordinary course of business.
Management believes the costs, if any, incurred by the Company related to any of
this litigation will not materially affect the financial position, operating
results or liquidity of the Company.
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
are being held for sale and recorded at their estimated net realizable value of
$500,000 at June 30, 1999 ($800,000 at June 30, 1998). Writedowns of $300,000,
$250,000 and $249,875 were taken in 1999, 1998 and
50
<PAGE>
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. Other Matters (continued)
1997, respectively. Losses incurred to maintain the property such as real estate
taxes and insurance amounted to approximately $161,000, $137,000 and $89,000 in
1999, 1998 and 1997, respectively.
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,
1999.
During the years ended June 30, 1999, 1998 and 1997, there were 234, 1,839 and
205 shares of stock purchased for treasury at a cost of $9,360, $67,126 and
$6,805, respectively.
12. Subsequent Event
On August 6, 1999 the Company borrowed $3,000,000 from a related party to
finance Bluepoint's expanded importation and sale of lobster tails. The loan
bears interest at 8% and has no fixed repayment terms or maturity date.
51
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
52
<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 85 Director April 1983
Harry Bergman 57 Director October 1991
Treasurer June 1988
Secretary June 1988
Norman A. Halper 80 Director October 1969
President April 1983
Miriam N. Rosen 79 Director December 1995
Jonathan P. Rosen 55 Director February 1972
Vice President September 1978
Chairman of the Board December 1995
William M. Silverman 57 Director December 1981
Robert Nimkoff 38 Director April 1991
Vice President June 1988
Jane G. Weiman 55 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
1999, upon the election and qualification of their successors.
c. Not applicable.
53
<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 1995.
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, 1999, 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.
54
<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 6-30-99 $ 290,360 $ 10,692
Chairman 6-30-98 271,104 10,239
6-30-97 260,955 9,645
Norman A. Halper 6-30-99 290,360 10,692
President and Chief Executive Officer 6-30-98 271,104 10,239
6-30-97 260,955 9,645
Robert Nimkoff 6-30-99 124,397 8,556
Vice President 6-30-98 104,461 6,639
6-30-97 101,497 6,572
Harry Bergman 6-30-99 171,200 10,692
Secretary--Treasurer 6-30-98 169,710 10,239
6-30-97 152,052 9,645
Stephen L. Bernstein 6-30-99 217,443 10,692
VP & Corporate Counsel 6-30-98 202,826 10,239
6-30-97 195,784 9,645
(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.
55
<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, 1999. 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
[LINE CHART OMITTED]
- --------------------------------------------------------------------------------
Fiscal Year Ending June 30
1994 1995 1996 1997 1998 1999
DOLLARS
- --------------------------------------------------------------------------------
The First Republic Corporation of America 100 79 95 88 118 126
- --------------------------------------------------------------------------------
Dow Jones Global-US 100 126 159 212 278 341
- --------------------------------------------------------------------------------
Dow Jones Independent - Conglomerates 100 127 192 295 410 513
- --------------------------------------------------------------------------------
56
<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, 1999:
Amount and Nature
Title of Name and Address of Beneficial Percent
Class of Beneficial Owner Ownership (1) of Class
-----------------------------------------------------------------------
Common Mary Nimkoff 96,747 (2) 14.44%
26 Buttonball Lane
Weston, Connecticut
Common Jonathan P. Rosen 227,726 (3) 33.99
40 East 69th St.
New York, New York
Common Lynn M. Silverman 113,350 16.92
911 Park Avenue
New York, New York
Common Jane G. Weiman 113,290 16.91
5630 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.
57
<PAGE>
b. Security Ownership of Management
The following table sets forth, as of September 16, 1999, certain
information with respect to security holdings in the Company and
Bluepoints, an 80.2% owned subsidiary of the Company, by directors of the
Company and all officers and directors as a group:
<TABLE>
<CAPTION>
Common Stock
Common Stock of Bluepoints
-----------------------------------------------------------------------
Amount Percent Amount Percent
Name of Officer Beneficially of Beneficially of
or Director Owned (1) Class Owned Class
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Irving S. Bobrow 200 .03%
Robert Nimkoff 6,547 (2) .98
Norman A. Halper 400 .06
Jonathan P. Rosen 227,726 33.99 500 (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 16.91 500 4.95
All officers and directors
as a group (7 persons) 356,040 53.15 1,500 14.85
</TABLE>
(1)--Messrs. Bobrow, Halper, Silverman and Mrs. Weiman own their shares
directly. Jonathan P. Rosen owns 224,809 shares directly. See Notes (2)
and (3) of the preceding table.
