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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 0R 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 2004 Commission File Number 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
incorporation or organization) Identification No.)
302 Fifth Avenue, New York, NY 10001
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (212) 279-6100
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Former name, former address and former fiscal year, if changed since last
report:
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Sections 13 and 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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 under the Securities Exchange Act of 1934).
Yes No X
As of June 7, 2004, there were 666,616 shares of common stock outstanding.
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL INFORMATION
THE FIRST REPUBLIC CORPORATION OF AMERICA
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, JUNE 30,
2004 2003
------------ --------------
(UNAUDITED) (SEE NOTE BELOW)
ASSETS
Current Assets
Cash and Cash Equivalents $ 1,668,940 $ 2,178,558
Accounts Receivable 4,552,637 4,824,303
Inventories - Note 2 3,673,226 7,489,233
Other Current Assets 5,802,055 7,216,028
------------ --------------
Total Current Assets 15,696,858 21,708,122
------------ --------------
Property, Plant and Equipment 74,630,227 74,582,041
Less: Accumulated Depreciation 35,497,678 34,958,205
------------ --------------
Net Property, Plant and Equipment 39,132,549 39,623,836
------------ --------------
Investments in and Advances to Affiliated Entities 18,420,605 18,462,166
------------ --------------
Other Assets 20,698,118 20,579,552
------------ --------------
TOTAL ASSETS $ 93,948,130 $ 100,373,676
============ ==============
Liabilities and Stockholders' Equity
Current Liabilities $ 19,312,401 $ 11,880,431
Long-Term Debt 14,736,667 22,427,800
Other Liabilities 2,651,371 2,953,074
------------ --------------
TOTAL LIABILITIES 36,700,439 37,261,305
------------ --------------
Stockholders' Equity:
Common Stock 1,175,261 1,175,261
Accumulated Other Comprehensive Loss - Note 5 (1,292,810) (1,354,000)
Other Stockholders' Equity 57,365,240 63,291,110
------------ --------------
Total Stockholders' Equity 57,247,691 63,112,371
------------ --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 93,948,130 $ 100,373,676
============ ==============
NOTE: THE BALANCE SHEET AT JUNE 30, 2003 HAS BEEN DERIVED FROM THE AUDITED
FINANCIAL STATEMENTS AT THAT DATE AND CONDENSED.
SEE NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THE FIRST REPUBLIC CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
Nine months ended Three months ended
March 31, March 31,
2004 2003 2004 2003
---- ---- ---- ----
Revenues
Sales-Textile and Seafood $ 17,022,738 $ 22,259,129 $ 5,753,811 $ 5,891,568
Real Estate and Hotel Operations 16,258,363 15,871,524 5,759,976 5,062,094
Other 1,127,876 1,447,768 335,442 505,425
------------ ------------ ----------- -----------
Total Revenues 34,408,977 39,578,421 11,849,229 11,459,087
------------ ------------ ----------- -----------
Expenses
Cost of Sales - textile and seafood 15,874,625 22,331,744 5,214,357 6,222,722
Operating-real estate and hotel 8,164,790 8,364,946 3,047,729 2,996,094
Selling, general and administrative 5,333,040 6,082,068 1,762,467 1,919,805
Depreciation and amortization 2,722,504 2,810,424 899,668 939,500
Real estate taxes 1,418,470 1,303,952 482,398 427,763
Interest 1,471,066 1,493,595 477,065 499,519
Write off of seafood assets - Note 7 5,005,266 -- -- --
Write off of amount due from minority interest - Note 7 2,055,000 -- -- --
Minority interest share of loss of subsidiaries (1,456,706) (1,450,565) (68,496) (525,897)
------------ ------------ ----------- -----------
Total Expenses 40,588,055 40,936,164 11,815,188 12,479,506
------------ ------------ ----------- -----------
(Loss) Income before income taxes and
equity in loss of affiliated entities (6,179,078) (1,357,743) 34,041 (1,020,419)
Equity in loss of affiliated entities (961,591) (753,755) (271,835) (277,402)
Income taxes - Note 3 1,227,000 (250,000) 91,000 -----
