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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, 2002
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Commission File No. 0-1437
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THE FIRST REPUBLIC CORPORATION OF AMERICA
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(Exact name of Registrant as specified in its charter)
DELAWARE 13-1938454
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
302 Fifth Avenue
New York, New York 10001
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 279-6100
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Securities registered pursuant to Section 12(b) of the Act:
None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $1 per share
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(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. [ ]
As of September 12, 2002, 667,534 common shares were outstanding, and the
aggregate market value of common shares held by nonaffiliates of Registrant was
approximately $1,915,000 (based upon the price paid by Registrant for shares).
Documents Incorporated by Reference
-----------------------------------
See Item 14(c)
The First Republic Corporation of America
10-K Contents
PAGE
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PART I
Item 1. Business.................................................................................. 1
Item 2. Properties................................................................................ 4
Item 3. Legal Proceedings......................................................................... 7
Item 4. Submission of Matters to a Vote of Security Holders....................................... 7
PART II
Item 5. Market for the Registrant's Common Stock and Related
Security Holder Matters................................................................... 8
Item 6. Selected Financial Data................................................................... 9
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................................. 10
Item 7a. Quantitative and Qualitative Disclosures about Market Risks............................... 17
Item 8. Financial Statements and Supplementary Data............................................... 18
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................................................. 51
PART III
Item 10. Directors and Executive Officers of the Registrant........................................ 52
Item 11. Executive Compensation.................................................................... 54
Item 12. Security Ownership of Certain Beneficial Owners and Management............................ 56
Item 13. Certain Relationships and Related Transactions............................................ 58
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K......................... 60
Signatures and Certifications ....................................................................... 83
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.
The Company discontinued its yarn spinning operations in Lake City, South
Carolina in September 2001, and sold the spinning plant and the land on
which it was located for $615,000 in January 2002. The Company recognized
a loss of approximately $69,000. The Company received $150,000 in cash and
a $465,000 mortgage note bearing interest at 7-3/4%. The note calls for 59
equal monthly payments of approximately $4,400, and a $369,000 balloon
payment on February 10, 2007.
On October 31, 2001, the Company sold the vacant land that it owned in
Melbourne, Florida for $1,775,000. There was no existing mortgage debt on
this property. After expenses and adjustments, the Company received net
proceeds of approximately $1,621,000 and recognized a gain of
approximately $178,000.
In July 2002, the Company's 80.2% owned subsidiary, Bluepoints Company,
Inc. ("Bluepoints") discontinued the harvesting of clams at its Long
Island, New York property. Bluepoints has entered into a contract to sell
the two buildings at the site as well as approximately five acres of land
for $1,600,000. Bluepoints' basis in the property is approximately
$275,000. The contract is contingent upon the ability of the purchaser to
obtain certain regulatory approvals by January 30, 2003. Bluepoints has
received a $60,000 refundable deposit. The purchaser can obtain an
additional extension until July 31, 2003, but if this option is exercised,
the deposit would be forfeited. The purchaser is also responsible to pay
the real estate taxes on the property as long as the contract is in force.
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,
2002 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.
1
Real estate revenues accounted for approximately 24%, 23% and 26% of
consolidated revenues from operations for the fiscal years ended June 30,
2002, 2001 and 2000, respectively.
Hotel
The Company owns and operates a 288-room hotel and convention center
located in Liverpool, New York, which it operates 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 approximately 10%, 9% and 10% of consolidated
revenues from operations for the fiscal years ended June 30, 2002, 2001
and 2000, respectively.
Seafood
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. Until operations were discontinued in July 2002
Bluepoints harvested hard-shell clams on this property.
At one time Bluepoints was a substantial factor in the market for hard
shell clams. However, a significant decrease in clam production at
Bluepoints, combined with substantial new production by competitors
harvesting clams in other areas along the Eastern Seaboard, resulted in a
diminished role for Bluepoints and continuing losses in its hard-shell
clam operation. These factors ultimately led to Bluepoints' decision to
discontinue its hard shell clam operations in July 2002.
In September 1998, Bluepoints began selling imported products, principally
lobster tails from Honduras and Oman. Sales of the foregoing products were
approximately $13,152,000 and $13,848,000 and losses were approximately
$1,000 and $16,000 for the fiscal years ended June 30, 2002 and 2001,
respectively. In fiscal 2001, Bluepoints has an arrangement with a company
that sells its seafood products at the Fulton Fish Market in New York
City. This venture had sales of approximately $8,637,000 and $7,986,000
and operating profits of approximately $34,000 and $67,000 for the fiscal
years ended June 30, 2002 and 2001, respectively.
Bluepoints, through foreign subsidiaries, operates a shrimp farm and is a
62.5% owner of a shrimp hatchery, both of which are located in Ecuador.
Sales of shrimp from the foregoing operations approximated $550,000 and
$366,000 for the fiscal years ended June 30, 2002 and 2001, respectively.
Bluepoints, through a foreign subsidiary, also
2
owns a 38% interest in another Ecuadorian shrimp farming operation. See
Items 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 seafood operation in Cape Canaveral, Florida that
harvests scallops and sells other imported and domestic seafood products.
In the current fiscal year, sales from this operation were approximately
$4,952,000 and there was a loss of $1,510,000. This compares to sales of
approximately $8,896,000 and a loss of $2,583,000 from operations during
the prior year.
Seafood revenues accounted for approximately 48%, 49% and 45% of
consolidated revenues from operations for the fiscal years ended June 30,
2002, 2001 and 2000, 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, 2002, Hanora purchased approximately
$358,000 of additional equipment. The backlog of yarn orders on August 31,
2002 was $7,054,000 as compared to $7,998,000 on August 31, 2001.
Approximately 80% of the current backlog is expected to be shipped in the
fiscal year ending June 30, 2003. Two customers accounted for
approximately 28% of Hanora's total sales during the 2002 fiscal year. The
loss of either of these customers would not have a material adverse effect
on the Company and its subsidiaries taken as a whole.
Through September 30, 2001, the Hanora South division of the Company
("Hanora South") operated a yarn spinning plant in Lake City, South
Carolina, which produced craft, sweater, hosiery, upholstery and
industrial yarns as a commission spinner for Hanora. As of September 30,
2001, Hanora South ceased operations and Hanora is now doing all the
spinning of yarn at its Rhode Island plant. The land and building of
Hanora South were sold in January 2002. See item 1a.
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. J&M is not a significant factor in the
market it serves and competes with a number of other firms that are
substantially larger. At the present time, J&M does not have a significant
backlog of orders.
Textile revenues accounted for approximately 17%, 18% and 17% of
consolidated revenues from operations for the fiscal years ended June 30,
2002, 2001 and 2000, respectively.
3
ITEM 2. PROPERTIES
LOCATION GENERAL CHARACTER (1)
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REAL ESTATE SEGMENT
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; 93% rented
Waltham Engineering Center 17 multi-story industrial buildings;
Waltham, Massachusetts in excess of 380,000 rentable square feet;
parking facilities; 100% rented.
East Newark Industrial Center 30 multi-story industrial buildings; in
East Newark, New Jersey excess of 1,000,000 rentable square feet;
parking facilities; 90% rented.
Nyanza Building Four-story and basement industrial
Woonsocket, Rhode Island building; 300,000 rentable square feet;
used by the Company as spinning plant
(100,000 sq. ft.) and balance rented to
others; 96% 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.
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.
4
LOCATION GENERAL CHARACTER (1)
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Sunscape Apartments 167-unit residential garden apartments
Orlando, Florida located on approximately 12 acres of
land; 90% 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 Four-story building; 100,000 rentable square
feet of space; 60% rented.
Three-story building, 13,800 rentable square
feet of space; 100% rented.
Two-story building and warehouse; 5,000
square feet, presently vacant.
HOTEL SEGMENT
Hotel--Syracuse 288-room motor hotel and convention center;
Thruway and Electronics Parkway indoor pool; operated under a Holiday Inn
Liverpool, New York franchise agreement.
SEAFOOD SEGMENT (2)
West Sayville, New York Approximately 13,000 acres of underwater
land in the Great South Bay of Long Island;
approximately five 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. (3)
Mattituck, New York Approximately one acre of land on Long Island;
previously 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.
5
LOCATION GENERAL CHARACTER (1)
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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. which hold
leaseholds.)
TEXTILE SEGMENT
Allendale, South Carolina Approximately 195 acres of land, on which a
plant containing one building with
approximately 156,000 square feet is located,
presently vacant.
Pageland, South Carolina Approximately 10 acres of land and 36,125
square foot building located thereon;
previously used as bulking and twisting plant,
warehouse and office, presently being rented.
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 $9,400 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.
(3) --Hard shell clamming operations were discontinued in July 2002 and the five
acres of land and the two buildings are presently subject to a sales contract.
See item 1a.
6
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
7
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 $42 per share in August 2000 to a high of $50 in
January 2002.
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 12, 2002, there were 696 holders of record of the Company's
common stock.
c. No dividends have been paid during the two years ended June 30, 2002. The
Company has no intention of paying dividends in the foreseeable future.
d. The Company did not sell any securities during the past year.
8
ITEM 6. SELECTED FINANCIAL DATA
YEAR ENDED JUNE 30,
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2002 2001 2000 1999 1998
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(In thousands, except per share amounts)
Revenues $ 61,799 $ 70,106 $ 64,969 $ 51,489 $ 50,061
=====================================================================
Gain on sale of real estate held for $ 178 $ 18,630 $ 81 NONE $ 12,922
rental
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Loss on sale of subsidiary $ (69) NONE NONE NONE NONE
=====================================================================
Income before interest and income taxes $ 226 $ 17,828 $ 3,072 $ 2,792 $ 17,130
=====================================================================
Interest costs $ 2,146 $ 2,413 $ 3,205 $ 2,867 $ 2,927
=====================================================================
Net (loss) income $ (1,946) $ 14,708 $ (276) $ (124) $ 13,628
=====================================================================
Net (loss) income per share of common
stock--basic and diluted $ (2.91) $ 21.98 $ (0.41) $ (0.19) $ 20.29
=====================================================================
Total assets $ 98,982 $104,632 $ 99,729 $ 96,556 $ 87,966
=====================================================================
Long-term debt $ 24,044 $ 25,721 $ 27,318 $ 29,818 $ 21,625
=====================================================================
Stockholders' equity $ 66,801 $ 69,145 $ 54,498 $ 54,880 $ 55,170
=====================================================================
Cash dividends per common share NONE NONE NONE NONE NONE
=====================================================================
9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Working capital at June 30, 2002 decreased by approximately $3,146,000 to
$16,134,000.
Net cash provided by operating activities was approximately $1,682,000 during
the 2002 fiscal year. Net cash used in financing activities was approximately
$1,145,000. Net cash of approximately $2,305,000 was used in 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
approximately $359,000 per annum. Both loans mature on October 21, 2002. The
Company is presently negotiating with its lender for a five-year renewal. At
June 30, 2002, the term loan balance was $7,355,500 and nothing was outstanding
on the revolving line of credit. On October 31, 2001, the Company sold its
vacant land in Melbourne, Florida for approximately $1,775,000 and recognized a
gain of approximately $178,000. The net proceeds to the Company after expenses
were approximately $1,621,000.
In September 2001, the Company discontinued operations at its Hanora South
spinning plant. The operations performed at Hanora South are now being performed
at Hanora. In January 2002, the Company sold Hanora South's land and building
for $615,000. The Company received $150,000 in cash and a $465,000 mortgage
note. The Company recognized a loss of approximately $69,000 on the sale.
During the three years ended June 30, 2002, the Company incurred capital
expenditures of approximately $7,423,000. In addition, approximately $1,861,000
was expended for tenant improvements during this three year period. At June 30,
2002 the Company had no significant commitments for capital expenditures and
believes that its current cash position and borrowing capacity are adequate to
meet cash needs for the next twelve months.
The Company's equity share of losses from Ecuadorian shrimp operations was
approximately $927,000 in fiscal 2002 as compared to $717,000 in fiscal 2001.
The Company's shrimp farms have begun to introduce "Polyculture" which is a
method of farming a species of fish, Tilapia, and shrimp together. This farming
method has been proven to be successful in combating White Spot Virus in
Ecuador. Efforts are also continuing to increase shrimp production through the
use of the Company's patented Mariculture System, the development of a product,
Tolerine, designed to mitigate White Spot Virus that is decimating Ecuador's
shrimp production, the micro-screening of the water supply to the ponds and
other improved farming techniques. Although there can be no assurance that the
shrimp production will improve, the Company believes that operations may improve
in the future as a result of cost reductions, the efforts to increase production
as discussed above, and the marketing of its Mariculture System to other shrimp
farmers.
10
RESULTS OF OPERATIONS
Real Estate
In fiscal 2002, the Company's real estate operating profits increased $637,000
on a decrease in revenues of $783,000. The decrease in revenues was primarily
due to the sale of the Company's office building on West 39th Street in New York
City on October 4, 2000. The decrease in revenues was offset by decreased fuel
and utility costs of $479,000 and snow removal costs of $153,000 as a result of
the mild winter this year. There was also a reduction in repairs and maintenance
at the Nyanza property of $515,000 and at the East Newark building of $378,000.
