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, textile, and health care businesses. See Item 1(c) for a description of the business engaged in by the Company and its subsidiaries.
On October 21, 1996 the Company repaid its $6,000,000 mortgage loan on the Video Film Center in New York that became due in October 1996 with a new mortgage of $6,200,000. The new mortgage on the Video Film Center bears interest at 9% per annum, provides for 60 monthly payments of $52,030 including principal and interest commencing December 1, 1996 and expiring November 1, 2001 when the remaining balance of $5,774,232 will become due. The Company has an option to renew the new mortgage as of August 1, 2001 for an additional five year term at an interest rate to be determined at that time. A portion of the loan proceeds, $475,000 ($489,539 as of June 30, 1997) has been set aside in an escrow account to secure certain building improvements which were required by the mortgagor.
In August 1996, the Company obtained a $4,000,000 mortgage loan on the Greensboro North Shopping Center it owns in Greensboro North Carolina, which loan bears interest at 8.35% per annum, provides for 120 payments of $35,850 including principal and interest, commencing September 1, 1996 and expiring August 1, 2006 when the remaining balance of $2,523,000 will become due.
In December 1996, the Company purchased the remaining 50% of Lambert International Fisheries Inc. it did not own for $265,000; $50,000 was paid in cash and the balance through a promissory note for $215,000 payable in December 1997, bearing interest at 8%.
In October 1997, the Company and its partners entered into an agreement for the sale of the Jersey City Facility and the Rochelle Park Facility referred to below under Business - Narrative Description of Business - Health Care. The closing of this transaction is subject to several conditions, including the purchaser's ability to obtain necessary financing and the approval of the New Jersey Department of Health. Subject to the timely satisfaction of these and certain other conditions, the transaction is anticipated to close in December 1997. Although there is no assurance that the transaction will close, if it does it should improve the working capital of the Company.
On October 21, 1997 the Company replaced its existing indebtedness with a new lender. The existing indebtedness had an outstanding balance of $6,777,810 at June 30, 1997, which was due on August 1, 1997 and extended until October 31, 1997. The new agreement is a $9,000,000 term loan with an interest rate equal to either (a) LIBOR plus 1.75%, (b) the Alternate Base Rate (as defined) plus 0.25% or (c) the Fixed Rate (as defined) plus 1.75% and a $3,000,000 revolving line of credit with an interest rate equal to either (a) LIBOR plus 2% or, (b) the Alternate Base Rate (as defined) plus 0.50%. The term loan requires amortization payments of $358,800 per annum. The term loan matures in five years and the revolving line of credit matures in three years.
b. Financial Information about Industry Segments
The sales and operating profit (loss) from operations and the identifiable assets attributable to each industry segment for the three years ended June 30, 1997 are set forth in Note 2 (Industry Segments) of the Notes to Consolidated Financial Statements, which are incorporated herein by reference to Item 8. hereof.
c. Narrative Description of Business
Real Estate
The Company owns various loft buildings, office buildings, industrial buildings, shopping centers, 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.
ITEM 2. PROPERTIES
Location General Character (1) - --------------------------------------------------------------------------------
Real Estate Segment
Video Film Center 10-story office building; 165,000 rentable 315-329 W. 44th Street square feet; 95% rented. New York, New York
Junior Coat Building 18-story office, showroom and 250 W. 39th Street manufacturing facility; 182,000 rentable New York, New York square feet; 91% rented.
Jefferson National Bank Building 6-story office building; 39,300 rentable 4100 Pinetree Drive square feet; 100% rented. Miami Beach, Florida
First Republic Office Park Two, two-story office buildings with Thruway and Electronics Parkway 49,000 and 35,000 rentable square feet; Liverpool, New York 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; 90% rented; second mortgage held by Bluepoints in the amount of $105,396 at September 1, 1997.
Nyanza Building Four-story and basement industrial Woonsocket, Rhode Island building; 300,000 rentable square feet; used by Company as spinning plant (100,000 sq. ft.) and balance rented to others; 81% rented.
Greensboro North Shopping Center Approximately 13.5 acres of land and Greensboro, North Carolina 140,000 square feet of space in buildings located thereon; 100% rented.
Greensboro South Shopping Center Approximately 12 acres of land and Greensboro, North Carolina 134,250 square feet of space in buildings located thereon; 100% rented.
Location General Character (1) - --------------------------------------------------------------------------------
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.
Vacant land Approximately 21 acres; suitable for Melbourne, Florida development as a shopping center.
Sunscape Apartments 167-unit residential garden apartments Orlando, Florida located on approximately 12 acres of land; 98% rented. (Company owns 50% of Sunscape Associates, a partnership which owns the apartments).
Shopping Center Approximately 22.7 acres of land and Brookhaven, Pennsylvania 196,000 square feet of space in buildings located thereon; 100% rented.
Newburyport, Massachusetts 4-story building; 100,000 rentable square feet of space; presently vacant.
3-story building, 13,800 rentable square feet of space; 100% rented.
Two-story building and warehouse; 5,000 square feet, presently vacant.
Hotel Segment
Four Points Hotel--Syracuse 288-room motor hotel and convention Thruway and Electronics Parkway center; indoor pool; operated under ITT Liverpool, New York Sheraton franchise.
Seafood Segment (2)
West Sayville, New York Approximately 13,000 acres of underwater land in the Great South Bay of Long Island; approximately 5 acres of upland and 22,500 square feet of space in two buildings located thereon; used for unloading product, storage, inspection, shipping, shop maintenance, hatchery and administration.
Location General Character (1) - --------------------------------------------------------------------------------
Mattituck, New York Approximately 1 acre of land in Long Island; used as a grow out pond for the clam hatchery.
Englishman Island Approximately 600 acres of land including Guayaquil County, Ecuador 288 acres owned and the balance held under a 10-year concession, expiring April 2004, containing shrimp ponds and drainage canals.
Vacant Land Bluepoints has a 62.5% interest in a Guayaquil, Ecuador company that owns approximately 100,000 square feet of riverfront land.
Ayangue Bluepoints has a 62.5% interest in a Guayas Province, Ecuador company that owns approximately 56 acres of land used for a shrimp hatchery.
Cape Canaveral, Florida Various leaseholds (approximately 11 acres) used by scallop operation for offloading, processing, packaging, warehouse and office. (Company owns 100% of Lambert International Fisheries Inc. and Cape King Associates which hold leaseholds.)
Textile Segment
Allendale, South Carolina Approximately 195 acres of land, on which a plant containing one building with approximately 156,000 square feet is located, presently vacant.
Pageland, South Carolina Approximately 10 acres of land and 36,125 square foot building located thereon; previously used as bulking and twisting plant, warehouse and office, presently being rented.
Lake City, South Carolina Approximately 21.5 acres of land and 95,000 square feet in two buildings located thereon; used for a yarn spinning plant and warehouse.
Location General Character (1) - --------------------------------------------------------------------------------
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.
Health Care Segment
Rochelle Park, New Jersey 240-bed nursing home; owned by partnership in which the Company has a 49.9% partnership interest.
135-bed senior citizen residence; owned by partnership in which the Company has a 49.9% partnership interest.
Jersey City, New Jersey 180-bed nursing home; owned by partnership in which the Company has a 49.9% partnership interest.
Whiting, New Jersey 180-bed nursing home; leased to tenant by partnership in which the Company has a 49.9% partnership interest.
Corporate Office
302 Fifth Avenue 5,400 square feet of executive offices; New York, New York month-to-month tenant at a rent of $8,400 per month. See Item 13. below.
(1)--Reference is made to Schedule III for information with respect to mortgages encumbering certain properties listed in the table.
(2)--Except as otherwise noted, the properties listed in the Seafood Segment are owned by Bluepoints Company, Inc., an 80.2% owned subsidiary of the Company.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5.
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 for $33.00 per share.
Due to the absence of quotations it may be deemed that there is no established public trading market for the Company's common stock.
b. As of September 16, 1997, there were 731 holders of record of the Company's common stock.
c. No dividends have been paid during the two years ended June 30, 1997. The Company has no intention of paying dividends in the foreseeable future.
d. The Company did not sell any securities during the past year.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Working capital at June 30, 1997 decreased by approximately $828,000 to $2,172,000.
Net cash provided by operating activities was approximately $6,959,000 during the 1997 fiscal year. Net cash provided by financing activities was approximately $475,000. Net cash of approximately $6,511,000 was used for investing activities. The Company has a $2,000,000 revolving line of credit with its principal lender with interest at 1% over the lender's prime rate. At June 30, 1997, $700,000 was outstanding under the line. The Company has a term loan with its principal lender which matured August 1, 1997. As of June 30, 1997, $6,777,810 was outstanding under the term loan. The Company's loans with its principal lender has been extended until October 31, 1997. The Company has obtained financing from a new lender that provides for a $9,000,000 term loan facility and a $3,000,000 revolving line of credit. Both facilities will be collateralized by the East Newark Industrial Center and will have more favorable interest, amortization terms, and less restrictive covenants than the current loan agreement. As a result of the foregoing financing, the outstanding term loan is included in the June 30, 1997 Balance Sheet as long term debt (exclusive of the current portion of $462,000)
During the three years ended June 30, 1997, the Company incurred capital expenditures of approximately $15,417,000. In addition, approximately $4,694,000 was expended for tenant improvements during this three year period.
Results of Operations
Real Estate
The Company's real estate operating profits increased $419,000 in fiscal 1997 on a revenue increase of $953,000. Revenue increased at substantially all the properties. Repairs and maintenance and related costs increased approximately $365,000 at the East Newark Industrial Center as a result of increased work done to space at that facility. Interest on a new mortgage obtained at the Greensboro North Shopping Center increased overall mortgage interest by approximately $194,000. In fiscal 1996, real estate operating profits decreased $100,000 on a revenue increase of $667,000 as compared to the prior year. The increase in revenues was primarily attributable to increased occupancy at substantially all of the Company's real estate properties. A full year's expense on the mortgage obtained in fiscal 1995 on the Jefferson Bank Building in Miami Beach, Florida, increased interest expense by $102,000. Due to the unusually cold winter, utility and snow removal costs increased $461,000.
Hotel
Operating profits for the Four Points Hotel for fiscal 1997 increased approximately $172,000 on an approximately $357,000 increase in revenues. Operating profits for fiscal 1996 increased approximately $206,000 on an approximately $124,000 increase in revenues from the prior year and lower operating costs.