------------ ------------ ----------- -----------
Net Loss $ (5,913,669) $ (2,361,498) $ (146,794) $(1,297,821)
------------ ------------ ----------- -----------
Net Loss per share:
Net Loss - basic and diluted $ (8.87) $ (3.54) $ (0.22) $ (1.95)
============ ============ =========== ===========
Weighted Average shares outstanding:
Basic and diluted 666,653 667,546 666,616 667,534
------------ ------------ ----------- -----------
SEE NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THE FIRST REPUBLIC CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
Nine months ended
March 31,
2004 2003
------------- -------------
OPERATING ACTIVITIES
NET LOSS $ (5,913,669) $ (2,361,498)
Adjustments to Reconcile Net Loss to
Cash provided by (Used in) Operating Activities:
Gain on Sale of Leasehold (175,000) ----
Equity in Loss of Affilated Entities 961,591 753,755
Depreciation and Amortization 2,722,504 2,810,424
Writedown of Property ---- 300,000
Write off of seafood assets 5,005,266 ----
Write off of amount due from minority interest 2,055,000 ----
Deferred Income Taxes (1,436,000) ----
Donation of Land ---- 457,335
Minority Interests' Share of Loss in
Subsidiaries (1,456,706) (1,450,565)
Changes in Operating Assets and Liabilities:
Increase in Accounts Receivable 86,339 540,678
Decrease (Increase) in Inventories 1,109,188 (1,403,269)
Decrease in Other Assets (126,262) (1,008,951)
Increase in Current Liabilities 213,977 186,058
Decrease in Other Liabilities (199,213) (195,110)
------------- -------------
NET CASH PROVIDED BY (USED IN) OPERATIONS 2,847,015 (1,371,143)
------------- -------------
INVESTING ACTIVITIES
Purchase of Property, Plant and Equipment (1,906,262) (2,773,358)
Other (920,030) (1,575,318)
Proceeds from Sale of Leasehold 175,000 ----
------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (2,651,292) (4,348,676)
------------- -------------
FINANCING ACTIVITIES
Proceeds from Notes Payable to Bank ---- 2,750,000
Payments on Mortgages and Notes Payable to Bank (1,193,133) (966,384)
Proceeds from Related Party 500,000 3,500,000
Other Financing Activities (12,208) (5,217)
------------- -------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (705,341) 5,278,399
------------- -------------
DECREASE IN CASH AND CASH EQUIVALENTS (509,618) (441,420)
Cash and Cash Equivalents at Beginning of Period 2,178,558 3,401,100
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,668,940 $ 2,959,680
============= =============
SEE NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THE FIRST REPUBLIC CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
(UNAUDITED)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited condensed financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
nine month period ended March 31, 2004 are not necessarily indicative of the
results that may be expected for the year ended June 30, 2004. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the year ended
June 30, 2003. Certain 2003 amounts have been reclassified to conform with the
2004 presentation.
2. INVENTORIES
MARCH 31, JUNE 30,
2004 2003
------------- -------------
Work-in process and
raw materials $ 1,238,154 $ 1,206,510
Finished goods 2,435,072 6,282,723
------------- -------------
$ 3,673,226 $ 7,489,233
------------- -------------
3. INCOME TAXES
NINE MONTHS ENDED
MARCH 31,
2004 2003
------------- -------------
Federal $(1,436,000) $ ----
State 209,000 250,000
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$(1,227,000) $ 250,000
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4. EARNINGS PER SHARE
Earnings per share are based upon the weighted average shares outstanding. The
Company does not have any dilutive securities.
5. COMPREHENSIVE LOSS
Comprehensive loss for the nine months ended March 31, 2004 totaled $5,852,479
and was comprised of net loss of $5,913,669 and other comprehensive income of
$61,190 related to the changes in the fair value of a derivative swap instrument
the Company entered into as a cash flow hedge in connection with its term loan.
For the nine months ended March 31, 2004, the Company had no items of other
comprehensive income or loss requiring additional disclosure.
