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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, 2003
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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. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes No X
--- ---
As of September 23, 2003, 666,616 common shares were outstanding, and the
aggregate market value of common shares held by nonaffiliates of Registrant was
approximately $1,672,000 (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
PART I
Item 1. Business........................................................... 1
Item 2. Properties......................................................... 5
Item 3. Legal Proceedings.................................................. 8
Item 4. Submission of Matters to a Vote of Security Holders................ 8
PART II
Item 5. Market for the Registrant's Common Stock and Related
Security Holder Matters............................................ 9
Item 6. Selected Financial Data............................................10
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................11
Item 7a. Quantitative and Qualitative Disclosures about Market Risks........18
Item 8. Financial Statements and Supplementary Data........................19
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure...........................................55
Item 9a. Controls and Procedures............................................55
PART III
Item 10. Directors and Executive Officers of the Registrant.................56
Item 11. Executive Compensation.............................................58
Item 12. Security Ownership of Certain Beneficial Owners and Management.....60
Item 13. Certain Relationships and Related Transactions.....................62
Item 14. Principal Accountant Fees and Services.............................64
PART IV
Item 15. Exhibits, Financial Statements, Schedules and Reports on Form 8-K..65
Signatures ...................................................................92
PART I
ITEM 1. BUSINESS
a. General Development of Business
The First Republic Corporation of America (the "Company") was incorporated
in the State of Delaware in February 1961, and is presently engaged,
either directly or through its subsidiaries, in the real estate, hotel,
seafood, and textile businesses. See Item 1(c) for a description of the
businesses in which the Company and its subsidiaries are engaged.
On October 31, 2002, the Company paid approximately $960,000 for a parcel
of land adjacent to our Greensboro South Shopping Center. This parcel,
combined with approximately 3/4 of an acre of land from our Shopping
Center, was net leased for a minimum of 25 years to a developer at an
annual rent of $127,000. The developer in turn has a long term lease with
a major drug store chain. Rent commenced September 1, 2003.
On November 14, 2002, the Company made a final payment of $1,175,000 for a
total investment of $1,500,000 for a 50% interest in a joint venture that
is building a store for a major supermarket chain in Worcester,
Massachusetts. The Company and its joint venture partner have also
guaranteed a construction loan obtained by the joint venture which
provides for a maximum borrowing of $8,450,000. In connection with this
investment, the Company is entitled to receive a 12% per annum
preferential return on its investment, payable quarterly when the tenant
begins to pay rent. The supermarket is scheduled to open by March 31,
2004.
The Company's credit agreement with its principal lender had provided for
a $9,000,000 term loan with an interest rate of 7.5% per annum 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 were, and remain, collateralized by a mortgage on the East
Newark Industrial Center. The term loan required amortization payments of
$359,000 per annum. Both loans matured on October 21, 2002 and were
extended to January 13, 2003 when the Company and its lender further
extended the term loan until October 21, 2007 with the same amortization
schedule and an interest rate of LIBOR plus 1.75%. At the same time, the
Company entered into an interest rate swap agreement which fixed the
all-in interest rate on the term loan at 5.53% per annum. The revolving
line of credit of $3,000,000 was extended until October 21, 2005 with the
same interest rate options as the old loan.
In July 2002, the Company's 80.2% owned subsidiary, Bluepoints Company,
Inc. ("Bluepoints") ceased 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. The contract is contingent upon the ability of the purchaser
to obtain certain regulatory approvals by December 1, 2003. In connection
with this contract, Bluepoints has received a $60,000 nonrefundable
deposit.
1
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,
2003 are set forth in Note 2 (Industry Segments and Foreign Operations) of
the Notes to Consolidated Financial Statements, which are incorporated
herein by reference to Item 8. hereof.
c. Narrative Description of Business
Real Estate
The Company owns various loft buildings, office buildings, industrial
buildings, shopping centers, and residential and other properties,
situated along the East Coast of the United States in Massachusetts, Rhode
Island, New York, New Jersey, Pennsylvania, Virginia, North Carolina and
Florida. A general description of these properties is provided in Item 2.
below.
Real estate revenues accounted for approximately 29%, 24% and 23% of
consolidated revenues from operations for the fiscal years ended June 30,
2003, 2002 and 2001, 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 the area in terms of
revenues.
Hotel revenues accounted for approximately 13%, 10% and 9% of consolidated
revenues from operations for the fiscal years ended June 30, 2003, 2002
and 2001, respectively.
Seafood
Bluepoints held 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 ceasing clamming activities at this site in
July 2002, Bluepoints harvested hard-shell clams on this property. In
December 2002, Bluepoints donated approximately 11,500 acres with a cost
basis of approximately $458,000 to the Nature Conservancy Inc., a
non-profit corporation.
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
2
its hard-shell clam operation. These factors ultimately led to Bluepoints'
decision to cease its hard shell clam operations in July 2002. These
operations have not been a significant component of the Company's seafood
operations for the past several years.
In September 1998, Bluepoints began selling imported products, principally
lobster tails from Honduras and Oman. Sales of the foregoing products were
approximately $10,488,000 and $13,152,000 and losses were approximately
$224,000 and $1,000 for the fiscal years ended June 30, 2003 and 2002,
respectively. Bluepoints also had 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 $7,043,000 and $8,637,000 and operating
(losses) profits of approximately $(48,000) and $34,000 for the fiscal
years ended June 30, 2003 and 2002, respectively. In June 2003, Bluepoints
terminated this joint venture relationship.
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 $393,000 and
$550,000 for the fiscal years ended June 30, 2003 and 2002, respectively.
Bluepoints, through a foreign subsidiary, also 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
$1,070,000 and there was a loss of $548,000. This compares to sales of
approximately $4,952,000 and a loss of $1,510,000 from operations during
the prior year.
Seafood revenues accounted for approximately 40%, 48% and 49% of
consolidated revenues from operations for the fiscal years ended June 30,
2003, 2002 and 2001, 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, 2003, Hanora purchased approximately
$193,000 of additional equipment. The backlog of yarn orders on August 31,
2003 was $7,400,000 as compared to $7,054,000 on August 31, 2002.
Approximately 80% of the current backlog is expected to be shipped in the
fiscal year ending June 30, 2004. Three customers accounted for
approximately 35% of Hanora's total sales during the 2003 fiscal year. The
loss of any one of these customers would not have a material adverse
effect on the Company and its subsidiaries taken as a whole.
3
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%, 17% and 18% of
consolidated revenues from operations for the fiscal years ended June 30,
2003, 2002 and 2001, respectively.
4
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; 78% rented
Waltham Engineering Center 17 multi-story industrial buildings;
Waltham, Massachusetts in excess of 380,000 rentable square feet;
parking facilities; 99% rented.
East Newark Industrial Center 30 multi-story industrial buildings; in
East Newark, New Jersey excess of 1,000,000 rentable square feet;
parking facilities; 72% 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 11.2 acres of land and
Greensboro, North Carolina 134,250 square feet of space in buildings
located thereon; 93% rented.
Land Approximately 1.4 acres of land
Greensboro, North Carolina net leased for a minimum of 25 years.
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.
5
LOCATION GENERAL CHARACTER (1)
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Sunscape Apartments 167-unit residential garden apartments
Orlando, Florida located on approximately 12 acres of
land; 93% 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; 67% 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
Thruway and Electronics Parkway center; indoor pool; operated under a
Liverpool, New York Holiday Inn franchise agreement.
SEAFOOD SEGMENT (2)
West Sayville, New York Approximately 1,500 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;
presently vacant (3).
Mattituck, New York Approximately one acre of land on Long
Island; previously used as a grow out
pond for the clam hatchery; presently
rented.
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.
6
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
Pageland, South Carolina Approximately 10 acres of land and
36,125 square foot building located
thereon; pre-viously used as bulking and
twisting plant, warehouse and office,
presently being rented.
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 $9,700
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 ceased in July 2002 and the five acres
of land and the two buildings are presently subject to a sales contract entered
into by Bluepoints to sell the land and building. See item 1a.
7
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
8
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 $45 per share in September 2001 to a high of $50 in
April 2003.
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 23, 2003, there were 253 holders of record of the
Company's common stock.
c. No dividends have been paid during the two years ended June 30, 2003. The
Company has no intention of paying dividends in the foreseeable future.
d. The Company did not sell any securities during the past year.
9
ITEM 6. SELECTED FINANCIAL DATA
YEAR ENDED JUNE 30,
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2003 2002 2001 2000 1999
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(In thousands, except per share amounts)
Revenues $ 51,187 $ 61,799 $ 70,106 $ 64,969 $ 51,489
=====================================================================
Gain on sale of real estate held for
rental NONE $ 178 $ 18,630 $ 81 NONE
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Loss on sale of property $ (300) $ (69) NONE NONE NONE
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(Loss) income before interest and
income taxes $ (591) $ 226 $ 17,828 $ 3,072 $ 2,792
=====================================================================
Interest costs $ 2,033 $ 2,146 $ 2,413 $ 3,205 $ 2,867
=====================================================================
Net (loss) income $ (2,905) $ (1,946) $ 14,708 $ (276) $ (124)
=====================================================================
Net (loss) income per share of common
stock--basic and diluted $ (4.35) $ (2.91) $ 21.98 $ (0.41) $ (0.19)
=====================================================================
Total assets $100,374 $ 98,982 $104,632 $ 99,729 $ 96,556
=====================================================================
Long-term debt $ 22,428 $ 24,044 $ 25,721 $ 27,318 $ 29,818
=====================================================================
Stockholders' equity $ 63,112 $ 66,801 $ 69,145 $ 54,498 $ 54,880
=====================================================================
Cash dividends per common share NONE NONE NONE NONE NONE
=====================================================================
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Working capital at June 30, 2003 decreased by approximately $6,306,000 to
$9,828,000.
Net cash provided by operating activities was approximately $683,000 during the
2003 fiscal year. Net cash provided by financing activities was approximately
$3,839,000. Net cash of approximately $5,744,000 was used in investing
activities. The Company had 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 matured on October 21, 2002 and
were extended to January 13, 2003 when the Company and its lender further
extended the term loan until October 21, 2007 with the same amortization
schedule and an interest rate of LIBOR plus 1.75%. At the same time, the Company
entered into an interest rate swap agreement which fixed the all-in interest
rate on the term loan at 5.53% per annum. The revolving line of credit of
$3,000,000 was extended until October 21, 2005 with the same interest rate
options as the old loan. At June 30, 2003, the term loan balance was $7,126,517
and $2,750,000 was outstanding on the revolving line of credit.
On October 31, 2002, the Company paid approximately $960,000 for a parcel of
land adjacent to our Greensboro South Shopping Center. This parcel, combined
with approximately 3/4 of an acre of land from our shopping center, was net
leased for a primary term of 25 years to a developer at an annual rent of
$127,000. The developer in turn has a long term lease with a major drug store
chain. Rent commenced September 1, 2003.
On November 14, 2002, the Company made a final payment of $1,175,000 for a total
investment of $1,500,000 for a 50% interest in a joint venture that is building
a store for a major supermarket chain in Worcester, Massachusetts. The Company
and its joint venture partner have also guaranteed a construction loan obtained
by the joint venture which provides for a maximum borrowing of $8,450,000. In
connection with this investment, the Company is entitled to receive a 12% per
annum preferential return on its investment, payable quarterly when the tenant
begins to pay rent. The supermarket is scheduled to open by March 31, 2004.
During fiscal 2003, the Company borrowed $2,500,000 from United Realty
Management Company, a related party, to finance the importation and sale of
lobster tails. The loans bear interest at prime +1% and have no fixed repayment
terms or maturity dates.
11
During the three years ended June 30, 2003, the Company incurred capital
expenditures of approximately $7,270,000. In addition, approximately $1,136,000
was expended for tenant improvements during this three year period. At June 30,
2003 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 $1,054,000 in fiscal 2003 as compared to $927,000 in fiscal 2002.
During fiscal 2002, the Company's shrimp farms introduced "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. This belief is based upon preliminary results from polycultured
pond harvests, cost reductions that have been implemented, the efforts to
increase production discussed above, and the marketing of the Mariculture System
to other shrimp farmers.
RESULTS OF OPERATIONS
Real Estate
In fiscal 2003, the Company's real estate operating profits decreased $471,000
on a decrease in revenues of $159,000. The decrease in profits was due to
increased snow removal costs of $219,000 and increased utility costs of $448,000
as a result of the harsh winter and numerous snowstorms. Repairs and maintenance
were reduced at our East Newark ($74,000) and Waltham ($169,000) buildings.