(2)--Includes 1,919 shares representing his proportionate interest in
19,188 shares owned by Tranel, Inc.
(3)--Owned directly.
(4)--Does not include 113,350 shares of common stock and 500 shares of
Bluepoints owned by his wife (Lynn M. Silverman) directly. Mr. Silverman
disclaims beneficial ownership of such shares.
c. Changes in Control
The Company knows of no contractual arrangements which may at a subsequent
date result in a change in control of the Company.
58
<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.
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 $8,800 per month as of June 30, 1999, 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. Interest expense for the
current fiscal year was $57,000.
On August 5, 1999 Tranel (see b. below), lent the Company $3,000,000 to
finance its lobster tail operations. The loan bears interest at 8% and has
no fixed repayment terms or due date.
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, 1999, 1998 and 1997, total premiums incurred by the Company
and its subsidiaries under this arrangement amounted to approximately
$292,000, $254,000 and $242,000, respectively. The Company received fees
of $75,000 in fiscal 1999, 1998 and 1997, representing charges to the
59
<PAGE>
group for administrative services performed by Company personnel in
connection with the foregoing. At June 30, 1999, approximately $292,000
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, 1999, 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 2000. Since July 1, 1998, the largest aggregate
amount of outstanding indebtedness from Larfico to Bluepoints was
$196,667.
In addition, as of August 31, 1999, Mondragon was indebted to the Company
for $11,314,414 of loans made by the Company to Mondragon on various dates
between August 28, 1991 and April 8, 1999 (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, 1998, the largest
aggregate amount of outstanding indebtedness from Mondragon to the Company
was $11,314,414. The Estate of A.A. Rosen has guaranteed the repayment of
25% of the Larfico Indebtedness and 56.8% of the Mondragon Indebtedness.
In August 1999 the Estate of A.A. Rosen paid $468,153 of interest on the
Mondragon indebtedness that was accrued in fiscal 1999.
Since July 1, 1998, the largest amount of outstanding indebtedness from
Emporsa and Larfico to Mondragon was $1,473,000. The balance at June 30,
1999 was $577,000. Such loans bear no interest and have no fixed maturity.
Since July 1, 1998, the largest amount of outstanding indebtedness from
Mondragon to Larfico and Emporsa was $3,176,000, which was the balance at
June 30, 1999. Said indebtedness has no fixed maturity and bears interest
at 7.3%.
As of August 31, 1999, Bluepoints was indebted to the Company for
$34,895,000 of loans made by the Company to Bluepoints at various dates
between November 8,
60
<PAGE>
1985 and August 31, 1999. 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, 1998, the largest aggregate amount of outstanding
indebtedness from Bluepoints to the Company was $34,895,000. 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, 1999,
the amount of the guarantee was $4,989,680.
d. Not applicable.
61
<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......................................20
Consolidated Balance Sheets--June 30, 1999 and 1998
Consolidated Statements of Operations and Comprehensive (Loss)
Income--Years Ended June 30, 1999, 1998 and 1997
Consolidated Statements of Retained Earnings--Years Ended
June 30, 1999, 1998 and 1997
Consolidated Statements of Cash Flows--Years Ended
June 30, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
a. 2. Financial Statement Schedules:
Schedule II--Valuation and Qualifying Accounts.......................63
Schedule III--Real Estate and Accumulated Depreciation...............64
All other schedules have been omitted because they are not
applicable or the required information is shown in the financial
statements or the notes thereto.
b. Reports on Form 8-K
None.
c. Exhibits
3. Articles of Incorporation and bylaws
(i) Articles of Incorporation are incorporated by reference to Form
10-K for the fiscal year ended June 30, 1981.
(ii) Bylaws are incorporated by reference to Form 10-K for the fiscal
year ended June 30, 1992.
21. Subsidiaries of the Company............................................68
27. Financial Data Schedule................................................69
62
<PAGE>
The First Republic Corporation of America and Subsidiaries
Schedule II--Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Col. A Col. B Col. C Col. D Col. E
- -----------------------------------------------------------------------------------------------------------------------------
Additions
---------------------------------
Balance at Charged to Charged to Balance at
Beginning of Costs and Other Accounts-- Deductions-- End of
Description Period Expenses Describe Describe Period
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended June 30, 1999:
Allowance for doubtful accounts $ 303,813 $ 30,000 $ 248,806 (a) $ 85,007
============================== ==================================
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
============================== ==================================
</TABLE>
(a) Amounts charged off and credits issued, net of recoveries on accounts
previously written off.