In fiscal 2001, operating profits decreased $263,000 and revenues decreased
$1,225,000. The decrease in revenues was due to the sale of the Company's office
building on West 39th Street in New York City on October 4, 2000 and its Miami
Beach property on May 1, 2000, offset by revenue increases at substantially all
the Company's other properties. The decrease in operating profits was due to the
reduced revenue offset by reduced repairs and maintenance of $726,000 at the
Waltham and Nyanza properties and reduced mortgage interest of $213,000.
In fiscal 2000, operating profits decreased $1,582,000 and revenues increased
$876,000. The decrease in operating profits was due to $1,251,000 of costs
incurred at the Nyanza Building to clean up an oil spill caused by a small break
in an oil return line that had been leaking oil over an extended period of time;
increased energy costs of $265,000 due to a substantial increase in fuel costs;
increased repairs and maintenance of $555,000 at the East Newark and Waltham
properties; increased mortgage interest of $85,000 and a $169,000 insurance
recovery in fiscal 1999 at the Richmond Virginia Shopping Center. The decrease
in operating profits mentioned above were offset by increased revenues and
operating profits at substantially all the other properties. The revenue
increases came principally from the Newburyport property that was renovated in
the prior year ($553,000) and the Shipps Corner Shopping Center which the
Company purchased in November 1998 ($231,000).
Hotel
In fiscal 2002, revenues decreased $100,000 but profits increased $206,000 as a
result of decreased fuel and utility costs of $102,000, lower repairs and
maintenance of $25,000, reduced real estate taxes of $97,000 and slightly lower
operating costs.
In fiscal 2001, revenues decreased $95,000 and profits decreased $466,000 as a
result of the lower revenues, increased fuel and utility costs of $140,000,
higher repairs and maintenance of $53,000, increased depreciation expense of
$67,000 and higher operating costs.
In fiscal 2000, revenues increased $1,256,000 and profits increased $529,000 as
a result of the completion, in January 1999, of a $4,000,000 renovation project
which allowed the hotel to operate as a Holiday Inn franchise. Depreciation
expense increased $307,000 as a result of the renovation.
11
Seafood
In fiscal 2002, overall revenues for the seafood division decreased $5,052,000
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 2002 were $4,714,000 as compared to losses of $4,653,000
in fiscal 2001. Revenues increased at the Ecuadorian shrimp operations by
$196,000 but losses from operations were $2,737,000 due to continued poor shrimp
yields caused by the devastating outbreak three years ago of White Spot Virus
that continues to decimate the Ecuadorian shrimp industry. The Company is
continuing its efforts to combat the virus. The Company believes that the
introduction of the Polyculture technology combined with the procedures
introduced last year and the continued use of its patented Mariculture system
may result in an improvement in the shrimp operations. However, there can be no
assurance that these treatments will be successful. The Company's Florida
operations incurred a loss of $1,510,000 in fiscal 2002 as compared to a loss of
$2,583,000 in fiscal 2001 on a $3,634,000 decrease in revenues. Bluepoints Long
Island operations had a loss of $546,000 as compared to a loss of $65,000 in the
prior year and revenues decreased $1,654,000. Due to continuing losses in its
clamming operations, the Company closed its clam operations in July 2002 and has
entered into a contract of sale for its West Sayville Long Island facility. The
domestic seafood industry is continuing to experience a drop in profitability
that started in September of 2000 due to the slowing economy.
In fiscal 2001, revenues for the seafood division increased $5,198,000 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 2001 were $4,653,000 as compared to losses of $2,501,000
in fiscal 2000. Losses from the Ecuadorian shrimp operations were $2,005,000 and
revenues decreased $710,000 due to continued poor shrimp yields caused by the
devastating outbreak two years ago of White Spot Virus that is decimating the
Ecuadorian shrimp industry. The Company continued its efforts started in the
prior year to combat the virus by importing larvae from Panama and
micro-screening the water going into its ponds. The Company's Florida operations
incurred a loss of $2,583,000 in fiscal 2001 as compared to a loss of $798,000
in fiscal 2000 on a $4,563,000 increase in revenues. Bluepoints Long Island
operations had a loss of $65,000 as compared to a profit of $497,000 in the
prior year and revenues increased $1,345,000. The domestic seafood industry
experienced a severe drop in profitability starting in September of 2000 due to
the slowing economy and reduced consumer confidence. Seafood operations were
adversely affected by losses incurred on imported scallops caused by a
precipitous drop in domestic scallop prices and lower than anticipated margins
on many of our seafood products.
In fiscal 2000, revenues for the seafood division increased $12,287,000 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 2000 were $2,501,000 as compared to a loss of $2,428,000
in fiscal 1999. Losses from the Ecuadorian shrimp operations were $2,199,000 and
revenues decreased $1,389,000 due to continued poor shrimp yields caused by the
White Spot Virus. The Company attempted to combat the virus by constructing
grow-out ponds so that juvenile shrimp could mature to a larger size before
12
they were placed into the shrimp ponds thereby making them less susceptible to
the virus. The Company was also developing a new product, Tolerine, to help the
shrimp fight off the White Spot Virus. The Company's scallop operation incurred
a loss of $798,000 in fiscal 2000 as compared to a loss of $547,000 in fiscal
1999 on a $343,000 decrease in revenues. Bluepoints Long Island operations had a
profit of $497,000 as compared to a profit of $66,000 in the prior year.
Revenues increased $14,019,000 principally due to the sale of lobster tails, a
new product introduced last year, and other seafood products.
Textile
In fiscal 2002, revenues for the textile division decreased $2,222,000 over the
prior year and operating loss increased $63,000. Hanora Spinning's operating
profit increased $251,000, to $671,000 and revenues decreased $2,131,000. Hanora
South and J&M Dyers ("J&M") incurred a combined loss of $650,000, as compared to
the prior years' loss of $319,000 and revenues decreased $160,000. Losses
increased principally due to costs incurred in closing down our yarn spinning
plant in Lake City South Carolina in September 2001. Whitlock Combing Co. Inc.
("Whitlock"), which owned a wool combing plant in South Carolina and which
discontinued operations in 1992, incurred a loss of $126,000 relating to its
property in South Carolina that is being offered for sale compared to a loss of
$143,000 last year. During the three years ended June 30, 2002, the Company
purchased approximately $1,214,000 of machinery and equipment for the textile
operations.
In fiscal 2001, revenues for the textile division increased $1,735,000 and
operating loss decreased $251,000. Hanora Spinning's operating profit increased
$114,000, to $420,000 and revenues increased $1,924,000. Hanora South and J&M
Dyers incurred a combined loss of $319,000, as compared to the prior years' loss
of $416,000 and revenues decreased $189,000. Losses decreased principally due to
the higher revenues and lower depreciation at Hanora South and J&M of $136,000.
Whitlock incurred a loss of $143,000 compared to a loss of $183,000 last year.
In fiscal 2000, revenues for the textile division decreased $1,111,000 and
operating loss decreased $383,000. Hanora Spinning's operating profit decreased
$77,000, to $306,000 and revenues decreased $661,000. Hanora South and J&M Dyers
incurred a combined loss of $416,000, as compared to the prior years' loss of
$593,000 and revenues decreased $450,000. The decrease in revenues was due to
the continuing downturn in the textile industry caused by increased competition
from foreign companies. Earnings increased principally due to lower depreciation
at Hanora South and J&M of $167,000 and the write off in fiscal 1999 of $300,000
relating to Whitlock. Whitlock incurred a loss of $183,000 compared to a loss of
$466,000 (including a write-down of its building by $300,000) in fiscal 1999.
13
Corporate/Other
Corporate interest and expenses for the last three years was $4,324,000,
$4,492,000 and $4,175,000, respectively. Corporate and other revenues for the
last three years was $236,000, $387,000 and $864,000, 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 interest and expenses in fiscal 2002
decreased due to a decrease in salaries of $148,000 and a reduction in interest
expense of $66,000.
Corporate interest and expenses in fiscal 2001 increased due to an increase in
salaries of $118,000, and increased professional fees of $171,000, offset by a
reduction in interest expense of $98,000.
Corporate expenses in fiscal 2000 decreased due to a reduction of $280,000 in
professional fees, offset by an increase in salaries of $53,000.
CRITICAL ACCOUNTING POLICIES
Management's discussion and analysis of financial condition and results of
operations is based upon the Company's consolidated financial statements, which
have been prepared in accordance with GAAP. The preparation of these financial
statements requires management to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses. The Company
bases its estimates on historical experience and assumptions that are believed
to be reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying value of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. The Company believes the
following critical accounting policies affect its significant judgments and
estimates used in the preparation of its consolidated financial statements.
Valuation of Property Held for Use and Sale
On a quarterly basis, the Company reviews the carrying value of both properties
held for use and for sale. The Company records impairment losses and reduces the
carrying value of properties when indicators of impairment are present and the
expected undiscounted cash flows related to those properties are less than their
carrying amounts. In cases where the Company does not expect to recover its
carrying costs on properties held for use, the Company reduces its carrying cost
to fair value, and for properties held for sale, the Company reduces its
carrying value to the fair value less costs to sell. Management does not believe
that the value of the properties held for sale or properties in use are impaired
as of June 30, 2002.
Valuation of Investments in and Advances to Affiliated Entities
On a quarterly basis, the Company reviews the carrying value of the investments
in and
14
advances to affiliated entities. Although the seafood operations of the Company
(particularly the Ecuadorian seafood operations) continue to generate operating
losses management believes that the investments that it is currently making will
return the operations to profitability. If the Company is unsuccessful in its
efforts, an impairment write-down, which may be material, will be required.
Management does not believe that the carrying amount of the investments in and
advances to affiliated entities are impaired as of June 30, 2002.
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards ("Statement") No. 141, Business Combinations, and
No. 142, Goodwill and Other Intangible Assets.
Statement No. 141 requires that the purchase method of accounting be used for
all business combinations initiated after June 30, 2001. Use of the
pooling-of-interests method is no longer permitted. Statement No. 141 also
includes guidance on the initial recognition and measurement of goodwill and
other intangible assets acquired in a business combination that is completed
after July 1, 2001.
Statement No. 142 no longer permits the amortization of goodwill and
indefinite-lived intangible assets. Instead, these assets must be reviewed
annually (or more frequently under certain conditions) for impairment in
accordance with this statement. This impairment test uses a fair value approach
rather than the undiscounted cash flows approach previously required by
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. The amortization of goodwill included in
other expenses will also no longer be recorded upon adoption of the new rules.
Intangible assets that do not have indefinite lives will continue to be
amortized over their useful lives and reviewed for impairment in accordance with
Statement No. 121. Management does not believe that the adoption of Statement
No. 141 or 142 will have a significant effect on results of operations or the
financial position of the Company.
In August 2001, the FASB issued Statement No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. Statement No. 144 provides accounting guidance
for financial accounting and reporting for the impairment or disposal of
long-lived assets. Statement No. 144 supersedes Statement No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of. It also supersedes the accounting and reporting of APB Opinion No. 30,
Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Evens and Transactions related to the disposal of a segment of a business.
Statement No. 144 is effective for fiscal years beginning after December 15,
2001. Management does not anticipate that its adoption will have a material
effect on the financial position or results of operations of the Company.
15
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, and to address the virus problem that is affecting shrimp
production in Ecuador, the availability of scallops in the area covered by the
Company's Cape Canaveral, Florida operations, the success of the Company's
Polyculture process, Mariculture System, Tolerine product and micro-screening
efforts, demand for the Company's textile services, 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.
16
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISKS
The Company currently has no variable rate debt.
17
ITEM 8. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
18
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,
2002 and 2001, 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, 2002. Our audits also included the financial
statement schedules listed in the accompanying index to financial statements
(Item 14.a.2). 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 22% in 2002, 24% in 2001 and 23% in
2000, and total revenues constituting 20% in 2002, 23% in 2001, and 20% in 2000,
of the related consolidated totals, and (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. 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 auditing standards generally accepted
in the United States. 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.
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, 2002 and 2001, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended June 30, 2002, in conformity with accounting principles generally accepted
in the United States. 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 17, 2002
19
Independent Auditor's Report
- ----------------------------
To the Board of Directors
Marchelot S.A. and Subsidiaries
New York, U.S.A.
1. We have audited the accompanying consolidated balance sheets of
Marchelot S. A. (a wholly-owned subsidiary of Bluepoints Co. Inc. of
Bermuda), and its subsidiaries as of June 30, 2002 and 2001, and the
related consolidated statements of operations, stockholders' equity
and cash flows for the three years ended June 30, 2002. 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.
2. We conducted our audits in accordance with auditing standards
generally accepted 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.
3. In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of
Marchelot S.A. and Subsidiaries as of June 30, 2002 and 2001, and
the results of their operations and their cash flows for the three
years ended June 30, 2002, in conformity with accounting principles
generally accepted in the United States of America.