In fiscal 2002, 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 39 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.
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 39 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.
12
Hotel
In fiscal 2003, revenues increased $326,000 and profits increased $142,000 as a
result of the increased revenues. Due to the unusually cold winter, fuel and
utility costs increased $153,000.
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.
Seafood
In fiscal 2003, overall revenues for the seafood division decreased $9,092,000
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 2003 were $5,074,000 as compared to losses of $4,714,000
in fiscal 2002. Revenues decreased at the Ecuadorian shrimp operations by
$186,000 and losses from operations were $3,280,000 due to continued poor shrimp
yields caused by the devastating outbreak four 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 last year combined with the
procedures introduced in prior years 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 $548,000 in fiscal 2003 as
compared to a loss of $1,510,000 in fiscal 2002 on a $4,251,000 decrease in
revenues. Bluepoints Long Island operations (consisting of the sale of imported
products and a joint sales venture at the Fulton Fish Market) had a loss of
$1,133,000 as compared to a loss of $546,000 in the prior year and revenues were
$18,686,000 as compared to 2002 revenues of $23,341,000. 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 Company also donated its underwater clam beds, which had a
cost basis of approximately $458,000 at the date of contribution in December
2002, to the Nature Conservancy Inc., a non-profit corporation. In June 2003,
the Company also terminated its joint sales venture at the Fulton Fish Market.
In fiscal 2002, 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 decimated the Ecuadorian shrimp industry. The Company continued its efforts
started in prior years to combat the virus, with the introduction of Polyculture
technology combined
13
with the procedures introduced in prior years and the continued use of its
patented Mariculture system. 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 fiscal 2001 and revenues
decreased $1,654,000. The domestic seafood industry continued 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
Textile
In fiscal 2003, revenues for the textile division decreased $1,572,000 over the
prior year and operating loss increased $144,000. Hanora Spinning's operating
profit decreased $255,000 to $415,000 and revenues decreased $1,530,000. Hanora
South and J&M Dyers ("J&M") incurred a combined loss of $261,000 as compared to
the prior years' loss of $650,000. Losses decreased as a result of costs
incurred last year in closing down our yarn spinning plant in Lake City, South
Carolina. Whitlock Combing Co. Inc. ("Whitlock") incurred a loss of $404,000
including $300,000 on the loss on sale of its land and building in April 2003 as
compared to a loss of $126,000 last year. During the three years ended June 30,
2003, the Company purchased approximately $1,006,000 of machinery and equipment
for the textile operations.
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 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, 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 in fiscal 2001.
14
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 a loss of $416,000 in
fiscal 2000 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 in fiscal
2000.
Corporate/Other
Corporate interest and expenses for the last three years was $3,972,000,
$4,324,000 and $4,492,000, respectively. Corporate and other revenues for the
last three years was $122,000, $236,000 and $387,000, 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 2003
decreased due to a decrease in salaries and fringe costs of $178,000, a
reduction in interest expense of $74,000 and a reduction in professional fees of
$99,000.
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.
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 accounting principles generally accepted
in the United States ("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.
15
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, 2003.
Valuation of Investments in and Advances to Affiliated Entities
On a quarterly basis, the Company reviews the carrying value of the investments
in and 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,
2003.
RECENT ACCOUNTING PRONOUNCEMENTS
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. The adoption of Statement No. 144 did not have a material effect on the
financial position or results of operations of the Company.
In April 2002, the FASB issued Statement No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This statement eliminates the requirement to report gains and
losses from extinguishment of debt as extraordinary unless they meet the
criteria of APB Opinion 30. Statement No. 145 also requires sale-leaseback
accounting for certain lease modifications that have economic effects that are
similar to sale-leaseback transactions. The changes related to lease accounting
are effective for transactions occurring after May 15, 2002 and the changes
related to debt extinguishment are effective for fiscal years beginning after
May 15, 2002. The adoption of Statement No. 145 did not have a material effect
on the financial position or results of operations of the Company.
16
In June 2002, the FASB issued Statement No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. Statement No. 146 nullifies EITF Issue 94-3
and requires that a liability for a cost associated with an exit of disposal
activity be recognized when the liability is incurred. The statement also
establishes that fair value is the objective for initial measurement of the
liability. Statement No. 146 is effective for exit of disposal activities that
are initiated after December 31, 2002. The adoption of Statement No. 146 did not
have a material effect on the financial position or results of operations of the
Company.
In November 2002, the FASB issued FASB Interpretation No 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others ("FIN 45"). FIN 45 requires that upon
issuance of a guaranty a guarantor must recognize a liability for the fair value
of an obligation assumed under a guarantee. FIN 45 also requires additional
disclosures by a guarantor in its interim and annual financial statements about
the obligations associated with guarantees issued. The recognition provisions of
FIN 45 are effective for guarantees issued or modified after December 31, 2002.
The disclosure requirements are effective for financial statements of interim or
annual periods ending after December 15, 2002. The adoption of FIN 45 did not
have a material effect on the financial position or results of operations of the
Company.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities ("FIN 46"). In general, a variable interest entity is
a corporation, partnership, trust, or any other legal structure used for
business purposes that either (a) does not have equity investors with voting
rights or (b) has equity investors that do not provide sufficient financial
resources for the entity to support its activities. A variable interest entity
often holds financial assets, including loans or receivables, real estate or
other property. A variable interest entity may be essentially passive or it may
engage in activities on behalf of another company. Prior to FIN 46, a company
generally has included another entity in its consolidated financial statements
only if it controlled the entity through voting interests. FIN 46 changes that
by requiring a variable interest entity to be consolidated by a company if that
company is subject to a majority of the risk of loss from the variable interest
entity's activities or is entitled to receive a majority of the entity's
residual returns or both. FIN 46's consolidation requirements apply immediately
to variable interest entities created or acquired after January 31, 2003. The
consolidation requirements apply to older entities in the first fiscal year or
interim period beginning after June 15, 2003. The Company does not anticipate
that the adoption of FIN 46 will have a material effect on its financial
position or results of operations.
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-
17
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISKS
The Company currently has a variable rate term loan and a variable rate
revolving line of credit which had outstanding balances of approximately
$7,100,000 and $2,750,000, respectively, at June 30, 2003. The term loan bears
interest at the rate of LIBOR plus 1.75% and the revolving line of credit bears
interest at a rate of LIBOR plus 2.0%.
With respect to the term loan, the Company has managed its exposure to changes
in LIBOR through the use of an interest rate swap agreement which effectively
fixes the interest rate on the term loan at 5.53%.
With respect to the revolving line of credit, a 1% increase in LIBOR would
result in an increase in annual interest expense of approximately $27,500.
18
ITEM 8. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
19
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,
2003 and 2002, 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, 2003. Our audits also included the financial
statement schedules listed in the accompanying index to financial statements
(Item 15.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 21% in 2003, 22% in 2002 and 24% in
2001, and total revenues constituting 17% in 2003, 20% in 2002, and 23% in 2001,
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.
20
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, 2003 and 2002, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended June 30, 2003, 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
October 2, 2003
21
[LETTERHEAD OF BDO]
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 subsidiary of Bluepoints Co. Inc. of Bermuda), and its
subsidiaries as of June 30, 2003 and 2002, and the related consolidated
statements of operations, stockholders' equity and cash flows for the
years then ended. 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
its Subsidiaries as of June 30, 2003 and 2002, and the results of their
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
/s/ BDO STERN
August 6, 2003
Guayaquil, Ecuador
22
[LETTERHEAD OF HOYMAN, DOBSON & COMPANY, P.A.]
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Bluepoints International Fisheries, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Bluepoints
International Fisheries, Inc. (a Florida corporation) and Subsidiaries as of
June 30, 2003, 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, 2003 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.
August 5, 2003
23
LETTERHEAD OF DB&B
INDEPENDENT AUDITORS' REPORT
================================================================================
BOARD OF DIRECTORS
FIRST REPUBLIC CORPORATION
OF AMERICA, HOLIDAY INN
We have audited the accompanying balance sheets of FIRST REPUBLIC CORPORATION OF
AMERICA, HOLIDAY INN as of June 30, 2003 and 2002, and the related statements of
income and division control and cash flows for the years ended June 30, 2003,
2002 and 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with 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 audits provide a
reasonable basis for our opinion.
The Holiday Inn is owned and operated by First Republic Corporation of America
and its affiliated company, First Republic Building Corporation. The accounting
records maintained in Syracuse relate only to the transactions incurred in the
daily operation of the Hotel. Transactions involving debt financing, tax escrow
payments, corporate income taxes and property accounts are not reflected on the
Hotel's books but are the accounting responsibility of First Republic and its
affiliate. These financial statements are issued for inclusion in the financial
statements of First Republic Corporation of America and should not be considered
separately in determining the financial position and results of operations of
the Holiday Inn.
24
================================================================================
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, 2003 and 2002 and the
results of its operations and its cash flows for the years ended June 30, 2003,
2002 and 2001 in conformity with accounting principles generally accepted in the
United States of America.
/s/ DERMODY, BURKE & BROWN
Certified Public Accountants, PLLC
Syracuse, NY
August 1, 2003
25
The First Republic Corporation of America and Subsidiaries
Consolidated Balance Sheets
JUNE 30,
2003 2002
------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 2,178,558 $ 3,401,100
Accounts and rents receivable, net of allowances of $36,740
and $265,608 4,809,818 5,525,489
Mortgage receivable--current portion (Note 11) 14,485 17,530
Other receivables including $72,500 and $128,233 due from related
party (Note 9) 4,986,775 3,606,661
Inventories (Note 1) 7,489,233 7,405,726
Prepaid expenses and other assets 2,229,253 2,290,835
------------------------------------
Total current assets 21,708,122 22,247,341
Real estate held for rental and hotel, at cost (Note 4):
Land 5,663,533 4,706,158
Building and improvements 46,236,197 45,222,980
------------------------------------
51,899,730 49,929,138
Less accumulated depreciation 24,404,249 22,719,304
------------------------------------
27,495,481 27,209,834
Other property, plant and equipment, at cost:
Land 833,016 1,419,275
Buildings and improvements 9,455,404 9,487,426
Leaseholds and improvements 531,968 531,968
Machinery, equipment and vehicles 10,997,272 11,409,773
Furniture and furnishings 414,858 232,762
Construction-in-progress 449,793 683,270
------------------------------------
22,682,311 23,764,474
Less accumulated depreciation and amortization 10,553,956 10,275,755
------------------------------------
12,128,355 13,488,719
Deferred income tax (Note 6) 3,002,505 2,405,000
Mortgage receivable--net of current portion (Note 11) 422,984 442,166
Restricted cash 339,701 363,377
Investments in and advances to affiliated entities (Note 3) 18,462,166 16,351,065
Tenant improvements, net of accumulated amortization of $5,637,250 and
$6,029,145 4,743,514 5,515,605
Unamortized leasing, financing and other deferred costs, net of
accumulated amortization of $1,689,650 and $1,354,159 985,989 939,577
Other assets:
Cash in trust for tenants' security deposits 808,289 889,579
Mortgage escrow funds and security deposits 158,340 148,897
Assets held for sale (Note 10) 234,841 500,000
Due from related parties (Note 9) 9,866,989 8,464,256
Other 16,400 16,400
------------------------------------
11,084,859 10,019,132
------------------------------------
Total assets $ 100,373,676 $ 98,981,816
====================================
See notes to consolidated financial statements.
26
The First Republic Corporation of America and Subsidiaries
Consolidated Balance Sheets (continued)
JUNE 30,
2003 2002
--------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable (Notes 4 and 5) $ 2,750,000 $ -
Note payable, related party (Note 9) 640,000 640,000
Current portion of long-term debt and credit facilities (Note 4) 1,746,585 1,692,467
Accounts payable 1,922,072 1,346,192
Accrued expenses and taxes payable 1,558,053 1,592,675
Due to related parties (Note 9) 3,170,464 748,670
Other liabilities 93,257 93,257
--------------------------------------
Total current liabilities 11,880,431 6,113,261
Long-term debt and credit facilities (Notes 4 and 5) 22,427,800 24,043,987
Other liabilities:
Derivative instrument (Note 4) 376,717 -
Tenants' security deposits payable 808,289 889,579
Accrued pension (Note 7) 1,356,000 548,000
--------------------------------------
2,541,006 1,437,579
Minority interests 412,068 585,568
--------------------------------------
Total liabilities 37,261,305 32,180,395
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 52,927,164 55,832,297
Accumulated other comprehensive loss (1,354,000) (609,000)
--------------------------------------
67,749,178 71,399,311
Less treasury stock, at cost--508,401 and 507,616 shares
(Note 10) (4,636,807) (4,597,890)
--------------------------------------
Total stockholders' equity 63,112,371 66,801,421
--------------------------------------
Total liabilities and stockholders' equity $ 100,373,676 $ 98,981,816
======================================
See notes to consolidated financial statements.