63
<PAGE>
The First Republic Corporation of America and Subsidiaries
Schedule III--Real Estate and Accumulated Depreciation
Year ended June 30, 1999
<TABLE>
<CAPTION>
Column A Column B Column C Column D
- -------------------------------------------------------------------------------------------------------
Initial Cost to Cost Capitalized
Company Subsequent to
---------------------------- Acquisition
Buildings ----------------------------
and Related Carrying
Description Encumbrances Land Assets Additions Costs
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
250 W. 39th Street
Building,
New York, New York--
Eighteen story
office building $ 437,559 $ 1,155,129 $ (531,122)
Waltham Engineering
Center, Waltham,
Massachusetts--
Seventeen
multi-story
industrial
buildings $ 4,713,334 188,573 2,163,945 648,993
Four Points Hotel--
Syracuse,
Liverpool, New
York--Hotel
operations -- 1,651,923 4,833,819
East Newark, New
Jersey--
Thirty multi-story
industrial
buildings 8,431,900 605,089 4,068,693 (2,322,851)
Greensboro Plaza,
Greensboro, North
Carolina--
Shopping center 3,693,676 379,947 1,696,953 987,762
Greensboro South,
Greensboro, North
Carolina--
Shopping center 2,344,381 419,739 1,350,376 1,331,315
Nyanza Building,
Woonsocket, Rhode
Island--
Four story
industrial building 60,000 1,288,139 (1,117,340)
Richmond Shopping
Center, Richmond,
Virginia--Shopping
center 293,814 758,886 217,955
First Republic Office
Park, Liverpool,
New York--Two,
two-story office
buildings 300,000 (c) 351,600 4,124,526 1,190,599
<CAPTION>
Column A Column E Column F Column G Column H Column I
- -----------------------------------------------------------------------------------------------------------------------------
Gross Amount at Which
Carried at Close of Period (a) Life on Which
----------------------------------------- Depreciation in
Buildings Latest Income
and Related Accumulated Date of Date Statements
Description Land Assets Total Depreciation Construction Acquired is Computed
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
250 W. 39th Street
Building,
New York, New York--
Eighteen story
office building $ 437,559 $ 624,007 $ 1,061,566 $ 136,420 5/19/67 5-15 years
Waltham Engineering
Center, Waltham,
Massachusetts--
Seventeen
multi-story
industrial
buildings 188,573 2,812,938 3,001,511 698,632 7/01/62 10-20 years
Four Points Hotel--
Syracuse,
Liverpool, New
York--Hotel
operations -- 6,485,742 6,485,742 1,525,902 3/17/69 5-15 years
East Newark, New
Jersey--
Thirty multi-story
industrial
buildings 605,089 1,745,842 2,350,931 378,122 3/11/63 21-1/3 years
Greensboro Plaza,
Greensboro, North
Carolina--
Shopping center 379,947 2,684,715 3,064,662 1,958,160 12/01/74 21-1/3 years
Greensboro South,
Greensboro, North
Carolina--
Shopping center 706,906 2,394,524 3,101,430 1,628,169 12/01/74 21-1/3 years
Nyanza Building,
Woonsocket, Rhode
Island--
Four story
industrial building 60,000 170,799 230,799 61,026 11/01/68 10-20 years
Richmond Shopping
Center, Richmond,
Virginia--Shopping
center 360,507 910,148 1,270,655 687,982 3/15/76 25 years
First Republic Office
Park, Liverpool,
New York--Two,
two-story office
buildings 351,600 5,315,125 5,666,725 1,550,405 10/01/85 5-40 years
</TABLE>
64
<PAGE>
The First Republic Corporation of America and Subsidiaries
Schedule III--Real Estate and Accumulated Depreciation (continued)
Year ended June 30, 1999
<TABLE>
<CAPTION>
Column A Column B Column C Column D
- --------------------------------------------------------------------------------------------------------
Initial Cost to Cost Capitalized
Company Subsequent to
---------------------------- Acquisition
Buildings ----------------------------
and Related Carrying
Description Encumbrances Land Assets Additions Costs
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Virginia Beach
Shopping Center,
Virginia Beach,
Virginia--
Shopping center $ 2,954,353 $ 250,241 $ 772,113 $ 452,979
The First Republic
Building Corp.,
Liverpool, New
York--
Motor hotel (c) 413,779 5,681,562
Jefferson National
Bank Building--
Miami, Florida--
Six story office
building 1,925,000 2,044,409 5,643,015
Brookhaven Shopping
Center,
Brookhaven,
Pennsylvania--
Shopping Center 2,425,481 521,798 3,632,019 (538,967)