/s/ BDO STERN
August 2, 2002
Guayaquil, Ecuador
20
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, 2002, 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 auditing standards generally accepted
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 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 Company's financial statements do not disclose deferred taxes. In our
opinion, disclosure of that information is required to conform with accounting
principles generally accepted in the United States of America.
In our opinion, 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, 2002 and the
results of its operations and its cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Hoyman, Dobson & Company, P.A.
Hoyman, Dobson & Company, P.A.
August 23, 2002
21
[DB&B LOGO]
DERMODY, BURKE & BROWN
Certified Public Accountants, P.C.
INDEPENDENT AUDITORS' REPORT
====================================================
BOARD OF DIRECTORS
FIRST REPUBLIC CORPORATION
http://www.dbandb.com OF AMERICA, HOLIDAY INN
120 Corporate Drive
Auburn, NY 13201-1634 We have audited the accompanying balance sheets of
(315) 253-6273 FIRST REPUBLIC CORPORATION OF AMERICA, HOLIDAY INN
Fax (315) 253-0890 as of June 30, 2002 and 2001, and the related
statements of income and division control and cash
flows for the years then ended. These financial
100 Grange Place, statements are the responsibility of the Company's
Suite A management. Our responsibility is to express an
Cortland, NY 13045-1330 opinion on these financial statements based on our
(607) 753-3300 audits.
Fax (607) 753-1348
We conducted our audits in accordance with auditing
standards generally accepted in the United States of
America. Those standards require that we plan and
perform the audit to obtain reasonable assurance
555 French Road about whether the financial statements are free of
New Hartford, NY 13413-1044 material misstatement. An audit includes examining,
(315) 732-2991 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
a member of taxes and property accounts are not reflected on the
Hotel's books but are the accounting responsibility
[POLARIS INTERNATIONAL of First Republic and its affiliate. These financial
LOGO] statements are issued for inclusion in the financial
WORLDWIDE SOLUTIONS statements of FirstRepublic Corporation of America
FOR YOUR BUSINESS. and should not be considered
22
separately in determining the financial position
and results of operations of the Holiday Inn.
================================================================================
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, 2002 and 2001 and the
results of its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The information on pages 12 to 23 is
presented for the purposes of additional analysis and is not a required part of
the basic financial statements. Such information has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, is fairly stated, in all material respects, in relation to the
basic financial statements taken as a whole.
/S/ DERMODY, BURKE AND BROWN
DERMODY, BURKE AND BROWN
CERTIFIED PUBLIC ACCOUNTANTS, P. C.
Syracuse, NY
August 16, 2002
23
The First Republic Corporation of America and Subsidiaries
Consolidated Balance Sheets
JUNE 30,
2002 2001
------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 3,401,100 $ 5,169,899
Accounts and rents receivable, net of allowances of $265,608
and $245,513 5,525,489 6,930,795
Mortgage receivable--current portion (Note 11) 17,530 -
Other receivables including $128,233 and $528,000 due from related
party (Note 9) 3,606,661 2,318,871
Inventories (Note 1) 7,405,726 10,606,156
Prepaid expenses and other assets 2,290,835 2,084,629
------------------------------------
Total current assets 22,247,341 27,110,350
Real estate held for rental and hotel, at cost (Note 4):
Land 4,706,158 6,149,022
Building and improvements 45,222,980 44,324,242
------------------------------------
49,929,138 50,473,264
Less accumulated depreciation 22,719,304 20,845,210
------------------------------------
27,209,834 29,628,054
Other property, plant and equipment, at cost:
Land 1,419,275 1,597,795
Buildings and improvements 9,487,426 10,452,810
Leaseholds and improvements 531,968 541,584
Machinery, equipment and vehicles 11,409,773 11,708,998
Furniture and furnishings 232,762 253,796
Construction-in-progress 683,270 212,516
------------------------------------
23,764,474 24,767,499
Less accumulated depreciation and amortization 10,275,755 10,167,484
------------------------------------
13,488,719 14,600,015
Deferred income tax (Note 6) 2,405,000 1,743,000
Mortgage receivable--net of current portion (Note 11) 442,166 -
Restricted cash 363,377 388,055
Investments in and advances to affiliated entities (Note 3) 16,351,065 14,998,052
Tenant improvements, net of accumulated amortization of $6,029,145
and $4,951,300 5,515,605 6,265,519
Unamortized leasing, financing and other deferred costs, net of
accumulated amortization of $1,354,159 and $990,233 939,577 1,158,583
Other assets:
Cash and securities in trust for tenants' security deposits 889,579 1,032,977
Mortgage escrow funds and security deposits 148,897 97,032
Assets held for sale (Note 10) 500,000 500,000
Due from related parties (Note 9) 8,464,256 7,094,090
Other 16,400 16,400
------------------------------------
10,019,132 8,740,499
------------------------------------
Total assets $ 98,981,816 $ 104,632,127
====================================
See notes to consolidated financial statements.
24
The First Republic Corporation of America and Subsidiaries
Consolidated Balance Sheets (continued)
JUNE 30,
2002 2001
------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable, related party (Note 9) $ 640,000 $ 640,000
Current portion of long-term debt (Note 4) 1,692,467 1,647,041
Accounts payable 1,346,192 2,659,983
Accrued expenses and taxes payable 1,592,675 2,264,543
Due to related parties (Note 9) 748,670 525,579
Other liabilities 93,257 93,257
------------------------------------
Total current liabilities 6,113,261 7,830,403
Long-term debt (Notes 4 and 5) 24,043,987 25,720,743
Other liabilities:
Tenants' security deposits payable 889,579 1,032,977
Accrued pension (Note 7) 548,000 372,059
------------------------------------
1,437,579 1,405,036
Minority interests 585,568 531,369
------------------------------------
Total liabilities 32,180,395 35,487,551
Leases, commitments and contingencies (Notes 8 and 10)
Stockholders' equity:
Common stock, $1 par value:
Authorized, 2,400,000 shares;
Issued and outstanding, 1,175,261 shares 1,175,261 1,175,261
Additional paid-in capital 15,000,753 15,000,753
Retained earnings 55,832,297 57,778,773
Other comprehensive loss--additional minimum
pension obligation (609,000) (257,000)
------------------------------------
71,399,311 73,697,787
Less treasury stock, at cost--507,616 and 506,685 shares
(Note 10) (4,597,890) (4,553,211)
------------------------------------
Total stockholders' equity 66,801,421 69,144,576
------------------------------------
Total liabilities and stockholders' equity $ 98,981,816 $ 104,632,127
====================================
See notes to consolidated financial statements.
25
The First Republic Corporation of America and Subsidiaries
Consolidated Statements of Operations
and Comprehensive (Loss) Income
YEAR ENDED JUNE 30,
2002 2001 2000
------------------------------------------------------
Revenues:
Sales--textiles and seafood $ 38,221,817 $ 45,870,362 $ 38,740,593
Rents and other revenues--real estate and hotel
operations (Note 8) 21,426,589 22,127,659 23,606,539
Other (including interest income of approximately
$1,170,000, $1,275,000 and $1,044,000, respectively)
2,150,763 2,108,142 2,621,539
------------------------------------------------------
61,799,169 70,106,163 64,968,671
------------------------------------------------------
Costs and expenses:
Cost of sales--textiles and seafood 39,429,538 46,212,689 36,564,200
Operating costs--real estate and hotel operations 11,839,633 13,572,010 14,052,986
Depreciation and amortization 4,343,315 4,551,661 4,891,862
Interest (Note 4) 2,146,385 2,413,301 3,205,204
Selling, general and administrative (Notes 7 and 8) 7,113,393 7,445,277 6,335,931
Minority interests' share of loss of subsidiaries (1,846,592) (1,480,977) (1,070,479)
------------------------------------------------------
63,025,672 72,713,961 63,979,704
------------------------------------------------------
(Loss) income before income taxes, gain on sale and
equity in loss of affiliated entities (1,226,503) (2,607,798) 988,967
Equity in loss of affiliated entities (Note 3) (802,384) (606,984) (1,203,710)
Gain on sale of real estate held for rental 177,855 18,629,597 81,407
Loss on sale of subsidiary (69,444) - -
------------------------------------------------------
(Loss) income before income taxes (1,920,476) 15,414,815 (133,336)
Income tax expense (Note 6) 26,000 707,000 143,000
------------------------------------------------------
Net (loss) income (1,946,476) 14,707,815 (276,336)
------------------------------------------------------
Other comprehensive loss:
Additional minimum pension obligation (net of deferred
taxes of $235,000, $10,000 and
$56,000, respectively) (Note 7) (352,000) (15,000) (85,000)
------------------------------------------------------
Comprehensive (loss) income $ (2,298,476) $ 14,692,815 $ (361,336)
======================================================
Per share of common stock (Note 1):
Net (loss) income--basic and diluted $ (2.91) $ 21.98 $ ($0.41)
======================================================
See notes to consolidated financial statements.
26
The First Republic Corporation of America and Subsidiaries
Consolidated Statements of Retained Earnings
YEAR ENDED JUNE 30,
2002 2001 2000
------------------------------------------------------
Balance, beginning of year $ 57,778,773 $ 43,070,958 $ 43,347,294
Net (loss) income for the year (1,946,476) 14,707,815 (276,336)
------------------------------------------------------
Balance, end of year $ 55,832,297 $ 57,778,773 $ 43,070,958
======================================================
See notes to consolidated financial statements.
27
The First Republic Corporation of America and Subsidiaries
Consolidated Statements of Cash Flows
YEAR ENDED JUNE 30,
2002 2001 2000
--------------------------------------------------------
OPERATING ACTIVITIES
Net (loss) income $ (1,946,476) $ 14,707,815 $ (276,336)
Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:
Gain on sale of real estate held for rental (177,855) (18,629,597) (81,407)
Loss on sale of subsidiary 69,444 - -
Depreciation and amortization 4,343,315 4,551,661 4,891,862
Bad debt 60,000 - -
Deferred income taxes (437,000) (427,000) (345,000)
Equity in loss of affiliated entities 802,384 606,984 1,203,710
Minority interests' share of loss in subsidiaries (1,846,592) (1,480,977) (1,070,479)
Changes in operating assets and liabilities:
Accounts, rents and other receivables 137,611 (129,895) (2,993,484)
Inventories 3,200,430 (1,290,432) (4,021,726)
Prepaid expenses and other assets (206,206) (777,406) (40,361)
Accounts payable (1,313,791) 914,319 (1,123,482)
Accrued expenses and other current liabilities (671,868) (703,577) 796,711
Due to related parties 223,091 (96,860) 219,943
Other liabilities (554,457) (640,762) (126,839)
------------------------------------------------------
Net cash provided by (used in) operating activities 1,682,030 (3,395,727) (2,966,888)
------------------------------------------------------
INVESTING ACTIVITIES
Purchases of real estate held for rental (945,152) (1,524,376) (1,930,408)
Purchases of other property plant and equipment (855,109) (1,170,085) (997,772)
Additions to tenant improvements (461,553) (598,851) (800,680)
Proceeds from sale of real estate 1,771,000 20,050,000 5,634,048
Investment in affiliated entities (2,155,397) (1,906,749) (2,159,066)
Payments received on mortgages receivable 5,549 - 52,105
Restricted cash 24,678 26,053 26,179
Other investing activities 310,539 198,322 243,547
------------------------------------------------------
Net cash (used in) provided by investing activities (2,305,445) 15,074,314 67,953
------------------------------------------------------
28
The First Republic Corporation of America and Subsidiaries
Consolidated Statements of Cash Flows (continued)
YEAR ENDED JUNE 30,
2002 2001 2000
------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from mortgages and notes payable
to banks $ - $ 10,500 $ 8,370,000
Payments on mortgages and notes payable
to banks (1,631,330) (3,558,116) (10,452,662)
Proceeds from related parties - - 8,775,000
Payments to related parties - (5,600,000) (3,175,000)
Minority interests' additional paid-in capital 530,625 382,500 198,357
Purchases of treasury stock (44,679) (46,285) (20,160)
------------------------------------------------------
Net cash (used in) provided by financing activities (1,145,384) (8,811,401) 3,695,535
------------------------------------------------------
Net (decrease) increase in cash and cash equivalents
(1,768,799) 2,867,186 796,600
Cash and cash equivalents at the beginning
of year 5,169,899 2,302,713 1,506,113
------------------------------------------------------
Cash and cash equivalents at the end of year $ 3,401,100 $ 5,169,899 $ 2,302,713
======================================================
SUPPLEMENTAL DISCLOSURE
Cash paid for income taxes $ 1,325,427 $ 456,524 $ 459,600
======================================================
Cash paid for interest $ 2,151,409 $ 2,454,954 $ 3,089,004
======================================================
See notes to consolidated financial statements.