27
The First Republic Corporation of America and Subsidiaries
Consolidated Statements of Operations
and Comprehensive (Loss) Income
YEAR ENDED JUNE 30,
2003 2002 2001
----------------------------------------------------------
Revenues:
Sales--textiles and seafood $ 27,716,172 $ 38,221,817 $ 45,870,362
Rents and other revenues--real estate and hotel
operations (Note 8) 21,580,092 21,426,589 22,127,659
Other (including interest income of approximately
$1,195,000, $1,170,000 and $1,275,000, respectively) 1,890,306 2,150,763 2,108,142
----------------------------------------------------------
51,186,570 61,799,169 70,106,163
----------------------------------------------------------
Costs and expenses:
Cost of sales--textiles and seafood 28,895,688 39,429,538 46,212,689
Operating costs--real estate and hotel operations 12,713,130 11,839,633 13,572,010
Depreciation and amortization 4,229,215 4,343,315 4,551,661
Interest (Notes 4 and 9) 2,033,250 2,146,385 2,413,301
Selling, general and administrative (Notes 7 and 8) 6,626,899 7,113,393 7,445,277
Minority interests' share of loss of subsidiaries (1,947,483) (1,846,592) (1,480,977)
----------------------------------------------------------
52,550,699 63,025,672 72,713,961
----------------------------------------------------------
Loss before income taxes, gain (loss) on sale and
equity in loss of affiliated entities (1,364,129) (1,226,503) (2,607,798)
Equity in loss of affiliated entities (Note 3) (960,004) (802,384) (606,984)
Gain on sale of real estate held for rental - 177,855 18,629,597
Loss on sale of property (Note 10) (300,000) (69,444) -
----------------------------------------------------------
(Loss) income before income taxes (2,624,133) (1,920,476) 15,414,815
Income tax expense (Note 6) 281,000 26,000 707,000
----------------------------------------------------------
Net (loss) income (2,905,133) (1,946,476) 14,707,815
----------------------------------------------------------
Other comprehensive loss:
Unrealized loss on derivative instrument (net of
deferred taxes of $151,000) (226,000) - -
Additional minimum pension obligation (net of deferred
taxes of $346,000, $235,000, and $10,000,
respectively) (Note 7) (520,000) (352,000) (15,000)
----------------------------------------------------------
Comprehensive (loss) income $ (3,651,133) $ (2,298,476) $ 14,692,815
==========================================================
Per share of common stock (Note 1):
Net (loss) income--basic and diluted $ (4.35) $ (2.91) $ 21.98
==========================================================
See notes to consolidated financial statements.
28
The First Republic Corporation of America and Subsidiaries
Consolidated Statements of Retained Earnings
YEAR ENDED JUNE 30,
2003 2002 2001
------------------------------------------------------
Balance, beginning of year $ 55,832,297 $ 57,778,773 $ 43,070,958
Net (loss) income for the year (2,905,133) (1,946,476) 14,707,815
------------------------------------------------------
Balance, end of year $ 52,927,164 $ 55,832,297 $ 57,778,773
======================================================
See notes to consolidated financial statements.
29
The First Republic Corporation of America and Subsidiaries
Consolidated Statements of Cash Flows
YEAR ENDED JUNE 30,
2003 2002 2001
------------------------------------------------------
OPERATING ACTIVITIES
Net (loss) income $ (2,905,133) $ (1,946,476) $ 14,707,815
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Gain on sale of real estate held for rental - (177,855) (18,629,597)
Loss on sale of property 300,000 69,444 -
Depreciation and amortization 4,229,215 4,343,315 4,551,661
Bad debt - 60,000 -
Charitable donation of land 460,259 - -
Write-off of fixed assets 192,620 - -
Deferred income taxes (99,505) (437,000) (427,000)
Equity in loss of affiliated entities 960,004 802,384 606,984
Minority interests' share of loss in subsidiaries (1,947,483) (1,846,592) (1,480,977)
Changes in operating assets and liabilities:
Accounts, rents and other receivables (890,069) 137,611 (129,895)
Inventories (83,507) 3,200,430 (1,290,432)
Prepaid expenses and other assets 61,582 (206,206) (777,406)
Accounts payable 575,880 (1,313,791) 914,319
Accrued expenses and other current liabilities (34,622) (671,868) (703,577)
Due to related parties (78,206) 223,091 (96,860)
Other liabilities (58,283) (554,457) (640,762)
------------------------------------------------------
Net cash provided by (used in) operating activities 682,752 1,682,030 (3,395,727)
------------------------------------------------------
INVESTING ACTIVITIES
Purchases of real estate held for rental (2,158,372) (945,152) (1,524,376)
Purchases of other property plant and equipment (616,789) (855,109) (1,170,085)
Additions to tenant improvements (75,874) (461,553) (598,851)
Additions to leasing commissions (284,139) - -
Proceeds from sale of real estate 200,000 1,771,000 20,050,000
Investment in affiliated entities (2,845,479) (2,155,397) (1,906,749)
Payments received on mortgages receivable 22,227 5,549 -
Restricted cash 23,676 24,678 26,053
Other investing activities (9,443) 310,539 198,322
------------------------------------------------------
Net cash (used in) provided by investing activities (5,744,193) (2,305,445) 15,074,314
------------------------------------------------------
30
The First Republic Corporation of America and Subsidiaries
Consolidated Statements of Cash Flows (continued)
YEAR ENDED JUNE 30,
2003 2002 2001
------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from mortgages and notes payable
to banks $ 2,750,000 $ - $ 10,500
Payments on mortgages and notes payable
to banks (1,562,069) (1,631,330) (3,558,116)
Financing costs (181,365) - -
Proceeds from related parties 2,500,000 - -
Payments to related parties - - (5,600,000)
Minority interests' additional paid-in capital 371,250 530,625 382,500
Purchases of treasury stock (38,917) (44,679) (46,285)
------------------------------------------------------
Net cash provided by (used in) financing activities 3,838,899 (1,145,384) (8,811,401)
------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (1,222,542) (1,768,799) 2,867,186
Cash and cash equivalents at the beginning
of year 3,401,100 5,169,899 2,302,713
------------------------------------------------------
Cash and cash equivalents at the end of year $ 2,178,558 $ 3,401,100 $ 5,169,899
======================================================
SUPPLEMENTAL DISCLOSURE
Cash paid for income taxes $ 588,485 $ 1,325,427 $ 456,524
======================================================
Cash paid for interest $ 2,042,819 $ 2,151,409 $ 2,454,954
======================================================
See notes to consolidated financial statements.
31
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2003
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.
CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of three
months or less when purchased to be cash equivalents.
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,
2003 2002
------------------------------------
Work-in-process and raw materials $1,206,510 $1,458,175
Finished goods 6,282,723 5,947,551
------------------------------------
$7,489,233 $7,405,726
====================================
32
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 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.
33
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.
EARNINGS PER SHARE
Basic and diluted per share amounts are based on 667,381 (2003), 668,092 (2002)
and 669,195 (2001) 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.
ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of accumulated other comprehensive loss at June 30, 2003 and 2002
are as follows:
2003 2002
------------------- -----------------
Additional minimum pension obligation (net of deferred
taxes of $752,000 and $405,000, respectively) $(1,128,000) $(609,000)
Unrealized loss on derivative instrument (net of deferred
taxes of $151,000) (226,000) -
------------------- -----------------
$(1,354,000) $(609,000)
=================== =================
34
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
VALUATION OF PROPERTY HELD FOR USE AND SALE
The Company reviews the carrying value of both properties held for use and for
sale and records impairment losses to reduce 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, 2003.
VALUATION OF INVESTMENTS IN AND ADVANCES TO AFFILIATED ENTITIES
The Company reviews the carrying value of the investments in and 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, 2003.
DERIVATIVE INSTRUMENTS
The Company accounts for derivative instruments pursuant to FASB Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, as amended by
FASB Statement No. 138, Accounting for Certain Derivative Instruments and
Hedging Activities.
The Company's interest rate derivative is designated as a cash flow hedge and
hedges the future cash outflows with respect to its term loan. Unrealized
gains/(losses) in the fair value of this instrument are reported on the balance
sheet with a corresponding adjustment to either earnings or accumulated other
comprehensive income depending on the type of hedging relationship. For cash
flow hedges, such unrealized gains/(losses) are reported in accumulated other
comprehensive income. Over time, the unrealized gains/(losses) held in
accumulated other comprehensive income will be reclassified to earnings over the
same period in which the hedged item affects earnings
35
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
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. The
adoption of Statement No. 144 did not have a material effect on the financial
position or results of operations of the Company.
In April 2002, the FASB issued Statement No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. This statement eliminates the requirement to report gains and
losses from extinguishment of debt as extraordinary unless they meet the
criteria of APB Opinion 30. Statement No. 145 also requires sale-leaseback
accounting for certain lease modifications that have economic effects that are
similar to sale-leaseback transactions. The changes related to lease accounting
are effective for transactions occurring after May 15, 2002 and the changes
related to debt extinguishment are effective for fiscal years beginning after
May 15, 2002. The adoption of Statement No. 145 did not have a material effect
on the financial position or results of operations of the Company.
In June 2002, the FASB issued Statement No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. Statement No. 146 nullifies EITF Issue 94-3
and requires that a liability for a cost associated with an exit of disposal
activity be recognized when the liability is incurred. The statement also
establishes that fair value is the objective for initial measurement of the
liability. Statement No. 146 is effective for exit of disposal activities that
are initiated after December 31, 2002. The adoption of Statement No. 146 did not
have a material effect on the financial position or results of operations of the
Company.
36
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In November 2002, the FASB issued FASB Interpretation No 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others ("FIN 45"). FIN 45 requires that upon
issuance of a guaranty a guarantor must recognize a liability for the fair value
of an obligation assumed under a guarantee. FIN 45 also requires additional
disclosures by a guarantor in its interim and annual financial statements about
the obligations associated with guarantees issued. The recognition provisions of
FIN 45 are effective for guarantees issued or modified after December 31, 2002.
The disclosure requirements are effective for financial statements of interim or
annual periods ending after December 15, 2002. The adoption of FIN 45 did not
have a material effect on the financial position or results of operations of the
Company.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities ("FIN 46"). In general, a variable interest entity is
a corporation, partnership, trust, or any other legal structure used for
business purposes that either (a) does not have equity investors with voting
rights or (b) has equity investors that do not provide sufficient financial
resources for the entity to support its activities. A variable interest entity
often holds financial assets, including loans or receivables, real estate or
other property. A variable interest entity may be essentially passive or it may
engage in activities on behalf of another company. Prior to FIN 46, a company
generally has included another entity in its consolidated financial statements
only if it controlled the entity through voting interests. FIN 46 changes that
by requiring a variable interest entity to be consolidated by a company if that
company is subject to a majority of the risk of loss from the variable interest
entity's activities or is entitled to receive a majority of the entity's
residual returns or both. FIN 46's consolidation requirements apply immediately
to variable interest entities created or acquired after January 31, 2003. The
consolidation requirements apply to older entities in the first fiscal year or
interim period beginning after June 15, 2003. The Company does not anticipate
that the adoption of FIN 46 will have a material effect on its financial
position or results of operations.
37
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, (clamming activities ceased in 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.