Virginia Beach
Shopping Center--
Virginia Beach,
Virginia 2,500,000 856,250 2,568,750
Merrimac Street,
Newburyport,
Massachusetts--
Three story office
building & new
construction at
222 Merrimac St. 2,685,000 195,213 377,317 5,681,447
Melbourne, Florida,
Vacant land 1,439,714 3,150
------------------------------------------------------------
Totals $ 31,973,125(d) $ 8,457,725 $ 36,933,346 $ 10,837,739
============================================================
<CAPTION>
Column A Column E Column F Column G Column H Column I
- ------------------------------------------------------------------------------------------------------------------------------
Gross Amount at Which
Carried at Close of Period (a) Life on Which
----------------------------------------- Depreciation in
Buildings Latest Income
and Related Accumulated Date of Date Statements
Description Land Assets Total Depreciation Construction Acquired is Computed
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Virginia Beach
Shopping Center,
Virginia Beach,
Virginia--
Shopping center $ 397,338 $ 1,077,995 $ 1,475,333 $ 713,347 3/30/76 25-31.5 years
The First Republic
Building Corp.,
Liverpool, New
York--
Motor hotel (c) 413,779 5,681,562 6,095,341 5,681,562 9/21/62 10-25 years
Jefferson National
Bank Building--
Miami, Florida--
Six story office
building 2,044,409 5,643,015 7,687,424 2,000,428 4/27/88 31-1/2 years
Brookhaven Shopping
Center,
Brookhaven,
Pennsylvania--
Shopping Center 149,456 3,465,394 3,614,850 2,447,129 12/16/76 5-33 years
Virginia Beach
Shopping Center--
Virginia Beach,
Virginia 856,250 2,568,750 3,425,000 40,774 11/17/98 31.5 years
Merrimac Street,
Newburyport,
Massachusetts--
Three story office
building & new
construction at
222 Merrimac St. 236,713 6,017,264 6,253,977 201,131 10/25/87 10-25 years
Melbourne, Florida,
Vacant land 1,442,864 1,442,864
---------------------------------------------------------
Totals $ 8,630,990 $ 47,597,820 $ 56,228,810 $ 19,709,189
=========================================================
</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 $24,937 of mortgages on real estate used in the textile
operations.
65
<PAGE>
The First Republic Corporation of America and Subsidiaries
Schedule III--Real Estate and Accumulated Depreciation (continued)
<TABLE>
<CAPTION>
Year ended June 30,
--------------------------------------------------------------------------------------------
1997 1998 1999
--------------------------------------------------------------------------------------------
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 $ 49,957,852 $ 23,455,743 $ 51,135,193 $ 24,553,722 $ 50,748,387 $ 22,315,975
Additions 1,484,689 1,405,327 5,239,516 1,230,651 9,633,409 1,546,200
Deductions:
Write-offs of fully depreciated
assets (307,348) (307,348) (229,445) (229,445) (4,152,986) (4,152,986)
Sale of assets (5,396,877) (3,238,953) -- --
-------------------------------------------------------------------------------------------
Balance, end of year $ 51,135,193 $ 24,553,722 $ 50,748,387 $ 22,315,975 $ 56,228,810 $ 19,709,189
===========================================================================================
</TABLE>
Note: Includes assets used in the real estate and hotel operations.
66
<PAGE>
LANGOMORRO, LANGOSTINERA
EL MORRO CIA. LTDA.
AND AFFILIATED COMPANIES
==========================================
Audit Report of the Consolidated and
Combined Financial Statements
For the years ended June 30, 1999 and 1998
<PAGE>
[LETTERHEAD OF BDO]
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, 1999
and 1998 and the related consolidated and combined statements of operations and
deficit, and of cash flows, for each of the years ended June 30, 1999, 1998 and
1997. 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
prevailing in the United States of America. 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 Langomorro, Langostinera El
Morro, Cia. Ltda. and Affiliated Companies to June 30, 1999, and 1998, and the
results of their operations and their cash flows for the each of the years ended
June 30, 1999, 1998 and 1997, in conformity with generally accepted accounting
principles prevailing in the United States of America.