29
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2002
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 (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 accounting principles
generally accepted in the United States 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,
2002 2001
------------------------------------
Work-in-process and raw materials $ 1,458,175 $ 1,938,535
Finished goods 5,947,551 8,667,621
------------------------------------
$ 7,405,726 $ 10,606,156
====================================
30
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.
31
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets. Statement No. 144 provides accounting guidance for financial accounting
and reporting for the impairment or disposal of long-lived assets. Statement No.
144 supersedes Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of. It also supersedes the
accounting and reporting provisions of APB Opinion No. 30, Reporting the Results
of Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions
related to the disposal of a segment of a business. Statement No. 144 is
effective for fiscal years beginning after December 15, 2001. Management does
not anticipate that its adoption will have a material effect on the financial
position or results of operations of the Company.
EARNINGS PER SHARE
Basic and diluted per share amounts are based on 668,092 (2002), 669,195 (2001)
and 669,922 (2000) weighted average shares of common stock outstanding.
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 were translated using the U.S. dollar as the
functional currency since Ecuador had a hyperinflationary currency until
February 2000. Since March 2000, these subsidiaries maintain their accounting
records in U.S. dollars as a result of Ecuador dollarizing its currency.
Operations include exchange gains (included in selling, general and
administrative expenses) of $0 (2002), $0 (2001) and $612,965 (2000) resulting
from foreign currency transactions and from translation of the foreign entities'
financial statements.
32
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BUSINESS COMBINATIONS
In June 2001, the FASB issued Statement No. 141, Business Combinations.
Statement No. 141 requires that the purchase method of accounting be used for
all business combinations initiated after June 30, 2001. Use of the
pooling-of-interests method is no longer permitted. Statement No. 141 also
includes guidance on the initial recognition and measurement of goodwill and
other intangible assets acquired in a business combination that is completed
after July 1, 2001. For the year ended June 30, 2002, the adoption of this
statement had no effect on results of operations or the financial position of
the Company.
GOODWILL AND OTHER INTANGIBLE ASSETS
In June 2001, the FASB issued Statement No. 142, Goodwill and Other Intangible
Assets. Statement No. 142 no longer permits the amortization of goodwill and
indefinite-lived intangible assets. Instead, these assets must be reviewed
annually (or more frequently under certain conditions) for impairment in
accordance with this statement. This impairment test uses a fair value approach
rather than the undiscounted cash flows approach previously required by
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of (as amended by Statement No. 144).
Amortization of goodwill will also no longer be recorded upon adoption of the
new rules. Intangible assets that do no have indefinite lives will continue to
be amortized over their useful lives and reviewed for impairment in accordance
with Statement No. 121 (as amended by Statement No. 144). The Company is
required to adopt Statement No. 142 on July 1, 2002. Management does not
anticipate that the adoption of this statement will have a significant effect on
results of operations or the financial position of the Company.
CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of three
months or less when purchased to be cash equivalents.
33
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
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 and residential property 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, (discontinued July 2002) harvesting and sale of scallops on
property leased by the Company in Cape Canaveral, Florida, sales of
shrimp from Ecuador (grown in Company leased ponds or purchased from a
38% owned entity and other third-parties) and sales of lobster tails,
shrimp and other products purchased locally or imported from various
other countries.
Textile: Operation of a yarn spinning plant and a dye house located in
Rhode Island and South Carolina.
The Company operates in four segments, as noted above. These 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.
34
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:
2002 2001 2000
------------------------------------------------------
Revenues:
Real estate $ 15,137,489 $ 15,920,186 $ 17,144,909
Hotel 6,323,824 6,423,848 6,518,827
Seafood 29,598,504 34,650,348 29,451,921
Textile 10,503,110 12,724,946 10,989,479
Corporate 236,242 386,835 863,535
------------------------------------------------------
$ 61,799,169 $ 70,106,163 $ 64,968,671
======================================================
Operating (loss) profit:
Real estate (a) $ 4,526,733 $ 3,890,110 $ 4,152,961
Hotel 310,883 105,087 571,369
Seafood (f) (3,787,002) (3,935,900) (1,200,537)
Textile (b) (105,736) (42,753) (293,400)
------------------------------------------------------
Total operating profit 944,878 16,544 3,230,393
Corporate expenses (3,746,252) (3,848,280) (3,433,644)
Corporate interest expense (577,407) (643,874) (741,796)
Corporate revenue (e) 236,242 386,835 863,535
Gain on sale of real estate 177,855 18,629,597 81,407
Equity in loss of affiliated entities (c) (802,384) (606,984) (1,203,710)
Minority interests' share of loss of
subsidiaries 1,846,592 1,480,977 1,070,479
------------------------------------------------------
(Loss) income before income taxes $ (1,920,476) $ 15,414,815 $ (133,336)
======================================================
35
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. INDUSTRY SEGMENTS AND FOREIGN OPERATIONS (CONTINUED)
2002 2001 2000
------------------------------------------------------
Identifiable assets:
Real estate $ 31,636,408 $ 33,944,580 $ 35,646,289
Hotel 4,467,976 5,161,505 5,915,137
Seafood 30,150,368 31,496,637 28,352,641
Textile 8,108,643 9,591,173 9,501,781
Corporate and other (d) 24,618,421 24,438,132 20,312,671
------------------------------------------------------
$ 98,981,816 $ 104,632,127 $ 99,728,519
======================================================
Depreciation and amortization:
Real estate $ 2,252,981 $ 2,148,485 $ 2,286,744
Hotel 888,449 899,677 832,232
Seafood 560,005 804,055 951,377
Textile 572,965 639,448 769,115
Corporate and other 68,915 59,996 52,394
------------------------------------------------------
$ 4,343,315 $ 4,551,661 $ 4,891,862
======================================================
Capital expenditures--net:
Real estate $ 1,296,057 $ 1,921,714 $ 2,308,232
Hotel 110,648 201,513 422,856
Seafood 362,870 664,388 543,748
Textile 436,339 347,759 430,167
Corporate and other 55,900 157,938 23,857
------------------------------------------------------
$ 2,261,814 $ 3,293,312 $ 3,728,860
======================================================
Geographic information:
Revenues
United States $ 60,963,969 $ 69,466,474 $ 63,594,010
Ecuador 835,200 639,689 1,374,661
------------------------------------------------------
$ 61,799,169 $ 70,106,163 $ 64,968,671
======================================================
Identifiable assets:
United States $ 72,329,816 $ 78,937,127 $ 75,496,519
Ecuador 26,652,000 25,695,000 24,232,000
------------------------------------------------------
$ 98,981,816 $ 104,632,127 $ 99,728,519
======================================================
(a) Includes mortgage interest expense of $1,175,844 (2002), $1,268,079
(2001), and $1,481,190 (2000).
(b) Includes losses from Whitlock (see Note 10).
(c) See Note 3.
(d) Consists principally of investments in and advances to affiliated
entities.
(e) Includes interest income of $41,000 (2002), $237,000 (2001) and $117,000
(2000).
(f) Includes interest income of $1,046,000 (2002), $1,035,000 (2001) and
$927,000 (2000).
36
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. AFFILIATED ENTITIES
The following table summarizes information with respect to the Company's
affiliated entities:
COMPANY'S COMPANY'S
INVESTMENTS EQUITY IN INCOME
AND ADVANCES (LOSS)
------------ ------
COMPANY'S
OWNERSHIP JUNE 30, YEAR ENDED JUNE 30,
PERCENTAGE 2002 2001 2002 2001 2000
-----------------------------------------------------------------------
(In Thousands)
Sunscape Associates 50% $ 405 $ 373 $ 45 $ 37 $ 35
Mondragon Companies(1) 38% 15,700 14,382 (927) (717) (1,300)
Other Various 246 243 80 73 61
----------------------------------------------------------
$ 16,351 $14,998 $(802) $ (607) $(1,204)
==========================================================
(1)--Advances to Mondragon from the Company were approximately $15,700,000
and $14,382,000 at June 30, 2002 and 2001, respectively (see Note 9).
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 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.
The Estate of A.A. Rosen owns 50% of the Mondragon Companies.
37
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. AFFILIATED ENTITIES (CONTINUED)
Condensed combined financial information of the Mondragon Companies is as
follows:
JUNE 30,
2002 2001
------------------------------------
ASSETS
Current assets $ 1,498,000 $ 945,000
Property and equipment--net of accumulated
depreciation 12,552,000 13,018,000
Other assets - 3,000
------------------------------------
Total assets $ 14,050,000 $ 13,966,000
====================================
LIABILITIES
Due to Bluepoints and other affiliates $ 8,293,000 $ 6,580,000
Other current liabilities 407,000 176,000
------------------------------------
Total current liabilities 8,700,000 6,756,000
Long-term debt--Bluepoints 8,928,000 8,928,000
------------------------------------
Total liabilities 17,628,000 15,684,000
Stockholders' equity (3,578,000) (1,718,000)
------------------------------------
Total liabilities and equity $ 14,050,000 $ 13,966,000
====================================
YEAR ENDED JUNE 30,
2002 2001 2000
------------------------------------------------------
Revenues $ 245,000 $ 285,000 $ 1,575,000
Costs and expenses 2,685,000 2,171,000 4,995,000
------------------------------------------------------
Net loss $ (2,440,000) $ (1,886,000) $ (3,420,000)
======================================================
38
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. LONG-TERM DEBT AND CREDIT FACILITIES
Long-term debt consists of the following:
JUNE 30,
2002 2001
------------------------------------
Variable rate mortgage payable due 2000, maturity date
extended to August 2005 (1) and (4) $ - $ 3,355,000
Mortgages payable due 2002-2019 bearing interest
at fixed rates of 7.0% to 8.5% (1), (2), (3), (5), (6),
(7), (8), (9), (10), and (11) 25,736,454 24,012,784
------------------------------------
25,736,454 27,367,784
Less payments due within one year 1,692,467 1,647,041
------------------------------------
$ 24,043,987 $ 25,720,743
====================================
(1)--The net book value of real estate assets pledged as collateral is
approximately $18,400,000 and $18,800,000 at June 30, 2002 and 2001,
respectively.
(2)--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 $2,239,473 and $2,306,596
at June 30, 2002 and 2001, respectively.
(3)--The Company has 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 2.0% or, (b) the Alternate Base Rate (as defined)
plus 0.50%.The term loan requires amortization payments of $358,800 per
annum. Both loans mature on October 21, 2002. The Company is presently
negotiating with its lender to renew the loans for an additional five
years. At June 30, 2002 and 2001, the term loan balance was $7,355,500
and $7,714,300, respectively, with a fixed rate of interest of 7.5% and
for both years, nothing was outstanding under the revolving line of
credit.
39
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. LONG-TERM DEBT AND CREDIT FACILITIES (CONTINUED)
(4)--On August 31, 1998, the Company obtained a $3,355,000 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. The construction loan, which
matured on August 31, 2000 was extended and in October 2001 was
converted to a term loan expiring August 31, 2005. The loan is
collateralized by a mortgage on the Merrimac property, bears interest
at 5.5% and calls for monthly payments through August 2005. A balloon
payment of $3,141,405 is then due. The balance was $3,324,252 and
$3,355,000 at June 30, 2002 and 2001, respectively.
(5)--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 balance was $2,719,400 and $2,803,442 at June
30, 2002 and 2001, respectively.
(6)--On December 18, 1998, the Company closed a loan with the Overseas
Private Investment Corporation for $5,050,000. The loan is
collateralized by a mortgage on the Waltham Engineering Center, bears
interest at 7.3% per annum, provides for 15 semi-annual payments of
principal and interest and matures on June 15, 2006. The balance was
$2,693,334 and $3,366,667 at June 30, 2002 and 2001, respectively.
(7)--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 $2,308,370 and $2,376,753 at June 30, 2002
and 2001, respectively.
40
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. LONG-TERM DEBT AND CREDIT FACILITIES (CONTINUED)
(8)--On July 26, 1996, the Company obtained a $4,000,000 loan, from a bank,
secured by Greensboro North Shopping Center located in Greensboro,
North Carolina. The loan calls for monthly payments of $35,850,
including principal and interest, bears interest at 8.35% per annum,
and matures on August 1, 2006 when the remaining unpaid balance of
$2,521,772 plus interest will become due. The balance was $3,280,124
and $3,429,591 on June 30, 2002 and 2001, respectively.
(9)--On February 4, 1994, the Company obtained a $3,000,000 loan, from a
bank, secured by Greensboro South Shopping Center located in
Greensboro, North Carolina. The loan calls for monthly payments of
$29,543, including principal and interest, bears interest at 8.5% per
annum, and matures on March 1, 2009. The balance was $1,816,001 and
$2,007,238 on June 30, 2002 and 2001, respectively.
(10)--On July 7, 2000, the Company obtained a $10,500 loan from a credit
corporation, to purchase a forklift. The loan called for monthly
payments of $274, bore interest at 11.5%, and was to mature on June 7,
2004. The loan was repaid during the year ended June 30, 2002.
Aggregate principal payments on debt outstanding as of June 30, 2002 are as
follows:
AMOUNT
--------------------
Year ending June 30:
2003 $ 1,692,467
2004 1,746,385
2005 1,805,707
2006 4,955,666
2007 3,508,797
Thereafter 12,027,432
--------------------
$ 25,736,454
====================
5. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement No. 107, Disclosures about Fair Value of Financial Instruments,
requires disclosures about fair value for all financial instruments for which it
is practicable to estimate that value.