38
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:
2003 2002 2001
-------------------------------------------------------
Revenues:
Real estate $ 14,978,065 $ 15,137,489 $ 15,920,186
Hotel 6,649,222 6,323,824 6,423,848
Seafood 20,506,431 29,598,504 34,650,348
Textile 8,931,181 10,503,110 12,724,946
Corporate 121,671 236,242 386,835
-------------------------------------------------------
$ 51,186,570 $ 61,799,169 $ 70,106,163
=======================================================
Operating (loss) profit:
Real estate (a) $ 4,055,858 $ 4,526,733 $ 3,890,110
Hotel 452,847 310,883 105,087
Seafood (f) (4,020,257) (3,787,002) (3,935,900)
Textile (b) (249,709) (105,736) (42,753)
-------------------------------------------------------
Total operating profit 238,739 944,878 16,544
Corporate expenses (3,468,743) (3,746,252) (3,848,280)
Corporate interest expense (503,279) (577,407) (643,874)
Corporate revenue (e) 121,671 236,242 386,835
Gain on sale of real estate - 177,855 18,629,597
Equity in loss of affiliated entities (c) (960,004) (802,384) (606,984)
Minority interests' share of loss of
subsidiaries 1,947,483 1,846,592 1,480,977
-------------------------------------------------------
(Loss) income before income taxes $ (2,624,133) $ (1,920,476) $ 15,414,815
=======================================================
39
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. INDUSTRY SEGMENTS AND FOREIGN OPERATIONS (CONTINUED)
2003 2002 2001
------------------------------------------------------------
Identifiable assets:
Real estate $ 31,994,273 $ 31,636,408 $ 33,944,580
Hotel 3,728,861 4,467,976 5,161,505
Seafood 31,178,963 30,150,368 31,496,637
Textile 7,147,237 8,108,643 9,591,173
Corporate and other (d) 26,324,342 24,618,421 24,438,132
------------------------------------------------------------
$ 100,373,676 $ 98,981,816 $ 104,632,127
============================================================
Depreciation and amortization:
Real estate $ 2,324,483 $ 2,252,981 $ 2,148,485
Hotel 815,299 888,449 899,677
Seafood 555,791 560,005 804,055
Textile 481,214 572,965 639,448
Corporate and other 52,428 68,915 59,996
------------------------------------------------------------
$ 4,229,215 $ 4,343,315 $ 4,551,661
============================================================
Capital expenditures--net:
Real estate $ 2,144,863 $ 1,296,057 $ 1,921,714
Hotel 89,383 110,648 201,513
Seafood 374,690 362,870 664,388
Textile 221,645 436,339 347,759
Corporate and other 20,454 55,900 157,938
------------------------------------------------------------
$ 2,851,035 $ 2,261,814 $ 3,293,312
============================================================
Geographic information:
Revenues
United States $ 50,537,860 $ 60,963,969 $ 69,466,474
Ecuador 648,710 835,200 639,689
------------------------------------------------------------
$ 51,186,570 $ 61,799,169 $ 70,106,163
============================================================
Identifiable assets:
United States $ 72,902,676 $ 72,329,816 $ 78,937,127
Ecuador 27,471,000 26,652,000 25,695,000
------------------------------------------------------------
$ 100,373,676 $ 98,981,816 $ 104,632,127
============================================================
(a) Includes mortgage interest expense of $1,123,424 (2003), $1,175,844
(2002), and $1,268,079 (2001).
(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 approximately $22,000 (2003), $41,000 (2002)
and $237,000 (2001).
(f) Includes interest income of approximately $1,113,000 (2003), $1,046,000
(2002) and $1,035,000 (2001).
40
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 2003 2002 2003 2002 2001
--------------------------------------------------------------------
(In Thousands)
Sunscape Associates 50% $ 64 $ 405 $ 34 $ 45 $ 37
Mondragon Companies(1) 38% 16,631 15,700 (1,054) (927) (717)
Worcester Supermarket LLC 50% 1,500 - - - -
Other Various 267 246 60 80 73
-------------------------------------------------------
$ 18,462 $ 16,351 $ (960) $ (802) $ (607)
=======================================================
(1)--Advances to Mondragon from the Company were approximately $16,631,000
and $15,700,000 at June 30, 2003 and 2002, 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.
Worcester Supermarket LLC: The Company has a $1,500,000 investment, representing
a 50% ownership interest in a joint venture that is building a store for a major
supermarket chain in Worcester, MA. The Company and its joint venture partner
have also jointly guaranteed a construction loan obtained by the joint venture
which provides for maximum borrowings of $8,450,000. In connection with this
investment, the Company is entitled to receive a 12% per annum preferential
return on its investment, payable quarterly, when the tenant begins to pay rent.
41
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. AFFILIATED ENTITIES (CONTINUED)
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.
Condensed combined financial information of the Mondragon Companies is as
follows:
JUNE 30,
2003 2002
--------------------------------------
ASSETS
Current assets $ 1,759,000 $ 1,498,000
Property and equipment--net of accumulated
depreciation 12,067,000 12,552,000
--------------------------------------
Total assets $ 13,826,000 $ 14,050,000
======================================
LIABILITIES
Due to Bluepoints and other affiliates $ 10,258,000 $ 8,293,000
Other current liabilities 162,000 407,000
--------------------------------------
Total current liabilities 10,420,000 8,700,000
Long-term debt--Bluepoints 8,928,000 8,928,000
--------------------------------------
Total liabilities 19,348,000 17,628,000
Stockholders' equity (5,522,000) (3,578,000)
--------------------------------------
Total liabilities and equity $ 13,826,000 $ 14,050,000
======================================
YEAR ENDED JUNE 30,
2003 2002 2001
---------------------------------------------------------
Revenues $ 752,000 $ 245,000 $ 285,000
Costs and expenses 3,525,000 2,685,000 2,171,000
---------------------------------------------------------
Net loss $ (2,773,000) $ (2,440,000) $ (1,886,000)
=========================================================
42
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,
2003 2002
------------------------------------
Mortgages payable due 2005-2019 bearing interest at fixed
rates of 5.53% to 8.5% (1), (2), (3), (4), (5),
(6), (7), (8), (9) and (10) $ 24,174,385 $ 25,736,454
Less payments due within one year 1,746,585 1,692,467
------------------------------------
$ 22,427,800 $ 24,043,987
====================================
(1)--The net book value of real estate assets pledged as collateral is
approximately $17,950,000 and $18,400,000 at June 30, 2003 and 2002,
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
$1,769,134 will become due. The balance was $2,166,856 and $2,239,473
at June 30, 2003 and 2002, respectively.
(3)--The Company had 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 required amortization payments of $358,800
per annum. Both loans matured on October 21, 2002, and were extended to
January 13, 2003 when the Company and its lender further extended the
term of the loan until October 21, 2007 with the same amortization
schedule and an interest rate of LIBOR plus 1.75%. The revolving credit
line of $3,000,000 was extended until October 21, 2005 with the same
interest rate options as the old loan. At June 30, 2003 and 2002, the
term loan balance was $7,126,517 and $7,355,500, respectively. At June
30, 2003 and 2002, there was $2,750,000 and $0, respectively,
outstanding on the revolving line of credit. The interest rate at June
30, 2003 was 3.3%.
43
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. LONG-TERM DEBT AND CREDIT FACILITIES (CONTINUED)
To hedge its exposure to changes in the variable rate of interest on
the term loan, the Company entered into an interest rate swap agreement
which effectively fixed the interest rate on the term loan at 5.53%
through October 1, 2007. At June 30, 2003, the fair value of this swap
agreement was $(376,717).
(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 $3,271,364 and
$3,324,252 at June 30, 2003 and 2002, 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 $2,629,058 and $2,719,400 at June
30, 2003 and 2002, 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
$2,019,999 and $2,693,334 at June 30, 2003 and 2002, 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 $2,235,043 and $2,308,370 at June 30, 2003
and 2002, respectively.
44
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 $3,117,688
and $3,280,124 on June 30, 2003 and 2002, 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 $1,607,860 and
$1,816,001 on June 30, 2003 and 2002, 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, 2003 are
approximately as follows:
AMOUNT
--------------------
Year ending June 30:
2004 $ 1,746,000
2005 1,806,000
2006 4,956,000
2007 3,509,000
2008 8,054,000
Thereafter 4,103,000
--------------------
$ 24,174,000
====================
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.
45
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, 2003:
Cash and Cash Equivalents, Accounts and Rents Receivable, Other
Receivables, Prepaid Expenses and Other Assets, 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.
Mortgage Receivable: The carrying amount of the mortgage receivable
approximates fair value as such loan bears interest at a market rate for
similar types of loans.
Derivative Liability: The derivative liability relating to an interest rate
swap agreement is carried at its fair value as determined by reference to a
valuation provided by the counterparty financial institution.
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 $25,951,000.
6. INCOME TAXES
Deferred tax assets and liabilities reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. For financial
reporting purposes, a valuation allowance has been recognized in 2003 to offset
the portion of the deferred tax assets attributable to a charitable donation of
land.
46
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax assets are as follows:
JUNE 30,
2003 2002
------------------------------------
Deferred tax assets:
Book basis provisions $2,264,505 $2,000,000
Derivative instrument 151,000 -
Additional minimum pension obligation 752,000 405,000
------------------------------------
Total deferred tax assets 3,167,505 2,405,000
Valuation allowance (165,000) -
------------------------------------
Net deferred tax asset $3,002,505 $2,405,000
====================================
The components of (loss) income before income taxes are as follow:
YEAR ENDED JUNE 30,
2003 2002 2001
------------------------------------------------------
Domestic $ (432,781) $ (107,635) $ 16,722,010
Foreign (2,191,352) (1,812,841) (1,307,195)
------------------------------------------------------
$ (2,624,133) $ (1,920,476) $ 15,414,815
======================================================
Significant components of the income tax expense (benefit) are as follows:
YEAR ENDED JUNE 30,
2003 2002 2001
------------------------------------------------------
Current:
Federal $ - $ - $ 330,000
State 380,000 463,000 804,000
------------------------------------------------------
Total current 380,000 463,000 1,134,000
------------------------------------------------------
Deferred:
Federal (87,000) (386,000) (377,000)
State (12,000) (51,000) (50,000)
------------------------------------------------------
Total deferred (99,000) (437,000) (427,000)
------------------------------------------------------
$ 281,000 $ 26,000 $ 707,000
======================================================
47
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:
2003 2002 2001
---------------------------------------------------------------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
--------------------------------------------------------------------------
Tax at U.S. statutory rates $ (892,000) (34.0%) $ (653,000) (34.0)% $ 5,241,000 34.0%
Increases (reductions) resulting from:
Alternative minimum tax - - - - 330,000 2.1
State taxes, net of federal tax benefit 243,000 9.3 272,000 14.2 498,000 3.2
Loss from foreign operations (not
subject to U.S. federal income
taxes) reduced by portion charged to
minority interest for which no tax 745,000 28.4 616,000 32.1 444,000 2.9
benefit is recognized
Minority interest in loss from
domestic operations (292,000) (11.1) (314,000) (16.4) (266,000) (1.7)
Net operating loss carryforwards - - - - (5,442,000) (35.3)
Charitable contribution 165,000 6.3 - - - -
Other items 312,000 11.9 105,000 5.5 (98,000) (.6)
---------------------------------------------------------------------------
$ 281,000 10.8% $ 26,000 1.4% $ 707,000 4.6%
===========================================================================
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 $175,000, $215,000 and
$215,000, respectively, and are included in selling, general and administrative
expenses on the accompanying consolidated statements of operations and
comprehensive (loss) income for each of the years ended June 30, 2003, 2002 and
2001.
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.
48
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.
2003 2002
-------------------------------------
Change in benefit obligation:
Benefit obligation at beginning of year $ 5,028,000 $ 4,657,000
Interest cost 349,000 333,000
Actuarial gain 736,000 479,000
Benefit payments (437,000) (441,000)
-------------------------------------
Benefits obligation at end of year $ 5,676,000 $ 5,028,000
=====================================
Change in plan assets:
Fair value of plan assets at beginning of year $ 4,480,000 $ 4,285,000
Actual return on plan assets 169,000 215,000
Employer contributions 108,000 421,000
Benefit payments (437,000) (441,000)
-------------------------------------
Fair value of plan assets at end of year $ 4,320,000 $ 4,480,000
=====================================
Funded status:
Funded status of the plan (underfunded) $ (1,356,000) $ (548,000)
Unrecognized net actuarial loss 1,880,000 1,014,000
-------------------------------------
Accrued benefit cost $ 524,000 $ 466,000
=====================================
Amounts recognized in the statement of financial
position consist of:
Accrued benefit liability $ (1,356,000) $ (548,000)
Accumulated other comprehensive loss 1,880,000 1,014,000
-------------------------------------
Net amount recognized $ 524,000 $ 466,000
=====================================
Net periodic pension cost included the following components:
2003 2002 2001
------------------------------------------------------
Interest cost on projected benefit
obligation $ 349,000 $ 333,000 $ 345,000
Expected return on plan assets (345,000) (342,000) (306,000)
Recognized net actuarial gain 45,000 20,000 18,000
------------------------------------------------------
Total pension expense $ 49,000 $ 11,000 $ 57,000
======================================================
49
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 6.0% at June 30, 2003 and 7.25% at June 30,
2002. 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 $696,000 at June 30, 2003. 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 $125,000 $124,000 and $121,000 and are included
in selling, general and administrative expenses on the accompanying consolidated
statements of operations and comprehensive (loss) income for the years ended
June 30, 2003, 2002 and 2001, respectively.