/s/ BDO Stern
August 9, 1999
Guayaquil, Ecuador
<PAGE>
Langomorro, Langostinera El Morro Cia. Ltda.
and Affiliated Companies
Consolidated and Combined Balance Sheets
===============================================================================
As of June 30, 1999 1998
===============================================================================
Assets
Current assets:
Cash in bank US$ 4,741 US$ 5,218
Temporary investments 479 1,042
Accounts receivable (Note A) 100,513 365,679
Due from related parties (Note B) 1,175,500 2,638,176
Inventories (Note C) 1,937,134 1,875,118
Prepaid expense 11,697 8,528
- -------------------------------------------------------------------------------
Total current assets 3,230,064 4,893,761
Property, machinery and equipment (Note D) 10,566,465 9,951,861
Permanent investments (Note E) 3,066 3,066
Other assets (Note F) 107,790 323,375
- -------------------------------------------------------------------------------
US$13,907,385 US$15,172,063
===============================================================================
Liabilities and stockholders' equity
Current liabilities:
Bank loans payable (Note G) US$ US$ 2,837,817
Notes and accounts payable (Note H) 194,843 640,486
Due to related parties (Note I) 3,630,817 2,163,223
Interest payable 149,574 832,074
Accrued expenses 10,824 7,284
- -------------------------------------------------------------------------------
Total current liabilities 3,986,058 6,480,884
Long-term debt (Note J) 8,808,021 4,677,355
Stockholders' 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 6,200,550
Additional paid-in capital (Note L) 6,502,789 6,440,789
Accumulated deficit (Note M) (11,590,033) (8,627,515)
- -------------------------------------------------------------------------------
Total stockholders' equity 1,113,306 4,013,824
- -------------------------------------------------------------------------------
US$13,907,385 US$15,172,063
================================================================================
See summary of significant accounting practices and
notes to consolidated financial statements.
2
<PAGE>
Langomorro, Langostinera El Morro Cia. Ltda.
and Affiliated Companies
Consolidated and Combined Statements of Operations and Deficit
<TABLE>
<CAPTION>
=======================================================================================
For the years ended June 30, 1999 1998 1997
=======================================================================================
<S> <C> <C> <C>
Income:
Net sales (Note N) US$ 2,757,599 US$ 3,989,836 US$ 2,734,905
Other income 269,141 47,836 46,247
Gain in translation 8,789
- ---------------------------------------------------------------------------------------
3,026,740 4,037,672 2,789,941
Cost and operating expenses:
Cost of products sold 3,830,118 3,441,568 2,674,544
Administrative expenses 83,432 103,552 279,085
Interest expense 494,910 1,024,724 1,066,251
Loss on translation 1,309,958 50,367
Amortization of facilities costs 215,585 215,580 215,583
Other expenses 38,386 18,329
- ---------------------------------------------------------------------------------------
5,972,389 4,835,791 4,253,792
- ---------------------------------------------------------------------------------------
Net loss (2,945,649) (798,119) (1,463,851)
Deficit as of June 30, (8,627,515) (7,829,396) (6,365,545)
Adjustment to previous year (16,869)
- ---------------------------------------------------------------------------------------
Accumulated deficit to June 30,
(Note M) US$(11,590,033) US$(8,627,515) US$(7,829,396)
=======================================================================================
</TABLE>
See summary of significant accounting practices and
notes to consolidated financial statements.
3
<PAGE>
Langomorro, Langostinera El Morro Cia. Ltda.
and Affiliated Companies
Statement of Cash Flows - Direct Method
<TABLE>
<CAPTION>
=================================================================================================
For the years ended June 30, 1999 1998 1997
=================================================================================================
<S> <C> <C> <C>
Cash flows from operating activities:
Cash paid to suppliers and employees US$(2,139,768) US$(1,382,081) US$ (928,248)
Financial expenses (1,316,405) (572,295) (783,365)
Other expenses 230,755 47,836 29,793
- -------------------------------------------------------------------------------------------------
Net cash used in operating activities (3,225,418) (1,906,540) (1,681,820)
- -------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Addition in property, machinery and equipment (773,794) (1,329,603) (946,494)
- -------------------------------------------------------------------------------------------------
Net cash used in investing activities (773,794) (1,329,603) (946,494)
- -------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net borrowing under line-of-credit
agreements-net payments 4,002,583 3,208,816 673,256
Additions to paid-in capital 62,000 2,006,742
- -------------------------------------------------------------------------------------------------
Net cash provided by financing activities 4,064,583 3,208,816 2,679,998
- -------------------------------------------------------------------------------------------------
Effect due to variation in cash exchange rate (65,848) 28,547 (48,670)
- -------------------------------------------------------------------------------------------------
Net increase (decrease) in cash (477) 1,220 3,014
Cash at beginning of the period 5,218 3,998 984
- -------------------------------------------------------------------------------------------------
Cash at end of the period US$ 4,741 US$ 5,218 US$ 3,998
=================================================================================================
</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 in Operating Activities
<TABLE>
<CAPTION>