THE FIRST REPUBLIC CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
6. INDUSTRY SEGMENTS
NINE MONTHS ENDED
MARCH 31,
2004 2003
----------- -----------
Revenues:
Real Estate $11,515,240 $11,009,825
Hotel 4,841,241 4,953,935
Seafood 10,826,767 16,802,354
Textile 7,210,545 6,800,953
Corporate and Other 15,184 11,354
----------- -----------
$34,408,977 $39,578,421
=========== ===========
Operating (loss) profit:
Real Estate $ 3,335,846 $ 2,815,947
Hotel 262,179 256,389
Seafood (6,067,356) (2,681,032)
Textile 67,129 (246,961)
----------- -----------
Total operating (loss) profit (2,402,202) 144,343
Corporate expenses (2,830,950) (2,586,345)
Corporate interest expense (362,816) (377,660)
Corporate revenue 15,184 11,354
Write off of amount due from minority interest (2,055,000) -----
Equity in loss of affiliated
entities (961,591) (753,755)
Minority interests' share of
loss of subsidiaries 1,456,706 1,450,565
----------- -----------
Loss before income taxes $(7,140,669) $(2,111,498)
=========== ===========
THE FIRST REPUBLIC CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
NINE MONTHS ENDED
MARCH 31,
2004 2003
----------- ------------
Identifiable Assets:
Real Estate $31,549,926 $ 31,668,277
Hotel 3,025,532 3,850,693
Seafood 24,922,692 33,762,415
Textile 6,956,629 7,413,135
Corporate 27,493,351 25,195,145
----------- ------------
$93,948,130 $101,889,665
=========== ============
Depreciation and amortization:
Real Estate $ 1,364,046 $ 1,366,172
Hotel 599,016 605,682
Seafood 391,984 425,486
Textile 339,348 358,991
Corporate and other 28,110 54,093
----------- ------------
$ 2,722,504 $ 2,810,424
=========== ============
Capital expenditures - net:
Real Estate $ 783,903 $ 1,685,273
Hotel 70,852 41,964
Seafood 981,054 871,694
Textile 57,036 164,083
Corporate and other 13,417 10,344
----------- ------------
$ 1,906,262 $ 2,773,358
=========== ============
Geographic information:
Revenues
United States $33,469,406 $ 39,062,925
Ecuador 939,571 515,496
----------- ------------
$34,408,977 $39,578,421
=========== ============
Identifiable assets:
United States $65,797,130 $74,564,665
Ecuador 28,151,000 27,325,000
----------- ------------
$93,948,130 $101,889,665
=========== ============
Results of operations are shown in Managements Discussion and Analysis of
Financial Condition and Results of Operations.
THE FIRST REPUBLIC CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
7. OTHER MATTERS
During the quarter ended December 31, 2003, the Company recorded a $5,005,000
loss for the apparent theft of inventory, advances due from inventory suppliers
and other receivables, relating to the domestic seafood operations of Bluepoints
Company, Inc. ("Bluepoints"), its 80.2% subsidiary. Of the total loss provision
(i) $2,340,000 relates to the apparent theft of approximately 160,000 lbs. of
lobster tails which were in the possession and control of a joint venture
partner/sales agent of Bluepoints, (ii) $1,607,000 relates to advances made by
Bluepoints to this joint venture partner/sales agent for new lobster tails and
shrimp inventory, (iii) $630,000 relates to other receivables due from this
joint venture partner/sales agent and, (iv) $428,000 relates to a markdown of
Bluepoints' remaining lobster tail inventory. Bluepoints has terminated its
relationship with the joint venture partner/sales agent and has referred the
matter to law enforcement authorities. Bluepoints has filed a notice of a claim
with its insurer with respect to its loss for approximately $3,697,000.
Bluepoints' insurance carrier has reserved all of its rights with respect to the
claim. Any recovery of such amount will be recognized in earnings upon receipt.
After giving effect to current and deferred tax benefits related to the loss and
the additional amount payable under the Bluepoints Guaranty described below, the
Company's net loss attributable to the events described in the preceding
paragraph is $2,609,000.