The Company owns various office buildings, industrial buildings and shopping
centers from which it earns rental income under leases with various tenants.
Lease terms for these properties range from one to 20 years. 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. Such operating expenses and other items billable to
tenants which aggregated approximately $2,300,000 $2,200,000 and $2,400,000 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, 2003, 2002 and 2001, respectively.
Future minimum rentals to be received under the above-mentioned leases, all of
which are classified and accounted for as operating leases, are approximately as
follows:
AMOUNT
------------------
Year ending June 30:
2004 $ 9,700,000
2005 7,900,000
2006 6,500,000
2007 5,200,000
2008 4,000,000
Thereafter 13,500,000
------------------
$ 46,800,000
==================
50
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)--AtJune 30, 2003 and 2002, the minority share of stockholders' deficiency
of Bluepoints amounted to $9,866,989 and $8,464,256, 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 $16,631,000 and $15,700,000 are
advances the Company has made to the Mondragon Companies amounting to
$16,631,000 and $15,700,000 at June 30, 2003 and 2002, 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.
51
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 2003 2002 2001 OWNERSHIP
- --------------------------------------------------------------------------------------------------
Insurance purchased in participation with
the Rosen Group Properties:
Premiums incurred $623,000 $732,000 $526,000 -
Administrative fee received - 100,000 100,000 -
Payable at June 30, to Rosen Group
Properties for premiums above 623,000 732,000 526,000 100%
Due from Rosen Group Properties 60,000 70,000 85,000 100%
Home office rent 115,000 111,000 108,000 100%
Interest on $640,000 note to the Estate of
A.A. Rosen 51,000 51,000 50,000
Note payable to the Estate of A.A. Rosen 640,000 640,000 640,000 -
Due from others 951,000 692,000 492,000 -
Due to United Realty Management Company
("United Realty") 2,500,000 - - 33%
During fiscal 2003 the Company borrowed funds from United Realty to finance
Bluepoints expanded importation and sale of lobster tails. The loans bear
interest at the prime rate plus 1% per annum and have no fixed repayment terms
or maturity dates. Interest of $112,263 was paid on these loans.
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.
52
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 were sold in April 2003 for $200,000. In
connection with the sale of this property, a loss of $300,000 was incurred.
Losses incurred to maintain the property such as real estate taxes and insurance
amounted to approximately $104,300 $126,000 and $143,000 in 2003, 2002 and 2001,
respectively.
In July 2002, Bluepoints ceased the harvesting of clams at its Long Island, New
York property and entered into a contract to sell such property for $1,600,000.
The contract is contingent upon the ability of the purchaser to obtain certain
regulatory approvals by December 1, 2003. In connection with this contract,
Bluepoints received a nonrefundable deposit of $60,000. The carrying value of
the property at June 30, 2003 was $234,841 and is reflected as assets held for
sale in the accompanying consolidated balance sheet. Bluepoints also donated its
underwater clam beds, which had a cost basis of approximately $458,000 at the
date of contribution, to the Nature Conservancy, Inc., an unaffiliated
non-profit corporation. Such charitable contribution is reflected as a component
of selling, general and administrative expenses in the accompanying consolidated
statement of operations and comprehensive loss.
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,
2003.
During the years ended June 30, 2003, 2002 and 2001, there were 785, 931 and 935
shares of stock purchased for treasury at a cost of $38,917, $44,679 and
$46,285, respectively.
53
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. MORTGAGE RECEIVABLE
A summary of mortgage receivable is as follows:
MATURITY JUNE 30
DESCRIPTION RATE DATE 2003 2002
- --------------------------------------------- ----------- ------------- ------------- ---------------
First mortgage on land and building 7.75% (1) $437,469 $459,696
Less payment due within one year included
in current assets 14,485 17,530
------------- ---------------
$422,984 $442,166
============= ===============
(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, 2003 and 2002 is as follows:
2003 SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30
---------------- --------------- --------------- ----------------
Revenues $ 12,761,044 $ 15,358,290 $11,459,087 $11,608,149
Expenses 13,294,122 16,087,204 13,005,403 12,111,453
Equity in loss of affiliated entities (252,668) (223,685) (277,402) (206,249)
Loss on sale of property - - - (300,000)
Minority interests' share of loss in
subsidiaries (489,469) (435,199) (525,897) (496,918)
---------------- --------------- --------------- ----------------
Loss before taxes (296,277) (517,400) (1,297,821) (512,635)
Income tax expense (100,000) (150,000) - (31,000)
---------------- --------------- --------------- ----------------
Net loss $ (396,277) $ (667,400) $(1,297,821) $ (543,635)
================ =============== =============== ================
Net loss per common share--basic and
diluted $ (.59) $ (1.00) $ (1.95) (.81)
================ =============== =============== ================
Weighted average number of common stock
outstanding basic and diluted 667,571 667,534 667,534 666,882
================ =============== =============== ================
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 property - - - (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
================ =============== =============== ================
54
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 9a. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures. The Company's Chief
Executive Officer and Chief Financial Officer have evaluated the effectiveness
of the Company's disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended ("Exchange Act") as of the end of the period covered by this report.
Based on such evaluation, the Company's Chief Executive Officer and Chief
Financial Officer have concluded that, as of the end of such period, the
Company's disclosure controls and procedures are effective.
(b) Internal Control Over Financial Reporting. There have not been any changes
in the Company's internal control over financial reporting during the fourth
fiscal quarter of the fiscal year to which this report relates that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
55
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 89 Director April 1983
Harry Bergman 61 Director October 1991
Treasurer June 1988
Secretary June 1988
President July 2001
Norman A. Halper 84 Director October 1969
Miriam N. Rosen 83 Director December 1995
Jonathan P. Rosen 59 Director February 1972
Chairman of the Board December 1995
William M. Silverman 61 Director December 1981
Louis Nimkoff 41 Director March 2003
Jane G. Weiman 59 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
2003, upon the election and qualification of their successors.
c. Not applicable.
56
d. Family Relationships
Jonathan P. Rosen is the son of Miriam N. Rosen.
Louis 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.
Louis Nimkoff is president of Brio Properties and Commercial Real Estate
Group, Inc. and has been involved in commercial real estate since 1983,
managing multi-family, retail office and industrial properties.
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 with the exception of Louis Nimkoff and executive officers
have served as such for more than the past five years.
f. Not applicable.
g. Not applicable.
Section 16(a) Beneficial Ownership Reporting Compliance
The Company believes, based on written representations received by it, that for
the year ended June 30, 2003, 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, except
that Louis Nimkoff failed to timely file an initial statement of beneficial
ownership of securities on Form 3 with respect to his appointment as a director.
Such Form 3 was subsequently filed.
57
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 6-30-03 $310,284 $11,964
Chairman 6-30-02 310,284 10,714
6-30-01 310,284 10,577
Harry Bergman 6-30-03 249,651 11,964
President--Secretary--Treasurer 6-30-02 240,849 10,714
6-30-01 191,415 10,577
Robert Nimkoff 6-30-03 135,786 7,944
Vice President 6-30-02 130,619 8,351
6-30-01 216,384 10,577
Miles Berman 6-30-03 120,016 6,602
Vice President 6-30-02 114,948 7,058
6-30-01 110,405 6,603
58
(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.
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, 2003. 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]
- -------------------------------------------------- --------- -------- --------- -------- -------- ----------
1998 1999 2000 2001 2002 2003
- -------------------------------------------------- --------- -------- --------- -------- -------- ----------
The First Republic Corporation of America, Inc. 100.00 106.23 131.15 102.30 122.10 125.90
- -------------------------------------------------- --------- -------- --------- -------- -------- ----------
Dow Jones US Total Market Index 100.00 120.66 132.09 112.13 91.85 91.85
- -------------------------------------------------- --------- -------- --------- -------- -------- ----------
S&P Small Cap 600 Index 100.00 97.69 111.74 124.16 124.50 120.05
- -------------------------------------------------- --------- -------- --------- -------- -------- ----------
59
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 23, 2003:
AMOUNT AND NATURE
TITLE OF NAME AND ADDRESS OF BENEFICIAL PERCENT
CLASS OF BENEFICIAL OWNER OWNERSHIP (1) OF CLASS
---------------------------------------------------------------------------
Common Mary Nimkoff 90,461 (2) 13.57%
26 Buttonball Lane
Weston, Connecticut
Common Jonathan P. Rosen 240,228 (3) 36.04
40 East 69th St.
New York, New York
Common Lynn M. Silverman 113,350 17.00
911 Park Avenue
New York, New York
Common Jane G. Weiman 113,290 16.99
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.
60
b. Security Ownership of Management
The following table sets forth, as of September 23, 2003, 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
- ---------------------------------------------------------------------------------------------
Louis Nimkoff 11,465 1.72 - -
Irving S. Bobrow 200 .03% - -
Robert Nimkoff 9,690 (2) 1.45 - -
Jonathan P. Rosen 240,228 36.04 500 (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 16.99 500 4.95
All officers and directors
as a group (7 persons) 382,750 57.42 1,500 14.85
(1)--Messrs. Bobrow, Silverman and Mrs. Weiman own their shares directly.
Jonathan P. Rosen owns 237,311 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.
61
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 P. Rosen. The Company is a month-to-month
tenant, paying rent of $9,700 per month as of June 30, 2003, 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 12.5% 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 8%.
During fiscal 2003, the Company borrowed $2,500,000 from United Realty, a
company in which Jonathan P. Rosen owns a 33% interest, to finance
Bluepoints expanded importation and sale of lobster tails. The loans bear
interest at the prime rate plus 1% per annum and have no fixed repayment
terms or maturity dates. For the fiscal year ended June 30, 2003, $112,263
of interest was paid on this loan.
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,
2003, total premiums incurred by the Company and its subsidiaries under
this arrangement amounted to approximately $623,000. At June 30, 2003,
approximately $623,000 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 41% by The Estate of A.A. Rosen,
33% by Jonathan P. Rosen and 26% by various trusts of which Miriam N.
Rosen, is trustee.
62
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, 2003, 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 8% and are due August 2004. Since July 1, 2002, the largest
aggregate amount of outstanding indebtedness from Larfico to Bluepoints was
$196,667.
In addition, as of June 30, 2003, Mondragon was indebted to the Company for
$16,631,000 of loans made by the Company to Mondragon on various dates
between August 28, 1991 and June 26, 2003 (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, 2002, the largest
aggregate amount of outstanding indebtedness from Mondragon to the Company
was $16,631,000. 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, 2002, the largest amount of outstanding indebtedness from
Emporsa and Larfico to Mondragon was $451,000 which was the balance at June
30, 2003. Such loans bear no interest and have no fixed maturity. Since
July 1, 2002, the largest amount of outstanding indebtedness from Mondragon
to Larfico and Emporsa was $6,425,000 which was the balance at June 30,
2003. Said indebtedness has no fixed maturity and bears interest at 7.3%.
As of August 31, 2003, Bluepoints was indebted to the Company for
$56,153,000 of loans made by the Company to Bluepoints at various dates
between November 8, 1985 and August 28, 2003. 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, 2002, the largest aggregate amount of
outstanding indebtedness from Bluepoints to the Company was $56,153,000. 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, 2003, the amount
of the guarantee was $9,866,989.
d. Not applicable.
63
ITEM 14. PRINCIPAL ACCOUNTANTS FEES AND SERVICES
Fees billed for professional services by the Company's principal accountant,
Ernst & Young LLP, for each of the last two fiscal years in connection with (i)
the audit of the Company's annual financial statements and review of interim
financial statements included in Form 10-Q (collectively, "Audit Fees") and (ii)
tax compliance, tax advice and tax planning (collectively, "Tax Fees") were as
follows:
2003 2002
----------------- -----------------
Audit Fees $235,500 $225,500
Tax Fees $64,600 $70,390
All Other Fees (1) $13,600 $13,400
(1) Amounts relate to tax consulting services related to the Company's defined
contribution employee benefit plans.