41
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The following methods and assumptions were used by the Company in estimating
fair values for financial instruments at June 30, 2002:
Cash and Cash Equivalents, Accounts and Rents Receivable, Other
Receivables, Restricted Cash, Cash and Securities in Trust for Tenants
Security Deposits, Mortgage Escrow Funds and Security Deposits, Due from
Related Parties, Accounts Payable, Accrued Expenses and Taxes Payable, Due
to Related Parties and Other Liabilities: The carrying amounts of these
assets and liabilities approximate fair value due to their short term
nature.
Notes Payable and Long-Term Debt:. 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 approximately $27,327,000.
6. INCOME TAXES
At June 30, 2001, the Company had a net operating loss carryforward of
approximately $32,500,000 for income tax purposes that expired in 2002. This
carryforward, resulted from the merger of Merrimac Corporation into the Company
on June 30, 1993. Deferred tax assets and liabilities reflected the net tax
effects of the net operating loss carryforward and temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes.
42
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. INCOME TAXES (CONTINUED)
For financial reporting purposes, a valuation allowance had been recognized to
offset the 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,
2002 2001
------------------------------------
Deferred tax assets:
Net operating loss carryforwards $ - $ 11,100,000
Book basis provisions 2,405,000 1,743,000
------------------------------------
Total deferred tax assets 2,405,000 12,843,000
Valuation allowance - 11,100,000
------------------------------------
Net deferred tax asset $ 2,405,000 $ 1,743,000
====================================
The components of (loss) income before income taxes are as follow:
YEAR ENDED JUNE 30,
2002 2001 2000
------------------------------------------------------
Domestic $ (107,635) $ 16,722,010 $ 1,800,608
Foreign (1,812,841) (1,307,195) (1,933,944)
------------------------------------------------------
$ (1,920,476) $ 15,414,815 $ (133,336)
======================================================
Significant components of the income tax expense (benefit) are as follows:
YEAR ENDED JUNE 30,
2002 2001 2000
------------------------------------------------------
Current:
Federal $ - $ 330,000 $ 40,000
State 463,000 804,000 448,000
------------------------------------------------------
Total current 463,000 1,134,000 488,000
------------------------------------------------------
Deferred:
Federal (386,000) (377,000) (305,000)
State (51,000) (50,000) (40,000)
------------------------------------------------------
Total deferred (437,000) (427,000) (345,000)
------------------------------------------------------
$ 26,000 $ 707,000 $ 143,000
======================================================
43
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. INCOME TAXES (CONTINUED)
The reconciliation of income tax expense computed at the U.S. Federal statutory
tax rates to income tax expense follows:
2002 2001 2000
---------------------------------------------------------------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
--------------------------------------------------------------------------
Tax at U.S. statutory rates $ (653,000) (34.0)% $ 5,241,000 34.0% $ (45,000) (34.0)%
Increases (reductions) resulting from:
Alternative minimum tax - - 330,000 2.1 40,000 30.0
State taxes, net of federal tax benefit 272,000 14.2 498,000 3.2 269,000 201.7
Loss from foreign operations (not
subject to U.S. federal income
taxes) reduced by portion charged to
minority interest for which no tax 616,000 32.1 444,000 2.9 658,000 493.5
benefit is recognized
Minority interest in loss from
domestic operations (314,000) (16.4) (266,000) (1.7) (145,000) (108.7)
Net operating loss carryforwards - - (5,442,000) (35.3) (668,000) (501.0)
Other items 105,000 5.5 (98,000) (.6) 34,000 25.5
---------------------------------------------------------------------------
$ 26,000 1.4% $ 707,000 4.6% $ 143,000 107.2%
===========================================================================
7. BENEFIT PLANS
The Company and certain subsidiaries have profit-sharing plans covering
substantially all nonunion employees. Contributions to one of the plans is
discretionary. Total plan costs were approximately $215,000 and are included in
selling, general and administrative expenses on the accompanying consolidated
statements of operations and comprehensive income (loss) for each of the years
ended June 30, 2002, 2001 and 2000.
A former subsidiary, 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,
this subsidiary 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.
44
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. BENEFIT PLANS (CONTINUED)
Since a significant part of this subsidiary'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.
2002 2001
------------------------------------
Change in benefit obligation:
Benefit obligation at beginning of year $ 4,657,000 $ 4,541,000
Interest cost 333,000 344,000
Actuarial gain 479,000 227,000
Benefit payments (441,000) (455,000)
------------------------------------
Benefits obligation at end of year $ 5,028,000 $ 4,657,000
====================================
Change in plan assets:
Fair value of plan assets at beginning of year $ 4,285,000 $ 3,912,000
Actual return on plan assets 215,000 489,000
Employer contributions 421,000 339,000
Benefit payments (441,000) (455,000)
------------------------------------
Fair value of plan assets at end of year $ 4,480,000 $ 4,285,000
====================================
Funded status:
Funded status of the plan (underfunded) $ (548,000) $ (372,000)
Unrecognized net actuarial loss 1,014,000 427,000
------------------------------------
Accrued benefit cost $ 466,000 $ 55,000
====================================
Amounts recognized in the statement of financial position consist of:
Accrued benefit liability $ (548,000) $ (372,000)
Accumulated other comprehensive loss 1,014,000 427,000
------------------------------------
Net amount recognized $ 466,000 $ 55,000
====================================
Net periodic pension cost included the following components:
2002 2001 2000
------------------------------------------------------
Interest cost on projected benefit
obligation $ 333,000 $ 345,000 $ 339,000
Expected return on plan assets (342,000) (306,000) (315,000)
Recognized net actuarial gain 20,000 18,000 12,000
------------------------------------------------------
Total pension expense $ 11,000 $ 57,000 $ 36,000
======================================================
45
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. BENEFIT PLANS (CONTINUED)
The discount rate used in determining the actuarial present value of the
projected benefit obligation was 7.25% at June 30, 2002 and 7.5% at June 30,
2001. The expected long-term rate of return on plan assets was 8.0% in all three
years.
8. 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 $707,000 at June 30, 2002. 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 9). Total rent expense for all operating
leases amounted to approximately $124,000, $121,000 and $119,000 and are
included in selling, general and administrative expenses on the accompanying
consolidated statements of operations and comprehensive income (loss) for the
years ended June 30, 2002, 2001 and 2000, 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 one to 20 years.
Future minimum rentals (excluding operating expenses and other items billable to
tenants which aggregated approximately $2,200,000, $2,400,000 and $2,200,000 and
are included in rents and other revenues--real estate and hotel operations on
the accompanying consolidated statements of operations and comprehensive (loss)
income in the years ended June 30, 2002, 2001 and 2000, 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:
2003 $ 12,100,000
2004 9,300,000
2005 7,700,000
2006 6,400,000
2007 5,000,000
Thereafter 15,300,000
------------------
$ 55,800,000
==================
46
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. 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, 2002 and 2001, the minority share of stockholders' deficiency
of Bluepoints amounted to $8,464,256 and $7,094,090, 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 $15,700,000 and $14,382,000 are
advances the Company has made to the Mondragon Companies amounting to
$15,700,000 and $14,382,000 at June 30, 2002 and 2001, respectively (see
Note 3). 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.
47
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. 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:
AMOUNT RELATED
--------------------------------------- PARTY
TRANSACTIONS 2002 2001 2000 OWNERSHIP
--------------------------------------------------------------------------------------------------
Insurance purchased in participation
with the Rosen Group Properties:
Premiums incurred $732,000 $526,000 $ 548,000 -%
Administrative fee received 100,000 100,000 75,000 -
Payable at June 30, to Rosen Group
Properties for premiums above 732,000 526,000 512,000 -
Due from Rosen Group Properties 70,000 85,000 - -
Home office rent 111,000 108,000 105,000 100
Interest on $640,000 note to the Estate of
A.A. Rosen 51,000 50,000 51,000
Note payable to the Estate of A.A. Rosen 640,000 640,000 640,000 -
Due from others 692,000 492,000 263,000 -
Due to the Tranel Group (defined below) - - 5,600,000 various
See Note 4 for other related party information.
During fiscal 2000 the Company had borrowed funds from a group of entities (the
"Tranel Group"), either owned or controlled by a major stockholder, to finance
Bluepoints expanded importation and sale of lobster tails. The loans bore
interest at 8% per annum and had no fixed repayment terms or maturity dates. The
loans were repaid in October 2000.
10. 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 litigation 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.
48
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. OTHER MATTERS (CONTINUED)
In June 1992, Whitlock, which was in the wool-combing business, sold
substantially all of its assets and substantially terminated all its remaining
operations. The remaining assets (included in the textile segment) 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, 2002. Losses incurred to
maintain the property such as real estate taxes and insurance amounted to
approximately $126,000, $143,000 and $183,000 in 2002, 2001 and 2000,
respectively.
Financial instruments which potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents
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.
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,
2002.
During the years ended June 30, 2002, 2001 and 2000, there were 931, 935 and 480
shares of stock purchased for treasury at a cost of $44,679, $46,285 and
$20,160, respectively.
11. MORTGAGE RECEIVABLE
A summary of mortgage receivable is as follows:
DESCRIPTION RATE MATURITY DATE JUNE 30, 2002
---------------------------------------------- ----------- -------------------- -------------------
First mortgage on land and building 7.75% (1) $459,696
Less payment due within one year
included in current assets 17,530
-------------------
$442,166
===================
11. MORTGAGE RECEIVABLE (CONTINUED)
49
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(1)--Payment terms of mortgage with purchaser of Hanora South's Lake City, South
Carolina facility require 59 equal monthly installments commencing March
10, 2002 of approximately $4,400 and a final installment of $369,000 on
February 10, 2007.
12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized consolidated quarterly financial information for the years ended June
30, 2002 and 2001 is as follows:
2002 SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30
--------------- --------------- ---------------- ---------------
Revenues $13,708,054 $ 17,542,201 $15,607,028 $14,941,886
Expenses 14,540,745 18,318,269 16,509,171 15,504,079
Equity in loss of affiliated entities (96,495) (117,605) (489,544) (98,740)
Gain on sale of real estate held
for rental - 177,855 - -
Loss on sale of subsidiary - - - (69,444)
Minority interests' share of loss
in subsidiaries (507,883) (334,692) (576,762) (427,255)
--------------- --------------- ---------------- ---------------
Loss before taxes (421,303) (381,126) (814,925) (303,122)
Income tax expense (100,000) (100,000) (100,000) 274,000
--------------- --------------- ---------------- ---------------
Net loss $ (521,303) $ (481,126) $ (914,925) $ (29,122)
=============== =============== ================ ===============
Net loss per common share--
basic and diluted $ (.78) $ (.72) $ (1.37) $ (.04)
=============== =============== ================ ===============
Weighted average number of common stock
outstanding basic and diluted 668,537 668,355 667,819 667,646
=============== =============== ================ ===============
2001 SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30
--------------- --------------- ---------------- ---------------
Revenues $ 15,800,309 $ 19,841,720 $ 16,779,355 $ 17,684,779
Expenses 16,013,751 20,558,858 18,298,992 19,323,337
Equity in loss of affiliated entities (242,733) (193,082) (106,635) (64,534)
Gain on sale of real estate held
for rental - 18,629,597 - -
Minority interests' share of loss
in subsidiaries (410,466) (389,135) (366,000) (315,376)
--------------- --------------- ---------------- ---------------
(Loss) income before taxes (45,709) 18,108,512 (1,260,272) (1,387,716)
Income tax expense (128,000) (580,000) (3,000) 4,000
--------------- --------------- ---------------- ---------------
Net (loss) income $ (173,709) $ 17,528,512 $ (1,263,272) $ (1,383,716)
=============== =============== ================ ===============
Net (loss) income per common share--
basic and diluted $ (0.26) $ 26.19 $ (1.89) $ (2.06)
=============== =============== ================ ===============
Weighted average number of common stock
outstanding basic and diluted 669,473 669,276 669,049 668,975
=============== =============== ================ ===============
50
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
51
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 88 Director April 1983
Harry Bergman 60 Director October 1991
Treasurer June 1988
Secretary June 1988
President July 2001
Norman A. Halper 83 Director October 1969
Vice President July 2001
Miriam N. Rosen 82 Director December 1995
Jonathan P. Rosen 58 Director February 1972
Chairman of the Board December 1995
William M. Silverman 60 Director December 1981
Robert Nimkoff 41 Director April 1991
Vice President June 1988
Jane G. Weiman 58 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
2002, upon the election and qualification of their successors.
c. Not applicable.
52
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.