Jonathan P. Rosen and the Estate of A.A. Rosen (the "Guarantors") had guaranteed
(the "Bluepoints Guaranty") to the Company payment of 19.8% of a series of
loans and investments in Bluepoints not funded by the minority owners of
Bluepoints. The Estate of A.A. Rosen had also guaranteed (the "Additional
Guarantees") repayment of (i) 56.8% of advances, including interest thereon,
made by the Company to two Ecuadoran companies engaged in shrimp farming
operations in which Bluepoints owns a 38% interest and (ii) 25% of advances,
including interest, made by the Company to an Ecuadoran corporation that owns a
hatchery that produces post-larval shrimp in which Bluepoints owns a 62.5%
interest. The Bluepoints Guaranty , while still in effect with respect to
amounts receivable through December 31, 2003, was terminated by the Guarantors
effective as of January 1, 2004 with respect to any minority interest amounts
originating subsequent to December 31, 2003. The Additional Guarantees remain in
effect. The minority owners of Bluepoints have agreed to convey to the Company
their interests in Bluepoints for the purpose of partially satisfying
obligations due under the Bluepoints Guaranty. As of December 31, 2003 (i) the
minority owners share (e.g. 19.8%) of the deficit in Bluepoints' shareholders
equity was $11,066,000, $4,110,000 of which represented the minority interests'
share of interest that the Company had accrued on its loans to Bluepoints and
(ii) approximately $9,714,000, inclusive of interest, was outstanding under the
Additional Guarantees. The Guarantors have questioned whether the Bluepoints
Guaranty covered the payment of interest. In order to deal with this matter and
other issues relating to both guarantees, the Board of Directors established a
special committee of the Board for the purpose of (i) determining the value of
the minority interests of Bluepoints and the amount of the obligations due under
the Bluepoints Guaranty in excess of the value of the minority interests and
(ii) negotiating and approving the terms of the consideration to be received by
the Company from the Guarantors. After consulting with legal counsel, the
committee has concluded that the Bluepoints Guaranty was ambiguous with respect
to the payment of interest and has agreed to accept $2,055,000 in settlement of
the accrued interest under the Bluepoints Guaranty. The remaining $2,055,000 of
accrued interest has been forgiven and written off to expense in the quarter
ended December 31, 2003. The Estate of A.A. Rosen has also agreed to satisfy all
obligations, including interest, due under the Additional Guarantees promptly
after the committee completes its work. The committee has also retained an
investment banking firm to render a fairness opinion.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(IN THOUSANDS)
The following discussion should be read in conjunction with the accompanying
condensed consolidated financial statements of the Company and the notes
thereto.
FORWARD-LOOKING STATEMENTS
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended and Section 21B of the Securities Act of 1934, as amended. Such
forward-looking statements include statements regarding the intent, belief or
current expectations of the Company and its management and involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things, the
following: the ability of the Company to increase production at its Ecuadorian
shrimp farms and to address the virus problem that is affecting shrimp
production in Ecuador, the availability of scallops in the area covered by the
Company's Cape Canaveral, Florida operations, the success of the Company's
Mariculture System, Tolerine product and micro-screening efforts, demand for the
Company's textile services, and general economic and business conditions, which
will, among other things, affect the demand for space and rooms at the Company's
real estate and hotel properties, the availability and creditworthiness of
prospective tenants, lease rents and terms and availability of financing; and
adverse changes in the real estate markets, including, among other things,
competition with other companies, risk of real estate development and
acquisition, governmental actions and initiatives and environmental safety
requirements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
(IN THOUSANDS)
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 principals generally accepted
in the United States. The preparation of these financial statements requires
management to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses. The Company bases its estimates on
historical experience and assumptions that are believed to be reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying value of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under
different assumptions or conditions. The Company believes the following critical
accounting policies affect its significant judgments and estimates used in the
preparation of its consolidated financial statements.