==============================================================================================
For the years ended June 30, 1999 1998 1997
==============================================================================================
<S> <C> <C> <C>
Net loss US$(2,945,649) US$ (798,119) US$(1,463,851)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 218,649 246,248 133,854
Amortization of facilities costs 215,584 215,580 215,583
Loss (gain) on translation 1,309,958 50,367 (8,789)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable
and related parties 388,016 (673,495) (1,751,704)
Increase in inventories (280,568) (637,352) (292,205)
(Increase) decrease in prepaid expenses (2,389) 2,243 5,643
(Decrease) increase in accrued expenses (682,500) 407,385 247,005
(Decrease) increase in accounts payable
and due to related parties (1,446,519) (719,397) 1,232,644
- ----------------------------------------------------------------------------------------------
Net cash used in operating activities US$(3,225,418) US$(1,906,540) US$(1,681,820)
==============================================================================================
</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, 1999, the Company has had recurring losses totaling
US$11,590,033. 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 The consolidated and combined financial statements
consolidation and include the accounts of Camazul Cia. Ltda., and Isca,
combination 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 The Company maintains its accounting records in Sucres
principles (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 maintenance and
and equipment 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 prepared using
purchasing power the traditional historical cost basis, in accordance
of the local currency 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
--------------------------------------------------------
1995 23%
1996 26%
1997 31%
1998 43,4%
1999 June 30, 53%
Translation of foreign The financial position, the results of operations and
currency and exchange the cash flows of the Company are expressed in
rates 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 A summary of this account follows:
June 30,
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Clients (1) US$ 20,417 US$ 271,123
Suppliers from abroad 48,426 14,000
Employees 4,460 4,190
Others 27,210 76,366
- --------------------------------------------------------------------------------
US$ 100,513 US$ 365,679
================================================================================
(1) Corresponds to shrimp delivery not liquidated by
Emporsa, Isca, Camazul with Promariscos.
B. Due from related A summary of this account follows:
parties
June 30,
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Larfico, Larvas del Pacifico S.A. US$ 886,312 US$ 2,369,999
Comercial Inmobiliaria
Golconsa S.A. 6,556 10,849
Comercorp 74,956 239,575
Neneta S.A. 7,807
Bunsen 3,552 5,640
Inmobiliaria Ma. Luciana 29,986 11,449
Ing. Carlos Perez
Others companies, individually
Immaterial 228 664
Emporsa, Empacadora y
Exportadora S.A. 166,103
- --------------------------------------------------------------------------------
US$ 1,175,500 US$ 2,638,176
================================================================================
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 A summary of this account follows:
June 30,
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Products in process US$ 1,883,946 US$ 1,820,299
Materials and supplies 53,188 54,819
- --------------------------------------------------------------------------------
US$ 1,937,134 US$ 1,875,118
================================================================================
D. Property, machinery A summary of this account follows:
and equipment
June 30,
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
At acquisition cost:
Vehicles US$ 280,666 US$ 280,221
Fishing boats 371,012 366,145
Machinery and equipment 814,016 806,751
Construction in progress 971,617 450,151
Furniture and office equipment 52,025 54,314
Various 98,470 102,344
Installations 8,074
Land 4,184 4,184
Pools and reservoirs 1,650,746 1,490,422
Recirculation of water (1) 7,401,471 7,401,471
Sluices for channels 194,941 188,863
Tools and fishing tackle 2,884 3,169
Pumping station 700,706 548,614
Laboratory equipment 5,655 9,732
Housing for personnel 78,448 78,896
Other properties 22,112 22,252
Wall repairs 89,699 89,699
Wharf 1,760 1,760
Offices in Guayaquil 76,840 76,840
Computer equipment 8,916 9,013
- --------------------------------------------------------------------------------
12,826,168 11,992,915
Less accumulated depreciation 2,259,703 2,041,054
- --------------------------------------------------------------------------------
US$ 10,566,465 US$ 9,951,861
================================================================================
(1) This account was incorporated in June 1996 and
started its depreciation on July 1996
10
<PAGE>
Langomorro, Langostinera El Morro Cia. Ltda.
and Affiliated Companies
Notes to Consolidated and Combined Financial Statements
================================================================================
E. Permanent investments A summary of this account follows:
June 30,
- --------------------------------------------------------------------------------
Percentage of
stock owned 1999 1998
- --------------------------------------------------------------------------------
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 A summary of this account follows:
June 30,
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
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 (970,120) (754,535)
- --------------------------------------------------------------------------------
US$ 107,790 US$ 323,375
================================================================================
This account is amortized in five years, starting on
January 1995.