64
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
PAGE
a. 1. Financial Statements
The following financial statements of The First Republic Corporation of
America and Subsidiaries are included in Part II, Item 8:
Reports of Independent Auditors.............................................................20
Consolidated Balance Sheets--June 30, 2003 and 2002.........................................26
Consolidated Statements of Operations and Comprehensive
(Loss) Income--Years Ended June 30, 2003, 2002 and 2001..................................28
Consolidated Statements of Retained Earnings--Years Ended
June 30, 2003, 2002 and 2001.............................................................29
Consolidated Statements of Cash Flows--Years Ended
June 30, 2003, 2002 and 2001.............................................................30
Notes to Consolidated Financial Statements..................................................32
a. 2. Financial Statement Schedules:
Schedule II--Valuation and Qualifying Accounts..............................................67
Schedule III--Real Estate and Accumulated Depreciation......................................68
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...................................................................93
65
d. Other Exhibits
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002...........................................................94
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.............................................................95
32.1 Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.............................................................96
32.2 Certification of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.............................................................97
66
The First Republic Corporation of America and Subsidiaries
Schedule II--Valuation and Qualifying Accounts
- ---------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C
- ---------------------------------------------------------------------------------------------------------------
ADDITIONS
--------------------------------------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER ACCOUNTS--
DESCRIPTION PERIOD EXPENSES DESCRIBE
- ---------------------------------------------------------------------------------------------------------------
Year ended June 30, 2003:
Allowance for doubtful accounts $ 265,608 $ -
=========================================
Year ended June 30, 2002:
Allowance for doubtful accounts $ 245,513 $ 93,096
=========================================
Year ended June 30, 2001:
Allowance for doubtful accounts $ 30,000 $ 223,488
=========================================
- --------------------------------------------------------------------------------------------------
COL. A COL. D COL. E
- --------------------------------------------------------------------------------------------------
BALANCE AT
DEDUCTIONS-- END OF
DESCRIPTION DESCRIBE PERIOD
- --------------------------------------------------------------------------------------------------
Year ended June 30, 2003:
Allowance for doubtful accounts $ 228,868 (A) $ 36,740
==================================================
Year ended June 30, 2002:
Allowance for doubtful accounts $ (73,001) (a) $ 265,608
==================================================
Year ended June 30, 2001:
Allowance for doubtful accounts $ (7,975) (a) $ 245,513
==================================================
(a) Amounts charged off and credits issued, net of recoveries on accounts
previously written off.
67
The First Republic Corporation of America and Subsidiaries
Schedule III--Real Estate and Accumulated Depreciation
Year ended June 30, 2003
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 $2,019,999 $188,573 $2,163,945 $ 793,230 $188,573 $2,957,175 $3,145,748
industrial buildings
Holiday Inn Hotel--
Syracuse, Liverpool,
New York--Hotel - - 1,651,923 5,658,082 - 7,310,005 7,310,005
operations
East Newark, New Jersey--
Thirty multi-story
industrial buildings 7,126,517 605,089 4,068,693 (2,311,815) 605,089 1,756,878 2,361,967
Greensboro Plaza,
Greensboro, North
Carolina-- 3,117,688 379,947 1,696,953 1,003,213 379,947 2,700,166 3,080,113
Shopping center
Greensboro South,
Greensboro, North
Carolina-- 1,607,860 419,739 1,350,376 1,800,060 666,123 2,904,052 3,570,175
Shopping center
Greensboro South,
Greensboro, North
Carolina-- - 998,158 17,972 - 998,158 17,972 1,016,130
Land
Nyanza Building,
Woonsocket, Rhode
Island-- - 60,000 1,288,139 559,657 60,000 1,847,796 1,907,796
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 A COLUMN F COLUMN G COLUMN H COLUMN I
- -------------------------------------------------------------------------------
LIFE ON WHICH
DEPRECIATION IN
LATEST
INCOME
ACCUMULATED DATE OF DATE STATEMENTS
DESCRIPTION DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
- -------------------------------------------------------------------------------
Waltham Engineering
Center, Waltham,
Massachusetts--
Seventeen multi-story $ 937,157 7-01-62 10-20 yrs.
industrial buildings
Holiday Inn Hotel--
Syracuse, Liverpool,
New York--Hotel 4,933,175 3-17-69 5-15 yrs.
operations
East Newark, New Jersey--
Thirty multi-story
industrial buildings 474,764 3-11-63 21-1/3 yrs.
Greensboro Plaza,
Greensboro, North
Carolina-- 2,036,542 12-01-74 21-1/3 yrs.
Shopping center
Greensboro South,
Greensboro, North
Carolina-- 1,898,976 12-01-74 21-1/3 yrs.
Shopping center
Greensboro South,
Greensboro, North
Carolina-- - 10-31-02 -
Land
Nyanza Building,
Woonsocket, Rhode
Island-- 159,730 11-01-68 10-20 yrs.
Four story industrial
building
Richmond Shopping Center,
Richmond, Virginia--
Shopping center 861,421 3-15-76 25 yrs.
68
The First Republic Corporation of America and Subsidiaries
Schedule III--Real Estate and Accumulated Depreciation (continued)
COLUMN A COLUMN B COLUMN C COLUMN D
- -----------------------------------------------------------------------------------------
INITIAL COST TO COST CAPITALIZED
COMPANY SUBSEQUENT TO
-------------------------- ACQUISITION
BUILDINGS -----------------------
AND RELATED CARRYING
DESCRIPTION ENCUMBRANCES LAND ASSETS ADDITIONS COSTS
- -----------------------------------------------------------------------------------------
First Republic Office Park,
Liverpool, New York-- $ - $351,600 $4,124,526 $1,182,775
Two, two-story office
buildings
Virginia Beach Shopping
Center,
Virginia Beach, 2,629,058 250,241 772,113 651,414
Virginia--
Shopping center
The First Republic
Building Corp.,
Liverpool, New York-- 413,779 5,681,562 -
Motor hotel
Brookhaven Shopping Center,
Brookhaven,
Pennsylvania-- 2,166,856 521,798 3,632,019 (55,134)
Shopping Center
Virginia Beach Shopping
Center-- 2,235,043 856,250 2,568,750 -
Virginia Beach, Virginia
Merrimac Street,
Newburyport,
Massachusetts--
Three story office
building & new 3,271,364 195,213 377,317 6,712,918
construction at
222 Merrimac St.
---------------------------------------------------
Totals $24,174,385 $5,534,201 $30,153,174 $16,212,355
===================================================
COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I
- ------------------------------------------------------------------------------------------------------------------
GROSS AMOUNT AT WHICH LIFE ON WHICH
CARRIED AT CLOSE OF PERIOD (A) DEPRECIATION IN
------------------------------ LATEST
BUILDINGS INCOME
AND RELATED ACCUMULATED DATE OF DATE STATEMENTS
DESCRIPTION LAND ASSETS TOTAL DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
- ------------------------------------------------------------------------------------------------------------------
First Republic Office Park,
Liverpool, New York-- $351,600 $5,307,301 $5,658,901 $2,107,339 10-01-85 5-40 yrs.
Two, two-story office
buildings
Virginia Beach Shopping
Center,
Virginia Beach, 397,338 1,276,430 1,673,768 860,680 3-30-76 25-31.5 yrs.
Virginia--
Shopping center
The First Republic
Building Corp.,
Liverpool, New York-- 413,779 5,681,562 6,095,341 5,681,562 9-21-62 10-25 yrs.
Motor hotel
Brookhaven Shopping Center,
Brookhaven,
Pennsylvania-- 149,456 3,949,227 4,098,683 3,057,659 12-16-76 5-33 yrs.
Shopping Center
Virginia Beach Shopping
Center-- 856,250 2,568,750 3,425,000 366,966 11-17-98 31.5 yrs.
Virginia Beach, Virginia
Merrimac Street,
Newburyport,
Massachusetts--
Three story office
building & new 236,713 7,048,735 7,285,448 1,028,278 10-25-87 10-25 yrs.
construction at
222 Merrimac St.
-------------------------------------------------
Totals $5,663,533 $46,236,197 $51,899,730 $24,404,249
=================================================
(a) Cost for Federal income tax purposes approximates amounts reflected in
Column E.
69
The First Republic Corporation of America and Subsidiaries
Schedule III--Real Estate and Accumulated Depreciation (continued)
YEAR ENDED JUNE 30,
--------------------------------------------------------------------------
2001 2002
--------------------------------------------------------------------------
REAL ESTATE OWNED ACCUMULATED REAL ESTATE OWNED ACCUMULATED
DEPRECIATION DEPRECIATION
--------------------------------------------------------------------------
The following is a reconciliation of the
real estate owned and accumulated
depreciation, beginning and end of the year:
Balance, beginning of year $50,334,210 $19,405,296 $50,473,264 $20,845,210
Additions 1,524,376 1,944,224 945,152 1,920,504
Deductions:
Write-offs of fully depreciated assets
(295,601) (295,601) (46,410) (46,410)
Sale of assets (1,089,721) (208,709) (1,442,868) -
--------------------------------------------------------------------------
Balance, end of year $50,473,264 $20,845,210 $49,929,138 $22,719,304
==========================================================================
YEAR ENDED JUNE 30,
---------------------------------------
2003
---------------------------------------
REAL ESTATE OWNED ACCUMULATED
DEPRECIATION
---------------------------------------
The following is a reconciliation of the
real estate owned and accumulated
depreciation, beginning and end of the year:
Balance, beginning of year $49,929,138 $22,719,304
Additions 2,158,372 1,872,725
Deductions:
Write-offs of fully depreciated assets
(187,780) (187,780)
Sale of assets - -
---------------------------------------
Balance, end of year $51,899,730 $24,404,249
=======================================
Note: Includes assets used in the real estate and hotel operations.
70
LANGOMORRO, LANGOSTINERA
EL MORRO CIA. LTDA.
AND ITS SUBSIDIARY AND
AFFILIATED COMPANIES
------------------------------------------
AUDIT REPORT ON THE CONSOLIDATED AND
COMBINED FINANCIAL STATEMENTS
For the years ended June 30, 2003 and 2002
71
[LETTERHEAD OF BDO]
Independent Auditor's Report
To the Board of Directors
Langomorro, Langostinera El Morro Cia. Ltda. and its
subsidiary 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
subsidiary and affiliated companies as of June 30, 2003 and 2002, and
the related consolidated and combined statements of operations,
stockholders' equity and cash flows for the years then ended. 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 subsidiary and affiliated
companies as of June 30, 2003 and 2002, 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.
/s/ BDO STERN
August 4, 2003
Guayaquil, Ecuador
72
LANGOMORRO, LANGOSTINERA EL MORRO CIA. LTDA.
AND ITS SUBSIDIARY AND AFFILIATED COMPANIES
CONSOLIDATED AND COMBINED BALANCE SHEETS
(EXPRESSED IN US DOLLARS)
- ---------------------------------------------------------------------------------------------------
AS OF JUNE 30, 2003 2002
- ---------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash in banks 21,169 25,997
Accounts receivable (Note A) 17,256 22,666
Due from related parties (Note B) 850,705 586,306
Inventories (Note C) 851,986 835,404
Prepaid expenses 17,614 28,139
- ---------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,758,730 1,498,512
Property, machinery and equipment (Note D) 12,067,477 12,551,953
- ---------------------------------------------------------------------------------------------------
13,826,207 14,050,465
- ---------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Loans payable (Note E) 3,176,734 3,176,734
Accounts payable (Note F) 132,858 235,605
Due to related parties (Note G) 2,483,025 1,636,110
Accrued expenses (Note H) 4,627,134 3,652,340
- ---------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 10,419,751 8,700,789
Long-term debt (Note I) 8,928,021 8,928,021
- ---------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 19,347,772 17,628,810
- ---------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Paid-in capital (Note J) 6,200,550 6,200,550
Contributions for future capital increases (Note K) 10,387,789 9,557,789
Accumulated deficit (Note L) (22,109,904) (19,336,684)
- ---------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY (5,521,565) (3,578,345)
- ---------------------------------------------------------------------------------------------------
13,826,207 14,050,465
- ---------------------------------------------------------------------------------------------------
SEE SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
AND NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
73
LANGOMORRO, LANGOSTINERA EL MORRO CIA. LTDA.