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 a member 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
Except as set forth in the next sentence, the Company believes, based on written
representations received by it, that for the year ended June 30, 2002, 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. Jonathan P. Rosen, on one occasion,
did not timely file a Form 4 to report the purchase of the Company's securities
in one transaction. A report was subsequently filed by Mr. Rosen to report that
transaction.
53
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 6-30-02 $ 310,284 $ 10,714
Chairman 6-30-01 310,284 10,577
6-30-00 298,924 9,934
Harry Bergman (2) 6-30-02 240,849 10,714
President--Secretary--Treasurer 6-30-01 191,415 10,577
6-30-00 187,673 9,934
Norman A. Halper (2) 6-30-02 163,278 10,311
Vice President 6-30-01 310,674 10,577
6-30-00 298,924 9,934
Robert Nimkoff 6-30-02 130,619 8,351
Vice President 6-30-01 216,384 10,577
6-30-00 135,878 8,487
Stephen L. Bernstein 6-30-02 189,245 10,714
Vice President & Corporate Counsel 6-30-01 195,528 10,577
6-30-00 223,136 9,934
Miles Berman 6-30-02 114,948 7,058
Vice President 6-30-01 110,405 6,603
6-30-00 100,966 5,911
54
(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.
(2)--As of July 1, 2001, Norman Halper resigned as President and became a Vice
President and Harry Bergman became President
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 U.S. Total Market Index and the S&P SmallCap
600 Index for the five fiscal years ended June 30, 2002. 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, Inc.,
Dow Jones US Total Market Index and Standard & Poor's Small Cap 600 Index
FISCAL YEAR ENDING JUNE 30
[GRAPHIC OMITTED]
- -------------------------------------------------- --------- -------- --------- -------- -------- ----------
1997 1998 1999 2000 2001 2002
- -------------------------------------------------- --------- -------- --------- -------- -------- ----------
The First Republic Corporation of America, Inc. 100.00 117.31 124.62 153.85 120.00 143.23
- -------------------------------------------------- --------- -------- --------- -------- -------- ----------
Dow Jones US Total Market Index 100.00 128.97 155.62 170.36 144.62 118.46
- -------------------------------------------------- --------- -------- --------- -------- -------- ----------
S&P Small Cap 600 Index 100.00 119.46 121.47 138.94 154.39 174.93
- -------------------------------------------------- --------- -------- --------- -------- -------- ----------
55
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 12, 2002:
AMOUNT AND NATURE
TITLE OF NAME AND ADDRESS OF BENEFICIAL PERCENT
CLASS OF BENEFICIAL OWNER OWNERSHIP (1) OF CLASS
----------------------------------------------------------------------------------------------
Common Mary Nimkoff 91,691 (2) 13.74%
26 Buttonball Lane
Weston, Connecticut
Common Jonathan P. Rosen 233,834 (3) 35.03
40 East 69th St.
New York, New York
Common Lynn M. Silverman 113,350 16.98
911 Park Avenue
New York, New York
Common Jane G. Weiman 113,290 16.97
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.
56
b. Security Ownership of Management
The following table sets forth, as of August 30, 2002, certain information
with respect to security holdings in the Company and Bluepoints, an 80.2%
owned subsidiary of the Company, by directors of the Company and all
officers and directors as a group:
COMMON STOCK
COMMON STOCK OF BLUEPOINTS
---------------------------------------------------------------
AMOUNT PERCENT AMOUNT PERCENT
NAME OF OFFICER BENEFICIALLY OF BENEFICIALLY OF
OR DIRECTOR OWNED (1) CLASS OWNED CLASS
---------------------------------------------------------------------------------------------
Irving S. Bobrow 200 .03% - -
Robert Nimkoff 9,075 (2) 1.36 - -
Jonathan P. Rosen 233,834 35.03 500 (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 16.97 500 4.95
All officers and directors
as a group (6 persons) 364,276 54.57 1,500 14.85
(1)--Messrs. Bobrow, Silverman and Mrs. Weiman own their shares directly.
Jonathan P. Rosen owns 230,917 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.
57
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 $9,400 per month as of June 30, 2002, 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.
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 year
ended June 30, 2002, total premiums incurred by the Company and its
subsidiaries under this arrangement amounted to approximately $732,000.
The Company received fees of $100,000 in fiscal 2002 representing charges
to the group for administrative services performed by Company personnel in
connection with the foregoing. At June 30, 2002, approximately $732,000
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.
58
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, 2002, 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 2003. Since July 1, 2001, the largest aggregate
amount of outstanding indebtedness from Larfico to Bluepoints was
$196,667.
In addition, as of June 30, 2002, Mondragon was indebted to the Company
for $15,700,000 of loans made by the Company to Mondragon on various dates
between August 28, 1991 and June 25, 2002 (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, 2001, the largest
aggregate amount of outstanding indebtedness from Mondragon to the Company
was $15,700,000. The Estate of A.A. Rosen has guaranteed the repayment of
25% of the Larfico Indebtedness and 56.8% of the Mondragon Indebtedness.
Since July 1, 2001, the largest amount of outstanding indebtedness from
Emporsa and Larfico to Mondragon was $332,000 which was the balance at
June 30, 2002. Such loans bear no interest and have no fixed maturity.
Since July 1, 2001, the largest amount of outstanding indebtedness from
Mondragon to Larfico and Emporsa was $5,490,000, which was the balance at
June 30, 2002. Said indebtedness has no fixed maturity and bears interest
at 7.3%.
As of August 31, 2002, Bluepoints was indebted to the Company for
$50,795,000 of loans made by the Company to Bluepoints at various dates
between November 8, 1985 and August 31, 2002. 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, 2001, the largest aggregate amount of
outstanding indebtedness from Bluepoints to the Company was $50,795,000. 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, 2002,
the amount of the guarantee was $8,464,256.
d. Not applicable.
59
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.............................................................18
Consolidated Balance Sheets--June 30, 2002 and 2001
Consolidated Statements of Operations and Comprehensive (Loss)
Income--Years Ended June 30, 2002, 2001 and 2000
Consolidated Statements of Retained Earnings--Years Ended
June 30, 2002, 2001 and 2000
Consolidated Statements of Cash Flows--Years Ended
June 30, 2002, 2001 and 2000
Notes to Consolidated Financial Statements
a. 2. Financial Statement Schedules:
Schedule II--Valuation and Qualifying Accounts..............................................62
Schedule III--Real Estate and Accumulated Depreciation......................................63
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 ..................................................................86
d. Other Exhibits
99. 1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002..............................................................................87
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002..............................................................................88
60
The First Republic Corporation of America and Subsidiaries
Schedule II--Valuation and Qualifying Accounts
- -------------------------------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------------------------------
Year ended June 30, 2002:
Allowance for doubtful accounts $ 245,513 $ 93,096 $ (73,001) (A) $ 265,608
================================ ========================================
Year ended June 30, 2001:
Allowance for doubtful accounts $ 30,000 $ 223,488 $ (7,975) (a) $ 245,513
================================ ========================================
Year ended June 30, 2000:
Allowance for doubtful accounts $ 85,007 $ 12,439 $ 67,446 (a) $ 30,000
================================ ========================================
(a) Amounts charged off and credits issued, net of recoveries on accounts
previously written off.
61
The First Republic Corporation of America and Subsidiaries
Schedule III--Real Estate and Accumulated Depreciation
Year ended June 30, 2002
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- --------------------------------------------------------------------------------------------------------------------------
INITIAL COST TO COST CAPITALIZED GROSS AMOUNT AT WHICH
COMPANY SUBSEQUENT TO CARRIED AT CLOSE OF PERIOD (A)
------------------------- ACQUISITION -----------------------------------
BUILDINGS ------------------- BUILDINGS
AND RELATED CARRYING AND RELATED
DESCRIPTION ENCUMBRANCES LAND ASSETS ADDITIONS COSTS LAND ASSETS TOTAL
- --------------------------------------------------------------------------------------------------------------------------
Waltham Engineering
Center, Waltham,
Massachusetts--
Seventeen multi-story $2,693,334 $188,573 $2,163,945 $ 759,244 $188,573 $2,923,189 $3,111,762
industrial buildings
Four Points Hotel--
Syracuse, Liverpool,
New York--Hotel - - 1,651,923 5,568,836 - 7,220,759 7,220,759
operations
East Newark, New Jersey--
Thirty multi-story
industrial buildings 7,355,500 605,089 4,068,693 (2,271,865) 605,089 1,796,828 2,401,917
Greensboro Plaza,
Greensboro, North
Carolina-- 3,280,124 379,947 1,696,953 1,022,443 379,947 2,719,396 3,099,343
Shopping center
Greensboro South,
Greensboro, North
Carolina-- 1,816,001 419,739 1,350,376 1,720,067 706,906 2,783,276 3,490,182
Shopping center
Nyanza Building,
Woonsocket, Rhode
Island-- - 60,000 1,288,139 (88,377) 60,000 1,199,762 1,259,762
Four story industrial
building
Richmond Shopping Center,
Richmond, Virginia--
Shopping center - 293,814 758,886 217,955 360,507 910,148 1,270,655
COLUMN F COLUMN G COLUMN H COLUMN I
- ---------------------------------------------------
LIFE ON WHICH
DEPRECIATION
IN LATEST
INCOME
ACCUMULATED DATE OF DATE STATEMENTS
DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
- ---------------------------------------------------
$ 835,812 7-01-62 10-20 yrs.
4,127,470 3-17-69 5-15 yrs.
557,769 3-11-63 21-1/3 yrs.
1,988,741 12-01-74 21-1/3 yrs.
1,813,727 12-01-74 21-1/3 yrs.
111,356 11-01-68 10-20 yrs.
827,873 3-15-76 25 yrs.
62
The First Republic Corporation of America and Subsidiaries
Schedule III--Real Estate and Accumulated Depreciation (continued)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- --------------------------------------------------------------------------------------------------------------------------
INITIAL COST TO COST CAPITALIZED GROSS AMOUNT AT WHICH
COMPANY SUBSEQUENT TO CARRIED AT CLOSE OF PERIOD (A)
------------------------- ACQUISITION -----------------------------------
BUILDINGS ------------------- BUILDINGS
AND RELATED CARRYING AND RELATED
DESCRIPTION ENCUMBRANCES LAND ASSETS ADDITIONS COSTS LAND ASSETS TOTAL
- --------------------------------------------------------------------------------------------------------------------------
First Republic Office
Park,
Liverpool, New York-- $ - $351,600 $4,124,526 $1,182,775 $351,600 $5,307,301 $5,658,901
Two, two-story office
buildings
Virginia Beach Shopping
Center,
Virginia Beach, 2,719,400 250,241 772,113 651,414 397,338 1,276,430 1,673,768
Virginia--
Shopping center
The First Republic
Building Corp.,
Liverpool, New York-- 413,779 5,681,562 - 413,779 5,681,562 6,095,341
Motor hotel
Brookhaven Shopping Center,
Brookhaven,
Pennsylvania-- 2,239,473 521,798 3,632,019 (55,134) 149,456 3,949,227 4,098,683
Shopping Center
Virginia Beach Shopping
Center-- 2,308,370 856,250 2,568,750 - 856,250 2,568,750 3,425,000
Virginia Beach, Virginia
Merrimac Street,
Newburyport,
Massachusetts--
Three story office
building & new 3,324,252 195,213 377,317 6,550,535 236,713 6,886,352 7,123,065
construction at
222 Merrimac St. (b)
--------------------------------------------------- -------------------------------------
Totals $25,736,454 $4,536,043 $30,135,202 $15,257,893 $4,706,158 $45,222,980 $49,929,138
=================================================== =====================================
COLUMN F COLUMN G COLUMN H COLUMN I
- ---------------------------------------------------
LIFE ON WHICH
DEPRECIATION
IN LATEST
INCOME
ACCUMULATED DATE OF DATE STATEMENTS
DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
- ---------------------------------------------------
$1,966,443 10-01-85 5-40 yrs.
825,147 3-30-76 25-31.5 yrs.
5,681,562 9-21-62 1 0-25 yrs.
2,886,489 12-16-76 5-33 yrs.
285,418 11-17-98 31.5 yrs.
811,497 10-25-87 10-25 yrs.
- -----------
$22,719,304
===========
(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.)
63
The First Republic Corporation of America and Subsidiaries
Schedule III--Real Estate and Accumulated Depreciation (continued)
YEAR ENDED JUNE 30,
--------------------------------------------------------------------------------------------------
2000 2001 2002
--------------------------------------------------------------------------------------------------
REAL ESTATE ACCUMULATED REAL ESTATE ACCUMULATED REAL ESTATE ACCUMULATED
OWNED DEPRECIATION OWNED DEPRECIATION OWNED DEPRECIATION
--------------------------------------------------------------------------------------------------
The following is a reconciliation
of the real estate owned and
accumulated depreciation,
beginning and end of the year:
Balance, beginning of year $ 56,228,810 $ 19,709,189 $ 50,334,210 $ 19,405,296 $50,473,264 $20,845,210
Additions 1,930,408 1,968,474 1,524,376 1,944,224 945,152 1,920,504
Deductions:
Write-offs of fully
depreciated assets
(137,584) (137,584) (295,601) (295,601) (46,410) (46,410)
Sale of assets (7,687,424) (2,134,783) (1,089,721) (208,709) (1,442,868) -
--------------------------------------------------------------------------------------------------
Balance, end of year $ 50,334,210 $ 19,405,296 $ 50,473,264 $ 20,845,210 $49,929,138 $22,719,304
==================================================================================================
Note: Includes assets used in the real estate and hotel operations.