Seafood
Overall revenues for the seafood division increased approximately $2,507,000 as compared to the prior year. Losses from operations (including equity share of losses in affiliated entities and excluding minority interests' share of loss of subsidiaries) in fiscal 1997 were $1,957,000 as compared to a loss of $4,169,000 last year. Ecuadorian operations reduced their losses to $1,398,000 as compared to last years loss of $2,043,000 as a result of higher shrimp sales due to more product being harvested resulting from steps taken by the Company to increase yields. The Company purchased the remaining 50% of the scallop operation in Cape Canaveral, Florida and it operated at a break even level on revenues of $1,242,000 for this fiscal year as compared to a loss last year of $1,033,000, which represents 50% of last year's loss. Bluepoints Long Island operations had a loss of $527,000 as a result of continuing smaller harvests of clams which were offset somewhat by profits from sales of shrimp imported from Costa Rica. This compares with a loss of $941,000 last year. The assets of the discontinued soft shell crab operation were sold this fiscal year and the Company incurred a loss of $34,000. The fiscal 1996 revenues for the seafood division increased by 2% as compared to the prior year. Losses from operations (including equity share of losses in affiliated entities) in fiscal 1996 were $4,169,000 as compared to a loss of $1,756,000 in the prior year. Ecuadorian operations sustained a loss of $2,043,000 as compared to the prior years loss of $1,684,000 due to lower than anticipated shrimp production in Ecuador and a substantial reduction in the sales price of shrimp resulting from an oversupply of shrimp worldwide. The Company incurred a $1,033,000 loss from its scallop operations (including a $341,000 writedown of other assets) due to lack of availability of product as compared to a $54,000 loss in the prior year. Bluepoints' Long Island operations had a loss of $941,000 due to the presence of "brown tide" at its clam operations during the summer months, and curtailed production during the remainder of the year. This compares with income of $170,000 in the prior year. There was a loss of $152,000 from the discontinued soft shell crab operation, whose assets had been put up for sale.
Textile
Revenues for the textile division increased by 4% over last year, and earnings increased $635,000. Hanora Spinning's earnings increased $156,000 to $839,000 due to higher operating margins. Hanora South and J & M incurred a combined loss of $238,000 as compared to last year's loss of $530,000 due to higher revenues and gross profits earned at J & M. Whitlock Combing Company Inc. ("Whitlock"), which owned a wool combing
Textile (continued)
plant in South Carolina and which discontinued operations in 1992, incurred losses of $339,000 (including a writedown of its building of $250,000) relating to its property in South Carolina which is being offered for sale, compared to a loss of $526,000 in the prior year. During the three years ended June 30, 1997, the Company purchased approximately $1,065,000 of machinery and equipment for the textile operations. In fiscal 1996, revenues for the textile division decreased by 17% over the prior year, and earnings decreased $1,442,000. Hanora Spinning's earnings decreased $575,000 to $683,000 due to substantially higher operating costs and lower revenues. Hanora South and J & M incurred a combined loss of $530,000 as compared to the prior year's profit of $200,000 due to higher revenues and gross profits earned at J & M in the prior year as a result of a substantial contract received from a new customer that expired in December 1994. Whitlock incurred expenses of $526,000 (including depreciation and a writedown of its building of $262,000) relating to its property in South Carolina compared to a loss of $389,000 in the prior year.
Health Care
In fiscal 1997, the Company recognized income of $574,000 from this investment as compared to income of $47,000 in fiscal 1996. The increase in income was primarily caused by a increase in occupancy at one facility and decreased operating costs. In fiscal 1995, the Company recognized income of $639,000 from this investment.
Corporate/Other
Corporate interest and expenses for the last three years was $4,339,000, $4,173,000 and $4,852,000, respectively. Corporate and other revenues for the last three years was $587,000, $407,000 and $813,000, respectively. Corporate and other revenues includes the operations of the Merrimac division other than those related to the ownership of currently leased real estate which are included in the real estate operations. Corporate expenses increased by $335,000 in the current year primarily as a result of $307,000 of clean-up expenses at Merrimac's Newburyport property. The reduction in expenses in fiscal 1996 was due to the closing of the Merrimac Ice Bucket division and a reduction in other related costs of Merrimac of $336,000 and reduced professional fees of $73,000. Except as referred to above, all corporate expenses, including interest on the Company's term loan and revolving line of credit, have remained relatively constant for the last three years.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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, 1997 and 1996, and the related consolidated statements of operations, retained earnings, and cash flows for each of three years in the period ended June 30, 1997. Our audits also included the financial statement schedules listed in the accompanying index to financial statements (Item 14.a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We did not audit the financial statements of (a) Marchelot S.A. and its subsidiaries and the hotel division, which statements reflect total assets constituting 18% in 1997 and 17% in 1996, and total revenues constituting 18% in 1997, 17% in 1996 and 15% in 1995, of the related consolidated totals, (b) the Mondragon Companies, accounted for on the equity method, and (c) certain health care entities (Bristol Manor Health Care Center, Inc., The Whitehall Residence, Inc., Logan Manor Corp., Harbor View Health Care Center, Inc.), accounted for on the equity method. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for such entities, is based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion.
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, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 1997, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
New York, New York September 25, 1997 except for Note 5(5), as to which the date is October 21, 1997
[BDO Letterhead]
Independent Auditor's Report
To the Board of Directors Marchelot S.A. and Subsidiaries New York, U.S.A.
We have audited the consolidated balance sheet of Marchelot S.A. (a wholly-owned subsidiary of Bluepoints of Bermuda), and its subsidiaries Emporsa, Empacadora y Exportadora S.A., Larfico, Larvas del Pacifico S.A. and Comercorp S.A. as of June 30, 1997 and 1996, and the related consolidated statements of operations and deficit, and of cash flows, for each of the years ended June 30, 1997, 1996 and 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Marchelot S.A. and Subsidiaries to June 30, 1997 and 1996, and the results of their operations and their cash flows for each of the years ended June 30, 1997, 1996 and 1995, in conformity with generally accepted accounting principles prevailing in the United States of America.
/s/ BDO Stern
August 4, 1997 Guayaquil, Ecuador
[Dermody, Burke & Brown Letterhead]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of FIRST REPUBLIC CORPORATION OF AMERICA SHERATON INN - SYRACUSE
We have audited the accompanying balance sheets of FIRST REPUBLIC CORPORATION OF AMERICA, SHERATON INN - SYRACUSE as of June 30, 1997 and 1996, and the related statements of income and division control and cash flows for the years ended June 30, 1997, 1996 and 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
The Sheraton Inn - Syracuse 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 Sheraton Inn - Syracuse.
To the Board of Directors of FIRST REPUBLIC CORPORATION OF AMERICA SHERATON INN - SYRACUSE
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, SHERATON INN - SYRACUSE at June 30, 1997 and 1996 and the results of its operations and its cash flows for the years ended June 30, 1997, 1996 and 1995, in conformity with generally accepted accounting principles.
/s/ Dermody, Burke and Brown
DERMODY, BURKE AND BROWN Certified Public Accountants, P.C.
Syracuse, NY
July 28, 1997
[LOEB & TROPER Letterhead]
Independent Auditor's Report
Board of Directors Bristol Manor Health Care Center, Inc.
We have audited the accompanying balance sheet of Bristol Manor Health Care Center, Inc. as of June 30, 1997 and 1996, and the related statements of operations and cash flows for the six months then ended. These financial statements are the responsibility of the Center's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
The balance sheet of Bristol Manor Health Care Center, Inc. includes an amount due from affiliated entities of $3,349,578 as of June 30, 1997. It is unlikely that these amounts will be recovered in the foreseeable future. No allowance for doubtful accounts has been recorded. Generally accepted accounting principles require that assets be stated at net realizable value.
In our opinion, except for the effects of not recording an allowance for doubtful accounts as discussed in the previous paragraph, the financial statements referred to above present fairly, in all material respects, the financial position of Bristol Manor Health Care Center, Inc. as of June 30, 1997 and 1996, and the results of its operations and its cash flows for the six months then ended in conformity with generally accepted accounting principles.
2.
Bristol Manor Health Care Center, Inc. is a member of a group of affiliated entities and, as disclosed in the financial statements, has significant transactions with members of the group, including borrowings and the rental of the facility. Because of these relationships, it is possible that the terms of these transactions are not the same as those which would result from transactions among wholly unrelated parties.
/s/ Loeb & Troper
August 27, 1997
[LOEB & TROPER Letterhead]
Independent Auditor's Report
Board of Directors Bristol Manor Health Care Center, Inc.
We have audited the accompanying balance sheet of Bristol Manor Health Care Center, Inc. as of December 31, 1996 and 1995, and the related statements of operations and cash flows for the years then ended. These financial statements are the responsibility of the Center's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Bristol Manor Health Care Center, Inc. as of December 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles.
Bristol Manor Health Care Center, Inc. is a member of a group of affiliated entities and, as disclosed in the financial statements, has significant transactions with members of the group. including borrowings and the rental of the facility. Because of these relationships, it is possible that the terms of these transactions are not the same as those which would result from transactions among wholly unrelated parties.
/s/ Loeb & Troper
March 13, 1997
[LOEB & TROPER Letterhead]
Independent Auditor's Report
Board of Directors The Whitehall Residence, Inc.
We have audited the accompanying balance sheet of The Whitehall Residence, Inc. as of June 30, 1997 and 1996, and the related statements of operations and cash flows for the six months then ended. These financial statements are the responsibility of the corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Whitehall Residence, Inc. as of June 30, 1997 and 1996, and the results of its operations and its cash flows for the six months then ended in conformity with generally accepted accounting principles.
The Whitehall Residence, Inc. is a member of a group of affiliated entities and, as disclosed in the financial statements, has significant transactions with members of the group, including borrowings and the rental of the facility. Because of these relationships, it is possible that the terms of these transactions we not the same as those which would result from transactions among wholly unrelated parties.
2.
The accompanying financial statements have been prepared assuming that The Whitehall Residence, Inc. will continue as a going concern. As discussed in Note F to the financial statements, the corporation has suffered recurring losses from operations and has a retained earnings deficit that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note F. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Loeb & Troper
August 27, 1997
[LOEB & TROPER Letterhead]
Independent Auditor's Report
Board of Directors The Whitehall Residence, Inc.
We have audited the accompanying balance sheet of The Whitehall Residence, Inc. as of December 31, 1996 and 1995, and the related statements of operations and cash flows for the years then ended. These financial statements are the responsibility of the corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Whitehall Residence, Inc. as of December 31, 1996 and 1995, and the results of its, operations and its cash flows for the years then ended in conformity with generally accepted accounting principles.
The Whitehall Residence, Inc. is a member of a group of affiliated entities and, as disclosed in the financial statements, has significant transactions with members of the group, including borrowings and the rental of the facility. Because of these relationships, it is possible that the terms of these transactions are not the same as those which would result from transactions among wholly unrelated parties.
2.
The accompanying financial statements have been prepared assuming that The Whitehall Residence, Inc. will continue as a going concern. As discussed in Note H to the financial statements, the corporation has suffered recurring losses from operations and has a retained earnings deficit that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note H. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Loeb & Troper
March 13, 1997
[LOEB & TROPER Letterhead]
Independent Auditor's Report
Board of Directors Logan Manor Corp.
We have audited the accompanying balance sheet of Logan Manor Corp. as of June 30, 1997 and 1996, and the related statements of operations and cash flows for the six months then ended. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Logan Manor Corp. as of June 30, 1997 and 1996, and the results of its operations and its cash flows for the six months then ended in conformity with generally accepted accounting principles.
Logan Manor Corp. is a member of a group of affiliated entities and, as disclosed in the financial statements, has significant transactions with members of the group, including significant borrowings. Because of these relationships, it is possible that the terms of these transactions are not the same as those which would result from transactions among wholly unrelated parties.