C. Bank loans payable A summary of this account follows:
June 30,
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Pacific Bank:
Obligation in dollars due in August,
and October 1998 with interest,
17,28% US$ 407,000
Advances on future export-loans at the
free market exchange rate 270,000
- --------------------------------------------------------------------------------
Subtotal:... US$ 677,000
11
<PAGE>
Langomorro, Langostinera El Morro Cia. Ltda.
and Affiliated Companies
Notes to Consolidated and Combined Financial Statements
================================================================================
June 30,
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Subtotal:... US$ 677,000
Obligation in Sucres, due in July 1998
with interest at 51,19% 34,117
Lloyds Bank:
Obligations in Sucres, due in July and
September 1998 with interest at 46%
and 50% 720,243
Banco Agricola y de Comercio:
Obligations in dollars due in July and
September 1998, interest 13% annual 850,000
- --------------------------------------------------------------------------------
2,281,360
Bank overdraft 556,457
- --------------------------------------------------------------------------------
US$ 2,837,817
================================================================================
The obligations are guaranteed with the personal
signature of the Company President.
The obligations were paid on December 1998.
H. Notes and accounts A summary of this account follows:
payable
June 30,
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Suppliers:
Statecourt Enterprise (2) US$ US$ 405,000
Rey Gus 7,397
Distribuidora Sudamericana 7,397
Promariscos (1) 136,651
Induato 11,062
Others 30,117
- --------------------------------------------------------------------------------
192,624 405,000
Tax returns 2,219 24,843
Others 210,643
- --------------------------------------------------------------------------------
US$ 194,843 US$ 640,486
================================================================================
12
<PAGE>
Langomorro, Langostinera El Morro Cia. Ltda.
and Affiliated Companies
Notes to Consolidated and Combined Financial Statements
================================================================================
(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 A summary of this account follows:
parties
June 30,
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Emporsa US$ US$ 1,065,750
Camarecsa 11,692 35,127
Marchelot (1) 3,293,992 51,467
Bluepoints 308,422 1,005,339
Ing. Carlos Perez 16,059 4,119
Others 652 1,421
- --------------------------------------------------------------------------------
US$ 3,630,817 US$ 2,163,223
================================================================================
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, 1999 and 1998, Bluepoints includes
US$ 295,814 and US$ 989,496 respectively, for advances
on future export-loans, recorded at the free market rate
of exchange.
(1) Includes the proportional part of the loan
received from OPIC which was partially delivered
to the Langomorro Companies Group.
13
<PAGE>
Langomorro, Langostinera El Morro Cia. Ltda.
and Affiliated Companies
Notes to Consolidated and Combined Financial Statements
================================================================================
J. Long-term debt A summary of this account follows:
June 30,
------------------------------
1999 1998
- --------------------------------------------------------------------------------
Statecourt Enterprise US$ 405,000 US$
Bluepoints Co. Inc.:
Langomorro, Langostinera
El Morro Cia. Ltda. 6,094,000 2,270,000
Isca, Isla Camaronera C.A. 1,451,666 1,550,000
Camazul Cia. Ltda. 550,000 550,000
- --------------------------------------------------------------------------------
8,500,666 4,370,000
Marchelot S.A. 307,355 307,355
- --------------------------------------------------------------------------------
US$8,808,021 US$4,677,355
================================================================================
The obligation with Bluepoints Co. Inc. was generated in
June, 1998 with a 9,25% prime interest rate.
K. Common stock A summary of this account follows:
June 30,
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Langomorro, Langostinera
El Morro Cia. Ltda. US$4,887,880 US$4,887,880
Isca, Isla Camaronera C.A. 1,312,670 1,312,670
- --------------------------------------------------------------------------------
US$6,200,550 US$6,200,550
================================================================================
To July 1, 1997 the common stock was constituted by:
Langomorro, Langostinera El Morro Cia. Ltda. with
US$171,573 and Isca, Isla Camaronera C.A. with
US$869,972 corresponding to 10,000 and 73,118 ordinary
and nominative shares, respectively.
On August 31, 1997 was recorded a capital increase for
US$5,159,005 corresponding to US$4,716,307 and
US$442,698 in Langomorro Langostinera El Morro Cia.
Ltda. and Isca, Isla Camaronera C.A., respectively,
through the appropriation of contributions for future
capital increases, leaving the common stock to June 30,
1998 with the balance of US$6,200,500.