64
LANGOMORRO, LANGOSTINERA
EL MORRO CIA. LTDA.
AND AFFILIATED COMPANIES
------------------------------------------
AUDIT REPORT ON THE CONSOLIDATED AND
COMBINED FINANCIAL STATEMENTS
For the years ended June 30, 2002 and 2001
65
[BDO STERN CIA LTDA. LETTERHEAD]
Independent Auditor's Report
- ----------------------------
To the Board of Directors
Langomorro, Langostinera El Morro Cia. Ltda. and Affiliated Companies
New York, U.S.A.
1. We have audited the accompanying consolidated and combined balance
sheets of Langomorro, Langostinera El Morro Cia. Ltda. and its
affiliated companies as of June 30, 2002 and 2001, and the related
consolidated and combined statements of operations, stockholders'
equity and cash flows for the three years ended June 30, 2002. 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.
2. We conducted our audits in accordance with auditing standards generally
accepted 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.
3. 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 its affiliated companies as of
June 30, 2002 and 2001, and the results of their operations and their
cash flows for the three years ended June 30, 2002, in conformity with
accounting principles generally accepted in the United States of
America.
/s/ BDO STERN
August 1, 2002
Guayaquil, Ecuador
66
LANGOMORRO, LANGOSTINERA EL MORRO CIA. LTDA.
AND AFFILIATED COMPANIES
CONSOLIDATED AND COMBINED BALANCE SHEETS
(EXPRESSED IN US DOLLARS)
======================================================================================================================
AS OF JUNE 30, 2002 2001
- ----------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash in bank 25,997 7,794
Accounts receivable (Note A) 22,666 31,173
Due from related parties (Note B) 586,306 879,222
Inventories (Note C) 835,404 11,362
Prepaid expenses 28,139 14,665
- ----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,498,512 944,216
Property, machinery and equipment (Note D) 12,551,953 13,018,372
Permanent investments (Note E) - 3,066
- ----------------------------------------------------------------------------------------------------------------------
14,050,465 13,965,654
=======================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Loans payable (Note F) 3,176,734 3,176,734
Accounts payable (Note G) 235,605 54,044
Due to related parties (Note H) 1,636,110 1,040,141
Accrued expenses (Note 1) 3,652,340 2,484,664
- ----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 8,700,789 6,755,583
Long-term debt (Note J) 8,928,021 8,928,021
STOCKHOLDERS' EQUITY:
Paid-in capital (Note K) 6,200,550 6,200,550
Contributions for future capital increases (Note L) 9,557,789 8,977,789
Accumulated deficit (Note M) (19,336,684) (16,896,289)
- ----------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY (3,578,345) (1,717,950)
- ----------------------------------------------------------------------------------------------------------------------
14,050,465 13,965,654
======================================================================================================================
SEE SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES AND
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS.
67
LANGOMORRO, LANGOSTINERA EL MORRO CIA. LTDA.
AND AFFILIATED COMPANIES
CONSOLIDATED AND COMBINED STATEMENTS OF LOSSES
(EXPRESSED IN US DOLLARS)
======================================================================================================================
FOR THE YEARS ENDED JUNE 30, 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------------
INCOME:
Net Sales (Note N) 244,723 261,678 1,560,569
Others, net - 23,529 13,990
- ----------------------------------------------------------------------------------------------------------------------
244,723 285,207 1,574,559
COST AND OPERATING EXPENSES:
Cost of sales (773,893) (827,652) 2,987,836
Administrative expenses (130,283) (143,323) 113,414
Financial expenses (1,165,190) (1,200,612) 1,298,153
Loss on translation - - 575,811
Others, net (615,752) - 19,220
- ----------------------------------------------------------------------------------------------------------------------
(2,685,118) (2,171,587) 4,994,434
======================================================================================================================
Net loss (2,440,395) (1,886,380) (3,419,875)
======================================================================================================================
SEE SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES AND
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS.
68
LANGOMORRO, LANGOSTINERA EL MORRO CIA. LTDA.
AND AFFILIATED COMPANIES
CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
(EXPRESSED IN US DOLLARS)
=====================================================================================================================
CONTRIBUTIONS
FOR FUTURE
PAID-IN CAPITAL ACCUMULATED
CAPITAL INCREASES DEFICIT TOTAL
- ---------------------------------------------------------------------------------------------------------------------
Balance as of June 30, 2000 6,200,550 7,902,789 (15,009,909) (906,570)
Additional contributions for future capital increases - 1,075,000 - 1,075,000
Net loss - - (1,886,380) (1,886,380)
- ---------------------------------------------------------------------------------------------------------------------
Balance as of June 30, 2001 6,200,550 8,977,789 (16,896,289) (1,717,950)
Additional contributions for future capital increases - 580,000 - 580,000
Net loss - - (2,440,395) (2,440,395)
- ---------------------------------------------------------------------------------------------------------------------
Balance as of June 30, 2002 6,200,550 9,557,789 (19,336,684) (3,578,345)
=====================================================================================================================
SEE SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES AND
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS.
69
LANGOMORRO, LANGOSTINERA EL MORRO CIA. LTDA.
AND AFFILIATED COMPANIES
STATEMENTS OF CASH FLOWS - DIRECT METHOD
(EXPRESSED IN US DOLLARS)
======================================================================================================================
FOR THE YEARS ENDED JUNE 30, 2001 2002
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers 244,723 261,678
Cash paid to suppliers and employees (947,396) (672,214)
Financial expenses (4,440) (39,874)
Other expenses and income, net (223,612) 23,529
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (930,725) (426,881)
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash received by building sales - 49,022
Purchase of property machinery and equipment (523,023) (1,012,115)
Decrease permanent investments 3,066 -
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (519,957) (963,093)
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loans received from related parties 888,885 320,352
Contributions for future capital increase 580,000 1,075,000
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,468,885 1,395,352
- ----------------------------------------------------------------------------------------------------------------------
Net increase in cash 18,203 5,378
Cash at beginning of year 7,794 2,416
- ----------------------------------------------------------------------------------------------------------------------
Cash at end of year 25,997 7,794
======================================================================================================================
SEE SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES AND
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS.
70
LANGOMORRO, LANGOSTINERA EL MORRO CIA. LTDA.
AND AFFILIATED COMPANIES
RECONCILIATION OF NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES
(EXPRESSED IN US DOLLARS)
======================================================================================================================
FOR THE YEARS ENDED JUNE 30, 2001 2002
- ----------------------------------------------------------------------------------------------------------------------
Net loss (1,886,380) (3,419,875)
ADJUSTMENTS TO RECONCILE NET LOSS TO CASH USED IN OPERATING ACTIVITIES:
Depreciation 579,372 562,091
Increase (decrease) in fixed assets, net 410,070 (21,122)
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Decrease (increase) in accounts receivable 8,507 (1,914)
Increase in inventories (824,042) -
(Increase) decrease in prepaid expenses (13,474) 1,271
Increase (decrease) in accrued expenses 1,167,676 (249,454)
Increase in accounts payable 181,561 1,168,627
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (376,710) (1,960,376)
- ----------------------------------------------------------------------------------------------------------------------
SEE SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES AND
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS.
71
LANGOMORRO, LANGOSTINERA EL MORRO CIA. LTDA.
AND AFFILIATED COMPANIES
SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
===============================================================================
BUSINESS DESCRIPTION Langomorro, Langostinera El Morro Cia. Ltda.,
was established 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 Companies maintain business with
Isca, Isla Camaronera C.A. The affiliated
companies' activities are the nursery and
grow-out, harvest and export of shrimp.
On May 23, 1991, 38% of the total shares issued
by Langomorro, Langostinera El Morro Cia. Ltda.
and Camazul Cia. Ltda. was acquired by Marchelot
S. A., a wholly-owned subsidiary of Bluepoints
Co. Inc. of Bermuda.
Starting in January 1997, the Company changed
the shrimp commercialization policy. It no
longer exports its production but sells locally
to Empacadora Promariscos, and the accounts
payable balance corresponds to an advance
received that will be settled against shrimp
delivery.
OPERATIONS Since the beginning of its operations in 1981
and up to June 30, 2002, the Company has had
recurrent losses of US$19,336,684. The causes of
these recurrent losses are principally due to
the deficiencies in the effective exploitation
and production of the 548 hectares of land
available in the ponds and grow-out pools.
Due to the negative results obtained in the
shrimp hatchery caused by the white spot virus,
in October 2000 the Company decided to stop its
operations for one year, until the test results
made by Emporsa, Empacadora y Exportadora S. A.
(a related Company) can yield the desired
results.
On October 2001, the Company began to seed
shrimp pools, applying the procedures previously
proven by Emporsa, Empacadora y Exportadora S.A.
(a related company). As of March 31, 2002 all
the ponds have been seeded.
PRINCIPLES OF CONSOLIDATION The consolidated and combined financial
AND COMBINATION statements include the accounts of Camazul Cia.
Ltda., and Isca, Isla Camaronera C.A. in
conformity with accounting principles generally
accepted in the United States of America
(USA-GAAP). Investments and all the transactions
and balances between consolidated and combined
parties have been eliminated.
72
LANGOMORRO, LANGOSTINERA EL MORRO CIA. LTDA.
AND AFFILIATED COMPANIES
SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
===============================================================================
ACCOUNTING PRINCIPLES The Company and its affiliated companies
maintain their accounting records in US Dollars,
as a result of the dollarization scheme stated
in the Accounting Ecuadorian Standards (NEC 17)
prevailing in Ecuador since March 31, 2000 (date
of transition). The effect of the dollarization
process was eliminated to translate the
financial statements using the U.S. Dollars as
the functional currency, in accordance with
accounting principles generally accepted in the
United States of America.
INVENTORIES Products in process (shrimp) are stated at the
lower price of cost or market, and include the
cost of larvae purchases plus transportation,
feed, fertilizer, fringe benefits, and
depreciation.
PROPERTY, MACHINERY AND These assets are recorded at cost. Expenditures
EQUIPMENT for maintenance and repairs are charged to
expense as incurred, whereas major improvements
are capitalized. The depreciation was calculated
using the straight-line method, based on the
following estimated useful lives of the related
assets: 40 years for pools and structures,
machinery and equipment, 20 years for boats, 10
years for furniture, laboratory equipment and
other fixed assets; and 5 years for vehicles.
PERMANENT INVESTMENTS These assets are stated at cost, adjusted for
the equity method.
TRANSLATION OF FOREIGN The financial position, the results of
CURRENCY AND EXCHANGE RATES operations and the cash flows of the Company
were translated into U.S. Dollars in accordance
with accounting principles generally accepted in
the United States of America.
In conformity with these accounting principles,
inventories (and their transfer to cost of
sales), property, machinery and equipment (and
their related accumulated depreciation and
depreciation expenses), permanent investments
and stockholders' equity accounts, were
translated at the exchange rates in effect when
the assets were acquired or when the assets were
originally recorded.
73
LANGOMORRO, LANGOSTINERA EL MORRO CIA. LTDA.
AND AFFILIATED COMPANIES
SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
===============================================================================
MANAGEMENT ESTIMATES The accounting policies followed by the Company
to prepare the financial statements are in
conformity with the accounting principles
generally accepted in the United States of
America, which require that management make
certain estimates and use certain assumptions to
determine the valuation of some of the items
included in the financial statements and make
the required disclosures therein. While the
estimates and assumptions used may differ from
their final effect, management believes that
they were adequate, based on the information
available as of the balance sheets date. Actual
results could differ from those estimates.
- --------------------------------------------------------------------------------
74
LANGOMORRO, LANGOSTINERA EL MORRO CIA. LTDA.
AND AFFILIATED COMPANIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
========================================================================================================================
A. ACCOUNTS RECEIVABLE A summary of this account follows:
June 30, 2002 2001
------------------------------------------------------------------------------------------
Insurance claims 15,146 15,146
Tax withholdings 5,957 3,945
Employees 1,396 406
Clients - 892
Advances to contractors - 3,669
Other 167 7,115
------------------------------------------------------------------------------------------
22,666 31,173
===========================================================================================
B. DUE FROM RELATED A summary of this account follows:
PARTIES
June 30, 2002 2001
------------------------------------------------------------------------------------------
Larfico, Larvas del Pacifico S.A. 276,848 702,648
Comercorp S.A. 212,541 106,624
Ing. Carlos Perez 50,986 39,896
Inmobiliaria Maria Luciana S.A. 25,855 19,506
Camarecsa, Camarones Ecuatorianos S.A. 11,534 2,210
Comercial Inmobiliaria Golconsa S.A. 6,931 6,931
Bunsen S.A. 892 892
Other companies, individually immaterial 719 515
------------------------------------------------------------------------------------------
586,306 879,222
==========================================================================================
The accounts with related parties correspond to loans granted by the Company,
non-interest bearing and without fixed maturity.