The accompanying financial statements have been prepared assuming that Logan Manor Corp. will continue as a going concern. As discussed in Note E to the financial statements, the Corporation has suffered recurring losses from operations and has a retained earnings deficit that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note E. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Loeb & Troper
August 27, 1997
[LOEB & TROPER Letterhead]
Independent Auditor's Report
Board of Directors Logan Manor Corp.
We have audited the accompanying balance sheet of Logan Manor Corp. as of December 31, 1996 and 1995, and the related statements of operations and cash flows for the years then ended. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Logan Manor Corp. as of December 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles.
Logan Manor Corp. is a member of a group of affiliated entities and, as disclosed in the financial statements, has significant transactions with members of the group, including significant borrowings. Because of these relationships, it is possible that the terms of these transactions are not the same as those which would result from transactions among wholly unrelated parties.
2.
The accompanying financial statements have been prepared assuming that Logan Manor Corp. will continue as a going concern. As discussed in Note E to the financial statements, the Corporation has suffered recurring losses from operations and has a retained earnings deficit that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note E. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Loeb & Troper
March 13, 1997
[LOEB & TROPER Letterhead]
Independent Auditor's Report
Board of Directors Harbor View Health Care Center, Inc.
We have audited the accompanying balance sheet of Harbor View Health Care Center, Inc. as of June 30, 1997 and 1996, and the related statements of operations and cash flows for the six months then ended. These financial statements are the responsibility of the Center's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
The balance sheet of Harbor View Health Care Center, Inc. includes an amount due from affiliated entities of $582,022 as of June 30, 1997. It is unlikely that these amounts will be recovered in the foreseeable future. No allowance for doubtful accounts has been recorded. Generally accepted accounting principles require that assets be stated at net realizable value.
In our opinion, except for the effects of not recording an allowance for doubtful accounts as discussed in the previous paragraph, the financial statements referred to above present fairly, in all material respects, the financial position of Harbor View Health Care Center, Inc. as of June 30, 1997 and 1996, and the results of its operations and its cash flows for the six months then ended in conformity with generally accepted accounting principles.
2.
Harbor View Health Care Center, Inc. is a member of a group of affiliated entities and, as disclosed in the financial statements, has significant transactions with members of the group, including borrowings and the rental of the facility. Because of these relationships, it is possible that the terms of these transactions are not the same as those which would result from transactions among wholly unrelated parties.
/s/ Loeb & Troper
August 27, 1997
[LOEB & TROPER Letterhead]
Independent Auditor's Report
Board of Directors Harbor View Health Care Center, Inc.
We have audited the accompanying balance sheet of Harbor View Health Care Center, Inc. as of December 31, 1996 and 1995, and the related statements of operations and cash flows for the years then ended. These financial statements are the responsibility of the Center's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Harbor View Health Care Center, Inc. as of December 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles.
Harbor View Health Cam Center, Inc. is a member of a group of affiliated entities and, as disclosed in the financial statements, has significant transactions with members of the group, including borrowings and the rental of the facility. Because of these relationships, it is possible that the terms of these transactions are not the same as those which would result from transactions among wholly unrelated parties.
/s/ Loeb & Troper
March 13, 1997
The First Republic Corporation of America and Subsidiaries
Consolidated Balance Sheets
See notes to consolidated financial statements.
The First Republic Corporation of America and Subsidiaries
Consolidated Balance Sheets (continued)
See notes to consolidated financial statements.
The First Republic Corporation of America and Subsidiaries
Consolidated Statements of Operations
See notes to consolidated financial statements.
The First Republic Corporation of America and Subsidiaries
Consolidated Statements of Retained Earnings
See notes to consolidated financial statements.
The First Republic Corporation of America and Subsidiaries
Consolidated Statements of Cash Flows
The First Republic Corporation of America and Subsidiaries
Consolidated Statements of Cash Flows (continued)
See notes to consolidated financial statements.
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 1997
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of The First Republic Corporation of America ("FRCA") and all majority owned or controlled subsidiaries (the "Company"). All significant intercompany accounts and transactions have been eliminated in consolidation. The Company records its investment in partnerships and corporations in which it owns interests ranging from 38% to 50% in accordance with the equity method.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Inventories
Inventories are valued at the lower of cost or market with cost being determined by specific identification.
Inventories are summarized as follows:
June 30, 1997 1996 ---------------------------------
Work-in-process and raw materials $1,600,565 $1,655,147 Finished goods 1,901,085 3,266,136 --------------------------------- $3,501,650 $4,921,283 =================================
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Depreciation and Amortization
Depreciation and amortization are provided by the straight-line method over the following estimated useful lives:
Estimated Classification Useful Life ---------------------------------------------- -----------
Buildings and improvements 15 to 40 years Leaseholds and improvements 3 to 31.5 years Machinery, equipment, parts and vehicles 5 to 10 years Furniture and furnishings 5 years
Tenants' improvements and leasing commissions are amortized over the term of the respective tenants' leases.
Financing costs are amortized over the term of the related debt.
Revenues
Sales of textiles and seafood are recognized when shipments are made to customers. Rental revenue is recognized on an accrual basis in accordance with the terms of the lease except that leases with scheduled rent increases are required to be recognized on a straight-line basis over the life of the lease. Hotel revenues are recognized when the related services are rendered.
Per Share Data
Per share amounts are based on 672,165 (1997), 672,677 (1996) and 673,867 (1995) weighted average shares of common stock outstanding.
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.
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
In March 1995, the Financial Accounting Standards Board issued Statement No. 121 ("SFAS 121"), Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of, which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. SFAS 121 also addresses the accounting for long-lived assets to be disposed of. The Company adopted SFAS 121 in fiscal 1997 which did not result in any change in the Company's method of recording for impairment. A writedown of approximatley $250,000 was recorded for Whitlock for the year ended June 30, 1997 (see Note 12).
Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement No. 128 ("SFAS 128"), Earnings per Share, which supersedes APB Opinion No. 15 and replaces the presentation of primary EPS with a presentation of basic EPS. SFAS 128 also requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. The Company will adopt SFAS 128 in fiscal 1998. It is anticipated that the statement will not have an effect on the Company's financial statements due to the fact that the Company does not have any convertible stock.
Foreign Operations
A subsidiary, together with certain entities in which the subsidiary owns a 38% interest, is engaged in shrimp farming operations in Ecuador. Prior to the end of December 1996, all of such entities sold their products solely to a domestic subsidiary of the Company engaged in seafood operations. Beginning in January 1997 all sales were to third parties. Financial statements of such foreign entities are translated using the U.S. dollar as the functional currency as Ecuador has a hyperinflationary currency. Operations include exchange gains of $395,202 (1997), $182,145 (1996) and $254,954 (1995) resulting from foreign currency transactions and from translation of the foreign entities' financial statements.
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents.
2. Industry Segments and Foreign Operations
Following is information about the Company's industry segments for each of the three years ended June 30:
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Industry Segments and Foreign Operations (continued)
(a) Includes mortgage interest expense of $1,817,120 (1997), $1,622,687 (1996) and $1,564,524 (1995). (b) Includes losses from Whitlock (see Note 12a). (c) See Note 4. (d) Consists principally of investments in and advances to affiliated entities. (e) Certain amounts have been reclassified to conform with 1997 presentation. (f) Includes assets of Lambert International Fisheries, Inc.
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Industry Segments and Foreign Operations (continued)
The Company's operations in the industry segments detailed above consist of:
Real Estate: Ownership of loft, office and industrial buildings, shopping centers, residential property and vacant land located principally in New York State, New Jersey, Florida, North Carolina, Massachusetts, Virginia and Pennsylvania.
Hotel: Ownership and operation of a hotel in Liverpool, New York.
Seafood: Harvesting and sale of hard-shell clams on property owned by the Company located underwater off Long Island's south shore in New York State, harvesting and sale of scallops on property leased by the Company in Cape Canaveral, Florida and sales of shrimp from Ecuador (both grown in Company owned ponds and purchased from a 38% owned entity and other third-parties) and from Costa Rica.
Textile: Operations of two yarn spinning plants and a dye house located in South Carolina and Rhode Island.
Foreign operations, consisting of the operation of a shrimp farm and shrimp hatchery, were conducted in Ecuador through Marchelot S.A. and its wholly-owned and 62.5% owned subsidiaries. For the years ended June 30, 1997, 1996 and 1995, respectively, such entities had sales of approximately $2,656,000, $1,780,000 and $1,495,000, all of which prior to the end of December 1996 were to the Company and eliminated in consolidation, and net losses (including a share of net losses from the Mondragon Companies accounted for by the equity method--see Note 4) of $1,194,000, $1,875,000 and $1,549,000. Beginning in January 1997, all sales were to third parties and therefore are not eliminated during consolidation. As of June 30, 1997 and 1996, respectively, such subsidiaries had total assets of approximately $11,980,166 and $10,302,473, liabilities (excluding intercompany loans and advances) of $3,472,000, $3,102,000 and minority interests of $410,000 and $608,000. In addition, Bluepoints Company Inc., a domestic subsidiary, had outstanding advances to the Mondragon Companies of $4,126,928 and $2,988,246 at June 30, 1997 and 1996, respectively.
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. Mortgages Receivable
A summary of mortgages receivable is as follows:
(1)--A gain of $786,230, which was realized on the sale of a motel during the fiscal year ended June 30, 1977, had been treated in accordance with the installment method which requires the recognition of gain as cash is collected. The mortgage was paid in full in December 1996. The unrecognized portion of the gain of $362,323 was classified in the accompanying balance sheets as deferred income at June 30, 1996.
(2)--Payment terms of mortgages require monthly payments for seven years with the remaining principal balance due at that time. The maturity dates range from December 1, 1998 to June 1, 1999.
Maturities are as follows:
Amount ------------------- Year ending June 30: 1998 $ 3,001 1999 106,669 =================== $ 109,670 ===================
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Affiliated Entities
The following table summarizes information with respect to the Company's affiliated entities:
(1)--Includes approximately $600,000 of loss related to write-off of the excess of the Company's cost of investment over net assets acquired, as a result of continuing net losses incurred by the affiliate.
(2)--Equity in income is net of amortization of the Company's cost of investment which exceeded its underlying share of Partnerships' deficiency at date of acquisition. Such excess, which amounted to approximately $3,400,000 and $3,500,000 at June 30, 1997 and 1996, respectively, is being amortized over 40 years.
(3)--Prior to December 1996 the Company owned 50% of Lambert International Fisheries Inc.
Real Estate
Sunscape Associates ("Sunscape") owns a 167 unit garden apartment complex located in Orlando, Florida. The other 50% interest in Sunscape is owned by corporate entities which in turn are owned by officers and directors of the Company.
Seafood
Lambert International Fisheries, Inc. ("Lambert"): The Company owned a 50% interest in Lambert which is located in Florida, and is engaged in the business of collecting, processing, and selling scallops. In December 1996, the Company purchased the remaining 50% of Lambert for $265,000; $50,000 was paid in cash and the remaining sum with a promissory note bearing interest at 8% and payable in December 1997.