14
<PAGE>
Langomorro, Langostinera El Morro Cia. Ltda.
and Affiliated Companies
Notes to Consolidated and Combined Financial Statements
================================================================================
L. Additional paid in A summary of this account follows:
capital
June 30,
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Balance June 30 US$6,440,789 US$11,550,709
Additions from July 1, 1998 to
June 30, 1999, 62,000 49,085
Capitalization (5,159,005)
- --------------------------------------------------------------------------------
US$6,502,789 US$ 6,440,789
================================================================================
M. Accumulated deficit As of June 30, 1999 and 1998 the Company maintained an
accumulated deficit of US$11,590,033 and US$8,627,515
respectively, the current liabilities exceeded total
current assets by US$755,994 in 1999 and US$1,587,123 in
1998. 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. Net sales The volumes of shrimp sold by the individual companies
were as follows:
Volume (pounds) Year ended June 30
- --------------------------------------------------------------------------------
Company 1999 1998 1999 1998
- --------------------------------------------------------------------------------
Langomorro, Langostinera
El Morro Cia. Ltda. &
Camazul Cia. Ltda. 648,957 869,816 US$1,719,267 US$2,421,541
Isca, Isla Camaronera C.A. 400,964 579,559 1,038,332 1,568,295
- --------------------------------------------------------------------------------
Total 1,049,921 1,449,375 US$2,757,599 US$3,989,836
================================================================================
In 1999 and 1998 the 648,957 and 869,816 pounds of
shrimp sold by Langomorro Cia. Ltda. were produced
utilizing 393 hectares, resulting in a productivity of
1,651 and 2,213 pounds per hectare respectively in these
years. The 400,964 and 579,559 pounds of shrimp sold by
Isca C.A. were produced utilizing 149 hectares,
resulting in a productivity of 2,691 and 3,890 pounds
per hectare respectively in these years.
0. Exchange rates The free market exchange rate in effect on June 30, 1999
and 1998 was S/. 11.491 and S/. 5.276 to US$ 1.00
respectively (S/. 11,669 to US$ 1.00 on August 9, 1999
and S/. 5.427 to US$1.00 on August 7, 1998
respectively).
P. Income tax return The income tax returns of the Companies have been
reviewed up to the same period, without important
observations from the tax authorities, as shown below:
Companies Period reviewed
--------------------------------------------------------
Langostinera del Morro (Langomorro) 1996
Isla, Camaronera (Isca) 1996
Camazul 1996
16
<PAGE>
Langomorro, Langostinera El Morro Cia. Ltda.
and Affiliated Companies
Notes to Consolidated and Combined Financial Statements
================================================================================
Q. Subsequent events Between June 30, 1998 and August 9, 1999, 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
<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.
/s/ Harry Bergman Date October 12, 1999
- ----------------------------------- ----------------------------------
Harry Bergman, Director
/s/ Irving S. Bobrow Date October 12, 1999
- ----------------------------------- ----------------------------------
Irving S. Bobrow, Director
/s/ Norman A. Halper Date October 12, 1999
- ----------------------------------- ----------------------------------
Norman A. Halper, Director
/s/ Robert Nimkoff Date October 12, 1999
- ----------------------------------- ----------------------------------
Robert Nimkoff, Director
/s/ Miriam N. Rosen Date October 12, 1999
- ----------------------------------- ----------------------------------
Miriam N. Rosen, Director
/s/ Jonathan P. Rosen Date October 12, 1999
- ----------------------------------- ----------------------------------
Jonathan P. Rosen, Director
67
Exhibit 21
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-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,506,113
<SECURITIES> 0
<RECEIVABLES> 4,500,553
<ALLOWANCES> 85,007
<INVENTORY> 5,293,998
<CURRENT-ASSETS> 14,245,365
<PP&E> 85,586,539
<DEPRECIATION> 33,253,658
<TOTAL-ASSETS> 96,556,081
<CURRENT-LIABILITIES> 9,355,949
<BONDS> 29,818,421
0
0
<COMMON> 1,175,261
<OTHER-SE> 53,704,281
<TOTAL-LIABILITY-AND-EQUITY> 96,556,081
<SALES> 28,454,738
<TOTAL-REVENUES> 51,488,548
<CGS> 26,709,207
<TOTAL-COSTS> 20,885,072
<OTHER-EXPENSES> 1,071,882
<LOSS-PROVISION> 30,000
<INTEREST-EXPENSE> 2,866,777
<INCOME-PRETAX> 74,390
<INCOME-TAX> 50,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 124,390
<EPS-BASIC> .19
<EPS-DILUTED> .19
</TABLE>