VALUATION OF PROPERTY HELD FOR USE AND SALE
On a quarterly basis, the Company reviews the carrying value of both properties
held for use and for sale. The Company records impairment losses and reduces the
carrying value of properties when indicators of impairment are present and the
expected undiscounted cash flows related to those properties are less than their
carrying amounts. In cases where the Company does not expect to recover its
carrying costs on properties held for use, the Company reduces its carrying cost
to fair value, and for properties held for sale, the Company reduces its
carrying value to fair value less costs to sell. Management does not believe
that the value of any of its properties are impaired as of March 31, 2004.
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 March 31,
2004.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
(IN THOUSANDS)
RESULTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 2004 AND 2003
Loss from operations before income taxes and minority interests increased
$5,035. The components are as follows
(DECREASE)
2004 2003 INCREASE
-------- -------- --------
Real Estate $ 3,336 $ 2,816 $ 520
Hotel 262 256 6
Seafood (7,029) (3,435) (3,594)
Textiles 67 (247) 314
Corporate (5,233) (2,952) (2,281)
-------- -------- --------
$(8,597) $(3,562) $(5,035)
-------- -------- --------
REAL ESTATE
Revenues increased $505 and earnings increased $520. The increase in
earnings was attributable to higher revenues due substantially to a $465 lease
termination payment from a tenant at our Newburyport, MA. Property. We are
currently negotiating a lease with a new tenant to occupy the vacated premises.
HOTEL
Revenues decreased $113 over last year and hotel earnings increased $6 due
to lower operating costs..
SEAFOOD
Revenues decreased $5,976 in the current period. Losses continued in the
seafood division due primarily to continuing losses in Ecuador due to lower than
anticipated shrimp production. Losses in Ecuador were $1,862 this year as
compared to last years loss of $2,179 due principally to the continuation of the
White Spot Virus in Ecuador that has decimated that country's shrimp production.
Scallop operations in Florida lost $51 (including a $175 gain on the sale of a
leasehold no longer being used by the company) as compared to a loss of $243
last year. Bluepoints domestic operations had a loss of $5,116 as compared to a
loss of $1,013 last year as a result of the seafood inventory related loss
discussed in Note 7 of the notes to the condensed consolidated financial
statements.
TEXTILES
As a result of lower operating margins due to increased competition, Hanora
Spinning's earnings decreased $196 to $159 for the period. Hanora South and J &
M Dyers recognized a combined loss of $92 compared to last year's loss of $230.
Whitlock Combing incurred a loss of $372 last year primarily relating to a $300
impairment loss recognized on its property in South Carolina (which was sold in
April 2003). Overall, textile revenues increased $410.
CORPORATE/OTHER
Corporate expenses, including interest on the Company's term loan and
revolving line of credit, increased by $2,281. As discussed in Note 7 of the
notes to the condensed consolidated financial statements, $2,055 of accrued
interest due from minority owners of Bluepoints Company Inc. has been forgiven
and written off to expense. Professional expenses increased by $138 relating to
the seafood inventory loss discussed in Note 7 of the notes to the condensed
consolidated financial statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
(IN THOUSANDS)
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2004 AND 2003
Loss from operations before income taxes, and minority interests decreased
$1,518. The components are as follows
(DECREASE)
2004 2003 INCREASE
-------- -------- --------
Real Estate $ 1,285 $ 675 $ 610
Hotel (34) (63) 29
Seafood (566) (1,335) 769
Textiles 41 (272) 313
Corporate (1,032) (829) (203)
-------- -------- --------
$ (306) $ (1,824) $ 1,518
-------- -------- --------
REAL ESTATE
Revenues increased $643 and earnings increased $610, due substantially to
the $465 lease termination payment received at our Newburyport, MA. property.
HOTEL
Revenues increased $57 over last year and hotel earnings increased $29 due
to the higher revenues.
SEAFOOD
Revenues decreased $648 in the current period. Losses in the seafood
division were principally due to continuing losses in Ecuador due to lower than
anticipated shrimp production. Losses in Ecuador were $479 this year as compared
to last years loss of $1,022. Scallop operations in Florida lost $98 as compared
to a loss last year of $83. Bluepoints domestic operations had a profit of $11
as compared to a loss of $230 last year.