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Affiliated Entities (continued)
Condensed financial information of Lambert is as follows:
June 30, -------------------- Assets Cash $ 29,000 Other current assets 95,000 Property and equipment, net of accumulated depreciation 1,715,000 Other assets 9,000 -------------------- Total assets $ 1,848,000 ====================
Liabilities Notes payable and other current liabilities $ 854,000 Loans payable--stockholders 3,001,000 -------------------- Total liabilities 3,855,000
Stockholders' (deficit) equity (2,007,000) -------------------- Total liabilities and equity $ 1,848,000 ====================
(1) For the period prior to the acquisition of the remaining 50% interest
During the fiscal year ended June 30, 1996, no scallops were harvested and a write-off of intangible assets aggregating $682,000 was recorded as a result of recurring losses and the uncertainty as to the recoverability of the carrying value of such assets.
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Affiliated Entities (continued)
Bluepoints Company Inc. ("Bluepoints"): Bluepoints, an 80.2% owned subsidiary of the Company, owns Marchelot S.A. which in turn owns a 38% interest in two Ecuadorian corporations, Isca C.A. and Langomorro CIA. Ltda. (collectively, the "Mondragon Companies"), engaged in shrimp farming operations in Ecuador. The remaining 19.8% of Bluepoints is owned by certain stockholders of the Company. For the years ended June 30, 1997, 1996 and 1995, Bluepoints purchased approximately $1,010,000, $1,594,000, and $775,000, respectively, of shrimp from the Mondragon Companies.
Condensed combined financial information of the Mondragon Companies is as follows:
June 30, 1997 1996 ----------------------------------- Assets Current assets $ 4,294,000 $ 2,559,000 Property and equipment--net of accumulated depreciation 8,869,000 8,056,000 Other assets 542,000 758,000 ----------------------------------- Total assets $ 13,705,000 $ 11,373,000 ===================================
Liabilities Notes payable--banks $ 2,676,000 $ 1,801,000 Due to Bluepoints and other affiliates 5,329,000 4,152,000 Other current liabilities 630,000 893,000 ----------------------------------- Total current liabilities 8,635,000 6,846,000
Long-term debt 307,000 307,000 ----------------------------------- Total liabilities 8,942,000 7,153,000
Stockholders' equity 4,763,000 4,220,000 ----------------------------------- Total liabilities and equity $ 13,705,000 $ 11,373,000 ===================================
Year ended June 30, 1997 1996 1995 -----------------------------------------------------------
Revenues $ 2,790,000 $ 1,721,000 $ 794,000 Costs and expenses 4,254,000 (3,791,000) (2,281,000) ----------------------------------------------------------- Net loss $ (1,464,000) $ (2,070,000) $ (1,487,000) ===========================================================
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Affiliated Entities (continued)
Health Care
The Company owns 49.9% interests in partnerships which own three nursing homes and a senior citizen residence and adult day care center located in Rochelle Park, Jersey City and Whiting, New Jersey.
Condensed combined financial information of the 49.9% owned partnerships is as follows:
June 30, 1997 1996 -----------------------------------
Cash $ 1,167,000 $ 1,213,000 Accounts receivable, net 2,863,000 2,045,000 Other current assets 332,000 282,000 Other assets 518,000 822,000 Property and equipment, net of accumulated depreciation 23,053,000 23,867,000 ----------------------------------- Total assets $ 27,933,000 $ 28,229,000 ===================================
Accounts payable $ 2,401,000 $ 1,615,000 Other current liabilities 1,450,000 1,269,000 Mortgages payable, current 1,400,000 1,330,000 Mortgages payable, noncurrent 23,989,000 25,950,000 ----------------------------------- Total liabilities 29,240,000 30,164,000
Partners' capital deficiency (1,307,000) (1,935,000) ----------------------------------- Total liabilities and capital deficiency $ 27,933,000 $ 28,229,000 ===================================
Year ended June 30, 1997 1996 1995 ----------------------------------------------------------
Revenues $ 22,339,000 $ 21,582,000 $ 21,927,000 Expenses 20,991,000 21,276,000 20,437,000 ---------------------------------------------------------- Net income $ 1,348,000 $ 306,000 $ 1,490,000 ==========================================================
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Long-Term Debt and Credit Facilities
Long-term debt consists of the following:
(1)--The net book value of real estate assets pledged as collateral is approximately $21,000,000 and $20,500,000 at June 30, 1997 and 1996, respectively.
(2)--The Company entered into an agreement with the Onondaga County Industrial Development Agency (the "Agency") to finance the construction of two office buildings in Liverpool, New York. Under the terms of the agreement, the Agency issued $4,000,000 of industrial development revenue bonds. The financing was structured in the form of a lease whereby the Company committed to pay $74,050 per quarter plus interest (payable monthly) through December 1999. Interest is at a variable rate with a maximum of 9.5% per annum. At the completion of the lease term, the property will be transferred to the Company for a nominal sum. This transaction has been recorded as a purchase of the property.
The Company has provided a letter of credit in the amount of $900,000 at June 30, 1997 as collateral for the foregoing financing.
(3)--In fiscal 1997, the Company obtained a $4,000,000 mortgage loan collateralized by the Greensboro North Shopping Center in Greensboro, North Carolina. This loan bears interest at 8.35% per annum and provides for monthly payments of $35,850 including principal and interest commencing September 1, 1996 through August 1, 2006 when the remaining unpaid balance of $2,523,000 will become due.
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Long-Term Debt and Credit Facilities (continued)
(4)--On October 21, 1996 the Company repaid its $6,000,000 mortgage loan on the Video Film Center in New York that became due in October 1996 with the proceeds of a new mortgage of $6,200,000. The new mortgage on the Video Film Center bears interest at 9% per annum, provides for 60 monthly payments of $52,030 including principal and interest commencing December 1, 1996 and expiring November 1, 2001 when the remaining balance of $5,774,232 will become due. The Company has an option to renew the new mortgage as of August 1, 2001 for an additional five year term at an interest rate to be determined at that time. A portion of the loan proceeds, $475,000 ($489,539 as of June 30, 1997) has been set aside in an escrow account to secure certain building improvements which were required by the mortgagor.
(5)--On July 15, 1992, the Company replaced its existing indebtedness with its principal lender with a $10,000,000 term loan and a $3,000,000 revolving line of credit (the "Loan Agreement"), collateralized by a mortgage on the East Newark Industrial Center. At June 30, 1997 and 1996, $700,000 and $2,800,000, respectively, is outstanding under the line of credit and is included in "Notes payable." The term loan, which had an outstanding balance of $6,777,810 at June 30, 1997 and $7,444,470 at June 30, 1996, required monthly principal payments of $55,555 and matured on August 1, 1997 when the remaining unpaid principal balance of $6,666,640 became due. The interest rate at June 30, 1997 on both facilities is 1% in excess of the lender's prime rate. Both loans were extended until October 31, 1997. On October 21, 1997 the Company replaced its existing indebtedness with a new lender. The new agreement provides for a $9,000,000 term loan with an interest rate equal to either (a) LIBOR plus 1.75%, (b) the Alternate Base Rate (as defined) plus 0.25% or (c) the Fixed Rate (as defined) plus 1.75% and a $3,000,000 revolving line of credit with an interest rate equal to either (a) LIBOR plus 2% or, (b) the Alternate Base Rate (as defined) plus 0.50%. The term loan requires amortization payments of $358,800 per annum. The term loan matures in five years and the revolving line of credit matures in three years.
Aggregate principal payments on long-term debt are as follows:
Amount -------------------- Year ending June 30: 1998 $ 1,668,654 1999 1,600,607 2000 1,638,504 2001 2,596,797 2002 3,356,280 Thereafter 17,105,311 -------------------- $ 27,966,153 ====================
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Disclosures About Fair Value of Financial Instruments
FASB Statement No. 107 ("FAS 107"), "Disclosures about Fair Value of Financial Instruments," requires disclosures about fair value for all financial instruments, whether recognized or not recognized in the balance sheets, for which it is practicable to estimate that value.
The following methods and assumptions were used by the Company in estimating fair values for financial instruments:
Notes Payable and Long-Term Debt: The carrying amount of notes payable and long-term debt with variable interest rates approximates fair value. For fixed rate notes payable, fair value ($28,634,329) is estimated using discounted cash flow analysis based on the Company's current incremental borrowing rate for similar types of borrowing arrangements.
Mortgage Receivable: For fixed rate mortgage receivable, fair value is estimated using discounted cash flow analysis based on current interest rate for similar financial instruments and approximates its carrying amount.
7. Income Taxes
At June 30, 1997, the Company has net operating loss carryforwards of approximately $66,000,000 for income tax purposes that expire in years 2000 through 2002. Those carryforwards, which resulted from the merger of Merrimac Corporation ("Merrimac") into the Company on June 30, 1993, are available to reduce future taxable income, if any, of the Company but not the taxable income of any other member of the Company's group. Deferred tax assets and liabilities reflect the net tax effects of net operating loss carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Income Taxes (continued)
For financial reporting purposes, a valuation allowance has been recognized to offset a portion of the deferred tax assets related to the carryforwards. Significant components of the Company's deferred tax liabilities and assets are as follows:
June 30, 1997 1996 --------------------------------- Deferred tax liabilities: Book basis of fixed assets over tax basis $ 250,000 $ 533,000 Book basis of carrying value of investee over tax basis 491,000 344,000 --------------------------------- Total deferred tax liabilities 741,000 877,000 --------------------------------- Deferred tax assets: Net operating loss carryforwards 22,440,000 23,222,000 Miscellaneous 231,000 180,000 --------------------------------- Total deferred tax assets 22,671,000 23,402,000 Valuation allowance 22,423,000 23,093,000 --------------------------------- Net deferred tax assets 248,000 309,000 --------------------------------- Net deferred tax liability $ 493,000 $ 568,000 =================================
The components of income (loss) before income taxes are as follow:
For the year ended June 30, 1997 1996 1995 ------------------------------------------------------
Domestic $ 2,707,621 $ (695,770) $ 2,702,378 Foreign (962,410) (1,508,174) (1,244,944) ------------------------------------------------------ $ 1,745,211 $ (2,203,944) $ 1,457,434 ======================================================
Significant components of the income tax expense (benefit) are as follows:
1997 1996 1995 ----------------------------------------------------- Current: Federal $ 100,000 $ 100,000 $ 182,000 State 550,000 533,000 301,000 ----------------------------------------------------- Total current 650,000 633,000 483,000 ----------------------------------------------------- Deferred: Federal (66,000) (62,000) (32,000) State (9,000) (8,000) (4,000) ----------------------------------------------------- Total deferred (75,000) (70,000) (36,000) ----------------------------------------------------- $ 575,000 $ 563,000 $ 447,000 =====================================================
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Income Taxes (continued)
The reconciliation of income tax expense (benefit) computed at the U.S. federal statutory tax rates to income tax expense follows:
8. Benefit Plans
The Company and certain subsidiaries have profit-sharing plans covering substantially all nonunion employees. Contributions to one of the plans is discretionary. Total plan costs were approximately $215,000 for each of the years ended June 30, 1997, 1996 and 1995.