AND ITS SUBSIDIARY AND AFFILIATED COMPANIES
CONSOLIDATED AND COMBINED STATEMENTS OF LOSSES
(EXPRESSED IN US DOLLARS)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED JUNE 30, 2003 2002 2001
- --------------------------------------------------------------------------------
INCOME:
Net sales (Note M) 570,192 244,723 261,678
Others, net 182,197 - 23,529
- --------------------------------------------------------------------------------
752,389 244,723 285,207
- --------------------------------------------------------------------------------
COST AND OPERATING EXPENSES:
Cost of sales (2,220,344) (773,893) (827,652)
Administrative expenses (183,662) (130,283) (143,323)
Financial expenses (1,121,603) (1,165,190) (1,200,612)
Others, net - (615,752) -
- --------------------------------------------------------------------------------
(3,525,609) (2,685,118) (2,171,587)
- --------------------------------------------------------------------------------
Net Loss (2,773,220) (2,440,395) (1,886,380)
- --------------------------------------------------------------------------------
SEE SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
AND NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
74
LANGOMORRO, LANGOSTINERA EL MORRO CIA. LTDA.
AND ITS SUBSIDIARY AND AFFILIATED COMPANIES
CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(EXPRESSED IN US DOLLARS)
- ------------------------------------------------------------------------------------------------------------------
CONTRIBUTIONS
FOR FUTURE
PAID-IN CAPITAL ACCUMULATED
CAPITAL INCREASES DEFICIT TOTAL
- ------------------------------------------------------------------------------------------------------------------
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)
Additional contributions for future capital increases - 830,000 - 830,000
Net loss - - (2,773,220) (2,773,220)
- ------------------------------------------------------------------------------------------------------------------
Balance as of June 30, 2003 6,200,550 10,387,789 (22,109,904) (5,521,565)
- ------------------------------------------------------------------------------------------------------------------
SEE SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
AND NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
75
LANGOMORRO, LANGOSTINERA EL MORRO CIA. LTDA.
AND ITS SUBSIDIARY AND AFFILIATED COMPANIES
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOW - DIRECT METHOD
(EXPRESSED IN US DOLLARS)
- ------------------------------------------------------------------------------
FOR THE YEARS ENDED JUNE 30, 2003 2002
- ------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers 570,192 244,723
Cash paid to suppliers and employees (1,352,329) (58,510)
Financial expenses (3,970) (4,440)
Other incomes (expenses), net 28,644 (223,613)
- ------------------------------------------------------------------------------
Net cash used in operating activities (757,463) (41,840)
- ------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, machinery and equipment (77,365) (523,023)
Decrease permanent investments - 3,066
- ------------------------------------------------------------------------------
Net cash used in investing activities (77,365) (519,957)
- ------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions for future capital increases 830,000 580,000
- ------------------------------------------------------------------------------
Net cash provided by financing activities 830,000 580,000
- ------------------------------------------------------------------------------
Net (decrease) increase in cash (4,828) 18,203
Cash at beginning of the year 25,997 7,794
- ------------------------------------------------------------------------------
Cash at end of the year 21,169 25,997
- ------------------------------------------------------------------------------
SEE SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
AND NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
76
LANGOMORRO, LANGOSTINERA EL MORRO CIA. LTDA.
AND ITS SUBSIDIARY AND AFFILIATED COMPANIES
RECONCILIATIONS OF NET LOSS TO NET CASH USED IN OPERATION ACTIVITIES
(EXPRESSED IN US DOLLARS)
- -------------------------------------------------------------------------------
FOR THE YEARS ENDED JUNE 30, 2003 2002
- -------------------------------------------------------------------------------
Net loss (2,773,220) (2,440,395)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH USED IN OPERATING ACTIVITIES:
Depreciation 558,374 579,372
Decrease in property, machinery and equipment, net 3,467 410,070
Remission of interests payable to
Statecourt Enterprise, Inc. (153,553) -
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Decrease in accounts receivable 5,410 8,507
Increase in inventories (16,582) (824,042)
Decrease (increase) in prepaid expenses 10,525 (13,474)
Decrease (increase) in accounts payable (102,747) 181,561
Increase in related parties, net 582,516 888,885
Increase in accrued expenses 1,128,347 1,167,676
- -------------------------------------------------------------------------------
Net cash used in operating activities (757,463) (41,840)
- -------------------------------------------------------------------------------
SEE SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
AND NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
77
LANGOMORRO, LANGOSTINERA EL MORRO CIA. LTDA.
AND ITS SUBSIDIARY AND AFFILIATED COMPANIES
SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
- --------------------------------------------------------------------------------
BUSINESS Langomorro, Langostinera El Morro Cia. Ltda., was
DESCRIPTION established on November 11, 1981 in Guayaquil,
Ecuador, for the purpose of carrying out fishing
activities basically related to nursery, grow-out
and harvest of shrimp. The Company purchased
99.98% of the capital stock of Camazul Cia. Ltda.
and both Companies maintain business with Isca,
Isla Camaronera C. A.
On May 23, 1991, 38% of the total shares issued by
Langomorro, Langostinera El Morro Cia. Ltda. and
Camazul Cia. Ltda. were 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 S. A. The accounts payable
balances as of June 30, 2003 and 2002 correspond
to advances received that will be settled against
shrimp sales.
OPERATIONS Since the beginning of its operations in 1981 and
up to June 30, 2003, the Company has had recurrent
losses. As of June 30, 2003 and 2002 the
accumulated losses are US$22,109,904 and
US$19,336,684 respectively. The main reason for
these recurrent losses are principally the
deficiencies in the exploitation and production of
the 548 hectares of land available in the ponds
and grow-out pools.
From year 1999 and to date, the Company and its
subsidiary and affiliated companies have had an
important decrease in its levels of production due
mainly to the white spot virus. The Administration
has looked for different alternatives to eliminate
that virus, which not yet have given the desired
results. At the date of this report, the Company
and its subsidiary and affiliated companies wait
for the results of a related company, which is
working in polyculture of tilapia and shrimp in
the same pools. The Companies consider that this
new kind of production would be adapted and would
allow them to recover their levels of production.
PRINCIPLES OF CONSOLIDATION The consolidated and combined financial statements
AND COMBINATION include the accounts of Camazul Cia. Ltda.
(subsidiary) and Isca, Isla Camaronera C. A.
(affiliated company) 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.
78
LANGOMORRO, LANGOSTINERA EL MORRO CIA. LTDA.
AND ITS SUBSIDIARY AND AFFILIATED COMPANIES
SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
- --------------------------------------------------------------------------------
ACCOUNTING PRINCIPLES The Company and its subsidiary and 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 US 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
expenses as incurred, whereas major improvements
are capitalized. 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.
TRANSLATION OF FOREIGN The financial position, the results of operations
CURRENCY AND EXCHANGE RATES and the cash flows of the Company were translated
into US Dollars in accordance with accounting
principles generally accepted in the United States
of America.
In conformity with these accounting principles,
inventories (and their transference 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.
MANAGEMENT The accounting policies followed by the Company to
ESTIMATES 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 sheet
dates. Actual results could differ from those
estimates.
79
LANGOMORRO, LANGOSTINERA EL MORRO CIA. LTDA.
AND ITS SUBSIDIARY 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, 2003 2002
- --------------------------------------------------------------------------------
Insurance claims 1,146 15,146
Tax withholdings 1,858 5,957
Employees 1,629 1,396
Advances to contractors 3,666 -
Others 8,957 167
- --------------------------------------------------------------------------------
17,256 22,666
- --------------------------------------------------------------------------------
B. DUE FROM A summary of this account follows:
RELATED
PARTIES
June 30, 2003 2002
- --------------------------------------------------------------------------------
Larfico, Larvas del Pacifico S. A. 404,841 276,848
Comercorp S. A. 351,386 212,541
Ing. Carlos Perez 36,756 50,986
Inmobiliaria Maria Luciana S. A. 30,934 25,855
Camarecsa, Camarones Ecuatorianos S. A. 18,248 11,534
Comercial Inmobiliaria Golconsa S. A. 6,931 6,931
Bunsen S. A. 892 892
Other companies, individually immaterial 717 719
- --------------------------------------------------------------------------------
850,705 586,306
- --------------------------------------------------------------------------------
Correspond to amounts granted by the Company which
are controlled through intercompany accounts, with
non-interest bearing and without due dates.
C. INVENTORIES A summary of this account follows:
June 30, 2003 2002
- --------------------------------------------------------------------------------
Products in process 844,319 822,295
Materials and supplies 7,667 13,109
- --------------------------------------------------------------------------------
851,986 835,404
- --------------------------------------------------------------------------------
80
LANGOMORRO, LANGOSTINERA EL MORRO CIA. LTDA.
AND ITS SUBSIDIARY AND AFFILIATED COMPANIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
- --------------------------------------------------------------------------------
D. PROPERTY, MACHINERY A summary of this account follows:
AND EQUIPMENT
June 30, 2003 2002
- --------------------------------------------------------------------------------
AT ACQUISITION COST:
Recirculation of water 7,404,610 7,404,610
Pools and reservoirs 4,495,882 4,487,693
Machinery and equipment 996,420 952,856
Wall repairs 776,928 776,928
Pumping station 750,600 756,616
Fishing boats 433,012 414,745
Civil works 371,204 367,066
Sluices for channels 314,125 252,971
Radio equipment and others 115,364 89,163
Housing for personnel 83,103 82,310
Vehicles 71,056 83,328
Furniture and office equipment 48,658 58,714
Bridge and wharf 30,094 30,094
Computer equipment 6,592 9,118
Laboratory equipment 5,027 5,027
Land 4,184 4,184
Construction in progress - 94,247
Tools and fishing tackle 3,342 3,634
- --------------------------------------------------------------------------------
15,910,201 15,873,304
Less accumulated depreciation 3,842,724 3,321,351
- --------------------------------------------------------------------------------
12,067,477 12,551,953
- --------------------------------------------------------------------------------
E. LOANS As of June 30, 2003 and 2002, correspond to loans
PAYABLE granted by Marchelot S. A. in December 23, 1998,
and yield an annual interest rate of 7.33%. These
obligations have the personal warranty of the
Company's President.
As of June 30, 2003 the Company had not subscribed
the loan contract related to the proportional part
of the loan granted by Overseas Private Investment
Corporation (OPIC) to Marchelot S. A., which was
partially assigned to the Langomorro Companies
Group.
81
LANGOMORRO, LANGOSTINERA EL MORRO CIA. LTDA.
AND ITS SUBSIDIARY AND AFFILIATED COMPANIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
- --------------------------------------------------------------------------------
F. ACCOUNTS A summary of this account follows:
PAYABLE
June 30, 2003 2002
- --------------------------------------------------------------------------------
SUPPLIERS:
Superintendent of Companies 19,593 -
Segrio Seguridad S. A. 16,963 16,711
Bank overdraft 12,888 66,624
Shrimp Improvement 7,800 -
Gerenfoque S. A. 6,104 6,720
Empacadora Promariscos S. A. (1) 4,292 27,589
Rey Gus S. A. 2,092 -
Zeigler Bros 1,980 -
Insurance payable - 25,468
Liris S. A. - 6,032
Others 9,830 18,297
- --------------------------------------------------------------------------------
81,542 167,441
Tax payable withholdings 51,316 68,164
- --------------------------------------------------------------------------------
132,858 235,605
- --------------------------------------------------------------------------------
G. DUE TO (1) Corresponds to advances received from
RELATED Empacadora Promariscos S.A., which will be
PARTIES settled with future shrimp sells.
A summary of this account follows:
June 30, 2003 2002
- --------------------------------------------------------------------------------
Emporsa, Empacadora y
Exportadora S.A. (2) 2,141,289 1,294,008
Bluepoints Co. Inc. (1) 306,937 306,937
Marchelot S.A. (2) 34,499 34,865
Others 300 300
- --------------------------------------------------------------------------------
2,483,025 1,636,110
- --------------------------------------------------------------------------------
(1) As of June 30, 2003 and 2002, his account
includes 295,814, that correspond to advances
received in former periods, which will be
settled with future exports of shrimp.
82
LANGOMORRO, LANGOSTINERA EL MORRO CIA. LTDA.
AND ITS SUBSIDIARY AND AFFILIATED COMPANIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
- --------------------------------------------------------------------------------
(2) The obligations with related parties
correspond to loans granted by these
companies, with non-interest bearing and
without due dates.