75
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, 2002 2001
--------------------------------------------------------------------------------------
Products in process 822,295 -
Materials and supplies 13,109 11,362
--------------------------------------------------------------------------------------
835,404 11,362
--------------------------------------------------------------------------------------
D. PROPERTY, MACHINERY A summary of this account follows:
AND EQUIPMENT
June 30, 2002 2001
--------------------------------------------------------------------------------------
AT ACQUISITION COST:
Recirculation of water 7,404,610 7,404,610
Pools and reservoirs 4,487,693 4,507,909
Machinery and equipment 952,856 934,432
Wall repairs 776,928 776,928
Pumping station 756,616 734,442
Fishing boats 414,745 410,549
Civil works 367,066 367,066
Sluices for channels 252,971 289,866
Construction in progress 94,247 32,450
Radio equipment and other 89,163 88,432
Vehicles 83,328 212,977
Housing for personnel 82,310 82,310
Furniture and office equipment 58,714 58,785
Bridge and wharf 30,094 26,434
Computer equipment 9,118 8,916
Laboratory equipment 5,027 3,844
Land 4,184 4,184
Tools and fishing tackle 3,634 2,449
--------------------------------------------------------------------------------------
15,873,304 15,946,583
Less accumulated depreciation 3,321,351 2,928,211
--------------------------------------------------------------------------------------
12,551,953 13,018,372
=======================================================================================
76
LANGOMORRO, LANGOSTINERA EL MORRO CIA. LTDA.
AND AFFILIATED COMPANIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
======================================================================================================================
E. PERMANENT INVESTMENTS As of June 30, 2002 correspond to investments in Larfico, Larvas del Pacifico S.A.,
which represents a 0.16% participation. As of June 30, 2002, the Company recorded the
transfer of 3.877 shares of Larfico, Larvas del Pacifico S.A., in the name of
Inmobiliaria Maria Luciana S. A. The Company does not have the supporting documentation
for this transaction.
F. LOANS PAYABLE As of June 30, 2002 and 2001, correspond to loans granted by Marchelot S. A. in December
23, 1998, and yield an 7.33% annual interest rate. These obligations have the personal
warranty of the Company's President.
As of June 30, 2002 the Company had not subscribed the loan contract related to the
proportional part of the loan received from Overseas Private Investment Corporation
(OPIC), which was partially assigned to the Langomorro Companies Group.
G. ACCOUNTS PAYABLE A summary of this account follows:
June 30, 2002 2001
--------------------------------------------------------------------------------------
SUPPLIERS:
Bank overdraft 66,624 13,053
Promariscos S.A.(1) 27,589 -
Insurance payable 25,468 9,174
Segrio Seguridad S.A. 16,711 -
Liris S.A. 6,032 6,033
Gerenfoque S.A. 6,720 5,040
Trainers S.A. 102 5,205
Others 18,195 4,973
--------------------------------------------------------------------------------------
167,441 43,478
Tax payable with holdings 68,164 10,566
--------------------------------------------------------------------------------------
235,605 54,044
--------------------------------------------------------------------------------------
(1) Corresponds to an advance received from Empacadora Promariscos, which will be
settled with future shrimp sales.
77
LANGOMORRO, LANGOSTINERA EL MORRO CIA. LTDA.
AND AFFILIATED COMPANIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
======================================================================================================================
H. DUE TO RELATED PARTIES A summary of this account follows:
June 30, 2002 2001
--------------------------------------------------------------------------------------
Emporsa, Empacadora y Exportadora S.A. 1,294,008 691,296
Bluepoints Co. Inc.(1) 306,937 306,937
Marchelot S.A. 34,865 41,608
Others 300 300
--------------------------------------------------------------------------------------
1,636,110 1,040,141
--------------------------------------------------------------------------------------
The obligations with related companies correspond to loans granted by these companies,
non-interest bearing and without fixed maturity.
(1) As of June 30, 2002 and 2001, this amount includes 295,814, that corresponds to
advances for future of shrimp exports.
I. ACCRUED EXPENSES A summary of this account follows:
June 30, 2002 2001
--------------------------------------------------------------------------------------
Personnel benefits 18,933 12,006
INTEREST PAYABLE:
Bluepoints Co. Inc. 2,645,459 1,763,914
Marchelot S.A. 834,395 598,307
Statecourt Enterprises 153,553 110,437
--------------------------------------------------------------------------------------
3,652,340 2,484,664
======================================================================================
78
LANGOMORRO, LANGOSTINERA EL MORRO CIA. LTDA.
AND AFFILIATED COMPANIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
======================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------
J. LONG-TERM DEBT A summary of this account follows:
June 30, 2002 2001
--------------------------------------------------------------------------------------
Statecourt Enterprise 405,000 405,000
BLUEPOINTS CO. INC.:
Langomorro, Langostinera El Morro Cia. Ltda. 6,214,000 6,214,000
Isca, Isla Camaronera C.A. 1,451,666 1,451,666
Camazul Cia. Ltda. 550,000 550,000
--------------------------------------------------------------------------------------
8,620,666 8,620,666
Marchelot S.A. 307,355 307,355
--------------------------------------------------------------------------------------
8,928,021 8,928,021
--------------------------------------------------------------------------------------
The obligations with Bluepoints Co. Inc. started in June 1998, yields an annual interest
rate of 9.25%, and does not have a due date.
K. PAID-IN CAPITAL A summary of this account follows:
June 30, 2002 2001
--------------------------------------------------------------------------------------
Langomorro, Langostinera
El Morro Cia. Ltda. 4,887,880 4,887,880
Isca, Isla Camaronera C.A. 1,312,670 1,312,670
--------------------------------------------------------------------------------------
6,200,550 6,200,550
--------------------------------------------------------------------------------------
As of July 1, 1997 the paid-in capital was constituted with the contributions of
Langomorro, Langostinera El Morro Cia. Ltda. of 171,573 and Isca, Isla Camaronera C.A.
of 869,972, corresponding to 10,000 and 73,118 ordinary and nominative shares,
respectively.
79
LANGOMORRO, LANGOSTINERA EL MORRO CIA. LTDA.
AND AFFILIATED COMPANIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
======================================================================================================================
On August 31, 1997, the paid-in capital was increased by 5,159,005, corresponding
4,716,307 to Langomorro, Langostinera El Morro Cia. Ltda. and 442,698 to Isca, Isla
Camaronera C.A.. The increase was made through the capitalization of contributions
for future capital increases.
On December 20, 2001, the Company changed the denomination of its shares from Sucres to
US Dollars according to the Superintendent of Companies Rules.
L. CONTRIBUTIONS FOR FUTURE A summary of this account follows:
CAPITAL INCREASES
June 30, 2002 2001
--------------------------------------------------------------------------------------
Beginning balance 8,877,789 7,902,789
Additions 580,000 1,075,000
--------------------------------------------------------------------------------------
Ending balance 9,577,789 8,977,789
======================================================================================
M. ACCUMULATED DEFICIT As of June 30, 2002 and 2001 the Company maintained an accumulated deficit of 19,336,684
and 16,896,289 respectively. In addition the stockholders' equity is negative by
3,578,345 in 2002 and 1,717,950 in 2001; and had a negative working capital of 7,202,277
in 2002 and 5,811,367 in 2001. The origins of these recurrent losses are basically the
ineffective exploitation and production of the 716 hectares of land available. The
company is using just 548 hectares for ponds and grow-out pools, 71 hectares are used as
service areas and 97 hectares are unused. These factors are indicative that the Company
and its subsidiaries may be unable to continue as a going concern. However, the
continuity of the Companies as a going concern will depend on their ability to obtain
additional financing funds as well as an increase of the profitable operations.
The accompanying financial statements have been prepared assuming that the Company will
continue as a going concern. The financial statements do not include any adjustments
related to the recoverability and classification of recorded assets amounts or the
amounts and classification of liabilities which could be required if the Company cannot
continue as a going concern.
80
LANGOMORRO, LANGOSTINERA EL MORRO CIA. LTDA.
AND AFFILIATED COMPANIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
======================================================================================================================
"The Company intend to continue to fund the operations and capital improvements of both
operations including the importation of larve from Panama, screening our ponds and our
method of growing out larger juvenile animals that has proven to be a successful method
of combating white spot syndrome virus. The implementation of these procedures along
with our tolerine product and our patented ozone operation will give us what we believe
to be not only a very profitable shrimp farming operation, but also a system and product
that we can successfully market to other shrimp producers".
According to article 198 of the Ecuadorian Companies' Law, when losses reach 50% or more
of the paid-in capital and all the reserves of each individual Company (Langomorro,
Langostinera El Morro Cia. Ltda., Isca, Isla Camaronera C.A. and Camazul Cia. Ltda.),
the companies must be placed into liquidation if the stockholders do not increase
capital. Management of the Company estimates the causes for liquidation will be solved
and overcome, and the companies will continue operating normally.
As of June 30, 2002 and 2001, the Company had tax loss carryforwards. However, ii had
not determined the exact amount of these losses and had not established the amount of
tax loss carryforwards that will expire if they are not used in fiscal 2002. The losses
may be deducted in the 5 years following that in which they originated, without
exceeding 25% of each year's taxable income.
N. NET SALES The volumes of shrimp sold by the individual companies were as follows:
Value
--------------------------------------
Volume (pounds) Years ended on June 30
-------------------------- --------------------------
Company 2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------------------------
Lagnomorro, Langostinera El Morro Cia. Ltda.
and Camazul Cia Ltda. 80.303 46.733 209,033 185,051
Isca, Isla Camaronera C.A. 15.670 19.800 35,690 76,627
- ------------------------------------------------------------------------------------------------------------------------
Total 95.973 66.533 244,723 261,678
========================================================================================================================
81
LANGOMORRO, LANGOSTINERA EL MORRO CIA. LTDA.
AND AFFILIATED COMPANIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
======================================================================================================================
As of June 2002 and 2001 the shrimp sold by Langomorro, Langostinera El Morro Cia.
Ltda. were produced using 393 hectares, resulting in a productivity of 204 and 119
pounds per hectare, respectively, in those years.
The shrimp sold by Isca, Isla Camaronera C.A. were produced using 149 hectares,
resulting in a productivity of 105 and 133 pounds per hectare, respectively, in those
years.
O. RELATED COMPANIES' The Company has bought 200,262 and 72,206 larvae from Larfico, Larvas del Pacifico S. A.
TRANSACTION during the years ended on June 30, 2002 and 2001, respectively.
P. INCOME TAX RETURN The Companies have been reviewed, without important objections from the tax authorities,
as shown below:
Companies Period reviewed
--------------------------------------------------------------------------------------
Langomorro, Langostinera El Morro Cia. Ltda. 1996
Isca, Isla Camaronera C.A. 1996
Camazul Cia. Ltda. 1996
Q. RECLASSIFICATION The amounts as of June 30, 2Q01 were reclassified to be in accordance with the
presentation and disclosures of the financial statements as of June 30, 2002, and are
shown comparatively.
R. SUBSEQUENT EVENTS Between June 30, 2002 and the auditor's report date (August 1, 2002) there have not been
any subsequent events which the Company's Management considers may have an important
effect on the accompanying financial statements.
- ----------------------------------------------------------------------------------------------------------------------
82
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/ Jonathan P. Rosen
----------------------------------------
Jonathan P. Rosen, 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 8, 2002
- -------------------------------------------------- --------------------
Harry Bergman, Director
/s/ Irving S. Bobrow Date October 8, 2002
- -------------------------------------------------- --------------------
Irving S. Bobrow, Director
/s/ Norman A. Halper Date October 8, 2002
- -------------------------------------------------- --------------------
Norman A. Halper, Director
/s/ Robert Nimkoff Date October 8, 2002
- -------------------------------------------------- --------------------
Robert Nimkoff, Director
/s/ Miriam N. Rosen Date October 8, 2002
- -------------------------------------------------- --------------------
Miriam N. Rosen, Director
/s/ Jonathan P. Rosen Date October 8, 2002
- -------------------------------------------------- --------------------
Jonathan P. Rosen, Director
83
I, Jonathan P. Rosen, certify that:
1. I have reviewed this annual report on Form 10-K of The First Republic
Corporation of America;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this annual report.
Date: October 8, 2002
/s/ Jonathan P. Rosen
--------------------------------------------
Jonathan P. Rosen
Chief Executive and Chief Operating Officer
84
I, Harry Bergman, certify that:
1. I have reviewed this annual report on Form 10-K of The First Republic
Corporation of America;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this annual report.
Date: October 8, 2002
/s/ Harry Bergman
--------------------------------------------
Harry Bergman
Chief Financial and Chief Accounting Officer
85