Merrimac, which has been merged into the Company, had noncontributory pension plans covering certain employees. All covered employees participated in the basic pension plan with benefits based upon years of service. In addition, Merrimac maintained a supplementary plan for salaried employees covered by the basic pension plan. This supplementary plan provided benefits based upon salary and years of credited service, with deductions for employees' primary social security benefits and benefits received under the basic plan. The funding policy is to contribute at least the minimum amounts required by the Employee Retirement Income Security Act of 1974 or additional amounts to assure that plan assets will be adequate to provide retirement benefits.
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Benefit Plans (continued)
The following table sets forth the funded status of the Merrimac pension plans at June 30:
Since a significant part of Merrimac's operations have been discontinued, substantially all employees included in the plan have been terminated and no additional service benefits will accrue to such employees.
Net periodic pension cost included the following components:
The discount rate used in determining the actuarial present value of the projected benefit obligation was 7-3/4% at June 30, 1997 and 7-1/4% at June 30, 1996. The expected long-term rate of return on plan assets was 8% in 1997 and 1996 and 7% in 1995.
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. Leases
The Company is the lessee under a noncancellable operating ground lease which expires in 2065. The lease provides for rentals of $11,404 per year and requires future minimum rental payments aggregating $764,000 at June 30, 1997. Rent expense includes real estate taxes, and in certain instances utilities and maintenance costs, and rent for the corporate home office under a month-to-month lease from a related party (see Note 11). Total rent expense for all operating leases amounted to approximately $127,000, $126,000, and $124,000 for the years ended June 30, 1997, 1996 and 1995, respectively.
The Company owns various office buildings, industrial buildings and shopping centers from which it earns rental income under leases with various tenants. Generally leases provide for tenants to pay additional amounts based on real estate taxes and operating expenses incurred to maintain and operate these properties in excess of base year amounts. Lease terms for these properties range from 1 to 20 years.
Future minimum rentals (excluding operating expenses and other items billable to tenants which aggregated approximately $3,200,000, $3,100,000 and $2,900,000 in the years ended June 30, 1997, 1996 and 1995, respectively) to be received under the above-mentioned leases, all of which are classified and accounted for as operating leases, are as follows:
Amount -------------------- Year ending June 30: 1998 $ 14,700,000 1999 12,200,000 2000 9,200,000 2001 8,100,000 2002 5,500,000 Thereafter 23,100,000 -------------------- $ 72,800,000 ====================
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Commitments and Contingencies
a. The Company, together with the other partners of the health care partnerships (see Note 4), have issued joint and several guarantees on approximately $4,300,000 of the health care partnerships' mortgage loans which are payable in monthly installments through June 1999.
b. A foreign subsidiary has issued a mortgage on its real estate to collateralize bank debt of the Mondragon Companies (see Note 4) of which $1,671,000 is outstanding at June 30, 1997.
11. Related Party Transactions
Certain stockholders, directors, officers or their relatives ("related parties") own interests in certain investments of the Company as follows:
Percent Ownership by Investment The Company Related Party - ------------------------------------------------------------------------------
Bluepoints Company Inc. ("Bluepoints") 80.2% 19.8% (1) Sunscape Associates 50.0 50.0 The Mondragon Companies 38.0 50.0 (2) Larfico Larvas Del Pacifico S.A. 62.5 25.0 Comercorp S.A. 62.5 25.0
(1)--At June 30, 1997 and 1996, the minority share of stockholders' deficiency of Bluepoints amounted to $3,130,196 and $2,331,984, respectively. Such deficiency results from losses which were funded by loans from the Company on behalf of the minority shareholders. Repayment of the minority interest deficiency has been jointly guaranteed by a major stockholder and the Estate of A.A. Rosen. Accordingly, the minority interest share in the deficiency of the subsidiary is shown as a receivable due from related parties in the consolidated balance sheets.
(2)--Bluepoints has made advances to the Mondragon Companies amounting to $4,126,928 and $2,988,246 at June 30, 1997 and 1996, respectively (see Note 4). Repayment of 56.8% of any advances to the Mondragon Companies has been guaranteed by the Estate of A.A. Rosen which owns 50% of the Mondragon Companies.
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. Related Party Transactions (continued)
Certain transactions were entered into with the above-mentioned related parties and companies in which they have an ownership interest as follows:
See Note 4 for other related party information.
12. Other Matters
a. In June 1992, Whitlock, which was in the wool-combining business, sold substantially all of its assets and substantially terminated all its remaining operations. The remaining assets of Whitlock, consisting of land and building which are being held for sale, are recorded at their estimated net realizable value of $1,050,000 at June 30, 1997 ($1,150,000 at June 30, 1996). Losses of $389,000, $526,000 and $339,000 incurred in connection with the land and building held for sale were charged to operations during the years ended June 30, 1995, 1996, and 1997, respectively.
b. Financial instruments which potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents, mortgages receivable and accounts and rents receivable. The Company maintains operating cash accounts at financial institutions in many states along the Eastern seaboard and, for its foreign subsidiaries, in Ecuador. Such accounts are subject to risk to the extent that the balances exceed the institutions' insurable limits. The Company's policy is designed to limit exposure to any one institution. Mortgages receivable are collateralized by real estate in Florida. The Company's management has attempted to mitigate the risk of such mortgages by evaluating the creditworthiness of the prospective borrowers prior to acceptance. Concentrations of credit risk with regard to accounts and rents receivable are limited due to the large
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. Other Matters (continued)
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, 1997.
c. During the years ended June 30, 1997, 1996 and 1995, there were 205, 1,248 and 590 shares of stock purchased for treasury at a cost of $6,805, $41,477 and $20,040, respectively.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10.
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 83 Director April 1983
Harry Bergman 55 Director October 1991 Treasurer June 1988 Secretary June 1988
Norman A. Halper 78 Director October 1969 President April 1983
Miriam N. Rosen 77 Director December 1994
Jonathan P. Rosen 53 Director February 1972 Vice President September 1978 Chairman of the Board December 1994
William M. Silverman 55 Director December 1981
Louis H. Nimkoff 35 Vice President June 1988
Robert Nimkoff 36 Director April 1991 Vice President June 1988
Jane G. Weiman 53 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 1997, upon the election and qualification of their successors.
c. Not applicable.
d. Family Relationships
Jonathan P. Rosen is the son of Miriam N. Rosen.
Louis H. Nimkoff and Robert Nimkoff are brothers and are cousins of Jonathan P. Rosen.
Jane G. Weiman is the sister-in-law of William M. Silverman and a cousin of Jonathan P. Rosen.
e. Business Experience
Irving S. Bobrow is a member of the New York Bar. For more than the past five years, Mr. Bobrow has been a member of the law firm of Bobrow & Rosen in New York City and has engaged in real estate investments for his own account.
Miriam N. Rosen is a member of the New York Bar. For more than the past five years, Mrs. Rosen has been counsel to the law firm of Bobrow & Rosen in New York City and has engaged in real estate investments for her own account. Mrs. Rosen became a director of the Company in December 1994.
William M. Silverman is a member of the New York Bar. For more than the past five years, Mr. Silverman has been a member of the law firm of Otterbourg, Steindler, Houston and Rosen P.C. in New York City.
Jane G. Weiman has been a private investor for more than the past five years. For the past several years, Mrs. Weiman has also been an officer of the Board of the Washington, D.C. Urban League.
All directors and executive officers have served as such for more than the past five years.
f. Not applicable.
g. Not applicable.
Section 16(a) Beneficial Ownership Reporting Compliance
The Company believes, based on written representations received by it, that for the year ended June 30, 1997, 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.
ITEM 11.
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.
(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 Equity Market Index and the Dow Jones Conglomerates Index for the five fiscal years ended June 30, 1997. The stockholder return on the Company's Common Stock has been determined solely based on the price of the Common Stock since there have been no dividends declared on the Common Stock. Since there has been only limited or sporadic quotations for the Common Stock during the five year period, the price of the Common Stock at the relevant dates has been determined by utilizing the price at which the Company purchased shares of Common Stock on the dates closest to each measuring date.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
Among The First Republic Corporation Of America, Dow Jones Equity Market Index and Dow Jones Independent - Conglomerates Index Fiscal Year Ending June 30
[The following table appeared as a line graph in the printed material]
- -------------------------------------------------------------------------------- 1992 1993 1994 1995 1996 1997 - -------------------------------------------------------------------------------- The first Republic Corporation of America 100 84 62 49 59 55 - -------------------------------------------------------------------------------- Dow Jones Equity Market index 100 115 116 146 186 248 - -------------------------------------------------------------------------------- Dow Jones Independent - Conglomerates 100 129 129 163 248 381 - --------------------------------------------------------------------------------
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
a. Security Ownership of Certain Beneficial Owners
The following table sets forth certain information with respect to all persons who are known to the Company to be the beneficial owner of more than 5% of its common stock as of September 16, 1997:
Amount and Nature Title of Name and Address of Beneficial Percent Class of Beneficial Owner Ownership (1) of Class - --------------------------------------------------------------------------------
Common Mary Nimkoff 101,171 (2) 15.05% 26 Buttonball Lane Weston, Connecticut
Common Jonathan P. Rosen 227,726 (3) 33.89 40 East 69th St. New York, New York
Common Lynn M. Silverman 113,350 16.87 911 Park Avenue New York, New York
Common Jane G. Weiman 113,290 16.86 5610 Wisconsin Avenue Chevy Chase, Maryland
(1)--Except as noted below in Notes (2) and (3), all shares are owned directly by the parties listed in the table.
(2)--Includes 5,756 shares representing her proportionate interest in 19,188 shares owned by Tranel, Inc. Tranel, Inc. is a corporation of which 30%, 15.2%, 34.8%, 10% and 10% of the shares of which are owned by Mary Nimkoff, Jonathan P. Rosen, Miriam N. Rosen, Louis H. Nimkoff and Robert Nimkoff, respectively.
(3)--Includes 2,917 shares representing his proportionate interest in 19,188 shares owned by Tranel, Inc.
b. Security Ownership of Management
The following table sets forth as of September 16, 1997 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:
(1)--Messrs. Bobrow, Halper, Silverman and Mrs. Weiman own their shares directly. Jonathan P. Rosen owns 224,809 shares directly. See Notes (2) and (3) of the preceding table.
(2)--Includes 1,919 shares representing his proportionate interest in 19,188 shares owned by Tranel, Inc.
(3)--Owned directly.
(4)--Does not include 113,350 shares of common stock and 500 shares of Bluepoints owned by his wife (Lynn M. Silverman) directly. Mr. Silverman disclaims beneficial ownership of such shares.
c. Changes in Control
The Company knows of no contractual arrangements which may at a subsequent date result in a change in control of the Company.
ITEM 13.
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, vice president and principal stockholder of the Company, and Miriam N. Rosen, a director of the Company, own in the aggregate 19.8% of the outstanding shares of Bluepoints. The remainder of the shares of Bluepoints is owned by the Company. Lynn M. Silverman is the wife of William M. Silverman, a director of the Company.
Bluepoints holds a second mortgage loan on the industrial center owned by the Company in East Newark, New Jersey. From July 1996 through September 1997, the Company made payments of $149,850 with respect to such loan, $26,104 of which was applied to the payment of interest and $123,746 to amortization of principal. As of September 1, 1997, the outstanding principal balance of the loan was $105,396. The loan bears interest at the rate of 8% per annum, provides for monthly payments of $9,990 and is self-liquidating over a period which expires in July 1998.