H. ACCRUED A summary of this account follows:
EXPENSES
June 30, 2003 2002
- --------------------------------------------------------------------------------
Personnel benefits 29,647 18,933
INTEREST PAYABLE:
Bluepoints Co. Inc. 3,527,003 2,645,459
Marchelot S.A. 1,070,484 834,395
Statecourt Enterprise, Inc. - 153,553
- --------------------------------------------------------------------------------
4,627,134 3,652,340
- --------------------------------------------------------------------------------
I. LONG-TERM A summary of this account follows:
DEBT
June 30, 2003 2002
- --------------------------------------------------------------------------------
Statecourt Enterprise, Inc. 405,000 405,000
BLUEPOINTS CO. INC.: (1)
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
- --------------------------------------------------------------------------------
(1) The obligation with Bluepoints Co. Inc.
started in June 1998, yields an annual
interest rate of 9.25%, and without due
dates.
83
LANGOMORRO, LANGOSTINERA EL MORRO CIA. LTDA.
AND ITS SUBSIDIARY AND AFFILIATED COMPANIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
- --------------------------------------------------------------------------------
J. PAID-IN A summary of this account follows:
CAPITAL
June 30, 2003 2003
- --------------------------------------------------------------------------------
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. by 171,573 and
Isca, Isla Camaronera C. A. by 869,972,
corresponding to 10,000 and 73,118 ordinary and
nominative shares, respectively.
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
increases were performed 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.
K. CONTRIBUTIONS A summary of this account follows:
FOR FUTURE
CAPITAL
INCREASES
2003 2002
- --------------------------------------------------------------------------------
Balance as of June 30, 9,557,789 8,977,789
Additions 830,000 580,000
- --------------------------------------------------------------------------------
Ending Balance 10,387,789 9,557,789
- --------------------------------------------------------------------------------
84
LANGOMORRO, LANGOSTINERA EL MORRO CIA. LTDA.
AND ITS SUBSIDIARY AND AFFILIATED COMPANIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
- --------------------------------------------------------------------------------
L. ACCUMULATED As of June 30, 2003 and 2002 the Companies
DEFICIT maintained an accumulated deficit of 22,109,904
and 19,336,684 respectively. In addition the
stockholders' equity is negative by 5,521,565 in
2003 and 3,578,345 in 2002, and had a negative
working capital of 8,661,021 in 2003 and 7,202,277
in 2002. The main reason for 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
subsidiary and affiliated companies 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
Companies cannot continue as a going concern.
According to the article 198 of the Ecuadorian
Companies' Law, when in each Company (Langomorro,
Langostinera El Morro Cia. Ltda., Isca, Isla
Camaronera C. A. and Camazul Cia. Ltda.) the
losses reach 50% or more of the paid-in capital
and all the reserves, the companies must be placed
into liquidation if the stockholders do not
increase the paid-in capital. Managements of the
Companies estimate the causes for liquidation will
be solved and will be overcome, and the companies
will continue operating normally.
As of June 30, 2003 the Companies had tax loss
carryforwards. However, they 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
year 2003. The losses may be deducted in the 5
years following the year in which they originated,
without exceeding 25% of each year's taxable
income.
The Company's stockholders intend to continue
supporting the operations of the Company and its
subsidiary and affiliated companies as they have
done in the past.
85
LANGOMORRO, LANGOSTINERA EL MORRO CIA. LTDA.
AND ITS SUBSIDIARY AND AFFILIATED COMPANIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
- --------------------------------------------------------------------------------
In this regard, the Stockholders intend to
capitalize as much as the long term debt as
required. Stockholders intend to continue to fund
the operations and capital improvements of the
Company. The initial positive results achieved in
"Polyculture" which is a method of farming fish
and shrimp together which has proven to be a
successful and profitable method of combating
white spot syndrome is very encouraging.
Stockholders consider the implementation of this
procedure along with the tolerine product and the
patented ozone operation will be a very profitable
shrimp farming operation.
M. NET SALES The volumes of shrimp sold by the companies
(individually) during the years ended on June 30,
2003 and 2002, were as follows:
Value
-------------------------
Volume (pounds) Years ended on June 30
--------------------------------------------------
Company 2003 2002 2003 2002
- --------------------------------------------------------------------------------
Langomorro, Langostinera
El Morro Cia Ltda. and
Camazul Cia Ltda. 167,569 80,303 384,916 209,033
Isca, Isla Camaronera C.A. 89,531 15,670 185,276 35,690
- --------------------------------------------------------------------------------
Total 257,100 95,973 570,192 244,723
- --------------------------------------------------------------------------------
As of June 30, 2003 and 2002, the shrimps sold by
Langomorro, Langostinera El Morro Cia. Ltda. were
produced using 393 hectares, resulting in a
productivity of 426 and 204 pounds per hectare,
respectively, in those years.
The shrimps sold by Isca, Isla Camaronera C. A.
were produced using 149 hectares, resulting in a
productivity of 601 and 105 pounds per hectare,
respectively, in those years.
86
LANGOMORRO, LANGOSTINERA EL MORRO CIA. LTDA.
AND ITS SUBSIDIARY AND AFFILIATED COMPANIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
- --------------------------------------------------------------------------------
N. RELATED The Company has bought 268,890 and 200,262 pounds
COMPANIES' of larvae from Larfico, Larvas del Pacifico S. A.
TRANSACTIONS during the years ended on June 30, 2003 and 2002,
respectively.
O. 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
P. SUBSEQUENT EVENTS Between June 30, 2003 and the auditor's report
date (August 4, 2003) there have not been any
subsequent events which the Company's Management
considers may have an important effect on the
accompanying financial statements.
- --------------------------------------------------------------------------------
87
EXHIBIT A
LANGOMORRO, LANGOSTINERA EL MORRO CIA, LTDA. AND ITS
SUBSIDIARY AND AFFILIATED COMPANIES
DETAIL OF CONTRIBUTIONS FOR FUTURE CAPITAL INCREASES
FOR THE YEAR ENDED JUNE 30, 2003
(EXPRESSED IN US DOLLARS)
REPORTED ON ADDITIONS FROM JULY 1, 2002 REPORTED ON REAL
LEGAL PARTICIPATION STOCKHOLDERS JUNE 30, 2002 TO JUNE 30, 2003 JUNE 30, 2003 PARTICIPATION
- ------------------- -------------------------------- ------------- --------------------------- ------------- -------------
50% Camarecsa S.A. 5,137,586 415,000 5,552,586 54%
38% Marchelot S.A. 3,894,021 315,400 4,209,421 41%
12% Inmobiliaria Maria Luciana S.A. 526,181 99,600 625,781 5%
Others 1 - 1 -
- ------------------- ------------- --------------------------- ------------- -------------
100% 9,557,789 830,000 10,387,789 100%
- ------------------- ------------- --------------------------- ------------- -------------
88
EXHIBIT B
LANGOMORRO, LANGOSTINERA EL MORRO CIA, LTDA. AND ITS
SUBSIDIARY AND AFFILIATED COMPANIES
STATEMENT OF CONSOLIDATION AND COMBINATION
AS OF JUNE 30, 2003
(EXPRESSED IN US DOLLARS)
CAMAZUL INTERCOMPANY TOTAL
ACCOUNTS LANGOMORRO CIA. LTDA. ISCA C.A. CIA. LTDA. SUBTOTAL ELIMINATION CONSOLIDATED
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash in banks 20,740 429 - 21,169 - 21,169
Accounts receivable 14,062 2,489 705 17,256 - 17,256
Due from related and affiliated parties 4,190,500 514 589,912 4,780,926 (3,930,221) 850,705
Inventories 413,322 310,545 128,119 851,986 - 851,986
Prepaid expenses 7,725 5,621 4,268 17,614 - 17,614
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 4,646,349 319,598 723,004 5,688,951 (3,930,221) 1,758,730
Property, machinery and equipment 8,473,121 2,365,319 1,229,037 12,067,477 - 12,067,477
Permanent investments 1 - - 1 (1) -
- ------------------------------------------------------------------------------------------------------------------------------------
13,119,471 2,684,917 1,952,041 17,756,429 (3,930,222) 13,826,207
- ------------------------------------------------------------------------------------------------------------------------------------
89
EXHIBIT C
LANGOMORRO, LANGOSTINERA EL MORRO CIA, LTDA. AND ITS
SUBSIDIARY AND AFFILIATED COMPANIES
STATEMENT OF CONSOLIDATION AND COMBINATION
AS OF JUNE 30, 2003
(EXPRESSED IN US DOLLARS)
CAMAZUL INTERCOMPANY TOTAL
ACCOUNTS LANGOMORRO CIA. LTDA. ISCA C.A. CIA. LTDA. SUBTOTAL ELIMINATION CONSOLIDATED
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Loans payable 3,128,400 48,334 - 3,176,734 - 3,176,734
Accounts payable 104,073 14,908 13,877 132,858 - 132,858
Due to related parties 2,606,687 2,321,751 1,484,808 6,413,246 (3,930,221) 2,483,025
Accrued expenses 3,690,894 672,572 263,668 4,627,134 - 4,627,134
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 9,530,054 3,057,565 1,762,353 14,349,972 (3,930,221) 10,419,751
Long-term debt 6,926,355 1,451,666 550,000 8,928,021 - 8,928,021
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 16,456,409 4,509,231 2,312,353 23,277,993 (3,930,221) 19,347,772
- ------------------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Paid-in capital 4,887,880 1,312,670 1,036,616 7,237,166 (1,036,616) 6,200,550
Contributions for future capital increases 8,883,759 1,504,030 839,922 11,227,711 (839,922) 10,387,789
Decrease of equity for valuation of investments (1,791,400) - - (1,791,400) 1,791,400 -
Accumulated deficit (15,317,177) (4,641,014) (2,236,850) (22,195,041) 85,137 (22,109,904)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY (3,336,938) (1,824,314) (360,312) (5,521,564) (1) (5,521,565)
- ------------------------------------------------------------------------------------------------------------------------------------
13,119,471 2,684,917 1,952,041 17,756,429 (3,930,222) 13,826,207
- ------------------------------------------------------------------------------------------------------------------------------------
90
EXHIBIT D
LANGOMORRO, LANGOSTINERA EL MORRO CIA, LTDA. AND ITS
SUBSIDIARY AND AFFILIATED COMPANIES
STATEMENT OF CONSOLIDATION AND COMBINATION
AS OF JUNE 30, 2003
(EXPRESSED IN US DOLLARS)
CAMAZUL INTERCOMPANY TOTAL
ACCOUNTS LANGOMORRO CIA. LTDA. ISCA C.A. CIA. LTDA. SUBTOTAL ELIMINATION CONSOLIDATED
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME:
Net sales 333,768 185,276 51,148 570,192 - 570,192
Others, net 183,010 (474) (339) 182,197 - 182,197
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 516,778 184,802 50,809 752,389 - 752,389
- -----------------------------------------------------------------------------------------------------------------------------------
COST AND OPERATING EXPENSES:
Cost of sales (1,126,947) (816,832) (276,565) (2,220,344) - (2,220,344)
Administrative expenses (111,506) (24,421) (47,735) (183,662) - (183,662)
Financial expenses (892,672) (165,670) (63,261) (1,121,603) - (1,121,603)
- -----------------------------------------------------------------------------------------------------------------------------------
(2,131,125) (1,006,923) (387,561) (3,525,609) - (3,525,609)
- -----------------------------------------------------------------------------------------------------------------------------------
Net loss (1,614,347) (822,121) (336,752) (2,773,220) - (2,773,220)
Deficit as of June 30, 2002 (13,702,830) (3,818,893) (1,900,098) (19,421,821) 85,137 (19,336,684)
- -----------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED DEFICIT (15,317,177) (4,641,014) (2,236,850) (22,195,041) 85,137 (22,109,904)
- -----------------------------------------------------------------------------------------------------------------------------------
91
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 9, 2003
- ---------------------------------------------- ----------------------------
Harry Bergman, Director
/s/ Irving S. Bobrow Date October 9, 2003
- ---------------------------------------------- ----------------------------
Irving S. Bobrow, Director
/s/ Norman A. Halper Date October 9, 2003
- ---------------------------------------------- ----------------------------
Norman A. Halper, Director
/s/ William M. Silverman Date October 9, 2003
- ---------------------------------------------- ----------------------------
William M. Silverman, Director
/s/ Miriam N. Rosen Date October 9, 2003
- ---------------------------------------------- ----------------------------
Miriam N. Rosen, Director
/s/ Jonathan P. Rosen Date October 9, 2003
- ---------------------------------------------- ----------------------------
Jonathan P. Rosen, Director
92