TEXTILES
Hanora Spinning's earnings decreased $63 to $46. Hanora South and J & M
Dyers recognized a combined loss of $5 compared to last years loss of $89.
Whitlock Combing incurred a loss of $292 last year relating to its property in
South Carolina which was sold in April 2003. Overall, textiles revenues
increased $327.
CORPORATE/OTHER
Corporate expenses, including interest on the Company's term loan and
revolving line of credit, increased by $203 due primarily to increased
professional fees of $102 relating to the seafood inventory loss previously
discussed and increased salary and fringe expense of $40.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
(IN THOUSANDS)
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended March 31, 2004 working capital decreased by
approximately $13,443 as compared to June 30, 2003. As of March 31, 2004,
current liabilities exceeded current assets by approximately $3,616. Included in
the balance of current liabilities at March 31, 2004 is $6,857 relating to the
balance on the term loan provided under the Company's credit agreement with its
principal lender that is described below. The term loan matures on October 21,
2007 but has been reclassified as a current liability as a result of the
Company's inability to satisfy minimum debt service coverage requirements for
the last two fiscal quarters, which constitutes a technical default under the
term loan. The Company remains current in making all required debt service
payments under the loans. The Company has been working with the lender to
restructure the term loan facility in order to restore compliance with the loan
covenants on an ongoing basis and has been informed that the lender has obtained
credit committee approval to restructure the loan. Pursuant to the proposed
restructuring, on closing the lender will waive the existing default and the
Company will provide additional collateral for the loan consisting of its office
building in Liverpool, New York. The Company anticipates that the restructuring
will close within the next month, and upon such closing would reclassify the
term loan back to a long term liability.
Net cash provided by operating activities was approximately $2,847. Net cash
used in financing activities was approximately $705. Net cash of approximately
$2,651 was used in investing activities.
The Company borrowed an additional $500 during the period from an entity
controlled by a major stockholder to finance the importation and sale of lobster
tails. The total amount of loans owed to this entity is $3,000. The loan bears
interest at prime +1% and has no fixed repayment terms or maturity dates.
The Company's credit agreement with its principal lender provided for a $7,336
term loan with an interest rate of LIBOR plus 1.75% per annum and a $3,000
revolving line of credit with an interest rate equal to either (a) LIBOR plus 2%
or, (b) the Alternate Base Rate (as defined) plus 0.50%. These loans are also
collateralized by a mortgage on the East Newark Industrial Center. The term loan
requires amortization payments of $359 per annum. The term loans matures on
October 21, 2007 and the revolving line of credit matures on October 21, 2005.
The Company entered into an interest rate swap agreement on January 13, 2003
which fixed the all-in interest rate on the term loan at 5.53% per annum. At
March 31, 2004 the term loan balance was $6,857 and $2,750 was outstanding under
the revolving line of credit which bore interest at 3.125% at March 31, 2004
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company currently has a variable rate term loan and a variable rate
involving line of credit which had outstanding balances of approximately $6,857
and $2,750 respectively, at March 31, 2004. 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 $28.
ITEM 4. CONTROLS AND PROCEDURES
1. 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.
2. Internal Control Over Financial Reporting. There have not been any changes
in the Company's internal control over financial reporting during the
fiscal quarter to which this report relates that have materially affected,
or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
There have been no material legal proceedings beyond those previously disclosed
in the Registrant's filed Annual Report on Form 10-K for the year ended June 30,
2003.
ITEM 2. Changes in Securities
None
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
No. Description
31.1 Certification of Chief Executive Officer pursuant to rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 (filed herewith)
31.2 Certification of Chief Financial Officer pursuant to rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 (filed herewith)
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (filed herewith)
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxely Act of 2002 (filed herewith)
(b) Form 8-K
No reports on Form 8-K were required to be filed during the period covered
by this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE FIRST REPUBLIC CORPORATION OF AMERICA
Registrant
Date: June 23, 2004
/s/ Harry Bergman
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Harry Bergman
President and Treasurer