The Company's corporate office is located in a building owned by 302 Fifth Ave. Associates, a partnership owned 100% by The Estate of A.A. Rosen, Miriam Rosen and Jonathan Rosen. The Company is a month-to-month tenant, paying rent of $8,400 per month as of June 30, 1997, 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. In the current fiscal year from July through December all of Mondragon shrimp production, approximately $1,010,000, was sold to Bluepoints. The Estate of A.A. Rosen also holds a $640,000 note payable by Bluepoints which note was originally issued in May 1991 in connection with the acquisition by Bluepoints of a 38% interest in Mondragon and an additional 12-1/2% interest in Larfico Larvas Del Pacifico S.A., an Ecuadorian corporation which owns and operates a shrimp hatchery and Comercorp S.A. which owns certain real property in Ecuador. The note is a demand note and bears interest at 1% above the prime rate in effect at European American Bank. From July 1, 1996 through August 21, 1997, the Estate of A.A. Rosen received $60,000 in interest on the $640,000 note. The Company has advanced money on behalf of the Estate of A.A. Rosen to Mondragon; the balance owed at June 30, 1997 is $20,000. The amount advanced is payable upon demand by the Estate of A.A. Rosen and bears interest at 1% above the prime rate in effect at European American Bank. The Estate of A.A. Rosen has paid $50,000 in interest during the year.
b. Certain Business Relationships
The Company and its subsidiaries purchase substantially all of their property, casualty and liability insurance through participation with a group of other entities controlled by The Estate of A.A. Rosen and Jonathan P. Rosen (the "Rosen Group Properties"). This procedure enables the group to obtain negotiated insurance rates. During the fiscal years ended June 30, 1997, 1996 and 1995, total premiums incurred by the Company and its subsidiaries under this arrangement amounted to approximately $242,000, $264,000 and $312,000, respectively. The Company received fees of $75,000 in fiscal 1997, 1996 and 1995, representing charges to the group for administrative services performed by Company personnel in connection with the foregoing. At June 30, 1997, approximately $144,000 was payable to Rosen Group Properties.
Tranel Inc. and Statecourt Enterprises, Inc. each owns a 25% interest in a 167-unit garden complex located in Orlando, Florida in which the Company owns the remaining 50%. Tranel Inc. is owned by Mary Nimkoff, Jonathan P. Rosen, Miriam N. Rosen, Robert Nimkoff and Louis H. Nimkoff (see Item 12) and Statecourt Enterprises, Inc. is owned 48% by The Estate of A.A. Rosen, 20% by Jonathan P. Rosen and 32% by a trust for Miriam N. Rosen.
c. Indebtedness of Management
The Estate of A.A. Rosen owns 25% of the outstanding stock of Larfico, an Ecuadorian corporation that owns a hatchery that produces post-larval shrimp and 50% of the outstanding stock of Mondragon, an Ecuadorian company engaged in shrimp farming operations. Bluepoints beneficially owns 62.5% of the outstanding stock of Larfico and all of the outstanding stock of Emporsa, an Ecuadorian corporation engaged in shrimp farming operations. As of August 31, 1997, 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, 1988 (the "Larfico Indebtedness.") Such loans bear interest at 1% over the prime rate in effect at European American Bank and are due August 1998. Since July 1, 1996, the largest aggregate amount of outstanding indebtedness from Larfico to Bluepoints was $196,667.
In addition, as of August 31, 1997, Mondragon was indebted to Bluepoints for $4,126,928 of loans made by Bluepoints to Mondragon on various dates between August 28, 1991 and June 11, 1997 (the "Mondragon Indebtedness"). Such loans bear interest at 1% over the prime rate in effect at European American Bank and have no fixed maturity. Since July 1, 1996, the largest aggregate amount of outstanding indebtedness from Mondragon to Bluepoints was $4,126,928. 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, 1996, the largest amount of outstanding indebtedness from Emporsa and Larfico to Mondragon was $1,170,000, which was the balance at June 30, 1997. Such loans bear no interest and have no fixed maturity. Since July 1, 1996, the largest amount of outstanding indebtedness from Mondragon to Larfico and Emporsa was $493,000. Said indebtedness has no fixed maturity and is noninterest bearing.
As of August 31, 1997, Bluepoints was indebted to the Company for $26,751,000 of loans made by the Company to Bluepoints at various dates between November 8, 1985 and August 31, 1997. Such loans bear interest at the rate of 1% over the prime rate in effect at European American Bank and are due on demand. Since July 1, 1996, the largest aggregate amount of outstanding indebtedness from Bluepoints to the Company was $26,751,000. 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, 1997, the amount of the guarantee was $3,130,196.
d. Not applicable.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K Page a. 1. Financial Statements
The following financial statements of The First Republic Corporation of America and Subsidiaries are included in Part II, Item 8:
Reports of Independent Auditors......................................16 Consolidated Balance Sheets--June 30, 1997 and 1996 Consolidated Statements of Operations--Years Ended June 30, 1997, 1996 and 1995 Consolidated Statements of Retained Earnings--Years Ended June 30, 1997, 1996 and 1995 Consolidated Statements of Cash Flows--Years Ended June 30, 1997, 1996 and 1995 Notes to Consolidated Financial Statements
a. 2. Financial Statement Schedules:
Schedule II--Valuation and Qualifying Accounts.......................56 Schedule III--Real Estate and Accumulated Depreciation...............57 Schedule IV--Mortgage Loans on Real Estate...........................60
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............................................62
27. Financial Data Schedule................................................63
The First Republic Corporation of America and Subsidiaries
Schedule II--Valuation and Qualifying Accounts
(a) Amounts charged off and credits issued, net of recoveries on accounts previously written off.
The First Republic Corporation of America and Subsidiaries
Schedule III--Real Estate and Accumulated Depreciation
Year ended June 30, 1997
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 - -----------------------------------------------------------------------------
250 W. 39th Street $ 94,443 5/19/67 5-15 years Building, New York, New York-- Eighteen story office building
Waltham Engineering Center, Waltham, Massachusetts-- Seventeen multi-story 538,549 7/01/62 10-20 years industrial buildings
Four Points Hotel-- Syracuse, Liverpool, New 4,848,040 3/17/69 5-15 years York--Hotel operations
Video Film Center, New York, New York-- Ten story 3,108,533 10/04/68 33-1/3 years office building
East Newark, New Jersey-- Thirty multi-story 297,321 3/11/63 21-1/3 years industrial buildings
Greensboro Plaza, Greensboro, North Carolina-- 1,830,031 12/01/74 21-1/3 years Shopping center
Greensboro South, Greensboro, North Carolina-- 1,555,647 12/01/74 21-1/3 years Shopping center
Nyanza Building, Woonsocket, Rhode Island-- 54,840 11/01/68 10-20 years Four story industrial building
The First Republic Corporation of America and Subsidiaries
Schedule III--Real Estate and Accumulated Depreciation (continued)
Year ended June 30, 1997
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 - -------------------------------------------------------------------------------- Richmond Shopping Center, Richmond, Virginia-- $ 574,946 3/15/76 25 years Shopping center
First Republic Office Park, Liverpool, New York-- 1,301,330 10/01/85 5-40 years Two, two-story office buildings
Virginia Beach Shopping Center, Virginia Beach, 632,349 3/30/76 25-31.5 years Virginia-- Shopping center
The First Republic Building Corp., Liverpool, New York-- 5,648,327 9/21/62 10-25 years Motor hotel (c)
Jefferson National Bank Building--Miami, Florida-- 1,642,142 4/27/88 31-1/2 years Six story office building
Brookhaven Shopping Center, Brookhaven, 2,207,424 12/16/76 5-33 years Pennsylvania-- Shopping Center
Merrimac Street, Newburyport, Massachusetts-- Three story office building & 219,800 10/25/87 10-25 years new construction at 222 Merrimac St.
Melbourne, Florida, Vacant land -------------- Totals $24,553,722 ==============
(a) Cost for Federal income tax purposes approximates amounts reflected in Column E. (b) A mortgage is held by the bank who provides a line of credit to the Company. (See Note 5 to the consolidated financial statements.) (c) Assets of the First Republic Building Corp. are also pledged as collateral for the Onondaga County Industrial Development Agency Bonds. (See Note 5 to the consolidated financial statements.) (d) Excludes $836,000 of mortgages on real estate used in the textile operations.
The First Republic Corporation of America and Subsidiaries
Schedule III--Real Estate and Accumulated Depreciation (continued)
Year ended June 30, ----------------------------------- ----------------------------------- 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 $ 49,957,852 $ 23,455,743 Additions 1,484,689 1,405,327 Deductions: Write-offs of fully depreciated assets (307,348) (307,348) ----------------------------------- Balance, end of year $ 51,135,193 $ 24,553,722 ===================================
Note: Includes assets used in the real estate and hotel operations.
The First Republic Corporation of America and Subsidiaries
Schedule IV -Mortgage Loans on Real Estate
- ----------------------------------------------------- Col. A Col. H - ----------------------------------------------------- Principal Amount of Loans Subject to Delinquent Description Principal or Interest - ----------------------------------------------------- Two first liens on condominiums - Orlando, Florida None
(a) Represents monthly payment amounts with balance due at maturity. (b) Cost for Federal income tax purposes approximates amounts reflected in Column F.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
THE FIRST REPUBLIC CORPORATION OF AMERICA
By /s/ Norman A. Halper --------------------------------------- Norman A. Halper, Chief Executive and Chief Operating Officer
By /s/ Harry Bergman --------------------------------------- Harry Bergman, Chief Financial and Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Date ____________________
/s/ Harry Bergman - --------------------------------------------- Harry Bergman, Director
/s/ Irving S. Bobrow - --------------------------------------------- Irving S. Bobrow, Director
/s/ Norman A. Halper - --------------------------------------------- Norman A. Halper, Director
/s/ Robert Nimkoff - --------------------------------------------- Robert Nimkoff, Director
/s/ Miriam N. Rosen - --------------------------------------------- Miriam N. Rosen, Director
/s/ Jonathan P. Rosen - --------------------------------------------- Jonathan P. Rosen, Director
LANGOMORRO, LANGOSTINERA EL MORRO CIA. LTDA. AND AFFILIATED COMPANIES
==================================== Audit Report of the Consolidated and Combined Financial Statements On June 30, 1997 and 1996
[BDO Stern Letterhead]
Independent Auditor's Report
To the Board of Directors Langomorro, Langostinera El Morro Cia. Ltda. and Affiliated Companies New York, U.S.A.
We have audited the consolidated and combined balance sheet of Langomorro, Langostinera El Morro Cia. Ltda. and Affiliated Companies as of June 30, 1997 and 1996 and the related consolidated and combined statements of operations and deficit, and of cash flows, for each of the years ended June 30, 1997, 1996 and 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements' presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Langomorro, Langostinera El Morro, Cia. Ltda. and Affiliated companies to June 30, 1997, and 1996, and the results of their operations and their cash flows for the each of the years ended June 30, 1997, 1996 and 1995, in conformity with generally accepted accounting principles prevailing in the United States of America.
/s/ BDO Stern
August 4, 1997 Guayaquil, Ecuador
Langomorro, Langostinera El Morro Cia. Ltda. and Affiliated Companies Consolidated and Combined Balance Sheets ================================================================================
As of June 30, 1997 1996 - --------------------------------------------------------------------------------
Assets Current assets:
Cash in banks US$ 3,998 US$ 984 Accounts receivable (Note B) 353,832 43,769 Due from related parties (Note C) 2,690,604 1,553,757 Inventories (Note D) 1,230,474 936,115 Prepaid expenses 13,359 23,489 Temporary investments 1,381 1,730 - --------------------------------------------------------------------------------
Total current assets 4,293,648 2,559,844
Property, machinery and equipment (Note E) 8,868,506 8,055,866 Permanent investments (Note F) 3,066 3,066 Other assets (Note G) 538,955 754,538 - --------------------------------------------------------------------------------
US$ 13,704,175 US$ 11,373,314 - --------------------------------------------------------------------------------
Liabilities and stockholders' equity Current liabilities:
Bank loans payable (Note H) US$ 2,679,920 US$ 2,241,404 Notes and accounts payable (Note I) 554,465 530,748 Due to related parties (Note J) 4,893,458 3,746,649 Interest payable 500,974 316,258 Accrued expenses 9,144 10,932 - --------------------------------------------------------------------------------
Total current liabilities 8,633,961 6,845,991
Long term debt (Note K) 307,355 307,355
Stockholders' equity:
Common stock, S/. 10,000 and S/. 5,000 par value per share, 1,000 and S/. 73.118 shares authorized, issued, and outstanding (Note L) 1,041,546 1,041,546 Additional paid-in capital (Note M) 11,550,709 9,543,967 Accumulated deficit (Note N) (7,829,396) (6,365,545) - --------------------------------------------------------------------------------
Total stockholders' equity 4,762,859 4,219,968 - --------------------------------------------------------------------------------
US$ 13,704,175 US$ 11,373,314 ================================================================================
See notes to consolidated and combined financial statements
Langomorro, Langostinera El Morro Cia. Ltda. and Affiliated Companies Consolidated and Combined Statements of Operations and Deficit ================================================================================
For the years ended June 30, 1997 1996 1995 - --------------------------------------------------------------------------------
Income:
Net sales (Note P) US$ 2,734,905 US$ 1,594,053 US$ 775,404 Other income 46,247 49,408 18,150 Gain in translation 8,789 77,114 - --------------------------------------------------------------------------------
2,789,941 1,720,575 793,554
Cost and operating expenses:
Cost of products sold 2,674,544 2,001,964 800,488 Administrative expenses 279,085 355,599 311,667 Loss on translation 93,410 Amortization of facilities costs 215,583 215,581 107,791 Interest expenses 1,066,251 1,211,873 950,308 Other expenses 18,329 5,438 16,786 - --------------------------------------------------------------------------------
4,253,792 3,790,455 2,280,450 - -------------------------------------------------------------------------------- Net loss (1,463,851) (2,069,880) (1,486,896)
Prior year deficit as of June 30, (6,365,545) (4,295,665) (2,808,769) - --------------------------------------------------------------------------------
Accumulated deficit to June 30, (Note N) US$(7,829,396) US$(6,365,545) US$(4,295,665) ================================================================================
See notes to consolidated and combined financial statements.
Langomorro, Langostinera El Morro Cia. Ltda. and Affiliated Companies Statements of Cash Flows - Direct Method ================================================================================
For the years ended June 30, 1997 1996 1995 - --------------------------------------------------------------------------------
Cash flows from operating activities:
Cash paid to suppliers and employees US$ (928,248) US$(1,865,211) (201,642) Financial expenses (783,365) (926,899) (293,508) Other income 29,793 45,115 2,639 - --------------------------------------------------------------------------------
Net cash used in operating activities (1,681,820) (2,746,995) (492,511) - --------------------------------------------------------------------------------
Cash flows from investing activities:
Additions and purchase of property (946,494) (939,607) (4,018,932) Decrease to facilities cost 13,113 - --------------------------------------------------------------------------------
Net cash used in investing activities (946,494) (939,607) (4,005,819) - --------------------------------------------------------------------------------
Cash flows from financing activities:
Net borrowing under line-of-credit agreements-net payments 673,256 587,434 943,169 Additional paid-in capital 2,006,742 3,116,871 3,547,738 - --------------------------------------------------------------------------------
Net cash provided by financing activities 2,679,998 3,704,305 4,490,907 - --------------------------------------------------------------------------------
Effect due to variation in cash exchange rate (48,670) (18,876) (18,888) - --------------------------------------------------------------------------------
Net increase (decrease) in cash 3,014 (1,173) (26,311)
Cash at beginning of the period 984 2,157 28,468 - --------------------------------------------------------------------------------
Cash at end of the period US$ 3,998 US$ 984 US$ 2,157 ================================================================================
See notes to consolidated and combined financial statements
Langomorro, Langostinera El Morro Cia. Ltda. and Affiliated Companies Reconciliation of Net Loss to Net Cash Used in Operating Activities ================================================================================
For the years ended June 30, 1997 1996 1995 - --------------------------------------------------------------------------------
Net loss US$(1,463,851) US$(2,069,880) US$(1,486,896)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 133,854 140,377 82,368 Amortization of facilities costs 215,583 215,581 107,791 (Gain) loss in translation (8,789) (77,114) 93,410
Changes in operating assets and liabilities:
Increase in accounts receivable and related parties (1,751,704) (595,993) (20,487) Increase in inventories (292,205) (449,554) (157,059) (Decrease) increase in prepaid expenses 5,643 (12,004) (7,958) Increase in accrued expenses 247,005 300,323 176,932 Increase in accounts payable and due to related parties 1,232,644 (198,731) 719,388 - --------------------------------------------------------------------------------
Net cash used in operating activities US$(1,681,820) US$(2,746,995) US$(492,511) ================================================================================
See notes to consolidated and combined financial statements
Langomorro, Langostinera El Morro Cia. Ltda. and Affiliated Companies Notes to Consolidated and Combined Financial Statements For the years ended June 30. 1997 and 1996 ================================================================================
A. Summary of significant accounting practices:
Business description Langomorro, Langostinera El Morro Cia. Ltda. was founded on November 11, 1981 in Guayaquil, Ecuador, for the purpose of carrying out fishing activities. The Company purchased 99.98% of the capital stock of Camazul Cia. Ltda. and both maintain production relationships with Isca, Isla Camaronera C.A. The affiliated companies' activities, taken as a whole (the Company), are the nursery and grow-out, harvest and export of shrimp.
On May 23, 1991, 38% of the total shares issued by Langomorro and Camazul was acquired by Marchelot S.A., a wholly-owned Subsidiary of Bluepoints of Bermuda.
Operations Since the beginning of operations in 1981 and until June 30, 1997, the Company has had recurring losses totaling US$7,829,396. The origins of these recurrent losses are principally the deficiencies in the effective exploitation and productivity in prior years of the 542 hectares of land available in the ponds and grow-out pools.
Principles of consolidation and combination The consolidated and combined financial statements include the accounts of Camazul Cia. Ltda., and Isca, Isla Camaronera C.A. in conformity with accounting principles generally accepted in the United States of America (USA-GAAP). Investments and all transactions and balances between consolidated parties have been eliminated.
Accounting principles The Company maintains its accounting records in Sucres (S/.). Financial statements are translated using the U.S. Dollar as the functional currency, in accordance with generally accepted accounting principles prevailing in the United States of America.
Langomorro, Langostinera El Morro Cia. Ltda. and Affiliated Companies Notes to Consolidated and Combined Financial Statements For the years ended June 30. 1997 and 1996 ================================================================================
Inventories Finished goods and products in process (shrimp) are stated at the lower of cost or market, and include the value of larvae purchases plus transport, feed, fertilizer, fringe benefits, and depreciation.
Permanent investments Are stated at cost, adjusted for the equity method.
Property, machinery and equipment Are recorded at cost. Expenditures for maintenance and repairs are charged to expense as incurred, whereas major improvements are capitalized. The depreciation was calculated using the straight-line method, based on the following estimated useful lives of the related assets: 40 years for pools and structures, machinery and equipment, 20 years for boats, 10 years for furniture, laboratory equipment, various; and 5 years for vehicles.
Changes in the purchasing power of the local currency The Sucre financial statements have been prepared using the traditional historical cost basis, in accordance with generally accepted accounting principles and, accordingly, do not attempt to reflect changes in the purchasing power of the Sucre.
The loss in the purchasing power of the Sucre may have a significant effect on the comparability of the financial statements of different periods and the results of any period.
The purchasing power of the local currency measured by the Consumer Price Index, calculated by the National Institute of Statistics and Census, is as follows:
Year ended Annual December 31 inflation ---------------------------------------------------
1993 31% 1994 25% 1995 23% 1996 26% 1997 June 30, 31%
Langomorro, Langostinera El Morro Cia. Ltda. and Affiliated Companies Notes to Consolidated and Combined Financial Statements ================================================================================
Translation of foreign currency and exchange rates The financial position, the results of operations and the cash flows of the Company are expressed in Ecuadorian Sucres and translated into U.S. Dollars as follows:
o Current assets and current liabilities are translated at the free market exchange rate in effect at the close of the period, except for: inventories and prepaid expenses, which are translated at the exchange rates in effect when acquired or originally recorded.
o Property, machinery and equipment (and their related accumulated depreciation), investments, other assets (genetic project and red fish), and stockholders' equity accounts, are translated at the exchange rates in effect when acquired or originally recorded.
o Revenue and expense accounts are translated at the average monthly free exchange rate in effect during the period, except for depreciation of fixed assets referred to above.
The translation into U.S. Dollars should not be assumed as representation that Sucres have been, could have been, or could in the future be converted into U.S. Dollars at these or any other exchange rates.
B. Accounts receivable
June 30, ------------------------------------------------------------------------- 1997 1996 -------------------------------------------------------------------------
Clients (1) US$ 275,723 US$ Suppliers from abroad 26,638 26,638 Employees 3,362 2,278 Others 48,109 14,853 -------------------------------------------------------------------------
US$ 353,832 US$ 43,769 =========================================================================
(1) Corresponds to No. 11 shrimp delivery not liquidated by Emporsa, Isca, Camazul with Promariscos.
Langomorro, Langostinera El Morro Cia. Ltda. and Affiliated Companies Notes to Consolidated and Combined Financial Statements ================================================================================
C. Due from related parties
June 30, -------------------------------------------------------------------------- 1997 1996 --------------------------------------------------------------------------
Larfico, Larvas del Pacifico S.A. US$ 2,263,104 US$ 1,371,603 Comercial Inmobiliaria Golconsa S.A. 10,613 44,926 Comercorp 341,299 60,660 Neneta S.A. 36,629 38,749 Bunsen 24,388 15,261 Inmobiliaria Ma. Luciana 9,334 Ing. Carlos Pirez 14,571 13,172 Others companies, individually immaterial 52 --------------------------------------------------------------------------
US$ 2,690,604 US$ 1,553,757 ==========================================================================
The accounts with related parties correspond to monies given as loans by current accounts maintained with the Company, non-interest bearing and without fixed maturity.
D. Inventories
June 30, -------------------------------------------------------------------------- 1997 1996 --------------------------------------------------------------------------
Products in process US$ 1,174,760 US$ 694,364 Finished goods 196,449 Materials and supplies 55,714 45,302 --------------------------------------------------------------------------
US$ 1,230,474 US$ 936,115 ==========================================================================
Langomorro, Langostinera El Morro Cia. Ltda. and Affiliated Companies Notes to Consolidated and Combined Financial Statements ================================================================================
E. Property, machinery and equipment
June 30, -------------------------------------------------------------------------- 1997 1996 --------------------------------------------------------------------------
At acquisition cost:
Vehicles US$ 223,151 US$ 191,418 Fishing boats 256,431 251,964 Machinery and equipment 701,020 743,818 Construction in progress 81,059 40,183 Furniture and office equipment 66,475 67,482 Various 77,921 44,526 Installations 6,511 6,511 Land 4,184 4,184 Pools and reservoirs 1,485,807 1,485,807 Recirculation of water (1) 6,821,030 5,975,657 Sluices for channels 188,863 187,329 Tools and fishing tackle 3,232 2,586 Pumping station 503,381 495,099 Laboratory equipment 6,775 10,076 Housing for personnel 78,896 59,901 Other properties 20,643 20,502 Wall repairs 59,333 51,175 Wharf 1,760 1,760 Offices in Guayaquil 76,840 76,840 --------------------------------------------------------------------------
10,663,312 9,716,818
Less accumulated depreciation 1,794,806 1,660,952 --------------------------------------------------------------------------
US$ 8,868,506 US$ 8,055,866 ==========================================================================
(1) This accounts was incorporated in June 1996 and started its depreciation on July 1996.
F. Permanent investments
June 30, - -------------------------------------------------------------------------------- Percentage of stock owned 1997 1996 - --------------------------------------------------------------------------------
Larvas del Pacifico S.A. 0,06 US$ 307 US$ 307 Isca, Isla Camaronera C.A. 0,06 2,759 2,759 - --------------------------------------------------------------------------------
US$ 3,066 US$ 3,066 ================================================================================
Langomorro, Langostinera El Morro Cia. Ltda. and Affiliated Companies Notes to Consolidated and Combined Financial Statements ================================================================================
G. Other assets
June 30, -------------------------------------------------------------------------- 1997 1996 --------------------------------------------------------------------------
Langomorro and Camazul: Facilities costs US$ 721,471 US$ 721,471
Isca: Facilities costs 356,439 356,439 --------------------------------------------------------------------------
Total 1,077,910 1,077,910 Amortization (538,955) (323,372) --------------------------------------------------------------------------
US$ 538,955 US$ 754,538 ==========================================================================
This account is amortized in five years, starting on January 1995.
H. Bank loans payable
June 30, -------------------------------------------------------------------------- 1997 1996 --------------------------------------------------------------------------
Pacific Bank: Obligation in dollars due in July, and August 1997 with interest, 13% US$ 660,000 US$ 778,500 Advances on future export-loans at the free market exchange rate 334,000 204,700
Lloyds Bank:
Obligation in dollars due in July, 1997 with interest, 14% 150,000 817,610 Obligation in Sucres, due in July, 1997 with interest at 35% 527,373 --------------------------------------------------------------------------
1,671,373 1,800,810 Bank overdraft 1,004,547 440,594 --------------------------------------------------------------------------
US$ 2,679,920 US$ 2,241,404 ==========================================================================
Langomorro, Langostinera El Morro Cia. Ltda. and Affiliated Companies Notes to Consolidated and Combined Financial Statements ================================================================================
The obligations are guaranteed with the personal signature of the Company President.
On July 17, 1992 an open mortgage was subscribed, covering Larfico's land, buildings and construction, laboratory equipment and machinery, for the amount of US$ 1.8 million with Banco del Pacifico of Ecuador and/or Panama. This open mortgage will cover the current and future obligations of Emporsa S.A., Larfico S.A., Langomorro Cia. Ltda., Isca C.A. and Camazul Cia. Ltda..
I. Notes and accounts payable
June 30, - -------------------------------------------------------------------------------- 1997 1996 - --------------------------------------------------------------------------------
Suppliers:
Promariscos, Proveedores de Mariscos S.A. (1) US$ 87,109 US$
Expalsa, Exportadora de Alimentos S.A. (2) 34 18,965 Statecourt Enterprises (3) 405,000 405,000 - --------------------------------------------------------------------------------
492,143 423,965
Tax returns 16,276 70,025 Others 46,046 36,758 - --------------------------------------------------------------------------------
US$ 554,465 US$ 530,748 ================================================================================
(1) Starting January 1997 the Company changed the shrimp commercialization. It no longer exports but sells locally to Empacadora Promariscos and the reflected balance corresponds to an advance received, that will be settled against shrimp delivery.
Langomorro, Langostinera El Morro Cia. Ltda. and Affiliated Companies Notes to Consolidated and Combined Financial Statements ================================================================================
(2) Expalsa, corresponds to co-packing services (packing and packaging in the export of shrimp of US$ 0,34 per pound exported) made until December 31, 1996.
(3) The accounts with related parties correspond to loans by current accounts maintained with the Company, non-interest bearing and without fixed maturity.
J. Due to related parties
June 30, -------------------------------------------------------------------------- 1997 1996 --------------------------------------------------------------------------
Emporsa US$ 1,052,193 US$ 605,315 Camarecsa 56,255 81,010 Marchelot 76,390 106,038 Bluepoints 3,700,388 2,950,308 Others 8,232 3,978 --------------------------------------------------------------------------
US$ 4,893,458 US$ 3,746,649 ==========================================================================
The accounts with related companies correspond to monies received as loans by current accounts maintained with these companies, non-interest bearing and without fixed maturity.
As of June 30, 1997 and 1996, Bluepoints includes US$ 1,017,596 and US$ 265.385 advances on future export-loans respectively and US$ 1,577,000 for obligations due in December 1990, generating a prime interest rate of 9,25% per year with a 3 years maturity; recorded at the free market rate of exchange.
K. Long-term debt
June 30, -------------------------------------------------------------------------- 1997 1996 --------------------------------------------------------------------------
Marchelot US$ 307,355 US$ 307,355 --------------------------------------------------------------------------
US$ 307,355 US$ 307,355 ==========================================================================
Langomorro, Langostinera El Morro Cia. Ltda. and Affiliated Companies Notes to Consolidated and Combined Financial Statements ================================================================================
L. Common stock
June 30, -------------------------------------------------------------------------- 1997 1996 --------------------------------------------------------------------------
Langomorro, Langostinera El Morro Cia. Ltda. US$ 171,573 US$ 171,573 Isca, Isla Camaronera C.A. 869,973 869,973 --------------------------------------------------------------------------
US$ 1,041,546 US$ 1,041,546 ==========================================================================
M. Additional paid-in capital
June 30, -------------------------------------------------------------------------- 1997 1996 --------------------------------------------------------------------------
Balance June 30 US$ 9,543,967 US$ 6,427,096 Additions from July 1, 1996 to June 30, 1997, 2,006,742 3,116,871 --------------------------------------------------------------------------
US$ 11,550,709 US$ 9,543,967 ==========================================================================
N. Accumulated deficit As of June 30, 1997 and 1996 the Company maintains an accumulated deficit of US$ 7,829,396 and US$ 6,365,545 respectively, the current liabilities exceeded total current assets by US$ 4,340,313 in 1997 and US$ 4,286,147 in 1996. The origins of these recurrent losses are principally the deficiencies in the effective exploitation and productivity in prior years of the 716 hectares of land available, of which 542 correspond to ponds and grow-out pools, another 71 are used as service areas and 103 hectares are unused.
These elements show that the Company may be unable to continue as a going concern. However, the continuity of the Company as a going concern will depend, as much on additional financing funds that could be obtained as well as on having profitable operations. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Langomorro, Langostinera El Morro Cia. Ltda. and Affiliated Companies Notes to Consolidated and Combined Financial Statements ================================================================================
According to article 211 of the Ecuadorian Companies' Law, when losses reach 50% or more of the capital stock and reserves of each individual Company (Langomorro, Isca, Camazul), they must be placed into liquidation if the stockholders do not increase capital by means of fresh capital additions, capitalizing or compensating credits, and/or capitalizing fixed assets' reevaluations surplus. The Management of the Company estimates the causes for liquidation will be solved and overcome, and both the Company and the companies will continue to operate normally.
The current Internal Tax Law permits compensating the operational losses against the results of operations of each individual company during the following five years, not exceeding 25% of the earnings generated in each of these years.
0. Exchange rates The free market exchange rate in effect on June 30, 1997 and 1996 was S/.3.982 to US$ 1.00 (S/. 4,057 to US$ 1.00 on August 4, 1997) and S/.3.180 to US$1.00 (S/.3.118 to US$1.00 on August 1, 1996 respectively).
P. Sales The volumes of shrimp sold by the individual companies were as follows:
Volume Year ended June 30 - -------------------------------------------------------------------------------- Company 1997 1996 1997 1996 - --------------------------------------------------------------------------------
Langomorro, Langostinera El Morro Cia. Ltda. & Camazul Cia. Ltda. 568,957 199,557 US$ 1,775,719 US$ 1,056,255 Isca, Isla Camaronera C.A. 322,602 110,428 959,186 537,798 - --------------------------------------------------------------------------------
Total 891,559 309,985 US$ 2,734,905 US$ 1,594,053 ================================================================================
In 1997 and 1996 the 568,957 and 199,557 pounds of shrimp sold by Langomorro Cia. Ltda. were produced utilizing 393 hectares, resulting in a productivity of 1.448 and 508 pounds per hectare respectively in these years. The 322,602 and 110,428 pounds of shrimp sold by Isca C.A. were produced utilizing 149 hectares, resulting in a productivity of 2,165 and 741 pounds per hectare respectively in them years.
Langomorro, Langostinera El Morro Cia. Ltda. and Affiliated Companies Notes to Consolidated and Combined Financial Statements ================================================================================
Q. Related companies' transactions The Company has bought US$ 613,009 of shrimp larvae from Larfico, Larvas del Pacifico S.A. during the year ended June 30, 1997.
The Company has paid Romozzi for technical services, generating expenses of US$ 42,985 to June 30, 1997.
R. Income tax return The income tax returns of the Companies have been reviewed up to different periods, without important observations from the tax authorities, as shown below:
Companies Period Reviewed -------------------------------------------------------------------- Langostinera del Morro (Langomorro) 1994 Isla, Camaronera (Isca) 1994 Camazul 1994
S. Subsequent events o Between June 30, 1997 and August 4, 1997, date of issue of this report, no subsequent events have accrued that, in the opinion of the Company's management, could have an important effect on these financial statements.
o Long term liabilities were reclassified to short term in the financial statements of June 30, 1996, in order to make them comparable with those of 1997.
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